SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) NOVEMBER 10, 2005
--------------------------------
PACIFIC ETHANOL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-21467 41-2170618
---------------------------- --------------------- ---------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5711 N. WEST AVENUE, FRESNO, CALIFORNIA 93711
------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (559) 435-1771
---------------------------
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
(1) INVESTMENT BY CASCADE INVESTMENT, L.L.C.
PURCHASE AGREEMENT DATED NOVEMBER 14, 2005 BETWEEN PACIFIC ETHANOL, INC.
AND CASCADE INVESTMENT, L.L.C.
On November 14, 2005, Pacific Ethanol, Inc. (the "Company") entered
into a Purchase Agreement (the "Purchase Agreement") with Cascade Investment,
L.L.C. (the "Purchaser"). The Purchase Agreement provides for the sale by the
Company and the purchase by the Purchaser of 5,250,000 shares of the Company's
Series A Cumulative Redeemable Convertible Preferred Stock (the "Preferred
Stock") for an aggregate purchase price of $84 million. The Preferred Stock is
to be created under the Certificate of Designations described below. Of the $84
million aggregate purchase price, $4 million is payable to the Company at
closing and $80 million is to be deposited into a restricted cash account and
disbursed in accordance with the Deposit Agreement described below. The Company
is entitled to use the initial $4 million of proceeds for general working
capital and must use the remaining $80 million for the construction or
acquisition of one or more ethanol production facilities in accordance with the
terms of the Deposit Agreement. The Purchase Agreement includes customary
representations and warranties on the part of both the Company and the
Purchaser.
The closing of the purchase and sale of the Preferred Stock (the
"Closing") is subject to numerous customary conditions. The Closing is subject
to approval of the transaction by the stockholders of the Company. The Closing
is also subject to additional conditions, including appropriate filings and
approvals under the Hart-Scott-Rodino Act of 1976, the appointment of two
persons as members of the Board of Directors of the Company to be designated by
the Purchaser, one of whom is to be appointed as Chairman of the Compensation
Committee of the Board of Directors of the Company. In addition, the Closing is
subject to execution and delivery in form and substance satisfactory to the
Purchaser of agreements relating to the construction, operation and financing of
the Company's Madera County, California ethanol production facility. An
additional condition to the Closing provides that the Closing must occur on or
before March 31, 2006 unless the Purchaser has extended the Closing date.
FORM OF CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RIGHTS OF THE
SERIES A CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Certificate of Designations, Powers, Preferences and Rights of the
Series A Cumulative Redeemable Convertible Preferred Stock (the "Certificate of
Designations") provides for 7,000,000 shares of preferred stock to be designated
as Series A Cumulative Redeemable Convertible Preferred Stock. The Certificate
of Designations is to be filed on or prior to the Closing. The 5,250,000 shares
of Preferred Stock to be issued under the Purchase Agreement have a purchase
price of $16 per share. The Preferred Stock ranks senior in liquidation and
dividend preferences to the Company's common stock. Holders of Preferred Stock
are entitled to quarterly cumulative dividends payable in arrears in cash in an
amount equal to 5% of the purchase price per share of the Preferred Stock;
however, such dividends may, at the option of the Company, be paid in additional
shares of Preferred Stock based on the value of the purchase price per share of
the Preferred Stock. The holders of Preferred Stock have a liquidation
preference over the holders of the Company's common stock equivalent to the
-2-
purchase price per share of the Preferred Stock plus any accrued and unpaid
dividends on the Preferred Stock. A liquidation will be deemed to occur upon the
happening of customary events, including transfer of all or substantially all of
the capital stock or assets of the Company or a merger, consolidation, share
exchange, reorganization or other transaction or series of related transaction,
unless holders of 66 2/3% of the Preferred Stock vote affirmatively in favor of
or otherwise consent to such transaction.
The holders of the Preferred Stock have conversion rights initially
equivalent to two shares of common stock for each share of Preferred Stock. The
conversion ratio is subject to customary antidilution adjustments. In addition,
antidilution adjustments are to occur in the event that the Company issues
equity securities at a price equivalent to less than $8 per share, including
derivative securities convertible into equity securities (on an as-converted or
as-exercised basis). Certain specified issuances will not result in antidilution
adjustments (the "Anti-Dilution Excluded Securities"), including (i) securities
issued to employees, officers or directors of the Company under any option plan,
agreement or other arrangement duly adopted by the Company, the issuance of
which is approved by the Compensation Committee of the Board of Directors of the
Company, (ii) the Preferred Stock and any common stock issued upon conversion of
the Preferred Stock, (iii) securities issued upon conversion or exercise of any
derivative securities outstanding on the date the Certificate of Designations is
first filed with the Delaware Secretary of State, and (iv) securities issued in
connection with a stock split, stock dividend, combination, reorganization,
recapitalization or other similar event for which adjustment to the conversion
ratio of the Preferred Stock is already made. The shares of Preferred Stock are
also subject to forced conversion upon the occurrence of a transaction that
would result in an internal rate of return to the holders of the Preferred Stock
of 25% or more. The forced conversion is to be based upon the conversion ratio
as last adjusted. Notwithstanding the foregoing, no shares of Preferred Stock
will be subject to forced conversion unless the shares of common stock issued or
issuable to the holders upon conversion of the Preferred Stock are registered
for resale with the Securities and Exchange Commission and eligible for trading
on The Nasdaq Stock Market or such other exchange approved by holders of 66 2/3%
of the then outstanding shares of Preferred Stock. Accrued but unpaid dividends
on the Preferred Stock are to be paid in cash upon any conversion of the
Preferred Stock.
The holders of Preferred Stock vote together as a single class with the
holders of the Company's common stock on all actions to be taken by the
Company's stockholders. Each share of Preferred Stock entitles the holder to the
number of votes equal to the number of shares of the Company's common stock into
which each share of Preferred Stock is convertible. Notwithstanding the
foregoing, the holders of Preferred Stock are afforded numerous customary
protective provisions with respect to certain actions that may only be approved
by holders of a majority of the shares of Preferred Stock. These protective
provisions include limitations on (i) the increase or decrease of the number of
authorized shares of Preferred Stock, (ii) increase or decrease of the number of
authorized shares of other capital stock, (iii) generally any actions that have
an adverse effect on the rights and preferences of the Preferred Stock, (iv) the
authorization, creation or sale of any securities senior to or on parity with
the Preferred Stock as to voting, dividend, liquidation or redemption rights,
including subordinated debt, (v) the authorization, creation or sale of any
securities junior to the Preferred Stock as to voting, dividend, liquidation or
redemption rights, including subordinated debt, other than the Company's common
stock, (vi) the authorization, creation or sale of any shares of Preferred Stock
-3-
other than the shares of Preferred Stock authorized, created and sold under the
Purchase Agreement, (vii) engaging in a transaction that would result in an
internal rate of return to holders of Preferred Stock of less than 25%, (viii)
the alteration of the number of members of the Board of Directors of the Company
to more than nine or less than seven, and (ix) effecting any material change in
the Company's industry focus.
The holders of the Preferred Stock are afforded preemptive rights with
respect to certain securities offered by the Company. Each holder is to have the
right to purchase a pro rata portion of such securities equivalent to the number
of shares of common stock into which that holder's Preferred Stock is
convertible, divided by the number of shares of common stock into which all
holders' Preferred Stock is convertible, plus any amounts not purchased by other
holders of Preferred Stock. In the event of a public offering of the Company's
common stock for a purchase price of at least $12 per share and a total
aggregate offering price of at least $50 million, the preemptive rights of the
holders of Preferred Stock are to be limited to 50% of the securities offered.
Notwithstanding the foregoing, certain proposed securities offerings will not
result in preemptive rights in favor of the holders of the Preferred Stock.
These offerings include offerings of Anti-Dilution Excluded Securities as well
as the issuance of securities other than for cash pursuant to a merger,
consolidation, acquisition or similar business combination by the Company
approved by the Board of Directors of the Company.
The holders of Preferred Stock are entitled to redemption rights.
Holders of 66 2/3% of the Preferred Stock may elect redemption upon the
occurrence of certain specified events. The number of shares of Preferred Stock
to be redeemed is to be determined by dividing the balance of the restricted
cash amount (as provided for in the Deposit Agreement described below) by $80
million. The redemption price is equal to the per share purchase price of the
Preferred Stock, which is subject to adjustment as discussed above and in the
Certificate of Designations, plus any accrued but unpaid dividends, plus any
amount sufficient to yield an internal rate of return of 5%. If less than all
Preferred Stock is to be redeemed, then shares of Preferred Stock are to be
redeemed on a pro rata basis from the holders of the Preferred Stock in
proportion to the number of shares of Preferred Stock held by them. The events
triggering redemption rights include, (i) the withdrawal or use by the Company
of funds from the restricted cash account (as provided for in the Deposit
Agreement described below) in violation of the terms of the Deposit Agreement,
(ii) the public disclosure by the Company of its intent not to build or acquire
additional ethanol production facilities for an indefinite period or for a
period of at least two years from the time of the disclosure, (iii) the failure
by the Company to withdraw any funds from the restricted cash account for a
period of two years, and (iv) amounts remain in the restricted cash account
after December 31, 2009.
FORM OF DEPOSIT AGREEMENT BETWEEN PACIFIC ETHANOL, INC. AND THE TRUSTEE
NAMED THEREIN
The Deposit Agreement between the Company and a trustee to be named on
or prior to the Closing (the "Deposit Agreement"), is to be executed at the
Closing. The Deposit Agreement provides for the creation of a restricted cash
account into which $80 million of the aggregate purchase price for the Preferred
Stock is to be deposited. The Company may not withdraw funds from the restricted
cash account except in accordance with the terms of the Deposit Agreement. Under
the Deposit Agreement, the Company may requisition funds from the restricted
cash account for the payment of construction costs in connection with the
-4-
construction of ethanol production facilities. The total amounts that may be
disbursed from the restricted cash account with respect to a particular ethanol
production facility are limited to a specified project limit. The project limit
for the Company's proposed ethanol production facility in Madera County,
California is $20 million. The project limit for other ethanol production
facilities to be constructed by the Company, if any, is the "equity portion"
multiplied by the total budgeted costs of construction for such facility. The
"equity portion" is limited to 30% for the first ethanol production facility,
not including the Madera County facility, and 25% for each subsequent ethanol
production facility.
The Company may, with the consent of the Purchaser, also requisition
funds from the restricted cash account for the payment of acquisition costs in
connection with the acquisition of one or more ethanol production facilities. In
addition, the Company may requisition funds from the restricted cash account to
pay for the redemption of the Preferred Stock as provided in the Certificate of
Designations.
FORM OF REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT BETWEEN PACIFIC
ETHANOL, INC. AND CASCADE INVESTMENT, L.L.C.
The Registration Rights and Stockholders Agreement (the "Rights
Agreement") between the Company and the Purchaser is to be executed at the
Closing. The Rights Agreement is to be effective until the holders of the
Preferred Stock, and their affiliates, as a group, own less than 10% of the
Preferred Stock issued under the Purchase Agreement, including common stock into
which such Preferred Stock has been converted (the "Termination Date"). The
Rights Agreement provides that holders of a majority of the Preferred Stock,
including common stock into which such Preferred Stock has been converted, may
demand and cause the Company, at any time after the first anniversary of the
Closing, to register on their behalf the shares of common stock issued, issuable
or that may be issuable upon conversion of the Preferred Stock (the "Registrable
Securities"). Following such demand, the Company is required to notify any other
holders of the Preferred Stock or Registrable Securities of its intent to file a
registration statement and, to the extent requested by such holders, include
them in the related registration statement. The Company is required to keep such
registration statement effective until such time as all of the Registrable
Securities are sold or until such holders may avail themselves of Rule 144(k),
which requires, among other things, a minimum two-year holding period and
requires that any holder availing itself of Rule 144(k) not be an affiliate of
the Company. The holders are entitled to three demand registrations on Form S-1
and unlimited demand registrations on Form S-3; however, the Company is not
obligated to effect more than two demand registrations on Form S-3 in any twelve
month period.
In addition to the demand registration rights afforded the holders
under the Rights Agreement, the holders are entitled to "piggyback" registration
rights. These rights entitle the holders who so elect to be included in
registration statements to be filed by the Company with respect to other
registrations of equity securities. The holders are entitled to unlimited
"piggyback" registration rights.
Certain customary limitations to the Company's registration obligations
are included in the Rights Agreement. These limitations include the right of the
Company to, in good faith, delay or withdrawal registrations requested by the
holders under demand and "piggyback" registration rights, and the right to
exclude certain portions of holders' Registrable Securities upon the advice of
-5-
its underwriters. Following the registration of securities in which holders'
Registrable Securities are included, the Company is obligated to refrain from
registering any of its equity securities or securities convertible into equity
securities until the earlier of the sale of all Registrable Securities subject
to such registration statement and 180-days following the effectiveness of such
registration statement. The Rights Agreement also provides for customary
registration procedures. The Company is responsible for all costs of
registration, plus reasonable fees of one legal counsel for the holders, which
fees are not to exceed $25,000 per registration.
The Rights Agreement includes customary cross-indemnity provisions
under which the Company is obligated to indemnify the holders and their
affiliates as a result of losses caused by untrue or allegedly untrue statements
of material fact contained or incorporated by reference in any registration
statement under which Registrable Securities are registered, including any
prospectuses or amendments related thereto. The Company's indemnity obligations
also apply to omissions of material facts and to any failure on the part of the
Company to comply with any law, rule or regulation applicable to such
registration statement. Each holder is obligated to indemnify the Company and
its affiliates as a result of losses caused by untrue or allegedly untrue
statements of material fact contained in any registration statement under which
Registrable Securities are registered, including any prospectuses or amendments
related thereto, which statements were furnished in writing by that holder to
the Company, but only to the extent of the net proceeds received by that holder
with respect to securities sold pursuant to such registration statement. The
holders' indemnity obligations also apply to omissions of material facts on the
part of the holders.
The Rights Agreement provides for the nomination of two individuals by
the Purchaser for election to the Board of Directors of the Company. In
addition, the Purchaser is entitled to appoint directors or managers with
respect to the Company's subsidiaries. The Company is also required to permit
one of the Purchaser's director designees or other designee to attend, as a
non-voting observer, all meetings of the Company's Executive Committee, when and
if formed, the Company's Audit Committee, and the boards of directors of
subsidiaries of the Company to the extent there is no existing director designee
or other designee of the Purchaser in attendance. The Company is also required
to send to Purchaser's director or other designee all information and materials
provided by the Company to any members of such committees and boards of
directors. In addition, the Company is obligated to cause each person serving
from time to time as an executive officer, director or manager of the Company or
any subsidiary, to execute a voting letter that grants an irrevocable proxy to
the Purchaser with respect to securities held by such persons to vote to carry
out the foregoing provisions.
The Rights Agreement provides for the initial appointment of two
persons designated by the Purchaser to the Board of Directors of the Company,
and the appointment of one of such persons as the Chairman of the Compensation
Committee of the Board of Directors of the Company. Following the Termination
Date, the Purchaser is required to cause its director designees, and all other
designees, to resign from all applicable committees and boards of directors,
effective as of the Termination Date.
The Rights Agreement also provides for the delivery by the Company of
financial information regarding the Company within certain specified time
periods following the conclusion of each calendar quarter and the full calendar
year. In addition, the Rights Agreement provides for reasonable access on the
part of the Purchaser to all of the Company's books, records and other
information and the opportunity to discuss the same with management of the
Company.
-6-
VOTING AGREEMENT DATED NOVEMBER 14, 2005 BY AND AMONG PACIFIC ETHANOL,
INC., CASCADE INVESTMENT, L.L.C. AND THE STOCKHOLDERS NAMED THEREIN
On November 14, 2005, William L. Jones, Neil M. Koehler, Ryan W.
Turner, Kenneth J. Friedman and Frank P. Greinke, each of whom is a director
and/or executive officer of the Company (the "Stockholders"), and the Company,
entered into a Voting Agreement (the "Voting Agreement") with the Purchaser. The
Stockholders collectively hold an aggregate of 9,162,704 shares of the Company's
common stock. The Voting Agreement provides that the Stockholders may not
transfer their shares of the Company's common stock, and must keep their shares
free of all liens, proxies, voting trusts or agreements, until the Voting
Agreement is terminated. The Voting Agreement provides that the Stockholders
will each vote or execute a written consent in favor of the transactions
contemplated by the Purchase Agreement (the "Transactions"). In addition, under
the Voting Agreement, each Stockholder grants an irrevocable proxy to Neil M.
Koehler to act as such Stockholder's proxy and attorney-in-fact to vote or
execute a written consent in favor of the Transactions. The Voting Agreement is
effective until the earlier of the approval of the Transactions by the Company's
stockholders or the termination of the Purchase Agreement in accordance with its
terms.
(2) COMPENSATION OF NON-EMPLOYEE DIRECTORS
On July 26, 2005, the Compensation Committee and the Board of Directors
of the Company adopted resolutions approving various matters relating to
compensation of non-employee directors. On November 10, 2005, the Compensation
Committee and the Board of Directors of the Company adopted resolutions
clarifying, and to the extent already clear, modifying, the compensation of
non-employee directors, as described below.
On November 10, 2005, and effective as of May 18, 2005, compensation
for non-employee directors was established, as described in Exhibit 10.6 to this
Form 8-K and incorporated herein by reference. Previously, on July 26, 2005 and
effective as of May 18, 2005, compensation for non-employee directors was
established as set forth in Exhibit 10.1 to the Company's Form 8-K for July 26,
2005 filed with the Securities and Exchange Commission on August 1, 2005. Under
the previous compensation schedule, enacted July 26, 2005, all non-employee
directors were to receive $1,500 per meeting of the Board of Directors or any
committee meeting attended in person or via telephone, with the Chairman of the
Audit Committee to receive an additional $2,000 for each Audit Committee meeting
attended.
Under the clarified/modified compensation schedule, enacted November
10, 2005 and effective as of May 18, 2005, all non-employee directors are to
receive $1,500 per meeting of the Board of Directors attended in person or via
telephone, with no amounts payable to members of committees of the Board of
Directors for their attendance at committee meetings. In addition, under the
clarified/modified compensation schedule, the Chairman of the Audit Committee is
to receive an additional fee of $3,500 for each calendar quarter of service,
which is in addition to the fees payable for attendance at meetings of the Board
of Directors.
-7-
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
--------------------------------------------
None.
(b) Pro Forma Financial Information.
--------------------------------
None.
(c) Exhibits.
---------
Number Description
------ -----------
10.1 Purchase Agreement dated November 14, 2005 between
Pacific Ethanol, Inc. and Cascade Investment, L.L.C.
10.2 Form of Certificate of Designations, Powers,
Preferences and Rights of the Series A Cumulative
Redeemable Convertible Preferred Stock
10.3 Form of Deposit Agreement between Pacific Ethanol,
Inc. and the Trustee named therein
10.4 Form of Registration Rights and Stockholders
Agreement between Pacific Ethanol, Inc. and Cascade
Investment, L.L.C.
10.5 Voting Agreement dated November 14, 2005 by and among
Pacific Ethanol, Inc., Cascade Investment, L.L.C. and
the Stockholders named therein
10.6 Description of Non-Employee Director Compensation
-8-
SIGNATURE
Pursuant 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.
Date: November 14, 2005 PACIFIC ETHANOL, INC.
By: /S/ RYAN W. TURNER
---------------------------
Ryan W. Turner
Chief Operating Officer
-9-
EXHIBITS FILED WITH THIS REPORT
Number Description
------ -----------
10.1 Purchase Agreement dated November 14, 2005 between Pacific
Ethanol, Inc. and Cascade Investment, L.L.C.
10.2 Form of Certificate of Designations, Powers, Preferences and
Rights of the Series A Cumulative Redeemable Convertible
Preferred Stock
10.3 Form of Deposit Agreement between Pacific Ethanol, Inc. and
the Trustee named therein
10.4 Form of Registration Rights and Stockholders Agreement between
Pacific Ethanol, Inc. and Cascade Investment, L.L.C.
10.5 Voting Agreement dated November 14, 2005 by and among Pacific
Ethanol, Inc., Cascade Investment, L.L.C. and the Stockholders
named therein
10.6 Description of Non-Employee Director Compensation
-10-