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

Item 1.01.

Agreement and Plan of Merger

On June 26, 2017, Pacific Ethanol, Inc., a Delaware corporation
(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). At the closing of the proposed
transactions contemplated by the Merger Agreement, Merger Sub
will be merged with and into ICP (the Merger),
and ICP will continue as the surviving corporation of the Merger
and as a wholly-owned direct subsidiary of Central and a
wholly-owned indirect subsidiary of the Company.

Central, Merger Sub, ICP and the Sellers each made customary and
other representations, warranties and covenants for a transaction
of this type in the Merger Agreement. The consummation of the
Merger is subject to customary closing conditions. The
transaction is expected to close in July 2017.

Under the terms of the Merger Agreement, at the closing, Merger
Sub will (i) pay to the Sellers $30,000,000 in cash (the
Cash Consideration Amount) and (ii) issue to the
Sellers secured promissory notes in the aggregate principal
amount of $46,000,000 (the Seller Notes). The
principal amount of the Seller Notes will be adjusted to reflect
the results of a customary working capital adjustment. Merger Sub
may, in lieu of issuing the Seller Notes, increase the Cash
Consideration Amount by $46,000,000, in which case, such amount
shall be subject to a customary working capital adjustment. The
Seller Notes, upon issuance, will be secured by a first priority
lien on the assets of ICP and a pledge of the membership
interests of ICP.

The foregoing description of the Merger Agreement 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, a copy of
which is attached to this Current Report on Form 8-K as Exhibit
2.1.

The Merger Agreement has been attached as an exhibit to provide
investors with information regarding its terms. It is not
intended to provide any other factual information about the
Company or ICP (or any of their respective subsidiaries or
affiliates). The representations, warranties and covenants
contained in the Merger Agreement were made solely for the
purposes of the Merger Agreement and the benefit of the parties
to the Merger Agreement 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 Companys investors are
not third-party beneficiaries under the Merger Agreement. In
addition, the representations and warranties contained in the
Merger Agreement (i) were made only as of the dates specified in
the Merger Agreement, 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, which subsequent information may or may not
be fully reflected in the Companys 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 ICP or any of their respective
subsidiaries or affiliates.

Note Purchase Agreement and Consent

On June 26, 2017, 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 Companys senior secured
notes issued on December 15, 2016 (Prior Notes). Under the
terms of the Note Purchase Agreement, the Company agreed to sell
approximately $14.0 million in aggregate principal amount of its
senior secured notes (the Notes) to the Investors in a
private offering 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 are to be issued at the closing and are to mature on
December 15, 2019 (the Maturity Date). Interest on the
Notes are to 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 to be 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 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. Payments due
under the Notes will rank pari passu with the Prior Notes and
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 are to be secured by a
first-priority security interest in the Companys wholly-owned
subsidiary, PE Op. Co. to the terms of an amendment to be entered
into at the closing to an existing Security Agreement with
respect to the Prior Notes.

The transaction contemplated by the Note Purchase Agreement is
subject to satisfaction of customary and other closing
conditions. There can be no assurance that the transaction
contemplated by 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 July 25,
2017.

The foregoing description of the Note Purchase Agreement and the
Consent and the transaction 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 and Consent, copies of which are attached to this
Current Report on Form 8-K as Exhibits 10.1 and 10.2,
respectively. The Note Purchase Agreement and Consent 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 were made solely for the purposes
of the Note Purchase Agreement and the benefit of the parties to
the Note Purchase Agreement 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 Companys
investors are not third-party beneficiaries under the Note
Purchase Agreement. In addition, the representations and
warranties contained in the Note Purchase Agreement (i) were made
only as of the dates specified in the Note Purchase Agreement,
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 Note Purchase
Agreement, which subsequent information may or may not be fully
reflected in the Companys 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.

On June 27, 2017, the Company issued a press release in
connection with the announcement of the Merger and the Note
Purchase Agreement transaction, a copy of which is attached to
this Current Report on Form 8-K as Exhibit 99.1.

(d)Exhibits.

*The Agreement and Plan of Merger filed as
Exhibit 2.1 omits certain exhibits and the disclosure schedules
to the Merger Agreement to Item 601(b)(2) of Regulation S-K
promulgated by the SEC. The Company agrees to furnish on a
supplemental basis a copy of the omitted exhibits and schedules
to the SEC upon request.

to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.

EXHIBITS FILED WITH THIS REPORT

*The Agreement and Plan of Merger filed as
Exhibit 2.1 omits certain exhibits and the disclosure schedules
to the Merger Agreement

Pacific Ethanol, Inc. Exhibit
EX-2.1 2 paceth_8k-ex0201.htm AGREEMENT AND PLAN OF MERGER Exhibit 2.1     AGREEMENT AND PLAN OF MERGER   by and among   PACIFIC ETHANOL CENTRAL,…
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