DEBTOR-IN-POSSESSION CREDIT AGREEMENT

Execution Copy

DEBTOR-IN-POSSESSION CREDIT AGREEMENT

Section 1.01   Defined Terms .  Capitalized terms used in this Agreement, including its preamble and recitals, shall, except as otherwise defined herein or where the context otherwise requires, have the meanings provided in Exhibit A .

Section 1.02   Principles of Interpretation .  (a)  Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have the same meanings when used in each Financing Document, notice and other communication delivered from time to time in connection with any Financing Document.

(b)   Unless the context requires otherwise, any reference in this Agreement to any Transaction Document shall mean such Transaction Document and all schedules, exhibits and attachments thereto.

(c)   All the agreements, contracts or documents defined or referred to herein shall mean such agreements, contracts or documents as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms thereof and this Agreement, and shall disregard any supplement, amendment or waiver made in breach of this Agreement.

(d)   Any reference in any Financing Document relating to a Default or an Event of Default that has occurred and is continuing (or words of similar effect) shall be understood to mean that (i) in the case of a Default only, such Default has not been cured or remedied, or has not been waived by the Required Lenders, before becoming an Event of Default and (ii) in the case of an Event of Default, such Event of Default has not been cured or remedied or has not been waived by the Required Lenders.

(e)   The term “knowledge” in relation to a Borrower, and any other similar expressions, shall mean knowledge of such Borrower after due inquiry.

(f)   Defined terms in this Agreement shall include in the singular number the plural and in the plural number the singular.

(g)   The words “herein,” “hereof” and “hereunder” and words of similar import when used in this Agreement shall, unless otherwise expressly specified, refer to this Agreement as a whole and not to any particular provision of this Agreement and all references to Articles, Sections, Exhibits and Schedules shall be references to Articles, Sections, Exhibits and Schedules of this Agreement, unless otherwise specified.

(h)   The words “include,” “includes” and “including” are not limiting.

(i)   The word “or” is not exclusive.

(j)   Any reference to any Person shall include its permitted successors and permitted assigns in the capacity indicated, and in the case of any Governmental Authority, any Person succeeding to its functions and capacities.

Section 1.03   UCC Terms .  Unless otherwise defined herein, terms used herein that are defined in the UCC shall have the respective meanings given to those terms in the UCC.

Section 1.04   Accounting and Financial Determinations .  Unless otherwise specified, all accounting terms used in any Financing Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared, in accordance with GAAP.

Section 1.05   Joint and Several .    The Obligations of each Borrower under this Agreement and each other Financing Document to which any Borrower is a party shall constitute the joint and several obligations of all Borrowers. All representations, warranties, undertakings, agreements and obligations of each Borrower expressed or implied in this Agreement or any other Financing Document shall, unless the context requires otherwise, be deemed to be made, given or assumed by the Borrowers jointly and severally.

Section 2.01   Revolving Loans .  (a)  Each Revolving Lender agrees, severally and not jointly, on the terms and conditions of this Agreement, to make loans (each such loan, a “ Revolving Loan ”) to the Borrowers, from time to time but not more frequently than six (6) times each calendar month, until the last Business Day immediately preceding the Maturity Date, in an aggregate principal amount from time to time outstanding not in excess of (i) during the period from the date of entry of the Interim Order by the Bankruptcy Court through the date of entry of the Final Order by the Bankruptcy Court, the product of (A) seven million Dollars ($7,000,000) and (B) the Revolving Loan Commitment Percentage of such Revolving Lender and (ii) from the date of entry of the Final Order by the Bankruptcy Court to the Maturity Date, the Revolving Loan Commitment of such Revolving Lender.

(b)   Each Funding of Revolving Loans shall be in the minimum amount of one hundred thousand Dollars ($100,000).

(c)   Proceeds of each Revolving Loan shall be deposited into the Revenue Account (or as otherwise agreed by the Administrative Agent and specified in the relevant Funding Notice) and applied solely in accordance with this Agreement and shall be used solely in accordance with the then-current DIP Budget.

(d)   Within the limits set forth in Section 2.01(a) , the Borrowers may pay or prepay and reborrow Revolving Loans.

Section 2.02   Roll Up Loans .  (a)  Concurrent with the funding by a Revolving Lender of a Revolving Loan, an amount of such Lender's (or an Affiliate of such Lender) Pre-Petition Term Loan equal to 150% of the amount of such Revolving Loan will be converted into a roll up loan (each  a “ Roll Up Loan ”); provided that (i) repayment of a Revolving Loan will not reduce the amount of the outstanding Roll Up Loans and (ii) the aggregate Roll Up Loans will not exceed the Aggregate Roll Up Commitment.

(b)   Each party hereto acknowledges that pursuant to Section 2.02(b) the amount of Pre-Petition Term Loans held by each Roll Up Lender (or Affiliate of such Roll Up Lender) shall be reduced by an amount equal to the amount of Roll Up Loans made by such Roll Up Lender.

(c)   All Roll Up Loans shall have the benefit of Section 364(e) of the Bankruptcy Code.

(d)   Roll Up Loans paid or prepaid may not be reborrowed.

Section 2.03   Notice of Fundings .  (a)  From time to time, but not more frequently than six (6) times each calendar month, the Borrowers may propose a Funding by delivering to the Administrative Agent a properly completed Funding Notice not later than 12:00 noon, New York City time, five (5) Business Days prior to the proposed Funding Date; provided, however, that such prior notice period shall not apply to the initial Funding.  Each Funding Notice delivered pursuant to this Section 2.03 shall be irrevocable and shall refer to this Agreement and specify (i) whether such Funding is requested to be of Eurodollar Loans and/or Base Rate Loans, (ii) the requested Funding Date (which shall be a Business Day), and (iii) the amount of such requested Funding.

(b)   The Administrative Agent shall promptly advise each Lender of any Funding Notice given pursuant to this Section 2.03 , and of each such Lender’s portion of the requested Funding.

Section 2.04   Funding of Loans .  (a)  Subject to Section 2.04(d) , each Funding shall consist of Revolving Loans made by the Lenders ratably in accordance with their respective applicable Commitment Percentages and shall consist of Eurodollar Loans or Base Rate Loans as the Borrowers may request pursuant to Section 2.03 ( Notice of Fundings ) ; provided, however , that the failure of any Lender to make any Revolving Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Revolving Loan required to be made by such other Lender).

(b)   Subject to Section 4.04 ( Obligation to Mitigate ) , each Lender may (without relieving any Borrower of its obligation to repay a Revolving Loan in accordance with the terms of this Agreement and the Notes) at its option fulfill its Commitment with respect to any such Revolving Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Revolving Loan; provided that the use of such domestic or foreign branch does not result in any increased costs payable by any of the Borrowers hereunder.

(c)   Subject to Section 2.04(d) , each Lender shall make a Revolving Loan in the amount of its applicable Commitment Percentage of each Funding hereunder on the proposed Funding Date by wire transfer of immediately available funds to the Administrative Agent, not later than 11:00 a.m. New York City time, and the Administrative Agent shall deposit the amounts so received into the Revenue Account; provided, that if a Funding does not occur on the proposed Funding Date because any condition precedent to such requested Funding herein specified has not been met, the Administrative Agent shall return the amounts so received to the respective Lenders without interest.

(d)   Unless the Administrative Agent has been notified in writing by any Lender prior to a proposed Funding Date that such Lender will not make available to the Administrative Agent its portion of the Funding proposed to be made on such date, the Administrative Agent may assume that such Lender has made such amounts available to the Administrative Agent on such date and the Administrative Agent in its sole discretion may, in reliance upon such assumption, make available to the Borrowers a corresponding amount.  If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made such amount available to the Borrowers, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender and, if such Lender pays such amount (together with the interest noted below), then the amount so paid shall constitute such Lender’s Revolving Loan included in such Funding.  If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand, the Administrative Agent shall promptly notify the Borrowers and the Borrowers shall immediately repay such corresponding amount to the Administrative Agent.  The Administrative Agent shall also be entitled to recover from such Lender or the Borrowers, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrowers to the date such corresponding amount is recovered by the Administrative Agent, at an interest rate per annum equal to (i) in the case of a payment made by such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment made by the Borrowers, the Base Rate plus the Applicable Margin.  Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitment hereunder.  Notwithstanding anything to the contrary in this Agreement or any other Financing Document, the Administrative Agent may, with prior notice to the Borrowers, apply all funds and proceeds of Collateral available for the payment of any Obligation to repay any amount owing by any Lender to the Administrative Agent as a result of such Lender’s failure to fund its applicable share of any Funding hereunder.  A notice of the Administrative Agent to any Lender or the Borrowers with respect to any amounts owing under this Section 2.04(d) shall be conclusive, absent manifest error.

Section 2.05   Evidence of Indebtedness .  (a)  Each Loan made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business, including the Register for the recordation of the Loans maintained by the Administrative Agent in accordance with the provisions of Section 11.03(c) ( Assignments ) .  The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive evidence, absent manifest error, of the amount of the Loans made by the Lenders to the Borrowers and the interest and payments thereon.  Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder to pay any amount owing with respect to the Obligations.  In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

(b)   The Borrowers agree that in addition to the Register, the Loans made by each Lender shall be evidenced, in each case when requested by a Lender, by a Note or Notes duly executed on behalf of each Borrower, dated the Closing Date (or, if later, the date of any such request) payable to the order of such Lender in a principal amount equal to such Lender’s Revolving Loan Commitment or Roll Up Loan Commitment, as applicable.  Each Lender may attach schedules to its Note and endorse thereon the date, amount and maturity of its Loan and payments with respect thereto.

Section 2.06   Termination or Reduction of Commitments .  (a)  Any Commitments shall be automatically and permanently terminated on the Maturity Date.

(b)   Any unused Commitments shall be terminated upon the occurrence of an Event of Default if and to the extent required pursuant to Section 9.02 ( Action Upon Event of Default ) in accordance with the terms thereof.

Section 2.07   Defaulting Lenders .  Anything contained herein to the contrary notwithstanding, in the event that any Lender, other than at the direction or request of any regulatory agency or authority or due to a temporary disruption in the financial markets generally, defaults (a “ Defaulting Lender ”) in its obligation to fund (a “ Funding Default ”) any Loan (in each case, a “ Defaulted Loan ”), then (i) during any Default Period with respect to such Defaulting Lender, such Defaulting Lender shall be a Non-Voting Lender; and (ii) to the extent permitted by applicable law, during any Default Period and until such time as the Default Excess with respect to such Defaulting Lender shall have been reduced to zero, (A) any voluntary prepayment of the Loans shall be applied to the outstanding Loans of Lenders other than Defaulting Lenders prior to the outstanding Loans of the Defaulting Lenders, (B) any mandatory prepayment of the Loans shall be applied to the outstanding Loans of Lenders other than Defaulting Lenders prior to the outstanding Loans of the Defaulting Lenders, (C) such Defaulting Lender shall not be entitled to receive any Commitment Fee pursuant to Section 3.11 ( Fees ) with respect to such Defaulting Lender’s Commitment; and (D) availability of Loans pursuant to Section 2.01(a) ( Loans ) shall, as at any date of determination, be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.07 , performance by the Borrowers of their obligations hereunder and the other Financing Documents shall not be excused or otherwise modified as a result of any Funding Default or the operation of this Section 2.07 . The rights and remedies against a Defaulting Lender under this Section 2.07 are in addition to other rights and remedies which the Borrowers may have against such Defaulting Lender with respect to any Funding Default and which the Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default.

Section 2.08   Security Interest .  (a)  In order to supplement the Orders without in any way diminishing or limiting the effect of the Orders or the security interest, pledge, lien, mortgage or deed of trust granted thereunder, to secure the timely payment in full when due (whether at stated maturity, upon acceleration or optional or mandatory prepayment) in cash and performance in full of all the Obligations, each Debtor does hereby collaterally assign, grant and pledge to the Collateral Agent, for the benefit of the Collateral Agent, each other Agent and each Lender, all the estate, right, title and interest of such Debtor in, to and under, whether now owned or hereafter existing or acquired, and howsoever its interest therein may arise or appear, the Collateral.

(b)   The Liens and security interests granted hereunder shall continue to be valid and perfected and with the specified priority without the necessity that financing statements be filed or that any other action be taken or document or instrument registered or delivered, under applicable non-bankruptcy law.

(c)   Notwithstanding any failure on the part of any Debtor or the Collateral Agent to perfect, maintain, protect or enforce the Liens and security interests in the Collateral granted hereunder, the Orders shall automatically, and without further action by any Person, perfect such Liens and security interests against the Collateral.

Section 2.09   Super-Priority Nature of Obligations .

(a)   All Obligations shall constitute administrative expenses of the Borrowers in the Chapter 11 Cases, with administrative priority and senior secured status under Sections 364(c) and 364(d) of the Bankruptcy Code.  Subject to the Carve-Out, such administrative claim shall have priority over all other costs and expenses of the kinds specified in, or ordered pursuant to, Sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726, 1113, 1114 or any other provision of the Bankruptcy Code or otherwise, and shall at all times be senior to the rights of the Borrowers, the estates of the Borrowers, and any successor trustee or estate representative in the Chapter 11 Cases or any subsequent proceeding or case under the Bankruptcy Code.

(b)   All Obligations shall at all times, subject to the Carve-Out, (i) subject to Section 364(d)(1) of the Bankruptcy Code, be secured by fully perfected first priority, valid, binding, enforceable, non-avoidable and automatically perfected priming security interest in and Liens upon (the “ Priming Liens ”) the Collateral (as such term is defined in the Pre-Petition Credit Agreement) and (ii) pursuant to Section 364(c)(2) of the Bankruptcy Code, be secured by fully perfected first priority, valid, binding, enforceable, non-avoidable and automatically perfected security interest in and liens upon the Collateral (other than Collateral referenced in clause (i)) whether created, existing or acquired prior or subsequent to the commencement of the Cases (the “ First Liens ” and, together with the Priming Liens, the “ DIP Liens ”).  The DIP Liens, and the priorities accorded to the Obligations, shall have the priority and senior secured status afforded by Sections 364(c) and 364(d)(l) of the Bankruptcy Code, all as more fully set forth in the Interim Order and Final Order.

(c)   The DIP Liens under Sections 364(c)(2),(c)(3) and (d) of the Bankruptcy Code, and the administrative claims under Section 364(c)(1) of the Bankruptcy Code, in each case afforded the Obligations, shall also have priority over any claims arising under Section 506(c) of the Bankruptcy Code subject and subordinate only to the Carve-Out.

Section 2.10   Payment of Obligations .

Section 2.11   Liens .

(a)   The Debtors covenant and agree that the DIP Facility and all Obligations will at all times be secured by the DIP Liens as set forth in the Interim Order and the Final Order, as applicable.

(b)   The DIP Liens on Collateral of the Debtors will not be subject to challenge and will attach and become valid and perfected upon entry of the Interim Order without any requirement of any further action by the Collateral Agent.  Other than the DIP Liens, the Collateral will be free and clear of all Liens, claims and encumbrances other than Permitted Liens.

(c)   The Orders are sufficient and conclusive evidence of the creation, validity, perfection and priority of the DIP Liens without the necessity of filing, recording or delivering any financing statement or other instrument or document that may otherwise be required under the law of any jurisdiction or the taking of any action (including entering into any deposit control agreement or delivering original certificates representing pledged Equity Interests that constitute “Certificated Securities” under the UCC) to validate or perfect the DIP Liens or to entitle the Collateral Agent to the priorities granted by or pursuant to this Agreement, any Financing Document or any of the Orders.  Notwithstanding the foregoing, the Collateral Agent may take any and all actions without further order of the Bankruptcy Court, and shall be granted relief from the automatic stay, to evidence, confirm, validate or perfect or to insure the contemplated priority of, the DIP Liens granted to the Collateral Agent for the benefit of the Senior Secured Parties and each Debtor shall execute and deliver to the Collateral Agent all such financing statements, mortgages, notices or other documents and instruments as the Collateral Agent may request in connection therewith.

Section 2.12   No Discharge; Survival of Claims .

Section 2.13   Release .

Section 2.14   Waiver of Priming Rights .

Section 2.15   Priority of Claim .

Section 3.01   Repayment of Loans .  The Borrowers unconditionally and irrevocably promise to pay in full to the Administrative Agent, for the ratable account of each Lender, the aggregate outstanding principal amount of the Loans on the Maturity Date; provided, that upon the effectiveness of an Approved Plan the aggregate outstanding principal amount of the Roll Up Loans shall be payable in accordance with the terms of such Approved Plan.

Section 3.02   Interest Payment Dates .  (a)  Interest accrued on each Revolving Loan shall be payable, without duplication:

(b)   Interest accrued on each Roll Up Loan shall be payable on the Maturity Date; provided, however, that upon the effectiveness of an Approved Plan the interest accrued on each Roll Up Loan shall be payable in accordance with the terms of such Approved Plan.

(c)   Interest accrued on the Loans or other monetary Obligations after the date such amount is due and payable (whether on the Maturity Date for such Loan, any Monthly Payment Date, any Interest Payment Date, upon acceleration or otherwise) shall be payable upon demand.

(d)   Interest hereunder shall be due and payable in accordance with the terms hereof, before and after judgment, regardless of whether an insolvency proceeding exists in respect of any Borrower, and to the fullest extent permitted by law, the Lenders shall be entitled to receive post-petition interest during the pendency of an insolvency proceeding.

Section 3.03   Interest Rates .  (a)  Pursuant to each properly delivered Funding Notice, (i) the Eurodollar Loans shall accrue interest at a rate per annum during each Interest Period applicable thereto equal to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin, (ii) each Base Rate Loan shall accrue interest at a rate per annum during each Monthly Period equal to the sum of the Base Rate for such Monthly Period plus the Applicable Margin and (iii) the Roll Up Loans shall accrue interest in accordance with the terms of the Pre-Petition Credit Agreement applicable to the Pre-Petition Term Loans that are Base Rate Loans (as such term is defined therein) without giving effect to any Event of Default (as such term is defined therein).

(b)   On or before 12:00 noon, New York City time, at least four (4) Business Days prior to the end of each Interest Period for each Eurodollar Loan, the Borrowers shall, and at least four (4) Business Days prior to the end of any Monthly Period for any Base Rate Loans, the Borrowers may, deliver to the Administrative Agent an Interest Period Notice setting forth the Borrowers’ election (i) to continue any such Eurodollar Loan as (or convert any such Base Rate Loan to) a Eurodollar Loan or (ii) to convert any such Eurodollar Loan to a Base Rate Loan at the end of the then-current Interest Period; provided, that if an Event of Default has occurred and is continuing, all Eurodollar Loans shall automatically convert into Base Rate Loans at the end of the then-current Interest Periods.  Upon the waiver or cure of such Event of Default, the Borrowers shall have the option to continue such Loans as Base Rate Loans and/or to convert such Loans to Eurodollar Loans (by delivery of an Interest Period Notice), subject to the notice periods set forth above.  Notwithstanding anything to the contrary, any portion of the Loans maturing in less than one month may not be continued as, or converted to, Eurodollar Loans and will automatically convert to Base Rate Loans at the end of the then-current Interest Period.

(c)   If the Borrowers fail to deliver an Interest Period Notice in accordance with Section 3.03(b) with respect to any Eurodollar Loan, such Eurodollar Loan shall automatically continue as a Eurodollar Loan.

(d)   All Eurodollar Loans shall bear interest from and including the first day of the applicable Interest Period to (and excluding) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Loan.

(e)   Notwithstanding anything to the contrary, the Borrowers shall have, in the aggregate, no more than  eight (8) separate Eurodollar Loans outstanding at any one time.  For purposes of the foregoing, all Eurodollar Loans commencing on the same day of a month (notwithstanding that such Eurodollar Loans commence in different months) shall be considered a single Eurodollar Loan.

(f)   All Base Rate Loans shall bear interest from and including the first day of each Monthly Period (or the day on which Eurodollar Loans are converted to Base Rate Loans as required under Section 3.03(b) or under Article IV ( Eurodollar Rate and Tax Provisions ) ) to (and including) the next succeeding Monthly Payment Date at the interest rate determined as applicable to such Base Rate Loan.

Section 3.04   Default Interest Rate .  (a) If all or a portion of (i) the principal amount of any Loan is not paid when due (whether on the Maturity Date, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate that would otherwise be applicable thereto plus two percent (2%) or (ii) any Obligation (other than principal on the Loans) is not paid when due (whether on the Maturity Date, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans plus two percent (2%) (the applicable rate in effect plus such two percent (2%) per annum , the “ Default Rate ”), in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (after as well as before judgment).

Section 3.05   Interest Rate Determination .  The Administrative Agent shall determine the interest rate applicable to the Loans in accordance with the terms of this Agreement, and shall give prompt notice to the Borrowers and the Lenders of such determination, and its determination thereof shall be conclusive in the absence of manifest error.

Section 3.06   Computation of Interest and Fees .  (a)  All computations of interest for Base Rate Loans when the Base Rate is determined by WestLB’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed.  All computations of interest for Eurodollar Loans and for Base Rate Loans when the Base Rate is determined by the Federal Funds Effective Rate shall be made on the basis of a 360-day year and actual days elapsed.

(b)   Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid; provided, that any Loan that is repaid on the same day on which it is made shall bear interest for one (1) day.

(c)   Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

Section 3.07   Optional Prepayment .  (a)  The Borrowers shall have the right at any time, and from time to time, to prepay the Revolving Loans, in whole or in part, upon not fewer than three (3) Business Days’ prior written notice to the Administrative Agent.

(b)   Each notice of prepayment given by the Borrowers under this Section 3.07 shall specify the prepayment date and the portion of the principal amount of the Revolving Loans to be prepaid.  All prepayments under this Section 3.07 shall be made by the Borrowers to the Administrative Agent for the account of the applicable Revolving Lenders and shall be accompanied by accrued interest on the principal amount being prepaid to but excluding the date of payment and by any additional amounts required to be paid under Section 4.05 ( Funding Losses ) .

(c)   Amounts of principal prepaid under this Section 3.07 shall be allocated by the Administrative Agent first ,   to the payment of all costs, fees, expenses and indemnities then due and payable to the Senior Secured Parties, including fees and expenses of attorneys and Consultants reimbursable hereunder; second , to the payment of all accrued and unpaid interest then due and payable on the Revolving Loans pro rata among the Lenders (other than any Defaulting Lender) based on their respective outstanding principal amounts on the date of such prepayment; third , to the payment of principal of Revolving Loans pro rata among the Lenders (other than any Defaulting Lender) based on their respective outstanding principal amounts on the date of such prepayment but without a reduction in the Commitments; fourth , to the payment of all accrued and unpaid interest then due and payable on the Revolving Loans pro rata among the Defaulting Lenders based on their respective outstanding principal amounts on the date of such prepayment; and fifth , to the payment of principal of Revolving Loans pro rata among the Defaulting Lenders based on their respective outstanding principal amounts on the date of such prepayment.

(d)   Subject to Section 3.7 (c) first , amounts prepaid pursuant to this Section 3.07   may be reborrowed.

Section 3.08   Mandatory Prepayment .  (a)  The Borrowers shall be required to prepay the Loans:

(b)   All prepayments under this Section 3.08 shall be made by the Borrowers to the Administrative Agent for the account of the Lenders and shall be accompanied by accrued interest on the principal amount being prepaid to but excluding the date of payment and by any additional amounts required to be paid under Section 4.05 ( Funding Losses ) .

(c)   Amounts of principal prepaid under this Section 3.08   shall be allocated by the Administrative Agent first ,   to the payment of all costs, fees, expenses and indemnities then due and payable to the Senior Secured Parties, including fees and expenses of attorneys and Consultants reimbursable hereunder; second , to the payment of all accrued and unpaid interest then due and payable on the Revolving Loans pro rata among the Lenders (other than any Defaulting Lender) based on their respective outstanding principal amounts on the date of such prepayment; third , to the payment of principal of Revolving Loans pro rata among the Lenders (other than any Defaulting Lender) based on their respective outstanding principal amounts on the date of such prepayment and a corresponding reduction in the Revolving Loan Commitments; fourth , to the payment of all accrued and unpaid interest then due and payable on the Revolving Loans pro rata among the Defaulting Lenders based on their respective outstanding principal amounts on the date of such prepayment; fifth , to the payment of principal of Revolving Loans pro rata among the Defaulting Lenders based on their respective outstanding principal amounts on the date of such prepayment; sixth,   to the payment of all accrued and unpaid interest then due and payable on the Roll Up Loans pro rata among the Lenders (other than any Defaulting Lender) based on their respective outstanding principal amounts on the date of such prepayment; seventh , to the payment of principal of the Roll Up Loans pro rata among the Lenders (other than any Defaulting Lender) based on their respective outstanding principal amounts on the date of such prepayment and a corresponding reduction in the Roll Up Loan Commitments; eighth,   to the payment of all accrued and unpaid interest then due and payable on the Roll Up Loans pro rata among the Defaulting Lenders based on their respective outstanding principal amounts on the date of such prepayment; and ninth , to the payment of principal of the Roll Up Loans pro rata among the Defaulting Lenders based on their respective outstanding principal amounts on the date of such prepayment.

(d)   Amounts prepaid pursuant to this Section 3.08   may not be reborrowed.

Section 3.09   Time and Place of Payments .  (a)  The Borrowers shall make each payment (including any payment of principal of or interest on any Loan or any Fees or other Obligations) hereunder and under any other Financing Document without setoff, deduction or counterclaim not later than 12:00 noon New York City time on the date when due in Dollars in immediately available funds to the Administrative Agent at the following account:  JPMorgan Chase Bank - NY, Acct. #920-1-060663, for the Account of WestLB AG-NY Branch, ABA #021-000-021, Ref: Pacific Ethanol DIP Loan, Attention: Andrea Bailey, or at such other office or account as may from time to time be specified by the Administrative Agent to the Borrowers.  Funds received after 12:00 noon New York City time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day.

(b)   The Administrative Agent shall promptly remit in immediately available funds to each Senior Secured Party its share, if any, of any payments received by the Administrative Agent for the account of such Senior Secured Party.

(c)   Whenever any payment (including any payment of principal of or interest on any Loan or any Fees or other Obligations) hereunder or under any other Financing Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment shall (except as otherwise required by the proviso to the definition of “Interest Period” with respect to Eurodollar Loans) be made on the immediately succeeding Business Day, and such increase of time shall in such case be included in the computation of interest or Fees, if applicable.

Section 3.10   Fundings and Payments Generally .  (a)  Unless the Administrative Agent has received notice from the Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance with this Agreement and may, in reliance upon such assumption, distribute to the Lenders the amount due.  If the Borrowers have not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of (i) the Federal Funds Effective Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.  A notice of the Administrative Agent to any Lender with respect to any amount owing under this Section 3.10(a) shall be conclusive, absent manifest error.

(b)   Nothing herein shall be deemed to obligate any Lender to obtain funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain funds for any Loan in any particular place or manner.

Section 3.11   Fees .  (a)  On the date of the first Funding, the Borrowers shall pay to the Administrative Agent, for the account of the Lenders, a facility fee equal to two percent (2.0%) of the Aggregate Revolving Loan Commitment.

(b)   On the date of the first Funding, the Borrowers shall pay to the Administrative Agent, for the account of the Administrative Agent, a structuring fee equal to one percent (1.0%) of the Aggregate Revolving Loan Commitment.

(c)   From and including the date hereof until the Maturity Date, the Borrowers agree to pay to the Administrative Agent, for the account of the Lenders, on each Monthly Payment Date, a commitment fee (the “ Commitment Fee ”) equal to two percent (2.0%) per annum on the average daily amount by which the Aggregate Revolving Loan Commitment exceeds the outstanding amount of the Revolving Loans during the immediately preceding month.  All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as pro-rated for any partial month, as applicable.

(d)   All Fees shall be paid on the dates due, in immediately available funds.  Once paid, none of the Fees shall be refundable under any circumstances.

Section 3.12   Pro rata Treatment .  (a)  Except as otherwise expressly provided herein (including Section 4.01 ( Eurodollar Rate Lending Unlawful ) and Section 2.07 ( Defaulting Lenders ) ), each Funding of Revolving Loans, making of Roll Up Loans and reduction of commitments of any type shall be allocated by the Administrative Agent pro rata among the Lenders in accordance with their respective applicable Commitment Percentages.

(b)   Except as required under Section 2.07 ( Defaulting Lenders ), Section 3.07 ( Optional Prepayment ) , Section 3.08 ( Mandatory Prepayment ) or Article IV ( Eurodollar Rate and Tax Provisions ) , each payment or prepayment of principal of the Loans shall be allocated by the Administrative Agent pro rata among the applicable Lenders in accordance with the respective principal amounts of their outstanding Loans of the type being repaid, each payment of interest on the Loans shall be allocated by the Administrative Agent pro rata among the applicable Lenders in accordance with the respective interest amounts outstanding on their outstanding Loans of the type in respect of which interest is being paid, and each payment of fees on the Commitments shall be allocated by the Administrative Agent pro rata among the applicable Lenders in accordance with their respective Commitments of the type to which such fees relate.

(c)   Each Lender agrees that in computing such Lender’s portion of any Funding to be made hereunder, the Administrative Agent may, in its discretion, round each Lender’s percentage of such Funding to the next higher or lower whole Dollar amount.

Section 3.13   Sharing of Payments .  (a)  If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan (other than pursuant to the terms of Article IV ( Eurodollar Rate and Tax Provisions ) ) in excess of its pro rata share of payments then or therewith obtained by all Lenders holding Loans of such type, such Lender shall purchase from the other Lenders such participations in Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however , that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender that has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender’s ratable share (according to the proportion of (x) the amount of such selling Lender’s required repayment to the purchasing Lender to (y) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.  Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 3.13 may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 11.15 ( Right of Setoff) ) with respect to such participation as fully as if such Lender were the direct creditor of the Borrowers in the amount of such participation.

(b)   If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.13 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 3.13 to share in the benefits of any recovery on such secured claim.

Section 4.01   Eurodollar Rate Lending Unlawful .  (a)  If any Lender reasonably determines (which determination shall, upon notice thereof to the Borrowers and the Administrative Agent, be conclusive and binding on the Borrowers absent manifest error) that the introduction of or any change in or in the interpretation of any Law after the date hereof makes it unlawful, or any central bank or other Governmental Authority asserts after the date hereof that it is unlawful, for such Lender to make, maintain or fund any Loan as a Eurodollar Loan, the obligations of such Lender to make, maintain or fund any Loan as a Eurodollar Loan shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all Eurodollar Loans of such Lender shall automatically convert into Base Rate Loans at the end of the then-current Interest Periods with respect thereto or sooner, if required by such Law or assertion.  Upon any such conversion the Borrowers shall pay any accrued interest on the amount so converted and, if such conversion occurs on a day other than the last day of the then-current Interest Period for such affected Eurodollar Loans, such Lender shall be entitled to make a request for, and the Borrowers shall pay, compensation for breakage costs under Section 4.05 ( Funding Losses ) .

(b)   If such Lender notifies the Borrowers that the circumstances giving rise to the suspension described in Section 4.01(a) no longer apply, the Borrowers may elect (by delivering an Interest Period Notice) to convert the principal amount of any such Base Rate Loan to a Eurodollar Loans in accordance with this Agreement.

Section 4.02   Inability to Determine Eurodollar Rates .  (a)  In the event, and on each occasion, that on or before the day that is three (3) Business Days prior to the commencement of any Interest Period for any Eurodollar Loan, the Administrative Agent shall have determined in good faith that (i) Dollar deposits in the amount of such Loan and with an Interest Period similar to such Interest Period are not generally available in the London interbank market, or (ii) the rate at which such Dollar deposits are being offered will not adequately and fairly reflect the cost to any Lender of making, maintaining or funding the principal amount of such Loan during such Interest Period, or (iii) adequate and reasonable means do not exist for ascertaining LIBOR, the Administrative Agent shall forthwith notify the Borrowers and the Lenders of such determination, whereupon each such Eurodollar Loan will automatically, on the last day of the then-existing Interest Period for such Eurodollar Loan, convert into a Base Rate Loan.  In the event of any such determination pursuant to Section 4.02(a)(i) or (iii) , any Funding Notice delivered by the Borrowers shall be deemed to be a request for a Base Rate Loan until the Administrative Agent determines that the circumstances giving rise to such notice no longer exist.  In the event of any determination pursuant to Section 4.02(a)(ii) , each affected Lender shall, and is hereby authorized by the Borrowers to, fund its portion of the Loans as a Base Rate Loan.  Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error.

(b)   Upon the Administrative Agent’s determination that the condition that was the subject of a notice under Section 4.02(a) has ceased, the Administrative Agent shall forthwith notify the Borrower and the Lenders of such determination, whereupon the Borrowers may elect (by delivering an Interest Period Notice) to convert any such Base Rate Loan to a Eurodollar Loan on the last day of the then-current Monthly Period in accordance with this Agreement.

Section 4.03   Increased Eurodollar Loan Costs .  If after the date hereof, the adoption of any applicable Law or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Lender (or its Eurodollar Office) with any request or directive (whether or not having the force of law) of any Governmental Authority would increase the cost (other than with respect to Taxes, which are addressed in Section 4.07 ( Taxes ) ) to such Lender of, or result in any reduction in the amount of any sum receivable by such Lender (whether of principal, interest or any other amount) in respect of, making, maintaining or funding (or of its obligation to make, maintain or fund) the Loans as Eurodollar Loans, then the Borrowers agree to pay to the Administrative Agent for the account of such Lender the amount of any such increase or reduction.  Such Lender shall promptly notify the Administrative Agent and the Borrowers in writing of the occurrence of any such event, such notice to state in reasonable detail the reasons (including the basis for determination) therefor and the additional amount required to compensate fully such Lender for such increased cost or reduced amount.  Such additional amounts shall be payable by the Borrowers directly to such Lender within thirty (30) days of delivery of such notice, and such notice shall be binding on the Borrowers absent manifest error.

Section 4.04   Obligation to Mitigate .  (a)  Each Lender agrees after it becomes aware of the occurrence of an event that would entitle it to give notice pursuant to Section 4.01 ( Eurodollar Rate Lending Unlawful ) , 4.03 ( Increased Eurodollar Loan Costs ) , or 4.06 ( Increased Capital Costs ) or to receive additional amounts pursuant to Section 4.07 ( Taxes ) , such Lender shall use reasonable efforts to make, fund or maintain its affected Loan through another lending office if as a result thereof the increased costs would be avoided or materially reduced or the illegality would thereby cease to exist and if, in the opinion of such Lender, the making, funding or maintaining of such Loan through such other lending office would not be disadvantageous to such Lender, contrary to such Lender’s normal banking practices or violate any applicable Law.

(b)   No change by a Lender in its Domestic Office or Eurodollar Office made for such Lender’s convenience shall result in any increased cost to the Borrowers.

(c)   If any Lender demands compensation pursuant to Section 4.03 ( Increased Eurodollar Loan Costs ) or 4.06 ( Increased Capital Costs ) with respect to any Eurodollar Loan, the Borrowers may, at any time upon at least three (3) Business Day’s prior notice to such Lender through the Administrative Agent, elect to convert such Loan into a Base Rate Loan.  Thereafter, unless and until such Lender notifies the Borrowers that the circumstances giving rise to such notice no longer apply, all such Eurodollar Loans by such Lender shall bear interest as Base Rate Loans.  If such Lender notifies the Borrowers that the circumstances giving rise to such notice no longer apply, the Borrowers may elect (by delivering an Interest Period Notice) to convert the principal amount of each such Base Rate Loan to a Eurodollar Loans in accordance with this Agreement.

Section 4.05   Funding Losses .  In the event that any Lender incurs any loss or expense (including any loss or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as a Eurodollar Loan, and any customary administrative fees charged by such Lender in connection with the foregoing, but excluding any lost profits) as a result of (a) any conversion or repayment or prepayment of the principal amount of any Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.07 ( Optional Prepayment ) , 3.08 ( Mandatory Prepayment ) , 4.01(a) ( Eurodollar Rate Lending Unlawful ) or otherwise or (b) the Borrowers failing to make a Funding in accordance with any Funding Notice; then, upon the written notice (including the basis for determination) of such Lender to the Borrowers (with a copy to the Administrative Agent), the Borrowers shall, within thirty (30) days of receipt thereof, pay to the Administrative Agent for the account of such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense.  Such written notice shall be binding on the Borrowers absent manifest error.

Section 4.06   Increased Capital Costs .  If after the date hereof any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any applicable Law or guideline, or request (whether or not having the force of law) of any Governmental Authority affects the amount of capital required to be maintained by any Lender, and such Lender reasonably determines that the rate of return on its capital as a consequence of its Loan is reduced to a level below that which such Lender could have achieved but for the occurrence of any such circumstance then, in any such case upon notice from time to time by such Lender to the Borrowers, the Borrowers shall pay within thirty (30) days after such demand directly to such Lender additional amounts sufficient to compensate such Lender for such reduction in rate of return.  A statement of such Lender as to any such additional amount or amounts (including the basis for determination) shall be binding on the Borrowers absent manifest error.

Section 4.07   Taxes .

(a)   Payments Free of Taxes .  Any and all payments by or on account of any Obligations shall be made free and clear of, and without deduction for, any Taxes, unless required by Law; provided that if any Borrower shall be required to deduct any Indemnified Taxes from any such payment, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.07 ) the Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Law.

(b)   Payment of Other Taxes by the Borrowers .  In addition, the Borrowers shall timely pay any Indemnified Taxes arising from any payment made under any Financing Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Financing Document and not collected by withholding at the source as contemplated by Section 4.07(a) to the relevant Governmental Authority in accordance with applicable Law.

(c)   Indemnification by the Borrowers .  The Borrowers shall indemnify each Agent and each Lender, within thirty (30) days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 4.07 ) paid by such Agent or Lender, as the case may be, and any penalties, interest, additions to tax and reasonable expenses arising therefrom or with respect thereto (other than those resulting from the gross negligence or willful misconduct of such Agent or Lender), whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability (including the basis of determination) delivered to the Borrowers by a Lender or Agent, as the case may be, shall be conclusive absent manifest error.

(d)   Evidence of Payments .  As soon as reasonably practicable after any payment of Indemnified Taxes by any Borrower to a Governmental Authority, such Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e)   Foreign Lenders .  Each Lender (including any Participant and any other Person to which any Lender transfers its interests in this Agreement as provided under Section 11.03 ( Assignments ) ) that is not a United States Person (a “ Non-U.S. Lender ”) shall deliver to the Borrowers and the Administrative Agent two (2) copies of U.S. Internal Revenue Service Form W-8ECI, Form W-8BEN or Form W 8IMY (with supporting documentation), or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments of interest by the Borrowers under the Financing Documents, together with, in the case of a Non-U.S. Lender that is relying on an exemption pursuant to Section 871(h) or 881(c) of the Code, a statement substantially in the form of Exhibit 4.07 certifying that such Lender is not a bank described in Section 881(c)(3)(A) of the Code.  Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement.  In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender.  Each Non-U.S. Lender shall promptly notify the Borrowers and the Administrative Agent at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrowers (or any other form of certification adopted by U.S. taxing authorities for such purpose).  The Borrowers shall not be obligated to pay any additional amounts in respect of U.S. federal income taxes pursuant to this Section 4.07 (or make an indemnification payment pursuant to this Section 4.07 ) to any Lender (or any Participant or other Person to which any Lender transfers its interests in this Agreement as provided under Section 11.03 ( Assignments ) ) if the obligation to pay such additional amounts (or such indemnification) would not have arisen but for a failure by such Lender to comply with this Section 4.07(e) .

Section 5.01   Organization; Power and Compliance with Law .  Each Borrower (a) is a duly formed, validly existing and in good standing under the laws of its jurisdiction of organization, (b) is duly qualified to do business as is now being conducted and as is proposed to be conducted by such Borrower and is in good standing 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) subject to the entry of the Orders, has all requisite entity power and authority required as of the date this representation is made or deemed repeated to enter into and perform its obligations under each Transaction Document to which it is a party and to conduct its business as currently conducted by it.

Section 5.02   Due Authorization; Non-Contravention .  Subject to the entry of the Orders, the execution, delivery and performance by each Borrower of each Transaction Document to which it is a party are within such Borrower’s organizational powers, have been duly authorized by all necessary action, and do not:

(a)   contravene such Borrower’s Organic Documents;

(b)   contravene in any material respect any Law binding on or affecting such Borrower;

(c)   contravene any Contractual Obligation binding on or affecting such Borrower;

(d)   require any consent or approval under such Borrower’s Organic Documents that has not been obtained;

(e)   require any consent or approval under any Contractual Obligations binding on or affecting such Borrower other than any approvals or consents which have been obtained; or

(f)   result in, or require the creation or imposition of, any Lien on any of such Borrower’s properties other than Permitted Liens.

Section 5.03   Governmental Approvals .

(a)   Subject to the entry of the Orders, all material Governmental Approvals that are required to be obtained by any Borrower in connection with (i) the due execution, delivery and performance by such Borrower of the Financing Documents to which it is a party and (ii) the grant by the Debtors of the DIP Liens and the validity, perfection and enforceability thereof have been obtained, are in full force and effect, are properly in the name of the appropriate Person, and are final and Non-Appealable.

(b)   All Necessary Project Approvals are in full force and effect, are properly in the name of the appropriate Person, and are final and Non-Appealable except as a result of the Cold Shutdown of the Madera Plant, the Magic Valley Plant, the Stockton Plant and, after the Boardman CS Date, the Boardman Plant.  There is no action, suit, investigation or proceeding pending or to the knowledge of each Borrower, threatened that could reasonably be expected to result in the modification, rescission, termination or suspension of any Necessary Project Approval that could reasonably be expected to have a Material Adverse Effect.

(c)   The information set forth in each application (including any updates or supplements thereto) submitted by or on behalf of any Borrower in connection with each Necessary Project Approval was accurate and complete in all material respects at the time of submission and continues to be accurate in all material respects and complete in all respects to the extent required for the continued effectiveness of such Necessary Project Approval.

Section 5.04   Investment Company Act .  No Borrower is, and after giving effect to the Loans and the application of the proceeds of the Loans as described herein no Borrower will be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

Section 5.05   Validity of Financing Documents .  Each Financing Document to which any Borrower is a party has been duly authorized, validly executed and delivered, and constitutes the legal, valid and binding obligations of such Borrower enforceable in accordance with its respective terms.

Section 5.06   Financial Information .  Each of the financial statements of Pacific Ethanol delivered pursuant to Section 6.01(g) ( Conditions to Closing – Financial Statements ) and Sections 7.03(a) and (b) ( Reporting Requirements ) has been prepared in accordance with GAAP, and fairly presents in all material respects the consolidated financial condition of the Borrowers as at the dates thereof and the results of their operations for the period then ended (subject, in the case of unaudited financial statements, to changes resulting from audit and normal year-end adjustments and the absence of footnotes).

Section 5.07   Project Compliance .  (a)  Except as set forth on Schedule 5.07 , Each Plant conforms in all material respects to and complies in material respects with all federal, state and local zoning, environmental, land use and other applicable Laws and the requirements of all Necessary Project Approvals.  Each Plant is and will continue to be owned and maintained in material compliance  with all applicable Laws and the requirements of all Necessary Project Approvals.

(b)   Each Plant is and will continue to be owned and maintained in compliance in all material respects with all of the Borrowers’ Contractual Obligations (including the Project Documents applicable to such Plant, taking into account any cure or grace periods thereunder) (except, (i) in the case of Contractual Obligations other than Project Documents, to the extent such failure to comply could not reasonably be expected to result in a Material Adverse Effect with respect to such Plant or Borrower and (ii) the cessation of operations and Cold Shutdown of the Madera Plant, the Magic Valley Plant, the Stockton Plant and, after the Boardman CS Date, the Boardman Plant).

Section 5.08   Litigation .  (a)   Except as set forth on Schedule 5.08 , no action, suit, proceeding or investigation has been instituted and not stayed pursuant to the Bankruptcy Code or threatened against any Borrower (including in connection with any Necessary Project Approval) that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect on any Plant or any Borrower;

(b)   Except as set forth on Schedule 5.08 , no action, suit, proceeding or investigation has been instituted and not stayed pursuant to the Bankruptcy Code or threatened against any Major Project Party that is an Affiliate of a Borrower and that is party to any Project Document with Pacific Holding or that relates to any Borrower or Plant that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; and

(c)   to the knowledge of each Borrower, no action, suit, proceeding or investigation has been instituted and not stayed pursuant to the Bankruptcy Code or threatened against any Major Project Party that is not an Affiliate of a Borrower and that is party to any Project Document with Pacific Holding or that relates to any Borrower or Plant that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.

Section 5.09   Sole Purpose Nature; Business .  None of the Borrowers has conducted nor is conducting any business or activities other than businesses and activities relating to the ownership, development, testing, financing, construction, operation and maintenance of the Project as contemplated by the Transaction Documents.

Section 5.10   Contracts .

(a)   All contracts, agreements, instruments, letters, understandings, or other documentation to which any Borrower is a party or by which it or any of its properties is bound as of the date hereof (other than the Financing Documents), including the Project Documents (including all documents amending, supplementing, interpreting or otherwise modifying or clarifying such agreements and instruments) are listed in Schedule 5.10 .

(b)   All Necessary Project Contracts are in full force and effect except such Necessary Projects Contracts the invalidity of which could not reasonably be expected to have a Material Adverse Effect.

(c)   As of any date (after the date hereof) on which this representation is made or deemed repeated, there are no material contracts, agreements, instruments, or documents between any Borrower and any other Person relating to any Borrower or the Project other than (i) the Transaction Documents, (ii) the agreements listed in Schedule 5.10 , and (iii) any other agreements permitted by this Agreement.

Section 5.11   Collateral .  (a)  The Collateral includes all of the Equity Interests owned by and all of the tangible and intangible assets of each Debtor (except as otherwise provided in this Agreement).

(b)   The respective Liens and security interests (i) granted to the Collateral Agent (for the benefit of the Senior Secured Parties) pursuant to the Bankruptcy Code constitute, as to personal property included in the Collateral, a valid first-priority security interest in such personal property and (ii) as to the Mortgaged Property, constitute a valid first-priority Lien of record in the Mortgaged Property, in each case subject only to Permitted Liens.

(c)   The security interest granted to the Collateral Agent (for the benefit of the Senior Secured Parties) pursuant hereto will be perfected upon entry of the Interim Order without any requirement of any further action by the Collateral Agent.

Section 5.12   Ownership of Properties .  (a)  Madera has a good and valid fee ownership interest in the Site for the Madera Plant.  Boardman has a good and valid leasehold interest or valid fee ownership in the Site for the Boardman Plant.  Burley has a good and valid fee ownership interest in the Site for the Burley Plant.  Stockton has a good and valid leasehold interest or valid fee ownership in the Site for the Stockton Plant.

(b)   The Borrowers have a good and valid ownership interest, leasehold interest, license interest or other right of use in all their property and assets (tangible and intangible) included in the Collateral except for any such rights the absence of which in the aggregate would not be material.  Such ownership interests, leasehold interest, license interest or other rights of use  are and will be sufficient to permit operation of the Plants substantially in accordance with the Project Documents applicable to each such Plant.  None of said properties or assets are subject to any Liens or, to the knowledge of each Borrower, any other claims of any Person, including any easements, rights of way or similar agreements affecting the use or occupancy of the Project, any Plant or any Site, other than Permitted Liens and, with respect to claims, to the extent permitted by Section 5.08 ( Litigation ) .

(c)   All Equity Interests in each of Madera, Boardman, Stockton and Burley are owned by Pacific Holding.

(d)   All Equity Interests in Pacific Holding are owned by PEC.

(e)   The properties and assets of each of the Borrowers are separately identifiable and are not commingled with the properties and assets of any other Person and are readily distinguishable from one another.

(f)   None of Pacific Holding or any other Borrower has any leasehold interest in, and none of the Borrowers is lessee of, any real property other than the Leased Premises or other leasehold interests acquired by the Borrowers in accordance with the Pre-Petition Credit Agreement.

Section 5.13   Taxes .  (a)  Each Borrower has (i) filed all Tax Returns required by law to have been filed by it and (ii) has paid all Taxes thereby shown to be owing, as and when the same are due and payable, other than in the case of this Section 5.13(a)(ii) , (A) Taxes that are subject to a Contest or (B) the nonpayment of 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.

(b)   No Borrower is or will be taxable as a corporation for federal, state or local tax purposes.

(c)   No Borrower is a party to any tax sharing agreement with any Person.

Section 5.14   Patents, Trademarks, Etc .  Pacific Holding and each other Borrower has obtained and holds in full force and effect all material patents, trademarks, copyrights and other such material rights or adequate licenses therein, free from unduly burdensome restrictions, that are necessary for the ownership, operation and maintenance of the Project.

Section 5.15   ERISA Plans .  None of the Borrowers nor any ERISA Affiliate has (or within the five year period immediately preceding the date hereof had) any liability in respect of any Plan or Multiemployer Plan.  None of the Borrowers has any contingent liability with respect to any post-retirement benefit under any “welfare plan” (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA.

Section 5.16   Property Rights, Utilities, Supplies Etc .  (a)  All material property interests, utility services, means of transportation, facilities and other materials necessary for the use and operation of the Project (including, as necessary, gas, roads, rail transport, electrical, water and sewage services and facilities) are available to each Plant.

(b)   There are no material materials, supplies or equipment necessary for operation or maintenance of each Plant that are not available at the relevant Site on commercially reasonable terms consistent with the DIP Budget.

Section 5.17   No Defaults .  (a)  No Event of Default has occurred and is continuing.

(b)   None of Pacific Holding or any other Borrower is in any breach of, or in any default under, any of such Borrower’s Contractual Obligations (other than a breach resulting from the Cases or the Cold Shutdown of the Madera Plant, the Magic Valley Plant, the Stockton Plant and, after the Boardman CS Date, the Boardman Plant) that has had or could reasonably be expected to have a Material Adverse Effect with respect to such Borrower, in each case with respect to which enforcement of remedies is not stayed by means of the Chapter 11 Cases.

Section 5.18   Environmental Warranties .

(a)   (i) Except as set forth on Schedule 5.18(a)(i) , each Borrower is in compliance in all material respects with all applicable Environmental Laws, (ii) each Borrower has all Environmental Approvals required to operate its business as presently conducted or as reasonably anticipated to be conducted and is in compliance in all material respects with the terms and conditions thereof, (iii) no Borrower nor any of its Environmental Affiliates has received any written communication from a Governmental Authority that alleges that any Borrower or any Environmental Affiliate is not in compliance in all material respects with all Environmental Laws and Environmental Approvals, and (iv) there are no circumstances that may prevent or interfere in the future with any Borrower’s compliance in all material respects with all applicable Environmental Laws and Environmental Approvals.

(b)   There is no Environmental Claim pending, or to the knowledge of each Borrower, threatened  against any Borrower.  No Environmental Affiliate has taken any action or violated any Environmental Law that to the knowledge of a Borrower could reasonably be expected to result in an Environmental Claim.

(c)   There are no present or past actions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that could reasonably be expected to form the basis of any Environmental Claim against any Borrower or any Environmental Affiliate.

(d)   Without in any way limiting the generality of the foregoing, (i) there are no on-site or off-site locations in which any Borrower or, to the knowledge of a Borrower, any Environmental Affiliate has stored, disposed or arranged for the disposal of Materials of Environmental Concern that could reasonably be expected to form the basis of an Environmental Claim, (ii) no Borrower knows of any underground storage tanks located or to be located on property owned or leased by any Borrower except as identified on Schedule 5.18(d)(ii) (as the same may be updated in writing by the Borrower Agent with the written approval of the Administrative Agent), (iii) there is no asbestos or lead paint contained in or forming part of any building, building component, structure or office space owned or leased by any Borrower except in such form, condition and quantity as could not reasonably be expected to result in an Environmental Claim, and (iv) no polychlorinated biphenyls (PCBs) are or will be used or stored at any property owned or leased by any Borrower, except in such form, condition and quantity as could not reasonably be expected to result in an Environmental Claim.

(e)   No Borrower has received any letter or request for information under Section 104 of the CERCLA, or comparable state laws, and to the knowledge of each Borrower, none of the operations of each Borrower is the subject of any investigation by a Governmental Authority evaluating whether any remedial action is needed to respond to a release or threatened release of any Material of Environmental Concern at any Plant or Site or at any other location, including any location to which any Borrower has transported, or arranged for the transportation of, any Material of Environmental Concern with respect to the Project.

Section 5.19   Regulations T, U and X .  None of the Borrowers is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loan will be used for any purpose that violates, or would be inconsistent with, F.R.S. Board Regulation T, U or X.  Terms for which meanings are provided in F.R.S. Board Regulation T, U or X or any regulations substituted therefore, as from time to time in effect, are used in this Section 5.22 with such meanings.

Section 5.20   Accuracy of Information .  (a)  All factual information heretofore or contemporaneously furnished by or on behalf of any Borrower in this Agreement, in any other Transaction Document or otherwise in writing to any Senior Secured Party, any Consultant, or counsel for purposes of or in connection with this Agreement and the other Financing Documents or any transaction contemplated hereby or thereby (other than projections, budgets and other “forward-looking” information all of which has been prepared on a reasonable basis and in good faith) was, as of the date furnished, when taken as a whole (and after giving effect to any supplement of such information) (i) true and accurate in every material respect and (ii) not incomplete by omitting to state any material fact necessary to make such information not misleading in any material respect.

(b)   The assumptions constituting the basis on which the Borrowers prepared the DIP Budget that is in effect on each date this representation is made or deemed repeated and the numbers set forth therein were developed and consistently utilized in good faith and are reasonable and represent each Borrower’s best judgment as of the date prepared as to the matters contained therein, based on all information known to the Borrowers.

(c)   The Borrowers reasonably believe that the use, ownership, operation and maintenance of the Project are technically feasible and, except for factors effecting the ethanol industry in general and not relating specifically to the Project, economically feasible.

Section 5.21   Indebtedness .  The Obligations are, after giving effect to the Financing Documents and the transactions contemplated thereby, the only outstanding Indebtedness of the Borrowers other than Permitted Indebtedness.  The Obligations have the ranking given to them in Section 2.09 ( Super-Priority Nature of Objectives ) .

Section 5.22   Required LLC Provisions .  Each limited liability company interest of each Borrower that is a limited liability company is a security governed by Article 8 of the Uniform Commercial Code and is evidenced by a certificate.  The certificated interests are in registered form within the meaning of Article 8 of the Uniform Commercial Code

Section 5.23   Subsidiaries .  Madera, Boardman, Stockton and Burley have no Subsidiaries.  Pacific Holding has no Subsidiaries other than Madera, Boardman, Stockton and Burley.

Section 5.24   Foreign Assets Control Regulations, Etc .  (a)  The use of the proceeds of the Loan by the Borrowers will not violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.

(b)   No Borrower:

Section 5.25   Employment Matters .  None of the Borrowers has or has had any employee or former employees.

Section 5.26   Legal Name and Place of Business .  (a)  The exact legal name and jurisdiction of formation of each Borrower is as set forth below, and no Borrower has had any other legal names in the previous five (5) years except as set forth on Schedule 5.26 :

(b)   The sole place of business and chief executive office of each Borrower is as set forth on Schedule 5.26 .

Section 5.27   No Brokers .  No Borrower has any obligation to pay any finder’s, advisory, brokers or investment banking fee, except for the fees payable pursuant to Section 3.11 ( Fees ) and those identified on Schedule 5.27 .

Section 5.28   Insurance .  All insurance required to be obtained and maintained pursuant to the Transaction Documents by Pacific Holding and each other Borrower is in full force and effect as of each date this representation is made or deemed repeated and complies with the insurance requirements set forth on Schedule 7.01(h) .  All premiums then due and payable on all such insurance have been paid.  To the knowledge of each Borrower, all insurance required to be obtained and maintained by any Major Project Party, to protect, directly or indirectly, against loss or liability to any Borrower, any Plant or any Senior Secured Party, as of the date this representation is made or deemed repeated, pursuant to any Project Document has been obtained, is in full force and effect and complies with the insurance requirements set forth on Schedule 7.01(h) (where applicable) and is otherwise in all material respects in accordance with such Project Document.

Section 5.29   Accounts .  The Project Accounts exist at the Account Bank in accordance with the terms of the Pre-Petition Credit Agreement.  No Borrower has, nor is the beneficiary of, any bank account other than the Project Accounts and any Local Account set forth on Schedule 5.29 with respect to which a Blocked Account Agreement has been duly executed and delivered.

Section 5.30   SEC Compliance .  Pacific Ethanol has made all filings required to be made by Pacific Ethanol pursuant to the Securities Exchange Act of 1934 and all factual information heretofore or contemporaneously furnished by Pacific Ethanol in any such filing (other than projections, budgets and other “forward-looking” information all of which has been prepared on a reasonable basis and in good faith by Pacific Ethanol) is, when taken as a whole (and after giving effect to any supplement of such information) and as of the date furnished, true and accurate in every material respect and such information is not, when taken as a whole (and after giving effect to any supplement of such information) as of the date furnished, incomplete by omitting to state any material fact necessary to make such information not misleading in any material respect.

Section 5.31   Reorganization Matters .

(a)   The Chapter 11 Cases were commenced on the Petition Date in accordance with applicable law and proper notice thereof and the proper notice for (i) the motion seeking approval of the Financing Documents and the Interim Order and Final Order, (ii) the hearing for the approval of the Interim Order, and (iii) the hearing for the approval of the Final Order.

(b)   After the entry of the Interim Order, and pursuant to and solely to the extent permitted in the Interim Order and the Final Order, the Obligations will constitute allowed administrative expense claims in the Chapter 11 Cases having priority over all administrative expense claims and unsecured claims against the Borrowers now existing or hereafter arising, of any kind whatsoever, including, without limitation, all administrative expense claims of the kind specified in Sections 105, 326, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c), 726, 1113, 1114 or any other provision of the Bankruptcy Code or otherwise, as provided under Section 364(c)(l) of the Bankruptcy Code, subject, as to priority only, to the Carve-Out.

(c)   After the entry of the Interim Order and pursuant to and to the extent provided in the Interim Order and the Final Order, the Obligations will be secured by a valid and perfected Lien having the priority described in the Orders.

(d)   The Interim Order (with respect to the period prior to entry of the Final Order) or the Final Order (with respect to the period on and after entry of the Final Order), as the case may be, is in full force and effect and has not been modified or amended without the consent of the Administrative Agent and the Lenders, or reversed or stayed.

Section 6.01   Conditions to Closing .  The occurrence of the Closing Date is subject to the satisfaction of each of the following conditions precedent.

(a)   Delivery of Financing Documents and Orders .  The Administrative Agent shall have received each of the following fully executed documents, each of which shall be originals, portable document format (“ pdf ”) or facsimiles (followed promptly by originals), duly executed and delivered by each party thereto and each in form and substance satisfactory to each Lender:

(b)   Delivery of Other Documents .  The Administrative Agent shall have received true, correct and complete copies of each agreement identified on Schedule 5.10   reasonably requested by the Administrative Agent.

(c)   Officer’s Certificates .  The Administrative Agent shall have received a duly executed certificate of an Authorized Officer of the Borrower Agent, dated as of the Closing Date, upon which the Administrative Agent and each Lender may conclusively rely certifying that (A) all conditions set forth in this Section 6.01 have been satisfied on and as of the Closing Date and (B) all representations and warranties made by any Borrower in this Agreement and each other Financing Document to which any Borrower is a party are true and correct in all material respects on and as of the Closing Date

(d)   Resolutions, Incumbency, Organic Documents .  The Administrative Agent shall have received from each Borrower a certificate of an Authorized Officer dated as of the Closing Date, upon which the Administrative Agent and each Lender may conclusively rely, as to:

(e)   Authority to Conduct Business .  The Administrative Agent shall have received satisfactory evidence, including certificates of good standing from the Secretaries of State of each relevant jurisdiction, dated no more than eight (8) days (or such other time period reasonably acceptable to the Administrative Agent) prior to the Closing Date, that each Borrower is duly authorized to carry on its business, and is duly formed, validly existing and in good standing in each jurisdiction (including, in the case of Madera and Stockton, the State of California, in the case of Boardman, the State of Oregon, and in the case of Burley, the State of Idaho) in which it is required to be so authorized.

(f)   Lien Search; Protection of Security .  The Administrative Agent shall have received satisfactory copies or evidence, as the case may be, of the following actions in connection with the perfection of the DIP Liens:

(g)   Financial Statements .  The Administrative Agent shall have received accurate and complete copies of the audited annual financial statements of Pacific Ethanol for the 2008 Fiscal Year.  Such financial statements shall be on a consolidated basis.

(h)   Third Party Approvals .  The Administrative Agent shall have received reasonably satisfactory documentation of any approval by any Person required in connection with any transaction contemplated by this Agreement or any other Financing Document that the Administrative Agent has reasonably requested in connection herewith.

(i)   Insurance .  The Administrative Agent shall have received reasonably satisfactory evidence that the insurance requirements set forth on Schedule 7.01(h) with respect to the Borrowers and the Plants have been satisfied, including binders or certificates evidencing the commitment of insurers to provide each insurance policy required by Schedule 7.01(h) , evidence of the payment of all premiums then due and owing in respect of such insurance policies and a certificate of the Borrowers’ insurance broker (or insurance carrier) certifying that all such insurance policies are in full force and effect.

(j)   Bank Regulatory Requirements .  The Administrative Agent shall have received all documentation and other information required by bank regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including the Patriot Act.

(k)   Closing Fees; Expenses .  The Administrative Agent shall have received for its own account, or for the account of each Lender and Agent entitled thereto, all fees due and payable pursuant to Section 3.11 ( Fees ) and all reasonable costs and expenses (including reasonable and documented legal fees and expenses) for which invoices have been presented, in each case, required to be paid on or before the Closing Date.  The Pre-Petition Administrative Agent shall have received all fees due and payable to it pursuant to the Pre-Petition Credit Agreement and all reasonable costs and expenses (including reasonable and documented legal fees and expenses) for which invoices have been presented, in each case, required to be paid on or before the Closing Date.

(l)   Certain Orders .   The entry of all “first day orders,” including all employee-related orders and critical vendor orders entered at or about the time of the commencements of the Chapter 11 Cases each in form and substance reasonably satisfactory to the Administrative Agent and each Lender.

(m)   Rating .  The Borrowers shall have obtained a rating of the Loans from S&P or Moody’s.

Section 6.02   Conditions to All Fundings .  The obligation of each Lender to make available each Funding of its Revolving Loans shall be subject to the fulfillment of the following conditions precedent.

(a)   Funding Notice .  The Administrative Agent shall have received a duly executed Funding Notice as required by and in accordance with Section 2.03 ( Notice of Fundings ) , which shall certify that:

(b)   Certain Orders .

(c)   Government Approvals .  Each Borrower shall have all Necessary Project Approvals required as of the date of such requested Funding, and the Administrative Agent shall have received a duly executed certificate of an Authorized Officer of the relevant Borrowers certifying that each such Necessary Project Approval is in full force and effect and is final and Non-Appealable.

(d)   No Default or Event of Default .  No Default or Event of Default has occurred and is continuing, or would result from such Funding.

(e)   No Litigation .

(f)   Abandonment, Taking, Total Loss .  (i) No Event of Abandonment or Event of Total Loss shall have occurred and be continuing with respect to any Plant, (ii) no Event of Taking relating to any Equity Interests comprising Collateral shall have occurred and be continuing, or (iii) no Event of Taking with respect to a material part of any Plant shall have occurred.

(g)   Closing Date .  The Closing Date shall have occurred.

(h)   Representations and Warranties .   Each representation and warranty made by each Borrower in this Agreement and each of the Financing Documents to which it is a party shall be true and correct in all material respects on and as of such Funding Date (except with respect to representations and warranties that expressly refer to an earlier date), before and after giving effect to such Funding and to the application of the proceeds therefrom.

(i)   Fees; Expenses .  The Administrative Agent shall have received for its own account, or for the account of each Lender and Agent entitled thereto, all fees due and payable as of the date of such Funding pursuant to Section 3.11 ( Fees ) , and all costs and expenses (including reasonable and documented costs, fees and expenses of legal counsel) for which invoices have been presented.  The Pre-Petition Administrative Agent shall have received all fees due and payable to it pursuant to the Pre-Petition Credit Agreement and all reasonable costs and expenses (including reasonable and documented legal fees and expenses) for which invoices have been presented.

Section 7.01   Affirmative Covenants .  Each Borrower agrees with each Agent and each Lender that, until the Discharge Date, each Borrower will perform the obligations set forth in this Section 7.01 applicable to it.

(a)   Compliance with Laws .  Each Borrower shall comply in all material respects with all Laws (other than Environmental Laws) applicable to it or to its business or property.

(b)   Environmental Matters .

(c)   Operations and Maintenance; Conduct of Business .  Each Borrower owing a Plant shall own, operate and maintain (or cause to be operated and maintained) such Plant in all material respects in accordance with (i) the terms and provisions of the Transaction Documents except as a result of the Cases, the Cold Shutdown of the Madera Plant, the Magic Valley Plant, the Stockton Plant and, after the Boardman CS Date, the Boardman Plant, (ii) all applicable Governmental Approvals and Laws and (iii) Prudent Ethanol Operating Practice.  Pacific Holding shall conduct its business in all material respects in accordance with all applicable Governmental Approvals and Laws.

(d)   Maintenance of Properties .

(e)   Payment of Obligations .  Each Borrower shall pay and discharge as the same shall become due and payable all its Post-Petition obligations and liabilities of whatever nature except (i) where such payment, discharge or satisfaction is prohibited by the Bankruptcy Code, the Bankruptcy Rules or an order of the Bankruptcy Court, or by this Agreement or the then-current DIP Budget, (ii) where any such failure could not reasonably be expected to have a Material Adverse Effect and would not otherwise result in an Event of Default or (iii) where the amount or validity is subject to a Contest.

(f)   Governmental Approvals .  Pacific Holding and each other Borrower shall maintain in full force and effect, in the name of the relevant Borrower, all Necessary Project Approvals (other than any such failure to maintain that could not reasonably be expected to have a Material Adverse Effect on the relevant Borrower or Plant).

(g)   Use of Proceeds .

(h)   Insurance .  Without cost to any Senior Secured Party, the applicable Borrower shall at all times obtain and maintain, or cause to be obtained and maintained, the types and amounts of insurance listed and described on Schedule 7.01(h) , in accordance with the terms and provisions set forth therein for each such Plant and the applicable Borrower, and shall obtain and maintain in all material respects such other insurance as may be required pursuant to the terms of any Transaction Document.   If the Borrowers fail to take out or maintain the full insurance coverage required by this Section 7.01(h) , the Administrative Agent may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same.  All amounts so advanced by the Administrative Agent shall become an Obligation and the Borrowers shall forthwith pay such amounts to the Administrative Agent, together with interest from the date of payment by the Administrative Agent at the Default Rate.

(i)   Books and Records; Inspections .  Each Borrower shall keep proper books of record and account in which complete, true and accurate entries in conformity with GAAP and all requirements of Law shall be made of all financial transactions and matters involving the assets and business of such Borrower, and shall maintain such books of record and account in material conformity with applicable requirements of any Governmental Authority having regulatory jurisdiction over such Borrower.  Each Borrower shall keep books and records separate from the books and records of any other Person (including any Affiliates of such Borrower) that accurately reflect all of its business affairs, transactions and the documents and other instruments that underlie or authorize all of its actions. Each Borrower shall permit officers and designated representatives of the Administrative Agent or Consultant to visit and inspect any of the properties of such Borrower (including the Plants), to examine its financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its members, managers, directors, officers and independent public accountants, all at the expense of the Borrowers at any time during normal business hours and without advance notice.

(j)   Project Documents .  Each Borrower shall use its reasonable best efforts to preserve, protect and defend its rights under each Project Document to which it is a party except where the failure to do so (i) results from the Effect of Bankruptcy, the Cold Shutdown of the Madera Plant, the Magic Valley Plant, the Stockton Plant and, after the Boardman CS Date, the Boardman Plant or (ii) could not reasonably be expected to have a Material Adverse Effect. Each Borrower shall use its reasonable best efforts to exercise all material rights, discretion and remedies under each Project Document in accordance with its terms and in a manner consistent with and subject to such Borrower’s obligations under the Financing Documents except where the failure to do so exercise such rights, discretion or remedies results from the Cases, the Cold Shutdown of the Madera Plant, the Magic Valley Plant, the Stockton Plant and, after the Boardman CS Date, the Boardman Plant.

(k)   Maintenance of Existence . Each Borrower will continue to preserve, renew and keep in full force and effect its entity status in the jurisdiction of its formation and take all actions to maintain its rights, privileges and franchises necessary or desirable in the normal course of its business.

(l)   DIP Budgets .

(m)   Preservation of Title; Acquisition of Additional Property .

(n)   Maintenance of Liens; Creation of Liens .

(i) The Borrowers shall take or cause to be taken all actions necessary or reasonably requested by the Administrative Agent for the Collateral Agent to maintain and preserve the DIP Liens and the priority thereof.

(o)   Reorganization Matters .  The Borrowers shall give, on a timely basis as specified in the Interim Order or the Final Order all notices required to be given to all parties specified in the Interim Order or Final Order.  The Borrowers shall provide to the Administrative Agent copies of all pleadings, motions, applications and other documents or information (i) filed by or on behalf of any Borrower with the Bankruptcy Court or (ii) provided to any creditors’ committee appointed in the Chapter 11 Cases.  The Borrowers shall provide the Administrative Agent with drafts of all pleadings, motions and applications to be filed by or on behalf of any Borrower at least three (3) Business Days in advance of such filing.

(p)   Professional Fees .  Promptly following receipt thereof, the Borrowers shall deliver to the Administrative Agent all monthly fee statements detailing the fees of all its professionals (including counsel and financial advisors) for such month delivered in accordance with the interim compensation procedures approved by the Bankruptcy Court.

(q)   Bank Accounts .  Each bank account of a Borrower shall at all times be (i) held as Collateral to secure the repayment and/or performance of the Obligations, (ii) held at a financial institution at which such Borrower maintains its bank accounts on the Petition Date under the terms of the Pre-Petition Financing Documents, or otherwise as selected by such Borrower from a list of approved financial institutions approved by the Required Lenders and (iii) subject to a perfected Priming Lien in favor of the Collateral Agent on behalf of the Senior Secured Parties, with all rights and remedies in respect thereto as set forth in the Orders and the other Financing Documents. No Borrower may open a new bank account or any other account at a financial institution without the prior written consent of the Required Lenders, which approval may be withheld in their sole discretion.

(r)   Monthly Meetings .  At least once per calendar month, upon request of the Administrative Agent, at mutually acceptable times (and with telephonic conferences being acceptable), the Borrower Agent shall, and shall procure that representatives of the Borrower’s professionals (including counsel and financial advisors) as may be requested by the Administrative Agent, meet together with the Administrative Agent to update the Administrative Agent on the status of the Cases and to discuss any other issues in connection therewith as may be requested by the Administrative Agent.

(s)   Further Assurances .  Upon written request of the Administrative Agent, each Borrower shall promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents (including UCC financing statements and UCC continuation statements) reasonably requested by the Administrative Agent for the purposes of ensuring the validity and legality of this Agreement or any other Financing Document and the rights of the Lenders and the Agents hereunder or thereunder and facilitating the proper exercise of rights and powers granted to the Lenders or the Agents under this Agreement or any other Financing Document.

Section 7.02   Negative Covenants .  Each Borrower agrees with each Agent and each Lender that, until the Discharge Date, each Borrower will perform the obligations set forth in this Section 7.02 applicable to it.

(a)   Restrictions on Indebtedness .  The Borrowers will not create, incur, assume or suffer to exist any Indebtedness except:

(b)   Liens .  No Borrower shall create, incur, assume or suffer to exist any Lien upon any of its property, revenues or assets (including its Equity Interests), whether now owned or hereafter acquired, except:

(c)   Permitted Investments .  The Borrowers shall not make any investments, loans or advances (whether by purchase of stocks, bonds, notes or other securities, loans, extensions of credit, advances or otherwise) except for investments (i) in Cash Equivalents, (ii) in connection with the bankruptcy of suppliers or customers of the Borrowers (provided that such investments are subject to a first priority perfected Lien in favor of the Collateral Agent) and (iii) existing on the date hereof in Subsidiaries. The Borrowers shall select Cash Equivalents having such maturities as shall cause the Project Accounts to have a cash balance as of any day sufficient to cover the transfers made from the Project Accounts on such day in accordance with this Agreement, the other Financing Documents, the Project Documents and any Additional Project Documents.

(d)   Change in Business .  No Borrower shall (i) enter into or engage in any business other than the ownership, operation (including the Cold Shutdown of the Madera Plant, the Magic Valley Plant, the Stockton Plant and, after the Boardman CS Date, the Boardman Plant), maintenance, use and financing of the Plants or the Project and all activities related thereto or (ii) change in any material respect the scope of any Plant or the Project from that which exists as of the date hereof.

(e)   Equity Issuances .  No Borrower shall issue any Equity Interests unless such Equity Interests are immediately pledged to the Collateral Agent (for the benefit of the Senior Secured Parties) on a first priority perfected basis.

(f)   Asset Dispositions .   No Borrower shall sell, lease, assign, transfer or otherwise dispose of any assets (other than Products), whether now owned or hereafter acquired, except:

(g)   Consolidation, Merger .  No Borrower will (i) directly or indirectly liquidate, wind up, terminate, reorganize (except for the Cases or pursuant to an order of the Bankruptcy Court) or dissolve (or suffer any liquidation, winding up, termination, reorganization (except for the Cases or pursuant to an order of the Bankruptcy Court) or dissolution) or otherwise wind up; or (ii) acquire (in one transaction or a series of related transactions) all or any substantial part of the assets, property or business of, or any assets that constitute a division or operating unit of, the business of any Person or otherwise merge or consolidate with or into any other Person.

(h)   Transactions with Affiliates .  No Borrower shall enter into or cause, suffer or permit to exist any arrangement or contract with any of its Affiliates or any other Person that owns, directly or indirectly, any Equity Interest in such Borrower except Affiliated Project Documents.

(i)   Accounts .  The Borrowers shall not maintain, establish or use any deposit account, securities account (as each such term is defined in the UCC) or other banking account other than the Project Accounts and any Local Account set forth on Schedule 5.29 , each of which shall be subject to a Blocked Account Agreement.  The Borrowers shall not change the name or account number of any of the Project Accounts or Local Accounts without the prior written consent of the Administrative Agent.

(j)   Subsidiaries .  Pacific Holding shall not create or acquire any Subsidiary other than Madera, Boardman, Stockton or Burley nor enter into any partnership or joint venture.  Each of Madera, Boardman, Stockton and Burley shall not create or acquire any Subsidiary or enter into any partnership or joint venture.

(k)   ERISA .  No Borrower will engage in any prohibited transactions under Section 406 of ERISA or under Section 4975 of the Code.  No Borrower will incur any obligation or liability in respect of any Plan, Multiemployer Plan or employee welfare benefit plan providing post-retirement welfare benefits (other than a plan providing continue coverage under Part 6 of Title I of ERISA) in each such case without the prior written consent of the Administrative Agent (unless the aggregate total obligations or liabilities of the Borrowers that could reasonably be expected to arise, due to no fault of the Borrowers, in connection therewith would not exceed five hundred thousand Dollars ($500,000)).

(l)   Taxes .  No Borrower shall make any election to be treated as an association taxable as a corporation for federal, state or local tax purposes.

(m)   Project Documents .  Other than changes that individually and in the aggregate could not reasonably be expected to have a Material Adverse Effect, no Borrower shall direct or consent or agree to (i) any amendment, modification, supplement, or waiver to, or (ii) any termination, repudiation, cancellation or rejection of, any Project Document to which it is a party and that is contemplated by the then-current DIP Budget without the prior written consent of the Required Lenders.  Except for collateral assignments to the Collateral Agent, no Borrower shall assign any of its rights under any Project Document to which it is a party to any Person, or consent to the assignment of any obligations under any such Project Document by any other party thereto.

(n)   Accounting Changes .  No Borrower shall make any change in (i) its accounting policies or reporting practices, except as required by GAAP or as otherwise notified to the Administrative Agent in writing (provided that the Borrowers shall provide an historical reconciliation for the prior audited period addressing any such change in accounting practices), or (ii) its Fiscal Year without the prior written consent of the Administrative Agent.

(o)   Additional Project Documents .  None of Pacific Holding or any other Borrower shall enter into any Additional Project Document that is not contemplated by the then-current DIP Budget except with the prior written approval of the Administrative Agent.

(p)   Suspension or Abandonment .  No Borrower owning a Plant shall (i) permit or suffer to exist an Event of Abandonment relating to such Plant or (ii) order or consent to any suspension of work in excess of sixty (60) days under any Project Document relating to such Plant, in each such case without the prior written approval of the Required Lenders.

(q)   Use of Proceeds; Margin Regulations .  No Borrower shall use any proceeds of any Loan other than in accordance with the provisions of Article II ( Commitments and Borrowing ) and Section 7.01(g) ( Affirmative Covenants – Use of Proceeds ) .  No Borrower shall use any part of the proceeds of any Loan to purchase or carry any Margin Stock (as defined in Regulation U) or to extend credit to others for the purpose of purchasing or carrying any Margin Stock.  No Borrower shall use the proceeds of any Loan in a manner that could violate or be inconsistent with the provisions of Regulations T, U or X.

(r)   Environmental Matters .  Except to the extent not reasonably expected to result in an Environmental Claim and in compliance with all applicable Laws, the Borrowers shall not permit (i) any underground storage tanks to be located on any property owned or leased by any Borrower, (ii) any asbestos to be contained in or form part of any building, building component, structure or office space owned by any Borrower, (iii) any polychlorinated biphenyls (PCBs) to be used or stored at any property owned by any Borrower, (iv) any other Materials of Environmental Concern to be used, stored or otherwise be present at any property owned by any Borrower, other than Materials of Environmental Concern necessary for the operation of the Project and used in accordance with Prudent Ethanol Operating Practice or (v) any other Materials of Environmental Concern to be used, stored or otherwise be present at any property owned or leased by any Borrower.

(s)   Restricted Payments .  The Borrowers shall not make any Restricted Payments except for Restricted Payments (i) among Debtors solely in accordance with the then-current DIP Budget or (ii) with the prior consent of the Required Lenders.

(t)   Commodity Hedging Arrangements .  The Borrowers shall not enter into any Commodity Hedging Arrangements.

(u)   Chapter 11 Claims .  Except for the Carve-Out, no Debtor shall incur, create, assume, suffer to exist or permit any super-priority administrative claim against such Debtor which is pari passu with or senior to the claims of the Senior Secured Parties against the Debtors, except as set forth in Section 2.09 (Super-Priority Nature of Obligations) .

(v)   DIP Budgets .  No Borrower shall make any change in the DIP Budget without the prior written consent of the Administrative Agent and the Required Lenders.

Section 7.03   Reporting Requirements .  The Borrowers will furnish to the Administrative Agent, who shall distribute copies of the following to each Lender:

(a)   on the second Business Day of each week after the date of this Agreement, an updated rolling cash flow forecast ending on the earlier of (i) thirteen (13) weeks after the week in which such cash flow forecast is delivered and (ii) the scheduled Maturity Date (each such forecast, a “ Weekly Cash Flow Forecast ”), in the same form and with the same level of detail as the then-current DIP Budget (it being understood, however, that approval of the DIP Budget by the Required Lenders shall only be required once a month in accordance with Section 7.01(l) ( Affirmative Covenants – DIP Budgets ) );

(b)   on the second Business Day of each week following the date hereof, a report setting forth, in a form and in sufficient detail satisfactory to the Administrative Agent, a comparison of actual receipts and expenses to budgeted receipts and expenses in the then-current DIP Budget for the preceding week;

(c)   as soon as available and in any event within twenty-five (25) days after the end of each calendar month, a report setting forth, in each case in a form and in sufficient detail satisfactory to the Administrative Agent, (x) balance sheets of each Borrower as of the end of such month, (y) statements of income and cash flows of each Borrower for such month, and for the period commencing at the end of the previous Fiscal Year and ending with the end of such month and (z) profit and loss statements of each Borrower for such month and for the period commencing at the end of the previous Fiscal Year and ending with the end of such month, in each case, prepared in accordance with GAAP (subject to the absence of footnote disclosures and to normal year-end adjustments). Such report shall be certified as complete and correct by an Authorized Officer of the Borrower Agent, who also shall certify for each financial covenant set forth in Section 7.02(w) ( Negative Covenants - Financial Covenants ) that the Borrowers are in full compliance with each such covenant or, if any of such certifications cannot be given, stating in reasonable detail the necessary qualifications to such certifications;

(d)   promptly upon receipt, copies of any detailed audit reports, management letters or recommendations submitted to any Borrower (or the audit or finance committee of any Borrower) by the Auditors in connection with the accounts or books of any Borrower, or any aud