Item 1.01. Entry
Into a Material Definitive Agreement.
Note Purchase Agreement and Contribution
Agreement
On December 12, 2016,
Pacific Ethanol, Inc. (the “
Company
”) entered into a Note Purchase Agreement (the “
Note Purchase Agreement
”)
with 5 accredited investors (the “
Investors
”). Under the terms of the Note Purchase Agreement, the Company
agreed to sell $55.0 million in aggregate principal amount of its senior secured notes (the “
Notes
”) to the
Investors in a private offering (the “
Note Transaction
”) for aggregate gross proceeds of 97% of the principal
amount of the Notes sold. This Current Report on Form 8-K does not constitute an offer to sell or the solicitation of an
offer to buy the Notes.
The Notes will be issued
at the closing and will mature on December 15, 2019 (the “
Maturity Date
”). Interest on the Notes will accrue
at a rate equal to (i) the greater of 1% and the three-month London Interbank Offered Rate (“
LIBOR
”), plus 7.0%
from the closing through December 14, 2017, (ii) the greater of 1% and LIBOR, plus 9% between December 15, 2017 and December 14,
2018, and (iii) the greater of 1% and LIBOR plus 11% between December 15, 2018 and the Maturity Date. The interest rate will increase
by an additional 2% per annum above the interest rate otherwise applicable upon the occurrence, and during the continuance, of
an event of default until such event of default has been cured. Interest shall be payable in cash in arrears on the 15th calendar
day of each March, June, September and December beginning on March 15, 2017. The Company is required to pay all outstanding principal
and any accrued and unpaid interest on the Notes on the Maturity Date. The Company may, at its option, prepay the Notes at any
time without premium or penalty. The Notes contain a variety of events of default which are typical for transactions of this type.
The payments due under the Notes will rank senior to all other indebtedness of the Company, other than permitted senior indebtedness.
The Notes contain a variety of obligations on the part of the Company not to engage in certain activities, which are typical for
transactions of this type, including that (i) the Company and certain of its subsidiaries will not incur other indebtedness, except
for certain permitted indebtedness, (ii) the Company and certain of its subsidiaries will not redeem, repurchase or pay any dividend
or distribution on their respective capital stock without the prior consent of the holders of the Notes holding 66-2/3% of the
aggregate principal amount of the Notes, other than certain permitted distributions, (iii) the Company and certain of its subsidiaries
will not sell, lease, assign, transfer or otherwise dispose of any assets of the Company or any such subsidiary, except for certain
permitted dispositions (including the sales of inventory or receivables in the ordinary course of business), and (iv) the Company
and certain of its subsidiaries will not issue any capital stock or membership interests for any purpose other than to pay down
a portion of all of the amounts owed under the Notes and in connection with the Company’s stock incentive plans. The Notes
will be secured by a first-priority security interest in the Company’s wholly-owned subsidiary, PE Op. Co. pursuant to the
terms of a Security Agreement to be entered into at the closing.
On December 12, 2016,
Pacific Ethanol Central, LLC (“
PE Central
”), a wholly-owned subsidiary of the Company, entered into
a Contribution Agreement (the “
Contribution Agreement
”) with Aurora Cooperative Elevator Company, a Nebraska
cooperative corporation (“
Aurora Coop
”) and Pacific Aurora, LLC, a Delaware limited liability company (“
Pacific
Aurora
”), pursuant to which (i) PE Central agreed to contribute 100% of the equity interests of its wholly-owned subsidiaries,
Pacific Ethanol Aurora East, LLC (“
AE
”) and Pacific Ethanol Aurora West, LLC (“
AW
”) (which
own the Aurora East and Aurora West ethanol plants, respectively) to Pacific Aurora in exchange for an 88.15% ownership interest
in Pacific Aurora and a certain amount in cash, and (ii) Aurora Coop agreed to contribute its elevator and related grain handling
assets located in Aurora, Nebraska, to Pacific Aurora in exchange for an 11.85% ownership interest in Pacific Aurora.
The transactions contemplated
by the Contribution Agreement and Note Purchase Agreement are expected to close simultaneously on or prior to December 31, 2016,
subject to satisfaction of customary and other closing conditions. There can be no assurance that the transactions contemplated
by the Contribution Agreement or the Note Purchase Agreement will be consummated. The Company or any Investor may terminate
the Note Purchase Agreement if the closing does not occur on or prior to January 11, 2017. PE Central or Aurora Coop may terminate
the Contribution Agreement if the closing does not occur prior to March 31, 2017, or earlier if the conditions to closing are incapable
of being satisfied.
The closing of the
transactions contemplated by the Contribution Agreement are conditioned on the closing of the transactions contemplated by the
Note Purchase Agreement, and vice versa. The closings of the transactions contemplated by both the Contribution Agreement and
the Note Purchase Agreement are also conditioned upon the simultaneous closing of (i) the transactions contemplated by the terms
of a proposed Unit Purchase Agreement to be entered into between PE Central and Aurora Coop (the “
Unit Purchase Agreement
”),
(ii) the transactions contemplated by the terms of a proposed Credit Agreement (the “
Pekin Credit Agreement
”)
to be entered into by and between Pacific Ethanol Pekin, Inc. (“
Pekin
”), 1st Farm Credit Services, PCA and
CoBank, ACB (as cash management provider and agent), and (iii) the transactions contemplated by the terms of a proposed Credit
Agreement (the “
Pacific Aurora Credit Agreement
”) by and among Pacific Aurora, AW, AE (Pacific Aurora, AW and
AE, collectively, the “
Aurora Borrowers
”) and
C
oBank, ACB.
Unit Purchase Agreement
Under the terms of
the Unit Purchase Agreement, PE Central plans to sell a 14.22% ownership interest in Pacific Aurora to Aurora Coop for $30.0 million
in cash. Following the closing of the Contribution Agreement and the Unit Purchase Agreement, PE Central will own 73.93% of Pacific
Aurora and Aurora Coop will own 26.07% of Pacific Aurora.
Pekin Credit Facility
Under the terms of
the Pekin Credit Agreement, Pekin plans to borrow from 1st Farm Credit Services, PCA $64.0 million under the terms of a term loan
facility that will mature on August 20, 2021 (the “
Pekin Term Loan
”) and $32.0 million under the terms of a
revolving term loan facility that will expire on February 1, 2022 (the “
Pekin Revolving Loan
” and, together
with the Pekin Term Loan, the “
Pekin Credit Facility
”). The Pekin Credit Facility will be secured by a first-priority
security interest in all of the assets of Pekin. Interest accrues under the Pekin Credit Facility at a rate equal to the 30-day
LIBOR plus 3.75%, payable monthly. Pekin will make quarterly principal payments in the amount of $3.5 million on the Pekin Term
Loan beginning on May 20, 2017 followed by a principal payment of $4.5 million on August 20, 2021. Pekin will pay a 0.75% per
annum fee on any unused portion of the Pekin Revolving Loan, payable monthly in arrears. Prepayment of the Pekin Credit Facility
will be subject to a prepayment penalty. Under the terms of the Pekin Credit Agreement, Pekin will be required to maintain not
less than $20.0 million in working capital and an annual debt coverage ratio of not less than 1.25. to 1.0. The Pekin Credit Agreement
contains a variety of affirmative covenants, negative covenants and events of default which are customary for transactions of
this type.
Pacific Aurora Credit Facility
Under the terms of
the Pacific Aurora Credit Agreement, Pacific Aurora plans to borrow from CoBank, ACB $30.0 million under the terms of a revolving
term loan facility that will mature on February 1, 2022 (the “
Pacific Aurora Credit Facility
”). The Aurora Facility
will be secured by a first-priority security interest in all of the assets of Aurora Borrowers. Availability under the Pacific
Aurora Credit Facility will be reduced by $2.5 million on the first day of each June and December beginning on June 1, 2017 through
and including December 1, 2020. Interest accrues under the Pacific Aurora Credit Facility at a rate equal to the 30-day LIBOR plus
4.0%, payable monthly. Pacific Aurora will pay a 0.75% per annum fee on any unused portion of the Pacific Aurora Credit Facility,
payable monthly in arrears. Prepayment of the Pacific Aurora Credit Facility will be subject a prepayment penalty. Under the terms
of the Pacific Aurora Credit Agreement, Pacific Aurora will be required to maintain not less than $22.5 million in working capital
through June 30, 2017, not less than $24.0 million in working capital after June 30, 2017, and an annual debt coverage ratio of
not less than 1.5 to 1.0. The Company will enter into a Working Capital Maintenance Agreement with CoBank, pursuant to which the
Company will agree to contribute capital to Pacific Aurora (through PE Central) from time to time to ensure that Pacific Aurora
maintains the minimum working capital thresholds required in the Pacific Aurora Credit Agreement. The Pacific Aurora Credit Agreement
contains a variety of affirmative covenants, negative covenants and events of default which are customary for transactions of this
type.
Use of Proceeds
The Company plans to use
the borrowings under the Pekin Credit Facility together with the $30.0 million received from the sale of interests under the Unit
Purchase Agreement and approximately $32.5 million of the net proceeds received under the Note Purchase Agreement to repay the
approximately $158.5 million owed under the terms of the Amended and Restated Senior Secured Term Loan Credit Agreement dated September
24, 2012 among PE Central, the lenders from time to time party thereto, and Citibank, N.A. (the “
Existing PE Central Term
Loan
”).
The description of the
Contribution Agreement and the Note Purchase Agreement does not purport to be complete and is qualified in its entirety by reference
to Contribution Agreement and the Note Purchase Agreement filed as exhibits to this Current Report on Form 8-K and incorporated
herein by reference. Readers should review those agreements for a complete understanding of the terms and conditions associated
with the transactions described in this Current Report on Form 8-K.