PACIFIC ETHANOL, INC. (NASDAQ:PEIX) Files An 8-K Entry into a Material Definitive Agreement

PACIFIC ETHANOL, INC. (NASDAQ:PEIX) Files An 8-K Entry into a Material Definitive Agreement

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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
Form8-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
Companys stock incentive plans. The Notes will be secured by a
first-priority security interest in the Companys wholly-owned
subsidiary, PE Op. Co. 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), 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
CoBank, 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, 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.

Item 9.01.Financial Statements and Exhibits.

(d)Exhibits.

Number Description
10.1 Contribution Agreement, dated December 12, 2016, by and among
Pacific Ethanol Central, LLC, Aurora Cooperative Elevator
Company and Pacific Aurora, LLC. (#)
10.2 Note Purchase Agreement, dated December 12, 2016, by and
between Pacific Ethanol, Inc. and the Investors. (#)
99.1 Press Release dated December 12, 2016

_______________ (#) Certain of the agreements filed as exhibits
to this report contain representations and warranties made by the
parties thereto. The assertions embodied in such representations
and warranties are not necessarily assertions of fact, but a
mechanism for the parties to allocate risk. Accordingly,
investors should not rely on the representations and warranties
as characterizations of the actual state of facts or for any
other purpose at the time they were made or otherwise.


About PACIFIC ETHANOL, INC. (NASDAQ:PEIX)

Pacific Ethanol, Inc. is a producer and marketer of low-carbon renewable fuels in the United States. The Company’s segments include a production segment and a marketing segment. It owns and operates over eight ethanol production facilities at which it produces ethanol and co-products. It produces ethanol co-products, including wet distiller’s grains, dry distillers’ grains with soluble, wet and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, corn oil, distillers yeast and carbon dioxide. It markets distiller’s grains and other feed co-products to dairies and feedlots in various cases located near its ethanol plants. Approximately four of its plants are in the Western states of California, Oregon and Idaho, or the Pacific Ethanol West plants; and over four of its plants are located in the Midwestern states of Illinois and Nebraska, or the Pacific Ethanol Central plants. Its plants have ethanol production capacity of over 515 million gallons per year.

PACIFIC ETHANOL, INC. (NASDAQ:PEIX) Recent Trading Information

PACIFIC ETHANOL, INC. (NASDAQ:PEIX) closed its last trading session up +0.08 at 9.73 with 1,661,235 shares trading hands.

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