Document:

pei_8k-ex1001.htm

    EXHIBIT
10.1

     

    LOAN
RESTRUCTURING AGREEMENT

     

    THIS LOAN
RESTRUCTURING AGREEMENT (this “Agreement”) is dated
as of November 7, 2008, by and among PACIFIC ETHANOL IMPERIAL, LLC, a Delaware
limited liability company (“PE Imperial”),
PACIFIC ETHANOL, INC., a Delaware corporation (the “Company”), PACIFIC
ETHANOL CALIFORNIA, INC. (“PECA”; together with
PE Imperial and the Company, the “PE Parties”) and
LYLES UNITED, LLC, a Delaware limited liability company (the “Lender”).  PE
Imperial, the Company, PECA and Lender are sometimes referred to individually as
a “Party” and
collectively as the “Parties”
herein.

     

    Witnesseth

     

    WHEREAS,
pursuant to a Secured Promissory Note dated as of November 28, 2007, executed by
PE Imperial in favor of Lender as amended by that certain First Amendment to
Secured Promissory Note dated as of December 27, 2007 executed by PE Imperial
and Lender (collectively, the “First Note”), PE
Imperial borrowed Fifteen Million Dollars ($15,000,000) from Lender, which
amount was secured by certain assets of PE Imperial pursuant to a Security
Agreement dated as of November 28, 2007 by and between PE Imperial and Lender,
as amended by that certain Amendment No. 1 to Security Agreement dated as of
December 27, 2007 executed by PE Imperial and Lender (collectively, the “Security Agreement”);
and

     

    WHEREAS,
pursuant to a Secured Promissory Note dated as of December 27, 2007, executed by
PE Imperial in favor of Lender (collectively, the “Second Note”),
PE Imperial borrowed an additional Fifteen Million Dollars ($15,000,000) from
Lender, which amount was secured by all assets of PE Imperial pursuant to the
Security Agreement; and

     

    WHEREAS,
the obligations of PE Imperial under the First Note and the Security Agreement,
and all related obligations of PE Imperial to Lender, were guaranteed pursuant
to a certain Unconditional Guaranty dated as of November 28, 2007 executed by
the Company in favor of Lender (the “First Guaranty”);
and the obligations of PE Imperial under the Second Note and the Security
Agreement, and all related obligations of PE Imperial to Lender, were guaranteed
pursuant to a certain Unconditional Guaranty dated as of December 27, 2007
executed by the Company in favor of Lender (the “Second Guaranty”);
and

     

    WHEREAS,
as partial consideration for permitting the extension of the maturity date of
the loan represented by the First Note, as contemplated therein, the Company
issued to Lender a Warrant dated March 27, 2008 permitting the
purchase by Lender of up to 100,000 shares of the Company’s common stock, $0.001
par value per share, at an exercise price equal to $8.00 per share (the “Warrant”);
and

     

    WHEREAS,
as partial consideration for the loan represented by the First Note, PE Imperial
and Lender entered into a letter agreement dated November 28, 2007 concerning
the award to Lender (or an affiliate) of PE Imperial’s primary construction and
mechanical contract in connection with the construction of an ethanol production
facility at PE Imperial’s Imperial Valley site in Brawley, California (the
“Letter
Agreement”); and

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    WHEREAS,
the PE Parties have asked Lender to permit PE Imperial to assign its obligations
under the First Note and Second Note to the Company, to release PE Imperial as a
borrower and to release Lender’s security interest in the assets of PE
Imperial;

     

    WHEREAS,
the Lender has agreed to such requests in consideration of various undertakings,
including the following:

     

    (i)           the
Company shall assume all obligations of PE Imperial under the First Note and
Second Note, and such First Note and Second Note shall be amended and restated
as a single new note (the “New Note”)
executed by the Company in favor of Lender, thereby causing the Company to
become the direct obligor as to the amounts originally borrowed by
PE Imperial from Lender;

     

    (ii)           in
consideration of Lender’s agreement to release its security interest in the
assets of PE Imperial and to release PE Imperial as a Borrower under the First
and Second Notes, which release benefitsPECA because PECA owns 100% of the
ownership interests of PE Imperial:

     

    (A)           PECA
shall enter into a Limited Recourse Guaranty pursuant to which PECA shall
guarantee the obligations of the Company under the New Note, but with recourse
only to cash distributions that PECA may receive from PE Imperial and from Front
Range Energy LLC, a Colorado limited liability company (“Front Range”);
and

     

    (B)           PECA
shall cause its wholly-owned subsidiary Pacific Ag. Products, LLC, a California
limited liability company (“PAP”), to guarantee
the obligations of the Company under the New Note and to enter into a Security
Agreement pledging its assets to Lender as collateral securing the obligations
of the Company under the New Note;

     

    (iii)           the
Company and Lender shall execute an irrevocable joint instruction letter,
acknowledged and agreed to by PECA, pursuant to which PECA shall be obligated to
immediately remit to Lender all cash distributions received on account of its
ownership interest in Front Range and PE Imperial.

     

    Agreement

     

    NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties hereby agree as follows:

     

    1. Payment of Interest As
Condition.  Lender’s obligations under Section 2 shall be
subject to fulfillment of the following condition:  PE Imperial shall
pay to Lender all accrued and unpaid interest on the First Note and the Second
Note through the day immediately prior to the date hereof, which aggregate
amount the Parties acknowledge and agree is $2,205,243.06.

    

    
      
        
           

        

        
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    2. Assignment and Assumption of
Notes; Delivery of New Note and other Documents; Termination of Notes, Security
Agreement and Guaranties.

     

    (a) PE
Imperial hereby assigns, and the Company hereby assumes, all of the obligations
of PE Imperial under the First Note and the Second Note.  Immediately
following such assignment and assumption, the First Note and Second Note shall
be amended and restated by the New Note.  Lender acknowledges that,
upon fulfillment of all conditions precedent, PE Imperial shall be released from
all obligations to Lender under the First Note and Second
Note.  Promptly following the execution of this Agreement and the
delivery of the New Note executed by the Company, Lender shall deliver to
PE Imperial the original First Note and a copy of the Second Note, each
marked “Superseded” and signed by Lender.

     

    (b) Concurrently
herewith, the following documents shall be executed and delivered as set forth
below:

     

    (i) The
Company shall execute the New Note in the form attached hereto as Exhibit A and
shall deliver the New Note to Lender;

     

    (ii) the
Company and Lender shall execute and deliver to PECA, and PECA shall in turn
execute and deliver to the Company and Lender, an Irrevocable Joint Instruction
Letter in the form attached hereto as Exhibit B;

     

    (iii) PECA
shall execute and deliver to Lender a Limited Recourse Guaranty in the form
attached hereto as Exhibit C;

     

    (iv) PECA
shall cause PAP to execute and deliver to Lender an Unconditional Guaranty in
the form attached hereto as Exhibit D;
and

     

    (v) PECA
shall cause PAP to execute and deliver to Lender a Security Agreement in the
form attached hereto as Exhibit E.

     

    (c) PE
Imperial and Lender agree that the Security Agreement is hereby terminated
effective as of the date hereof and Lender does hereby release any and all
security interests in and to the assets of PE Imperial including, without
limitation, in any Collateral (as such term is defined in the Security
Agreement).  Lender grants permission to PE Imperial to file UCC
termination statements effecting the release of said security interests in all
applicable jurisdictions.

     

    (d) The
Company and Lender agree that the First Guaranty and the Second Guaranty are
hereby terminated effective as of the date hereof.

     

    3. Effectiveness of Warrant and
Letter Agreement. The Parties hereby acknowledge and confirm that all of
the terms and conditions of the Warrant and the Letter Agreement are in full
force and effect and shall remain in full force and effect after giving effect
to the execution and effectiveness of this Agreement and the transactions
contemplated hereby.

    

    
      
        
           

        

        
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    4. Certain Representations,
Warranties and Covenants.

     

    (a) Lender
hereby represents and warrants that it has not pledged or assigned either the
First Note or the Second Note or any of its rights thereunder or under the
Security Agreement or the First Guaranty or the Second Guaranty to any person or
entity.

     

    (b) Each of
the Parties represents and warrants that it has not previously assigned any of
the claims released in this agreement, in whole or in part, or taken any other
steps which would adversely affect the rights which are the subject of this
Agreement.

     

    (c) Each of
the Parties represents and warrants that it is authorized to enter into and
execute this Agreement and to perform its obligations contemplated
herein.

     

    5. Notices.  All
notices, requests, demands, approvals, consents, waivers and other
communications required or permitted to be given hereunder shall be in writing,
with copies to all the other Parties hereto, and shall be deemed to have been
duly given when (i) if delivered by hand, upon receipt, (ii) if sent by
nationally recognized overnight delivery service (receipt requested), the next
business day or (iii) if mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, four days after posting in the U.S.
mails, in each case if delivered to the following addresses:

     

    If to PE
Imperial, PECA

    or the
Company:                                  Pacific
Ethanol, Inc.

    400 Capitol Mall, Suite
2060

    Sacramento, California
95814

    Attn:  Chief
Financial Officer

    AND

    Attn:  General
Counsel

     

    If to
Lender:                                          Lyles
United, LLC

    1210 West Olive Ave.

    Fresno, California 93728

    Attn:  Will
Lyles, Vice President

     

    or such
other address or facsimile number as either Party may designate to the other
Parties hereto in accordance with the aforesaid procedure. Each Party shall
provide notice to the other Parties of any change in address or facsimile
number.

     

    6. Miscellaneous.

     

    (a) No
Waiver.  No course of dealing between the Parties, nor any
failure to exercise, nor any delay in exercising, on the part of any Party, any
right, power or privilege hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.

    

    
      
        
           

        

        
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    (b) Rights
Cumulative.  All of the rights and remedies of the Parties
shall be cumulative and may be exercised singly or concurrently.

     

    (c) Entire
Agreement.  This Agreement constitutes the entire agreement of
the Parties with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements with respect
thereto.  No provision of this Agreement may be modified or amended
except by a written agreement specifically referring to this Agreement and
signed by the Parties hereto.

     

    (d) Severability.  In
the event that any provision of this Agreement is held to be invalid, prohibited
or unenforceable in any jurisdiction for any reason, unless such provision is
narrowed by judicial construction, this Agreement shall, as to such
jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable.  If, notwithstanding the foregoing, any provision of
this Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other
jurisdiction.

     

    (e) Headings. The
headings of the Sections and subsections of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction hereof.

     

    (f) Waiver of Breach or
Default.  No waiver of any breach or default or any right under
this Agreement shall be considered valid unless in writing and signed by the
Party giving such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or similar nature or
otherwise.

     

    (g) Binding on
Successors.  This Agreement shall be binding upon and inure to
the benefit of each Party hereto and its successors and assigns.

     

    (h) Best
Efforts.  Each Party shall take such further action and execute
and deliver such further documents as may be necessary or appropriate in order
to carry out the provisions and purposes of this Agreement.

     

    (i) Governing
Law.  This Agreement shall be construed in accordance with the
laws of the State of California without reference to the conflicts of laws
principles thereof.  Each of the Parties hereto irrevocably submit to
the exclusive jurisdiction of any California State or United States Federal
court sitting in Fresno County, California over any action or proceeding arising
out of or relating to this Agreement, and the Parties hereto hereby irrevocably
agree that all claims in respect of such action or proceeding may be heard and
determined in such California State or Federal court.  The Parties
hereto agree 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.  The Parties hereto further waive
any objection to venue in the State of California and any objection to an action
or proceeding in the State of California on the basis of forum non
conveniens.  The Parties further agree that the successful or
prevailing Party in any proceeding shall be entitled to recover reasonable
attorneys’ fees and other costs incurred in such proceeding.

    

    
      
        
           

        

        
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    (j) Waiver of Jury
Trial.  EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO
THE SUBJECT MATER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS
A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY
WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING SUCH CONSULTATION.  THIS
WAIVER IS IRREVOCABLE, MEANING THAT, NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS AND SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.  IN THE EVENT OF A LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

     

    (k) Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the Party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

     

    (Signature
page follows.)

    

    
      
        
           

        

        
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    IN
WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed on the day and year first above written.

    
 

    
      
        	
                PE
      IMPERIAL:

              	
                PACIFIC
      ETHANOL IMPERIAL, LLC,

              
	 
      	
                a
      Delaware limited liability company

              
	 
      	 
      
	 
      	
                By:
      /s/ JOHN T. MILLER

              
	 
      	
                       John
      T. Miller, COO

              
	 
      	 
      
	
                COMPANY:

              	
                PACIFIC
      ETHANOL, INC.,

              
	 
      	
                a
      Delaware corporation

              
	 
      	 
      
	 
      	
                By:
      /s/ NEIL M.
KOEHLER

              
	 
      	
                      
      Neil M. Koehler, CEO

              
	 
      	 
      
	
                PECA:

              	
                PACIFIC
      ETHANOL CALIFORNIA, INC.,

              
	 
      	
                a
      California corporation

              
	 
      	 
      
	 
      	
                By:
      /s/ JOHN T. MILLER

              
	 
      	
                      
      John T. Miller, COO

              
	 
      	 
      
	 
      	 
      
	
                LENDER:

              	
                LYLES
      UNITED, LLC,

              
	 
      	
                a
      Delaware limited liability company

              
	 
      	 
      
	 
      	
                By:
      /s/ WILL LYLES

              
	 
      	
                      
      Will Lyles, Vice President

              

      

    

     

    

    
      
        
           

        

        
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    EXHIBIT A

     

    Form of New
Note

     

    (attached
hereto)

     

     

     

     

    

    
      
        
           

        

        
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    EXHIBIT B

     

    Form of Irrevocable Joint
Instruction Letter

     

    (attached
hereto)

     

     

     

     

    

    
      
        
           

        

        
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    EXHIBIT C

     

    Form of Limited Recourse
Guaranty

     

    (attached
hereto)

     

     

     

     

    

    
      
        
           

        

        
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    EXHIBIT D

     

    Form of Unconditional
Guaranty

     

    (attached
hereto)

     

     

     

     

    

    
      
        
           

        

        
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    EXHIBIT E

     

    Form of Security
Agreement

     

    (attached
hereto)

     

    

    

    -12-pei_8k-ex1002.htm

    EXHIBIT
10.2

    

      AMENDED
AND RESTATED PROMISSORY NOTE

       

      

      
        	
                $30,000,000

              	
                Fresno,
      California

              
	 
      	
                November
      7, 2008

              

      

       

      FOR VALUE
RECEIVED, the undersigned, PACIFIC ETHANOL, INC., a Delaware corporation, with
its principal place of business at 400 Capitol Mall, Suite 2060, Sacramento,
California 95814 (“Borrower”), hereby
promises to pay to LYLES UNITED, LLC, a Delaware limited liability company, with
its principal place of business at 1210 West Olive Ave., Fresno, California
93728 or its assigns (“Lender”), the
principal sum of Thirty Million Dollars ($30,000,000), together with interest
thereon as hereinafter provided until this Note is paid in full.

       

      1. Principal
and Interest Payments. Interest on the unpaid principal amount hereof
shall accrue at a rate per annum equal to the Prime Rate of interest as reported
from time to time in The Wall
Street Journal, plus three percent (3.00%), computed on the basis of a
360-day year of twelve 30-day months. All accrued and unpaid interest on this
Note shall be due and payable on the first business day of each calendar month
commencing on December 1, 2008 and continuing until the outstanding principal
amount hereof shall have been paid in full. All remaining principal and any
accrued but unpaid interest then owing under this Note shall be due and payable
on March 15, 2009 (the “Maturity Date”)
unless the obligations hereunder are earlier accelerated or satisfied in
accordance with the provisions of this Note.  All payments by Borrower
hereunder shall first apply to accrued and unpaid interest and then to the
remaining principal balance under this Note.

       

      2. Prepayment.
Borrower shall have the right to prepay all or any part of the remaining balance
of this Note at any time, without premium or penalty.

       

      3. Payments
and Computations. All payments on account of indebtedness evidenced by
this Note shall be made not later than 5:00 p.m., California time, on the day
when due in lawful money of the United States. Payments are to be made at such
place as Lender may, from time to time, in writing appoint, and in the absence
of such appointment, then at the principal place of business of Lender as set
forth above.

       

      4. Events of
Default. The occurrence of any of the following shall constitute an
“Event of Default” under this Note:

       

      (a) Failure to
Pay.  Borrower shall fail to pay (i) when due any principal
payment on the date due hereunder, or (ii) any interest or other payment
required under the terms of this Note on the date due, and any such payment
shall not have been made within five (5) days of Borrower’s receipt of Lender’s
written notice to Borrower of such failure to pay; or

       

      (b) Breach of Note or other
Agreements. Borrower, or any direct or indirect subsidiary of Borrower,
shall fail to comply with any material provision as to which it is obligated
under:

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (i) this
Note; or

       

      (ii) that
certain Promissory Note dated October 20, 2008 in the principal amount of One
Million Five Hundred Thousand Dollars ($1,500,000) by Borrower in favor of Lyles
Mechanical Co.; or

       

      (iii) that
certain Loan Restructuring Agreement dated the date hereof by and among Pacific
Ethanol Imperial, LLC, Borrower and Lender; or

       

      (iv) that
certain Irrevocable Joint Instruction Letter dated the date hereof and executed
by Borrower and Lender and acknowledged and agreed to by Pacific Ethanol
California, Inc.; or

       

      (v) the
purchase order or construction contract, still under negotiation, relating to
work performed by Lyles Mechanical Co. in connection with the beer well repair
and other matters, as contemplated by paragraph 4 of that certain Memorandum of
Understanding dated as of October 20, 2008 by and among Borrower, Pacific
Ethanol Stockton, LLC and Lyles Mechanical Co., but only after such purchase
order or construction contract is executed;

       

      and any
such failure to comply shall not have been cured within ten (10) days of
Borrower’s receipt of Lender’s written notice to Borrower of such failure to
comply.

       

      (c) Voluntary Bankruptcy or Insolvency
Proceedings. Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
assignment for the benefit of its or any of its creditors, (iv) be dissolved or
liquidated, (v) become insolvent (as such term may be defined or interpreted
under any applicable statute), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or

       

      (d) Involuntary Bankruptcy or Insolvency
Proceedings. Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of Borrower or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to Borrower or the
debts thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within sixty (60) days of
commencement.

      
        
           

        

        
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      5. Rights of
Lender upon Default. Upon the occurrence or existence of any Event of
Default (other than an Event of Default, referred to in Paragraphs 5(c) and
5(d)) and at any time thereafter during the continuance of such Event of
Default, Lender may, by written notice to Borrower, immediately declare all
outstanding obligations payable by Borrower hereunder to be immediately due and
payable without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived, anything contained herein to the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Paragraphs 5(c) and 5(d), immediately and without notice,
all outstanding obligations payable by Borrower hereunder shall automatically
become immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, anything
contained herein to the contrary notwithstanding. Upon the occurrence of an
Event of Default, the interest rate on this Note shall increase to a rate per
annum equal to the Prime Rate of interest as reported from time to time in The
Wall Street Journal, plus six percent (6.00%), simple interest, per annum until
such default is cured, and is payable together with the principal amount hereof
in accordance with the payment terms set forth herein. In addition to the
foregoing remedies, upon the occurrence or existence of any Event of Default,
Lender may exercise any other right, power or remedy permitted by law, either by
suit in equity or by action at law, or both.

       

      6. Notices.
All notices, requests, demands, approvals, consents, waivers and other
communications required or permitted to be given hereunder shall be in writing,
with copies to all the other parties hereto, and shall be deemed to have been
duly given when (i) if delivered by hand, upon receipt, (ii) if sent by
nationally recognized overnight delivery service (receipt requested), the next
business day or (iii) if mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, four days after posting in the U.S.
mails, in each case if delivered to the following addresses:

       

      If to
Borrower:                                      Pacific
Ethanol, Inc.

      400 Capitol Mall, Suite
2060

      Sacramento, California
95814

      Attn:  Chief
Financial Officer

      AND

      Attn:  General
Counsel

       

      If to
Lender:                                          Lyles
United, LLC

      1210 West Olive Ave.

      Fresno, California 93728

      Attn:  Will
Lyles, Vice President

       

      or such
other address or facsimile number as either party may designate to the other
party hereto in accordance with the aforesaid procedure. Each party shall
provide notice to the other party of any change in address or facsimile
number.

      
        
           

        

        
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      7. Applicable
Law. This Note shall be construed in accordance with the laws of the
State of California, without regard to conflicts of laws
principles.  Borrower irrevocably submits to the exclusive
jurisdiction of any California State or United States Federal court sitting in
Fresno County, California over any action or proceeding arising out of or
relating to this Note, and irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such California State or
Federal court.  Borrower 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.  Borrower waives any objection to venue in the State of
California and any objection to an action or proceeding in the State of
California on the basis of forum non conveniens.

       

      8. Severability.
The parties hereto intend and believe that each provision in this Note comports
with all applicable local, state and federal laws and judicial decisions.
However, if any provision or provisions, or if any portion of any provision or
provisions, of this Note is found by a court of law to be in violation of any
applicable local, state or federal ordinance, statute, law, administrative or
judicial decision, or public policy, and if the court should declare that
portion, provision or provisions to be illegal, invalid, unlawful, void or
unenforceable as written, then it is the intent of Borrower and Lender that such
portion, provision or provisions be given force to the fullest possible extent
that they are legal, valid and enforceable, that the remainder of this Note
shall be construed as if the illegal, invalid, unlawful, void or unenforceable
portion, provision or provisions were not contained herein, and that the rights,
obligations and interest of Borrower and Lender under the remainder of this Note
shall continue in full force and effect.

       

      9. Usury.
In the event any interest is paid on this Note which is deemed to be in excess
of the then legal maximum rate, then that portion of the interest payment
representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal of this
Note.

       

      10. Expenses;
Waiver. If action is instituted to collect this Note, the Borrower shall
pay all costs and expenses, including, without limitation, reasonable attorneys’
fees and costs, incurred in connection with such action. In addition, the
successful or prevailing party in any proceeding shall be entitled to recover
reasonable attorneys’ fees and other costs incurred in such proceeding. Borrower
and all parties now or hereafter liable for the payment hereof, whether as
endorser, guarantor, surety or otherwise, generally waive demand, presentment
for payment, notice of dishonor, protest and notice of protest, notice of intent
to accelerate and notice of acceleration, diligence in collecting or bringing
suit against any party hereto, and all other notices, and agree to all
extensions, renewals, indulgences, releases or changes which from time to time
may be granted by the Lender hereof and to all partial payments hereon, with or
without notice before or after maturity.

       

      11. Successors
and Assigns. The rights and obligations hereunder of Borrower and Lender
shall be binding upon and benefit the permitted successors, assigns, heirs,
administrators and transferees of the parties.

       

      12. Waiver
and Amendment. Any provision of this Note may be amended, waived or
modified only upon the prior written consent of Borrower and
Lender.

      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

       

      13. Headings.
The headings of the Paragraphs of this Note are inserted for convenience only
and shall not be deemed to constitute part of this Note or to affect the
construction hereof.

       

      14. Time of
the Essence. Time is of the essence as to all dates set forth
herein.

       

      Borrower
has executed and delivered this Note as of the day and year first set forth
above.

      
 

    

    
      	 	
              PACIFIC
      ETHANOL, INC.,

              a
      Delaware corporation

               

               

              By:
      /s/ NEIL M.
      KOEHLER                    
      

              
              

              Neil M. Koehler,
      CEO

            

    

     

     

     

     

    -5-

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