pacificeth_8k-ex1002.htm


    Exhibit
10.2

     

    LIMITED
WAIVER AND FORBEARANCE AGREEMENT

    


     

    THIS
LIMITED WAIVER AND FORBEARANCE AGREEMENT (this “Agreement”) is entered into as
of February 17, 2009, by and among Pacific Ethanol Holding Co. LLC (“Holding”), Pacific Ethanol
Madera LLC (“Madera”),
Pacific Ethanol Columbia, LLC (“Columbia”), Pacific Ethanol
Stockton, LLC (“Stockton”) and Pacific Ethanol
Magic Valley, LLC (“Magic
Valley” and together with Holding, Madera, Columbia and Stockton, the
“Borrowers”), WestLB AG,
New York Branch, as administrative agent for the Lenders (in such capacity, the
“Administrative Agent”),
WestLB AG New York Branch, as collateral agent for the Senior Secured Parties
(in such capacity, the “Collateral Agent” and,
collectively with the Administrative Agent, the “Agent”) and Amarillo National
Bank, as accounts bank for the Lenders (the “Accounts Bank”), as parties to
the Credit Agreement (defined below).  Capitalized terms used in this
Agreement which are not otherwise defined herein, shall have the meanings given
such terms in the Credit Agreement.

     

    RECITALS:

     

    WHEREAS,
the Borrowers, Administrative Agent, Collateral Agent, Accounts Bank and the
lenders party thereto from time to time are parties to that certain Credit
Agreement dated as of February 27, 2007 (as amended by that certain Successor
Accounts Bank and Amendment Agreement dated as of August 27, 2007, as further
amended by that certain Waiver and Third Amendment to Credit Agreement dated as
of March 25, 2008, as further amended by that certain Fourth Amendment to Credit
Agreement dated as of April 24, 2008, as further amended by that certain Fifth
Amendment to Credit Agreement dated as of October 24, 2008 and as further
amended by that certain Sixth Amendment to Credit Agreement dated as of December
30, 2008, the “Credit
Agreement”);

     

    WHEREAS,
the Defaults and Events of Default set forth on Schedule I attached
hereto have occurred and are continuing under the Credit Agreement
(collectively, the “Existing
Events of Default”);

     

    WHEREAS,
the Borrowers have advised Administrative Agent that, in the future, it may not
be in compliance with certain provisions of the Credit Agreement which would
give rise to the events of default set forth on Schedule II attached
hereto (collectively the “Anticipated
Defaults”);

     

    WHEREAS,
as a result of the occurrence of the Existing Events of Default and pursuant to
the Credit Agreement and other Financing Documents, (i) the Senior Secured
Parties are under no further obligation to make Loans or other financial
accommodations to Borrowers under the Credit Agreement and (ii) the Agent and
the Senior Secured Parties are entitled, among other things, to enforce their
rights and remedies against the Borrowers and the Collateral, including, without
limitation, accrual of default interest, the right to accelerate and immediately
demand payment in full of the Obligations and foreclose on the
Collateral;

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
the Borrowers have requested that the Senior Secured Parties waive the
provisions set forth in Sections 6.07(h),
6.08, and 8.05, solely to
permit the Borrowers (i) to withdraw the funds otherwise required to be reserved
in the Stockton Construction Account and (ii) use such funds, pursuant to and in
accordance with the Initial 13-Week Cash Flow Forecast (as hereinafter defined)
attached hereto as Exhibit 1 (the “Limited
Waivers”);

     

    WHEREAS,
the Borrowers have requested that the Agent and the Senior Secured Parties agree
and, subject to the terms and conditions of this Agreement, the Agent and the
Senior Secured Parties have agreed, to forbear from demanding immediate payment
of certain amounts and exercising their right to foreclose on any or all of the
Collateral from the date hereof through the earliest to occur of (i) February
27, 2009; (ii) the date of termination of the Forbearance Period pursuant to
Section 6
hereof; and (iii) the date on which all of the Obligations have been paid in
full and the Credit Agreement has been terminated (the “Forbearance Period”) and to
provide the Limited Waivers subject to the terms and conditions set forth
herein;

     

    NOW,
THEREFORE, in consideration of the premises set forth above, the terms and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers, the
Agent and Senior Secured Parties hereby agree as follows:

     

    1.  Incorporation
of Preliminary Statements.  The preliminary statements set
forth above are hereby incorporated into this Agreement as accurate and complete
statements of fact.  Without limiting the foregoing, each Borrower
hereby acknowledges and agrees that (a) the Existing Events of Default have
occurred and are continuing under the terms of the Credit Agreement, and none of
the Borrowers has any disputes, defenses or counterclaims of any kind with
respect thereto; (b) the Senior Secured Parties are under no obligation to make
Loans or other financial accommodations to the Borrowers under the Credit
Agreement; (c) the Agent, on behalf of the Senior Secured Parties has, and shall
continue to have, valid, enforceable and perfected security interests in and
liens upon the Collateral heretofore granted by Borrowers to the Collateral
Agent and Senior Secured Parties pursuant to the Financing Agreements or
otherwise granted to or held by the Collateral Agent or the Senior Secured
Parties; (d) absent the effectiveness of this Agreement, the Agent and Senior
Secured Parties have the right to immediately enforce their security interest
in, and liens on, the Collateral; and (e) the outstanding Loans and all
other  Obligations are payable pursuant to the Credit Agreement,
without defense, dispute, offset, withholding, recoupment, counterclaim or
deduction of any kind.

     

    2.  Forbearance.

     

    (a)    
Each Borrower agrees and acknowledges that the Existing Events of Default set
forth on Schedule
I have occurred and are continuing.

     

    (b)     Each
Borrower has advised the Agent that the Borrower will likely not be in
compliance with certain provisions of the Credit Agreement which would give rise
to the Anticipated Defaults set forth on Schedule
II.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (c)    
Each Borrower hereby agrees and acknowledges that (i) Schedule I represents
a complete and accurate list of all Existing Events of Default which are in
existence as of the Effective Date (as hereinafter defined); and (ii) Schedule II
represents a complete and accurate list of all provisions in the Credit
Agreement which it reasonably believes may give rise to an Anticipated
Default.

    


    (d)    
Provided that no Forbearance Default (as defined below) occurs, subject to the
terms and conditions of this Agreement and satisfaction of the conditions
precedent to the effectiveness of this Agreement set forth in Section 4 below,
during the Forbearance Period, the Agent and the Senior Secured Parties hereby
forbear from exercising, on account of the Existing Events of Default and
Anticipated Defaults, those rights and remedies afforded to them under the
Credit Agreement, the other Financing Documents and applicable law.

    


    3.  Limited
Waiver.   Subject to the terms and condition of this
Agreement and satisfaction of the conditions precedent set forth in Section 4, the Agent
and Senior Secured Parties hereby grant the Limited Waivers.  The
Agent and Senior Secured Parties agree that the Limited Waivers set forth in
this Section shall be limited precisely as written and, except as set forth in
this Agreement, shall not be deemed to be a consent to any amendment, waiver or
modification of any other term or condition of the Credit Agreement or any other
Financing Document.

     

    4.  Conditions
of Effectiveness of this Agreement.   This Agreement shall
become effective as of the date hereof (the “Effective Date”) when, and
only when:

     

    (a)    
The Agent shall have received counterparts of this Agreement duly executed and
delivered by the Borrowers and the Accounts Bank;

     

    (b)    
The Agent shall have received the Initial 13-Week Cash Flow Forecast and 52-Week
Cash Flow Forecast, each in a format acceptable to the Agent;

     

    (c)    
The Agent shall have received an agreement, in form and substance satisfactory
to the Agent, pursuant to which Wachovia, as agent, and the other lenders have
agreed to forbear from exercising their rights against Pacific Ethanol Inc.
(“PEI”) and Kinergy
Marketing, LLC (“Kinergy”) pursuant to the
terms of their financing arrangements with PEI and Kinergy for such forbearance
period and such forbearance shall be in full force and effect;

     

    (d)    
All of the representations and warranties of the Borrowers contained in this
Agreement shall be true and correct on and as of the Effective Date (unless
stated to relate solely to an earlier date, in which case such representations
and warranties shall be true and correct as of such earlier date);
and

     

    (e)    
The Agent shall have received payment in full of all fees and expenses due and
payable in accordance with the terms of this Agreement and the Credit Agreement
(including reasonable and documented legal fees and expenses of the Agent’s
counsel and other advisors).

     

    5.  Representations
and Warranties.  To induce the Agent and the Senior Secured
Parties to enter into this Agreement, each Borrower represents and warrants to
the Agent and the Senior Secured Parties (which representations and warranties
shall be made on and as of the Effective Date):

     

    
      
        
        

      

      
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    (a)    
Such Borrower has the requisite corporate power and authority and the legal
right to execute and deliver this Agreement, and to perform the transactions
contemplated hereby.  The execution, delivery and performance by such
Borrower of this Agreement, (i) are within the Borrower’s corporate power; (ii)
have been duly authorized by all necessary corporate or other action; (iii) do
not contravene or cause the Borrower or any other Loan Party to be in default
under (x) any provision of the Borrower’s or other Loan Party’s formation
documents or bylaws, (y) any contractual restriction contained in any indenture,
loan or credit agreement, lease, mortgage, security agreement, bond, note or
other agreement or instrument binding on or affecting the Borrower or other Loan
Party or its property, or (z) any law, rule, regulation, order, license
requirement, writ, judgment, award, injunction, or decree applicable to, binding
on or affecting the Borrower or other Loan Party or its property; (iv) will not
result in the creation or imposition of any Lien upon any of the property of the
Borrower or other Loan Party or any Subsidiary thereof other than those in favor
of the Agent or any Senior Secured Party, all pursuant to the Financing
Documents; and (e) do not require the consent or approval of any Governmental
Authority or any other Person, other than those which have been duly obtained,
made or complied with and which are in full force and effect.

     

    (b)    
This Agreement has been duly executed and delivered by such
Borrower.  Each of this Agreement, the Credit Agreement (as modified
herein) and the Financing Documents (as modified hereby) to which each Borrower
is a party is the legal, valid and binding obligation of such Borrower,
enforceable against such Borrower in accordance with its terms, subject, as to
enforceability, to (A) any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the enforceability of creditors’ rights generally and (B) general
equitable principles, whether applied in a proceeding at law or in equity, and
is in full force and effect.

     

    (c)    
Except as to those representations and warranties now made inconsistent with the
terms of this Agreement or which constitute an Existing Event of Default or an
Anticipated Default, the representations and warranties of each Borrower and
Loan Party contained in each Financing and Project Document (other than any such
representations or warranties that, by their terms, are specifically made as of
a date other than the date hereof) are true and correct in all material respects
on and as of the date hereof as though made on and as of the date
hereof.

     

    (d)    
No Default or Event of Default under the Credit Agreement arising other than as
a result of the Existing Events of Defaults or the Anticipated Defaults shall
have occurred and be continuing or would result after giving effect to any of
the transactions contemplated on the date hereof.

     

    (e)    
No Forbearance Default (defined below) has occurred.

     

    6.  Forbearance
Defaults:  The following events shall constitute “Forbearance
Defaults”):

     

    (a)    
any failure to pay monthly principal payments, interest payments or any other
payments in accordance with the terms of the Credit Agreement;
or

     

    
      
        
        

      

      
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    (b)    
any Borrower or Loan Party shall fail to observe or perform any other term,
covenant, or agreement binding on it contained in this Agreement, or any other
agreement, instrument, or document executed in connection with this Agreement;
or

    


    (c)    
the occurrence of an Event of Default under the Credit Agreement or any of the
other Financing Documents or any Project Document, other than an Existing Event
of Default or an Anticipated Default; or

    


    (d)    
any instrument, document, report, schedule, agreement, representation or
warranty, oral or written, made or delivered to the Agent or any Senior Secured
Parties by any  Borrower or Loan Party shall be false or misleading in
any material respect when made, or deemed made, or delivered.

    


    Upon the
occurrence of any Forbearance Default, the Agent, upon the direction of the
Required Senior Secured Parties, may by notice to Borrowers immediately
terminate the Forbearance Period and/or declare all of the Obligations
immediately due and payable; provided, however, that upon
the occurrence of any Event of Default described in Section 9.01(i) of the
Credit Agreement, the Forbearance Period shall automatically terminate and all
Obligations shall automatically become immediately due and payable, without
notice or demand of any kind.  Upon the termination or expiration of
the Forbearance Period, if at such time the outstanding amount of the
Obligations have not been paid in full, the Agent and the Senior Secured Parties
shall be entitled to exercise all of their rights and remedies under the Credit
Agreement, the other Financing Documents and applicable law, including, without
limitation, the right to declare all of the Obligations to be immediately due
and payable and to enforce their liens on, and security interests in, the
Collateral.  The occurrence of any Forbearance Default shall
constitute an Event of Default under the Credit Agreement and the other
Financing Documents.

    


    7.  Forbearance
Period Covenants.  In order to induce the Senior Secured
Parties to enter into this Agreement and forbear during the Forbearance Period
from exercising the Agent and Senior Secured Parties’ rights and remedies with
respect to the Existing Events of Defaults, each Borrower covenants as
follows:

    


    (a)    
On or before the date hereof, the Borrowers shall deliver to the Agent an
initial thirteen (13) week cash flow forecast of Pacific Ethanol and its
Subsidiaries attached hereto as Exhibit 1 (the “Initial 13-Week Cash Flow
Forecast”), in form and substance satisfactory to the Agent, which has
been thoroughly reviewed by the Borrowers and its management and sets forth for
the periods covered thereby: (i) projected weekly operating cash receipts for
Pacific Ethanol and each of its Subsidiaries (on a consolidated and on an entity
by entity basis) for each week commencing with the week ending February 20,
2009, (ii) projected weekly operating cash disbursements for Pacific Ethanol and
each of its Subsidiaries (on a consolidated and on an entity by entity basis)
for each week commencing with the week ending February 20, 2009, and (iii)
projected aggregate principal amount of outstanding and available Loans for the
Borrowers each week commencing with the week ending as of February 20, 2009
(collectively, the “Projected
Information”).  In addition to the Initial 13-Week Cash Flow
Forecast, by no later than 5:00 p.m. (Pacific time) on the second Business Day
of each week commencing on February 24, 2009, Borrowers shall deliver to the
Agent, in form and substance satisfactory to the Agent, an updated thirteen (13)
week forecast for Pacific Ethanol and each of its Subsidiaries (on a
consolidated and on an entity by entity basis) prepared on a cumulative, weekly
roll forward basis, together with a report that sets forth for the immediately
preceding week a comparison of the actual cash receipts, cash disbursements,
loan balance and loan availability to the Projected Information for such weekly
periods set forth in the forecast on a cumulative, weekly roll-forward basis,
duly completed and executed by the Chief Executive Officer, Chief Financial
Officer or other financial or senior officer of the Borrowers.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (b)    
On or before the date hereof, Borrowers shall deliver to the Agent, a fifty-two
(52) week forecast with respect to the Projected Information, which shall be in
form and substance satisfactory to Agent (the “52-Week Cash Flow
Forecast”).

    


    8.  Status of Credit Agreement
and Other Financing Documents; No Novation; Reservation of Rights and
Remedies

    


    (a)    
Upon the Effective Date, each reference in the Credit Agreement to “this
Agreement”, “hereunder”, “hereof” or words of like import, and each reference in
the Financing Documents to the Credit Agreement, shall mean and be a reference
to the Credit Agreement as modified and supplemented hereby.

    


    (b)    
This Agreement shall be limited solely to the matters expressly set forth herein
and shall not (i) constitute an amendment or waiver of, or a forbearance with
respect to, any term or condition of the Credit Agreement or any other Financing
Document, except as expressly provided herein, (ii) prejudice any right or
rights which the Agent, any Senior Secured Party or any Senior Secured Parties
(as defined in Section
10 below) may now have or may have in the future under or in connection
with the Credit Agreement or any other Financing Document, (iii) require the
Agent or any Senior Secured Party to agree to a similar transaction or
forbearance on a future occasion.

    


    (c)    
Except to the extent specifically provided herein, the respective provisions of
the Credit Agreement and the other Financing Documents shall not be amended,
modified, waived, impaired or otherwise affected hereby, and such documents and
the Obligations under each of them are hereby confirmed as being in full force
and effect.

    


    (d)    
This Agreement is not a novation nor is it to be construed as a release, waiver
or modification of any of the terms, conditions, representations, warranties,
covenants, rights or remedies set forth in the Credit Agreement, or any of the
other Financing Documents, except as specifically set forth herein.

    


    (e)    
Except as expressly provided herein, the Agent and the Senior Secured Parties
expressly reserve all rights, claims and remedies that any of them have or may
have against the Borrowers.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    9.  Acknowledgment
of Validity and Enforceability of the Credit Agreement and other Financing
Documents.  Each Borrower expressly acknowledges and agrees
that the Credit Agreement and the other Financing Documents to which it is a
party are valid and enforceable by the Senior Secured Parties against such
Borrower and, except as expressly modified pursuant to this Agreement, expressly
reaffirms each of its Obligations under each Financing Document to which it is a
party.  Each Borrower further expressly acknowledges and agrees that
the Agent, for its own benefit and for the benefit of the Senior Secured
Parties, has a valid, duly perfected, first priority and fully enforceable
security interest in and lien against each item of Collateral.  Each
Borrower agrees that it shall not dispute the validity or enforceability of the
Credit Agreement or any of the other Financing Documents or any of its
Obligations thereunder, or the validity, priority, enforceability or extent of
the Agent’s security interest in or lien against any item of Collateral, either
during or following the expiration of the Forbearance Period.

    


    10.           Release;
Covenant Not to Sue.

    


    (a)    
Each Loan Party acknowledges that the Agent and the Senior Secured Parties would
not enter into this Agreement without the Borrowers’ assurance that each
Borrower has no claim against the Agent or any Senior Secured Parties, their
respective parent corporations, Subsidiaries, Affiliates, officers, directors,
shareholders, employees, attorneys, agents, professionals and servants, or any
of their respective predecessors, successors, heirs and assigns (collectively,
the “Senior Secured Parties” and each, a “Senior Secured Party”) arising out
of the Financing Documents or the transactions contemplated
thereby.  Each Loan Party, for itself and on behalf of its officers
and directors, and its respective predecessors, successors and assigns
(collectively, the “Releasors”) releases
each Senior Secured Party from any known or unknown claims which any Borrower
now has against any Senior Secured Party of any nature, including any claims
that any Releasor, or any Releasor’s successors, counsel and advisors may in the
future discover they would have had now if they had known facts not now known to
them, whether founded in contract, in tort or pursuant to any other theory of
liability, arising out of or related to the Financing Documents or the
transactions contemplated thereby (individually, a “Claim” and
collectively, “Claims”).

    


    (b)    
Except as expressly provided herein, the Releasors each expressly waive any
statutory or other limitation on the enforceability of a general release of
unknown claims which, if known, would have materially affected this
Agreement.  EACH RELEASOR HEREBY EXPLICITLY WAIVES ALL RIGHTS UNDER
AND ANY BENEFITS OF ANY COMMON LAW OR STATUTORY RULE OR PRINCIPLE WITH RESPECT
TO THE RELEASE OF SUCH CLAIMS, INCLUDING, WITHOUT LIMITATION, SECTION 1542 OF
THE CALIFORNIA CIVIL CODE, WHICH PROVIDES AS FOLLOWS:

     

    ·    A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN
BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR.

     

    EACH
RELEASOR AGREES THAT NO SUCH COMMON LAW OR STATUTORY RULE OR PRINCIPLE,
INCLUDING SECTION 1542 OF THE CALIFORNIA CIVIL CODE OR SIMILAR LAW IN ANOTHER
JURISDICTION, SHALL AFFECT THE VALIDITY OR SCOPE OR ANY OTHER ASPECT OF THIS
AGREEMENT.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (c)    
The provisions, waivers and releases set forth in this Section 10 are
binding upon each Releasor.  The provisions, waivers and releases of
this Section 10
shall inure to the benefit of each Senior Secured Party.

    


    (d)    
The provisions of this Section 10 shall
survive payment in full of the Obligations, full performance of all of the terms
of this Agreement, the Credit Agreement and the other financing Documents and/or
any action by the Agent or any Senior Secured Party to exercise any remedy
available under the Financing Documents or applicable law.

    


    (e)    
Each Releasor represents and warrants that each such Releasor is the sole and
lawful owner of all right, title and interest in and to all of the claims
released hereby and each such Releasor has not heretofore voluntarily, by
operation of law or otherwise, assigned or transferred or purported to assign or
transfer to any person any such claim or any portion thereof.  Each
Releasor shall jointly and severally indemnify and hold harmless each Senior
Secured Party from and against any claim, demand, damage, debt, liability
(including payment of reasonable attorneys’ fees and costs actually incurred
whether or not litigation is commenced) based on or arising out of any such
assignment or transfer.

    


    (f)    
Each Releasor, on behalf of themselves and their successors, assigns, and other
legal representatives, hereby absolutely, unconditionally covenant and agree
with each Senior Secured Party that they will not sue (at law, in equity, in any
regulatory proceeding or otherwise) any Senior Secured Party on the basis of any
Claim released, remised and discharged by the Senior Secured Parties pursuant to
Section 10(a) above.  If any Releasor violates the foregoing covenant,
such Releasor agrees to pay, in addition to such other damages as any Senior
Secured Party may sustain as a result of such violation, all attorneys’ fees and
costs incurred by any Senior Secured Party as a result violation.

    


    11.  No
Waiver.  Each Borrower hereby acknowledges and agrees that the
Agent’s or any Senior Secured Party’s failure, at any time or times hereafter,
to require strict performance by the Borrowers of any provision or term of this
Agreement, the Credit Agreement or any other Financing Document shall not waive,
affect or diminish any right of the Agent or any Senior Secured Party thereafter
to demand strict compliance and performance therewith.  Any suspension
or waiver by the Agent or the Senior Secured Parties of a Forbearance Default or
of an Event of Default shall not, except as may be expressly set forth herein,
suspend, waive or affect any other Forbearance Default or any other Event of
Default, whether the same is prior or subsequent thereto and whether of the same
or of a different kind or character.

     

    12.  Sole
Benefit of Parties.  This Agreement is solely for the benefit
of the parties hereto and their respective successors and assigns, and no other
Person shall have any right, benefit or interest under or because of the
existence of this Agreement.

     

    13.  Limitation
on Relationship Between Parties.  The relationship of the Agent
and the Senior Secured Parties, on the one hand, and the Borrowers, on the other
hand, has been and shall continue to be, at all times, that of creditor and
debtor.  Nothing contained in this Agreement, any instrument, document
or agreement delivered in connection herewith or in the Credit Agreement or any
of the other Financing Documents shall be deemed or construed to create a
fiduciary relationship between the parties.

    


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    14.  No
Assignment.  This Agreement shall not be assignable by any
Borrower without the written consent of the Administrative
Agent.  Each Senior Secured Party may assign to one or more Persons
all or any part of, or any participation interest in, such Senior Secured
Party’s rights and benefits hereunder in accordance with Section 11.3 of the
Credit Agreement provided that such Person is bound by the terms and limitations
of this Agreement.

    


    15.  Miscellaneous.  This
Agreement is a Financing Document.  The section and subsection titles
contained in this Agreement are included for the sake of convenience only, and
shall not affect the meaning or interpretation of this Agreement, the Credit
Agreement or any other Financing Documents or any provisions hereof or
thereof.

    


    16. Governing
Law. THIS AGREEMENT
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW), APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

    


    17. Consultation
with Counsel.  Each Borrower represents to the Agent and the
Senior Secured Parties that it has discussed this Agreement, including the
provisions of Sections
10, 13
and 16 hereof,
with its attorneys.

    


    18. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.

    


    19.  Headings.   Section
headings in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other
purpose.  

     

    20.  No Course
of Dealing.  The Senior Secured Parties have entered into this
Agreement on the express understanding with the Borrowers that in entering into
this Agreement the Senior Secured Parties are not establishing any course of
dealing with the Borrowers.  The Agent’s and the Senior Secured
Parties’ rights to require strict performance with all the terms and conditions
of the Credit Agreement as modified by this Agreement and the other Financing
Documents shall not in any way be impaired by the execution of this
Agreement.  Neither the Agent nor any Senior Secured Party shall be
obligated in any manner to execute any amendments or further waivers, and if any
such amendments or further waivers are requested in the future, assuming the
terms and conditions thereof are acceptable to them, the Agent and the Senior
Secured Parties may require the payment of fees in connection
therewith.

     

    
      
        
        

      

      
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    21.  Expenses.  The
Borrowers hereby acknowledge and agree that all fees, costs and expenses of
Agent and Senior Secured Parties (including the reasonable and documented fees,
costs and expenses of counsel or other advisors, if any) incurred in connection
with the transactions contemplated by this Agreement shall be payable by the
Borrowers in accordance with the Credit Agreement.

     

    22.  Further
Assurances.  At the Agent’s request, Borrowers shall execute
and deliver such additional documents and take such additional actions as the
Agent requests to effectuate the provisions and purposes of this Agreement and
to protect and/or maintain perfection of the Senior Secured Parties’ security
interests in and liens upon the Collateral.

     

    


     

    *           *           *

     

    


    


    [signature
page follows]

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first above written.

     

    
      
        	 	

                PACIFIC
      ETHANOL HOLDING CO. LLC,

                as
      Borrower

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ NEIL M. KOEHLER             	 
	 	 	Name:  Neil
      M. Koehler	 
	 	 	Title:    President
      and CEO	 
	 	 	 	 


      

    

    


    
      	
            	

              

                PACIFIC
      ETHANOL MADERA LLC,

              

              as
      Borrower

            	 
	 	 	 	 
	
               

            	
              By:
      

            	/s/ NEIL M. KOEHLER             	 
	 	 	Name:  Neil
      M. Koehler	 
	 	 	Title:    President
      and CEO	 
	 	 	 	 


      

        	
              	

                

                  

                    PACIFIC
      ETHANOL COLUMBIA, LLC,

                  

                

                as
      Borrower

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ NEIL M. KOEHLER             	 
	 	 	Name:  Neil
      M. Koehler	 
	 	 	Title:    President
      and CEO	 
	 	 	 	 


        

          	
                	

                  

                    

                      PACIFIC
      ETHANOL STOCKTON, LLC,

                    

                  

                  as
      Borrower

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ NEIL M. KOEHLER             	 
	 	 	Name:  Neil
      M. Koehler	 
	 	 	Title:    President
      and CEO	 
	 	 	 	 


          

            	
                  	

                    

                      

                        PACIFIC
      ETHANOL MAGIC VALLEY LLC,

                      

                    

                    as
      Borrower

                  	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/ NEIL M. KOEHLER             	 
	 	 	Name:  Neil
      M. Koehler	 
	 	 	Title:    President
      and CEO	 
	 	 	 	 


             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

            

              	
                    	

                      

                        

                          WESTLB
      AG, NEW YORK BRANCH, 

                          as
      Administrative Agent

                        

                      

                    	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	/s/ PETRA BECKERT             	 
	 	 	Name:
      Petra Beckert, Executive Director	 
	 	 	Title:  Duly
      Authorized Signatory	 
	 	 	 	 


              

                	 	 	 	 
	
                         

                      	
                        By:
      

                      	/s/ DOMINICK D'ASCOLL            	 
	 	 	Name:
      Dominick D’Ascoll, Director	 
	 	 	Title:  Duly
      Authorized Signatory	 
	 



                	
                      	

                        

                          

                            WESTLB
      AG, NEW YORK BRANCH, 

                            as
      Collateral Agent

                          

                        

                      	 
	 	 	 	 
	
                         

                      	
                        By:
      

                      	/s/ PETRA BECKERT             	 
	 	 	Name:
      Petra Beckert, Executive Director	 
	 	 	Title:  Duly
      Authorized Signatory	 
	 	 	 	 


                

                  	 	 	 	 
	
                           

                        	
                          By:
      

                        	/s/ DOMINICK D'ASCOLL            	 
	 	 	Name:
      Dominick D’Ascoll, Director	 
	 	 	Title:  Duly
      Authorized Signatory	 
	 


                

              

            

          

        

      

    

    


      	
            	

              

                

                  WESTLB
      AG, NEW YORK BRANCH, 

                  as
      Senior Secured Party

                

              

            	 
	 	 	 	 
	
               

            	
              By:
      

            	/s/ PETRA BECKERT             	 
	 	 	Name:
      Petra Beckert, Executive Director	 
	 	 	Title:  Duly
      Authorized Signatory	 
	 	 	 	 


      

        	 	 	 	 
	
                 

              	
                By:
      

              	/s/ DOMINICK D'ASCOLL            	 
	 	 	Name:
      Dominick D’Ascoll, Director	 
	 	 	Title:  Duly
      Authorized Signatory	 
	 


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


      	
            	

              

                

                  

                    AMARILLO
      NATIONAL BANK,

                    as
      Accounts Bank

                  

                

              

            	 
	 	 	 	 
	
               

            	
              By:
      

            	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


    

    


      	
            	

              

                

                  

                    AMARILLO
      NATIONAL BANK,

                    as
      Senior Secured Party

                  

                

              

            	 
	 	 	 	 
	
               

            	
              By:
      

            	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


    

    
    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    
      	
            	

              

                

                  

                    

                      BANCO
      DE SABADELL,

                      as
      Senior Secured Party

                    

                  

                

              

            	 
	 	 	 	 
	
               

            	
              By:
      

            	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
              	

                

                  

                    

                      

                        

                          CIFC
      FUNDING 2007-48 LTD.,

                          as
      Senior Secured Party

                        

                      

                    

                  

                

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


      

    

    
       

      
        
          	
                	

                  

                    

                      

                        

                          

                            

                              CIFC
      FUNDING 2007-50 LTD.,

                              as
      Senior Secured Party

                            

                          

                        

                      

                    

                  

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


        

      

    

    
       

      
        
          
            	
                  	

                    

                      

                        

                          

                            

                              

                                CIFC
      FUNDING 2007-III LTD.,

                                as
      Senior Secured Party

                              

                            

                          

                        

                      

                    

                  	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/
      STEPHEN J. VACCARO        	 
	 	 	Name:
      Stephen J. Vaccaro 	 
	 	 	Title:  Co-Chief
      Investment Officer  	 
	 


          

        

      

    

     

    
      
        
          
            	
                  	

                    

                      

                        

                          

                            

                              

                                

                                  CIFC
      FUNDING 2007-IV LTD.,

                                  as
      Senior Secured
    Party

                                

                              

                            

                          

                        

                      

                    

                  	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/
      STEPHEN J. VACCARO        	 
	 	 	Name:
      Stephen J. Vaccaro 	 
	 	 	Title:  Co-Chief
      Investment Officer  	 
	 


          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      
        
          	
                	

                  

                    

                      

                        

                          

                            

                              CIT
      CAPITAL SECURITIES LLC,

                              as
      Lead Arranger and Co-Syndication Agent Senior Secured
      Party

                            

                          

                        

                      

                    

                  

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


           

          
            
              	
                    	

                      

                        

                          

                            

                              

                                

                                  CIT
      CAPITAL USA INC.,

                                  as
      Senior Secured Party

                                

                              

                            

                          

                        

                      

                    	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


            

          

        

      

    

    
    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      
        
          	
                	

                  

                    

                      

                        

                          

                            

                              

                                CITIGROUP
      FINANCIAL PRODUCTS INC.,

                                as
      Senior Secured
    Party

                              

                            

                          

                        

                      

                    

                  

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


           

        

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            	
                  	

                    

                      

                        

                          

                            

                              

                                

                                  

                                    CREDIT
      SUISSE CANDLEWOOD SPECIAL SITUATIONS MASTER FUND, LTD.

                                    By:
      Credit Suisse Alternative Capital, Inc. as investment
      manager

                                  

                                

                              

                            

                          

                        

                      

                    

                  	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	                     	 
	 	 	Name:
      	 
	 	 	Title:  	 
	 


             

          

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
         

        
          
            
              
                	
                      	

                        

                          

                            

                              

                                

                                  

                                    

                                      

                                        

                                          LISPENARD
      STREET CREDIT (MASTER), LTD.

                                          By:
      DiMaio Ahmad Capital LLC, as Investment
      Manager

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      	 
	 	 	 	 
	
                         

                      	
                        By:
      

                      	/s/
      JERRY CUDZIL                	 
	 	 	Name:
      Jerry Cudzil 	 
	 	 	Title:  Authorized
      Signatory 	 
	 


              

            

          

        

      

    

    
      
         

        
          
            
              
                	
                      	

                        

                          

                            

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            POND
      VIEW CREDIT (MASTER), L.P.

                                            By:
      DiMaio Ahmad Capital LLC, as Investment
      Manager

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      	 
	 	 	 	 
	
                         

                      	
                        By:
      

                      	/s/
      JERRY CUDZIL                	 
	 	 	Name:
      Jerry Cudzil 	 
	 	 	Title:  Authorized
      Signatory 	 
	 


              

            

          

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    
      
         

        
          
            
              
                	
                      	

                        

                          

                            

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              UNITED
      FCS, PCA (F/K/A FARM CREDIT SERVICES OF MINNESOTA VALLEY, PCA), D/B/A FCS
      COMMERCIAL FINANCE GROUP,

                                              as
      Senior Secured
      Party

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      	 
	 	 	 	 
	
                         

                      	
                        By:
      

                      	/s/
      DANIEL I. BEST                	 
	 	 	Name:
      Daniel I. Best 	 
	 	 	Title:  Asst.
      Vice President 	 
	 


              

            

          

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    
      
        
           

          
            
              
                
                  	
                        	

                          

                            

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  HAF
      FUNDING 2008-1 LIMITED,

                                                  as
      Senior Secured
      Party

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        	 
	 	 	 	 
	
                           

                        	
                          By:
      

                        	/s/                         	 
	 	 	Name: 
      	 
	 	 	Title:	 
	 


                

              

            

          

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

      
        
          
            
               

              
                
                  
                    
                      	
                            	

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        GREENSTONE
      FARM CREDIT SERVICES, ACA/FLCA,

                                                        as
      Senior Secured
      Party

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            	 
	 	 	 	 
	
                               

                            	
                              By:
      

                            	/s/
      ALFRED S. COMPTON, JR.        	 
	 	 	Name:
      Alfred S. Compton, Jr. 	 
	 	 	Title:  Vice
      President/Managing Director	 
	 


                    

                  

                

              

            

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

          

           

        

      

    

    
      
        
          
            
              
                
                  
                    	
                          	

                            

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        METROPOLITAN
      LIFE INSURANCE COMPANY,

                                                        as
      Senior Secured
      Party

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          	 
	 	 	 	 
	
                             

                          	
                            By:
      

                          	/s/
      JOHN A. TANYERI	 
	 	 	Name:
      John A. Tanyeri	 
	 	 	Title:  Director	 
	 


                  

                

              

            

          

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      	
                            	

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        

                                                          

                                                            NORDKAP
      BANK AG,

                                                            as
      Senior Secured
      Party

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            	 
	 	 	 	 
	
                               

                            	
                              By:
      

                            	/s/
      NIKLAUS HASLER        	 
	 	 	Name:
      Niklaus Hasler	 
	 	 	Title:  CEO	 
	 


                       

                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	 	 	 	 
	
                                               

                                            	
                                              By:
      

                                            	/s/
      BATCHIMEG GADOLA      	 
	 	 	Name:
      Batchimeg Gadola	 
	 	 	Title:  Transactor	 
	 


                                    

                                  

                                  
                                    


                                    
                                      
                                        
                                        

                                      

                                      
                                        
                                        

                                        
                                          

                                        

                                      

                                      
                                        
                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
       

      
        
          
            
              
                
                  
                    
                      
                        	
                              	

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        

                                                          

                                                            

                                                              

                                                                NORDDEUTSCHE
      LANDESBANK

                                                                GIROZENTRALE
      NEW YORK BRANCH,

                                                                as
      Senior Secured
      Party

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              	 
	 	 	 	 
	
                                 

                              	
                                By:
      

                              	/s/
      JOSEF HAAS            	 
	 	 	Name:
      Josef Haas	 
	 	 	Title:  Senior
      Director	 
	 


                         

                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            	 	 	 	 
	
                                                     

                                                  	
                                                    By:
      

                                                  	/s/
      ANDREN VERTIS          	 
	 	 	Name:
      Andren Vertis	 
	 	 	Title:  Director	 
	 


                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                         

                        
                          
                            
                            

                          

                          
                            
                            

                            
                              

                            

                          

                          
                            
                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

        
          
            
              
                
                  
                    
                      
                        
                          	
                                	

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        

                                                          

                                                            

                                                              

                                                                

                                                                  

                                                                    NORTHWEST
      FARM CREDIT SERVICES, FLCA,

                                                                    as
      Senior Secured
      Party

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                	 
	 	 	 	 
	
                                   

                                	
                                  By:
      

                                	/s/
      CASEY KINZER            	 
	 	 	Name:
      Casey Kinzer	 
	 	 	Title:  Account
      Manager	 
	 


                           

                          
                            
                              
                              

                            

                            
                              
                              

                              
                                

                              

                            

                            
                              
                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

      
        
          
            
              
                
                  
                    
                      
                        	
                              	

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        

                                                          

                                                            

                                                              

                                                                

                                                                  

                                                                    COOPERATIEVE
      CENTRALE

                                                                    RAIFFEISEN-BOERENLEENBANK
      B.A.,

                                                                    “RABOBANK
      NEDERLAND”, NEW YORK BRANCH,

                                                                    as
      Senior Secured
      Party

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              	 
	 	 	 	 
	
                                 

                              	
                                By:
      

                              	/s/
      JEFF BLISS                	 
	 	 	Name:
      Jeff Bliss	 
	 	 	Title:  Executive
      Director	 
	 


                         

                        	 	 	 	 
	
                                 

                              	
                                By:
      

                              	/s/
      BRETT DELFINO            	 
	 	 	Name:
      Brett Delfino	 
	 	 	Title:  Executive
      Director	 
	 


                         

                        
                          
                            
                            

                          

                          
                            
                            

                            
                              

                            

                          

                          
                            
                            

                          

                           

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      	
            	

              

                

                  

                    

                      

                        

                          

                            

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    BANCO
      SANTANDER CENTRAL HISPANO S.A., NEW YORK BRANCH,

                                                    as
      Lead Arranger and Co-Documentation
      Agent

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            	 
	 	 	 	 
	
               

            	
              By:
      

            	                      	 
	 	 	Name:	 
	 	 	Title:	 
	 


       

      	 	 	 	 
	
               

            	
              By:
      

            	                    	 
	 	 	Name:	 
	 	 	Title:	 
	 


       

    

    
      
        	
              	

                

                  

                    

                      

                        

                          

                            

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        BANCO
      SANTANDER CENTRAL HISPANO S.A., NEW YORK BRANCH,

                                                        as
      Senior Secured
      Party

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	                      	 
	 	 	Name:	 
	 	 	Title:	 
	 


         

        	 	 	 	 
	
                 

              	
                By:
      

              	                    	 
	 	 	Name:	 
	 	 	Title:	 
	 


         

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

      
        
          	
                	

                  

                    

                      

                        

                          

                            

                              

                                

                                  

                                    

                                      

                                        

                                          

                                            

                                              

                                                

                                                  

                                                    

                                                      

                                                        

                                                          

                                                            SHOREBANK
      PACIFIC,

                                                            as
      Senior Secured
      Party

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	                      	 
	 	 	Name:	 
	 	 	Title:	 
	 


           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

      

    

     

    


    SCHEDULE
I

    


    EXISTING
EVENTS OF DEFAULT

    


    


    (a)           Breach
by Borrowers of Section 9.01(c), which requires Borrowers to strictly comply
with the performance and observance of any of its obligations under Section
7.01(g)(vi).  Several construction expenses relating to the Stockton
Plant (estimated at $150,000) were unknowingly paid from the Operating Account
due to changes in Borrowers’ staff and inadequate plant coding of
invoices.  Also, approximately $175,000 of construction costs relating to
the Stockton Plant were initially paid out of the Stockton Construction Acct,
and will be reimbursed with equity from Pacific Ethanol.

    


    (b)           Breach
by Borrowers of Section 9.01(c), which requires Borrowers to strictly comply
with the performance and observance of any of its obligations under Section
7.02(p).  Section 7.02(p) prohibits a suspension or abandonment for
more than 60 days without the prior written approval of the Required Senior
Secured Parties and Madera and Burley Plants have not produced ethanol for a
period greater than 60 days as of the date hereof.

    


    (c)           Breach
by Borrowers of Section 9.01(c), which requires Borrowers to strictly comply
with the performance and observance of any of its obligations under Section
7.02(s).  Borrowers have failed to comply with the Restricted Payments
provisions set forth in Section 7.02(s) when (i) repaying amounts advanced from
Pacific Ethanol to support plant operations; (ii) transferring funds by and
among, the Borrowers, Pacific Ethanol and its Subsidiaries, Pacific Ag. Products
and Kinergy from time to time including, but not limited to, transferring funds
to Pacific Ethanol in connection with the payment of dividends to holders of
Pacific Ethanol’s Series B Prefered Shares.

    


    (d)           Breach
by Borrowers of Section 9.01(d), which requires Borrowers to comply with the
performance and observance of their obligations under Section 3.10(c) and such
failure remained unremedied for a period of thirty (30) days after any Borrowers
obtained or should have obtained, knowledge thereof.  The Borrowing
Base Certificate for December 31, 2008 is expected to demonstrate that the
then-outstanding principal amount of the Working Capital Loans exceeds the
then-effective Aggregate Working Capital Commitment or the then-applicable
Working Capital Loan Availability.  The Borrowers will not be able to repay
such excess amount as required by Section 3.10(c).

    


    (e)           Breach
by Borrowers of Section 9.01(d), which requires Borrowers to comply with the
performance and observance of its obligations under Section 7.01(s) and such
failure remained unremedied for a period of thirty (30) days after any Borrowers
obtained or should have obtained, knowledge thereof.  Borrowers failed
to prepare quarterly calculations required by Section 7.01(s).

    


    (f)           Breach
by Borrowers of Section 9.01(d), which requires Borrowers to comply with the
performance and observance of its obligations under Section 7.01(y) and such
failure remained unremedied for a period of thirty (30) days after any Borrowers
obtained or should have obtained, knowledge thereof.  Final Completion
of the Stockton Plant was not achieved by January 25, 2009, as required by
Section 7.01(y).

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (g)           Breach
by Borrowers of Section 9.01(d), which requires Borrowers to comply with the
performance and observance of its obligations under Section 7.03(n) and such
failure remains unremedied for a period of thirty (30) days after any Borrowers
obtains or should have obtained, knowledge thereof.  Borrowers have
informed the Agent that they will not deliver the Borrowing Base Certificated in
accordance with Section 7.03(n) by February 15, 2009.

    


    (h)           Breach
by Borrowers of Section 9.01(g), which prohibits any judgment to be rendered
against any or all of the Borrowers in an amount in excess of $2,000,000 in the
aggregate and against Kinergy in an amount in excess of $2,500,000 in the
aggregate.  Western Ethanol Company, LLC has obtained a pre-judgment
writ of attachment in the amount of $3,700,000 against Kinergy.

    


    (i)           Breach
by Borrowers of Section 9.01(f), which may impose a cross-default to the Kinergy
Marketing LLC financing arrangement with Wachovia.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
II

    


    


    ANTICIPATED
DEFAULTS

    


    (a)           Breach
by Borrowers of Section 9.01(f), which imposes a cross-default to the Pacific
Ethanol Imperial LLC financing arrangement with Lyle.  Pacific Ethanol
expects to be in default of certain payment obligations by the first week of
March.

    


    (b)           Breach
by Borrowers of Section 9.01(o), which prohibits an Event of
Abandonment.  An Event of Abandonment will occur if any of the Plants
are placed into hot idle or cold shut down for more than 90 days.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
1

    


    INITIAL
13-WEEK CASH FLOW FORECAST

    


    [See
Attached]