Re: Amendment and Forbearance Agreement

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

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

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

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

1.    Acknowledgment of Specified Defaults.

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

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

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

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

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

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

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

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

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

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

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

(i)   On or before the date hereof, Borrower shall deliver to Wachovia an initial thirteen (13) week budget, in form and substance satisfactory to Wachovia, which has been thoroughly reviewed by Borrower and its management and sets forth for the periods covered thereby:  (A) projected weekly operating cash receipts for each week commencing with the week ending February 13, 2009, (B) projected weekly operating cash disbursements for each week commencing with the week ending February 13, 2009, (C) projected aggregate principal amount of outstanding Revolving Loans and Letters of Credit for each week commencing with the week ending as of February 13, 2009, and (D) projected weekly amounts of Revolving Loans and Letters of Credit available to Borrower under the terms, conditions and formulae of the Loan Agreement for each week commencing with the week ending February 13, 2009 (collectively, the “ Projected Information ”).  In addition to the initial budget, by no later than 5:00 p.m. (Pacific time) on the second Business Day of each week commencing on February 17, 2009, Borrower shall furnish to Wachovia, in form and substance satisfactory to Wachovia, an updated thirteen (13) week budget prepared on a cumulative, weekly roll forward basis, together with a report that sets forth for the immediately preceding week a comparison of the actual cash receipts, cash disbursements, loan balance and loan availability to the Projected Information for such weekly periods set forth in the budget on a cumulative, weekly roll-forward basis, duly completed and executed by the Chief Executive Officer, Chief Financial Officer or other financial or senior officer of Borrower.

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

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

6.    Amendments to Loan Agreement.

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

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

“Forbearance Agreement” shall mean the Amendment and Forbearance Agreement, dated as of February 13, 2009, by and among