Item
1.01 Entry into a Material Definitive Agreement.
Underwritten Public Offering of Common
Stock and Pre-Funded Warrants
Underwriting Agreement
On October 26, 2020,
Pacific Ethanol, Inc. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”)
with Guggenheim Securities, LLC, as sole book-running manager, and Craig-Hallum Capital Group LLC and H.C. Wainwright & Co.,
LLC, as co-managers (collectively, the “Underwriters”), relating to the issuance and sale in an underwritten public
offering (the “Offering”) by the Company of (i) 5,075,000 shares (the “Common Shares”) of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), at a public offering price of $8.42 per share, and (ii)
pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 3,825,493 shares of Common Stock at a public offering
price of $8.4199 per Pre-Funded Warrant for total gross proceeds of approximately $75 million.
The Underwriting Agreement
contains customary representations, warranties, covenants and agreements by the Company, indemnification obligations of the Company
and the Underwriters, including for liabilities under the Securities Act of 1933, as amended (the “Securities Act”),
other obligations of the parties and termination provisions. The representations, warranties and covenants contained in the Underwriting
Agreement were made only for the purposes of such agreement and as of specific dates, were solely for the benefit of the parties
to such agreement and may be subject to limitations agreed upon by the contracting parties.
In addition, pursuant
to the terms of the Underwriting Agreement, the Company and its executive officers and directors have entered into agreements providing
that the Company and each of these persons may not, without the prior written approval of the Underwriters, subject to limited
exceptions, offer, sell, transfer or otherwise dispose of the Company’s securities for a period of 90 days (and for a certain
executive officer who owns, or beneficially owns, an aggregate of 60,639 shares of common stock, 30 days) following the date of
the final Prospectus Supplement (as defined below) filed by the Company with the Securities and Exchange Commission (the “SEC”)
in connection with the Offering. Notwithstanding the foregoing, beginning on a date that is 30 days after the date of the Prospectus
Supplement, a certain executive officer may exercise or exchange any option or warrant to acquire shares of Common Stock or options
to purchase shares of Common Stock, in each case for cash or on a “cashless” or “net exercise” basis, pursuant
to any stock option, stock bonus or other stock plan or arrangement described or incorporated by reference in the Registration
Statement (as defined below) of which the Prospectus Supplement forms a part; provided, however, that the underlying shares of
Common Stock shall continue to be subject to the restrictions on transfer set forth in that lock-up agreement and that no filing
by any party under the Securities Exchange Act of 1934, as amended, or other public announcement shall be required or shall be
made voluntarily in connection with such distribution.
The foregoing summary
of the Underwriting Agreement does not purport to be complete and is qualified in its entirety by the Underwriting Agreement, which
is filed as Exhibit 1.1 to this Current Report on Form 8-K and incorporated herein by this reference.
The Offering
The Common Shares and
Pre-Funded Warrants are being issued and sold pursuant to an effective registration statement on Form S-3 (Registration No. 333-238939)
(as amended to date, the “Registration Statement”) and a prospectus supplement dated October 26, 2020 filed with the
SEC pursuant to Rule 424(b) of the Securities Act (the “Prospectus Supplement”).
The Offering is expected
to close on October 28, 2020, subject to the satisfaction of customary closing conditions. The net proceeds to the Company from
the Offering are expected to be approximately $70 million, excluding any exercise of the Pre-Funded Warrants issued in connection
with the Offering and any exercise of the Series A Warrants (as defined below) issued in connection with the concurrent Private
Placement (as defined below), after deducting underwriting discounts and commissions and other estimated offering expenses payable
by the Company. The Company expects to use a portion of the net proceeds to repay a portion of its indebtedness under some or all
of the following credit facilities: (i) the term loan credit facility entered into by its subsidiary Pacific Ethanol Pekin, LLC
(“PE Pekin”) with 1st Farm Credit Services, PCA and CoBank, ACB (“CoBank”), which matures on
August 20, 2021 and bears interest at a rate per annum equal to the 30-day LIBOR plus 5.75%, (ii) the revolving credit facility
entered into by PE Pekin with CoBank, which matures on February 1, 2022 and bears interest at a rate per annum equal to the 30-day
LIBOR plus 5.75%, (iii) the term loan credit facility entered into by its subsidiary Illinois Corn Processing, LLC (“ICP”)
with Compeer Financial, PCA and CoBank, which matures on September 1, 2021 and bears interest at a rate per annum equal to the
30-day LIBOR plus 3.75%, (iv) the revolving credit facility entered into by ICP with CoBank, which matures on September 1, 2021
and bears interest at a rate per annum equal to the 30-day LIBOR plus 3.75%, and (v) the Company’s senior secured notes,
which mature on December 15, 2021 and bear interest at a rate per annum equal to 15.0%. The Company intends to use the remaining
net proceeds for working capital needs, capital expenditures, acquisitions and other general corporate purposes.
Form of Pre-Funded Warrant
The Pre-Funded Warrants
are being offered at $8.4199 per Pre-Funded Warrant and have an exercise price of $0.0001 per share, which is subject to adjustment
in the event of certain stock dividends, stock splits, reorganizations or similar events affecting the Common Stock and the exercise
price. Each Pre-Funded Warrant is exercisable at any time and from time to time after issuance and expires five years after the
date of issuance. In the event of certain corporate transactions, the holders of the Pre-Funded Warrants will be entitled to receive,
upon exercise of the Pre-Funded Warrants, the kind and amount of securities, cash or other property that the holders would have
received had they exercised the Pre-Funded Warrants immediately prior to such transaction.
In lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the aggregate exercise price, the
holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined
according to a formula set forth in the Pre-Funded Warrants if at the time of exercise the Registration Statement or prospectus
supplement and accompanying prospectus is not available for use for the issuance of all of the shares of Common Stock issuable
upon exercise of the Pre-Funded Warrant. The Pre-Funded Warrants do not contain voting rights or any of the other rights or privileges
of a holder of Common Stock.
The foregoing summary
of the Pre-Funded Warrants does not purport to be complete and is qualified in its entirety by the form of Pre-Funded Warrant,
which is filed as Exhibit 4.1 to this Current Report on Form 8-K and incorporated herein by this reference.
Private Placement
Securities Purchase Agreement
On October 26, 2020,
in connection with the Offering the Company also entered into a securities purchase agreement (the “Purchase Agreement”)
with the institutional investor party thereto for the sale by the Company in a private placement concurrent with the Offering (the
“Private Placement”) of a Series A Warrant (the “Series A Warrant”) to purchase up to 8,900,493 shares
(the “Series A Warrant Shares”) of the Company’s Common Stock at a purchase price per Series A Warrant Share
of $0.00654250 for total gross proceeds of approximately $58,000.
The Purchase Agreement
contains customary representations, warranties and covenants by the Company, customary conditions to closing, indemnification obligations
of the Company, other obligations of the parties and termination provisions. The representations, warranties and covenants contained
in the Purchase Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of
the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
The foregoing summary
of the Purchase Agreement does not purport to be complete and is qualified in its entirety by the Purchase Agreement, which is
filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by this reference.
Form of Series A Warrant
The
Series A Warrant is exercisable for up to 8,900,493 shares of Common Stock at an exercise price of $9.757 per share, is exercisable
beginning six months after the date of issuance and will expire 18-months after the date of issuance. The exercise
price and number of Series A Warrant Shares issuable upon exercise of the Series A Warrants is subject to adjustment in the event
of any stock dividend and split, reverse stock split, recapitalization, reorganization or similar transaction, as described in
the Series A Warrant.
A holder of
Series A Warrants has the right to exercise the Series A Warrants on a cashless basis in certain circumstances as described
in the Series A Warrants, including, among others, if at any time after 30 days after the closing date of the Private
Placement there is no effective registration statement registering the resale of the Series A Warrant Shares. The Company may
also require a holder of Series A Warrants to exercise the Series A Warrants on a cashless basis. Subject to limited
exceptions, a holder of Series A Warrants will not have the right to exercise any portion of its Series A Warrants if the
holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, up to
9.99%). Any increase in the beneficial ownership limitation shall not be effective until 61 days following notice of such
change to the Company. In addition, in certain circumstances, upon a fundamental transaction, the holder will have the right
to require the Company to repurchase its Series A Warrants at the Black Scholes value.
The foregoing summary
of the Series A Warrant does not purport to be complete and is qualified in its entirety by the form of Series A Warrant, which
is filed as Exhibit 4.2 to this Current Report on Form 8-K and incorporated herein by this reference.
Form of Registration Rights
Agreement
In connection with
the Private Placement, the Company also expects to enter into a registration rights agreement (the “Registration Rights Agreement”)
at the closing of the Private Placement pursuant to which, among other things, the Company will prepare and file with the SEC a
registration statement to register for resale the Series A Warrant Shares.
The Series A Warrant
and Series A Warrant Shares issued in the Private Placement have not been registered under the Securities Act and until so registered
the Series A Warrant and Series A Warrant Shares may not be offered or sold absent registration or availability of an applicable
exemption from registration.
The foregoing
summary of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by the form of
Registration Rights Agreement, which is filed as Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by
this reference.
The closing of the Private Placement
is expected to take place on October 28, 2020.