Summary of PACIFIC ETHANOL, INC.

Item 1.01. Entry into a Material Definitive Agreement.

Investment by Lyles United, LLC

Securities Purchase Agreement dated March 18, 2008 between Pacific Ethanol, Inc. and Lyles United, LLC

On March 18, 2008, Pacific Ethanol, Inc. (referred to as the "Company," "we," "us" or similar terms unless the context otherwise requires) entered into a Securities Purchase Agreement (the "Purchase Agreement") with Lyles United, LLC (the "Purchaser"). The Purchase Agreement provides for the sale by the Company and the purchase by the Purchaser of (i) 2,051,282 shares of the Company's Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") at $19.50 per share, all of which would initially be convertible into an aggregate of 6,153,846 shares of the Company's common stock based on an initial three-for-one conversion ratio, and (ii) a warrant (the "Warrant") to purchase an aggregate of 3,076,923 shares of the Company's common stock at an exercise price of $7.00 per share, for an aggregate purchase price of $40 million. The Series B Preferred Stock is to be created under the Certificate of Designations described below. The transactions contemplated by the Purchase Agreement are also referred to herein as the "Pending Equity Financing."

The Purchase Agreement includes customary representations and warranties on the part of both the Company and the Purchaser and other customary terms and conditions. The closing under the Purchase Agreement is subject to numerous customary closing conditions, as well as (i) the Company shall have received any and all consents, waivers or approvals from the holders of Series A Preferred Stock (as defined below) necessary to issue and deliver the Series B Preferred Stock, the Warrant, and the related dividend shares, conversion shares and warrant shares and to consummate the transactions contemplated under the Certificate of Designations (as defined below) and the related transaction documents, (ii) the Borrower's (as defined in the Credit Agreement, as defined below, and who are indirect subsidiaries of the Company) receipt of waivers from a sufficient number of lenders party to that certain Credit Agreement, dated as of February 27, 2007 (as amended, the "Credit Agreement"), among Pacific Ethanol Madera LLC, Pacific Ethanol Columbia, LLC, Pacific Ethanol Stockton, LLC, Pacific Ethanol Magic Valley, LLC, Pacific Ethanol Holding Co. LLC and WestLB AG, New York Branch, as administrative agent, waiving all defaults under the Credit Agreement existing as of March 17, 2008, in a form substantially satisfactory to the Purchaser, (iii) after giving effect to the waivers described above, on the closing date there shall be no Defaults or Events of Default (as defined in the Credit Agreement) under the Credit Agreement, nor any defaults or events of default under any other loan agreement to which the Company or any of its affiliates are party, (iv) the filing of the Company's Form 10-K for the year ended December 31, 2007 on or prior to March 31, 2008 with an audit opinion from the Company's independent registered public accounting firm contained therein unqualified as to the Company's ability to continue as a "going concern," (v) the Company shall not have restated any of the Company's financial statements nor shall the Company have filed a Form 8-K with the Securities and Exchange Commission (the "SEC") pursuant to Item 4.02 thereunder with respect to any of the Company's financial statements filed with the SEC, (vi) no class action securities litigation shall have been commenced against the Company, and (vii) the Company's common stock shall be listed for trading on The NASDAQ Global Market. All closing conditions must be met (or waived) in full prior to April 30, 2008, otherwise the Purchaser shall not be required to proceed with the closing and the Purchase Agreement will terminate and be of no further force or effect.

In addition, the Purchase Agreement provides that the Company shall not undertake any project or series of projects involving the investment of more than $1.0 million of new capital, for the acquisition or improvement of a fixed asset which extends the life or increases the productivity of the asset, individually or in the aggregate, which is not already contemplated by the Company's cash flow projections until the Company repays an aggregate of $30.0 million in debt loaned to the Company by the Purchaser as further described below.

The Warrant is to be exercisable at any time during the period commencing on the date that is six months and one day from the date of the Warrant and ending ten years from the date of the Warrant. The form of Warrant contains customary anti-dilution provisions for stock splits, stock dividends and the like and other customary terms and conditions.

Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock

The Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock (the "Certificate of Designations") provides for 3,000,000 shares of preferred stock to be designated as Series B Cumulative Convertible Preferred Stock. The Certificate of Designations is to be filed with the State of Delaware prior to the closing of the purchase and sale of the Series B Preferred Stock (the "Closing"). The 2,051,282 shares of Series B Preferred Stock are to be issued under the Purchase Agreement at a purchase price of $19.50 per share. The Series B Preferred Stock ranks senior in liquidation and dividend preferences to the Company's common stock and on parity with respect to dividend and liquidation rights with the Company's Series A Cumulative Redeemable Convertible Preferred Stock ("Series A Preferred Stock"). Holders of Series B Preferred Stock are entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 7.00% of the purchase price per share of the Series B Preferred Stock on a pari passu basis with the holders of Series A Preferred Stock; however, subject to the provisions of the Letter Agreement described below, such dividends may, at the option of the Company, be paid in additional shares of Series B Preferred Stock based initially on the value of the purchase price per share of the Series B Preferred Stock. The holders of Series B Preferred Stock have a liquidation preference over the holders of the Company's common stock equivalent to the purchase price per share of the Series B Preferred Stock plus any accrued and unpaid dividends on the Series B Preferred Stock but on a pro rata and pari passu basis with the holders of Series A Preferred Stock. A liquidation will be deemed to occur upon the happening of customary events, including transfer of . . .

Item 2.02. Results of Operations and Financial Condition.

Form 12b-25. In the Form 12b-25 we filed today with the SEC we provided certain information regarding our presently expected results of operations for the quarter and year ended December 31, 2007 and as to our liquidity position. The information provided was as follows:

Unaudited Preliminary Results of Operations

The following results of operations are preliminary and have not been audited or otherwise reviewed by our independent auditors. The Company's final, audited results of operations could be materially different from the unaudited preliminary results of operations set forth below.

Introductory Note: Please see the information under the caption "Cautionary Statements" above which sets forth important disclosure regarding forward-looking statements contained in this Form.

Three Months Ended December 31, 2007

The Company anticipates reporting net sales of approximately $130.4 million for the fourth quarter of 2007 as compared to net sales of $80.6 million for the same period in 2006. The increase in net sales resulted primarily from an increase in the volume of ethanol sold by the Company and was partially offset by lower average sales prices. The volume of ethanol sold by the Company in the fourth quarter of 2007 increased by approximately 82% as compared to the same period in 2006 and by approximately 16% as compared to the third quarter of 2007. The Company's average sales price of ethanol decreased by $0.29 per gallon, or 13%, to $1.97 per gallon in the fourth quarter of 2007 from an average sales price of $2.26 per gallon in the same period in 2006.

The Company anticipates reporting gross profit of approximately $1.7 million for the fourth quarter of 2007 as compared to gross profit of $11.7 million for the same period in 2006. The Company anticipates reporting that its gross profit margin was approximately 1.3% for the fourth quarter of 2007 as compared to a gross profit margin of 14.6% for the same period in 2006. The decline in the Company's gross profit and gross profit margins was primarily due to a lower average sales price of ethanol, as discussed above, and significantly higher corn costs.

The Company anticipates reporting a net loss of approximately $14.7 million for the fourth quarter of 2007 as compared to a net loss of $3.1 million for the same period in 2006. The Company anticipates that its net loss will include non-cash expenses of approximately $4.4 million from interest rate derivatives related to future periods and approximately $2.0 million from write-downs of deferred financing fees associated with the Company's suspension of construction at its Imperial Valley facility near Calipatria, California. The Company also anticipates its net loss will include a gain of approximately $0.9 million from mark-to-market adjustments for commodity derivatives related to future periods.

The Company anticipates reporting loss available to common stockholders of approximately $15.8 million for the fourth quarter of 2007, net of preferred stock dividends, as compared to a loss available to common stockholders of $4.2 million for the fourth quarter of 2006.

The Company anticipates reporting a diluted net loss per common share of approximately $0.39 for the fourth quarter of 2007 as compared to a net loss per common share of $0.11 for the same period in 2006. The Company had 40.1 million weighted-average basic and diluted shares outstanding for the fourth quarter of 2007.

Year Ended December 31, 2007

The Company anticipates reporting net sales of approximately $461.5 million for the year ended December 31, 2007 as compared to net sales of $226.4 million for 2006. The increase in net sales resulted primarily from an increase in the volume of ethanol sold by the Company and was partially offset by lower average sales prices. The volume of ethanol sold by the Company in year ended December 31, 2007 increased by approximately 87% as compared to 2006. The Company's average sales price of ethanol decreased by $0.13 per gallon, or 6%, to $2.15 per gallon in the year ended December 31, 2007 from an average sales price of $2.28 per gallon in 2006.

The Company anticipates reporting gross profit of approximately $32.9 million for the year ended December 31, 2007 as compared to gross profit of $24.8 million for 2006. The Company anticipates reporting that its gross profit margin was approximately 7.1% for the year ended December 31, 2007 as compared to a gross profit margin of 11.0% for 2006. The decline in the Company's gross profit and gross profit margins were primarily due to a lower average sales price of ethanol, as discussed above, significantly higher corn costs and derivative losses from locking in margins during the year.

The Company anticipates reporting a net loss of approximately $14.4 million for the year ended December 31, 2007 as compared to a net loss of $0.1 million for 2006. The Company anticipates that its net loss will include a non-cash expense of approximately $5.4 million from interest rate derivatives related to future periods, approximately $3.0 million from mark-to-market adjustments for commodity derivatives related to future periods, approximately $2.9 million from amortization of intangible assets related to the Company's acquisition of Front Range Energy, LLC, and approximately $2.0 million from write-downs of deferred financing fees associated with the Company's suspension of construction at its Imperial Valley facility near Calipatria, California.

The Company anticipates reporting loss available to common stockholders of approximately $18.6 million for the year ended December 31, 2007, net of preferred stock dividends, as compared to a loss available to common stockholders of $87.1 million for 2006, of which $84.0 million was a non-cash deemed dividend resulting from the Company's issuance of its Series A Cumulative Redeemable Convertible Preferred Stock in the second quarter of 2006.

The Company anticipates reporting a diluted net loss per common share of approximately $0.47 for the year ended December 31, 2007 as compared to a net loss per common share of $2.50 for 2006, the latter of which included the non-cash deemed dividend described above. The Company had 39.9 million weighted-average basic and diluted shares outstanding for the year ended December 31, 2007.

Liquidity and Capital Resources

The Company presently has extremely limited liquidity and requires substantial additional financing to conduct its operations and achieve its business objectives. If the Company is unable to obtain substantial additional financing, it will be unable to achieve its business objectives, will be forced to delay or abandon the construction of one or more plants and may be forced to delay or abandon its plant expansion program in its entirety. The Company's inability to . . .

Item 8.01. Other Events.

We are aware of several events or circumstances which constitute defaults under the Credit Agreement and for which we are seeking waivers from our lenders, including:

� When filed, we expect that our Annual Report on Form 10-K will disclose the existence of a material weakness in our internal control over financial reporting due to an error our auditors discovered related to the accrual of construction-related invoices in the fourth quarter of 2007. Amounts totaling $8.2 million were incorrectly recorded in January 2008 for purposes of our internal financial statements when they should have been accrued in December 2007. The error, which constituted a material weakness, involved accruals to the CIP (construction in progress) account and corresponding accruals to current liabilities. The error affected the consolidated balance sheet only. There was no income statement or statement of cash flows effect, nor was there any impact on the construction budgets. We have instituted actions designed to remediate this material weakness. Unless waived, the Company's disclosure of any "material weakness in its internal controls" in our Annual Report on Form 10-K will be a default under the Credit Agreement.

� Pursuant to the terms of the Credit Agreement, we are generally required to deposit all revenues related to the production facilities financed under this agreement in segregated revenue accounts which are controlled by our lenders. The Credit Agreement includes specific covenants governing our use of those funds. On Wednesday, March 12, 2008, our senior management was informed that an unauthorized deviation from the Credit Agreement requirements related to the segregated revenue accounts had occurred. These actions were apparently undertaken for the purpose of optimizing our cash position but without regard to the covenants in the Credit Agreement. Our review to date has established that these actions took place beginning in August 2007. Remedial actions have been taken to rectify this control deficiency and prevent its recurrence, including the reassignment of cash management responsibilities to our chief financial officer. Since at all times the misdirected funds remained within our consolidated financial group, we do not believe that these unauthorized internal cash transfers caused our consolidated results of operations to be misstated. However, unless waived, these actions resulted in a violation of a number of covenants in the Credit Agreement and the conditions which permitted these actions to occur may involve one or more additional material weaknesses in our internal control over financial reporting. Based on the analysis completed to date, we believe that the net amount of cash which was diverted from the segregated revenue accounts to other internal uses was approximately $3.9 million as of February 29, 2008 (the "Deposit Shortfall"), which constitutes a default of the Credit Agreement.

� The Credit Agreement required that, on the date of the initial fundings for the Madera and Boardman plants, a designated debt service reserve related to the loans for such borrower should have been deposited into the debt service reserve account controlled by the lenders. This amount, $3.4 million in the aggregate (the "DSR Shortfall"), has not been deposited as required by the Credit Agreement, which constitutes a default of the Credit Agreement.

� Unless waived, the Credit Agreement limits us to no more than seven separate Eurodollar loans outstanding at any time. There are presently eight such loans outstanding.

� The Credit Agreement provides that the "final completion" of the Madera plant and Boardman plant should already have occurred. One of the conditions to "final completion" is that the borrowers pay all remaining project costs related to the construction of the particular plant. We are still in the process of negotiating final payments with our contractors. We are proposing to agree with our lenders to achieve "final completion" on or prior to May 16, 2008. As previously disclosed, both plants have been put into operation notwithstanding the failure to achieve "final completion" on time, however that failure constitutes a default of the Credit Agreement.

In connection with a proposed waiver, we are also requesting that the lenders permit us to perform certain calculations called for by the Credit Agreement on a weekly, instead of monthly, basis in order to better mach cash flow with operating requirements.

The agent bank for the Credit Agreement is aware of the foregoing and has advised us and the other lenders party to the Credit Agreement that it supports a waiver of the defaults described above. A written waiver request (the "Pending Bank Waiver") was presented to our bank lending group on March 16, 2008 and we are awaiting the approval of this waiver by the requisite lenders, representing lenders of at least a majority of the amounts committed under the Credit Agreement. If the waiver is approved, we will be obligated to pay the lenders under the Credit Agreement a consent fee in an amount that has not yet been finalized, but which we are estimating to be approximately $500,000. As of March 17, 2008, there was $129.5 million principal amount outstanding under the Credit Agreement.

We have also advised our lenders under the Credit Agreement that we will deposit the Deposit Shortfall and the DSR Shortfall, aggregating $7.3 million, in the proper accounts. Funding this payment will further significantly strain our present extremely limited liquidity position.