FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION FILE NO. 333-127714
PACIFIC ETHANOL, INC.
PROSPECTUS SUPPLEMENT NO. 2 DATED FEBRUARY 2, 2006
TO FINAL PROSPECTUS DATED DECEMBER 5, 2005
The Final Prospectus of Pacific Ethanol, Inc. dated December 5, 2005
and Prospectus Supplement No. 1 dated December 23, 2005 are supplemented to
include the following updated information:
The Following Paragraph is Added Immediately Prior to the "Recent Developments -
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Series A Preferred Stock" Heading in the "Prospectus Summary" Section on Page 4
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of the Final Prospectus:
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RECENT DEVELOPMENTS - DEBT COMMITMENTS
In January 2006, we and one of our indirect wholly-owned subsidiaries
executed two debt commitment letters, one with Hudson United Bank and one with
Comerica Bank for their commitment of debt financing, or the Debt Financing, in
the aggregate amount of up to $34.0 million. The Debt Financing is to provide
part of the financing necessary for the completion of our Madera County ethanol
production facility. The Debt Financing will be subject to acceptable
documentation, including documentation related to representations, warranties,
covenants and default provisions which are to be in form and substance
satisfactory to all parties. The closing of the Debt Financing will be subject
to numerous other conditions, including our contribution of approximately $22.0
million in equity capital to the construction of our Madera County ethanol
production facility. We anticipate using part of the proceeds from the sale of
the Series A Preferred Stock, as described below, to satisfy this condition.
We may be unable to satisfy all conditions to closing and therefore we
may be unable to complete the Debt Financing. If we are unable to close this
transaction, the market price of our stock is likely to decline significantly
and investors purchasing our stock could suffer substantial losses. In addition,
we may be unable to fund the completion of our Madera County ethanol production
facility. If we are able to close this transaction, our debt levels and debt
service requirements could have important consequences which could reduce the
value of your investment. See "Risk Factors - Risks Related to our Combined
Operations" and "Risk Factors - Risks Related to the Business of PEI
California."
The First Risk Factor under "Risk Factors - Risks Related to the Business of PEI
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California" is Replaced with the Following on Page 12 of the Final Prospectus:
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THE COMPLETION OF CONSTRUCTION OF OUR PLANNED ETHANOL PRODUCTION FACILITIES
WILL REQUIRE SIGNIFICANT ADDITIONAL FUNDING, WHICH WE EXPECT TO RAISE
THROUGH DEBT AND EQUITY FINANCING. WE MAY NOT BE SUCCESSFUL IN RAISING
ADEQUATE CAPITAL WHICH MAY FORCE US TO ABANDON CONSTRUCTION OF ONE OR MORE,
OR EVEN ALL, OF OUR PLANNED ETHANOL PRODUCTION FACILITIES.
In order to complete the construction of the various planned ethanol
production facilities, we will require significant additional funding. For
example, we anticipate that we will need to raise an additional $60.0 million in
debt and/or equity financing to complete construction of our first ethanol
production facility in Madera County. Any prospective debt financing transaction
will be subject to the negotiation of definitive documents and any closing under
those documents will be subject to the satisfaction of numerous conditions, many
of which are likely to be beyond our control. We may not be able to obtain any
funding from one or more lenders, or if funding is obtained, that it will be on
terms that we have anticipated or that are otherwise acceptable to us. If we are
unable to secure adequate debt financing, or debt financing on acceptable terms
is unavailable for any reason, we may be forced to abandon our construction of
one or more, or even all, of our planned ethanol production facilities.
The Following Paragraph is Added as the Eighth Full Paragraph Under the
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"Liquidity and Capital Resources" Subsection of the "Management's Discussion and
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Analysis of Financial Condition and Results of Operations" Section on Page 36 of
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the Final Prospectus:
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In January 2006, we and our indirect wholly-owned subsidiary, Pacific
Ethanol Madera, LLC, executed two debt commitment letters, one with Hudson
United Bank and one with Comerica Bank for their commitment of debt financing,
or the Debt Financing, in the aggregate amount of up to $34.0 million. The
closing of the Debt Financing is subject to acceptable documentation and will be
subject to numerous other conditions, including our contribution of
approximately $22.0 million in equity capital to the construction of our Madera
County ethanol production facility. We anticipate using part of the proceeds
from the sale of the Series A Preferred Stock, as described below, to satisfy
this condition. We may be unable to satisfy all conditions to closing and
therefore we may be unable to complete the Debt Financing. If we are unable to
close this transaction, the market price of our stock is likely to decline
significantly and investors purchasing our stock could suffer substantial
losses. In addition, we may be unable to fund the completion of our Madera
County ethanol production facility.
Selling Security Holder Table
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The "Selling Security Holder" table contained in the Final Prospectus
is updated to reflect a gift of warrants to purchase 3,000 shares of common
stock of Pacific Ethanol, Inc. from Stephan H. Kim to The Living Hope Church.
Shares of Shares of
Common Stock Common Stock
Beneficially Owned Shares of Beneficially Owned
Name of Prior to Offering Common Stock After Offering
Beneficial Owner Number Percentage Being Offered Number Percentage
-------------------------------------- -------------- ------------ ----------------- ---------- ------------
Stephan H. Kim........................ 10,000 (83) * 10,000 (n)(83) -- --
The Living Hope Church................ 3,000 (92) * 3,000 (t)(92) -- --
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* Less than 1.0%.
(a) The shares of common stock and the warrants exchanged by the selling
security holder in connection with the Share Exchange Transaction for
the shares of common stock offered hereunder, including shares of
common stock that underlie warrants, were initially acquired from PEI
California in a private placement transaction in March 2005 under which
PEI California raised an aggregate of $21.0 million at $3.00 per share
and issued 7.0 million shares of common stock and warrants to purchase
an aggregate of 700,000 and 1.4 million shares of common stock at an
exercise price of $5.00 and $3.00 per share, respectively. PEI
California also issued placement agent warrants to acquire up to an
aggregate of 678,000 shares of common stock at an exercise price of
$3.00 per share. In aggregate, 9,778,000 shares of common stock
resulting from this private placement transaction are being offered
hereunder for resale.
(n) The shares of common stock offered by the selling security holder
hereunder underlie warrants transferred to the holder by Northeast
Securities, Inc. that were initially acquired from PEI California in
connection with the private placement offering described in footnote
(a) above. Northeast Securities, Inc. acted as a placement agent and
initially received these warrants as compensation for services
performed in connection with the private placement offering described
in footnote (a) above. In connection with its March 2005 private
offering, PEI California entered into an agreement with Northeast
Securities, Inc. for placement agent services. Under this agreement,
PEI California agreed to pay to Northeast Securities, Inc. 6% of gross
proceeds plus a 1% non-accountable expense allowance as well as
warrants exercisable at the offering price in an amount equal to 7% of
the aggregate number of shares of common stock sold in the private
offering. Under this agreement, PEI California paid to Northeast
Securities, Inc. approximately $1.2 million and issued warrants to
Northeast Securities, Inc. to purchase 450,800 shares of common stock
at $3.00 per share.
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(t) The shares of common stock offered by the selling security holder
hereunder underlie warrants transferred by gift to the holder by
Stephan H. Kim, which warrants were initially acquired as described in
footnote (n) above.
(83) Represents shares underlying warrants.
(92) Represents shares underlying warrants. Power to vote or dispose of the
shares is held by Stephan H. Kim as Finance Director of The Living Hope
Church.
(End of Prospectus Supplement No. 2.)
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