peix_8k-ex1002.htm


    EXHIBIT 10.2

      


       

      CONFIDENTIAL
- FOR DISCUSSION PURPOSES ONLY– NOT A COMMITMENT TO LEND

       

      ____________

       

      TERM
SHEET

       

      Pacific
Ethanol Holding Co. LLC and its debtor affiliates

       

      Debtor-in-Possession
Credit Facility

       

      The
terms and conditions summarized below are intended as a summary outline of a
financing commitment which is conditioned in all respects upon completion of due
diligence, negotiation of definitive documentation and final credit approval and
do not purport to summarize all of the conditions, covenants, representations,
warranties and other provisions which would be contained in definitive
documentation.1  No
DIP Lender (as defined herein) is under any obligation to make a loan or make
any commitment to lend and any such commitment would be subject to, among other
conditions, such DIP Lender obtaining any necessary authorizations and approvals
and negotiation and execution of definitive documentation in form and substance
satisfactory to such DIP Lender.  This document is delivered to you
with the understanding that neither it nor its substance shall be disclosed to
any third party. Any provision of financial accommodations under such
debtor-in-possession credit facility shall be further subject to the terms and
conditions and Bankruptcy Court approval as set forth below.

       

      Capitalized
terms not defined herein shall have the meaning ascribed to such terms in the
Credit Agreement dated as of February 27, 2007 (as amended, supplemented or
otherwise modified from time to time, the “Prepetition Credit
Agreement”), among Pacific Ethanol Holding Co. LLC (“Holding”), Pacific
Ethanol Madera LLC (“Madera”), Pacific
Ethanol Columbia, LLC (“Columbia”), Pacific
Ethanol Stockton, LLC (“Stockton”), Pacific
Ethanol Magic Valley, LLC (“Magic Valley”),
WestLB AG, New York Branch (“WestLB”), as
administrative agent and collateral agent (collectively, the “Prepetition Agent”),
Amarillo National Bank, as accounts bank (“Accounts Bank”), and
the lenders signatory thereto (the “Prepetition
Lenders”).

       

      I.           General
Terms

       

      
        	
                Borrowers:

              	
                Holding,
      Columbia, Madera, Stockton and Magic Valley, each of which will be a
      debtor and debtor-in-possession (in such capacity, each a “Borrower” and
      collectively, the “Borrowers”) in
      cases to be commenced in the United States Bankruptcy Court for the
      District of Delaware (the “Bankruptcy
      Court”) under chapter 11 (“Chapter 11”) of
      Title 11 of the United States Code (the “Bankruptcy
      Code”)  The cases of the Borrowers are each referred to
      as a “Chapter 11
      Case” and are collectively referred to as the “Chapter 11
      Cases”, and the date the cases are commenced is referred to as the
      “Petition
      Date”.  The obligations of the Borrowers under the DIP
      Facilities shall be joint and
several.

              


      

       

      
        	
                DIP
      Lender(s):

              	
                WestLB
      and together with any person who shall become a lender under the DIP
      Facility (collectively with WestLB, the “DIP
      Lenders”).

              


      

       

      
        	
                DIP
    Agent:

              	
                WestLB,
      in such capacity as DIP Agent.

              


      

       

      
        	
                DIP
      Facility:

              	
                The
      total senior secured first priority DIP facility (the “DIP Facility”)
      shall include: (x) Loans to be advanced and made available to the
      Borrowers (the “Advances”)
      under a revolving credit facility (the “DIP Revolving
      Loans”) in the aggregate maximum principal amount of $20.0 million
      (the “Revolving
      Commitment”) and (y) a 1:50:1.00 conversion of $30.0 million (the
      “Roll-Up
      Amount” and together with the Revolving Commitment, the “DIP
      Commitment”) in respect of outstanding term loans under the
      Prepetition Credit Facility beneficially owned by the DIP Lenders (or an
      affiliate) at the Closing Date (the “Roll-Up
      Loans”).   The Roll-Up Amount will be calculated on
      a basis of one and one-half dollars of Roll-Up Loans for each dollar of
      DIP Revolving Loans provided by the DIP
Lenders.

              


      

      
        _______________ 

        
          1 Note
that to the extent the terms of a consensual restructuring of the Borrowers are
agreed upon among the parties, the terms herein may be subject to
modification.

           

        

      

       

      
        
          Pacific
Ethanol DIP Credit Facility Term Sheet 5/17/09 

           

        

        
           

          
            

          

        

        
           

        

      

       

      An amount
of approximately $10.0 million (the “Interim Advance”) of
DIP Revolving Loans, approved by the Bankruptcy Court in the interim order (the
“Interim
Order”) and acceptable to the DIP Agent and the DIP Lenders, shall be
made available during the period from the date of entry of the Interim Order by
the Bankruptcy Court through the date of entry of the final order (the “Final Order” and
together with the Interim Order, the “DIP Orders”) by the
Bankruptcy Court approving the DIP Facility and the balance of which Revolving
Commitments shall be available after entry of the Final
Order.  Approximately $15.0 million of Roll-Up Loans shall convert
concurrently with the funding of the Interim Advance.  Pending the
entry of the Final Order, the DIP Agent and the DIP Lenders shall be afforded
all of the protections contained in the Interim Order, which order shall be in a
form and substance in all respects acceptable to the DIP Agent and the DIP
Lenders.

       

      The DIP
Commitment of each DIP Lender as of the entry date of the Interim Order will be
set forth on Annex
I hereto.

       

      
        	
                Use of
      Proceeds:

              	
                To
      fund (i) operating expenses, limited capital expenditures and other
      amounts for general corporate and ordinary course purposes of the
      Borrowers, all in accordance with the DIP Budget (as defined below),
      (ii) current interest and fees on the DIP Facility, and (iii) such
      other administrative payments, including the budgeted professional fees,
      as may be authorized and approved by the DIP Agent and the DIP Lenders
      under the DIP Orders or subsequent order of the Bankruptcy
      Court.

              


      

       

      No
portion of the DIP Facility, the DIP Collateral (as defined below), including
any cash collateral, or the Carve-Out (as defined below) is to be used to (i)
challenge the validity, perfection, priority, extent or enforceability of the
DIP Facility, the obligations under the Prepetition Credit Agreement (the “Prepetition
Obligations”), or the liens on or security interests in the assets of the
Borrowers securing the DIP Facility or the Prepetition Obligations or (ii)
assert any other claims against the DIP Agent, the DIP Lenders, the Prepetition
Lenders, or the Prepetition Agent; provided, however, nothing
herein shall be deemed to limit the use of the Advances in respect of any
determination under Section 506(a) of the Bankruptcy Code (a “Section 506(a)
Determination”).

       

      
        	
                Operating
      Budget:

              	
                The
      operating budget, subject to the approval of the DIP Agent and the DIP
      Lenders, to consist of the Borrowers’ estimated projected cash flow
      position on a rolling 13-week basis (the “DIP Budget”),
      commencing as of the Closing Date (as defined below).  Upon
      approval of DIP Agent and the DIP Lenders of the DIP Budget, any
      subsequent changes to the DIP Budget may be made only on approval of the
      DIP Agent and DIP Lenders holding a majority of the outstanding DIP
      Revolving Loans and DIP Commitments (the “Required DIP
      Lenders”).  The Borrowers will be allowed a 10% variance
      on the aggregate amounts set forth in the DIP Budget, measured on a
      rolling four-week basis.  DIP Budget shall include monthly
      reimbursement of the reasonable fees and expenses of the professionals of
      DIP Agent and DIP Lenders and the Prepetition
  Agent.

              


      

       

      
        	
                Maturity:

              	
                The
      Borrowers shall repay any outstanding advances and loans under the DIP
      Facility in full in immediately available funds on the Maturity Date, to
      be defined as the earliest of (i) six (6) months after the Closing Date;
      (ii) the date of acceleration of any outstanding Extensions of Credit (as
      defined below) under the DIP Facility; (iii) the first business day on
      which the Interim Order expires by its terms or is terminated, unless the
      Final Order shall have been entered and become effective prior thereto;
      (iv) conversion of any of the Chapter 11 Cases to a case under chapter 7
      of the Bankruptcy Code (“Chapter 7”)
      unless otherwise consented to in writing by the DIP Agent and the DIP
      Lenders; (v) dismissal of any of the Chapter 11 Cases unless otherwise
      consented to in writing by the DIP Agent and the DIP Lenders; and (vi) the
      effective date of any Borrower’s plan of reorganization confirmed in the
      Chapter 11 Cases.

              


      

       

      
        	
                Interest:

              	
                Interest
      shall be payable monthly in arrears in cash on the outstanding amount of
      the DIP Revolving Loans on the first business day of each month at a rate
      equal to LIBOR + 10 % per annum.  LIBOR shall be defined as the
      greater of (i) 4% per annum and (ii) the offered rate on the applicable
      page of the Telerate screen (or any successor thereto) that displays an
      average British Bankers Association Interest Rate Settlement Rate for
      deposits in U.S. Dollars and shall contain appropriate protection to
      ensure that such rate is not less than a DIP Lender’s cost of
      funds.

              


      

       

       

      
        
          Pacific
Ethanol DIP Credit Facility Term Sheet 5/17/09 

           

        

        
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        Interest
on the Roll-Up Loans shall accrue interest at the predefault rate applicable to
the base rate term loans under the Prepetition Credit
Agreement.

      

       

      
        	
                Default
      Interest:

              	
                Upon
      the occurrence and during the continuance of any event of default under
      the DIP Facility and at the election of the DIP Lenders, interest to be
      payable on all outstanding principal or any other obligation under the DIP
      Facility at 2.0% above the then applicable interest
  rate.

              


      

       

      
        	
                Closing
      Date:

              	
                A
      date on or before May 22, 2009 upon which all Conditions Precedent have
      been satisfied (the “Closing
      Date”).

              


      

       

      
        	
                Facility
      Fee:

              	
                A
      fee of 2.0% of the Revolving Commitment payable to the DIP Lenders on the
      Closing Date.

              


      

       

      
        	
                Structuring
      Fee:

              	
                A
      fee of 1.0% of the Revolving Commitment payable to the DIP Agent on the
      Closing Date.

              


      

       

      
        	
                Unused Commitment
      Fee:

              	
                A
      fee on the unused portion of the Revolving Commitment of 2.0% per annum,
      payable monthly.

              


      

       

      
        	
                II.

              	
                Additional
      Terms

              


      

       

      
        	
                Mandatory
      Prepayments:

              	
                Mandatory
      prepayments (including but not limited to net proceeds from Section 363
      asset sales of the Borrowers’ assets outside of the ordinary course of
      business, if any, approved by the DIP Agent and the DIP Lenders and
      authorized by the Bankruptcy Court and insurance proceeds received by any
      Borrower as a result of any casualty event) shall be used to prepay all
      amounts outstanding under the DIP Facility.  Unless agreed to
      otherwise by the DIP Lenders, prepayments of principal outstanding under
      the DIP Facility shall permanently reduce the DIP
    Commitment.

              


      

       

      Mandatory
prepayments shall be applied, first to the payment
of all costs, fees, expenses and indemnities then due and payable to the DIP
Lenders (including attorney’s and professional’s fees); second, to the
payment of any accrued and unpaid interest due and payable on the DIP Revolving
Loans pro rata among
the DIP Lenders (other than any DIP Lender that has defaulted on its obligations
to advance DIP Revolving Loans (a “Defaulting Lender”))
with respect to their respective outstanding principal amounts; third, to the
repayment of principal of DIP Revolving Loans (and permanent reduction of the
Revolving Commitments associated therewith) pro rata among the DIP
Lenders (other than the Defaulting Lenders) with respect to their respective
outstanding principal amounts until repaid in full; fourth, to the
payment of all accrued and unpaid interest then due and payable on the DIP
Revolving Loans pro
rata among the Defaulting Lenders based on their respective outstanding
principal amounts on the date of such prepayment; fifth, to the payment
of principal of DIP Revolving Loans pro rata among the Defaulting
Lenders based on their respective outstanding principal amounts on the date of
such prepayment; sixth, to the payment
of all accrued and unpaid interest due and payable on the Roll-Up Loans pro rata
among the DIP Lenders (other than the Defaulting Lenders); seventh, to the
payment of the principal of the Roll-Up Loans pro rata among the DIP
Lenders (other than the Defaulting Lenders) based on their respective
outstanding principal amounts on the date of such prepayment and a corresponding
reduction in the Roll-Up Loan Commitment; eighth, to the
payment of all accrued and unpaid interest then due and payable on the Roll-Up
Loans pro rata among
the Defaulting Lenders based on their respective outstanding principal amounts
on the date of such prepayment; and ninth, to the payment
of principal of the Roll-Up Loans pro rata among the Defaulting
Lenders based on their respective outstanding principal amounts on the date of
such prepayment.

       

       

      
        
          Pacific
Ethanol DIP Credit Facility Term Sheet 5/17/09 

           

        

        
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                Security:

              	
                All
      obligations of Borrowers under and with respect to the DIP Facility (the
      “DIP
      Obligations”) to enjoy superpriority administrative expense status
      under Section 364(c)(1) with priority over all other costs and expenses of
      the kinds specified in, or ordered pursuant to, Sections 105, 326, 328,
      330, 331, 503(b), 506(c), 507(a), 507(b), 726, 1113, 1114 or any other
      provisions of the Bankruptcy Code, subject to the
    Carve-Out.

              


      

       

      To secure
all of the DIP Obligations, DIP Agent, for the benefit of the DIP Lenders, to
receive, pursuant to Sections 364(c)(2), 364(c)(3) and 364(d)(1) of the
Bankruptcy Code, the DIP Orders and the definitive DIP Facility loan documents,
valid, enforceable, and fully perfected security interests in and liens upon all
prepetition and postpetition assets of the Borrowers, whether now existing or
hereafter acquired or arising (collectively, the “DIP Collateral”),
which liens shall have the priority set forth below.  DIP Collateral
to include all rights, claims and other causes of action of each Borrower’s
estate and any other avoidance actions under Chapter 5 of the Bankruptcy Code
and the proceeds thereof and property received thereby whether by judgment,
settlement or otherwise (collectively, “Avoidance
Actions”).

       

      “DIP
Collateral” shall also include any and all rents, issues, products, offspring,
proceeds and profits generated by any item of DIP Collateral, without the
necessity of any further action of any kind or nature by the DIP Lenders or the
DIP Agent in order to claim or perfect such rents, issues, products, offspring,
proceeds and/or profits.

       

      Liens and
security interests with respect to DIP Collateral (the “DIP Liens”) not to be
subject to challenge and to attach and become valid and perfected upon entry of
the Interim Order without the requirement of any further action by DIP Agent or
DIP Lenders.  DIP Collateral to be free and clear of other liens,
claims and encumbrances, except valid, perfected, enforceable and unavoidable
liens in existence as of the petition date, if any, and any other Permitted
Liens (as defined in the Prepetition Credit Agreement).

       

      The DIP
Liens granted to the DIP Lenders with respect to the Roll-Up Loans will be pari passu (on a pro rata
basis) to the DIP Liens granted to the DIP Lenders with respect to the DIP
Revolving Loans.

       

      As used
in this Term Sheet, the term “Carve-Out” shall mean
the sum of (i) the aggregate amount of any budgeted, accrued but unpaid,
professional fees and expenses existing as of the Carve-Out Date (as defined
below) of the Borrowers and of the Committee, which fees and expenses are
approved by the Bankruptcy Court and in compliance with the DIP Budget, plus (ii) those
professional fees and expenses of the Borrowers and the Committee incurred after
the Carve-Out Date and subsequently allowed by the Bankruptcy Court and in
compliance with the DIP Budget in an amount not to exceed $250,000 in the
aggregate, plus
(iii) all fees required to be paid to the Clerk of the Bankruptcy Court and to
the Office of the United States Trustee pursuant to 28 U.S.C. §
1930.  Prior to the Carve-Out Date, subject to entry of an appropriate
order of the Bankruptcy Court (in form and substance acceptable to the DIP Agent
and the DIP Lenders), the Borrowers shall be permitted to use Advances under the
DIP Facility to pay compensation and reimbursement of expenses allowed and
payable under sections 330 and 331 of the Bankruptcy Code in accordance with the
DIP Budget, and the Carve-Out shall not be reduced by the amount of any
compensation and reimbursement of expenses paid or incurred (to the extent
ultimately allowed by the Bankruptcy Court) prior to the occurrence of the
Carve-Out Date; provided, further that
following the Carve-Out Date, any amounts paid to professionals by any means
will reduce the Carve-Out on a dollar-for-dollar basis; and provided, further, that
nothing herein shall be construed to impair the ability of any party to object
to any of the fees, expenses, reimbursement, or compensation sought by the
professionals retained by the Borrowers or any statutory committee in the
Chapter 11 Cases.

       

      “Carve-Out Date” means
the date that is the earlier of any Borrower’s receipt of a notice of default
under the DIP Facility or the Maturity Date.

       

       

      
        
          Pacific
Ethanol DIP Credit Facility Term Sheet 5/17/09 

           

        

        
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      Neither
the Advances under the DIP Facility nor the Carve-Out may be used to challenge
the amount, validity, perfection, priority or enforceability of, or assert any
defense, counterclaim or offset to the DIP Facility or the Prepetition Credit
Agreement, or the security interests and liens securing the DIP Obligations or
the Prepetition Obligations with respect thereto or otherwise to litigate
against the DIP Agent, the DIP Lenders, the Prepetition Agent or the Prepetition
Lenders; provided, however, the
foregoing shall not apply to any Advances or Carve-Out that are used for
purposes of seeking a Section 506(a) Determination.  Notwithstanding
the foregoing, the Committee may spend up to an aggregate maximum of $15,000
under the DIP Facility and the Carve-Out to investigate potential claims arising
out of, or in connection with, the Prepetition Credit Agreement or the security
interests and liens securing the Prepetition Obligations.

       

      
        
        

      

      
        
          	      
                  Special Provisions for Roll-Up
      Loans:

                	      
                  The
      Roll-Up Loans may not be required to be repaid in cash on the Maturity
      Date.  Any repayment of a DIP Revolving Loan will not reduce the
      amount of outstanding Roll-Up Loans.  Upon the vote of the
      Roll-Up Loan class to accept a Chapter 11 Plan in accordance with section
      1126 of the Bankruptcy Code, the Borrowers’ plan of reorganization may
      require that Roll-Up Loans be refinanced or otherwise replaced with other
      securities or financial instruments with a present value equal to the
      accrued principal and interest due in respect of the Roll-Up Loans as of
      the effective date of the plan; provided that
      the relative lien position of the DIP Lenders under the DIP Revolving
      Loans in respect of the Roll-Up Loans is maintained, and provided
      further the relative lien position of the DIP Lenders under the
      Roll-Up Loans in respect of the Prepetition Obligations is
      maintained.  Upon conversion of the Roll-Up Loans in connection
      with the funding of the DIP Revolving Loans, the Roll-Up Loans shall cease
      to be indebtedness under the Prepetition Credit Agreement and shall be
      deemed DIP Obligations in all respects including for purposes of having
      the benefit of Section 364(e) of the Bankruptcy
    Code.

                
	 	 
	 	      
                  The
      Interim Order and the Final Order shall contain provisions prohibiting the
      Borrowers from incurring any indebtedness which (x) ranks pari passu with or
      senior to the loans under the DIP Facility or (y) benefits from a first or
      second priority lien under section 364 of the Bankruptcy
      Code.

                
	 	 
	
                  Adequate
      Protection:

                	
                  As
      adequate protection to the Prepetition Lenders for any diminution in the
      value of their interests in the Borrowers’ property resulting from (i) the
      priming liens granted in favor of the DIP Agent and the DIP Lenders under
      the DIP Facility pursuant to section 364(d)(1) of the Bankruptcy Code,
      (ii) the use, sale or lease of the Borrowers’ property (including any cash
      collateral) pursuant to section 363(c) of the Bankruptcy Code and (iii)
      the imposition of the automatic stay pursuant to section 362(a) of the
      Bankruptcy Code:

                


        

         

      

      (a) The
Prepetition Lenders will, subject to the terms of any DIP Order, maintain any of
their liens in existence on the Petition Date (the “Prepetition Liens”)
on the DIP Collateral, which liens shall be junior and subordinate to the DIP
Liens and the Carve-Out;

       

      (b) The
Prepetition Agent, on behalf of the Prepetition Lenders, shall be granted
replacement liens on, and security interests in, all of the DIP Collateral (the
“Lien Replacement
Liens”), which replacement liens shall be subject only to (1) the liens
on, and security interests in, the DIP Collateral granted to the DIP Agent and
the DIP Lenders under the DIP Facility and the DIP Orders, as the case may be,
(2) any Permitted Liens (as defined in the Prepetition Credit Agreement) and (3)
the Carve-Out;

       

       

      
        
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Ethanol DIP Credit Facility Term Sheet 5/17/09 

           

        

        
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      (c)
Pursuant to Section 507(b) of the Bankruptcy Code, the Prepetition Agent, on
behalf of the Prepetition Lenders, shall be granted an administrative claim with
priority over all administrative expense claims and unsecured claims against the
Borrowers (the “507(b)
Claim”), subject only to (1) the super-priority claims granted to the DIP
Agent and the DIP Lenders under the DIP Facility and the DIP Orders, as the case
may be, and (2) the Carve-Out; and

       

      (d) As
additional adequate protection, the Borrowers shall reimburse the Prepetition
Lenders on a monthly basis for the reasonable professional fees and expenses of
the Prepetition Agent otherwise permitted under the Prepetition Credit Agreement
arising (i) before the Petition Date and (ii) after the Petition Date to the
extent such amounts arise in connection with the enforcement of the protections
granted to the Prepetition Lenders pursuant to the DIP Orders; provided, however, if and to
the extent that any payment(s) is challenged by a party in interest under
section 506(b) of the Bankruptcy Code and ultimately not allowed under such
provision, such payment(s) may be recharacterized as a payment of principal on
the Prepetition Obligations.

       

      Notwithstanding
the foregoing, the Prepetition Agent and the Prepetition Lenders shall be
granted adequate protection as provided herein to the extent the Prepetition
Liens are valid, enforceable, perfected and non-avoidable.

       

      
        	      
                Representations and
      Warranties:

              	      
                The
      documentation for the DIP Facility and related collateral matters shall
      contain such representations and warranties as are customary for DIP loan
      transactions and investments of a similar size and nature consistent with
      the Prepetition Credit Agreement.

              
	 	 
	
                Financial
      Covenants:

              	
                Amounts
      disbursed pursuant to category of DIP Budget entitled “Asset Management
      Agreement” (excluding the line item entitled “Asset Management Fee”) in
      any monthly budget period not to exceed the amounts set forth in the line
      item therefor (excluding “Asset Management Fee”) in the Initial DIP Budget
      by more than ten percent (10%) for such monthly budget
    period.

              


      

       

      Professional
fees (other than fees and expenses of the advisors and consultants working on
behalf of the DIP Agent and DIP Lenders)  in any period of time
measured from the Petition Date not to exceed the amounts set forth in the line
item entitled “Total Professional Fees & Administrative Expenses” (excluding
“Legal Advisors – DIP Lenders” and “Financial Advisors – DIP Lenders”) for such
period of time in the Initial DIP Budget by more than three hundred thousand
Dollars ($e00,000).

       

      Amounts
disbursed pursuant to the category in the DIP Budget entitled “Operating
Disbursements” in any monthly budget period not exceed the amounts set forth in
the line item “Total Operating Disbursements” for such monthly budget period in
the then applicable DIP Budget by more than ten percent (10%).

       

      
        	
                Negative
      Covenants:

              	
                The
      documentation for the DIP Facility shall contain negative covenants of
      each Borrower customary for DIP loan transactions and investments of a
      similar size and nature consistent with the Prepetition Credit
      Agreement.

              


      

       

       

      
        
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Ethanol DIP Credit Facility Term Sheet 5/17/09 

           

        

        
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                Affirmative
      Covenants:

              	
                The
      documentation for the DIP Facility shall include affirmative covenants of
      each Borrower, customary for DIP loan transactions and investments of a
      similar size and nature consistent with the Prepetition Credit Agreement,
      including, but not limited to, covenants requiring each
      Borrower:

              


      

       

      
      

      
        
          	
                   
      

                	
                  1.

                	
                  To
      provide or cause to be provided to the DIP Agent and the DIP Lenders with
      a weekly line-by-line variance report comparing actual cash receipts and
      disbursements on a consolidated basis to amounts projected in the DIP
      Budget and a weekly reconciliation report which compares the actual cash
      flow results (receipts and disbursements) against the prior week’s cash
      flow projections (receipts and disbursements), indicating the cumulative
      percentage variance, if any, of actual results versus projections for such
      week as set forth therein, together with management’s explanation for such
      variance; such variance not to exceed 10% in the aggregate;
      and

                


        

         

        
          	
                   
      

                	
                  2.

                	
                  To
      comply at all times with the DIP Budget (subject  to expense
      variances no greater than 10% in the
aggregate).

                


        

         

        
          	
                   
      

                	
                  3.

                	
                  To
      maintain its existence and take all necessary and appropriate actions to
      preserve all assets of such Borrower (except as contemplated by the
      documentation for the DIP Facility.

                


        

         

      

      
        	
                Events
      of Default:

              	
                The
      DIP Facility shall include Events of Default customary for DIP loan
      transactions and investments of a similar size and nature consistent with
      the Prepetition Credit Agreement, including, but not limited
      to:

              


      

       

      
        
          	
                   
      

                	
                  1.

                	
                  The
      use of proceeds inconsistent with the DIP Budget,
    including;

                


        

         

        
          	
                   
      

                	
                  2.

                	
                  The
      payment of claims existing prior to the Petition Date or prior to a
      confirmed plan of reorganization (other than as set forth in the DIP
      Budget or payment is approved by the DIP Agent and authorized by an Order
      of the Court);

                


        

         

        
          	
                   
      

                	
                  3.

                	
                  The
      Asset Management Agreement shall be terminated because of a breach by
      Pacific Ethanol, Inc. (“PEI”);

                


        

         

        
          	
                   
      

                	
                  4.

                	
                  Dismissal
      or conversion to Chapter 7 of any of the Chapter 11 Cases without the
      written consent of the DIP Agent and the DIP Lenders or the appointment of
      a trustee or examiner in any of the Chapter 11 Cases with any powers to
      operate or manage the financial affairs of any
  Borrower;

                


        

         

        
          	
                   
      

                	
                  5.

                	
                  The
      entry of a final order that, in the sole determination of the DIP Agent
      and the DIP Lenders, in any way modifies, stays, reverses, or vacates the
      DIP Orders or the DIP Facility in each case in a manner adverse to the DIP
      Agent and the DIP Lenders without the written consent of DIP Agent and the
      DIP Lenders or either of the DIP Orders or the DIP Facility ceases to be
      in full force and effect;

                


        

         

         

        
          
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                  6.

                	
                  The
      entry of the Interim Order shall not have occurred within 10 days after
      the Petition Date;

                


        

         

        
          	
                   
      

                	
                  7.

                	
                  The
      entry of the Final Order shall not have occurred within 45 days after the
      date of entry of the Interim Order;

                


        

         

        
          	
                   
      

                	
                  8.

                	
                  Any
      Borrower petitions the Bankruptcy Court to obtain additional financing
      pari passu or
      senior to DIP Facility;

                


        

         

        
          	
                   
      

                	
                  9.

                	
                  The
      entry of an order granting any other super-priority claim or lien equal or
      superior to that granted to the DIP Agent or the DIP Lenders on the assets
      of the Borrowers;

                


        

         

        
          	
                   
      

                	
                  10.

                	
                  The
      entry of an order granting relief from the automatic stay so as to allow a
      third party to proceed against any material assets of the
      Borrowers;

                


        

         

        
          	
                   
      

                	
                  11.

                	
                  The
      entry of any order of the Bankruptcy Court confirming any plan of
      reorganization that does not contain a provision for termination of the
      DIP Facility and repayment in full in cash of all of the DIP Obligations
      under the DIP Facility on or before the effective date of such
      plan;

                


        

         

        
          	
                   
      

                	
                  12.

                	
                  Any
      Borrower violates or breaches the any DIP Order or files any pleadings
      seeking, joining in, or otherwise consenting to any violation or breach of
      any DIP Order in each case in a manner adverse to the DIP Agent and the
      DIP Lenders in the sole determination of the DIP Agent and the DIP
      Lenders;

                


        

         

        
          	
                   
      

                	
                  13.

                	
                  (A)
      The Borrowers engage in or support any challenge to the validity,
      perfection, priority, extent or enforceability of the DIP Facility or the
      Prepetition Obligations or the liens on or security interests in the
      assets of the Borrowers securing the DIP Facility or the Prepetition
      Obligations, including without limitation seeking to equitably subordinate
      or avoid the liens securing the Prepetition Obligations, or (B) the
      Borrowers engage in or support any investigation or their assertion of any
      claims or causes of action (or supporting the assertion of the same)
      against the DIP Agent, the DIP Lenders, the Prepetition Agent or the
      Prepetition Lenders; provided, however, it
      shall not constitute an Event of Default if the Borrowers provides basic
      loan information with respect to the Prepetition Obligations to a party in
      interest or is compelled to provide information by an Order of the Court
      and provides prior written notice to the DIP Agent and the DIP Lenders of
      the intention or requirement to do
so;

                


        

         

        
          	
                   
      

                	
                  14.

                	
                  Any
      person shall seek a Section 506(a) Determination with respect to the
      Prepetition Obligations that is unacceptable to the Prepetition Agent and
      the Prepetition Lenders;

                


        

         

         

        
          
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                  15.

                	
                  The
      allowance of any claim or claims under Section 506(c) or 552(b) of the
      Bankruptcy Code against or with respect to any of the collateral securing
      the DIP Facility;

                


        

         

        
          	
                   
      

                	
                  16.

                	
                  The
      entry of an order extending any exclusive right that any of the Borrowers
      may have to propose a plan that is more than 120 days after the Petition
      Date, or to solicit votes or to seek confirmation of plan on a date more
      than 180 days after the Petition Date, in either case without the written
      consent of the DIP Agent and the DIP
Lenders;

                


        

         

        
          	
                   
      

                	
                  17.

                	
                  The
      use of cash collateral other than as expressly contemplated by the DIP
      Orders and the DIP Budget prior to the indefeasible payment in full of the
      DIP Obligations and termination of the DIP Commitments
      thereunder;

                


        

         

        
          	
                   
      

                	
                  18.

                	
                  The
      consummation of the sale of any material portion of the Borrowers’ assets
      unless consented to by the DIP Agent and the DIP Lenders;
    and

                


        

         

        
          	
                   
      

                	
                  19.

                	
                  Breach
      of any covenants or representations and warranties in the DIP financing
      documents or the DIP Orders, including without limitation, failure to make
      any Mandatory Prepayments.

                


        

         

      

      
        	
                Remedies
      On Default:

              	
                The
      DIP Orders and the DIP Facility loan documentation to provide that, upon
      the occurrence and during the continuation of an Event of Default under
      the DIP Facility, the DIP Agent, at the direction of the DIP Lenders,
      shall have customary remedies, including, without limitation, the
      automatic stay under section 362 of the Bankruptcy Code shall be deemed
      automatically terminated without further order of the Bankruptcy Court and
      without the need for filing any motion for relief from the automatic stay
      or any other pleading, to: (i) declare the principal of and accrued
      interest on the outstanding borrowings to be immediately due and payable,
      (ii) accelerate the DIP Obligations and terminate, as applicable, any
      further commitment to lend to the Borrowers, and (iii) charge the default
      rate of interest on the DIP
Facility.

              


      

       

      In
addition, upon three business days’ written notice (the “Notice Period”) to
the Borrowers and counsel to any official committees and the Office of the U.S.
Trustee, the automatic stay shall be deemed automatically terminated, without
further order of the Bankruptcy Court and without the need for filing any motion
for relief from the automatic stay or any other pleading, to permit the DIP
Agent to realize on all Collateral and to exercise any and all remedies under
the DIP Orders and the DIP Facility with respect to the Collateral or any part
thereof and to set off or seize amounts in any accounts maintained with or under
the control of the DIP Agent or any DIP Lender; provided, however, during the
Notice Period, Borrowers and/or the Committee may seek relief from the
Bankruptcy Court to re-impose or continue the automatic stay; provided, further, in any
hearing after the giving of the aforementioned notice, the only issue that may
be raised by any party in opposition thereto being whether, in fact, an Event of
Default has occurred and is continuing.

       

       

      
        
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                Voting:

              	
                Matters
      requiring the approval of the DIP Lenders, including amendments and
      waivers of the definitive credit documentation, will require the approval
      of the DIP Lenders holding, in the aggregate, greater than 50% of the
      outstanding loan exposure (balances and commitments) under the DIP
      Facility, subject to exceptions to be set forth in the definitive credit
      documentation.

              


      

       

       

      III.           Other
Terms

       

      
        	
                Conditions
      Precedent:

              	
                The
      closing and the making of any Interim Advance shall be subject to various
      conditions precedent customary for DIP loan transactions and investments
      of a similar size and nature consistent with the Prepetition Credit
      Agreement, including but not limited
to:

              


      

       

      
        
          	
                   
      

                	
                  1.

                	
                  Satisfactory
      completion of legal and collateral due diligence and transaction
      structuring, including due diligence concerning the Borrowers’ bankruptcy
      process and the receipt of all required court approvals for the DIP
      Facility;

                


        

         

        
          	
                   
      

                	
                  2.

                	
                  Execution
      of definitive agreements, instruments, and documents related to the DIP
      Facility (including, without limitation, the DIP Orders), each
      satisfactory in form and substance to the DIP Lenders in their sole and
      absolute discretion, including a satisfactory cash management system
      consistent with the existing cash management system and subject to the
      existing tri-party account control
agreements;

                


        

         

        
          	
                   
      

                	
                  3.

                	
                  Delivery
      of the DIP Budget approved by the DIP Lenders and to be attached to the
      Interim Order and the Final Order entered by the Bankruptcy
      Court;

                


        

         

        
          	
                   
      

                	
                  4.

                	
                  Entry
      of the Final Order or Interim Order, as the case may be, by the Bankruptcy
      Court, after notice given and a hearing conducted in accordance with Rule
      4001(c) of the Federal Rules of Bankruptcy Procedure (and any applicable
      local bankruptcy rules), authorizing and approving the transactions
      contemplated by the documents evidencing the DIP Facility and finding that
      the DIP Lenders are extending credit to the Borrowers in good faith within
      the meaning of Bankruptcy Code section 364(e) and containing the
      terms provided in the Section entitled “DIP Orders”
  herein;

                


        

         

        
          	
                   
      

                	
                  5.

                	
                  All
      of the “first day orders” shall have been entered at the commencement of
      the Borrowers’ Chapter 11 Cases and shall be in form and substance
      reasonably satisfactory to the DIP Agent and the DIP
    Lenders.

                


        

         

        
          	
                   
      

                	
                  6.

                	
                  Reimbursement
      in full in cash of the fees, costs and expenses of the DIP Agent, the DIP
      Lenders and the Prepetition Agent;
and

                


        

         

        
          	
                   
      

                	
                  7.

                	
                  No
      litigation commenced which has not been stayed by the Bankruptcy Court and
      which, if successful, would have a material adverse impact on any
      Borrower, its business or ability to repay the DIP Facility, or which
      would challenge the transactions under
  consideration.

                


        

         

         

        
          
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            -10-

            
              

            

          

          
             

          

        

         

        
          	
                   
      

                	
                  8.

                	
                  PEI
      and the Borrowers will enter into an Asset Management Agreement (the
      “Asset
      Management Agreement”) in a form acceptable to the DIP
      Agent.

                


        

         

      

      
        The
documents evidencing the DIP Facility shall contain the following conditions
precedent to each Advance (collectively, “Extensions of
Credit”):

         

        (i)                 No
Default or Event of Default shall have occurred and be continuing;

         

        (ii)                 Representations
and warranties shall be true and correct as of the date of each Extension of
Credit;

         

        (iii)                 (A)
The Interim Order shall be in full force and effect or (B) if (x) the date of
such requested Extension of Credit is more than 45 days after the Closing Date
or (y) the amount of such requested Extension of Credit, together with the
amount of all Extensions of Credit then outstanding, shall exceed the maximum
amount authorized pursuant to the Interim Order, the Final Order shall have been
entered, which Final Order shall be in form and substance satisfactory to the
DIP Agent and the DIP Lenders, and shall be in full force and effect and shall
not have been appealed, stayed, reversed, vacated or otherwise modified in a
manner adverse to the DIP Agent and the DIP Lenders;

         

        (iv)                 Receipt
by the DIP Agent and the DIP Lenders of a borrowing request in the form to be
set out in the documents evidencing the DIP Facility executed by each
Borrower.  The Borrowers’ request for each Extension of Credit shall
constitute a representation and warranty that the conditions to the making of
such Extension of Credit shall have been satisfied; and

         

        (v)                 Payment
of all fees and other amounts then due and payable.

         

      

       

      
        	
                DIP
      Orders:

              	
                The
      DIP Orders shall be in form and substance reasonably acceptable in all
      respects to DIP Agent and DIP Lenders and to include, without limitation,
      provisions (i) approving in all respects the definitive documentation
      evidencing the DIP Facility, and authorizing and directing the Borrowers
      to execute and become bound by such definitive documentation; (ii)
      modifying the automatic stay to the extent necessary to permit or
      effectuate the terms of the DIP Orders and documents evidencing the DIP
      Facility, including, without limitation, to permit the creation and
      perfection of the DIP Agent’s liens on the DIP Collateral; (iii) providing
      for the automatic relief of such stay to permit the enforcement of DIP
      Agent’s and the DIP Lenders’ remedies under the DIP Facility, subject to
      the right of the Borrowers and/or the Committee to re-impose or continue
      the automatic stay; and (iv) providing that the Borrowers acknowledge (a)
      the validity and enforceability of the Prepetition Obligations, without
      defense, offset or counterclaim of any kind, (b) the validity, perfection
      and priority of the liens securing the Prepetition Obligations, and that
      the Borrowers waive any right to challenge or contest such claims and
      liens and (c) that they have no valid claims or causes of action, whether
      based in contract, tort or otherwise against the Prepetition Agent or any
      Prepetition Lender with respect to the Prepetition Credit Agreement or the
      related documents or transactions.

              


      

       

       

      
        
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                Expenses:

              	
                All
      reasonable out-of-pocket fees, costs and expenses of the DIP Agent, the
      DIP Lenders, the Prepetition Agent and the Prepetition
      Lenders  (including, without limitation, reasonable
      out-of-pocket prepetition and postpetition fees, costs, expenses and
      disbursements of legal counsel, financial advisors and third-party
      appraisers, advisors and consultants advising the DIP Agent, the DIP
      Lenders, the Prepetition Agent and the Prepetition Lenders) to be payable
      by the Borrowers under the DIP Facility on demand whether or not the
      transactions contemplated hereby are consummated; provided, however, the
      Borrowers shall only be required to pay to the Prepetition Agent and the
      Prepetition Lenders such amounts that have accrued and are outstanding on
      or prior to the Petition Date, except as otherwise permitted in the
      Interim Order.

              


      

       

      
        	
                Termination:

              	
                Upon
      the occurrence of an Event of Default, the DIP Lenders may terminate the
      DIP Commitments, declare the DIP Obligations to be immediately due and
      payable and exercise all rights and remedies under the documents
      evidencing the DIP Facility and the DIP Orders, as
    applicable.

              


      

       

      
        	
                Indemnification:

              	
                Borrowers
      shall agree to indemnify and hold harmless the DIP Agent and the DIP
      Lenders and each of their respective affiliates and each of their
      respective officers, directors, employees, agents, advisors and
      representatives (each, an “Indemnified
      Party”) from and against any and all claims, damages, losses,
      liabilities and expenses (including, without limitation, fees and
      disbursements of counsel), that may be incurred by or asserted or awarded
      against any Indemnified Party (including, without limitation, in
      connection with any investigation, litigation or proceeding or the
      preparation of a defense in connection therewith), arising out of or in
      connection with or by reason of the transactions contemplated hereby,
      except to the extent arising from an Indemnified Party’s gross negligence
      or willful misconduct.  In the case of an investigation,
      litigation or other proceeding to which the indemnity in this paragraph
      applies, such indemnity shall be effective whether or not such
      investigation, litigation or proceeding is brought by any of the
      Borrowers, any of their respective directors, security holders or
      creditors, an Indemnified Party or any other person or an Indemnified
      Party is otherwise a party thereto and whether or not the transactions
      contemplated hereby are
consummated.

              


      

       

      
        	
                Confidentiality:

              	
                Except
      as required by law or in connection with the implementation of this Term
      Sheet, the terms hereof will be kept strictly confidential by each of the
      Borrowers and may only be disclosed to such Borrower’s affiliates, legal
      counsel, financial advisors, financing sources and consultants who have
      been informed of, and agree to abide by, the confidentiality of this Term
      Sheet.  To the extent that any disclosure becomes legally
      required, the DIP Agent and the DIP Lenders shall be notified promptly and
      before the required disclosure is
made.

              


      

       

      
        	
                Governing
      Law:

              	
                New
      York law except as governed by the Bankruptcy
  Code.

              


      

       

      
        	
                Miscellaneous:

              	
                This
      summary of terms and conditions does not purport to summarize all of the
      conditions, covenants, representations, warranties and other provisions
      which would be contained in definitive credit documentation for the DIP
      Facility contemplated hereby, all of which shall be acceptable to the DIP
      Agent and the DIP Lenders.

              


      

       


      
        
          
             

          

          Pacific
Ethanol DIP Credit Facility Term Sheet 5/17/09 

           


        

        
          -12-

          
            

          

        

        
           


        

      


      ANNEX I

       

      Commitments

       

      
        	
                REVOLVING
      LENDER

              	
                REVOLVING
      LOAN 
COMMITMENT

              	
                ROLL
      UP LOAN 
COMMITMENT

              
	 	 	 
	
                WestLB
      AG, New York Branch

              	
                $1,485,606.38

              	
                $2,228,409.53

              
	 	 	 
	
                Amarillo
      National Bank

              	
                $805,589.60

              	
                $1,208,384.41

              
	 	 	 
	
                CIFC
      Funding 2007-III Ltd.;

                CIFC
      Funding 2007-IV, Ltd.

              	
                $1,044,473.15

              	
                $1,566,709.73

              
	 	 	 
	
                CIT
      Capital USA Inc.

              	
                $3,300,137.73

              	
                $4,950,206.60

              
	 	 	 
	
                Credit
      Suisse Candlewood Special Situations Master Fund, Ltd.

              	
                $4,864,148.59

              	
                $7,296,222.89

              
	 	 	 
	
                Coöperatieve
      Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank

                Nederland,”
      New York Branch

              	
                $1,989,529.19

              	
                $2,984,293.78

              
	 	 	 
	
                Metropolitan
      Life Insurance Company

              	
                $1,701,944.26

              	
                $2,552,916.40

              
	 	 	 
	
                Norddeutsche
      Landesbank Girozentrale New York Branch and/or Cayman Island
      Branch

              	
                $1,871,279,73

              	
                $2,806,919.60

              
	 	 	 
	
                GreenStone
      Farm Credit Services, ACA/FLCA

              	
                $547,061.33

              	
                $820,591.99

              
	 	 	 
	
                Nordkap
      Bank AG

              	
                $1,588,972.09

              	
                $2,383,458.14

              
	 	 	 
	
                Northwest
      Farm Credit Services, FLCA

              	
                $547,061.33

              	
                $820,591.99

              
	 	 	 
	
                ShoreBank
      Pacific

              	
                $254,196.62

              	
                $381,294.94

              
	 	 	 
	
                Total  
      

              	
                $20,000,000.00

              	
                $30,000,000.00

              


      

      


       

      Pacific
Ethanol DIP Credit Facility Term
Sheet 5/17/09 

         

         

         

        -13-