Exhibit 10.3

 

THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO AN EXEMPTION.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTION 8 HEREOF.

 

Pacific Ethanol, Inc.

 

Senior Secured Note

 

Note No.: J17-[_]

 

Issuance Date: June 30, 2017 $[__________]

 

FOR VALUE RECEIVED, Pacific Ethanol, Inc., a Delaware corporation (the
“Company”), hereby promises to pay to the order of [____________________] or its
registered assigns (“Holder”) the amount set out above (as reduced pursuant to
the terms hereof pursuant to redemption or otherwise, the “Principal”) when due,
whether upon the Maturity Date, acceleration, redemption or otherwise (in each
case in accordance with the terms hereof) and to pay interest (“Interest”) on
any outstanding Principal (as defined above) at the applicable Interest Rate (as
defined below) from the date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon the Maturity Date,
acceleration, redemption or otherwise (in each case in accordance with the terms
hereof). This Senior Secured Note (including all Senior Secured Notes issued in
exchange, transfer or replacement hereof, this “Note”) is one of an issue of
Senior Secured Notes issued pursuant to the Additional Purchase Agreement (as
defined below) on the Issuance Date (collectively, the “Additional Notes”, and
together with the Initial Notes (as defined below), the “Notes”, and such other
Senior Secured Notes issued pursuant to the Additional Purchase Agreement on the
Issuance Date, together with the Initial Notes, the “Other Notes”). Certain
capitalized terms used herein are defined in Section 19.

 

THE OBLIGATIONS DUE UNDER THIS SENIOR SECURED NOTE ARE SECURED BY A SECURITY
AGREEMENT (AS AMENDED, THE “SECURITY AGREEMENT”) DATED AS OF DECEMBER 15, 2016
AND EXECUTED BY THE COMPANY FOR THE BENEFIT OF THE HOLDER. ADDITIONAL RIGHTS OF
THE HOLDER ARE SET FORTH IN THE SECURITY AGREEMENT.

 

 

 

 

 

 

 

 

 

 

 1 

 

 

1.           PAYMENTS OF PRINCIPAL.

 

1.1              On the Maturity Date, the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, all accrued and unpaid
Interest and accrued and all other unpaid amounts hereunder. Any such payment
shall be applied pro rata to the Note and the Other Notes in accordance with the
respective Principal amounts thereof.

 

1.2              The Company may, at its sole option, at any time prepay this
Note, without premium or penalty, in whole or in part, on one (1) Business Day’s
prior written notice to the Holder, at a prepayment price equal to the amount of
outstanding Principal so to be prepaid, together with accrued and unpaid
Interest on such Principal, if any, through the date of such prepayment. Any
such payment shall be applied pro rata to the Note and the Other Notes in
accordance with the respective Principal amounts thereof.

 

2.           INTEREST; INTEREST RATE. Interest on this Note shall accrue at the
applicable Interest Rate and shall commence accruing on the Issuance Date and
Interest shall be computed on the basis of a 360-day year and twelve 30-day
months and shall be payable in cash to the record Holder in arrears on March 15,
June 15, September 15 and December 15 of each calendar year, beginning with
September 15, 2017 and ending on the repayment of the Note. From and after the
occurrence and during the continuance of any Event of Default, the applicable
Interest Rate shall automatically be increased by two percent (2%) per annum
above the Interest Rate otherwise applicable in accordance with the terms
hereof, and all such interest shall be payable on demand. In the event that such
Event of Default is subsequently cured, the adjustment referred to in the
preceding sentence shall cease to be effective as of the date of such cure,
provided that the Interest as calculated and unpaid at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of such cure of such Event of Default.

 

3.           RIGHTS UPON EVENT OF DEFAULT.

 

3.1              Event of Default. Each of the following events shall constitute
an “Event of Default”:

 

(a)               the Company’s failure to pay to the Holder any amount of
Principal, Interest, or other amounts when and as due under this Note, the
Security Agreement or the Additional Purchase Agreement, except, in the case of
a failure to pay Interest or other non-Principal amounts when and as due, in
which case only if such failure remains uncured for a period of at least five
(5) days;

 

(b)               bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary by a third party, shall not be dismissed within sixty
(60) days of their initiation;

 

(c)               the commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a UCC foreclosure sale or any other similar action under federal, state
or foreign law or of any substantial part of the Company’s property or any
substantial part of any Subsidiary’s property;

 

(d)               the entry by a court of (i) a decree, order, judgment or other
similar document in respect of the Company or any Subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking liquidation, reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Subsidiary under any applicable federal,
state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other
similar document or any such other decree, order, judgment or other similar
document unstayed and in effect for a period of thirty (30) consecutive days;

 

 

 

 2 

 

 

(e)                a final judgment, judgments, any arbitration or mediation
award or any settlement of any litigation or any other satisfaction of any claim
made by any Person pursuant to any litigation, as applicable, (each a
“Judgment”, and collectively, the “Judgments”) with respect to the payment of
cash, securities and/or other assets with an aggregate fair market value in
excess of $2,000,000 are rendered against, agreed to or otherwise accepted by,
the Company and/or any of its Subsidiaries and which Judgments are not, within
thirty (30) days after the entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within thirty (30) days after the expiration of
such stay; provided, however, that any Judgment which is covered by insurance or
an indemnity from a credit worthy party shall not be included in calculating the
$2,000,000 amount set forth above so long as the Company provides the Holder
written evidence of such insurance coverage or indemnity (which evidence shall
be reasonably satisfactory to the Holder) to the effect that such Judgment is
covered by insurance or an indemnity and the Company or such Subsidiary (as the
case may be) will receive the proceeds of such insurance or indemnity prior to
the later of (i) thirty (30) days after the issuance of such Judgment or
(ii) any requirement to pay such Judgment;

 

(f)                the Company and/or any Subsidiary, individually or in the
aggregate, fails to pay, when due, or within any applicable grace period, any
payment with respect to any Indebtedness in excess of $2,000,000 due to any
third party or is otherwise in breach or violation of any agreement for monies
owed or owing in an amount in excess of $2,000,000, which breach or violation
results in the acceleration of amounts due thereunder or permits the other party
thereto to accelerate amounts due thereunder;

 

(g)               any breach or failure in any respect by the Company to comply
with any provision of this Note or any other Transaction Document for thirty
(30) days after delivery to the Company of notice of such breach or failure by
or on behalf of a Secured Party (as defined in the Security Agreement) or the
Agent (as defined in the Security Agreement) or thirty (30) days after an
officer of the Company has knowledge of such breach or failure, unless such
default is capable of cure but cannot be cured within such time frame and the
Company is using best efforts to cure the same in a timely manner;

 

(h)               any Material Adverse Change occurs (other than any Excluded
Event) and is not otherwise cured within thirty (30) days of written notice
thereof by the Required Holders;

 

(i)                 any provision of any Transaction Document (shall at any time
for any reason (other than pursuant to the express terms thereof) cease to be
valid and binding on or enforceable against the parties thereto, or the validity
or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Company or any Subsidiary or any
governmental authority having jurisdiction over any of them, seeking to
establish the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or obligation
purported to be created under any Transaction Document to which it is a party,
or any Lien created by the Security Agreement ceases to be enforceable and of
the same effect and priority purported to be created thereby, other than as
expressly permitted thereunder or thereunder;

 

(j)                 any Fundamental Transaction occurs without the written
consent of the Required Holders;

 

(k)               any Event of Default (as defined in the Security Agreement)
occurs with respect to the Security Agreement;

 

(l)                 any Event of Default (as defined in the Other Notes) occurs
with respect to any Other Notes;

 

(m)             any representation, warranty, certification or other statement
of fact made or deemed made by or on behalf of the Company herein or in any
other Transaction Document proves to have been false or misleading in any
material respect on or as of the date made or deemed made; or

 

(n)               any Subordinated Indebtedness cease for any reason to be
validly subordinated to the Indebtedness evidenced by this Note, or the Company,
any Subsidiary or any holder thereof (or its trustee or agent) so asserts.

Upon the occurrence of an Event of Default with respect to this Note or any
Other Note, the Company shall promptly deliver written notice thereof via
facsimile and overnight courier (with next day delivery specified) (an “Event of
Default Notice”) to the Holder.

 

Notwithstanding anything to the contrary set forth above or elsewhere herein,
the following Indebtedness and obligations, and any defaults with respect
thereto, shall not constitute an Event of Default under Section 3.1(f) above:
(i) any payments contested by the Company and/or such Subsidiary (as the case
may be) in good faith by proper proceedings and with respect to which adequate
reserves have been set aside for the payment thereof in accordance with GAAP
and, with respect to any subsidiary, such default is otherwise resolved in a
manner which does not result in a Material Adverse Change; and (ii) with respect
to any Subsidiary, any default with respect to a non-recourse obligation and
such default does not otherwise result in a Material Adverse Change.

 

 

 

 3 

 

 

3.2              If an Event of Default (other than an Event of Default
specified in Section 3.1(b), (c) or (d) above) occurs, then the Holder may, by
written notice to the Company, declare this Note to be forthwith due and
payable, as to Principal, Interest and any other amounts due hereunder,
whereupon this Note shall become forthwith due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Company. If any Event of Default specified in Section 3.1(b), (c)
or (d) above occurs, the Principal of and accrued Interest on this Note shall
automatically forthwith become due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Company.

 

3.3              If any Event of Default occurs and is continuing, the Holder
may pursue any available remedy to collect the payment of Principal, Interest
and any other amounts due under this Note or to enforce the performance of any
provision of this Note. If an Event of Default occurs and is continuing, the
holder of this Note may proceed to protect and enforce its rights by an action
at law, suit in equity or other appropriate proceeding. No course of dealing and
no delay on the part of the holder of this Note in exercising any right, power
or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s
rights, powers or remedies. No right, power or remedy conferred by this Note
upon the holder hereof shall be exclusive of any other right, power or remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.

 

4.           NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its certificate of incorporation, bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.

 

5.           COVENANTS. Until all of the Notes have been redeemed or otherwise
satisfied in accordance with their terms:

 

5.1              Rank. All payments due under this Note (a) shall rank
pari passu with all Other Notes and (b) shall be senior to all other
Indebtedness of the Company (excluding any other Permitted Indebtedness of the
Company).

 

5.2              Incurrence of Indebtedness. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness (other than
(i) the Indebtedness evidenced by this Note and the Other Notes and
(ii) Permitted Indebtedness).

 

5.3              Existence of Liens. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, allow or
suffer to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets owned by the Company or any of its
Subsidiaries (collectively, “Liens”) other than Permitted Liens.

 

5.4              Restricted Payments. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Indebtedness (other than Permitted Payments with respect to any Permitted
Indebtedness), whether by way of payment in respect of principal of (or premium,
if any) or interest on, such Indebtedness if at the time such payment is due or
is otherwise made or, after giving effect to such payment, (i) an event
constituting an Event of Default has occurred and is continuing or (ii) an event
that with the passage of time and without being cured would constitute an Event
of Default has occurred and is continuing.

 

5.5              Restriction on Redemption and Cash Dividends. Except for any
Permitted Distributions, the Company shall not, and the Company shall cause each
of its Subsidiaries to not, directly or indirectly, redeem, repurchase or pay
any cash dividend or distribution on any of its capital stock without the prior
express written consent of the Required Holders.

 

5.6              Restriction on Transfer of Assets. The Company shall not, and
the Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, convey or otherwise dispose of any
assets or rights of the Company or any Subsidiary owned or hereafter acquired
whether in a single transaction or a series of related transactions, other than
(i) sales, leases, licenses, assignments, transfers, conveyances and other
dispositions of such assets or rights by the Company and its Subsidiaries that
are in the ordinary course of their respective businesses and, after giving
effect thereto, would not result in a Material Adverse Change, (ii) sales of
product, inventory or receivables in the ordinary course of business, or
(iii) Permitted Payments.

 

 

 

 4 

 

 

5.7              Change in Nature of Business. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
engage in any material line of business substantially different from those lines
of business conducted by the Company and each of its Subsidiaries on the
Issuance Date or any business substantially related or incidental thereto. The
Company shall not, and the Company shall cause each of its Subsidiaries to not,
directly or indirectly, modify its or their corporate structure or purpose in
any material respect.

 

5.8              Preservation of Existence, Etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, its
existence, rights and privileges, and become or remain, and cause each of its
Subsidiaries to become or remain, duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.

 

5.9              Maintenance of Properties, Etc. The Company shall maintain and
preserve in all material respects, and cause each of its Subsidiaries to
maintain and preserve in all material respects, all of its properties which are
necessary or useful in the proper conduct of its business in good working order
and condition, ordinary wear and tear excepted, and comply, and cause each of
its Subsidiaries to comply, at all times with the provisions of all material
leases to which it is a party as lessee or under which it occupies property, so
as to prevent any material loss or forfeiture thereof or thereunder.

 

5.10            Maintenance of Insurance. The Company shall maintain, and cause
each of its Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with respect to its properties (including all real properties leased
or owned by it) and business, in such amounts and covering such risks as is
required by any governmental authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated.

 

5.11            Equity Issuances. The Company shall not, and the Company shall
cause each of its applicable Subsidiaries to not, issue additional capital stock
or membership interests, as the case may be, for any purpose other than (i) to
pay down a portion or all of the amounts owned under the Notes, and (ii) shares
of the Company’s Common Stock issued to directors, officers or employees of the
Company or its Subsidiaries (including the Excluded Subsidiaries) in their
capacity as such pursuant to the Company’s stock incentive plans.

 

5.12            Investments in Subsidiaries. Except for any Permitted
Investments, the Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, lend money or credit (by way of
guarantee or otherwise) or make advances to any Excluded Subsidiary.

 

5.13            Delivery of Financial Statements; Information. If the Company is
no longer required to file with the Securities and Exchange Commission (the
“SEC”) quarterly and annual reports, including financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, so
long as any Principal or Interest is outstanding under this Note, the Company
shall furnish to the Holder such reports within 15 days after it would be
required to file them with the SEC in substantially the form as would be
required to file with the SEC if it were required to do so. The Company shall
furnish such other information respecting the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company and
its subsidiaries as the Holder may reasonably request.

 

5.14            Transactions with Affiliates. The Company shall not, and the
Company shall cause each of its Subsidiaries not to, directly or indirectly,
enter into or be a party to any transaction, including any purchase, sale,
lease, exchange or transfer of property, the rendering of any service or the
payment of any management, advisory or similar fees, with any Affiliate (other
than the Holder or holders of any Other Notes and their respective Affiliates)
unless such transaction is on fair and reasonable terms and conditions no less
favorable to Company or the relevant Subsidiary, as the case may be, than those
that would have been obtained in a comparable transaction on an arm’s length
basis from an unrelated Person.

 

6.           AMENDING THE TERMS OF THIS NOTE. No provision of this Note may be
modified or amended without the prior written consent of the Required Holders
and the Company and upon such due modification or amendment, such modification
or amendment shall apply to the Note and all of the Other Notes; provided,
however, that (a) no such modification or amendment shall, without the consent
of the Holder hereunder, change the stated maturity date of this Note, or reduce
the principal amount hereof, or reduce the rate or extend the time of payment of
any interest hereon, or reduce any amount payable on redemption or prepayment
hereof, impair or affect the right of the Holder to receive payment of principal
of, and interest on, the Notes or to institute suit for payment thereof, or
impair or affect the right of the Holder to receive any other payment provided
for under this Note, or change the definition of Required Holders, or change the
pro rata sharing provisions of this Note and (b) the Holder hereunder may waive,
reduce or excuse, or forbear from the exercise of any rights and remedies with
respect to, any Event of Default under this Note without notice to or the
consent of any holder of any of the Other Notes.

 

 

 

 5 

 

 

7.           TRANSFER. This Note may be offered, sold, assigned or transferred
by the Holder in whole or in part, subject only to the provisions of the
restrictive legend set forth at the top of the first page of this Note; provided
that, so long as no Event of Default has occurred and is continuing, any such
sale, assignment or transfer shall be subject to the prior written consent of
the Company, which consent shall not be unreasonably withheld, delayed or
conditioned; provided, further, that any partial offer, sale, assignment or
transfer of this Note shall be in a principal amount not less than $500,000.

 

8.           REISSUANCE OF THIS NOTE.

 

8.1              Transfer. If this Note is to be transferred as permitted under
Section 7 above, the Holder shall surrender this Note to the Company, whereupon
the Company will forthwith issue and deliver upon the order of the Holder a new
Note (in accordance with Section 8.3), registered as the Holder may request.

 

8.2              Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 8.3)
representing the outstanding Principal.

 

8.3              Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding, (iii) shall have an issuance
date, as indicated on the face of such new Note, which is the same as the
Issuance Date of this Note, (iv) shall have the same rights and conditions as
this Note, and (v) shall represent accrued and unpaid Interest on the Principal
and Interest of this Note, from the Issuance Date.

 

9.           REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, under the Security
Agreement, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the Holder’s
right to pursue actual and consequential damages for any failure by the Company
to comply with the terms of this Note or any other Transaction Document. The
Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and the like
(and the computation thereof) shall be the amounts to be received by the Holder
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required. The
Company shall provide all information and documentation to the Holder that is
requested by the Holder to enable the Holder to confirm the Company’s compliance
with the terms and conditions of this Note (including, without limitation,
compliance with Section 5).

 

10.              PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
without limitation, attorneys’ fees and disbursements.

 

11.              CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and the Holder and shall not be construed against any
Person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Note. Terms used in this Note but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Issuance Date in such
other Transaction Documents unless otherwise consented to in writing by the
Holder.

 

12.              FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. No waiver shall be effective unless it
is in writing and signed by an authorized representative of the waiving party.

 

 

 

 6 

 

 

13.              NOTICES; CURRENCY; PAYMENTS.

 

13.1          Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 6.5 of the Additional Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore.

 

13.2          Currency. All principal, interest and other amounts owing under
this Note that, in accordance with the terms hereof, are paid in cash shall be
paid in U.S. dollars. All amounts denominated in other currencies shall be
converted to the U.S. dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation. “Exchange Rate” means, in relation to any
amount of currency to be converted into U.S. dollars pursuant to this Note, the
U.S. dollar exchange rate as published in The Wall Street Journal on the
relevant date of calculation (it being understood and agreed that where an
amount is calculated with reference to, or over, a period of time, the date of
calculation shall be the final date of such period of time).

 

13.3          Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, unless otherwise expressly set
forth herein, such payment shall be made in lawful money of the United States of
America by wire transfer of immediately available funds in accordance with the
Holder’s wire transfer instructions. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day, with
interest accruing until paid.

 

14.              DISCLOSURE.

 

14.1          In connection with information that is either required or
permitted to be disclosed to the Holder in such Holder’s capacity as the holder
of this Note, on the date such information is to be disclosed, the Company may
provide the Holder with such information; provided either that (i) such
information does not contain Non-Public Information, or (ii) if such information
does contain Non-Public Information, such information is Consented Information
(as defined below).

 

14.2          If any such information to be disclosed contains Non-Public
Information, the Company shall provide to the Holder a written notice (which
notice shall, for the avoidance of doubt, not contain or constitute Non-Public
Information), containing the following information: (A) a statement as to
whether the information is required to be disclosed under the terms of this
Note, (B) if the information is not so required to be disclosed, a statement
that the Company or other applicable Person desires voluntarily to disclose such
information, (C) a general description of such information (which description
shall not include, and shall not constitute, Non-Public Information), (D) a
statement as to whether the Holder is required or permitted to take some
specific action as a lender under this Note, (E) a statement that such
information contains Non-Public Information, and (F) a statement seeking the
consent of the Holder to receive such Non-Public Information. Within two (2)
Business Days of the date of the notice contemplated in the preceding sentence,
the Holder shall advise the Company in writing whether it consents to the
receipt of such Non-Public Information (any information for which such consent
is provided, “Consented Information”).

 

14.3          In the event any Non-Public Information is provided to the Holder
by the Company, the Company shall promptly and in compliance with applicable law
publicly disclose such Non-Public Information on a Current Report on Form 8-K or
otherwise, within four (4) Business Days of (or such other period of time as may
be expressly agreed to in writing by the Investor and the Company in connection
with such disclosure) the disclosure thereof to the Holder (provided that the
Company shall provide the Holder a draft of each such Form 8-K at least two (2)
Business Days prior to filing thereof). If the Company fails to disclose any
Non-Public Information in accordance with the immediately preceding sentence,
the Holder may publicly disclose such information by issuing a press release
containing such information, or otherwise, within one Business Day of providing
Notice to the Company of such intended disclosure. The Holder shall have no
liability to the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents, for any such
disclosure.

 

14.4          In no event shall the Company intentionally provide the Holder
with any Non-Public Information without the prior written consent of the Holder.
In the absence of any written notice that information provided by the Company
contains Non-Public Information, the Holder may presume that such information
(including the notice of such information) does not constitute Non-Public
Information.

 

15.              CANCELLATION. After all Principal, accrued Interest and other
amounts at any time owed on this Note have been paid in full (a) this Note shall
automatically be deemed canceled without any action by or notice to Holder or
Company and (b) the Holder shall promptly mark this Note as cancelled, shall
promptly surrender this Note to the Company and this Note shall not be reissued.

 

 

 

 7 

 

 

16.              WAIVER OF NOTICE. Except for the notices specifically required
by this Note or any other Transaction Document, to the extent permitted by
applicable law, the Company hereby irrevocably waives demand, notice,
presentment, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Additional Purchase Agreement.

 

17.              GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision
of this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company’s obligations to the Holder,
to realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court ruling in favor of the Holder. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

18.              MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Holder and thus refunded to the
Company.

 

19.              CERTAIN DEFINITIONS. For purposes of this Note, the following
terms shall have the following meanings:

 

19.1          “Additional Purchase Agreement” means the Note Purchase Agreement,
dated as of June 26, 2017, by and among the Company, the Holder, and each other
“Investor” (as defined therein) as amended, restated or otherwise modified from
time to time.

 

19.2          “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

 

19.3          “Common Stock” means (i) the Company’s shares of common stock,
$0.001 par value per share, and (ii) any capital stock into which such common
stock shall have been changed or any share capital resulting from a
reclassification of such common stock.

 

19.4          “Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

19.5          “Excluded Events” means (i) changes in the national or world
economy or financial markets as a whole, (ii) changes in general economic
conditions taken as a whole that affect the industries in which the Company and
its Subsidiaries conduct their business, (iii) acts of terrorism or war,
including the engagement by the United States of America or any other country in
hostilities, and whether or not pursuant to the declaration of a national
emergency or war, or any earthquakes, hurricanes or other natural disasters, and
(iv) any financial statement impact of the transactions contemplated by the
Transaction Documents.

 

 

 

 8 

 

 

19.6          “Excluded Subsidiaries” means Kinergy Marketing LLC, Pacific Ag.
Products, LLC, Pacific Ethanol Development, LLC, Pacific Ethanol Central, LLC,
Pacific Ethanol Pekin, Inc., Pacific Ethanol Canton, LLC, Pacific Ethanol Aurora
West, LLC, Pacific Ethanol Aurora East, LLC and Pacific Aurora, LLC and each of
their respective direct or indirect subsidiaries.

 

19.7          “Fundamental Transaction” means that (A) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(i) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) another Person or Persons, or
(ii) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of the Company or any of its Subsidiaries to
another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the Person or Persons making or party to, or
associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (iv) consummate a securities purchase or business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
other Person or other Persons making or party to, or associated or affiliated
with the other Persons making or party to, such securities purchase agreement or
other business combination), or (v) reorganize, recapitalize or reclassify the
Voting Stock of the Company or (B) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate Voting Stock of the Company.

 

19.8          “GAAP” means United States generally accepted accounting
principles, consistently applied.

 

19.9          “Indebtedness” of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with generally accepted
accounting principles) (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all obligations of such Person to purchase,
redeem, retire, defease or otherwise make any payment in respect of any equity
interests in such Person or any other Person or any warrants, rights or options
to acquire such equity interests, valued, in the case of redeemable preferred
interests, at the greater of its voluntary or involuntary liquidation preference
plus accrued and unpaid dividends, (H) all indebtedness referred to in
clauses (A) through (G) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, claim, lien, tax, right of first refusal, encumbrance, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (I) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (H) above.

 

19.10      “Initial Notes” means those certain Senior Secured Notes in the
aggregate principal amount of $55,000,000 issued pursuant to the Initial
Purchase Agreement on December 15, 2016.

 

19.11      “Initial Purchase Agreement” means the Note Purchase Agreement, dated
as of December 12, 2016, by and among the Company and each “Investor” (as
defined therein) as amended, restated or otherwise modified from time to time.

 

19.12      “Interest Rate” means a rate per annum equal to the 3-month London
Interbank Offered Rate (“LIBOR”), plus 7.0% (the “Interest Rate Spread”);
provided, however, that on December 15, 2017 and December 15, 2018, the
“Interest Rate Spread” shall be increased to 9.0% and 11.0%, respectively, and;
provided, further, that if at any time during the term of this Note LIBOR is
less than 1.0% per annum, the “Interest Rate” shall equal 1.0% plus the amount
of the then current “Interest Rate Spread.” The “Interest Rate” shall in all
cases be subject to adjustment as set forth in Section 2.

 

19.13      “Material Adverse Change” shall mean any set of circumstances or
events which occur, arise or otherwise take place from and after the Issuance
Date which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Note or any other
Transaction Document, (b) is or could reasonably be expected to be material and
adverse to the business properties, assets, financial condition, results of
operations or prospects of the Company or the Company and any of Subsidiaries on
a collective basis, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Company to duly and punctually pay or
perform any its obligations under this Note or any other Transaction Document,
or (d) materially impairs or could reasonably be expected to materially impair
the ability of Holder or, in the case of the Security Agreement, the Agent (as
defined therein), to the extent permitted, to enforce its legal rights and
remedies pursuant to this Note or any other Transaction Document.

 

 

 

 9 

 

 

19.14      “Maturity Date” shall mean December 15, 2019.

 

19.15      “Non-Public Information” means material, non-public information
relating to the Company.

 

19.16      “Permitted Distributions” means (a) dividends by Subsidiaries of the
Company to the Company or other Subsidiaries of the Company, and (b) current
quarterly dividends required to be paid by the Company with respect to the
Company’s Series B Cumulative Convertible Preferred Stock pursuant to the
organizational documents of the Company as in effect as of the Issuance Date on
the Company. For the avoidance of doubt, to the extent that payment thereof is
in the form of Common Stock, payment of previously accrued and unpaid dividends
with respect to the Company’s Series B Cumulative Convertible Preferred Stock
outstanding as of the Issuance Date shall be deemed to be “Permitted
Distributions”.

 

19.17      “Permitted Indebtedness” means (i) Indebtedness evidenced by this
Note and the Other Notes; (ii) Indebtedness of any Excluded Subsidiary, (iii)
any Indebtedness secured by a Permitted Lien (other than Indebtedness referred
to in clause (iv) of the definition of “Permitted Lien”), (iv) Indebtedness
incurred by the Company that is made expressly subordinate in right of payment
to the Indebtedness evidenced by this Note, as reflected in a written agreement
acceptable to the Holder and approved by the Holder in writing, and which
Indebtedness does not provide at any time for (1) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium, if any, thereon until ninety-one (91) days after the Maturity Date or
later and (2) total interest and fees at a rate in excess of ten percent
(10%) per annum (collectively, the “Subordinated Indebtedness”); provided, that
in the aggregate outstanding at any time, such Subordinated Indebtedness does
not exceed $30,000,000, (v) Indebtedness of the Company or any of its
Subsidiaries and Excluded Subsidiaries existing on the Issuance Date, (vi) such
other trade and operating Indebtedness incurred in the ordinary course of
business by the Company (including any of the Company’s Subsidiaries and
Excluded Subsidiaries), including without limitation, unsecured trade debt,
financing with respect to the acquisition or lease of equipment and financing of
insurance premiums; provided that in the aggregate outstanding at any time, such
Indebtedness does not exceed the greater of $2,000,000 or three-quarters of one
percent (0.75%) of total assets as reported in the Company’s most recent
publicly filed Form 10-K or 10-Q reports, (vii) the Company’s Series B
Cumulative Convertible Preferred Stock outstanding on the date hereof, and
(viii) additional Indebtedness of the Company in an amount up to $15,000,000
that may arise from an increase in the credit facility of Kinergy Marketing LLC
by an equivalent amount and resulting from the Company’s Contingent Obligations
as a guarantor of the obligations arising under that facility, with the
foregoing to be accomplished through an amendment and restatement of the
facility. Notwithstanding anything to the contrary, Permitted Indebtedness of
ICP Merger Sub, LLC, a Delaware limited liability company (as the surviving
entity in the merger contemplated under the ICP Agreement, which is to be
renamed as “Illinois Corn Processing, LLC” upon closing thereof, hereinafter
“ICP”) and ICP’s direct and indirect subsidiaries (collectively, the “ICP
Entities”) shall not include any Indebtedness secured by a second priority
security interest in any equity or assets of the ICP Entities; provided,
however, that the foregoing shall not prohibit any such Indebtedness (a) issued
by ICP to the sellers under the ICP Agreement to the extent preexisting liens
result in a second priority security interest in certain assets of ICP in favor
of the sellers, or (b) resulting from equipment leases. For the avoidance of
doubt, any first priority security interest in any equity or assets of the ICP
Entities is expressly permitted.

 

19.18      “Permitted Investments” means (i) investments existing on the date
hereof (inclusive of (a) the investment in the Excluded Subsidiaries in the
amount of $25,000,000 made in part with the proceeds of the Initial Notes, and
(b) the investment in the Excluded Subsidiaries in the amount of $30,000,000
being made in part with the proceeds of the Additional Notes issued pursuant to
the Additional Purchase Agreement on the Issuance Date), and (ii) additional
investments in the Excluded Subsidiaries that in the aggregate outstanding at
any time do not exceed $20,000,000.

 

19.19      “Permitted Liens” means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen’s liens, mechanics’ liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens securing financing obtained in
the ordinary course of the Company's operations, including financing with
respect to the acquisition or lease of equipment and financing of insurance
premiums; provided, that (A) such Liens are solely upon and confined solely to
the equipment, unearned insurance premiums or other asset or assets being
acquired by such financing and (B) in the aggregate, the Indebtedness secured by
such liens does not exceed the greater of $2,000,000 or three-quarters of one
percent (0.75%) of total assets as reported in the Company's most recent
publicly filed Form 10-K or 10-Q reports, (v) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clause (iv) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, and (vi) any Lien on the assets or properties of
the Excluded Subsidiaries.

 

 

 

 10 

 

 

19.20      “Permitted Payments” means any payments, distributions or transfers
with respect to (i) any Permitted Indebtedness (in the case of Subordinated
Indebtedness, to the extent permitted by the relevant subordination or
intercreditor agreement) and (ii) any Permitted Distributions.

 

19.21      “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.

 

19.22      “Required Holders” means the holders of Notes representing at least
66 2/3% of the aggregate principal amount of the Notes then outstanding
(excluding any Notes held by the Company or any of its Subsidiaries).

 

19.23      “Subsidiary” means any Person in which the Company, directly or
indirectly, (I) owns any of the outstanding capital stock or holds any equity or
similar interest of such Person or (II) controls or operates all or any part of
the business, operations or administration of such Person; provided that, for
purposes of this Note, the term “Subsidiary” shall expressly exclude the
Excluded Subsidiaries.

 

19.24      “Transaction Documents” means this Note, the Other Notes, the
Security Agreement, the Initial Purchase Agreement and the Additional Purchase
Agreement, together with any amendments, restatements, extensions or other
modification thereto.

 

19.25      “Voting Stock” means voting equity interests.

 

FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THIS NOTE IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT ON THE
ISSUANCE DATE OF THIS NOTE. THE COMPANY AGREES TO PROVIDE PROMPTLY TO EACH
HOLDER OF THIS NOTE, UPON WRITTEN REQUEST (1) THE ISSUE PRICE, (2) THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT AND (3) THE YIELD TO MATURITY OF THIS NOTE. ANY SUCH
WRITTEN REQUEST SHOULD BE SENT TO THE COMPANY AT THE FOLLOWING ADDRESS: 400
CAPITOL MALL, SUITE 2060, SACRAMENTO, CA 95814, ATTN: BRYON T. MCGREGOR, CFO.

 

[signature page follows]

 

 

 

 

 

 

 

 

 

 

 11 

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the first date set forth above.

 

 

 

  PACIFIC ETHANOL, INC.       By:        Name: Bryon T. McGregor
Title: Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Senior Secured Note]

 

 12 

 

 

 

 

 

AGREED AND ACCEPTED:

HOLDER”

 

 

|____________________|

 

By: _______________________

Name:

Title:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Holder Acknowledgment of Senior Secured Note]

 

 

 

 13