NEW PE HOLDCO LLC

THIS CALL OPTION AGREEMENT, (“Agreement”) dated as of June 29, 2010, is made by and among New PE Holdco LLC, a Delaware limited liability company (the “Company”), Pacific Ethanol, Inc., a Delaware corporation (“PEI”) and certain members of the Company listed on Schedule A hereto (the “Granting Members”).

WHEREAS, as of the date hereof the Company has issued limited liability company interests denominated as “Units” pursuant to the LLC Agreement (as defined below) to the Granting Members in connection with the consummation of that certain Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated April 16, 2010, filed with the United States Bankruptcy Court for the District of Delaware by the predecessors in interest to the Company’s direct and indirect wholly-owned subsidiaries;

WHEREAS, as of the date hereof and in connection with the issuance of the Units, the Company and the Granting Members, among others, have executed that certain Limited Liability Company Agreement of New PE Holdco LLC (the “LLC Agreement”);

WHEREAS, the Granting Members have agreed with PEI that PEI will have the right to acquire the Call Option Units (as defined herein) from the Granting Members at the Call Option Price (as defined herein); and

WHEREAS, the parties desire hereby to provide for the terms and conditions upon which the Call Option Units may be acquired by PEI, and the Call Option Amount shall be paid.

NOW, THEREFORE, in consideration of the agreements and mutual covenants and based upon the representations and warranties set forth herein, the parties agree as follows:

“Call Option Amount” has the meaning set forth in Section 2(a).

“Call Option Price” means $120,000 per Call Option Unit.

“Call Option” has the meaning set forth in Section 2(a).

“Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

“Transfer” means, as a noun, any voluntary or involuntary transfer, sale, pledge or hypothecation or other disposition and, as a verb, voluntarily or involuntarily to transfer, sell, pledge or hypothecate or otherwise dispose of.

 

“Transferee” has the meaning set forth in Section 7.

“Units” has the meaning set forth in the recitals hereto.

(a)   Each of the Granting Members hereby grants to PEI the right (the “Call Option”) to acquire from such Granting Member (or from its Transferee(s), if any) such number of its Units as is set forth opposite such Granting Member’s name on Schedule A hereto (as to any Granting Member, its “Call Option Units”) in exchange for payment of an amount equal to the (i) Call Option Price multiplied by (ii) the number of such Granting Member’s Call Option Units (as to each Member, such Member’s “Call Option Amount”).

(b)   PEI shall have the right, in its sole discretion, to exercise the Call Option by giving written notice to each of the Granting Members (the “Exercise Notice”) not earlier than five (5) Business Days after the date hereof and not later than ninety (90) days after the date hereof.  The Call Option will expire at 5:00 p.m. (Pacific time) on September 28, 2010.

 

(c)   The Exercise Notice shall include the number of Call Option Units that PEI intends to purchase in connection with its exercise of the Call Option (such Call Option Units, the “Purchase Units”) and the Call Option Amount payable to each Granting Member.  If the number of Purchase Units is less than all of the Call Option Units, then the Purchase Units shall be allocated on a pro rata basis among the Granting Members based upon the proportion each Granting Member’s Call Option Units bear to the total number of all Call Option Units. The Company shall make such allocations and deliver notice th ereof, and of each Granting Member’s Call Option Amount, to PEI and each Granting Member (the “Reallocation Notice”).

(d)   Upon (i) notice of exercise by PEI of the Call Option with respect to all of the Call Option Units or, if for less than all Call Option Units, upon the Company’s delivery of  the Reallocation Notice and (ii) the subsequent tender of the Call Option Amount to each Granting Member, the Granting Members shall be deemed automatically, and without the need for any certificates to be delivered to PEI, to have sold and transferred to PEI its share of the Purchase Units.

Each certificate evidencing any Call Option Units shall bear a legend in substantially the following form:

(a)   It has all requisite corporate, limited liability company, partnership or other entity power and authority to enter into this Agreement and to perform its obligations hereunder;

(b)   The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate, limited liability company, partnership or other entity action;

(c)   This Agreement has been duly authorized and validly executed by it;

(d)   Neither the execution, delivery nor performance of this Agreement will result in the imposition of any lien or encumbrance on any Call Option Unit in favor of any third party;

(e)   There is no litigation, action, suit, investigation, proceeding by or before any governmental authority or arbitrator pending or, to its knowledge, threatened against such Granting Member, which would prohibit its entering into, or that could materially and adversely affect its ability to perform its obligations under, this Agreement;

(f)   This Agreement is a binding agreement on the part of such Granting Member enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights and general principles of equity; and

(g)   Such Granting Member is the sole record and beneficial owner of its Call Option Units and owns such Call Option Units free and clear of any lien or other encumbrance created by such Granting Member, and, if such Granting Member is a Transferee, it acquired its Call Option Units as part of a Permitted Transfer pursuant to (and as defined in) the LLC Agreement.

(a)   It has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder;

(b)   The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate action;

(c)   This Agreement has been duly authorized and validly executed by it;

(d)   There is no litigation, action, suit, investigation, proceeding by or before any governmental authority or arbitrator pending or, to its knowledge, threatened against it, which would prohibit its entering into, or that could materially and adversely affect its ability to perform its obligations under, this Agreement;

(e)   This Agreement is a binding agreement on the part of PEI enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights and general principles of equity; and

(f)   It is acquiring the Call Option Units for its own account for investment purposes only and not with a view to the distribution or resale thereof, in whole or in part.

6.   Equitable Relief.  Each party hereto agrees with the other parties hereto that the other parties would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event.  Accordingly, it is agreed that, to the fullest extent permitted by law, in addition to any other remedy to which the nonbreaching parties hereto may be entitled, at law or in equity, such nonbreaching parties shall be entitled to seek injunctive relief to prevent breaches of the provisions of this Agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof.

(a)   No Granting Member may Transfer, offer to Transfer, or accept an offer from any proposed Transferee for, all or any amount of its Call Option Units to another Person (a “Transferee”) unless (i) such Transfer is a Permitted Transfer pursuant to (and as defined in) the LLC Agreement and (ii) the Transferee acknowledges and agrees in writing (y) that the Call Option Units it is acquiring are subject to the Call Option as set forth in this Agreement and (z) to be bound by this Agreement. Such acknowledgment and agreement by a Transferee shall be delivered to the Company.

(b)   Upon any Transfer of any Call Option Units to any Person in violation of Section 7(a), the Granting Member attempting such Transfer shall remain fully bound hereby.

(a)   Notices.  Any notice, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be deemed to have been delivered, given, and received for all purposes (i) if delivered personally to the Person or to an officer of the Person to whom the same is directed, or (ii) when the same is actually received, if sent either by registered or certified mail, postage and charges prepaid, or by facsimile or electronic mail, if (y) delivery by electronic mail is permitted by such Person (which it shall be, unless otherwise indicated on such Person’ ;s signature page hereto) and (z) either (A) telephonic or electronic confirmation of delivery is obtained or (B) such facsimile or electronic mail is followed by a hard copy of the communication sent promptly thereafter by registered or certified mail, postage and charges prepaid, in each case addressed as follows, or to such other address as such Person may from time to time specify by notice to the Company pursuant to this Section 13.1: (a) if to the Company, to c/o JT Miller Group LLC, 777 Campus Commons Road #200, Sacramento, CA, 95825, facsimile ###-###-####, ***@***; (b) if to PEI, to Pacific Ethanol, Inc., 400 Capitol Mall, Suite 2060, Sacramento, CA 95814 (Attention: Neil Koehler), facsimile ###-###-####; and (c) if to any of the Granting Members, to the notice address listed on such Granting Member’s signature page to this Agreement.

(b)   Amendment.  No change in or modification of this Agreement shall be valid unless the same shall be in writing and signed by the Company, each Granting Member and PEI.

(c)   Waiver.  No failure or delay on the part of the parties or any of them in exercising any right, power or privilege hereunder, nor any course of dealing between the parties or any of them shall operate as a waiver of any such right, power or privilege nor shall any single or partial exercise of any such right, power or privilege preclude the simultaneous or later exercise of any other right, power or privilege.  The rights and remedies herein expressly provided are cumulative and are not exclusive of any rights or remedies which the parties or any of them would otherwise have.  No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the other parties or any of them to take any other or further action in any circumstances without notice or demand.

(d)   Counterparts.  This Agreement may be executed in any number of counterparts with the same effect as if all of the parties hereto had signed the same document.  All counterparts shall be construed together and shall constitute one agreement.  This Agreement and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or electronic transmission (including a PDF file), shall be treated in all manner and respects as an original Agreement and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.  No party hereto shall raise the use of a facsimile machine or electronic transmission to deliver a signature or the fact that any signature was transmitted or communicated through the use of a facsimile machine or electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.

(e)   On File with the Company.  A copy of this Agreement and of all amendments hereto shall be kept on file at the Company.

(f)   GOVERNING LAW.  THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION OF THE RIGHTS AND DUTIES ARISING HEREUNDER, WITHOUT REGARD TO ITS CONFLICTS OF LAWS PROVISIONS.

(g)   Submission to Jurisdiction; Waiver of Jury Trial and Venue.

(1)   SUBMISSION TO JURISDICTION.  EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN S UCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

(2)   WAIVER OF JURY TRIAL AND VENUE.  EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (i) ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR AND (ii) ANY OBJECTION THAT SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN SECTION 8(g)(1).  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(3)   Service of Process.  Each party hereto agrees that service of process may be effectuated by mailing a copy of the summons and complaint, or other pleading, by certified mail, return receipt requested, in accordance with Section 8(a).

(h)   Termination.  This Agreement may be terminated at any time by an instrument in writing signed by the Granting Members and PEI.  This Agreement shall automatically terminate (i) at 5 p.m. (Pacific time) on September 28, 2010 if the Call Option has not been exercised prior thereto, or (ii) immediately following the completion of the purchase of the Call Option Units (including payment of the Call Option Amount to each Granting Member) if the Call Option has been exercised.

(i)   Further Assurances.  Each party agrees to execute and deliver additional documents and take other actions that another party may reasonably request for purposes of carrying out the transactions contemplated by this Agreement.

(j)   Benefit and Binding Effect.  Except as otherwise provided in this Agreement, no right under this Agreement shall be assignable and any attempted assignment in violation of this provision shall be void.  Every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective executors, administrators, heirs, successors, Transferees, and assigns.  It is understood and agreed among the parties that this Agreement and the covenants made herein are made expressly and solely for the benefit of the parties hereto, and that no other Person, other than as expressly set forth in this Section 8(j), shall be entitled or be deemed to be entitled to any benefits or rights hereunder, nor be authorized or entitled to enforce any rights, claims or remedies hereunder or by reason hereof.

(k)   Severability.  Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction.  The parties hereto agree to negotiate in good faith to replace any illegal, invalid or unenforceable provision of this Agreement with a legal, valid and enforceable provision that, to the extent possible, will pres erve the economic bargain of this Agreement.  If any time period set forth herein is held by a court of competent jurisdiction to be unenforceable, a different time period that is determined by the court to be more reasonable shall replace the unenforceable time period.

(l)   Headings; Construction.  Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof.  Every covenant, term, and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any party.  Every schedule and other addendum attached to this Agreement and referred to herein is incorporated in this Agreement by reference unless this Agreement expressly otherwise provides.  A ll terms and any variations thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the Person or Persons may require.

(m)   Time.  In computing any period of time pursuant to this Agreement, the day of the act, event or default from which the designated period of time begins to run shall not be included, but the time shall begin to run on the next succeeding day.  The last day of the period so computed shall be included, unless it is a Saturday, Sunday or legal holiday, in which event the period shall run until the end of the next day which is not a Saturday, Sunday or legal holiday.

(n)   Entire Agreement.  This Agreement contains the entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and all contemporaneous oral agreements.