pacificeth_8k-ex1001.htm


    Exhibit
10.1


    KINERGY
MARKETING LLC

    400
Capitol Mall, Suite 2060

    Sacramento,
California 95814

    


    


    February
13, 2009

    


    


    Wachovia
Capital Finance Corporation (Western),

        
as Agent for and on behalf of the

        
Lenders as referred to below

    251 South
Lake Avenue, Suite 900

    Pasadena,
California 91101

    


    Re:           Amendment and Forbearance
Agreement

    


    Ladies
and Gentlemen:

    


    Wachovia
Capital Finance Corporation (Western) (“Wachovia”), in its
capacity as agent (“Agent”) for the
Lenders from time to time party to the Loan Agreement referred to below, the
Lenders and Kinergy Marketing LLC, an Oregon limited liability company (“Borrower”), have
entered into certain financing arrangements pursuant to the Loan and Security
Agreement, dated as of July 28, 2008, by and among Agent, Lenders and Borrower
(the “Loan
Agreement”), and all other Financing Agreements at any time executed
and/or delivered in connection therewith or related thereto.  All
capitalized terms used herein shall have the meaning assigned thereto in the
Loan Agreement, unless otherwise defined herein.  Wachovia is
currently both the Agent and the sole Lender under the Loan Agreement and is
hereinafter referred to in this Amendment, in both such capacities, as
“Wachovia”.

     

    It has
come to the attention of Wachovia that (a) Borrower has failed to comply with
Section 9.17 of the Loan Agreement as a result of the failure of Borrower to
maintain EBITDA in the amount required by such Section for the twelve (12)
consecutive month period ending December 31, 2008, which constitutes an Event of
Default under Section 10.1(a)(i) of the Loan Agreement, (b) Borrower has failed
to comply with Section 8.17 of the Loan Agreement as a result of the failure of
Borrower to advise Wachovia in the Borrowing Base Certificate delivered to
Wachovia on or about February 10, 2009 of the existence of an Event of Default
resulting from the failure of Borrower to maintain EBITDA in the amount required
by Section 9.17 for the twelve (12) consecutive month period ending December 31,
2008, which constitutes an Event of Default under Section 10.1(a)(iv) of the
Loan Agreement, and (c) a pre-judgment writ of attachment has been ordered
against Borrower in connection with the action filed on January 9, 2009 by
Western Ethanol Company, LLC against Borrower in the Superior Court of
California, County of Orange, which constitutes an Event of Default under
Section 10.1(d) of the Loan Agreement (collectively, the “Specified
Defaults”).

     

    Notwithstanding
the occurrence and continuance of the Specified Defaults, Borrower and Pacific
Ethanol Inc., a Delaware corporation, as Guarantor (“Parent”), have
requested that Wachovia (a) forbear for a limited period of time from exercising
its rights and remedies with respect to the Specified Defaults and (b) continue
to make additional Revolving Loans to Borrower during such limited forbearance
period; and Wachovia is willing to agree to the foregoing, on and subject to the
terms and conditions set forth in this amendment and forbearance agreement (this
“Agreement”).

     

    
      
        
        

      

      
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    In
consideration of the foregoing, the mutual agreements and covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as
follows:

     

    1.  Acknowledgment of Specified
Defaults.

     

    Borrower
and Parent hereby acknowledge, confirm and agree that (a) the Specified Defaults
described above have occurred and are continuing as of the date hereof and (b)
as a result of the foregoing, Wachovia has the presently exercisable right to
exercise all such rights and remedies against Borrower, Parent and/or the
Collateral as are available to Wachovia under the Loan Agreement and the other
Financing Agreements and under applicable law, all without notice to Borrower or
Parent, except for such notice as may be expressly provided for in the Financing
Agreements or required by applicable law, and such rights and remedies include,
without limitation, the right, exercisable at any time and from time to time, to
cease making any additional Revolving Loans or providing any other financial
accommodations to Borrower.

     

    2.  Acknowledgment of
Obligations, Security Interests and Financing Agreements.

     

    (a) Acknowledgment of
Obligations.  Borrower and Parent hereby acknowledge, confirm
and agree that Borrower is unconditionally indebted to Wachovia as of the close
of business on February 11, 2009, in respect of the Loans and all other
Obligations in the aggregate principal amount of not less than $8,290,882.46,
together with interest accrued and accruing thereon, and all fees, costs,
expenses and other sums and charges now or hereafter payable by Borrower to
Wachovia pursuant to the Loan Agreement and the other Financing Agreements, all
of which are unconditionally owing by Borrower to Wachovia pursuant to the
Financing Agreements, in each case without offset, defense or counterclaim of
any kind, nature or description whatsoever.

     

    (b) Acknowledgment of Security
Interests.  Borrower and Parent hereby acknowledge, confirm and
agree that Wachovia has, and shall continue to have, valid, enforceable and
perfected security interests in and liens upon the Collateral heretofore granted
by Borrower to Wachovia pursuant to the Financing Agreements or otherwise
granted to or held by Wachovia.

     

    (c) Binding Effect of Financing
Agreements.  Borrower and Parent hereby acknowledge, confirm
and agree that: (i) each of the Financing Agreements to which Borrower and
Parent (as applicable) are a party has been duly executed and delivered to
Wachovia by Borrower and Parent (as applicable), and each is in full force and
effect as of the date hereof, (ii) the agreements and obligations of Borrower
and Parent (as applicable) contained in such Financing Agreements to which they
are a party and in this Agreement constitute the legal, valid and binding
Obligations of Borrower and Parent (as applicable), enforceable against them in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
limiting creditors’ rights generally or by equitable principles relating to
enforceability, and Borrower and Parent (as applicable) have no valid defense to
the enforcement of such Obligations, and (iii) Wachovia is and shall be entitled
to the rights, remedies and benefits provided for in the Financing Agreements
and pursuant to applicable law, but subject to the terms and conditions of this
Agreement.

     

    
      
        
        

      

      
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    3.  No Waivers; Reservation of
Rights.  Wachovia
has not waived, is not by this Agreement waiving, and has no intention of
waiving, the Specified Defaults, any other Defaults or Events of Default which
may be continuing on the date hereof or any Defaults or Events of Default which
may occur after the date hereof (whether the same or similar to the Specified
Defaults or otherwise).

     

    4.  Limited Forbearance Period;
Forbearance Period Loans; Forbearance Termination.

     

    (a) At
Borrower’s and Parent’s request and in reliance upon Borrower’s representations,
warranties and covenants contained in this Agreement, and subject to the terms
and conditions of this Agreement, Wachovia hereby agrees to forbear during the
Forbearance Period (as defined below) from exercising any of its rights and
remedies with respect to the Specified Defaults, whether arising under the Loan
Agreement, the other Financing Agreements or applicable law.  For the
purposes of this Agreement, the “Forbearance Period”
means the period commencing on the effective date of this Agreement and
terminating on the earliest to occur of:  (i) February 28, 2009, and
(ii) the date on which any one or more of the following events has occurred and
is continuing (hereinafter referred to as an “Additional Event of
Default”):  (A) Borrower’s failure to perform or observe any of
the terms and conditions of this Agreement or (B) the occurrence of any Default
or Event of Default under the Loan Agreement that is not a Specified
Default.  Notwithstanding the foregoing, upon the request of Borrower,
Wachovia may, in its sole and absolute discretion, extend the date set forth in
subparagraph (a)(i) above to March 31, 2009.

     

    (b) During
the Forbearance Period, notwithstanding the existence of the Specified Defaults,
at Borrower’s and Parent’s request and as an accommodation to Borrower, Wachovia
agrees to continue making Revolving Loans to Borrower; provided, that, (i) except as
otherwise provided for in this Agreement, all Revolving Loans shall be made in
accordance with all other terms and conditions of the Loan Agreement, including
(without limitation, Wachovia’s continuing rights to impose Reserves), (ii)
effective as of January 1, 2009, Borrower shall pay interest with respect to
Loans and other Obligations at any time outstanding at the default Interest Rate
set forth in Section 1.60(b) of the Loan Agreement and (iii) notwithstanding
anything to the contrary contained in the Loan Agreement, in this Agreement or
in any of the other Financing Agreements, all Revolving Loans, Letters of Credit
and other financial accommodations provided by Wachovia to Borrower during the
Forbearance Period shall be made and provided in the sole and absolute
discretion of Wachovia.

     

    (c) From and
after termination or expiration of the Forbearance Period (the “Forbearance Termination
Date”), Wachovia’s agreement to forbear shall automatically and without
further notice or action terminate and be of no further force and effect, and
Wachovia shall have the immediate and unconditional right, in its discretion, to
exercise any or all of its rights and remedies under the Loan Agreement, the
other Financing Agreements and applicable law with respect to the Specified
Defaults, any other Event of Default which may be continuing on the date hereof
or any Additional Default or any Event of Default which may occur after the date
hereof, including, without limitation, Wachovia’s election to cease making, in
Wachovia’s sole discretion, any further Revolving Loans or providing any further
Letters of Credit and/or Wachovia’s election to enforce the security interests
in and liens upon the Collateral or any portion thereof held by
Wachovia.  Wachovia has not waived any of such rights or remedies, and
nothing in this Agreement, nor the making of any Revolving Loans or Letters of
Credit from and after the date hereof or after the Forbearance Termination Date,
nor any delay on Wachovia’s part after the Forbearance Termination Date in
exercising any such rights or remedies, can be construed as a waiver of any such
rights or remedies.  No termination of the Loan Agreement or any
provisions thereof or any of the other Financing Agreements shall relieve or
discharge Borrower or any Obligor of their respective duties, covenants and
obligations under the Loan Agreement and the other Financing Agreements to which
they are respectively a party until all Obligations have been indefeasibly paid
and satisfied in full in immediately available funds.

     

    
      
        
        

      

      
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    (d) Notwithstanding
anything to the contrary contained in this Agreement, (i) this Agreement does
not constitute Wachovia’s agreement or commitment to make any additional
Revolving Loans or provide any Letters of Credit to Borrower from and after the
Forbearance Termination Date, and all Revolving Loans made or Letters of Credit
provided by Wachovia from and after the Forbearance Termination Date shall be
made in Wachovia’s sole and exclusive discretion, and (ii) nothing contained in
this Agreement shall limit, impair or affect Wachovia’s rights under the Loan
Agreement with respect to the making of Revolving Loans and Letters of Credit
(including, without limitation, Wachovia’s right to establish and withhold
Reserves in accordance with the Loan Agreement).

     

    5.  Forbearance Period
Covenants.  
In order to induce Wachovia to (a) enter into this Agreement, (b) make Revolving
Loans and other financial accommodations to Borrower during the Forbearance
Period, subject to the terms and conditions set forth in this Agreement, and (c)
forbear during the Forbearance Period from exercising Wachovia’s rights and
remedies with respect to the Specified Defaults, Borrower represents, warrants,
covenants and agrees as follows:

     

    (i) On or
before the date hereof, Borrower shall deliver to Wachovia an initial thirteen
(13) week budget, in form and substance satisfactory to Wachovia, which has been
thoroughly reviewed by Borrower and its management and sets forth for the
periods covered thereby:  (A) projected weekly operating cash receipts
for each week commencing with the week ending February 13, 2009, (B) projected
weekly operating cash disbursements for each week commencing with the week
ending February 13, 2009, (C) projected aggregate principal amount of
outstanding Revolving Loans and Letters of Credit for each week commencing with
the week ending as of February 13, 2009, and (D) projected weekly amounts of
Revolving Loans and Letters of Credit available to Borrower under the terms,
conditions and formulae of the Loan Agreement for each week commencing with the
week ending February 13, 2009 (collectively, the “Projected
Information”).  In addition to the initial budget, by no later
than 5:00 p.m. (Pacific time) on the second Business Day of each week commencing
on February 17, 2009, Borrower shall furnish to Wachovia, in form and substance
satisfactory to Wachovia, an updated thirteen (13) week budget 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 budget 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
Borrower.

     

    
      
        
        

      

      
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    (ii) On or
before the date hereof, Borrower shall deliver to Wachovia a fifty-two (52) week
budget with respect to the Projected Information, which shall be in form and
substance satisfactory to Wachovia.

     

    (iii) On or
before February 28, 2009, Borrower shall deliver or cause to be delivered to
Wachovia an agreement, in form and substance satisfactory to Wachovia, pursuant
to which West LB, as agent, and the other lenders have agreed to forbear from
exercising their rights as against Parent and certain of its subsidiaries
pursuant to the terms of their financing arrangements with Parent and certain of
its subsidiaries for such forbearance period and on such terms and conditions as
shall be acceptable to Wachovia; provided, that, if the
Forbearance Period is extended by Agent and Required Lenders in their sole and
absolute discretion in accordance with the terms hereof, then the date for
Borrower to deliver such an agreement pursuant to this Section 5(iii) shall be
extended to March 31, 2009.

     

    6.  Amendments to Loan
Agreement.

     

    (a) Additional
Definitions.  As used herein, the following terms shall have
the meanings given to them below and the Loan Agreement and the other Financing
Agreements are hereby amended to include, in addition and not in limitation, the
following definitions:

     

    “Availability
Block” shall mean, at all times during the Forbearance Period,
$500,000.

    


    “Forbearance
Agreement” shall mean the Amendment and Forbearance Agreement, dated as of
February 13, 2009, by and among Agent, Lenders, Borrower and
Parent.

    


    “Forbearance
Period” shall have the meaning set forth in the Forbearance
Agreement.

    


    “Magic
Valley Project” shall mean the ethanol plant located in Burley, Idaho owned by
Pacific Ethanol Magic Valley, LLC, an indirect, wholly-owned subsidiary of
Parent.

    


    (b) Borrowing
Base.  The definition of “Borrowing Base” in Section 1.12 of
the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    ““1.12 “Borrowing
Base” shall mean, at any time, the amount equal to:

    


    (a)           the
sum of:

    


    (i)           eighty-five
(85%) percent of the Eligible Accounts, plus

    


    (ii)           the
lesser of (A) the Inventory Loan Limit or (B) seventy (70%) percent multiplied
by the Value of the Eligible Inventory consisting of ethanol and biodiesel
finished goods or (C) eighty-five (85%) percent of the Net Recovery Percentage
multiplied by the Value of such Eligible Inventory consisting of ethanol and
biodiesel finished goods, minus

    


    
      
        
        

      

      
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    (b)           the
Availability Block, minus

    


    (c)           Reserves.”

    


    (c) Inventory Loan
Limit.  The definition of “Inventory Loan Limit” in Section
1.62 of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “1.62 
“Inventory Loan Limit” shall mean the amount of $5,000,000 (subject to increase
as provided in Section 7 of the Forbearance Agreement).”

    


    (d) Letter of Credit
Limit.  The definition of “Letter of Credit Limit” in Section
1.67 of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “1.67 
“Letter of Credit Limit” shall mean the amount of $500,000.”

    


    (e) Material Adverse
Effect.  The definition of “Material Adverse Effect” in Section
1.73 of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “1.73 
“Material Adverse Effect” shall mean any condition, change, effect or
circumstance that, individually or when taken together with all such conditions,
changes, effects or circumstances, has or would reasonably be expected to have
an adverse effect on the financial condition, assets, properties, business,
operations or results of operations of the Borrower, Parent, any Obligor or any
of their respective subsidiaries which is material to the Borrower, Parent, any
Obligor or any of their respective subsidiaries, excluding (a) any changes or
effects that are not unique to the Borrower, Parent, any Obligor or any of their
respective subsidiaries and do not adversely affect the Borrower, Parent, any
Obligor or any of their respective subsidiaries disproportionately compared to
their competitors, directly resulting from general changes in economic,
financial or capital market, regulatory, political or national security
conditions (including acts of war or terrorism), (b) changes in conditions
generally applicable to the industries in which the Borrower, Parent, any
Obligor or any of their respective subsidiaries is involved, (c) changes which
result from the announcement or the consummation of the transactions
contemplated hereby and (d) any changes or effects that have been disclosed to
Agent and Lenders as of the date of the Forbearance Agreement, which has or
would reasonably be expected to have a material adverse effect on the financial
condition, assets, properties, business, operations or results of operations of
the Borrower, Parent, any Obligor or any of their respective subsidiaries (the
foregoing exclusion in this clause (d) shall not apply to any changes or effects
that have not been disclosed to Agent and Lenders as of the date of the
Forbearance Agreement or any changes or affects arising after the date of the
Forbearance Agreement).”

    


    
      
        
        

      

      
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    (f) Maximum
Credit.  The definition of “Maximum Credit” in Section 1.76 of
the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “1.76 
“Maximum Credit” shall mean the amount of $10,000,000 (subject to increase as
provided in Section 7 of the Forbearance Agreement).”

    


    (g) Maximum Credit Increase
Effective Date.  The definition of “Maximum Credit Increase
Effective Date” in Section 1.77 of the Loan Agreement is hereby amended and
restated in its entirety as follows:

     

    “1.77 
[Reserved.]”

    


    (h) Loans.  Sections
2.1(b) and (c) of the Loan Agreement are hereby amended and restated in their
entirety as follows:

     

    “(b)           Except
in Agent’s discretion, with the consent of all Lenders, or as otherwise provided
herein, (i) the aggregate amount of the Loans and the Letter of Credit
Obligations outstanding at any time shall not exceed the Maximum Credit, (ii)
the aggregate principal amount of the Revolving Loans and Letter of Credit
Obligations outstanding at any time to Borrower shall not exceed the Borrowing
Base, (iii) the aggregate principal amount of Revolving Loans and Letter of
Credit Obligations based on Eligible Inventory shall not exceed the Inventory
Loan Limit and (iv) the aggregate principal amount of the Revolving Loans
outstanding at any time against (A) Eligible In-Transit Inventory shall not
exceed $2,500,000 and (B) Eligible Inventory consisting of biodiesel finished
goods shall not exceed $200,000.

    


    (c)           In
the event that (i) the aggregate amount of the Loans and the Letter of Credit
Obligations outstanding at any time exceed the Maximum Credit, or (ii) except as
otherwise provided herein, the aggregate principal amount of the Revolving Loans
and Letter of Credit Obligations outstanding to Borrower exceed the Borrowing
Base or the Maximum Credit of Borrower, or (iii) the aggregate principal amount
of Revolving Loans and Letter of Credit Obligations based on the Eligible
Inventory exceed the Inventory Loan Limit, or (iv) the aggregate principal
amount of the Revolving Loans outstanding at any time against (A) Eligible
In-Transit Inventory exceeds $2,500,000 or (B) Eligible Inventory consisting of
biodiesel finished goods exceeds $200,000, such event shall not limit, waive or
otherwise affect any rights of Agent or Lenders in such circumstances or on any
future occasions and Borrower shall, upon demand by Agent, which may be made at
any time or from time to time, immediately repay to Agent the entire amount of
any such excess(es) for which payment is demanded.”

    


    
      
        
        

      

      
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    (i) Increase in Maximum
Credit.  Section 2.3 of the Loan Agreement is hereby amended
and restated in its entirety as follows:

     

    “2.3 
[Reserved.]”

    


    (j) Event of
Default.  Section 10.1 of the Loan Agreement is hereby amended
as follows:

     

    (i) Section
10.1(d) of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “(d)     (i) any
judgment for the payment of money is rendered against Borrower or any Obligor
(other than Parent) in excess of $100,000 in any one case or in excess of
$250,000 in the aggregate (to the extent not covered by insurance where the
insurer has assumed responsibility in writing for such judgment) and shall
remain undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor (other than Parent) or any
of the Collateral having a value in excess of $100,000 or (ii) any judgment for
the payment of money is rendered against Parent or any of its subsidiaries
(other than Borrower or Pacific Ethanol Imperial LLC) in excess of $500,000 in
any one case or in excess of $1,000,000 in the aggregate (to the extent not
covered by insurance where the insurer has assumed responsibility in writing for
such judgment) and shall remain undischarged or unvacated for a period in excess
of thirty (30) days or execution shall at any time not be effectively stayed, or
any judgment other than for the payment of money, or injunction, attachment,
garnishment or execution is rendered against Parent or any of its subsidiaries
(other than Borrower or Pacific Ethanol Imperial LLC) or any of the Collateral
having a value in excess of $500,000;”

    


    (ii) Section
10.1(f) of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “(f)     (i) Borrower,
Parent, any Obligor or any of their respective subsidiaries (other than Pacific
Ethanol Imperial LLC) makes an assignment for the benefit of creditors or makes
or sends notice of a bulk transfer, (ii) Borrower or any Obligor (other than
Parent) calls a meeting of its creditors or principal creditors in connection
with a moratorium or adjustment of the Indebtedness due to them, or (iii) from and after February
28, 2009, Parent or any of its subsidiaries (other than Borrower, any Obligor or
Pacific Ethanol Imperial LLC) calls a meeting of its creditors or principal
creditors in connection with a moratorium or adjustment of the Indebtedness due
to them; provided, that, if the
Forbearance Period is extended by Agent and Required Lenders in their sole and
absolute discretion in accordance with the terms of the Forbearance Agreement,
then the date set forth in this clause (iii) shall be March 31,
2009.”

    


    
      
        
        

      

      
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    (iii) Section
10.1(g) of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “(g)           a
case or proceeding under the bankruptcy laws of the United States of America now
or hereafter in effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or in equity) is filed
against Borrower, Parent, any Obligor or any of their respective subsidiaries or
all or any part of its properties and such petition or application is not
dismissed within forty-five (45) days after the date of its filing or Borrower,
Parent, any Obligor or any of their respective subsidiaries shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;”

    


    (iv) Section
10.1(h) of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “(h)           a
case or proceeding under the bankruptcy laws of the United States of America now
or hereafter in effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at a law or equity) is filed by
Borrower, Parent, any Obligor or any of their respective subsidiaries or for all
or any part of its property;”

    


    (v) Section
10.1(i) of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “(i)           (i)
any default in respect of any Indebtedness of Borrower or any Obligor (other
than Parent) (other than Indebtedness owing to Agent and Lenders hereunder), in
any case in an amount in excess of $100,000, which default continues for more
than the applicable cure period, if any, with respect thereto or any default by
Borrower or any Obligor (other than Parent) under any Material Contract, which
default continues for more than the applicable cure period, if any, with respect
thereto and/or is not waived in writing by the other parties thereto or (ii) any
default in respect of any Indebtedness of Parent or any of its subsidiaries
(other than Borrower) (other than in connection with the Master Lease Agreement,
dated June 9, 2008, between Parent and Varilease Finance, Inc.), in any case in
an amount in excess of $500,000, which default continues for more than the
applicable cure period, if any, with respect thereto or any default by Parent or
any of its subsidiaries (other than Borrower) under any material contract, which
default continues for more than the applicable cure period, if any, with respect
thereto and/or is not waived in writing by the other parties
thereto;”

    


    
      
        
        

      

      
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    (vi) Section
10.1(m) of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “(m)                      the
indictment by any Governmental Authority, or as Agent may reasonably determine,
the threatened indictment by any Governmental Authority of Borrower, Parent, any
Obligor or any of their respective subsidiaries of which Borrower, Parent, any
Obligor or any of their respective subsidiaries or Agent receives notice, in
either case, as to which there is a reasonable possibility of an adverse
determination, in the reasonable determination of Agent, under any criminal
statute, or commencement or threatened commencement of criminal or civil
proceedings against Borrower, Parent, any Obligor or any of their respective
subsidiaries, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of (i) any of the Collateral having a
value in excess of $250,000 or (ii) any other property of Borrower, Parent, any
Obligor or any of their respective subsidiaries which is necessary or material
to the conduct of its business;”

    


    (vii) Section
10.1(o) of the Loan Agreement is hereby amended and restated in its entirety as
follows:

     

    “(o)           there
shall have occurred a Material Adverse Effect as to Borrower, Parent, any
Obligor or any of their respective subsidiaries; or”

    


    7.   Increase in Maximum Credit
and/or Inventory Loan Limit in connection with the Magic Valley
Project.  In
connection with the Magic Valley Project, upon the request of Borrower and after
the receipt by Wachovia of all documents, reports and such other information as
Wachovia shall request in connection with the Magic Valley Project, all of which
shall be in form and substance satisfactory to Wachovia, Wachovia may, in its
sole and absolute discretion, increase (a) the Maximum Credit from $10,000,000
to $12,000,000 and (b) the Inventory Loan Limit from $5,000,000 to
$6,000,000.

     

    
      
        
        

      

      
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    8.          Representations and
Warranties.  In
addition to the continuing representations and warranties heretofore made by
Borrower and Parent to Wachovia pursuant to the Loan Agreement and the other
Financing Agreements to which they are respectively a party and made
hereinabove, Borrower and Parent hereby represent and warrant with and to
Wachovia as follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery of this Agreement and
shall be incorporated into and made a part of the Financing
Agreements):

     

    (a) Other
than the Specified Defaults, no Default or Event of Default exists on the date
of this Agreement; and

     

    (b) This
Agreement has been duly executed and delivered by Borrower and Parent and is in
full force and effect as of the date hereof, and the agreements and obligations
of Borrower and Parent contained herein constitute their legal, valid and
binding obligations, enforceable against Borrower and Parent in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to
enforceability.

     

    9.            Conditions
Precedent.  This
Agreement shall not become effective unless all of the following conditions
precedent have been satisfied in full, as determined by Wachovia:

     

    (a) The
receipt by Wachovia of an original (or faxed or electronic copy) of this
Agreement, duly authorized, executed and delivered by Borrower and Parent;
and

     

    (b) As of the
date of this Agreement, other than the Specified Defaults, no Default or Event
of Default shall have occurred and be continuing.

     

    10.   Amendment and Forbearance
Fee.  In
addition to all other fees, charges, interest and expenses payable by Borrower
to Wachovia under the Loan Agreement and the other Financing Agreements,
Borrower shall pay to Wachovia an amendment and forbearance fee in the amount of
$50,000, which fee shall be fully earned as of and payable in advance on the
date hereof.  If the Forbearance Period is extended by Wachovia in its
sole and absolute discretion in accordance with the terms of this Agreement,
Borrower shall pay to Wachovia a forbearance and extension fee in the amount of
$50,000, which shall be fully earned as of and payable on the date of such
extension.  The foregoing fees may be charged to any loan account of
Borrower maintained by Wachovia.

     

    11.   Release of Wachovia;
Covenant Not to Sue.

     

    (a) In
consideration of the agreements of Wachovia contained herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Parent, on behalf of themselves, their successors,
assigns, and legal representatives (collectively, “Releasor”), hereby
absolutely, unconditionally and irrevocably release and forever discharge
Wachovia and its successors and assigns, and its present and former
shareholders, affiliates, subsidiaries, divisions, directors, officers,
attorneys, employees, agents and other representatives (Wachovia and all such
other parties being hereinafter referred to collectively as the “Lender Releasees” and
individually as a “Lender Releasee”), of
and from all demands, actions, causes of action, suits, covenants, contracts,
controversies, agreements, promises, sums of money, accounts, bills, reckonings,
damages and any and all other claims, counterclaims, defenses, rights of
set-off, demands and liabilities whatsoever (individually, a “Claim” and
collectively, “Claims”) of every
kind and nature, known or unknown, suspected or unsuspected, both at law and in
equity, which such Releasor may now or hereafter own, hold, have or claim to
have against the Lender Releasees or any of them for, upon, or by reason of any
nature, cause or thing whatsoever which arises from the beginning of the world
to the day of execution of this Agreement, including, without limitation, for or
on account of, or in relation to, or in any way in connection with the Loan
Agreement or any of the other Financing Agreements, as amended and supplemented
through the date hereof; provided, that, nothing in this
paragraph 11(a) shall release or relieve Wachovia from any of its obligations,
covenants and/or agreements under this Agreement or under the Loan Agreement and
other Financing Agreements.

     

    
      
        
        

      

      
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    (b) EACH OF
BORROWER AND PARENT 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 A CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM,
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

    


    EACH OF
BORROWER AND PARENT 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 RELEASE.

     

    (c) Borrower
and Parent understand, acknowledge and agree that the release set forth above
may be pleaded as a full and complete defense and may be used as a basis for an
injunction against any action, suit or other proceeding which may be instituted,
prosecuted or attempted in breach of the provision of such release.

     

    (d) Borrower
and Parent agree that no fact, event, circumstance, evidence or transaction
which could now be asserted or which may hereafter be discovered shall affect in
any manner the final and unconditional nature of the release set forth
above.

     

    (e) Borrower
and Parent, on behalf of themselves  and their successors, assigns,
and other legal representatives, hereby absolutely, unconditionally and
irrevocably covenant and agree with each Releasee that they will not sue (at
law, in equity, in any regulatory proceeding or otherwise) any Releasee on the
basis of any Claim released, remised and discharged by Releasors pursuant to
paragraph 11(a) above.  If any Releasor violates the foregoing
covenant, such Releasor agrees to pay, in addition to such other damages as any
Releasee may sustain as a result of such violation, all attorneys’ fees and
costs incurred by any Releasee as a result of such violation.

     

    
      
        
        

      

      
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    12.  Reviewed by
Attorneys.  Borrower
and Parent represent and warrant that they:  (a) understand fully the
terms of this Agreement and the consequences of the execution and delivery
hereof, (b) have been afforded an opportunity to have this Agreement reviewed
by, and to discuss the same with, such attorneys and other persons as Borrower
and Parent may wish, and (c) have entered into this Agreement of its own free
will and accord and without threat, duress or other coercion of any kind by any
person.  Borrower and Parent acknowledge and agree that this Agreement
shall not be construed more favorably in favor of Borrower and Parent, on the
one hand, or Wachovia, on the other hand, based upon which party drafted the
same, it being acknowledged that Wachovia, Borrower and Parent contributed
substantially to the negotiation and preparation of this Agreement.

     

    13.  Effect of this
Agreement.  Except
as modified pursuant hereto, no other changes or modifications to the Loan
Agreement and the other Financing Agreements are intended or implied and in all
other respects the Loan Agreement and the other Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof.  To the extent of any conflict between the
terms of this Agreement and the Loan Agreement or any of the other Financing
Agreements, the terms of this Agreement shall control.  The Loan
Agreement and this Agreement shall be read and construed as one
agreement.

     

    14.  Further
Assurances.  At
Wachovia’s request, Borrower and Parent shall execute and deliver such
additional documents and take such additional actions as Wachovia requests to
effectuate the provisions and purposes of this Agreement and to protect and/or
maintain perfection of Wachovia’s security interests in and liens upon the
Collateral.

     

    15.  Governing
Law.  The
validity, interpretation and enforcement of this Agreement in any dispute
arising out of the relationship between the parties hereto, whether in contract,
tort, equity or otherwise shall be governed by the internal laws of the State of
California (without giving effect to principles of conflicts of
law).

     

    16.  Binding
Effect.  This
Agreement shall be binding upon and inure to the benefit of each of the parties
hereto and their respective successors and assigns

     

    17.  Counterparts.  This
Agreement may be executed in any number of counterparts, but all of such
counterparts when executed shall together constitute one and the same
Agreement.  In making proof of this Agreement, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.

     

    [SIGNATURE
PAGE FOLLOWS]

     

    
      
        
        

      

      
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              Very
      truly yours,

            
	 
      	 
      
	 
      	
              KINERGY MARKETING
      LLC,

              as
      Borrower

               

              By:  /s/ JOSEPH HANSEN            

              Name:  Joseph
      Hansen                                                                  

              Title:  Chief Financial
      Officer                                                                  

            
	 
      	 
      
	 
      	
              PACIFIC ETHANOL,
      INC,

              as
      Parent

               

              By:  /s/ JOSEPH HANSEN            

              Name:  Joseph
      Hansen                                                                  

              Title:  Chief Financial
      Officer                                                                  

            
	
              AGREED
      TO:

            	 
      
	 
      	 
      
	
              WACHOVIA CAPITAL FINANCE
      CORPORATION (WESTERN),

              as
      Agent and sole Lender

               

              By:  /s/ CARLOS VALLES            

              Name:  Carlos
      Valles                                                                  

              Title:  Director                                                                  

            	 
      
	 
      	 
      


    

    
 

     

     

     

     

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