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                                KIRBY CORPORATION

                                  $200,000,000
        Floating Rate Senior Notes, Series 2005-A, due February 28, 2013

                                    _________

                   FIRST SUPPLEMENT TO NOTE PURCHASE AGREEMENT
                                    _________

                            Dated as of May 31, 2005

================================================================================

<PAGE>
                   FIRST SUPPLEMENT TO NOTE PURCHASE AGREEMENT

     THIS  FIRST  SUPPLEMENT  is  entered  into  as  of  May  31,  2005  (this
"Supplement")  between  KIRBY CORPORATION, a Nevada corporation (the "Company"),
and  the  Purchasers  listed  in  the  attached  Schedule  A (the "Purchasers").

                                 R E C I T A L S
                                 ---------------

     A.     The  Company  has entered into a Note Purchase Agreement dated as of
February  15,  2003  with  the  purchasers  listed  in  Schedule  A  thereto (as
heretofore  supplemented,  the  "Note  Purchase  Agreement");  and

     B.     The  Company desires to issue and sell, and the Purchasers desire to
purchase,  an  additional  series  of  Notes  (as  defined  in the Note Purchase
Agreement)  pursuant  to  the Note Purchase Agreement and in accordance with the
terms  set  forth  below;

     NOW,  THEREFORE,  the  Company  and  the  Purchasers  agree  as  follows:

     1.     Authorization  of  the  New  Series  of  Notes.
            ----------------------------------------------

          (a)     Amount; Designation.  The Company has authorized the issue and
                  -------------------
     sale  of  $200,000,000  aggregate  principal  amount  of  Notes  to  be
     designated  as  its Floating Rate Senior Notes, Series 2005-A, due February
     28,  2013  (the  "Series 2005-A Notes", such term to include any such Notes
     issued in substitution therefor pursuant to Section 13 of the Note Purchase
     Agreement).  The Series 2005-A Notes shall be substantially in the form set
     out  in  Exhibit 1 to this Supplement, with such changes therefrom, if any,
     as may be approved by the Purchasers and the Company.

          (b)     Adjusted  Libor  Rate.     Section 1.2(b) of the Note Purchase
                  ---------------------
     Agreement  shall  apply  to  the  Series  2005-A  Notes  in  its  entirety,
     except  the  reference in the definition of "Adjusted LIBOR Rate" to "1.2%"
     shall be deemed to be a reference to 0.50%.

          (c)     Determination  of  the  Adjusted LIBOR Rate.  The reference in
                  -------------------------------------------
     Section  1.2(c)  of  the  Note  Purchase Agreement to "Series 2003-A Notes"
     shall be deemed to be reference to the Series 2005-A Notes.

          (d)     Interest  Period.  "INTEREST  PERIOD" means for any period for
                  ----------------
     which  interest  is  to  be  calculated or paid on the Series 2005-A Notes,
     the period commencing on the date of an interest payment, or on the date of
     Closing  in  the  case  of the first such period, continuing up to, but not
     including,  the  next February 28, May 28, August 28 or November 28, as the
     case  may  be,  or  if such date is not a Business Day, the next succeeding
     Business Day.

                                      -1-
<PAGE>
     2.     Sale  and Purchase of Series 2005-A Notes.  Subject to the terms and
            -----------------------------------------
conditions  of this Supplement and the Note Purchase Agreement, the Company will
issue  and sell to each of the Purchasers, and the Purchasers will purchase from
the  Company,  at  the Closing provided for in Section 3, Series 2005-A Notes in
the  principal  amount specified opposite their respective names in the attached
Schedule  A  at the purchase price of 100% of the principal amount thereof.  The
obligations  of  the  Purchasers hereunder are several and not joint obligations
and  no  Purchaser shall have any liability to any Person for the performance or
non-performance  by  any  other  Purchaser  hereunder.

     3.     Closing.  The  sale  and  purchase  of the Series 2005-A Notes to be
            -------
purchased  by  the  Purchasers  shall  occur  at the offices of Gardner Carton &
Douglas LLP, 191 North Wacker Drive, Suite 3700, Chicago, Illinois 60606-1698 at
9:00 a.m., Chicago time, at a closing (the "Closing") on May 31, 2005 or on such
other Business Day thereafter on or prior to June 15, 2005 as may be agreed upon
by  the Company and the Purchasers.  At the Closing, the Company will deliver to
each  Purchaser  the  Series 2005-A Notes to be purchased by it in the form of a
single  Note  (or such greater number of Series 2005-A Notes in denominations of
at  least  $500,000 as such Purchaser may request) dated the date of the Closing
and  registered in its name (or in the name of its nominee), against delivery by
such Purchaser to the Company or its order of immediately available funds in the
amount  of the purchase price therefor by wire transfer of immediately available
funds  for  the account of the Company to account number 00100359554 at JPMorgan
Chase  Bank,  712  Main Street, Houston, Texas  77002, ABA No. 113000609.  If at
the  Closing  the  Company  shall  fail  to tender such Series 2005-A Notes to a
Purchaser  as  provided  above  in  this  Section  3,  or  any of the conditions
specified  in  Section 4 of the Note Purchase Agreement, as modified or expanded
by  Section  4  hereof,  shall  not  have  been  fulfilled  to  such Purchaser's
satisfaction,  such Purchaser shall, at its election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights it may have
by  reason  of  such  failure  or  such  nonfulfillment.

     4.     Conditions  to Closing.  Each Purchaser's obligation to purchase and
            ----------------------
pay  for  the  Series 2005-A Notes to be sold to it at the Closing is subject to
the  fulfillment  to  its  satisfaction,  prior  to  or  at  the Closing, of the
conditions  set  forth in Section 4 of the Note Purchase Agreement, as hereafter
modified,  and  to  the  following  additional  conditions:

          (a)     References  in  Section  4  of  the Note Purchase Agreement to
     "Series  2003-A  Notes"  shall  be  deemed  to  be references to the Series
     2005-A  Notes  and  references to the "Closing" shall be deemed to refer to
     the Closing as such term is defined in this Supplement;

          (b)     The  reference  in  Section  4.2  to the "Memorandum" shall be
     deemed  to  be  a  reference  to  the  term  "Memorandum"  as  such term is
     defined  in  Schedule  5  to this Supplement and the reference to "Schedule
     5.14" shall be deemed to be a reference to Schedule 5.14 hereto;

          (c)     The  legal  opinions, and forms thereof, called for by Section
     4.4  of  the  Note  Purchase  Agreement  shall be appropriately modified to
     reflect this Supplement and

                                      -2-
<PAGE>
     the  transactions  contemplated  herein  and  the  rendering  of  the legal
     opinion  by  Fulbright  & Jaworski L.L.P. in substitution of the opinion by
     Jenkens & Gilchrist;

          (d)     References  in  the  Note  Purchase  Agreement  to  "Other
     Purchasers" shall be deemed to refer to the Purchasers hereunder; and

          (e)     At least three Business Days prior to the date of the Closing,
     each  Purchaser  shall  have  received  a  copy  of  written  instructions
     signed by a Responsible Officer on letterhead of the Company confirming the
     information  specified  in  Section 3 including (i) the name and address of
     the  transferee  bank, (ii) such transferee bank's ABA number and (iii) the
     account  name  and number into which the purchase price for the Notes is to
     be deposited.

     5.     Representations  and  Warranties  of  the  Company.  The  Company
            --------------------------------------------------
represents  and  warrants to the Purchasers that each of the representations and
warranties  contained  in  Section  5 of the Note Purchase Agreement is true and
correct  as of the date hereof (i) except that all references to "Purchaser" and
"you"  therein  shall  be  deemed  to  refer  to  the  Purchasers hereunder, all
references  to  "this  Agreement"  shall be deemed to refer to the Note Purchase
Agreement  as  supplemented  by  this  Supplement, and all references to "Series
2003-A  Notes"  therein shall be deemed to refer to the Series 2005-A Notes, and
(ii)  except for changes to such representations and warranties or the Schedules
referred  to  therein,  which  changes are set forth in the attached Schedule 5.

     6.     Representations  of  the Purchasers.  Each Purchaser confirms to the
            -----------------------------------
Company  that  the  representations  set forth in Section 6 of the Note Purchase
Agreement  are  true  and  correct  as  to  such  Purchaser.

     7.     Mandatory  Prepayment of the Series 2005-A Notes.  The Series 2005-A
            ------------------------------------------------
Notes  are  not  subject  to  mandatory  prepayment  by  the  Company.

     8.     Optional  Prepayments  of the Series 2005-A Notes.  The Company may,
            -------------------------------------------------
at  its  option,  upon notice as provided below, prepay at any time all, or from
time  to  time  any  part of, the Series 2005-A Notes in an amount not less than
$1,000,000  in the aggregate in the case of a partial prepayment, at 100% of the
principal  amount  so prepaid, plus interest on such principal amount accrued to
such  prepayment  date, plus the prepayment premium set forth below and, if such
prepayment  is  to  occur  on  any date other than an Interest Payment Date, the
LIBOR  Breakage  Amount,  if  any.

<TABLE>
<CAPTION>
------------------------------------------------------
IF PREPAID DURING THE PERIOD       PREPAYMENT PREMIUM
---------------------------------  -------------------
<S>                                <C>
May 31, 2005 through May 28, 2006          2.0%
---------------------------------  -------------------
May 29, 2006 through May 28, 2007          1.0%
---------------------------------  -------------------
May 29, 2007 and thereafter                0.0%
------------------------------------------------------
</TABLE>

The  Company will give each holder of Series 2005-A Notes written notice of each
optional prepayment under this Section 8 not less than 30 days and not more than
60  days  prior  to  the date fixed for such prepayment.  Each such notice shall
specify  such date, the aggregate principal amount of the Series 2005-A Notes to
be  prepaid  on  such  date,  the  principal  amount  of  each

                                      -3-
<PAGE>
Series  2005-A  Note held by such holder to be prepaid (determined in accordance
with Section 8.3 of the Note Purchase Agreement), and the interest to be paid on
the  prepayment  date  with  respect  to  such  principal  amount being prepaid.

     9.     Applicability  of  Note  Purchase  Agreement.  Except  as  otherwise
            --------------------------------------------
expressly  provided  herein  (and  expressly  permitted  by  the  Note  Purchase
Agreement),  all  of  the  provisions  of  the  Note  Purchase  Agreement  are
incorporated  by  reference herein and shall apply to the Series 2005-A Notes as
if  expressly  set  forth in this Supplement.  For purposes of the Series 2005-A
Notes  and any future series or tranche of Notes issued pursuant to a supplement
to  the  Note  Purchase  Agreement:

     (a)      Section  22.2  of  the  Note  Purchase Agreement shall read in its
entirety  as  follows:

     "22.2     PAYMENTS  DUE  ON  NON-BUSINESS  DAYS.

               Anything  in  this  Agreement  or  the Series 2005-A Notes to the
contrary  notwithstanding,  any payment of principal of or LIBOR Breakage Amount
or interest on any Note that is due on a date other than a Business Day shall be
made  on  the next succeeding Business Day and shall include the additional days
elapsed  in  the  computation  of  the  interest payable on such next succeeding
Business  Day."

     (b)     The  definition  of Business Day in Schedule B of the Note Purchase
Agreement  shall  read  in  its  entirety  as  follows:

     "BUSINESS  DAY"  means  (a)  for  the  purposes  of  Section  8.6  and  the
determination of LIBOR only, any day other than a Saturday, a Sunday or a day on
which  commercial  banks  in  London,  England  are required or authorized to be
closed,  and  (b) for the purposes of any other provision of this Agreement, any
day  other  than  a  Saturday,  a  Sunday  or a day on which commercial banks in
Chicago,  Illinois  or  New  York City are required or authorized to be closed."

                                      -4-
<PAGE>
     IN  WITNESS  WHEREOF,  the  Company  and  the  Purchasers  have caused this
Supplement  to  be  executed  and  delivered  as  of  the  date set forth above.

                              KIRBY  CORPORATION

                              By: /s/ Norman W. Nolen
                              Name:   Norman W. Nolen
                              Title: Executive Vice President and
                                     Chief Financial Officer

                                      S-1
<PAGE>
MONUMENTAL LIFE INSURANCE COMPANY

By: /s/ Bill Henricksen
Name:   Bill Henricksen
Title: Vice President

                                      S-2
<PAGE>
By:  PPM  AMERICA,  INC.,  as  attorney  in  fact, on behalf of Jackson National
     Life Insurance Company

By: /s/ Mark Staub
Name:   Mark Staub
Title: Vice President

By:  PPM  AMERICA,  INC.,  as  attorney  in  fact, on behalf of Jackson National
     Life Insurance Company of New York

By: /s/ Mark Staub
Name:   Mark Staub
Title: Vice President

                                      S-3
<PAGE>
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY

By: /s/ Stephen R. De Motto
Name:   Stephen R. De Motto
Title: Investment  Officer

                                      S-4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY

By: /s/ Robert B. Bodett
Name:   Robert B. Bodett

By: /s/ Jerry D. Zinkula
Name:   Jerry D. Zinkula

        Authorized  Signatories

ALLSTATE  INSURANCE  COMPANY

By: /s/ Robert B. Bodett
Name:   Robert B. Bodett

By: /s/ Jerry  D. Zinkula
Name:   Jerry D. Zinkula

       Authorized  Signatories

                                      S-5
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY

By:  CIGNA Investments, Inc. (authorized agent)

By: /s/ Deborah B. Wiacek
Name:   Deborah B. Wiacek
Title: Managing Director

                                      S-6
<PAGE>
PHOENIX LIFE INSURANCE COMPANY

By: /s/ Carole A. Masters
Name:   /s/ Carole A. Masters
Title: Vice President

                                      S-7
<PAGE>
HARTFORD  LIFE  INSURANCE  COMPANY

By:  HARTFORD INVESTMENT SERVICES, INC.
      Its Agent and Attorney-in-Fact

By: /s/ Daniel C. Leimbach
Name:   Daniel C. Leimbach
Title: Senior Vice President

                                      S-8
<PAGE>
THE TRAVELERS INSURANCE COMPANY

By: /s/ Allen Cantrell
Name:   Allen Cantrell
Title: Investment Officer

                                      S-9
<PAGE>
                                                                      Schedule 5
                                                                   to Supplement
                                                                   -------------

                          EXCEPTIONS TO REPRESENTATIONS
                                 AND WARRANTIES

<TABLE>
<CAPTION>
<S>      <C>
-----------------------------------------------------------------------------
SECTION
-------  --------------------------------------------------------------------
 5.3     In the first sentence, change the date of the Private Placement
         Memorandum from January 2003 to April 2005.

-------  --------------------------------------------------------------------
         In the fourth sentence, change September 30, 2002 to March 31, 2005.

-------  --------------------------------------------------------------------
 5.4     Replace Schedule 5.4 with the attached Schedule 5.4.

-------  --------------------------------------------------------------------
 5.5     Replace Schedule 5.5 with the attached Schedule 5.5.

-------  --------------------------------------------------------------------
 5.8     Replace Schedule 5.8 with the attached Schedule 5.8.

-------  --------------------------------------------------------------------
 5.9     Change the date in the last sentence from December 31, 1998 to
         December 31, 2000.

-------  --------------------------------------------------------------------
 5.14    Replace Schedule 5.14 with the attached Schedule 5.14.

-------  --------------------------------------------------------------------
 5.15    In the first sentence, change December 31, 2002 to April 30, 2005.

-------  --------------------------------------------------------------------
         Replace Schedule 5.15 with the attached Schedule 5.15.

-----------------------------------------------------------------------------
</TABLE>

                            Schedule 5 to Supplement
<PAGE>
<TABLE>
<CAPTION>
                          SUBSIDIARIES AND AFFILIATES

SUBSIDIARIES                                 ORGANIZED       OWNERSHIP
<S>                                          <C>             <C>

AFRAM Carriers, Inc.                         Delaware              100%
Dixie Offshore Transportation Company        Delaware              100%
Engine Systems, Inc.(1)                      Delaware              100%
KIM Holdings, Inc.                           Delaware              100%
KIM Partners, LLC(2)                         Louisiana             100%
Kirby Corporate Services, LLC                Delaware              100%
Kirby Inland Marine, LP(3)                   Delaware              100%
Kirby Engine Systems, Inc.                   Delaware              100%
Kirby Tankships, Inc.                        Delaware              100%
Kirby Terminals, Inc.                        Texas                 100%
Marine Systems, Inc.(1)                      Louisiana             100%
Rail Systems, Inc.(1)                        Delaware              100%
Sabine Transportation Company                Delaware              100%
Dixie Carriers, Inc.(4)                      Texas                 100%
Mariner Reinsurance Company Limited          Bermuda               100%
Matagorda Terminal, Ltd.(5)                  Texas                 100%
Hollywood Marine, No. 3., Ltd.(4)            Texas                  75%
Hollywood Chem 107, Ltd.(4)                  Texas                83.4%
Hollywood Chem 108, Ltd.(4)                  Texas                87.5%
Hollywood Marine 1004-7, Ltd.(4)             Texas                83.4%
Hollywood Marine 1008-14, Ltd.(4)            Texas                87.5%
Hollywood Marine 3009-14, Ltd.(4)            Texas                87.5%
Hollywood Marine 3015, Ltd.(4)               Texas                83.4%
Hollywood/Texas Olefins, Ltd.(4)             Texas                  50%
Marine Highways, LLC                         Delaware          Variable

AFFILIATES                                   ORGANIZED       OWNERSHIP

BargeNet, LLC(4)                             Delaware           33 1/3%
Bolivar Terminal Co., Inc.(4)                Texas                  50%
Dixie Fuels Limited(6)                       Texas                  35%
The Hollywood Camp, L.L.C.(4)                Texas                  50%
Osprey Line, L.L.C.                          Texas              33 1/3%
</TABLE>

                                  Schedule 5.4
<PAGE>
_________________________________
(1)     Owned  by  Kirby  Engine  Systems,  Inc.
(2)     Owned  by  KIM  Holdings,  Inc.
(3)     Owned  by  KIM  Holdings,  Inc.  and  KIM  Partners,  LLC
(4)     Owned  by  Kirby  Inland  Marine,  LP
(5)     Owned  by  Kirby  Inland  Marine,  LP  and  Kirby  Terminals,  Inc.
(6)     Owned  by  Dixie  Offshore  Transportation  Company

DIRECTORS  OF  KIRBY  CORPORATION

C. Sean Day
Bob G. Gower
Walter E. Johnson
William M. Lamont, Jr.
C. Berdon Lawrence
George A. Peterkin, Jr.
Joseph H. Pyne
Robert G. Stone, Jr.
Richard C. Webb

SENIOR OFFICERS OF KIRBY CORPORATION

C.  Berdon  Lawrence  -     Chairman  of  the  Board
Joseph  H.  Pyne      -     President  &  Chief  Executive  Officer
Norman  W.  Nolen     -     Executive  Vice  President & Chief Financial Officer
Mark  R.  Buese       -     Senior  Vice  President  -  Administration
G.  Stephen  Holcomb  -     Vice  President  -  Investor  Relations
Howard  G.  Runser    -     Vice  President  -  Information  Technology
Jack  M.  Sims        -     Vice  President  -  Human  Resources
Ronald  A.  Dragg     -     Controller

                                  Schedule 5.4
<PAGE>
                                                                    SCHEDULE 5.5
                                                                    ------------

                              FINANCIAL STATEMENTS

Kirby  Corporation  Annual  Reports  on  Form 10-K for fiscal years 2000 through
2004.

Kirby  Corporation Quarterly Report on Form 10-Q for the quarter ended March 31,
2005.

                                  Schedule 5.5
<PAGE>
                                                                    SCHEDULE 5.8
                                                                    ------------

                                   LITIGATION

     In  2000,  two  subsidiaries of the Company and a group of approximately 45
other  companies  were  notified  that  they are Potentially Responsible Parties
("PRPs)  under  the  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act of 1981, as amended ("CERCLA"), with respect to a Superfund site,
the  Palmer Barge Line site ("Palmer"), located in Port Arthur, Texas.  In prior
years,  Palmer had provided tank barge cleaning services to various subsidiaries
of the Company.  The Company and three other PRPs have entered into an agreement
with  the  United  States  Environmental  Protection Agency ("EPA") to perform a
remedial  investigation  and  feasibility study.  Based on information currently
available,  the  Company  is  unable to ascertain the extent of its exposure, if
any,  in  this  matter.

     In  2003,  the  Company  and  certain  subsidiaries  received a Request For
Information  ("RFI") from the EPA under CERCLA with respect to a Superfund site,
the  Gulfco  site,  located  in  Freeport,  Texas.  In  prior  years,  a company
unrelated  to  Gulfco  operated  at  the  site  and provided tank barge cleaning
services to various subsidiaries of the Company.  Based on information currently
available,  the  Company  is  unable to ascertain the extent of its exposure, if
any,  in  this  matter.

     In  2004, the Company and certain subsidiaries received an RFI from the EPA
under CERCLA with respect to a Superfund site, the State Marine site, located in
Port  Arthur,  Texas.  Based  on information currently available, the Company is
unable  to  ascertain  the  extent  of  its  exposure,  if  any, in this matter.

                                  Schedule 5.8
<PAGE>
                                                                   SCHEDULE 5.14
                                                                   -------------

<TABLE>
<CAPTION>
                                 USE OF PROCEEDS

-----------------------------------------------------------------------------------
                                     Balance      Private Placement     Balance
                                     4/30/05         Proceeds        After Paydown
-----------------------------------------------------------------------------------
<S>                                <C>           <C>                 <C>
250,000,000 Floating Rate Senior   $200,000,000  $      200,000,000  $          -0-
Notes, Series 2003-A, due
February 28, 2013
-----------------------------------------------------------------------------------
</TABLE>

                                  Schedule 5.14
<PAGE>
                                                                   SCHEDULE 5.15
                                                                   -------------

<TABLE>
<CAPTION>
                                         EXISTING DEBT

---------------------------------------------------------------------------------------------
                                                                                 Balance at
                                                                                   4/30/05
------------------------------------------------------------------------------  -------------
<S>                                                                             <C>
$250,000,000 Floating Rate Senior Notes, Series 2003-A, due February 28, 2013   $200,000,000
------------------------------------------------------------------------------  -------------
$150,000,000 Revolving Credit Facility, due December 9, 2007                             -0-
------------------------------------------------------------------------------  -------------
$10,000,000 Bank of America line of credit, due November 2, 2005                   2,500,000
------------------------------------------------------------------------------  -------------
$5,000,000 BNP Paribas revolving credit note, due December 31, 2005                5,000,000
------------------------------------------------------------------------------  -------------
Real estate lien note, $590.84 monthly installments (principal and interest)          39,000
through 10/01/12
------------------------------------------------------------------------------  -------------
                                                                                $207,539,000
                                                                                ============
---------------------------------------------------------------------------------------------
</TABLE>

                                  Schedule 5.15
<PAGE>
                                                                    Exhibit 1 to
                                                                      Supplement
                                                                      ----------

                          [FORM OF SERIES 2005-A NOTE]

                                KIRBY CORPORATION

                            FLOATING RATE SENIOR NOTE
                      SERIES 2005-A, DUE FEBRUARY 28, 2013

No. [_____]                                                               [Date]
$[_______]                                                     PPN: 497266 A @ 5

          FOR  VALUE RECEIVED, the undersigned, KIRBY CORPORATION (herein called
the "Company"), a corporation organized and existing under the laws of the State
of  Nevada, promises to pay to [         ], or registered assigns, the principal
sum  of  $[              ]  on February 28, 2013, with interest (computed on the
basis of a 360-day year and the actual number of days elapsed) (a) on the unpaid
principal  thereof at a floating rate equal to the Adjusted LIBOR Rate from time
to  time,  payable quarterly on each February 28, May 28, August 28 and November
28,  commencing  with  the February, May, August or November next succeeding the
date  hereof  until  the principal shall have become due and payable, and (b) to
the  extent  permitted  by  law  on  any  overdue payment (including any overdue
prepayment)  of  principal,  any  overdue  payment  of  interest and any overdue
payment  of  any  LIBOR  Breakage  Amount  at  the  Default  Rate  until  paid.

          Payments  of  principal  of, interest on and any LIBOR Breakage Amount
with respect to this Note are to be made in lawful money of the United States of
America  at  the  principal office of Bank of America in Chicago, Illinois or at
such  other  place as the Company shall have designated by written notice to the
holder  of  this  Note  as  provided  in the Note Purchase Agreement referred to
below.

          This  Note  is  one  of  a  series  of Senior Notes (herein called the
"Notes")  issued  pursuant to a Note Purchase Agreement dated as of February 15,
2003,  as  supplemented  by  a  First  Supplement  dated  as of May 31, 2005 (as
supplemented,  the  "Note  Purchase  Agreement"),  between  the  Company and the
respective  Purchasers  named  therein  and is entitled to the benefits thereof.
Reference is made to the Note Purchase Agreement for the definitions used herein
and  the  method of calculating the interest and other payments to be made or in
respect  of  this  Note.  Each  holder  of  this  Note  will  be  deemed, by its
acceptance  hereof,  (i)  to  have  agreed to the confidentiality provisions set
forth  in  Section  20  of the Note Purchase Agreement and (ii) to have made the
representations  and  agreement  set  forth  in  Section  6 of the Note Purchase
Agreement.

                                      -1-
                                    Exhibit 1
<PAGE>
          This  Note  is a registered Note and, as provided in the Note Purchase
Agreement,  upon  surrender  of  this  Note  for  registration of transfer, duly
endorsed,  or  accompanied by a written instrument of transfer duly executed, by
the  registered  holder  hereof  or  such  holder's  attorney duly authorized in
writing,  a  new  Note  for  a  like  principal  amount  will  be issued to, and
registered  in  the  name  of,  the  transferee.  Prior  to  due presentment for
registration  of  transfer,  the Company may treat the person in whose name this
Note  is registered as the owner hereof for the purpose of receiving payment and
for  all  other  purposes, and the Company will not be affected by any notice to
the  contrary.

          This  Note is subject to optional prepayment, in whole or from time to
time  in  part,  at  the  times  and on the terms specified in the Note Purchase
Agreement  but  not  otherwise.

          If  an  Event  of  Default, as defined in the Note Purchase Agreement,
occurs  and  is  continuing,  the  principal  of  this  Note  may be declared or
otherwise  become  due  and  payable  in the manner, at the price (including any
applicable  LIBOR  Breakage  Amount)  and  with  the effect provided in the Note
Purchase  Agreement.

          Notwithstanding  any other provision of this Note or the Note Purchase
Agreement,  in  no  event  shall  the interest payable hereon, whether before or
after  maturity,  exceed  the  maximum interest that may be charged on this Note
under  applicable law, and this Note is expressly made subject to the provisions
of  the  Note Purchase Agreement which more fully set out the limitations on how
interest  may  be  accrued,  charged  or  paid  on  this  Note.

          This  Note shall be construed and enforced in accordance with, and the
rights  of  the  parties  shall be governed by, the law of the State of Illinois
excluding  choice-of-law  principles of the law of such State that would require
the  application  of  the  laws  of  a  jurisdiction  other  than  such  State.

                                 KIRBY  CORPORATION

                                 By:  _________________________________
                                 Name:  _______________________________
                                 Title:  ______________________________

                                      -2-
                                    Exhibit 1<PAGE>
EXHIBIT 10.1

                               TERM LOAN AGREEMENT
                (LYLES DIVERSIFIED, INC. -PACIFIC ETHANOL, INC.)

         THIS TERM LOAN AGREEMENT (the "LOAN AGREEMENT") is made effective as of
June 16,2003, by and between LYLES DIVERSIFIED, INC., a California corporation
(the "LENDER") and PACIFIC ETHANOL, INC., a California corporation (the
"BORROWER").

         A. Borrower has agreed to purchase certain real property consisting of
approximately 137 acres located in Madera County, California, on Avenue 12 about
four miles east of Highway 99 (the "REAL PROPERTY"). The Real Property is being
offered for sale by the trustee for the bankruptcy estate of Coast Grain
Company. The Real Property includes certain improvements and fixtures,
including, but not limited to, a grain storage and processing facility, an
office building, and two railroad sidings (the "EXISTING FACILITIES").

         B. Borrower intends to expand the Existing Facilities by constructing
an ethanol production facility on the Real Property (the "MADERA FACILITY").
Borrower also intends, at some future date, to construct a second ethanol
production facility in California (the "SECOND FACILITY"). Borrower has selected
W.M. Lyles Co. (the "BUILDER") as the general contractor for the Madera Facility
and the Second Facility. The Lender is the parent company of Builder. Borrower
and Builder intend to enter into a design-build construction contract for the
construction of the Madera Facility and, at a later date enter into a second
design-build construction contract for the Second Facility (the "DESIGN-BUILD
CONTRACT").

         C. Borrower requires financing to complete its acquisition of the Real
Property and Lender has agreed to loan monies and/or extend other financial
accommodations to Borrower against the security of the Real Property, subject to
the terms and conditions of this Loan Agreement.

         NOW THEREFORE, in consideration of the mutual terms and conditions
contained herein, the parties agree as follows:

1.       FACILITIES

         1.1 THE TERM LOAN. Lender agrees to make a term loan to Borrower in the
amount of $5,l00,000.00. The credit facility described in this Section shall be
referred to below as the "TERM LOAN". The Borrower will pay interest on all
amounts owing under the Term loan until payment in full of any principal
outstanding thereunder.

         1.2 INITIAL ADVANCE; DEPOSIT. On March 24,2003 Lender made an initial
advance to Borrower under the Term Loan in the principal amount of $510,000.00,
which Borrower used as a good-faith deposit for the purchase of the Real
Property (the "DEPOSIT"). Interest will accrue from March 24,2003 on the
principal amount of the Deposit, at the rates indicated in Paragraph 1.3 of this
Loan Agreement.

<PAGE>

         1.3 REPAYMENT TERMS.

                  (a) INTEREST RATE. Interest under the Term Loan will accrue at
         the following rates:

                           (i) A rate of five percent (5.00%) per annum through
                  June 19, 2004.

                           (ii) A rate per annum equal to the "WALL STREET
                  JOURNAL PRIME RATE" (as defined in Section 1.2(b)) plus two
                  percentage points (2.00%) from June 20,2004 until the Maturity
                  Date (as defined in Section 1.3(d)).

                  (b) DEFINITION OF WALL STREET JOURNAL PRIME RATE. The "WALL
         STREET JOURNAL PRIME RATE" for any day is a fluctuating rate of
         interest equal to the highest rate published from time to time in the
         "MONEY RATES" section of The Wall Street Journal as the Prime Rate for
         such day (or, if such source is not available, such alternate source as
         determined by the Lender).

                  (c) COMPUTATION AND PAYMENT OF INTEREST. Interest shall be
         based on a 365 day year and compounded monthly. Interest shall be paid
         monthly commencing on June 20,3004, and continuing on the twentieth
         (20th) day of each month thereafter. If interest is not paid as it
         becomes due, it may be added to, become and be treated as a part of the
         principal, and shall thereafter bear like interest.

                  (d) PRINCIPAL PAYMENTS/MATURITY DATE. One third of the
         principal outstanding on June 20,2006 shall be paid on that date. Half
         of the principal outstanding on June 20, 2007 shall be paid on that
         date. All remaining outstanding principal, together with any accrued
         interest thereon, shall be due and payable on June 20,2008, (the
         "MATURITY DATE").

                  (e) ADDITIONAL PRINCIPAL PAYMENTS. Borrower shall be rewired
         to prepay the principal owing under the Term Loan in the following
         circumstances:

                           (i) should the construction cost for the Madera
                  Facility to be constructed on the Real Property be less than
                  $42.6 million then Borrower shall promptly pay lender the
                  difference between the actual construction cost and $42.6
                  million: and

                           (ii) should Borrower obtain construction funding for
                  the Second Facility Borrower shall promptly pay Lender all
                  principal and accrued interest then outstanding.

         1.4 PREPAYMENT. Borrower may prepay any amount owing under the Term
Loan, in whole or in part, at any time and without penalty, provided, however,
that any partial prepayment shall first be applied, at Lender's option, to
accrued and unpaid interest and next to the outstanding principal balance.

                                      -2-
<PAGE>

         1.5 RIGHT TO CONVERT DEBT TO COMMON STOCK. Lender shall have the right
to convert up to $1,500,000 of the principal owing to common shares of Borrower.
Any principal converted shall be considered paid on the date of conversion and
shall cease to accrue interest as of that date. The conversion of debt to stock
shall occur by Lender purchasing up to a total of $1,500,000 worth of common
shares at the fixed price of One 501100 Dollars ($1.50) per share. Lender may
purchase shares under this conversion right up to and including March 31, 2005.
Lender shall have no right pursuant to this Agreement to convert debt to stock
ownership following that date. The expiration date for the right to convert debt
to stock ownership cannot be extended irrespective of any performance, or lack
of performance, of Borrower under the Loan Documents. If Borrower intends to
prepay the principal prior to March 31,2005, Lender shall have the option to
exercise its right to convert debt to common stock (as of the date of the
proposed prepayment) in lieu of accepting the prepayment.

         1.6 PAYMENT. If any payment required to be made by Borrower hereunder
becomes due and payable on a day other than a Business Day (as defined below),
the due date thereof shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the then applicable rate during such
extension. Both principal and interest are payable in lawful money of the United
States of America in same day funds at any place that Lender may, from time to
time, in writing designate. "BUSINESS DAY" shall mean a day, other than a
Saturday or Sunday, on which commercial Lenders are open for business in
California.

         1.7 DEFAULT RATE. If any amount owing under the Term Loan is not paid
when due, whether at stated maturity, by acceleration, or otherwise, will bear
interest from the date on which that amount is due until the amount is paid in
full, payable on demand, at a rate which is two percent (2.00%) in excess of the
rate or rates then in effect (the "DEFAULT RATE").

         1.8 LATE PAYMENT. In addition to any other rights Lender may have
hereunder, if any payment of principal or interest, or any portion thereof,
under this Loan Agreement is not paid in accordance with the terms herein, a
late payment charge equal to five percent (5%) of such past due payment may be
assessed and shall be immediately payable.

2.       COLLATERAL, SUBORDINATION AND GUARANTY

         2.1 REAL PROPERTY SECURITY. Borrower agrees to execute and deliver to
Lender a deed of trust dated concurrently with this Loan Agreement (the "DEED OF
TRUST") granting to Lender a first lien security interest on Real Property (the
"COLLATERAL"), to secure the payment and performance of the obligations
hereunder.

         2.2 SUBORDINATION TO FINANCING. Lender agrees to execute and deliver to
Borrower a subordination of Lender's security interest in the Collateral to the
subsequent deed(s) of trust executed by Borrower to secure the financing
necessary for the construction of the Madera Facility. The form and terms of the
subordination shall be reasonably acceptable to the lender(s) that finance the
Madera Facility construction.

         2.3 GUARANTY. The obligations of Borrower under this Loan Agreement
("OBLIGATIONS") shall be secured by the continuing guaranty (the "GUARANTY") of
William L. Jones, Chairman of the Board of Borrower. The Guaranty shall be
limited to an amount equal to fifty percent of principal and interest
outstanding under the Term Loan, and shall be further limited to a total amount
not to exceed $1,000,000.00.

                                      -3-
<PAGE>

         2.4 ADDITIONAL CONSIDERATION. As additional consideration, Borrower
agrees that Lender will be engaged at the appropriate time, on mutually
acceptable terms substantially similar to the Design-Build Contract for the
Madera Facility, on a Design-Build Contract for the Second Facility irrespective
of whether the Loan is repaid at the time Borrower is prepared to contract for
the design and construction of that facility.

3.       CONDITIONS OF LENDING

         3.1 CONDITIONS PRECEDENT TO EXTENSION OF CREDIT. Lender's obligation to
make the Term Loan is subject to the conditions precedent that Lender shall have
received, before making such Term Loan, all of the following, in form and
substance satisfactory to Lender:

                  (a) Evidence that the execution, delivery and performance by
         Borrower of the "LOAN DOCUMENTS" (as defined below) has been duly
         authorized. The term "LOAN DOCUMENTS" shall mean this Loan Agreement,
         the Deed of Trust, the Guaranty, and all other documents or instruments
         entered into between either Borrower and Lender, or by Borrower in
         favor of, or for the benefit of Lender, that recite that they are to
         secure the Obligations.

                  (b) The executed Deed of Trust.

                  (c) The executed Guaranty.

                  (d) Lender holds a duly authorized, created and perfected
         first priority security interest in the Collateral.

                  (e) The representations contained in Section 4 and in any
         other document, instrument or certificate delivered to Lender hereunder
         are true, correct and complete.

         3.2 CONSENT OF OBLIGEES. As long as any principal amount of the Term
Loan remains due and owing to Lender, consent of at least a majority of the
obligees thereunder shall be required for any action that:

                  (a) alters or changes the rights, preferences or privileges of
         such obligees;

                  (b) creates any new debt that is senior to the Obligations
         hereunder;

                  (c) creates any new obligees with rights, preferences or
         privileges senior to the obligees hereunder;

                  (d) amends or waives any provision contained in any document
         evidencing Borrower's corporate existence, including, but not limited
         to, articles of incorporation and by-laws, related to the Obligations
         hereunder; or

                  (e) results in the payment or declaration of any dividend by
         Borrower.

                                      -4-
<PAGE>

4.       REPRESENTATIONS AND WARRANTIES

         Borrower hereby makes the representations and warranties to Lender set
forth in this Section. Borrower agrees that each representation and warranty is
continuing.

         4.1 STATUS. Borrower is a corporation, duly formed and validly existing
under the laws of the State of California.

         4.2 AUTHORITY. The execution, delivery and performance by Borrower of
the Loan Documents have been duly authorized and do not and will not: (i)
violate any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
application to Borrower; or (ii) result in a breach of or constitute a default
under any material indenture or loan or credit agreement or other material
agreement, lease or instrument to which Borrower is a party or by which it or
its properties may be bound or affected.

         4.3 LEGAL EFFECT. The Loan Documents, and any instrument, document or
agreement required thereunder, when delivered to Lender, will constitute, legal,
valid and binding obligations of Borrower and are enforceable against Borrower
in accordance with their respective terms.

         4.4 FINANCIAL STATEMENTS. All financial statements, information and
other data which may have been or which may hereafter be submitted by Borrower
to Lender are true, accurate and correct and have been or will be prepared in
accordance with generally accepted accounting principles consistently applied
and accurately represent the financial condition or, as applicable, the other
information disclosed therein. Since the most recent submission of such
financial information or data to Lender, Borrower represents and warrants that
no material adverse change in Borrower's financial condition or operations has
occurred which has not been fully disclosed to Lender in writing.

         4.5 LITIGATION. Except as have been disclosed to Lender in writing,
there are no actions, suits or proceedings pending or, to the knowledge of
Borrower, threatened against or affecting Borrower or its properties before any
court or administrative agency which, if determined adversely to Borrower, would
have a material adverse effect on Borrower's financial condition or operations
or on the Collateral.

         4.6 TITLE TO ASSETS; PERMITTED LIENS. The Borrower has good and
marketable title to all of its assets and the same are not subject to any
security interest, encumbrance, lien or claim of any third person other than:
(i) liens and security interests securing indebtedness owed by the Borrower to
the Lender; (ii) liens for taxes, assessments or similar charges either not yet
due or being duly contested in good faith; (iii) liens of mechanics,
materialmen, warehousemen or other like liens arising in the ordinary course of
business and securing obligations which are not yet delinquent; (iv) liens and
security interests which, as of the date of this Agreement, have been disclosed
to and approved by the Lender in writing; (v) purchase money liens or purchase
money security interests upon or in any property acquired or held by the
Borrower in the ordinary course of business to secure indebtedness outstanding
on the date hereof or permitted to be incurred hereunder; (vi) liens in favor of
any lender providing annual crop financing to Borrower; and (vii) those liens
and security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of the Borrower's
assets (collectively "PERMITTED LIENS").

                                      -5-
<PAGE>

5.       COVENANTS

         Borrower covenants and agrees that, during the term of this Loan
Agreement, and so long thereafter as Borrower is indebted to Lender under this
Loan Agreement, Borrower will, unless Lender shall otherwise consent in writing:

         5.1 USE OF PROCEEDS. Use the proceeds of the Term Loan only as
purchase-money for the acquisition of the Real Property from the trustee of the
bankruptcy estate of Coast Grain Company.

         5.2 REPORTING AND CERTIFICATION REQUIREMENTS. Borrower shall deliver or
cause to be delivered to Lender, so long as five percent of the total amount of
the Term Loan (principal and accrued interest) remains outstanding, the
following financial and other information:

                  (a) Not later than 120 days after the end of each of
         Borrower's fiscal years, a copy of Borrower's annual financial report
         for such year.

                  (b) Not later than 60 days after the end of each of Borrower's
         fiscal quarters, a copy of Borrower's financial report for that
         quarter.

                  (c) Not later than February 15 of any year, provide monthly
         cash flow and budget projections for such calendar year beginning.

         5.3 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS.
Maintain and preserve the existence of its business and all rights and
privileges now enjoyed; and conduct its business and operations in accordance
with all applicable laws, rules and regulations.

         5.4 MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which
Borrower owns property. With respect to insurance covering properties in which
Lender maintains a security interest or lien, such insurance shall name Lender
as loss payee pursuant to a loss payable endorsement satisfactory to Lender and
shall not be altered or canceled except upon 30 days' prior written notice to
Lender.

         5.5 INSPECTION RIGHTS. Lender may, at any reasonable time and from time
to time, conduct inspections and audits of the Collateral.

         5.6 TRANSFER ASSETS. Not, after the date hereof, sell, contract for
sale, convey, transfer, assign, lease or sublet, any of its assets (including,
but not limited to, the Collateral) except in the ordinary course of business
(and then only for full, fair and reasonable consideration) without Lender's
prior written consent, which consent shall not be unreasonably withheld.

                                      -6-
<PAGE>

         5.7 CHANGE IN NATURE OF BUSINESS. Not make any material change in its
financial structure or the nature of its business as existing or conducted as of
the date hereof.

         5.8 NOTICE. Give Lender prompt written notice of any and all (i) Events
of Default; (ii) litigation, arbitration or administrative proceedings to which
Borrower is a party or which affects the Collateral, and in which the claim or
liability exceeds $500,000.00; (iii) other matters which have resulted in, or
might result in a material adverse change in the Collateral or the financial
condition or business operations of Borrower.

6.       EVENTS OF DEFAULT

         Any one or more of the following described events shall constitute an
event of default (an "EVENT OF DEFAULT") under this Loan Agreement:

         6.1 NON-PAYMENT. Borrower shall fail to pay any Obligations when due.

         6.2 NON-PERFORMANCE. Borrower shall fail in any material respect to
perform or observe any term, covenant or agreement contained in the Loan
Documents and any such failure shall continue unremedied for more than 60 days
after the occurrence thereof.

         6.3 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by Borrower under or in connection with the Loan
Documents or any financial statement given by Borrower, or any representation
made by Borrower in any other document, instrument or certificate provided to
Lender, shall prove to have been incorrect in any material respect when made or
given or when deemed to have been made or given.

         6.4 INSOLVENCY. Borrower shall: (i) become insolvent or be unable to
pay its debts as they mature; (ii) make an assignment for the benefit of
creditors or to an agent authorized to liquidate any substantial amount of its
properties and assets; (iii) file a voluntary petition in Lenderruptcy or
seeking reorganization or to effect a plan or other arrangement with creditors;
(iv) file an answer admitting the material allegations of an involuntary
petition relating to Lenderruptcy or reorganization or join in any such
petition; (v) become or be adjudicated a Lendermpt; (vi) apply for or consent to
the appointment of, or consent that an order be made, appointing any receiver,
custodian or trustee, for itself or any of its properties, assets or businesses;
or (vii) any receiver, custodian or trustee shall have been appointed for all or
substantial part of its properties, assets or businesses and shall not be
discharged within 60 days after the date of such appointment.

         6.5 EXECUTION. Any writ of execution or attachment or any judgment lien
shall be issued against any property of either Obligor and shall not be
discharged or bonded against or released within 60 days after the issuance or
attachment of such writ or lien.

         6.6 SUSPENSION. Borrower shall voluntarily suspend the transaction of
business or allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct Borrower's
business as now conducted.

                                      -7-
<PAGE>

7.       REMEDIES ON DEFAULT

         Upon the occurrence of any Event of Default, Lender may, at its sole
and absolute election, without demand and only upon such notice as may be
required by law:

         7.1 ACCELERATION. Declare any or all of Borrower's indebtedness owing
to Lender, whether under this Loan Agreement or any other document, instrument
or agreement, immediately due and payable, whether or not otherwise due and
payable.

         7.2 PROTECTION OF SECURITY INTEREST. Make such payments and do such
acts as Lender, in its sole judgment, considers necessary and reasonable to
protect its security interest or lien in the Collateral. Borrower hereby
irrevocably authorizes Lender to pay, purchase, contest or compromise any
encumbrance, lien or claim which Lender, in its sole judgment, deems to be prior
or superior to its security interest.

         7.3 FORECLOSURE. Enforce any security interest or lien given or
provided for under this Loan Agreement or under any security agreement,
mortgage, deed of trust or other document, in such manner and such order, as to
all or any part of the properties subject to such security interest or lien, as
Lender, in its sole judgment, deems to be necessary or appropriate and Borrower
hereby waives any and all rights, obligations or defenses now or hereafter
established by law relating to the foregoing.

8.       MISCELLANEOUS

         8.1 FURTHER ASSURANCES. From and after the date of this Agreement,
Lender and Borrower agree to do such things, perform such acts, and make,
execute, acknowledge and deliver such documents as may be reasonably necessary
or proper and usual to carry out the purpose of the Loan Documents in accordance
with their terms.

         8.2 SURVIVAL OF REPRESENTATIONS. All representations, warranties,
covenants, agreements, terms and conditions made herein shall survive the
execution, delivery and closing of this Agreement and all transactions
contemplated hereunder.

         8.3 NOTICES. Any notice herein required or permitted to be given shall
be in writing and may be (i) personally served, (ii) sent by United States mail
and shall be deemed to have been given when deposited in the United States mail,
registered or certified, with return receipt requested, with postage prepaid and
properly addressed or (iii) sent by an established commercial courier service
with written acknowledgment of receipt requested. For the purposes hereof, the
addresses of the parties hereto (until notice of a change thereof is served as
provided in this section) shall be as follows:

To Borrower:                              To Lender:

PACIFIC ETHANOL, INC.                     LYLES DIVERSIFIED, INC.
5711 North West Avenue                    Post Office Box 4376
Fresno, California 93711                  Fresno, California 93744
Fax: (559) 435-1478                       Fax: (559) 487-7948

                                      -8-
<PAGE>

         8.4 DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections of this Agreement are inserted for convenience and shall not be deemed
to affect the meaning or construction of any of the provisions hereof.

         8.5 COSTS AND EXPENSES. Lender and Borrower shall each pay their own
respective costs and expenses incurred, or to be incurred, by said party in
negotiating and preparing this Agreement, and all exhibits hereto, and in
closing and carrying out the transactions contemplated by this Loan Agreement
(including, without limitation, attorneys', paralegals', and other
professionals' fees and costs).

         8.6 SEVERABILITY. In case any provision in this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

         8.7 AMENDMENT PROVISION. The term "AGREEMENT" or "THIS AGREEMENT" and
all reference thereto as used throughout this instrument shall mean this
instrument as originally executed or, if later amended or supplemented, then as
so amended or supplemented. Any amendment to this Agreement must be in writing
signed by the party to be charged.

         8.8 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which shall constitute one and the
same Agreement.

         8.9 APPLICABLE LAW. The Loan Documents and the rights and obligations
of the parties thereto shall be governed by the laws of the State of California
except to the extent that Lender has greater rights or remedies under federal
law, in which case such choice of California law shall not be deemed to deprive
Lender of such rights and remedies as may be available under federal law.

         8.10 ASSIGNABILITY. The Loan Documents shall be binding upon the
parties hereto and their respective successors and assigns, and shall inure to
the benefit of the parties hereto and the successors and assigns of Lender.
Lender may transfer or assign all or part of its interest hereunder to one or
more of Lender's affiliated partnerships or funds managed by it or any of their
respective directors, officers or partners.

         8.11 INTEGRATED AGREEMENT. The Loan Documents constitute the entire and
integrated agreement between Lender and Borrower relating to the Term Loan and
all matters addressed herein and supersede all prior negotiations,
communications, understandings and commitments relating thereto, whether written
or oral. Should Borrower fail to complete a merger or a share exchange agreement
with a public company by December 31,2004, the parties agree that the terms of
the loan shall revert to the terms set out in the Letter of Intent dated March
10,2003, however, if such a merger does occur the Summary of Terms with Secured
Debt with Equity shall be of no force or effect.

                                       -9-
<PAGE>

         8.12 JURY TRIAL WAIVER; REFERENCE. In any judicial action or proceeding
arising from or relating to this Agreement or the other Loan Documents,
including any action or proceeding involving a claim based on or arising from an
alleged tort, (i) Lender and Borrower hereby waive any right it or they may have
to request or demand a trial by jury and (ii) if the action is before a court of
any judicial district of the State of California, either Lender or Borrower may
elect to have all decisions of fact and law determined by a reference in
accordance with California Code of Civil Procedure section 638 m. If such an
election is made, the parties shall designate to the court referee or referees
selected under the auspices of the American Arbitration Association in the same
manner as arbitrators are selected in Association-sponsored proceedings. The
presiding referee of the panel, or the referee if there is a single referee,
shall be an active attorney or retired judge. Judgment upon the award rendered
by such referee or referees shall be entered in the court in which such
proceeding was commenced in accordance with California Code of Civil Procedure
sections 644 and 645.

         8.13 VENUE. Venue for any action hereunder shall be in an appropriate
court in Fresno, California, selected by Lender to which Borrower hereby.

         IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed as of the date first above written.

LENDER:                                      BORROWER:

LYLES DIVERSIFIED, INC., a                   PACIFIC ETHANOL, INC., a California
California corporation                       corporation

By: /S/ WILLIAM M. LYLES                     By: /S/ NEIL KOEHLER
    ---------------------------------            -------------------------------
    William M. Lyles, President                  Neil Koehler, CEO

By: /S/ WILL LYLES                           By: /S/ RYAN TURNER
    ----------------------------------           -------------------------------
    Will Lyles, Vice-President                   Ryan Turner, Secretary/COO

                                      -10-
<PAGE>

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

LYLES DIVERSIFIED, INC.
Post Office Box 4376
Fresno, California 93744
Attn: William M. Lyles, President
--------------------------------------------------------------------------------
                  SPACE ABOVE THIS LINE FOR RECORDER'S USE ONLY

               DEED OF TRUST (NON-CONSTRUCTION) SECURITY AGREEMENT
                   AND FIXTURE FILING WITH ASSIGNMENT OF RENTS

         THIS DEED OF TRUST is made effective as of June 20, 2003, by and among
PACIFIC ETHANOL, INC., a California corporation ("TRUSTOR"), CHICAGO TITLE
COMPANY, a California corporation ("TRUSTEE"), and LYLES DIVERSIFIED, INC., a
California corporation ("BENEFICIARY").

         TRUSTOR HEREBY IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS to TRUSTEE,
its successors and assigns, IN TRUST, WITH POWER OF SALE:

         All that property now or hereafter acquired in the County of Madera,
State of California, described in the attached EXHIBIT "A" (herein referred to
as the "PROPERTY");

         TOGETHER WITH, and including, without limitation: all of the buildings
and improvements now or hereafter erected on the property; all of the easements,
rights, rights-of-way, privileges, franchises, appurtenances, permits and
licenses, including, but not limited to, permits to operate, emission reduction
certificates, conditional use permits, and waste discharge requirements, now or
hereafter belonging to, or in any way appertaining, or in any way arising out of
ownership, development, or operation of the Property, or in any way necessary,
convenient, or required for TRUSTOR's use of the Property, or in any way being a
means of access, to said property; all water and water rights, and pumps,
pumping plants, and all shares of stock evidencing the foregoing, and all
machinery, appliances and fixtures for generating or distributing water, all
rents, issues, profits, royalties, revenue, income and other benefits of or
arising from the use or enjoyment of all or any portion of the property or the
buildings and improvements now or hereafter erected thereon (subject however to
the right, reserved to TRUSTOR, to collect, receive and retain such rents,
issues, profits, royalties, revenue, income and other benefits prior to any
default hereunder or under the Loan Documents referenced below or other evidence
of debt secured hereby); all gas, oil, water and mineral rights, profits and
stock now or hereafter derived from, appurtenant to, or pertaining to the
property (and any and all shares of stock evidencing the same); all vines,
trees, trellises, irrigation equipment, and crops now or hereafter grown on the
property; and all machinery, appliances and fixtures (including replacements and
additions thereto) now or hereafter erected thereon.

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