Item 1.01.
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Entry into a Material Definitive Agreement.
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Note Purchase Agreement—Senior
Notes
On June 26, 2017, Pacific
Ethanol, Inc., a Delaware corporation (the “
Company
”) entered into a Note Purchase Agreement (the “
Note
Purchase Agreement
”) with five accredited investors (the “
Investors
”) and a related Consent of Holders
and Amendment of Senior Secured Notes (“
Consent
”) with the Investors and the holders of the Company’s
senior secured notes issued on December 15, 2016 (“
Prior Senior Notes
”). On June 30, 2017, under the terms of
the Note Purchase Agreement, the Company sold $13,948,078 in aggregate principal amount of its senior secured notes (the “
Senior
Notes
”) to the Investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the Senior
Notes sold.
The Senior Notes will mature
on December 15, 2019 (the “
Maturity Date
”). Interest on the Senior 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 is payable in cash in arrears on the 15th calendar day of each March, June, September
and December beginning on September 15, 2017. The Company is required to pay all outstanding principal and any accrued and unpaid
interest on the Senior Notes on the Maturity Date. The Company may, at its option, prepay the Senior Notes at any time without
premium or penalty. The Senior Notes contain a variety of events of default which are typical for transactions of this type. Payments
due under the Senior Notes will rank
pari passu
with the Prior Senior Notes and senior to all other indebtedness of the
Company, other than permitted senior indebtedness.
The Senior 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 Senior Notes and Prior Senior Notes holding 66-2/3%
of the aggregate principal amount of the Senior Notes and the Prior Senior Notes, collectively, 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 Senior Notes and Prior Senior Notes
and in connection with the Company’s stock incentive plans.
The Senior Notes are secured
by a first-priority security interest in the Company’s ownership interest in its wholly-owned subsidiary, PE Op. Co., pursuant
to the terms of an amendment to an existing Security Agreement with respect to the Prior Senior Notes. The amendment was entered
into on June 30, 2017 by and among the Company, the Investors, the holders of the Prior Senior Notes and Cortland Capital Market
Services LLC, as collateral agent (the “
First Amendment
”). The First Amendment amends a Security Agreement dated
December 15, 2016 by and among the Company, the holders of the Prior Senior Notes and Cortland Capital Market Services LLC, as
collateral agent (“
Security Agreement
”).
The foregoing description
of the Note Purchase Agreement, Consent, Senior Notes, Security Agreement and the First Amendment and the transactions contemplated
thereby is only a summary, does not purport to be complete, and is qualified in its entirety by reference to the full text of the
Note Purchase Agreement, Consent, form of Senior Note, Security Agreement and First Amendment, copies of which are attached to
this Current Report on Form 8-K as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5, respectively. The Note Purchase Agreement, Consent,
form of Senior Note, Security Agreement and First Amendment have been attached as exhibits to provide investors with information
regarding their terms. They are not intended to provide any other factual information about the Company or the Investors (or any
of their respective subsidiaries or affiliates) or any other parties. The representations, warranties and covenants contained in
the Note Purchase Agreement, form of Senior Note, Security Agreement and the First Amendment were made solely for the purposes
of the Note Purchase Agreement and the benefit of the parties to those agreements and may be subject to limitations agreed upon
by the contracting parties. Certain of the representations and warranties have been made for the purposes of allocating contractual
risk between the parties to the agreement instead of establishing these matters as facts. The Company’s investors are not
third-party beneficiaries under the Note Purchase Agreement. In addition, the representations and warranties contained in the Note
Purchase Agreement, Security Agreement and the First Amendment (i) were made only as of the dates specified in the Note Purchase
Agreement, Security Agreement and the First Amendment, respectively, and (ii) in some cases are subject to qualifications with
respect to materiality, knowledge and/or other matters, including standards of materiality applicable to the contracting parties
that differ from those applicable to investors. Moreover, information concerning the subject matter of the representations and
warranties may change after the dates of the Note Purchase Agreement, Senior Notes, Security Agreement and the First Amendment
which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors
should not rely on the representations and warranties as characterizations of the actual state of facts or condition of the Company
or the Investors (or any of their respective subsidiaries or affiliates) or any other parties.
Secured Promissory Notes – ICP
Acquisition
On June 26, 2017, the Company,
through its wholly-owned direct subsidiary Pacific Ethanol Central, LLC, a Delaware limited liability company (“
Central
”)
and ICP Merger Sub, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Central (“
Merger
Sub
”), entered into an Agreement and Plan of Merger (the “
Merger Agreement
”) with Illinois Corn Processing
LLC (“
ICP
”), Illinois Corn Processing Holdings Inc. (“
ICPH
”) and MGPI Processing, Inc. (“
MGPI
”,
and together with ICPH, the “
Sellers
”). On July 3, 2017, the transactions contemplated by the Merger Agreement
were consummated and Merger Sub was merged with and into ICP (the “
Merger
”), with ICP surviving the Merger (the
“
Surviving Company
”) as a wholly-owned direct subsidiary of Central and a wholly-owned indirect subsidiary of
the Company.
At the closing of the Merger,
on July 3, 2017, Merger Sub issued to the Sellers secured promissory notes in the aggregate principal amount of $46,694,652 (the
“
Seller Notes
”). Central and the Surviving Company are also a party to the Seller Notes. The principal amount
of the Seller Notes issued at closing included an upward estimated working capital adjustment of an aggregate of $694,652 and is
subject to further upward or downward adjustment based on the final determination of a customary working capital adjustment under
the terms of the Merger Agreement. The Seller Notes will mature on January 3, 2019 (the “
Maturity Date
”). Interest
on the outstanding principal amount of the Seller Notes will accrue at a rate equal to (i) the three-month LIBOR plus 5.0% from
July 3, 2017 through October 3, 2017, (ii) LIBOR plus 8% between October 4, 2017 and July 3, 2018, and (iii) LIBOR plus 10% between
July 4, 2018 and the Maturity Date. Upon the occurrence, and during the continuance, of an event of default, interest will accrue
on the outstanding principal and overdue interest on the Seller Notes at a rate equal to 2% per annum above the interest rate otherwise
applicable. All outstanding principal and accrued interest on the Seller Notes will be payable on the Maturity Date. All outstanding
principal and accrued interest shall be payable on demand upon the occurrence, and during the continuance, of an event of default.
The Seller Notes may be prepaid, at the option of the Surviving Company, without premium or penalty, at any time. The Surviving
Company is obligated to prepay the Seller Notes with any net cash proceeds received by the Surviving Company in excess of $1,000,000
over the term of the Seller Notes from the sale, assignment, lease or other transfer of any of the Surviving Company’s assets.
The Surviving Company is also required to prepay the Seller Notes with of any net cash proceeds in excess of $30,000,000 from insurance,
condemnation awards or other compensation in respect of one or more casualty events involving any of the Surviving Company’s
properties. The Seller Notes contain a variety of events of default which are typical for transactions of this type.
The payments due under
the Seller Notes will rank senior to all other indebtedness of the Surviving Company. The Seller Notes contain a variety of obligations
on the part of the Surviving Company not to engage in certain activities, which are typical for transactions of this type, including
that the Surviving Company will not incur other indebtedness, except for certain permitted indebtedness.
The Seller Notes are secured
by a first priority lien on the assets of the Surviving Company and a pledge of the membership interests of the Surviving Company
by Central.
The description of the
Merger Agreement and Seller Notes included in this Report and the transactions contemplated thereby is only a summary, does not
purport to be complete, and is qualified in its entirety by reference to the full text of the Merger Agreement and the Seller Notes,
copies of which are attached to this Current Report on Form 8-K as Exhibits 2.1, 10.6 and 10.7, respectively. The Merger Agreement
and the Seller Notes have been attached as exhibits to provide investors with information regarding their terms. It is not intended
to provide any other factual information about the Company (or any of its subsidiaries or affiliates). The representations, warranties
and covenants contained in the Merger Agreement and the Seller Notes were made solely for the purposes of the transactions contemplated
thereby and for the benefit of the parties thereto and may be subject to limitations agreed upon by the contracting parties. Certain
of the representations and warranties have been made for the purposes of allocating contractual risk between the parties to the
agreement instead of establishing these matters as facts. The Company’s investors are not third-party beneficiaries under
the Merger Agreement or the Seller Notes. In addition, the representations and warranties contained in the Merger Agreement and
the Seller Notes (i) were made only as of the dates specified in each such document, and (ii) in some cases are subject to qualifications
with respect to materiality, knowledge and/or other matters, including standards of materiality applicable to the contracting parties
that differ from those applicable to investors. Moreover, information concerning the subject matter of the representations and
warranties may change after the date of the Merger Agreement and the Seller Notes, which subsequent information may or may not
be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations and
warranties as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates.