Document:

pei_8k-ex1002.htm

    EXHIBIT
10.2

     

     

    Execution
Copy

     

     

    
      

    

    

    PLEDGE
AND SECURITY AGREEMENT

     

    among

     

    PACIFIC
ETHANOL CALIFORNIA, INC.,

     

    as
Pledgor

     

    PACIFIC
ETHANOL HOLDING CO. LLC,

     

    as
Company

     

    and

     

    WESTLB
AG, NEW YORK BRANCH,

     

    as
Collateral Agent

     

    Dated
as of May 19, 2009

     

    
      

    

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    TABLE
OF CONTENTS

     

    Page

     

    
      
        	
                ARTICLE
      I

              	
                DEFINITIONS

              	
                1

              
	
                Section
      1.01

              	
                Defined
      Terms

              	
                1

              
	
                Section
      1.02

              	
                Credit
      Agreement and UCC Definitions

              	
                2

              
	
                Section
      1.03

              	
                Rules
      of Interpretation

              	
                2

              
	
                ARTICLE
      II

              	
                PLEDGE
      AND GRANT OF SECURITY INTEREST

              	
                2

              
	
                Section
      2.01

              	
                Granting
      Clause

              	
                2

              
	
                Section
      2.02

              	
                Delivery
      of Collateral.

              	
                3

              
	
                Section
      2.03

              	
                Retention
      of Certain Rights

              	
                3

              
	
                Section
      2.04

              	
                Obligations
      Unconditional

              	
                4

              
	
                Section
      2.05

              	
                Waiver

              	
                5

              
	
                ARTICLE
      III

              	
                EVENTS
      OF DEFAULT

              	
                6

              
	
                Section
      3.01

              	
                Events
      of Default

              	
                6

              
	
                ARTICLE
      IV

              	
                REPRESENTATIONS
      AND WARRANTIES

              	
                6

              
	
                Section
      4.01

              	
                Organization;
      Power; Compliance with Law and Contractual Obligations

              	
                6

              
	
                Section
      4.02

              	
                Due
      Authorization; Non-Contravention.

              	
                6

              
	
                Section
      4.03

              	
                Validity

              	
                7

              
	
                Section
      4.04

              	
                Beneficial
      Ownership; Pledged Equity Interests

              	
                7

              
	
                Section
      4.05

              	
                Name

              	
                7

              
	
                Section
      4.06

              	
                Organizational
      Number

              	
                7

              
	
                Section
      4.07

              	
                Capital
      Adequacy: Etc.

              	
                7

              
	
                ARTICLE
      V

              	
                COVENANTS
      OF PLEDGOR

              	
                7

              
	
                Section
      5.01

              	
                Defense
      of Collateral

              	
                7

              
	
                Section
      5.02

              	
                Limitation
      of Liens

              	
                8

              
	
                Section
      5.03

              	
                No
      Sale of Collateral

              	
                8

              
	
                Section
      5.04

              	
                No
      Impairment of Security

              	
                8

              
	
                Section
      5.05

              	
                Filing
      of Bankruptcy Proceedings

              	
                8

              
	
                Section
      5.06

              	
                Distributions

              	
                8

              
	
                Section
      5.07

              	
                Maintenance
      of Records

              	
                8

              
	
                Section
      5.08

              	
                Name;
      Jurisdiction of Organization

              	
                8

              
	
                Section
      5.09

              	
                Amendments
      to Organizational Documents

              	
                9

              
	
                Section
      5.10

              	
                Perfection.

              	
                9

              
	
                Section
      5.11

              	
                Information
      Concerning Collateral

              	
                9

              
	
                Section
      5.12

              	
                Payment
      of Taxes

              	
                9

              
	
                ARTICLE
      VI

              	
                REMEDIES
      UPON AN EVENT OF DEFAULT

              	
                10

              
	
                Section
      6.01

              	
                Remedies
      Upon an Event of Default

              	
                10

              
	
                Section
      6.02

              	
                Minimum
      Notice Period

              	
                11

              
	
                Section
      6.03

              	
                Sale
      of Collateral

              	
                11

              
	
                Section
      6.04

              	
                Actions
      Taken by Collateral Agent

              	
                12

              
	
                Section
      6.05

              	
                Private
      Sales

              	
                12

              
	
                Section
      6.06

              	
                Compliance
      With Limitations and Restrictions

              	
                12

              
	
                Section
      6.07

              	
                No
      Impairment of Remedies

              	
                12

              

      

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      
        	
                ARTICLE
      VII

              	
                FURTHER
      ASSURANCES

              	
                13

              
	
                Section
      7.01

              	
                Attorney-in-Fact.

              	
                13

              
	
                Section
      7.02

              	
                Delivery
      of Collateral; Proxy

              	
                13

              
	
                Section
      7.03

              	
                Place
      of Business; Location of Records

              	
                13

              
	
                Section
      7.04

              	
                Waiver
      of Transfer Restrictions

              	
                14

              
	
                Section
      7.05

              	
                The
      Company’s Consent and Covenant

              	
                14

              
	
                Section
      7.06

              	
                Foreclosure

              	
                14

              
	
                Section
      7.07

              	
                Waiver
      of Rights of Subrogation

              	
                14

              
	
                Section
      7.08

              	
                Application
      of Proceeds

              	
                14

              
	
                Section
      7.09

              	
                Collateral
      Agent May Perform

              	
                14

              
	
                Section
      7.10

              	
                Limitation
      on Duty of Collateral Agent with Respect to the Collateral

              	
                15

              
	
                Section
      7.11

              	
                Termination
      of Security Interest

              	
                15

              
	
                ARTICLE
      VIII

              	
                MISCELLANEOUS

              	
                15

              
	
                Section
      8.01

              	
                Amendments,
      Etc

              	
                15

              
	
                Section
      8.02

              	
                Applicable
      Law; Jurisdiction; Etc.

              	
                15

              
	
                Section
      8.03

              	
                Counterparts;
      Effectiveness

              	
                17

              
	
                Section
      8.04

              	
                Delay
      Not Waiver; Separate Causes of Action

              	
                17

              
	
                Section
      8.05

              	
                Entire
      Agreement

              	
                18

              
	
                Section
      8.06

              	
                Expenses

              	
                18

              
	
                Section
      8.07

              	
                Headings
      Descriptive

              	
                18

              
	
                Section
      8.08

              	
                Interest

              	
                18

              
	
                Section
      8.09

              	
                Notices.

              	
                18

              
	
                Section
      8.10

              	
                No
      Waiver; Cumulative Remedies

              	
                19

              
	
                Section
      8.11

              	
                Reinstatement

              	
                20

              
	
                Section
      8.12

              	
                Remedies
      Cumulative

              	
                20

              
	
                Section
      8.13

              	
                Rights
      of Collateral Agent

              	
                20

              
	
                Section
      8.14

              	
                Severability

              	
                20

              
	
                Section
      8.15

              	
                Successions
      and Assignments

              	
                20

              
	
                Section
      8.16

              	
                Survival
      of Provisions

              	
                21

              
	
                Section
      8.17

              	
                Third
      Party Rights

              	
                21

              
	
                Section
      8.18

              	
                Time

              	
                21

              
	
                Section
      8.19

              	
                Waiver
      of Consequential Damages, Etc

              	
                21

              
	
                Section
      8.20

              	
                Waiver
      of Litigation Payments

              	
                21

              
	
                Section
      8.21

              	
                Scope
      of Liability

              	
                21

              

      

    

     

    EXHIBITS

    

    Exhibit
A                     -           Irrevocable
Proxy

    Exhibit
B                      -           Transfer
Document

    Schedule
I                   -           Description
of Pledged Equity Interests

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    PLEDGE AND SECURITY
AGREEMENT

     

    This
PLEDGE AND SECURITY AGREEMENT, dated as of May 19, 2009, (this “Agreement”) is
entered into by and among Pacific Ethanol California, Inc, a corporation
organized and existing under the Laws of the State of California (the “Pledgor”), Pacific
Ethanol Holding Co. LLC, a limited liability company organized and existing
under the Laws of the State of Delaware (the “Company”), and WestLB
AG, New York Branch, in its capacity as collateral agent (together with its
successors, designees and assigns in such capacity, the “Collateral Agent”)
for the Senior Secured Parties.

     

    RECITALS

     

    WHEREAS,
the Company has entered into that certain Debtor-in-Possession Credit Agreement,
dated as of May 19, 2009 (as amended, amended and restated, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”)
among the Company, Pacific Ethanol Madera LLC, a Delaware limited liability
company (“Madera”), Pacific
Ethanol Stockton, LLC, a Delaware limited liability company (“Stockton”), Pacific
Ethanol Columbia, LLC, a Delaware limited liability company (“Boardman”), and
Pacific Ethanol Magic Valley, LLC, a Delaware limited liability company (“Burley” and, together
with the Company, Madera, Stockton and Boardman, the “Borrowers”), the
Company as the Borrower Agent, each of the Lenders from time to time party
thereto, WestLB AG, New York Branch, as Administrative Agent for the Lenders,
the Collateral Agent and Amarillo National Bank, as accounts bank, pursuant to
which, among other things, the Lenders have agreed to make loans to, and for the
benefit of, the Borrowers; and

     

    WHEREAS,
as of the date hereof, the Pledgor is the sole member and owns one hundred
(100%) of the Equity Interests of the Company and will obtain benefits as a
result of the Loans, and it is a requirement under the Credit Agreement that the
Pledgor execute and deliver this Agreement.

     

    AGREEMENT

     

    NOW,
THEREFORE, in consideration of the promises contained herein, and to induce the
Lenders to enter into the Credit Agreement and to make the advances of credit to
the Borrowers contemplated thereby, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
intending to be legally bound, the Company and the Pledgor hereby agree with the
Collateral Agent, for the benefit of the Senior Secured Parties, as
follows:

     

    ARTICLE
I

     

    DEFINITIONS

     

    Section
1.01 Defined
Terms.  The following terms (whether or not underscored) when
used in this Agreement, including its preamble and recitals, shall have the
following meanings:

     

    “Collateral Agent” has
the meaning given in the preamble to this
Agreement.

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    “Collateral” has the
meaning given in Section 2.01 (Granting
Clause).

     

    “Company” has the
meaning given in the preamble to this
Agreement.

     

    “Credit Agreement” has
the meaning given in the recitals to this
Agreement.

     

    “Non-Recourse Party”
has the meaning given in Section 8.21 (Scope of
Liability).

     

    “Pledged Equity
Interests” has the meaning given in Section 2.01 (Granting
Clause).

     

    “Pledgor” has the
meaning given in the preamble to this
Agreement.

     

    Section
1.02 Credit Agreement and UCC
Definitions.  Unless otherwise defined herein or unless the
context otherwise requires, terms used in this Agreement, including its preamble
and recitals, have the meanings provided in the Credit Agreement or, if not
defined therein, the UCC.

     

    Section
1.03 Rules of
Interpretation.  The rules of interpretation set forth in Section 1.02 (Principles
of Interpretation) of the Credit
Agreement shall apply to this Agreement, including its preamble and
recitals.

     

    ARTICLE
II

     

    PLEDGE
AND GRANT OF SECURITY INTEREST

     

    Section
2.01 Granting
Clause.  To secure the timely payment in full when due (whether
at stated maturity, by acceleration or otherwise) in cash and performance in
full of the Obligations, the Pledgor hereby collaterally assigns, grants and
pledges to the Collateral Agent, for the benefit of the Senior Secured Parties,
a continuing security interest and Lien in all the estate, right, title and
interest of the Pledgor, now owned or hereafter existing or acquired, and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, Lien, claim or otherwise), including all the estate, right,
title and interest of the Pledgor in, to and under the following (the “Collateral”):

     

    (a) Any and
all of the Pledgor’s right(s), title(s) and interest(s), whether now owned or
hereafter existing or acquired, in the Company, and all of the Equity Interests
of the Company related thereto, whether or not evidenced or represented by any
certificated security or other instrument, (the “Pledged Equity
Interests”), including the membership interests described on Schedule I hereto and
the Pledgor’s share of:

     

    
      	
              (i)  

            	
              all
      rights to receive income, gain, profit, dividends and other distributions
      allocated or distributed to the Pledgor in respect of or in exchange for
      all or any portion of the Pledged Equity
  Interests;

            

    

     

    
      	
              (ii)  

            	
              all
      of the Pledgor’s capital or ownership interest or other Equity Interest,
      including capital accounts, in the
Company;

            

    

     

    

    
      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

    

    

    
      	
              (iii)  

            	
              all
      of the Pledgor’s voting rights in or rights to control or direct the
      affairs of the Company;

            

    

     

    
      	
              (iv)  

            	
              all
      other rights, title and interest in or to the Company derived from the
      Pledged Equity Interests;

            

    

     

    
      	
              (v)  

            	
              all
      indebtedness or other obligations of the Company owed to the
      Pledgor;

            

    

     

    
      	
              (vi)  

            	
              all
      claims of the Pledgor for damages arising out of, or for any breach or
      default relating to, the Pledged Equity
  Interests;

            

    

     

    
      	
              (vii)  

            	
              all
      securities, notes, certificates and other instruments representing or
      evidencing any of the foregoing rights and interests or the ownership
      thereof and any interest of the Pledgor reflected in the books of any
      financial intermediary pertaining to such rights and
      interests;

            

    

     

    
      	
              (viii)  

            	
              all
      distributions, non-cash dividends, cash, options, warrants, stock splits,
      reclassifications, rights, instruments or other investment property and
      other property or proceeds from time to time received, receivable or
      otherwise distributed in respect of or in exchange for any or all of such
      rights and interests; and

            

    

     

    
      	
              (ix)  

            	
              all
      security entitlements of the Pledgor in any and all of the foregoing;
      and

            

    

     

    (b) all
proceeds (including proceeds of proceeds) of the foregoing Collateral, whether
cash or non-cash; provided, however, that
“Collateral” shall not include any cash or other property distributed to the
Pledgor following a distribution made in accordance with Section 7.02(s)
(Negative
Covenants — Restricted Payments) of the Credit
Agreement.

     

    Section
2.02 Delivery of
Collateral.

     

    (a) All
certificates, notes and other instruments representing or evidencing any
Collateral shall be delivered to and held by or on behalf of, and, in the case
of notes, endorsed to the order of, the Collateral Agent, or its designee
pursuant hereto, in the manner set forth in Section 7.02 (Delivery
of Collateral; Proxy).

     

    (b) If any
Collateral consists of security entitlements, the Pledgor shall transfer such
security entitlements to the Collateral Agent (or its custodian, nominee or
other designee) or cause the applicable securities intermediary to agree that it
will comply with entitlement orders by the Collateral Agent without further
consent by the Pledgor.

     

    Section
2.03 Retention of Certain
Rights.  So long as the Collateral Agent has not elected to
exercise remedies under this Agreement in connection with an Event of Default
that has occurred and is continuing, the Pledgor reserves the right to exercise
all voting and other rights, title and interest with respect to the Collateral
(except as limited by the Financing Documents) and, to the extent permitted
under the Credit Agreement, to receive all income, gains, profits, dividends and
other distributions from the Collateral whether non-cash dividends, cash,
options, warrants, stock splits, reclassifications, rights, instruments or other
investment property or other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such rights and interests.

     

    

    
      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

    

    

    Section
2.04 Obligations
Unconditional.  The obligations of the Pledgor in this
Agreement shall be continuing, irrevocable, primary, absolute and unconditional
irrespective of the value, genuineness, validity, regularity or enforceability
of any Financing Document or any other agreement or instrument referred to
therein, or any substitution, release or exchange of any guarantee of or
security for any of the Obligations and, to the fullest extent permitted by
applicable Law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, other than the occurrence of the Discharge Date and other than any
defense that the underlying obligation has been satisfied in accordance with the
terms of the Financing Documents, it being the intent of this Section 2.04 that the
obligations of the Pledgor hereunder shall be absolute and unconditional under
any and all circumstances. Without limiting the generality of the foregoing, it
is agreed that the occurrence of any one or more of the following shall not
alter or impair the liability of the Pledgor hereunder, which shall remain
absolute and unconditional as described above without regard to and not be
released, discharged or in any way affected (whether in full or in part)
by:

     

    (a) at any
time or from time to time, without notice to the Pledgor, the time for any
performance of or compliance with any of the Obligations is extended, or such
performance or compliance is waived;

     

    (b) any
Financing Document is amended or modified or there is a departure from, or
waiver of, any of the terms of any Financing Document;

     

    (c) the
maturity of any of the Obligations is accelerated, or any of the Obligations is
modified, supplemented and/or amended in any respect, or any right under any
Financing Document or any other agreement or instrument referred to therein is
waived or any guarantee of any of the Obligations or any security therefore is
released or exchanged in whole or in part or otherwise dealt with;

     

    (d) any lien
granted to, or in favor of, the Collateral Agent as security for any of the
Obligations fails to be perfected; or

     

    (e) any
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of the Pledgor or by
any defense which the Pledgor may have by reason of the order, decree or
decision of any court or administrative body resulting from any such proceeding.
The Pledgor acknowledges and agrees that the Obligations include interest on the
Obligations at the applicable rate therefor under the Financing Documents which
accrues after the commencement of any such proceeding (or, if interest on any
portion of the Obligations ceases to accrue by operation of Law by reason of the
commencement of said proceeding, such Obligations include the interest which
would have accrued on such portion of the Obligations if said proceedings had
not been commenced), since it is the intention of the parties that the amount of
the Obligations secured pursuant to this Agreement should be determined without
regard to any rule of Law or order which may relieve the Pledgor of any portion
of the Obligations. The Pledgor will permit any trustee in bankruptcy, receiver,
debtor in possession, assignee for the benefit of creditors or similar person to
pay the Collateral Agent, or allow the claim of the Collateral Agent in respect
of, interest which would have accrued after the date on which such proceeding is
commenced.

     

    

    
      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

    

    

    Section
2.05 Waiver.  The
enforceability and effectiveness of this Agreement and the liability of the
Pledgor, and the rights, remedies, powers and privileges of the Collateral
Agent, under this Agreement shall not be affected, limited, reduced, discharged
or terminated, and the Pledgor hereby expressly waives, to the extent permitted
by applicable Laws, to the fullest extent permitted by Law any defense now or in
the future arising, by reason of:

     

    (a) the
illegality, invalidity or unenforceability of all or any part of the
Obligations, any Financing Document or any agreement, security document,
guarantee or other instrument relating to all or any part of the
Obligations;

     

    (b) the
illegality, invalidity or unenforceability of any security or guarantee for all
or any part of the Obligations or the lack of perfection or continuing
perfection or failure of the priority of any lien or encumbrance on any
collateral for all or any part of the Obligations;

     

    (c) the
cessation, for any cause whatsoever, of the liability of any Person that is a
guarantor of all or any part of the Obligations (other than by the occurrence of
the Discharge Date);

     

    (d) any
judicial or nonjudicial foreclosure or sale of, or other election of remedies
with respect to, any interest in real property or other Collateral serving as
security for all or any part of the Obligations, even though such foreclosure,
sale or election of remedies may impair the subrogation rights of either the
other Borrowers, or the Pledgor or may preclude the other Borrowers or the
Pledgor from obtaining reimbursement, contribution, indemnification or other
recovery from the other Borrowers or any other Person and even though the other
Borrowers or the Pledgor may not, as a result of such foreclosure, sale or
election of remedies, be liable for any deficiency;

     

    (e) any act
or omission of the Collateral Agent or any other Person that directly or
indirectly results in or aids the discharge or release of the Pledgor or any
part of the Obligations or any security or guarantee (including any letter of
credit) for all or any part of the Obligations by operation of Law or otherwise
(other than the occurrence of the Discharge Date);

     

    (f) any Law
which provides that the obligation of a surety or the Pledgor must neither be
larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety’s or the Pledgor’s obligation in proportion
to the principal obligation;

     

    (g) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against any Person,
including any discharge of, or bar or stay against collecting, all or any part
of the Obligations (or any interest on all or any part of the Obligations) in or
as a result of any such proceeding, any failure of the Collateral Agent to file
a claim in any such proceeding, or the occurrence of any of the following: (i)
the election by the Collateral Agent, in any bankruptcy proceeding of any
Person, of the application or non-application of Section 1111(b)(2) of the
Bankruptcy Code, (ii) any extension of credit or the grant of any lien or
encumbrance under Section 364 of the Bankruptcy Code, (iii) any use of cash
collateral under Section 363 of the Bankruptcy Code, or (iv) any agreement or
stipulation with respect to the provision of adequate protection in any
bankruptcy proceeding of any Person; or

     

    

    
      
        
           

        

        
          -5-

          
            

          

        

        
           

        

      

    

    

    (h) any
action taken by the Collateral Agent that is authorized by this Section 2.05 or
otherwise in this Agreement or by any other provision of any Financing Document
or any omission to take any such action.

     

    ARTICLE
III

     

    EVENTS OF
DEFAULT

     

    Section
3.01 Events of
Default.  The occurrence of an Event of Default, whatever the
reason for such Event of Default and whether it is voluntary or involuntary or
is effected by operation of Law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any Governmental Authority, shall
constitute a default hereunder. Any such Event of Default shall be considered
cured or waived for the purposes of this Agreement when it has been cured or
waived in accordance with the Credit Agreement.

     

    ARTICLE
IV

     

    REPRESENTATIONS
AND WARRANTIES

     

    The
Pledgor represents and warrants to and in favor of the Collateral Agent and the
Senior Secured Parties, as of the date hereof, as of the Closing Date and as of
each Funding Date, as follows:

     

    Section
4.01 Organization; Power;
Compliance with Law and Contractual Obligations.  The Pledgor
(a) is a corporation validly organized and existing and in good standing under
the Laws of the State of California, (b) is duly qualified to do business as is
now being conducted and as is proposed to be conducted and is in good standing
as a corporation in each jurisdiction where the nature of its business requires
such qualification (other than any such failure to be so qualified or in good
standing that could not reasonably be expected to have a Material Adverse
Effect) and (c) has all requisite corporate power and authority and holds all
Governmental Approvals required as of the date of this representation is made or
deemed repeated to enter into and perform its obligations under this
Agreement.

     

    Section
4.02 Due Authorization;
Non-Contravention.

     

    (a) The
execution, delivery and performance by the Pledgor of this Agreement are within
the Pledgor’s corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene in any material respect (i) the
Pledgor’s Organic Documents, or (ii) any applicable Law or any Contractual
Obligation binding on or affecting the Pledgor.

     

    (b) The
exercise by the Collateral Agent of any of its rights and remedies with respect
to the Collateral in accordance with the terms of this Agreement will not
contravene in any material respect any applicable Law or any Contractual
Obligation binding on or affecting the Pledgor or any of the properties of the
Pledgor and will not result in or require the creation of any Lien (other than
Permitted Liens) upon or with respect to any of the Collateral other than
pursuant to this Agreement.

     

    

    
      
        
           

        

        
          -6-

          
            

          

        

        
           

        

      

    

    

    Section
4.03 Validity.  This
Agreement constitutes the legal, valid and binding obligations of the Pledgor
enforceable in accordance with its terms, except as the enforceability hereof
may be limited by (a) bankruptcy, insolvency, reorganization, or other similar
Laws affecting the enforcement of creditors’ rights generally and (b) general
equitable principles (whether considered in a proceeding in equity or at
Law).

     

    Section
4.04 Beneficial Ownership;
Pledged Equity Interests.  The Pledgor is the lawful and
beneficial owner of and has full right, title and interest in, to and under all
rights and interests comprising the Collateral, subject to no Liens, no prior
assignments, no effective UCC financing statements, no security agreements and
no other instruments similar in effect (other than this Agreement, the Liens
created hereunder and other Permitted Liens). The Pledged Equity Interests (a)
have been duly authorized and validly issued, (b) are fully paid and
non-assessable and (c) constitute one hundred percent (100%) of the outstanding
Equity Interests of the Company.

     

    Section
4.05 Name.  The
name of the Pledgor is Pacific Ethanol California, Inc., as indicated in the
public records of the State of California, and it has not had any other names
within the past five (5) years other than Pacific Ethanol, Inc.

     

    Section
4.06 Organizational
Number.  The Pledgor’s federal employee identification number
is 71-0938840 and Pledgor’s organizational number is CA 2487125.

     

    Section
4.07 Capital Adequacy;
Etc.

     

    (a) The
Pledgor is, and after giving effect to the transactions contemplated hereby will
be, Solvent.

     

    (b) The
Pledgor is not executing this Agreement with any intention to hinder, delay or
defraud any present or future creditor or creditors of the Pledgor.

     

    ARTICLE
V

     

    COVENANTS
OF PLEDGOR

     

    The
Pledgor covenants to and in favor of the Collateral Agent and the Senior Secured
Parties as follows:

     

    Section
5.01 Defense of
Collateral.  The Pledgor shall, until the Discharge Date,
defend its title to the Collateral and the interest of the Collateral Agent (for
the benefit of itself and the other Senior Secured Parties) in the Collateral
pledged hereunder against the claims and demands of all other Persons, provided that nothing
in this Section
5.01 shall limit the Pledgor’s right to dispose of the Collateral in
accordance with the Financing Documents.

     

    Section
5.02 Limitation of
Liens.  The Pledgor shall not create, incur, assume or suffer
to exist any Liens (including authorizing the filing of any financing statements
under the UCC or any like statement relating to the Collateral) on or with
respect to all or any part of the Collateral (other than Permitted Liens). The
Pledgor shall at its own cost and expense promptly take such action as may be
necessary to discharge any such Liens (other than Permitted Liens).

     

    

    
      
        
           

        

        
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    Section
5.03 No Sale of
Collateral.  Except as permitted by the terms of the Financing
Documents, the Pledgor shall not cause, suffer or permit the sale, assignment,
conveyance, pledge or other transfer of all or any portion of the Pledgor’s
Equity Interest in the Company or any other portion of the
Collateral.

     

    Section
5.04 No Impairment of
Security.  Except for the commencement of the Cases, the
Pledgor shall not take any action that, or fail to take any action if such
failure would, impair in any manner the enforceability of the Collateral Agent’s
security interest in and Lien on any Collateral.

     

    Section
5.05 [INTENTIONALLY
OMITTED].  

     

    Section
5.06 Distributions.  If
the Pledgor in its capacity as an owner of the Company receives any income,
dividend or other distribution of money or property of any kind from the Company
(other than in accordance with the Financing Documents), the Pledgor shall hold
such income or distribution as trustee for and shall promptly deliver the same
to the Collateral Agent in the exact form received by the Pledgor (or duly
endorsed by the Pledgor to the Collateral Agent, if required). To the extent
that any such income, dividend or other distribution is made in compliance with
the terms of the Financing Documents, then the further distribution or payment
of such monies shall not give rise to any claims or cause of action on the part
of any of the Senior Secured Parties against the Company or the Pledgor seeking
the return or disgorgement of any such distributions or other payments unless
the distributions or payments involve or result from the fraud or willful
misconduct of the Company or the Pledgor.

     

    Section
5.07 Maintenance of
Records.  The Pledgor shall, at all times, keep accurate and
complete records of the Collateral. The Pledgor shall permit officers and
designated representatives of the Collateral Agent to examine the Pledgor’s
books and records pertaining to the Collateral, and make copies thereof or
abstracts therefrom, all at the expense of the Pledgor and at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Pledgor; provided, that if a
Default or an Event of Default has occurred and is continuing, the Collateral
Agent (or any of its officers or designated representatives) may do any of the
foregoing at any time during normal business hours and without advance notice.
Upon the occurrence and during the continuation of any Event of Default, at the
Collateral Agent’s request, the Pledgor shall promptly deliver to the Collateral
Agent copies of any and all of the records mentioned above.

     

    Section
5.08 Name; Jurisdiction of
Organization.  The Pledgor shall not change its name, its
jurisdiction of organization, the location of its principal place of business or
its organization identification number without written notice to the Collateral
Agent at least thirty (30) days prior to such change. In the event of such
change, the Pledgor shall (at its expense) execute and deliver such instruments
and documents as may be required by the Collateral Agent or applicable Law to
maintain a first priority perfected security interest in the
Collateral.

     

    Section
5.09 Amendments to Organizational
Documents.  Except as expressly permitted by this Agreement or
the other Financing Documents, the Pledgor shall not (a) terminate or cancel the
Organic Documents of the Company or (b) in any material respect, amend,
supplement or otherwise modify the Organic Documents of the
Company.

     

    

    
      
        
           

        

        
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    Section
5.10 Perfection.

     

    (a) The
Pledgor agrees that from time to time, at the expense of the Pledgor, the
Pledgor shall promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary or
desirable in order to perfect, to ensure the continued perfection of, and to
protect the assignment and security interest granted or intended to be granted
hereby or to enable the Collateral Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Pledgor shall (i) deliver any of the Collateral
represented by a certificate or other instrument to the Collateral Agent,
accompanied by such duly executed instruments of transfer or assignment as the
Collateral Agent may reasonably request, and (ii) authorize, execute and file
such financing or continuation statements, or amendments thereto, and such other
instruments, endorsements or notices, as may be reasonably necessary or
desirable in order to perfect and preserve, the assignments and security
interests granted or purported to be granted hereby.

     

    (b) The
Pledgor hereby authorizes the filing of any financing statements or continuation
statements, and amendments to financing statements, or any similar document in
any jurisdictions and with any filing offices as the Collateral Agent may
reasonably determine are necessary or advisable to perfect the security interest
granted to the Collateral Agent, for the benefit of the Senior Secured Parties,
herein. Such financing statements may describe the Collateral in the same or
similar and consistent manner as described herein.

     

    Section
5.11 Information Concerning
Collateral.  The Pledgor shall, promptly upon request and at
its own expense, provide to the Collateral Agent all information and evidence
the Collateral Agent may reasonably request concerning the Collateral to enable
the Collateral Agent to enforce the provisions of this Agreement.

     

    Section
5.12 Payment of
Taxes.  The Pledgor shall pay or cause to be paid, before any
fine, penalty, interest or cost attaches thereto, all Taxes and other
non-governmental charges or levies (other than those Taxes or levies that are
subject to a Contest and immaterial Taxes in an aggregate amount not in excess
of twenty-five thousand Dollars ($25,000) at any one time outstanding (taking
into account any interest and penalties that could accrue or be applicable to
such past-due Taxes), and provided that such
Taxes are no more than forty-five (45) days past due)) now or hereafter assessed
or levied against the Collateral pledged by it hereunder and shall retain copies
of and, upon request, permit the Collateral Agent or any Senior Secured Party to
examine receipts showing payment of any of the foregoing.

     

    ARTICLE
VI

     

    REMEDIES
UPON AN EVENT OF DEFAULT

     

    Section
6.01 Remedies Upon an Event of
Default.  Upon the occurrence and during the continuation of an
Event of Default, the Collateral Agent shall have the right, but not the
obligation, to do any of the following:

     

    

    
      
        
           

        

        
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    (a) vote or
exercise any and all of the Pledgor’s rights or powers incident to its ownership
of the Pledged Equity Interests, including any rights or powers to manage or
control the Company and receive dividends or distributions;

     

    (b) demand,
sue for, collect or receive any money or property at any time payable to or
receivable by the Pledgor on account of or in exchange for all or any part of
the Collateral;

     

    (c) cause any
action at Law or suit in equity or other proceeding to be instituted and
prosecuted to collect or enforce any obligation or exercise any right hereunder
or included in the Collateral, including specific enforcement of any covenant or
agreement contained herein, or to foreclose or enforce the security interest in
all or any part of the Collateral granted herein, or to enforce any other legal
or equitable right vested in it by this Agreement or by applicable
Law;

     

    (d) amend,
terminate, supplement or modify all or any of the Company’s Organic
Documents;

     

    (e) incur
expenses, including attorneys’ fees, consultants’ fees, and other costs in
connection with the exercise of any right or power under this
Agreement;

     

    (f) perform
any obligation of the Pledgor hereunder;

     

    (g) secure
the appointment of a receiver of the Collateral or any part thereof, whether
incidental to a proposed sale of the Collateral or otherwise, and all
disbursements made by such receiver and the expenses of such receivership shall
be added to and be made a part of the Obligations, and, whether or not the
principal sum of the Obligations, including such disbursements and expenses,
exceeds the indebtedness originally intended to be secured hereby, the entire
amount of said sum, including such disbursements and expenses, shall be secured
by this Agreement and shall be due and payable upon demand therefor and
thereafter shall bear interest at the Default Rate or the maximum rate permitted
by applicable Law, whichever is less;

     

    (h) transfer
the Collateral, or any part thereof, to the name of the Collateral Agent or to
the name of any nominee of the Collateral Agent;

     

    (i) exercise
any other or additional rights or remedies granted to the Collateral Agent under
any other provision of this Agreement or any other Financing Document, or
exercisable by a secured party under the UCC or under any other applicable Law
and, without limiting the generality of the foregoing and without notice except
as specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange or broker’s board or
elsewhere, at such price or prices and on such other terms as the Collateral
Agent may deem commercially reasonable in accordance with the UCC;

     

    (j) take any
other lawful action that the Collateral Agent deems necessary or desirable to
protect or realize upon its security interest in the Collateral or any part
thereof; and/or

     

    

    
      
        
           

        

        
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    (k) appoint
another Person (who may be an employee, officer or other representative of the
Collateral Agent) to do any of the foregoing, or take any other action permitted
hereunder, on behalf of the Collateral Agent.

     

    Section
6.02 Minimum Notice
Period.  If, pursuant to applicable Law requirements, prior
notice of any action described in Section 6.01 (Remedies
Upon an Event of Default)), including the
sale of the Collateral pursuant to Section 6.03 (Sale of
Collateral), is required to be
given to the Pledgor or the Company, the Pledgor and the Company hereby
acknowledge and agree that the minimum time required by such applicable Law, or
if no minimum time is specified, ten (10) days, shall be deemed a reasonable
notice period under such applicable Law.

     

    Section
6.03 Sale of
Collateral.  In addition to exercising the foregoing rights,
the Collateral Agent may, to the extent permitted by applicable Law, arrange for
and conduct a sale of the Collateral at a public or private sale (as the
Collateral Agent may elect) which sale may be conducted by an employee or
representative of the Collateral Agent, and any such sale shall be conducted in
a commercially reasonable manner. The Collateral Agent may release, temporarily
or otherwise, to the Pledgor any item of the Collateral of which the Collateral
Agent has taken possession pursuant to any right granted to the Collateral Agent
by this Agreement without waiving any rights granted to the Collateral Agent
under this Agreement, the Credit Agreement or the other Financing Documents or
any other agreement related hereto or thereto. The Pledgor, in dealing with or
disposing of the Collateral or any part thereof, hereby waives all rights, legal
and equitable, it may now or hereafter have to require marshaling of assets or
to require, upon foreclosure, sales of assets in a particular order. The Pledgor
also waives its right to challenge the reasonableness of any disclaimer of
warranties, title and the like made by the Collateral Agent in connection with a
sale of the Collateral. Each successor of the Pledgor under the Financing
Documents shall be deemed to have agreed, by virtue of its succession thereto,
that it shall be bound by the above waiver, to the same extent as if such
successor gave such waiver itself. The Pledgor also hereby waives, to the full
extent it may lawfully do so, the benefit of all Laws providing for rights of
appraisal, valuation, stay or extension or of redemption after foreclosure now
or hereafter in force. If the Collateral Agent sells any of the Collateral upon
credit, the Pledgor will be credited only with payments actually made by the
purchaser and received by the Collateral Agent. In the event the purchaser fails
to pay for the Collateral, the Collateral Agent may resell the Collateral and
the Pledgor shall be credited with the proceeds of any such sales or resales
only in excess of the amounts required to pay the Obligations in full. In the
event the Collateral Agent bids at any foreclosure or trustee’s sale or at any
private sale permitted by Law and this Agreement or any other Financing
Document, the Collateral Agent may bid all or less than the amount of the
Obligations. The Collateral Agent shall not be obligated to make any sale of the
Collateral regardless of whether or not notice of sale has been given. The
Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. The
Pledgor further acknowledges and agrees that any offer to sell any part of the
Collateral that has been (i) publicly advertised on a bona fide basis in a
newspaper or other publication of general circulation or (ii) made privately in
the manner described herein to not less than fifteen (15) bona fide offerees
shall be deemed to involve a “public disposition” for the purposes of Section 9
610(c) of the UCC.

     

    

    
      
        
           

        

        
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    Section
6.04 Actions Taken by Collateral
Agent.  Any action or proceeding to enforce this Agreement may
be taken by the Collateral Agent either in the Pledgor’s name or in the
Collateral Agent’s name, as the Collateral Agent may deem
necessary.

     

    Section
6.05 Private
Sales.  The Collateral Agent shall incur no liability as a
result of the sale of the Collateral, or any part thereof, at any private sale
made in good faith by the Collateral Agent pursuant to this Article VI conducted
in a commercially reasonable manner and in accordance with the requirements of
applicable Laws. The Pledgor hereby waives any claims against the Collateral
Agent and the Senior Secured Parties arising by reason of the fact that the
price at which the Collateral may have been sold at such a private sale was less
than the price that might have been obtained at a public sale or was less than
the aggregate amount of the Obligations, even if the Collateral Agent accepts
the first offer received and does not offer the Collateral to more than one
offeree, provided that such
private sale is conducted in a commercially reasonable manner and in accordance
with applicable Laws.

     

    Section
6.06 Compliance With Limitations
and Restrictions.  The Pledgor hereby agrees that in respect of
any sale of any of the Collateral pursuant to the terms hereof, the Collateral
Agent is hereby authorized to comply with any limitation or restriction in
connection with such sale as the Collateral Agent may be advised by counsel is
necessary in order to avoid any violation of applicable Law, or in order to
obtain any required approval of the sale or of the purchaser by any Governmental
Authority or official, and the Pledgor further agrees that such compliance shall
not result in such sale being considered or deemed not to have been made in a
commercially reasonable manner, nor shall the Collateral Agent be liable or
accountable to the Pledgor for any discount allowed by reason of the fact that
such Collateral is sold in compliance with any such limitation or
restriction.

     

    Section
6.07 No Impairment of
Remedies.  If, in the exercise of any of its rights and
remedies under this Agreement, the Collateral Agent forfeits any of its rights
or remedies, including any right to enter a deficiency judgment against the
Pledgor or any other Person, whether because of any applicable Law pertaining to
“election of remedies” or otherwise, the Pledgor hereby consents to such action
by the Collateral Agent and, to the extent permitted by applicable Law, waives
any claim based upon such action, even if such action by the Collateral Agent
would result in a full or partial loss of any rights of subrogation,
indemnification or reimbursement that the Pledgor might otherwise have had but
for such action by the Collateral Agent or the terms herein. Any election of
remedies that results in the denial or impairment of the right of the Collateral
Agent to seek a deficiency judgment against any of the parties to any of the
Financing Documents shall not, to the extent permitted by applicable Law, impair
the Pledgor’s obligations hereunder.

     

    

    
      
        
           

        

        
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    ARTICLE
VII

     

    FURTHER
ASSURANCES

     

    Section
7.01 Attorney-in-Fact.

     

    (a) The
Pledgor hereby constitutes and appoints the Collateral Agent, acting for and on
behalf of itself and the Senior Secured Parties and each successor or permitted
assign of the Collateral Agent and the Senior Secured Parties, the true and
lawful attorney-in-fact of the Pledgor, with full power and authority in the
place and stead of the Pledgor and in the name of the Pledgor, the Collateral
Agent or otherwise, to enforce all rights, interests and remedies of the Pledgor
with respect to the Collateral or enforce all rights, interests and remedies of
the Collateral Agent under this Agreement (including the rights set forth in
Article VI
(Remedies
Upon an Event of Default)); provided, however, that the
Collateral Agent shall not exercise any of the aforementioned rights unless an
Event of Default has occurred and is continuing and has not been waived or cured
in accordance with the Financing Documents. This power of attorney is a power
coupled with an interest and shall be irrevocable; provided, however, that nothing
in this Agreement shall prevent the Pledgor from, prior to the exercise by the
Collateral Agent of any of the aforementioned rights, undertaking the Pledgor’s
operations in the ordinary course of business with respect to the Collateral, in
accordance with the Financing Documents.

     

    (b) In
addition to the provisions of Section 7.01(g), if the Pledgor fails to perform
any agreement or obligation contained herein to protect or preserve the
Collateral, and such failure continues for ten (10) days following delivery of
written notice by the Collateral Agent to the Pledgor, the Collateral Agent
itself may perform, or cause performance of, such agreement or obligation, and
the reasonable expenses of the Collateral Agent incurred in connection therewith
shall be payable by the Pledgor and shall be secured by the
Collateral.

     

    Section
7.02 Delivery of Collateral;
Proxy.  All certificates or instruments representing or
evidencing the Collateral shall be delivered to and held by or on behalf of the
Collateral Agent pursuant hereto. All such certificates or instruments shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance reasonably acceptable to the Collateral Agent. The Collateral Agent
shall have the right, at any time in its discretion and without prior notice to
the Pledgor or the Company, following the occurrence and during the continuation
of an Event of Default, to transfer to or to register in the name of the
Collateral Agent or any of its nominees any or all of the Collateral and to
exchange certificates or instruments representing or evidencing the Collateral
for certificates or instruments of smaller or larger denominations. In
furtherance of the foregoing, the Pledgor shall further execute and deliver to
the Collateral Agent a proxy in the form of Exhibit A and an
irrevocable power in the form of Exhibit B with
respect to the ownership interests of the Company owned by the
Pledgor.

     

    Section
7.03 Place of Business; Location
of Records.  Unless the Pledgor provides notice to the
Collateral Agent in accordance with Section 5.08 (Name;
Jurisdiction of Organization), the chief executive office and principal
place of business of the Pledgor is, and all records of the Pledgor concerning
the Collateral are and will be, located at the address set forth in Section 8.09 (Notices).

     

    

    
      
        
           

        

        
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    Section
7.04 Waiver of Transfer
Restrictions.  Notwithstanding anything to the contrary
contained in the Company’s Organic Documents, the Pledgor hereby waives any
requirement contained in the Company’s Organic Documents that it consent to a
transfer of any Equity Interest in the Company in connection with a foreclosure
on such Equity Interest under the Financing Documents.

     

    Section
7.05 The Company’s Consent and
Covenant.  The Company hereby consents to the assignment of and
grant of a security interest in the Collateral to the Collateral Agent (for the
benefit of the Senior Secured Parties) and to the exercise by the Collateral
Agent of all rights and powers assigned or delegated to the Collateral Agent by
the Pledgor hereunder, including the rights upon and during the continuation of
an Event of Default to exercise the Pledgor’s voting rights and other rights to
manage or control the Company, all in accordance with the Financing
Documents.

     

    Section
7.06 Foreclosure.  The
Pledgor agrees that upon the occurrence and during the continuation of an Event
of Default, the Collateral Agent may elect to nonjudicially or judicially
foreclose against any real or personal property security it holds for the
Obligations or any part thereof, or to exercise any other remedy against the
Company or any other Person, any security or any guarantor, even if the effect
of that action is to deprive the Pledgor of the right to collect reimbursement
from the Company or any other Person for any sums paid by the Pledgor to the
Collateral Agent or any Senior Secured Party.

     

    Section
7.07 Waiver of Rights of
Subrogation.  Until the Discharge Date, (a) the Pledgor shall
not exercise any right of subrogation and shall not enforce any remedy that the
Senior Secured Parties now have or may hereafter have against the Company, and
waives the benefit of, and all rights to participate in, any security now or
hereafter held by the Collateral Agent or any Senior Secured Party from the
Company and (b) the Pledgor agrees not to exercise any claim, right or remedy
that the Pledgor may now have or hereafter acquire against the Company that
arises hereunder and/or from the performance by the Pledgor hereunder, including
any claim, remedy or right of subrogation, reimbursement, exoneration,
contribution, indemnification, or participation in any claim, right or remedy of
the Senior Secured Parties against the Company, or any security that the Senior
Secured Parties now have or hereafter acquire, whether or not such claim, right
or remedy arises in equity, under contract, by statute, under common Law or
otherwise. Any amount paid to the Pledgor on account of any such subrogation
rights prior to the Discharge Date shall be held in trust for the benefit of the
Collateral Agent and shall immediately thereafter be paid to the Collateral
Agent, for the benefit of the Senior Secured Parties.

     

    Section
7.08 Application of
Proceeds.  Upon the occurrence and during the continuation of
an Event of Default, the proceeds of any sale of or other realization upon all
or any part of the Collateral shall be applied in accordance with Section 9.12 (Application of Proceeds) of
the Credit Agreement.

     

    Section
7.09 Collateral Agent May
Perform.  Upon the occurrence and during the continuance of an
Event of Default, if the Pledgor fails to perform any agreement contained
herein, the Collateral Agent may itself perform, or cause performance of, such
agreement, and the reasonable expenses of the Collateral Agent incurred in
connection therewith shall be part of the Obligations.

     

    

    
      
        
           

        

        
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    Section
7.10 Limitation on Duty of
Collateral Agent with Respect to the Collateral.  The powers
conferred on the Collateral Agent hereunder are solely to protect its interest
and the interests of the Senior Secured Parties in the Collateral and shall not
impose any duty on the Collateral Agent or any of its designated agents to
exercise any such powers. Except for (a) the safe custody of any Collateral in
its possession, (b) the accounting for monies actually received by it hereunder,
(c) the exercise of reasonable care in the custody and preservation of the
Collateral in its possession, and (d) any duty expressly imposed on the
Collateral Agent by applicable Law with respect to any Collateral that has not
been waived hereunder, the Collateral Agent shall have no duty with respect to
any Collateral and no implied duties or obligations shall be read into this
Agreement against the Collateral Agent. The Collateral Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment that is substantially
equivalent to that which the Collateral Agent accords its own property, it being
expressly agreed, to the maximum extent permitted by applicable Law, that the
Collateral Agent shall have no responsibility for (i) taking any necessary steps
to preserve rights against any parties with respect to any Collateral, or
(ii) taking any action to protect against any diminution in value of the
Collateral, but in each case, the Collateral Agent may do so and all expenses
reasonably incurred in connection therewith shall be part of the
Obligations.

     

    Section
7.11 Termination of Security
Interest.  Upon the Discharge Date, this Agreement and the
security interest and all other rights granted hereby shall terminate and all
rights to the Collateral shall revert to the Pledgor. Upon any such termination,
the Collateral Agent will, at the Pledgor’s sole expense and upon its written
direction, promptly return all certificates and other instruments previously
delivered to the Collateral Agent representing the Pledged Equity Interests or
any other Collateral and, execute and, subject to Section 8.11 (Reinstatement), deliver to the
Pledgor such documents (including UCC-3 termination statements) as the Company
or the Pledgor shall reasonably request to evidence such termination, to release
all security interest on the Collateral and to return such Collateral to the
Pledgor.

     

    ARTICLE
VIII

     

    MISCELLANEOUS

     

    Section
8.01 Amendments,
Etc.  This Agreement may not be amended, modified or
supplemented, except in a writing signed by each of the parties hereto and
otherwise in accordance with the provisions of Section 11.01 (Amendments,
Etc.) of the Credit Agreement.

     

    Section
8.02 Applicable Law;
Jurisdiction; Etc.

     

    (a) GOVERNING
LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA
WITHOUT REFERENCE TO CONFLICTS OF LAWS (OTHER THAN SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW).

     

    

    
      
        
           

        

        
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    (b) SUBMISSION TO
JURISDICTION.  EACH OF THE PLEDGOR AND THE COMPANY IRREVOCABLY
AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY
AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT, OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT
OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.
EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
AGREEMENT OR IN ANY OTHER FINANCING DOCUMENT SHALL AFFECT ANY RIGHT THAT THE
COLLATERAL AGENT OR ANY OTHER SENIOR SECURED PARTY MAY OTHERWISE HAVE TO BRING
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER FINANCING
DOCUMENT AGAINST THE PLEDGOR, THE COMPANY OR ANY OTHER LOAN PARTY OR ITS
PROPERTIES IN THE COURTS OF ANY JURISDICTION.

     

    (c) WAIVER OF
VENUE.  EACH OF THE PLEDGOR AND THE COMPANY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
FINANCING DOCUMENT IN ANY COURT REFERRED TO IN SECTION 8.02(b). EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

     

    (d) Appointment of Process Agent
and Service of Process.  Each of the Pledgor and the Company
hereby irrevocably appoints CT Corporation System with an office on the date
hereof at 111 Eighth Avenue, New York, New York 10011, as its agent to receive
on behalf of itself services of copies of the summons and complaint and any
other process that may be served in any such action or proceeding in the State
of New York.  If for any reason the Process Agent shall cease to act
as such for either of the Pledgor or the Company, the Pledgor or the Company, as
the case may be, hereby agrees to designate a new agent in New York City on the
terms and for the purposes of this Section 8.02
reasonably satisfactory to the Collateral Agent. Such service may be made by
mailing or delivering a copy of such process to the Pledgor or the Company, as
the case may be, in care of the Process Agent at the Process Agent’s above
address, and each of the Pledgor and the Company hereby irrevocably authorizes
and directs the Process Agent to accept such service on its behalf. As an
alternative method of service, each of the Pledgor and the Company also
irrevocably consents to the service of any and all process in any such action or
proceeding by the airmailing of copies of such process to the Pledgor or the
Company, as the case may be, at its then effective notice addresses pursuant to
Section 8.09
(Notices).

     

    

    
      
        
           

        

        
          -16-

          
            

          

        

        
           

        

      

    

    

    (e) Immunity.  To
the extent that either the Pledgor or the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
of the Pledgor and the Company hereby irrevocably and unconditionally waives
such immunity in respect of its obligations under the Financing Documents and,
without limiting the generality of the foregoing, agrees that the waivers set
forth in this Section
8.02(e) shall have the fullest scope permitted under the Foreign
Sovereign Immunities Act of 1976 of the United States and are intended to be
irrevocable for purposes of such Act.

     

    (f) WAIVER OF JURY
TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (i) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (ii) ACKNOWLEDGES THAT IT
AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND
THE OTHER FINANCING DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION
8.02(f).

     

    Section
8.03 Counterparts;
Effectiveness.  This Agreement may be executed in counterparts
(and by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agreement shall become effective when it has been executed
by the Collateral Agent and when the Collateral Agent has received counterparts
hereof that bear the signatures of the each of the Pledgor and the Company.
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy or portable document format (“pdf”) shall be effective as delivery of a
manually executed counterpart of this Agreement.

     

    Section
8.04 Delay Not Waiver; Separate
Causes of Action.  No delay or omission to exercise any right,
power or remedy accruing to the Collateral Agent upon the occurrence of any
Event of Default shall impair any such right, power or remedy of the Collateral
Agent, nor shall it be construed to be a waiver of any such Event of Default, or
an acquiescence therein, or of or in any other breach or default thereafter
occurring, nor shall any waiver of any other breach or default under this
Agreement or any other Financing Document be deemed a waiver of any other breach
or default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Collateral Agent of any
breach or default under this Agreement, or any waiver on the part of the Senior
Secured Parties or the Collateral Agent of any provision or condition of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. Each and every default by the Pledgor or
the Company in payment hereunder shall give rise to a separate cause of action
hereunder, and separate suits may be brought hereunder as each cause of action
arises.

     

    

    
      
        
           

        

        
          -17-

          
            

          

        

        
           

        

      

    

    

    Section
8.05 Entire
Agreement.  This Agreement, together with the other Financing
Documents, is intended by the parties as a final expression of their agreement
and is intended as a complete and exclusive statement of the terms and
conditions thereof.

     

    Section
8.06 Expenses.  Each
of the Pledgor and the Company agrees to pay on demand to the Collateral Agent
all costs and expenses incurred by the Collateral Agent (including fees,
expenses and disbursements of counsel) incident to its enforcement, exercise,
protection or preservation of any of its rights, remedies or claims (or the
rights or claims of any Senior Secured Party) under this Agreement.

     

    Section
8.07 Headings
Descriptive.  Article and Section headings have been inserted
in this Agreement as a matter of convenience for reference only and it is agreed
that such article and section headings are not a part of this Agreement and
shall not be used in the interpretation of any provision of this
Agreement.

     

    Section
8.08 Interest.  Any
amount required to be paid by the Pledgor or the Company pursuant to the terms
hereof that is not paid when due shall bear interest at the Default Rate or the
maximum rate permitted by Law, whichever is less, from the date due until paid
in full in cash.

     

    Section
8.09 Notices.

     

    (a) All
notices, requests, demands or other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made in writing in the manner set out
in Section 11.12
(Notices
and Other Communications) of the Credit
Agreement and to the addresses set forth below:

     

    If to the
Pledgor:                  Pacific
Ethanol California, Inc.

    c/o Pacific Ethanol, Inc.

    400 Capitol Mall, Suite
2060

    Sacramento, CA 95814

    Attention: Chief Operating
Officer

    Facsimile:  (916)
446-3936

    

    With a copy
to:                    Pacific
Ethanol California, Inc.

    c/o Pacific Ethanol, Inc.

    400 Capitol Mall, Suite
2060

    Sacramento, CA 95814

    Attention: General
Counsel

    Facsimile:  (916)
446-3936

    

    And a copy
to:                     Cooley
Godward Kronish LLC

    1114
Avenue of the Americas

    New York,
NY 10036

    Attn:
Richard S. Kanowitz, Esq.

    Telephone:
(212) 479-6000

    Facsimile:
(212) 479-6275

    

    
      
        
           

        

        
          -18-

          
            

          

        

        
           

        

      

    

    

    If to the
Company:               Pacific
Ethanol Holding Co. LLC

    c/o Pacific Ethanol, Inc.

    400 Capitol Mall, Suite
2060

    Sacramento, CA 95814

    Attention: Chief Operating
Officer

    Facsimile:  (916)
446-3936

    

    With a copy
to:                    Pacific
Ethanol Holding Co. LLC

    c/o Pacific Ethanol, Inc.

    400 Capitol Mall, Suite
2060

    Sacramento, CA 95814

    Attention: General
Counsel

    Facsimile:  (916)
446-3936

    

    And a copy
to:                     Cooley
Godward Kronish LLC

    1114
Avenue of the Americas

    New York,
NY 10036

    Attn:
Richard S. Kanowitz, Esq.

    Telephone:
(212) 479-6000

    Facsimile: (212) 479-6275

    

    If to the Collateral Agent:  
WestLB AG, New York Branch

    Attn:  CRM Americas-
Documentation/Agency

    1211 Avenue of the
Americas

    New York, New York 10036

    Attention:  Richard
Garbarino

    Telephone:  (212)
597-1307

    Facsimile:  (212)
597-1490

    Email: Richard_Garbarino@west1b.com

    

    (b) Each of
the parties hereto may change its address, telecopier or telephone number or
e-mail address for notices and other communications hereunder by notice to the
other parties hereto.

     

    Section
8.10 No Waiver; Cumulative
Remedies.  No failure by the Collateral Agent to exercise, and
no delay by the Collateral Agent in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.

     

    Section
8.11 Reinstatement.  This
Agreement and the obligations of the Pledgor and the Company hereunder shall
automatically be reinstated if and to the extent that for any reason any payment
made pursuant to this Agreement is rescinded or must otherwise be restored or
returned, whether as a result of any proceedings in bankruptcy or reorganization
or otherwise with respect to the Pledgor, the Company or any other Person or as
a result of any settlement or compromise with any Person (including the Pledgor
or the Company) in respect of such payment, and the Pledgor or the Company shall
pay the Collateral Agent on demand all of its reasonable costs and expenses
(including reasonable fees, expenses and disbursements of counsel) incurred by
the Collateral Agent in connection with such rescission or
restoration.

     

    

    
      
        
           

        

        
          -19-

          
            

          

        

        
           

        

      

    

    

    Section
8.12 Remedies
Cumulative.  No right, power or remedy herein conferred upon or
reserved to the Collateral Agent hereunder is intended to be exclusive of any
other right, power or remedy, and every such right, power and remedy shall, to
the extent permitted by applicable Law, be cumulative and in addition to every
other right, power and remedy given hereunder or under any other Financing
Document now or hereafter existing at Law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Resort to any or all security now or hereafter held by the
Collateral Agent or any other Senior Secured Party, may be taken concurrently or
successively and in one or several consolidated or independent judicial actions
or lawfully taken nonjudicial proceedings, or both.

     

    Section
8.13 Rights of Collateral
Agent.  The Collateral Agent shall be entitled to the rights,
protections, immunities and indemnities set forth in the Credit Agreement as if
specifically set forth herein. With respect to the duties, obligations and
rights of the Collateral Agent, if any conflict between the terms of this
Agreement and the terms of the Credit Agreement arises, the terms of the Credit
Agreement shall govern and control.

     

    Section
8.14 Severability.  If
any provision of this Agreement is held to be illegal, invalid or unenforceable,
(a) the legality, validity and enforceability of the remaining provisions of
this Agreement shall not be affected or impaired thereby and (b) the parties
shall endeavor in good faith negotiations to replace the illegal, invalid or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the illegal, invalid or unenforceable
provisions. The invalidity of a provision in a particular jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.

     

    Section
8.15 Successions and
Assignments.  This Agreement shall create a continuing pledge
and assignment of and security interest in the Collateral and shall (a) remain
in full force and effect until the Discharge Date and as otherwise provided in
Section 8.16
(Survival
of Provisions); (b) be binding
upon the Company, the Pledgor, and their respective successors and assigns; and
(c) inure, together with the rights and remedies of the Collateral Agent, to the
benefit of the Collateral Agent, the Senior Secured Parties and their respective
successors and permitted assigns. The release of the security interest in any of
the Collateral, the taking or acceptance of additional security, or the resort
by the Collateral Agent to any security it may have in any order it may deem
appropriate, shall not affect the liability of any Person on the indebtedness
secured hereby, except for release of the Collateral upon the Discharge Date.
The Pledgor is not entitled to assign its obligations hereunder to any other
Person without the written consent of the Collateral Agent, and any purported
assignment in violation of this provision shall be void.

     

    Section
8.16 Survival of
Provisions.  All agreements, representations and warranties
made herein shall survive the execution and delivery of this Agreement and the
Financing Documents and the making of the Loans and extensions of credit under
the Credit Agreement. Notwithstanding anything in this Agreement or implied by
Law to the contrary, the agreements of each of the Pledgor and the Company set
forth herein shall terminate at the same time as the security interest and other
rights granted hereunder shall terminate pursuant to Section 7.11 (Termination
of Security Interest).

     

    

    
      
        
           

        

        
          -20-

          
            

          

        

        
           

        

      

    

    

    Section
8.17 Third-Party
Rights.  Nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon, or give to any Person, other than
the Pledgor, the Collateral Agent and the Senior Secured Parties, any security,
rights, remedies or claims, legal or equitable, under or by reason hereof, or
any covenant or condition hereof; and this Agreement and the covenants and
agreements herein contained are and shall be held to be for the sole and
exclusive benefit of the Pledgor, the Collateral Agent and the Senior Secured
Parties.

     

    Section
8.18 Time.  Time
is of the essence of this Agreement.

     

    Section
8.19 Waiver of Consequential
Damages, Etc.  To the fullest extent permitted by applicable
Law, neither the Pledgor or the Company shall assert, and each of the Pledgor
and the Company hereby waives, any claim against any Indemnitee, on any theory
of liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection with, or as a
result of, this Agreement, any other Financing Document or any agreement or
instrument contemplated hereby, the transactions contemplated hereby or thereby,
any Loan or the use of the proceeds thereof. No Indemnitee shall be liable for
any damages arising from the use by unintended recipients of any information or
other materials distributed by it through telecommunications, electronic or
other information transmission systems in connection with this Agreement or the
other Financing Documents or the transactions contemplated hereby or
thereby.

     

    Section
8.20 Waiver of Litigation
Payments.  To the extent that the Pledgor or the Company may,
in any action, suit or proceeding brought in any of the courts referred to in
Section 8.02
(Applicable
Law; Jurisdiction; Etc.) or elsewhere
arising out of or in connection with this Agreement or any other Financing
Document to which it is a party, be entitled to the benefit of any provision of
Law requiring the Collateral Agent or any Senior Secured Party in such action,
suit or proceeding to post security for the costs of such Pledgor or Company or
to post a bond or to take similar action, each of the Pledgor and the Company
hereby irrevocably waives such benefit, in each case to the fullest extent now
or in the future permitted under the Laws of New York or, as the case may be,
the jurisdiction in which such court is located.

     

    

    
      
        
           

        

        
          -21-

          
            

          

        

        
           

        

      

    

    

    Section
8.21 Scope of
Liability.  Except as provided herein and in any other
Transaction Document to which any Non-Recourse Party is a party, there shall be
no recourse against the Pledgor or any of its Affiliates (except the Borrowers),
or the stockholders or other owners, officers, directors or employees of any of
them (each, a “Non-Recourse Party”),
for any liability to the Lenders arising in connection with any breach or
default under this Agreement, and the Lenders shall look solely to the Borrowers
(but not to any Non-Recourse Party or to any distribution received by any
Non-Recourse Party in compliance with the terms of the Financing Documents), the
Collateral and the rents, issues, profits, proceeds and products of the
Collateral, in enforcing rights and obligations under and in connection with the
Financing Documents; provided that (a) the
foregoing provisions of this Section 8.21 shall
not constitute a waiver, release or discharge of any of the indebtedness, or of
any of the terms, covenants, conditions, or provisions of this Agreement, the
Notes any other Financing Document (but without personal liability to the
Non-Recourse Parties except as provided herein and therein), and the same shall
continue until the Discharge Date; (b) the foregoing provisions of this Section 8.21 shall
not limit or restrict the right of any Senior Secured Party to name any Borrower
or any other Person (including any Non-Recourse Party) as a defendant in any
action or suit for a judicial foreclosure or for the exercise of any other
remedy under or with respect to this Agreement or any other Financing Document,
or otherwise, or for injunction or specific performance, so long as (subject to
the last sentence of this Section 8.21) no
judgment in the nature of a deficiency judgment shall be enforced against any
Non-Recourse Party out of any property, assets or funds other than the
Collateral and the rents, issues, profits, proceeds or products of the
Collateral, and any other property or assets of any Borrower; (c) the foregoing
provisions of this Section 8.21
(including this proviso) shall not affect or diminish or constitute a waiver,
release or discharge of any specific written obligation, covenant, or agreement
made by any of the Non-Recourse Parties or any security granted by any of the
Non-Recourse Parties in support of the obligations of such Persons under any
guarantee or similar undertaking or as security for the obligations of any
Borrower; and (d) the foregoing provisions of this Section 8.21 shall
not constitute a waiver of any of the terms, covenants, conditions, or
provisions of any Project Document (but without personal liability to the
Non-Recourse Parties except as provided herein and therein), and shall not limit
or restrict the right of any Senior Secured Party under any Project Document, to
the extent provided therein or in any other Transaction Document, to name any
Borrower or any other Person (including any Non-Recourse Party) party to such
Project Document as a defendant in any action or suit for the exercise of
remedies under or with respect to any such Project Document, or for injunction
or specific performance thereunder. Notwithstanding the foregoing, it is
expressly understood and agreed that nothing contained in this Section 8.21 shall be
deemed to (i) limit or restrict any right or remedy of the Senior Secured
Parties (or any assignee or beneficiary thereof or successor thereto) with
respect to (and the Pledgor shall remain fully liable  for) any
breach, default, fraud or willful misconduct by the Pledgor; or (ii) limit in
any respect the enforceability against the Pledgor of this Agreement in
accordance with its terms.

     

    [The
remainder of this page is intentionally blank. The next page is the signature
page.]

     

    

    
      
        
           

        

        
          -22-

          
            

          

        

        
           

        

      

    

    

    IN
WITNESS WHEREOF, the parties hereto, by their officers duly authorized,
intending to be legally bound, have caused this Pledge and Security Agreement to
be duly executed and delivered as of the date first above written.

     

    
    

     

    
      	 	      
              Pacific
      Ethanol California, Inc.,

              as
      Pledgor

               

              
                By:/s/ JOHN T.
      MILLER 

              

              Name:  John
      T. Miller

              Title:  COO

               

               

              Pacific
      Ethanol Holding Co. LLC,

              as
      Company

               

              
                By:/s/ JOHN T.
      MILLER 

              

              Name:  John
      T. Miller

              Title:  COO

               

               

              WestLB
      AG, New York Branch, as Collateral Agent

               

              
                By:/s/ RONALD
      SPITZER 

              

              Name:  Ronald
      Spitzer

              Title:  Executive
      Director

               

               

              
                By:
      /s/ DOMINICK
      D’ASCOLI 

              

              Name:
      Dominick
      D’Ascoli

              Title:
      Director 

            

    

     

    

    
      
        
           

        

        
          -23-

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
A

    IRREVOCABLE
PROXY

     

     

    The
undersigned hereby appoints WestLB AG, New York Branch, not in its individual
capacity but solely as “Collateral Agent” under the Credit Agreement (the “Collateral Agent”),
as Proxy with full power of substitution, and hereby authorizes the Collateral
Agent to represent and vote all of the membership interests of Pacific Ethanol
Holding Co. LLC, a limited liability company organized and existing under the
Laws of the State of Delaware, owned by the undersigned on the date of exercise
hereof during the continuance of an Event of Default under, and as defined in,
the Pledge and Security Agreement, dated as of May __, 2009 among Pacific
Ethanol California, Inc., Pacific Ethanol Holding Co. LLC and the Collateral
Agent at any meeting or at any other time chosen by the Collateral Agent in its
sole discretion.

     

     

    
      	
              Date:  ________________________________

            	
              Pacific
      Ethanol California, Inc.

            
	 
      	 
      
	 
      	
              By: 
      _________________________________________

              Name:

              Title:

            

    

     

     

     

    

    
      
        
           

        

        
          A-1

          
            

          

        

        
           

        

      

    

     

    EXHIBIT
B

    TRANSFER
DOCUMENT

     

     

    FOR VALUE
RECEIVED, Pacific Ethanol California, Inc. hereby sells, assigns and transfers
unto ___________________ all of its ownership interests in Pacific Ethanol
Holding Co. LLC, a limited liability company organized and existing under the
Laws of the State of Delaware, standing in its name on the books of Pacific
Ethanol Holding Co. LLC, represented by the following
certificate(s):  ___________, and irrevocably appoints
__________________ as attorney to transfer the ownership interests with full
power of substitution in the premises.

     

    
      	
              Date:  ________________________________

            	
              Pacific
      Ethanol California, Inc.

            
	 
      	 
      
	 
      	
              By: 
      ______________________________________________

              Name:

              Title:

            

    

    

    In the
presence of:

     

    _________________________

     

    

    
      
        
           

        

        
          B-1

          
            

          

        

        
           

        

      

    

    

    SCHEDULE
I

    DESCRIPTION
OF PLEDGED EQUITY INTERESTS

     

     

     

    
      	
              Description:

            
	
               

              100%
      of the membership interests of Pacific Ethanol Holding Co. LLC,
      represented by Certificate No. 1

               

            

    

     

     

     

     

     

     

     

     

     

    Schedule I-1exh101.htm

    EXECUTION
VERSION

     

    
      TENTH
AMENDMENT TO CREDIT AGREEMENT

       

      TENTH AMENDMENT TO CREDIT AGREEMENT
(this “Amendment”) dated as
of May 20, 2009, by and among CARRIZO OIL & GAS, INC., a Texas corporation
(“Borrower”),
certain SUBSIDIARIES OF BORROWER, as Guarantors (in such capacity, “Guarantors”), the
LENDERS party hereto (the “Lenders”), GUARANTY
BANK, as resigning administrative agent for the Lenders (in such capacity, the
“Resigning
Agent”) and as resigning issuing bank (in such capacity, the “Resigning Issuing
Bank”) and WELLS FARGO BANK, N.A., as successor administrative agent for
the Lenders (in such capacity, the “Successor Agent”) and
as successor issuing bank (in such capacity, the “Successor Issuing
Bank”).  Unless otherwise expressly defined herein, capitalized
terms used but not defined in this Amendment have the meanings assigned to such
terms in the Credit Agreement (as defined below).

       

      WITNESSETH:

       

      WHEREAS, Borrower, Guarantors,
Resigning Agent and
certain Lenders are party to that certain Credit Agreement, dated as of May 25,
2006 (as the same has been and may hereafter be amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”);
and

       

      WHEREAS, Resigning Agent and
Resigning Issuing Bank desire to resign as Administrative Agent and Issuing
Bank, respectively, under the Credit Agreement and Successor Agent and Successor
Issuing Bank desire to be appointed as Administrative Agent and Issuing Bank,
respectively, under the Credit Agreement; and

       

      WHEREAS, Borrower, Guarantors,
Successor Agent and Lenders have agreed to amend the Credit Agreement as
provided herein, subject to the terms and conditions set forth
herein.

       

      NOW, THEREFORE, for and in
consideration of the mutual covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto hereby agree as
follows:

       

      SECTION
1. Amendments to Credit
Agreement.  Subject to the satisfaction or waiver in writing of
each condition precedent set forth in Section 5 of
this Amendment, and in reliance on the representations, warranties, covenants
and agreements contained in this Amendment, the Credit Agreement shall be
amended in the manner provided in this Section 1.

       

      1.1 Cover Page.  The
cover page to the Credit Agreement shall be and it hereby is amended in its
entirety and replaced with the cover page attached hereto as Annex A.

       

      1.2 Preamble.  The
preamble to the Credit Agreement shall be and it hereby is amended by deleting
the reference to “GUARANTY BANK” and substituting in lieu thereof the name
“WELLS FARGO BANK, N.A.”.

       

      1.3 Additional
Definitions.  The following definitions shall be and they
hereby are added to Section 1.01 of
the Credit Agreement in appropriate alphabetical order:

       

      “Tenth Amendment Effective
Date” means May 20, 2009.

       

      
        
          Tenth
Amendment to Credit Agreement - Page 1

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        “Wells Fargo” means
Wells Fargo Bank, N.A.

         

        1.4 Amended
Definitions.  The following definitions in Section 1.01 of
the Credit Agreement shall be and they hereby are amended in their respective
entireties to read as follows:

         

        “Administrative Agent”
means Wells Fargo Bank, N.A., in its capacity as contractual representative of
the Lenders hereunder pursuant to ARTICLE X and not in its individual capacity
as a Lender, and any successor agent appointed pursuant to ARTICLE
X.

         

        “Approved
Counterparty” means, at any time and from time to time, (i) any Person
engaged in the business of writing Swap Agreements for commodity, interest rate
or currency risk that is acceptable to the Administrative Agent or has (or the
credit support provider of such Person has), at the time Borrower or any
Restricted Subsidiary enters into a Swap Agreement with such Person, a long term
senior unsecured debt credit rating of BBB+ or better from S&P or Baa1 or
better by Moody’s, (ii) any Lender Counterparty, and (iii) Shell Energy North
America (US) L.P.

         

        “Aggregate Commitment”
means, as of the Tenth Amendment Effective Date, $259,400,000 and thereafter as
such amount may be reduced or increased from time to time pursuant to Section
2.02 and Section 2.02A and as a result of changes in the Borrowing Base;
provided that such amount shall not at any time exceed the lesser of (i) the
Maximum Facility Amount and (ii) the Borrowing Base then in
effect.  If at any time the Borrowing Base is reduced below the
Aggregate Commitment, the Aggregate Commitment shall be reduced automatically to
the amount of the Borrowing Base in effect at such time.

         

        “Cash Management
Obligations” means, with respect to any Credit Party, any obligations of
such Credit Party owed to Wells Fargo or any of its Affiliates in respect of
treasury management arrangements, depositary or other cash management
services.

         

        “Fee Letter” means
that certain Fee and Mandate Letter, dated as of May 18, 2009, between the
Borrower and Wells Fargo.

         

        “Issuing Bank” means
Wells Fargo, in its capacity as the issuer of Letters of Credit hereunder, and
its predecessors and/or successors in such capacity to the extent provided in
Section 2.05(i).  The Issuing Bank may, in its discretion, arrange for
one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in
which case the term “Issuing Bank” shall include any such Affiliate with respect
to Letters of Credit issued by such Affiliate.

         

        “Prime Rate” means the
rate of interest per annum publicly announced from time to time by Wells Fargo
as its prime rate in effect at its principal office in Houston,
Texas.  Each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being
effective.

         

        
          
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      1.5 Deleted
Definitions.  Section 1.01 of the
Credit Agreement shall be and it hereby is amended by deleting the following
definition: “Guaranty Bank”.

       

      1.6 Fees.  Clause (b) of
Section 2.11 of
the Credit Agreement shall be and it hereby is amended by deleting the phrase
“Seventh Amendment Effective Date” located twice therein and twice substituting
in lieu thereof the phrase “Tenth Amendment Effective Date”.

       

      1.7 Payments Generally; Pro Rata
Treatment; Sharing of Set-offs.  Clauses (a) and (b) of Section 2.17 of the
Credit Agreement shall be and they hereby are amended in their respective
entireties to read as follows:

       

      (a)           The
Borrower shall make each payment required to be made by it hereunder (whether of
principal, interest, fees or reimbursement of LC Disbursements, or of amounts
payable under Section 2.14, Section 2.15 or Section 2.16, or otherwise) prior to
12:00 noon, on the date when due, in immediately available funds, without
set-off or counterclaim.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments shall be made to the
Administrative Agent at its offices at 1700 Lincoln Ave. 3rd Floor,
MAC C7300-035, Denver, Colorado 80203, except payments to be made directly to
the Issuing Bank as expressly provided herein and except that payments pursuant
to Section 2.14, Section 2.15, Section 2.16 and Section 11.03 shall be made
directly to the Persons entitled thereto.  The Administrative Agent
shall distribute any such payments received by it for the account of any other
Person to the appropriate recipient promptly following receipt thereof in like
funds as received.  If any payment hereunder shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such
extension.  All payments hereunder shall be made in
Dollars.

       

      (b)           If
at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
and unreimbursed LC Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties; provided that in the event such funds
are received by and available to the Administrative Agent as a result of the
exercise of any rights and remedies with respect to any collateral under the
Security Instruments, the parties entitled to a ratable share of such funds
pursuant to the foregoing clause (ii) and the determination of each parties’
ratable share shall include, on a pari passu basis, (x) the Lender
Counterparties and the actual aggregate amounts then due and owing to each
Lender Counterparty by the Borrower or any Guarantor as a result of the early
termination of any

       

      
        
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        transactions
under any Swap Agreements included in the Obligations (after giving effect to
any netting agreements) and (y) Wells Fargo or any of its Affiliates with
respect to Cash Management Obligations then due and owing to Wells Fargo or any
of its Affiliates by any Credit Party.

         

        1.8  Deposit
Accounts.  Section 4.18 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
4.18.      Deposit
Accounts.  From and after forty-five (45) days after the Tenth
Amendment Effective Date (or such longer time as acceptable to Administrative
Agent in its sole discretion), except for deposit and investment accounts
maintained at financial institutions (other than the Administrative Agent) the
aggregate balance of which does not exceed $200,000 at any time for all such
other deposit and investment accounts taken as a whole, no Credit Party
maintains any deposit or investment account (and no Affiliate of any Credit
Party maintains any deposit or investment account) into which either (a)
proceeds of Hydrocarbon production from the Oil and Gas Interests included in
the Borrowing Base Properties are deposited or (b) distributions and dividends
on Equity Interests owned by any Credit Party are paid and deposited, in each
case, other than Eligible Accounts.

         

        1.9 Mortgages.  Section 6.09 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
6.09.      Mortgages.  From
time to time as requested by the Administrative Agent, the Borrower will, and
will cause each Guarantor to, execute and deliver to the Administrative Agent,
for the benefit of the Secured Parties, Mortgages in form and substance
reasonably acceptable to the Administrative Agent together with such other
assignments, conveyances, amendments, agreements and other writings, including,
without limitation, UCC-1 financing statements (each duly authorized and
executed, as applicable) as the Administrative Agent shall reasonably deem
necessary or appropriate to grant, evidence and perfect a valid  first
priority Lien, subject only to Permitted Liens, in (a) not less than eighty
percent (80%) of the Engineered Value of all Borrowing Base Properties
(excluding any Oil and Gas Interests in the area known as the Camp Hill Field in
Anderson County, Texas) and (b) not less than eighty percent (80%) of the
Engineered Value of the Borrower’s and each Guarantor’s Oil and Gas Interests in
the area known as the Camp Hill Field in Anderson County, Texas.

         

        1.10 Title Data.  Section 6.10 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
6.10.      Title
Data.  From time to time as requested by the Administrative
Agent, the Borrower will, and will cause each Guarantor to, deliver to the
Administrative Agent such opinions of counsel and other evidence of title as the
Administrative Agent shall deem reasonably necessary or appropriate

         

        
          
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      to
verify (a) (i) for the period from the Tenth Amendment Effective Date until
thirty (30) days after the Tenth Amendment Effective Date (or such longer time
as acceptable to Administrative Agent in its sole discretion), such Credit
Party’s title to not less than fifty percent (50%) of the Engineered Value of
the Borrowing Base Properties (excluding any Oil and Gas Interests in the area
known as the Camp Hill Field in Anderson County, Texas), and (ii) at any time
thereafter, such Credit Party’s title to not less than seventy-five percent
(75%) of the Engineered Value of the Borrowing Base Properties (excluding any
Oil and Gas Interests in the area known as the Camp Hill Field in Anderson
County, Texas), (b) such Credit Party’s title to not less than fifty percent
(50%) of the Engineered Value of the Oil and Gas Interests in the area known as
the Camp Hill Field in Anderson County, Texas and (c) the validity, perfection
and priority of the Liens created by the Mortgages and such other matters
regarding the Mortgages as Administrative Agent shall reasonably
request.  The Borrower will, and will cause each Guarantor to, use
commercially reasonable efforts to deliver to the Administrative Agent, or its
counsel on or before April 2, 2007, reasonably satisfactory evidence
demonstrating that the Borrower or such Guarantor, as the case may be, has
performed all of the title curative actions described on Schedule
6.10.  To the extent any such title curative action is not performed
on or before April 2, 2007, the Administrative Agent may, in its reasonable
discretion, reduce the Borrowing Base to account for such failure to perform
such title curative action and such reduction shall be restored upon the
performance of such title curative action to the reasonable satisfaction of the
Administrative Agent.

       

      1.11 Production Proceeds and Bank
Accounts.  Section 6.15 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

       

      Section
6.15.      Production Proceeds and Bank
Accounts.  Within forty-five (45) days after the Tenth
Amendment Effective Date (or such longer time as acceptable to Administrative
Agent in its sole discretion), subject to the terms and conditions of the
Mortgages, each Credit Party shall cause all production proceeds and revenues
attributable to the Oil and Gas Interests of such Credit Party and all
distributions and dividends on any Equity Interests owned by any Credit Party to
be paid and deposited into deposit accounts of such Credit Party maintained with
the Administrative Agent or with other financial institutions acceptable to the
Administrative Agent and cause all such deposit accounts at other financial
institutions (other than deposit and investment accounts the aggregate balance
of which does not exceed $200,000 at any time for all such other deposit and
investment accounts taken as a whole) to be subject to a control agreement in
favor of the Administrative Agent for the benefit of the Secured Parties, in
form and substance reasonably satisfactory to the Administrative Agent (each, an
“Eligible
Account”).

       

      
        
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        1.12 Swap
Agreements.  Section 7.06 of the
Credit Agreement shall be and it hereby is amended in its entirety to read as
follows:

         

        Section
7.06.      Swap
Agreements.  (a) The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, enter into or maintain any Swap Agreement,
except the Swap Agreements required under Section 6.11 and Swap Agreements
entered into in the ordinary course of business with Approved Counterparties and
not for speculative purposes to:

         

        (i)
hedge or mitigate Crude Oil and Natural Gas price risks to which the Borrower or
any Restricted Subsidiary has actual exposure, provided
that:

         

        (A)
to the extent any such Swap Agreements requires any Credit Party to deliver
money, assets or other security, including letters of credit, against any event
of nonperformance prior to actual default by such Credit Party in the
performance of its obligations thereunder (excluding any such Swap Agreement
with any Lender Counterparty that only requires the delivery of the money,
assets or other security required pursuant to the Loan Documents), the aggregate
value of all money, assets or other security, including the amount drawn or
which could be drawn under any such letters of credit, delivered by the Credit
Parties, taken as a whole, shall not exceed $10,000,000 in the aggregate at any
time, and the term of any transaction entered into after the Effective Date
under any such Swap Agreements requiring such delivery of money, assets or other
security shall not exceed twelve (12) months;

         

        (B)
the aggregate notional volume per month of Crude Oil and Natural Gas, calculated
separately, under all Swap Agreements of the type described in this clause (i)
(including the Swap Agreements required under Section 6.11 but excluding Swap
Agreements that constitute a put agreement or a floor agreement) shall not at
any time exceed eighty percent (80%) of the “forecasted production from proved
producing reserves” (as defined below) of the Borrower and the Restricted
Subsidiaries for any month during the forthcoming four year period (provided that no
violation of this Section 7.06 shall be deemed to occur with respect to any
month for which, as of May 18, 2009, the aggregate notional volume of Crude Oil
and Natural Gas, calculated separately, under all Swap Agreements then in effect
exceeds 80% of the “forecasted production from proved producing reserves” of the
Borrower and the Restricted Subsidiaries for such month); and

         

        (C)
such Swap Agreement (excluding any transaction under a Swap Agreement entered
into after the effective date of such Swap Agreement and related documentation
evidencing any such transaction) is in form and substance reasonably
satisfactory to the Administrative Agent and the Required Lenders (it being
understood that each Swap Agreement to which the Borrower or any Restricted
Subsidiary is a party as of the

         

        
          
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      Tenth
Amendment Effective Date is satisfactory to the Administrative Agent and the
Required Lenders); and

       

      (ii)
effectively cap, collar or exchange interest rates (from fixed to floating
rates, from one floating rate to another floating rate or otherwise) with
respect to any interest-bearing liability or investment of any Credit Party;
provided
that:

       

      (A)
the aggregate notional amount under all Swap Agreements of the type described in
this clause (ii) shall not at any time exceed the amount of Loans then
outstanding; and

       

      (B)
such Swap Agreement (excluding any transaction under a Swap Agreement entered
into after the effective date of such Swap Agreement and related documentation
evidencing any such transaction) is in form and substance reasonably
satisfactory to the Administrative Agent and the Required Lenders (it being
understood that each Swap Agreement to which the Borrower or any Restricted
Subsidiary is a party as of the Tenth Amendment Effective Date is satisfactory
to the Administrative Agent and the Required Lenders).

       

      (b)  As
used in clause (a)(i)(B), “forecasted production from proved producing reserves”
means the forecasted production of Crude Oil and Natural Gas as reflected in the
most recent Reserve Report delivered to the Administrative Agent pursuant to
Section 6.01, after giving effect to any pro forma adjustments for the
consummation of any Acquisitions or Dispositions of Oil and Gas Interests and
production from new wells completed since the effective date of such Reserve
Report.

       

      (c)  At
any time that the Borrowing Base Usage is greater than seventy-five percent
(75%), the Administrative Agent shall, at the request of all
the  Lenders, require the Borrower and its Restricted Subsidiaries to
enter into and maintain Swap Agreements upon terms, including projected
production volumes, and pursuant to documentation, in form and substance
reasonably satisfactory to the Lenders.

       

      (d)  In
the event any Credit Party amends, modifies, cancels, sells, transfers, assigns,
terminates, or otherwise disposes of any Swap Agreement entered into by any
Credit Party pursuant to this Section 7.06 (other than any disposition occurring
as a result of a scheduled termination of a Swap Agreement or a transaction
under a Swap Agreement in accordance with its terms) on or at any time after the
Eighth Amendment Effective Date (each, a “Swap Modification”),
the Borrower shall promptly, and in any event within three (3) Business Days
thereafter, provide written notice to the Administrative Agent of the terms of
such Swap Modification, setting forth, in reasonable detail, (x) the effect of
such Swap Modification on the aggregate notional amount of Crude Oil and Natural
Gas subject to the Credit Parties’ Swap Agreements and (y) the amount of net
consideration (if any) received by such Credit Party in the form of

       

      
        
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      cash
or Permitted Investments (“Net Cash
Consideration”) as a result of such Swap Modification; provided that no
Swap Modification may be made by any Credit Party without the prior written
consent of the Required Lenders if such Swap Modification, together with all
other Swap Modifications made since the most recent Redetermination Date, has
the effect of reducing the aggregate notional amount of Crude Oil and Natural
Gas subject to the Credit Parties’ Swap Agreements in effect as of the most
recent Redetermination Date by more than five percent (5%); provided, further,
that no Swap Modification may be made by any Credit Party if the aggregate Net
Cash Consideration received by such Credit Party as a result of such Swap
Modification, together with the aggregate Net Cash Consideration received by the
Credit Parties as a result of all other Swap Modifications made since the most
recent Redetermination Date, exceeds two and one-half percent (2.5%) of the
Borrowing Base then in effect unless (1) such Credit Party has received the
prior written consent of the Required Lenders or (2) promptly and in any event
within three (3) Business Days after receipt thereof, the Borrower applies such
excess Net Cash Consideration to prepay the principal amount of the
Loans.

       

      1.13 Notices.  Subclause
(ii) of Section
11.01(a) of the Credit Agreement shall be and it hereby is amended in its
entirety to read as follows:

       

      (ii)           if
to the Administrative Agent or Issuing Bank, to Wells Fargo Bank, N.A., 1700
Lincoln Ave. 3rd Floor,
MAC C7300-035, Denver, Colorado  80203, Telecopy No.: (303)
863-5533, Attention:  Todd
Hackbarth, Syndications Specialist, with a copy to Wells Fargo Bank, N.A., 1000
Louisiana, 9th Floor,
MAC T5002-090, Houston, Texas  77002, Telecopy No.: (713)
319-1925, Attention:  Scott
Hodges, Vice President;

       

      1.14 Amendment to Schedule
2.01.  Schedule 2.01 to the
Credit Agreement shall be and it hereby is amended in its entirety and replaced
with Schedule
2.01 attached hereto.

       

      1.15 Amendment to
Exhibits.  Each of the Exhibits to the Credit Agreement shall
be and they hereby are amended by (a) deleting all references to “Guaranty Bank”
solely in its capacity as Administrative Agent under the Credit Agreement and
substituting in lieu thereof the name “Wells Fargo Bank, N.A.”.

       

      SECTION
2. Resignation
and Appointment of Administrative Agent and Issuing Bank.

       

      2.1 Resignation of Resigning Agent and
Resigning Issuing Bank.

       

      (a)           Pursuant
to ARTICLE X of the Credit Agreement, the Resigning Agent hereby resigns as
Administrative Agent under the Credit Agreement upon the effectiveness of this
Amendment.  Upon the effectiveness of such resignation, the Resigning
Agent shall be discharged from its duties and obligations as Administrative
Agent under the Credit Agreement and the other Loan
Documents.  Notwithstanding such resignation and the assignment
contained in Section
3.1 of this Amendment, the provisions of ARTICLE X and Section 11.03 of the
Credit Agreement shall continue in effect for the benefit of the Resigning Agent
in respect of any action

       

      
        
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      taken or
omitted to be taken by it while it was acting as the Administrative Agent under
the Credit Agreement and the other Loan Documents.

       

      (b)           Pursuant
to Section
2.05(i) of the Credit Agreement, the Resigning Issuing Bank hereby
resigns as Issuing Bank under the Credit Agreement upon the effectiveness of
this Amendment.  Upon the effectiveness of such resignation, the
Resigning Issuing Bank shall be discharged from its duties and obligations as
Issuing Bank under the Credit Agreement and the other Loan Documents with
respect to any Letters of Credit issued on or after the Tenth Amendment
Effective Date.  Notwithstanding such resignation, (i) until such time
as the Specified Letter of Credit (as hereinafter defined) is replaced pursuant
to and in accordance with the terms of clause (d) of this Section 2.1, the
Resigning Issuing Bank shall remain a party to the Credit Agreement and shall
continue to have all the rights and obligations of an Issuing Bank under the
Credit Agreement with respect to the Specified Letter of Credit, and (ii) the
provisions of Section
11.03 of the Credit Agreement shall continue in effect for the benefit of
the Resigning Issuing Bank in respect of any action taken or omitted to be taken
by it while it was acting as the Issuing Bank under the Credit Agreement and the
other Loan Documents.

       

      (c)           The
Resigning Agent, in its capacity as a Lender under the Credit Agreement, shall
continue to have the same rights and powers under the Credit Agreement and any
other Loan Document with respect to its Commitment and its Loans as any other
Lender and may exercise the same notwithstanding its resignation as
Administrative Agent under the Credit Agreement.

       

      (d)           The
Resigning Issuing Bank, the Successor Issuing Bank and the Borrower covenant and
agree to use commercially reasonable efforts to cause the Specified Letter of
Credit to be replaced with a Letter of Credit issued by the Successor Issuing
Bank under the Credit Agreement within thirty (30) days after the Tenth
Amendment Effective Date and until the date the Specified Letter of Credit is
replaced with a Letter of Credit issued by the Successor Issuing Bank, the
Borrower shall pay to the Resigning Issuing Bank all fees, including fronting
fees, owed to the Resigning Issuing Bank pursuant to Section 2.11(b) of
the Credit Agreement with respect to the Specified Letter of Credit when and as
they become due, and in any event, no later than the date the Specified Letter
of Credit is replaced in accordance with this Section
2.1(d).

       

      2.2 Appointment of Successor Agent and
Successor Issuing Bank.

       

      (a)           Pursuant
to ARTICLE X of the Credit Agreement, the Lenders hereby appoint the Successor
Agent as Administrative Agent under the Credit Agreement and the other Loan
Documents.  By its execution hereof, the Successor Agent hereby
accepts such appointment and by its acceptance of such appointment, the
Successor Agent hereby succeeds to and becomes vested with all the rights,
powers, privileges and duties of the Resigning Agent in its capacity as
Administrative Agent under the Credit Agreement.  Notwithstanding the
appointment of the Successor Agent as Administrative Agent, Wells Fargo, in its
capacity as a Lender under the Credit Agreement, shall have the same rights and
powers under the Credit Agreement and any other Loan Document with respect to
its Commitment and its Loans as any other Lender and may exercise the same as
though it were not the Administrative Agent.  In addition, the term
“Lender” or “Lenders” in the Credit Agreement or any other Loan Document shall,
at any time

       

      
        
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      when
Wells Fargo is a Lender, unless the context otherwise indicates, include the
Successor Agent in its individual capacity.

       

      (b)           Pursuant
to Section
2.05(i) of the Credit Agreement, the Borrower and the Successor Agent
hereby appoint the Successor Issuing Bank as Issuing Bank under the Credit
Agreement and the other Loan Documents.  By its execution hereof, the
Successor Issuing Bank hereby accepts such appointment and by its acceptance of
such appointment, the Successor Issuing Bank hereby succeeds to and becomes
vested with all the rights, powers, privileges and duties of the Issuing Bank
under the Credit Agreement with respect to any Letters of Credit issued on or
after the Tenth Amendment Effective Date.

       

      SECTION
3. Assignment

       

      3.1 Resigning Agent
Assignment.  Upon the effectiveness of this Amendment, the
Resigning Agent, solely in its capacity as Administrative Agent under the Credit
Agreement and the other Loan Documents, hereby transfers, assigns, conveys and
delivers, as of the Tenth Amendment Effective Date, to the Successor Agent, for
the benefit of itself and the Secured Parties, all of the Resigning Agent’s,
right, title and interest in, to and under (i) the Credit Agreement and the
other Loan Documents, (ii) any and all collateral granted to the Resigning
Agent, for the benefit of the Secured Parties, under any Loan Document and (iii)
all proceeds of any and all of the foregoing (collectively, the “Assigned Items”);
provided that the Resigning Agent expressly reserves all of its rights and
benefits provided to it under ARTICLE X and Section 11.03 of the
Credit Agreement.  The Assigned Items are being assigned and
transferred by the Resigning Agent to the Successor Agent without recourse and
except as expressly provided in Section 3.2 of this
Amendment, without representation or warranty, express or implied, by the
Resigning Agent.

       

      3.2 Representations
and Warranties.

       

      (a)           The
Resigning Agent represents and warrants to the Successor Agent that (i) the
Resigning Agent is, in all material respects, the owner and holder of the
Assigned Items, (ii) the Assigned Items are, in all material respects, free and
clear of any lien, encumbrance or other adverse claim and (iii) the Resigning
Agent has full right, power and authority to transfer to the Successor Agent all
of the Assigned Items and to execute and deliver this Amendment.

       

      (b)           The
Successor Agent represents and warrants to the Resigning Agent that (i) the
Successor Agent has full right, power and authority to assume the Assigned Items
and to execute and deliver this Amendment and (ii) the Successor Agent has made
an independent decision to enter into this Amendment and to assume the Assigned
Items, without reliance on any representation or warranty by the Resigning
Agent, other than those representations and warranties expressly set forth
herein.

       

      (c)           Each
Credit Party represents and warrants to the Resigning Agent and the Successor
Agent that as of the Tenth Amendment Effective Date, both before and immediately
after giving effect to this Amendment, such Credit Party has no right of setoff,
defense or counterclaim against the enforcement of the Assigned
Items.

       

      
        
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      3.3 UCC Financing
Statements.  The Resigning Agent and each Credit Party hereby
authorizes the Successor Agent to file UCC financing statement amendments and
other assignment documents assigning all of the Resigning Agent’s right, title
and interest in, to and under the Assigned Items to the Successor
Agent.

       

      3.4 Collateral.  The
Resigning Agent shall, at the Credit Parties’ expense, promptly, but in any
event within ten (10) days after the Tenth Amendment Effective Date, deliver to
the Successor Agent all of the collateral in the possession or control of the
Resigning Agent, solely in its capacity as administrative agent for the Lenders
under the Credit Agreement, including, without limitation, any stock and/or
membership certificates (together with stock and/or membership interest powers
with respect thereto) held by the Resigning Agent in connection with the Credit
Agreement and any other Loan Documents.

       

      3.5 Modification of
Mortgages.  Within thirty (30) days after the Tenth Amendment
Effective Date (or such longer time as is acceptable to the Successor Agent in
its sole discretion), the Resigning Agent and each Credit Party agrees to
deliver to the Successor Agent assignments and/or amendments to each of the
Mortgages as shall be reasonably requested by the Successor Agent to evidence
the assignment of the Resigning Agent’s right, title and interest in, to and
under the Mortgages to the Successor Agent, duly executed by the Resigning
Agent, the Successor Agent and the appropriate Credit Parties and in form and
substance reasonably satisfactory to the Successor Agent.  For the
avoidance of doubt, no Credit Party shall be deemed to have breached or violated
this Section 3.5 if such Credit Party shall have delivered to the Successor
Agent the documents required pursuant to this Section 3.5 within the time period
prescribed by this Section 3.5, notwithstanding that the Resigning Agent shall
not have delivered such documents to the Successor Agent within such time
period.

       

      3.6 Insurance
Certificates.  Within thirty (30) days after the Tenth
Amendment Effective Date (or such longer time as is acceptable to the Successor
Agent in its sole discretion), Borrower shall deliver to the Successor Agent (a)
copies of standard insurance certificates issued to Successor Agent evidencing
the insurance coverage required to be maintained by the Credit Parties pursuant
to Section 6.05
of the Credit Agreement and (b) standard endorsements in favor of the Successor
Agent naming the Successor Agent as additional insured with respect to all
liability insurance policies and loss payee with respect to all casualty and
property insurance policies, in the case of each of clauses (a) and (b), in form
and substance reasonably satisfactory to the Successor Agent.

       

      3.7 Further
Assurance.  The Resigning Agent agrees from time to time, at
the Credit Parties’ expense, to do such further acts and things, and to execute
and deliver such additional conveyances, assignments, agreements, instruments
and filings that the Successor Agent may at any time reasonably deem necessary
or desirable to carry out the intent and purposes set forth in Section 2 and Section 3 of this
Amendment.

       

      SECTION
4. Consents.

       

      4.1 Appointment of Wells Fargo as
Successor Agent.  Each Credit Party hereby consents to the
appointment by the Lenders of the Successor Agent as Administrative
Agent

       

      
        
          Tenth
Amendment to Credit Agreement - Page 11

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      under the
Credit Agreement and the other Loan Documents pursuant to Section 2 of this
Amendment.

       

      4.2 Appointment of Wells Fargo as
Successor Issuing Bank.  Each Lender hereby consents to the
appointment by the Borrower and the Successor Agent of the Successor Issuing
Bank as Issuing Bank under the Credit Agreement and the other Loan Documents
pursuant to Section
2 of this Amendment.

       

      4.3 Assignment.  Each
Lender and each Credit Party hereby consents to the assignment of the Assigned
Items by the Resigning Agent to the Successor Agent pursuant to Section 3 of this
Amendment.

       

      SECTION
5. Conditions.  The
amendments to the Credit Agreement contained in Section 1 of this
Amendment, the appointment of a successor administrative agent and successor
issuing bank contained in Section 2 of this
Amendment, the assignment contained in Section 3 of this
Amendment and the consents contained in Section 4 of this
Amendment shall become effective upon the satisfaction of each of the conditions
set forth in this Section 5.

       

      5.1 Execution and
Delivery.  Each Credit Party, the Lenders, the Resigning Agent,
the Resigning Issuing Bank, the Successor Agent and the Successor Issuing Bank
shall have executed and delivered this Amendment.

       

      5.2 No Default.  No
Default shall have occurred and be continuing or shall result from the
effectiveness of this Amendment.

       

      5.3 Fees.  Borrower and
Successor Agent shall have executed and delivered a fee letter in connection
with this Amendment, and Borrower shall have paid to the Successor Agent all
fees payable under such fee letter at the time this Amendment becomes
effective.

       

      5.4 Notes.  Borrower
shall have executed and delivered a promissory note to Wells Fargo and a
replacement promissory note to each Lender that has previously requested a
promissory note in accordance with Section 2.08(e) of
the Credit Agreement.

       

      5.5 Assignment.  The
Successor Agent shall have received a duly executed copy of a certain Assignment
and Assumption dated as of the Tenth Amendment Effective Date between Guaranty
Bank, as assignor, and Wells Fargo, as assignee, pursuant to which Guaranty Bank
shall have assigned $50,000,000 of its Commitment to Wells Fargo.

       

      5.6 Fees to Resigning Issuing
Bank.  Borrower shall have paid to the Resigning Issuing Bank
all accrued and unpaid fees, including fronting fees, owed to the Resigning
Issuing Bank pursuant to Section 2.11(b) of
the Credit Agreement (as in effect immediately prior to the effectiveness of
this Amendment).

       

      5.7 Mortgages.  Borrower
shall have executed and delivered to the Successor Agent Mortgages in form and
substance reasonably acceptable to the Successor Agent (each duly authorized and
executed, as applicable) as the Successor Agent shall reasonably deem necessary
or appropriate to comply with Section 6.09 of the
Credit Agreement.

       

      
        
          Tenth
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      5.8 Pledge
Amendments.  The Successor Agent shall have received amendments
to each of the Pledge Agreements as shall be reasonably requested by the
Successor Agent, duly executed by the Successor Agent and the appropriate Credit
Parties and in form and substance reasonably satisfactory to the Successor
Agent.

       

      5.9 Other
Documents.  The Successor Agent, the Resigning Agent and the
Resigning Issuing Bank shall have received such other instruments and documents
incidental and appropriate to the transaction provided for herein as the
Successor Agent, the Resigning Agent, the Resigning Issuing Bank or their
respective special counsel may reasonably request prior to the date hereof, and
all such documents shall be in form and substance reasonably satisfactory to the
Successor Agent, the Resigning Agent or the Resigning Issuing Bank, as
applicable.

       

      SECTION
6. Representations and Warranties of the
Credit Parties.  To induce the Lenders to enter into this
Amendment, each Credit Party hereby represents and warrants to the Lenders as
follows:

       

      6.1 Reaffirmation of Representations and
Warranties/Further Assurances.  After giving effect to the
amendments herein, each representation and warranty of such Credit Party
contained in the Credit Agreement or in any of the other Loan Documents is true
and correct in all material respects as of the date hereof (except to the extent
such representations and warranties specifically refer to an earlier date, in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date and taking into account any amendments
to the schedules or exhibits as a result of any disclosures made in writing by
such Credit Party to the Administrative Agent after the Effective Date and
approved by the Administrative Agent and the Required Lenders in
writing).

       

      6.2 Corporate Authority; No
Conflicts.  The execution, delivery and performance by such
Credit Party (to the extent a party hereto or thereto) of this Amendment and all
documents, instruments and agreements contemplated herein are within such Credit
Party’s corporate or other organizational powers, have been duly authorized by
all necessary action, require no action by or in respect of, or filing with, any
court or agency of government and do not violate or constitute a default under
any provision of any applicable law or other agreements binding upon such Credit
Party or result in the creation or imposition of any Lien upon any of the assets
of such Credit Party except for Permitted Liens and otherwise as permitted in
the Credit Agreement.

       

      6.3 Enforceability.  This
Amendment constitutes the valid and binding obligation of such Credit Party
enforceable in accordance with its terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditor’s rights generally and (ii) the availability of equitable remedies
may be limited by equitable principles of general application.

       

      6.4 No Default.  As of
the date hereof, both before and immediately after giving effect to this
Amendment, no Default or Event of Default has occurred and is
continuing.

       

      6.5 Letters of
Credit.  As of the Tenth Amendment Effective Date, both before
and immediately after giving effect to the consummation of the transactions
contemplated herein,

       

      
        
          Tenth
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      except
for that certain Letter of Credit (including all amendments thereto) more
particularly described on Annex B attached
hereto (the “Specified
Letter of Credit”), there are no outstanding Letters of Credit and the
aggregate LC Exposure of all Lenders is $150,000.00.

       

      SECTION
7. Miscellaneous.

       

      7.1 Reference to and Effect on the Loan
Documents.  Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement (including the
schedules and exhibits thereto) and the other Loan Documents to either “JPMorgan
Chase Bank, N.A.”, “JPMorgan Chase Bank, National Association” or “Guaranty
Bank” solely in their respective capacities as Administrative Agent, Collateral
Agent and/or Issuing Bank shall be deemed to refer to “Wells Fargo Bank,
N.A.”.

       

      7.2 Reaffirmation of Loan Documents and
Liens.  Any and all of the terms and provisions of the Credit
Agreement and the Loan Documents shall, except as amended and modified hereby,
remain in full force and effect and are hereby in all respects ratified and
confirmed by each Credit Party.  Each Credit Party hereby agrees that
nothing contained in this Amendment shall in any manner affect or impair the
liabilities, duties and obligations of such Credit Party under the Credit
Agreement and the other Loan Documents or the Liens securing the payment and
performance thereof.

       

      7.3 Parties in
Interest.  All of the terms and provisions of this Amendment
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns.

       

      7.4 Legal
Expenses.  Borrower hereby agrees to pay all reasonable fees
and expenses of special counsel to the Successor Agent, the Resigning Agent, the
Resigning Issuing Bank and Guaranty Bank, in its capacity as a Lender, incurred
by such parties in connection with the preparation, negotiation and execution of
this Amendment and all related documents (including, without limitation, all
reasonable out-of-pocket expenses incurred by the Successor Agent or its counsel
in connection with the recording and filing of Mortgages, assignments and/or
amendments to Mortgages and UCC-1 financing statements).

       

      7.5 Further
Assurances.  Each Credit Party covenants and agrees from time
to time, as and when requested by the Successor Agent, the Resigning Agent, the
Resigning Issuing Bank or the Lenders, to execute and deliver or cause to be
executed or delivered, all such documents, instruments and agreements and to
take or cause to be taken such further or other action as the Successor Agent,
the Resigning Agent, the Resigning Issuing Bank or the Lenders, as the case may
be, may reasonably deem necessary or desirable in order to carry out the intent
and purposes of this Amendment.

       

      7.6
Counterparts.  This Amendment may be executed in one or more
counterparts and by different parties hereto in separate counterparts each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.  Delivery of photocopies of the signature pages to
this Amendment by facsimile or

       

      
        
          Tenth
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      electronic
mail shall be effective as delivery of manually executed counterparts of this
Amendment.

       

      7.7 Headings.  The
headings, captions and arrangements used in this Amendment are, unless specified
otherwise, for convenience only and shall not be deemed to limit, amplify or
modify the terms of this Amendment, nor affect the meaning thereof.

       

      7.8 Governing Law.  This
Amendment shall be construed in accordance with and governed by the law of the
State of Texas.

       

      7.9 Severability.  Any
provision of this Amendment held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.

       

      7.10 Complete
Agreement.  THIS AMENDMENT, THE CREDIT AGREEMENT, AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.

       

       

      [Remainder
of page intentionally blank]

       

      
        
          Tenth
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      IN WITNESS WHEREOF, the
parties have caused this Amendment to be duly executed by their respective
authorized officers to be effective as of the date first above
written.

       

       

      BORROWER:

       

      CARRIZO
OIL & GAS, INC.

       

      

       

      By: 
/s/ Paul F.
Boling

      Name: 
Paul F. Boling

      Title: 
Vice President and Chief Financial Officer

       

       

      
        
          Tenth
Amendment to Credit Agreement

          Signature
Page

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      

       

      GUARANTORS:

       

      CCBM,
INC.

      

       

       

      By: 
/s/ Paul F.
Boling

      Name: 
Paul F. Boling

      Title:
 Vice President

       

      

       

      CLLR,
INC.

       

      

       

      
        By: 
/s/ Paul F.
Boling

        Name: 
Paul F. Boling

        Title:
 Vice President

      

       

      

       

      HONDO
PIPELINE, INC.

       

      

       

      
        By: 
/s/ Paul F.
Boling

        Name: 
Paul F. Boling

        Title:
 Vice President

      

       

      

       

      CARRIZO
(MARCELLUS) LLC

       

      

       

      
        By: 
/s/ Paul F.
Boling

        Name: 
Paul F. Boling

        Title:
 Vice President

      

       

      

       

      CARRIZO
MARCELLUS HOLDING INC.

       

      

       

      
        By: 
/s/ Paul F.
Boling

        Name: 
Paul F. Boling

        Title:
 Vice President

      

       

      
        
          Tenth
Amendment to Credit Agreement

          Signature
Page

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
         

        
          CHAMA
PIPELINE HOLDING LLC

        

         

        

         

        
          By: 
/s/ Paul F.
Boling

          Name: 
Paul F. Boling

          Title:
 Vice President

           

           

        

      

       

      
        
          
            PECOS
PIPELINE LLC

          

           

          

           

          
            By:  /s/
Paul F. Boling

            Name: 
Paul F. Boling

            Title:
 Vice President

          

        

         

        
          
            Tenth
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          

           

          SUCCESSOR
AGENT, SUCCESSOR 

          ISSUING
BANK AND LENDER:

           

          WELLS FARGO BANK, N.A., as Successor 

          Agent,
Successor Issuing Bank and as a Lender

           

          By: 
/s/
Scott Hodges

          Name: 
Scott Hodges

          Title:
 Vice President

           

          
            
              Tenth
Amendment to Credit Agreement

              Signature
Page

              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

         

        
          RESIGNING
AGENT, RESIGNING 

          ISSUING
BANK AND LENDER:

           

          GUARANTY BANK, as
Resigning Agent, 

          Resigning
Issuing Bank and as a Lender

          

           

          By:  /s/
Kelly L. Elmore III

          Name: Kelly
L. Elmore III

          Title: Senior
Vice President

        

         

        
          
            Tenth
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        ROYAL BANK OF
CANADA,

        as
Syndication Agent and as a Lender

        

        

        By: 
/s/ Don
J. McKinnerney

        Name:  Don
J. McKinnerney

        Title:  Authorized
Signatory

         

        
          
            Tenth
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

       

      
        CAPITAL ONE,
N.A.,

        as a
Co-Documentation Agent and as a Lender

         

        

         

        By:  /s/ Eric
Broussard

        Name: 
Eric Broussard

        Title: 
Senior Vice President

         

        
          
            Tenth
Amendment to Credit Agreement

            Signature
Page

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

    

     

    
      UNION BANK, N.A. (f/k/a UNION BANK

      OF CALIFORNIA,
N.A.),

      as a
Co-Documentation Agent and as a Lender

      

      

      By:  /s/ Damien
Meiburger

      Name: Damien
Meiburger

      Title: Senior
Vice President

       

      
        
          Tenth
Amendment to Credit Agreement

          Signature
Page

          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

        
          U.S. BANK NATIONAL
ASSOCIATION,

          as a
Co-Documentation Agent and as a Lender

          

          

          By:  /s/ Heather W.
Kiely

          Name: 
Heather W. Kiely

          Title:
 Vice President

           

          
            
              Tenth
Amendment to Credit Agreement

              Signature
Page

              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

      

    

     

    
      CREDIT
SUISSE. CAYMAN ISLANDS 

      BRANCH

      as a
Lender

      

      

      By:  /s/ Vanessa
Gomez

      Name: Vanessa
Gomez

      Title: Director

      

      

      By:  /s/ Mikhail
Faybusovich

      Name: Mikhail
Faybusovich

      Title: Vice
President

       

      
        
          Tenth
Amendment to Credit Agreement

          Signature
Page

          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      FORTIS
CAPITAL CORP.,

      as a
Lender

      

      

      By:  /s/ Michele
Jones

      Name: Michele
Jones

      Title: Director

      

      

      By:  /s/ Darrell
Holley

      Name: Darrell
Holley

      Title: Managing
Director

       

      
        
          Tenth
Amendment to Credit Agreement

          Signature
Page

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