EXHIBIT 10.2
 
 
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES
UNDER THE ACT OR SUCH LAWS OR, IF REASONABLY REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
OR QUALIFICATION IS NOT REQUIRED.
 
PACIFIC ETHANOL, INC.
 
WARRANT TO PURCHASE COMMON STOCK
 
October 17, 2006
Void After October 17, 2007
 
This Certifies That, for value received, Eagle Energy, LLC, or registered
assigns (the “Holder”), is entitled to subscribe for and purchase at the
Exercise Price (defined below) from Pacific Ethanol, Inc., a Delaware
corporation (the “Company”), with its principal office at 5711 N. West Avenue,
Fresno, CA 93711, up to 693,963 shares of Common Stock of the Company (the
“Common Stock”).
 
1. Definitions. As used herein, the following terms shall have the following
respective meanings:
 
(a) “Exercise Period” shall mean the period commencing with the date hereof and
ending at 5:00 PM, Pacific Daylight Time, on October 17, 2007, unless sooner
terminated as provided below.
 
(b) “Exercise Price” shall mean $14.41 per share, subject to adjustment pursuant
to Section 5 below.
 
(c) “Exercise Shares” shall mean the shares of the Company’s Common Stock
issuable upon exercise of this Warrant, subject to adjustment pursuant to the
terms herein, including but not limited to adjustment pursuant to Section 5
below.
 
2. Exercise of Warrant. The rights represented by this Warrant may be exercised
in whole or in part at any time during the Exercise Period, by delivery of the
following to the Company at its address set forth above (or at such other
address as it may designate by notice in writing to the Holder):
 
(a) An executed Notice of Exercise in the form attached hereto; and
 
(b) Payment of the Exercise Price in immediately available funds.
 
The Holder shall not be required to deliver the original Warrant in order to
effect an exercise hereunder. Execution and delivery of the Notice of Exercise
by the Holder shall have the same effect as cancellation of the original Warrant
and issuance of a new Warrant evidencing the right to purchase the number of
Exercise Shares remaining to be purchased hereunder.

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Upon the exercise of the rights represented by this Warrant, the Company shall
promptly (but in no event later than three trading days if a registration
statement is in effect covering the resale of the Exercise Shares) issue and
deliver, or cause to be issued and delivered, a certificate or certificates for
the Exercise Shares so purchased, registered in the name of the Holder or, if
the Holder complies with the requirements of Section 10 and so designates in the
Notice of Exercise, another name or names.
 
The person in whose name any certificate or certificates for Exercise Shares are
to be issued upon exercise of this Warrant shall be deemed to have become the
holder of record of such shares on the date on which the Notice of Exercise and
payment of the Exercise Price was made, irrespective of the date of delivery of
such certificate or certificates, except that, if the date of such Notice and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
 
2.1 Net Exercise. Notwithstanding any provisions herein to the contrary, if the
fair market value of one share of the Company’s Common Stock is greater than the
Exercise Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant in whole or in part by payment of immediately available
funds, the Holder may elect to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled) by delivery of
the properly endorsed Notice of Exercise in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
 
X = Y (A-B)
    A
 

Where X =
 the number of shares of Common Stock to be issued to the Holder

 

 
Y = 
the number of shares of Common Stock purchasable under the Warrant or, if only a
portion of the Warrant is being exercised, the portion of the Warrant being
canceled (at the date of such calculation)

 

 
A = 
the fair market value of one share of the Company’s Common Stock (at the date of
such calculation)

 

 
B = 
Exercise Price (as adjusted to the date of such calculation)

 
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be: If the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, the
fair market value as of a specified day shall be the last reported sale price of
Common Stock on such exchange on such date or if no such sale is made on such
day, the mean of the closing bid and asked prices for such day on such exchange.
If the Common Stock is not so listed or admitted to unlisted trading privileges,
the fair market value as of a specified day shall be the mean of the last bid
and asked prices reported on such date by the National Quotation Bureau
Incorporated. If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not reported, the fair market
value as of a specified day shall be determined in good faith by the Board of
Directors of the Company.

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3. Covenants of the Company.
 
3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all
Exercise Shares that may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be validly issued and outstanding, fully
paid and nonassessable, and free from all taxes, liens and charges with respect
to the issuance thereof. The Company further covenants and agrees that the
Company will, at all times during the Exercise Period, have authorized and
reserved, free from preemptive rights, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant. Without limiting the liability of the Company for breach of the
foregoing covenants, if at any time during the Exercise Period the number of
authorized but unissued shares of Common Stock shall not be sufficient to permit
exercise of this Warrant, the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
 
3.2 Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Organic Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 10 calendar days prior to the
applicable record or effective date on which a person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
 
4. Adjustment of Exercise Price; Effect of Organic Changes
 
4.1 Adjustment of Exercise Price. In the event of changes in the outstanding
Common Stock of the Company by reason of stock dividends, splits,
recapitalizations, reclassifications, combinations or exchanges of shares,
separations, reorganizations, liquidations, or the like, the number and class of
shares available under the Warrant in the aggregate and the Exercise Price shall
be correspondingly adjusted to give the Holder of the Warrant, on exercise for
the same aggregate Exercise Price, the total number, class, and kind of shares
as the Holder would have owned had the Warrant been exercised prior to the event
and had the Holder continued to hold such shares until after the event requiring
adjustment. The form of this Warrant need not be changed because of any
adjustment in the number of Exercise Shares subject to this Warrant.

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4.2 Reorganization, Reclassification, Consolidation, Merger or Sale. If any
recapitalization, reclassification or reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets or other transaction shall
be effected in such a way that holders of the Company’s Common Stock shall be
entitled to receive stock, securities, or other assets or property (an “Organic
Change”), then, as a condition of such Organic Change, lawful and adequate
provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, which rights to purchase and
receive such shares of Common Stock shall have terminated upon the occurrence of
an Organic Change and been replaced by the rights described herein) such shares
of stock, securities or other assets or property as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby.
In the event of any Organic Change, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Exercise Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument reasonably satisfactory in form and substance to the Holder of this
Warrant, executed and mailed or delivered to the registered Holder hereof at the
last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase.
 
4.3 Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 4, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder.
 
4.4 No Impairment. The Company will not, by amendment of its governing documents
or through any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder against impairment. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any Warrant Shares above the
amount payable therefore on such exercise, (ii) will take all such action as may
be reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant, and (iii) will not close its stockholder books or records in any
manner which interferes with the timely exercise of this Warrant.

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5. Fractional Shares. No fractional shares shall be issued upon the exercise of
this Warrant as a consequence of any adjustment pursuant hereto. All Exercise
Shares (including fractions) issuable upon exercise of this Warrant may be
aggregated for purposes of determining whether the exercise would result in the
issuance of any fractional share. If, after aggregation, the exercise would
result in the issuance of a fractional share, the Company shall, in lieu of
issuance of any fractional share, pay the Holder otherwise entitled to such
fraction a sum in cash equal to the product resulting from multiplying the then
current fair market value of an Exercise Share by such fraction.
 
6. Amendment and Waiver. This Warrant may be amended, and the obligations of the
Company and the rights of the Holder under the Warrant may be waived, with the
written consent of the Company and the Holder.
 
7. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Warrant (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder’s for purposes of
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), does not exceed 4.999% (the “Maximum Percentage”) of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Each delivery
of an Exercise Notice hereunder will constitute a representation by the Holder
that it has evaluated the limitation set forth in this paragraph and determined
that issuance of the full number of Warrant Shares requested in such Exercise
Notice is permitted under this paragraph. The Company’s obligation to issue
shares of Common Stock in excess of the limitation referred to in this Section
shall be suspended (and shall not terminate or expire notwithstanding any
contrary provisions hereof) until such time, if any, as such shares of Common
Stock may be issued in compliance with such limitation, but in no event later
than the end of the Exercise Period. By written notice to the Company, the
Holder may waive the provisions of this Section of increase or decrease the
Maximum Percentage to any other percentage specified in such notice, but (i) any
such waiver or increase will not be effective until the 61st day after such
notice is delivered to the Company, and (ii) any such waiver to increase or
decrease will apply only to the Holder and not to any other holder of warrants
to purchase shares of the Company’s Common Stock.
 
8. No Stockholder Rights. This Warrant in and of itself shall not entitle the
Holder to any voting rights or other rights as a stockholder of the Company.
 
9. Transfer of Warrant. Subject to applicable laws and the restrictions on
transfer set forth on the first page of this Warrant and compliance with this
Section 9, this Warrant and all rights hereunder may be transferred by the
Holder, in person or by duly authorized attorney, upon delivery of this Warrant
and the form of assignment attached hereto to a transferee designated by Holder
(the “Transferee”). It shall be condition of such transfer and the registration
of the Transferee as Holder hereunder that the Transferee shall sign an
investment letter, which shall include the following representations and
undertakings by the Transferee and shall otherwise be in form and substance
reasonably satisfactory to the Company:

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9.1 Securities Are Not Registered.
 
(a) The Transferee understands that the Warrant and the Exercise Shares are
“restricted securities” and that transfer or sale to the Transferee has not been
registered under the Securities Act of 1933, as amended (the “Act”).
 
(b) The Transferee is acquiring the Warrant for its own account for investment
only, has no present intention of distributing the Warrant or the Exercise
Shares and has no arrangement or understanding with any other person regarding
the distribution of the Warrant or the Exercise Shares (this representation and
warranty not limiting the Transferee’s right to sell the Exercise Shares
pursuant to an effective registration statement under the Act or otherwise in
accordance with an exemption from registration under the Act).
 
(c) The Transferee recognizes that the Warrant and the Exercise Shares cannot be
resold unless they are subsequently registered under the Act or an exemption
from such registration is available.
 
(d) The Transferee is an “accredited investor,” as defined in Rule 501(a) under
the Act.
 
9.2 Disposition of Warrant and Exercise Shares.
 
(a) The Transferee further agrees not to make any disposition of all or any part
of the Warrant or Exercise Shares unless and until:
 
(i) There is then in effect a registration statement under the Act covering such
proposed disposition, such disposition is made in accordance with such
registration statement and the Transferee shall have provided to the Company
reasonable evidence of the manner of disposition and compliance with any
applicable prospectus delivery requirements; or
 
(ii) The Transferee shall have notified the Company of the proposed disposition
and shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and if reasonably requested by the
Company, the Transferee shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, for the Transferee to the
effect that such disposition will not require registration of such Warrant or
Exercise Shares under the Act or applicable state securities laws.
 
(b) The Transferee understands and agrees that all certificates evidencing the
Exercise Shares may bear the following legend:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”) OR APPLICABLE STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS OR, IF REASONABLY
REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.

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10. Issuance of Exercise Shares in Name Other Than Holder. The Holder may
designate that the Exercise Shares be issued in a name or names other than the
Holder so long as the Holder shall have transferred the right to receive such
Exercise Shares in a manner consistent with the requirements of Section 9.2(a).
 
11. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity
or otherwise as it may reasonably impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.
 
12. Notices, etc. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day,
(c) three (3) business days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one (1) business day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the Company at the address listed on the first page of this Warrant and
to Holder at the address set forth on the signature page hereof, or at such
other address as the Company or Holder may designate by ten (10) days advance
written notice to the other parties hereto.
 
13. Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.
 
14. Governing Law. This Warrant and all rights, obligations and liabilities
hereunder shall be governed by the laws of the State of California.

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In Witness Whereof, the Company has caused this Warrant to be executed by its
duly authorized.
 
Pacific Ethanol, Inc.
 
By: /s/ Neil M. Koehler                                            
Name: Neil M. Koehler                                             
Title: CEO                                                                   

Accepted and Agreed:

Eagle Energy, LLC
 
By: /s/ David M. Flick                                     
Name: David M. Flick                                      
Title: President                                                 

Address for Notices:

David Fick, President
Eagle Energy, LLC
2113 Pebble Beach Lane
Brandon, SD  57005
 
Phone:  605-201-1087
Fax:  605-582-8850

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NOTICE OF EXERCISE
 
TO: Pacific Ethanol, Inc.
 
(1)  ¨ The undersigned (the “Holder”) hereby elects to purchase ________ shares
of Common Stock of Pacific Ethanol, Inc. (the “Company”) pursuant to the terms
of the Warrant dated October __, 2006 (the “Warrant”), and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any, due as a consequence of the issuance of shares of Common Stock to
a person other than the Holder.
 
¨ The Holder hereby elects to purchase ________ shares of Common Stock of
Pacific Ethanol, Inc. (the “Company”) pursuant to the terms of the net exercise
provisions set forth in Section 2.1 of the Warrant, and shall tender payment of
all applicable transfer taxes, if any, due as a consequence of the issuance of
the shares of Common Stock to a person other than the Holder.
 
(2)   Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or, subject to compliance by the
Holder with Section 10 of the Warrant, in such other name as is specified below:
 
________________________
(Name)
 
________________________
________________________
(Address)
 
(3) The Holder represents that (i) the Holder understands that the issuance of
the shares of Common Stock upon exercise of this Warrant has not been registered
under the Securities Act of 1933, as amended (the “Securities Act”); (ii) the
undersigned is an “accredited investor” within the definition set forth in Rule
501(a) of the Securities Act, and (iii) the Holder understands that the Holder
must comply with the requirements of Section 9.2 of the Warrant with respect to
any transfer of shares of Common Stock issued upon exercise of the Warrant.
 
____________________________________________
(Date)
 
______________________________________________________________
(Signature)
 
______________________________________________________________
(Print name)
 

 

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ASSIGNMENT FORM
 
(To assign the foregoing Warrant, execute this form and supply the required
information. Do not use this form to purchase shares.)
 
For Value Received, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
 
Name:_______________________________________________________________________________________________________(Please
Print)
 
Address:_____________________________________________________________________________________________________
 (Please Print)
 
Dated: __________, ____
 
Holder’s
Signature:________________________________________
 
Holder’s
Address:_________________________________________
 
 
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.