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) APRIL 13, 2006
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PACIFIC ETHANOL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-2170618
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(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
000-21467
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(Commission File Number)
5711 N. WEST AVENUE, FRESNO, CALIFORNIA 93711
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(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 was
created under the Certificate of Designations described below. Of the $84
million aggregate purchase price, $4 million was paid to the Company at closing
and $80 million was deposited into a restricted cash account to be 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.
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 was filed prior to the closing of the purchase and sale of the
Preferred Stock (the "Closing"). The 5,250,000 shares of Preferred Stock issued
under the Purchase Agreement had a purchase price of $16.00 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 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.
2
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 $8.00 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 Common Stock into which each
share of Preferred Stock is convertible on all matters to be voted on by the
stockholders of the Corporation; provided however that, the number of votes for
each share of Preferred Stock shall not exceed the number of shares of Common
Stock into which each share of Preferred Stock would be convertible if the
applicable Conversion Price were $8.99 (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other similar recapitalizations
affecting such shares). 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 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.
3
The holders of the Preferred Stock are afforded preemptive rights with
respect to certain securities offered by the Company. Each holder has 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.
DEPOSIT AGREEMENT DATED APRIL 13, 2006 BETWEEN PACIFIC ETHANOL, INC.
AND COMERICA BANK
The Deposit Agreement between the Company and Comerica Bank (the
"Deposit Agreement"), was 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 was 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 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.
4
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.
REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT DATED APRIL 13, 2006
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 was 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
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.
5
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
(2) LOAN FINANCING FROM HUDSON UNITED CAPITAL AND COMERICA BANK
CONSTRUCTION AND TERM LOAN AGREEMENT DATED APRIL 10, 2006 BY AND AMONG
PACIFIC ETHANOL MADERA LLC, COMERICA BANK AND HUDSON UNITED CAPITAL, A
DIVISION OF TD BANKNORTH, N.A.
On April 13, 2006, one of our indirect wholly-owned subsidiaries,
Pacific Ethanol Madera LLC ("PEI Madera"), entered into a Construction and Term
Loan Agreement dated April 10, 2006 (the "Construction Loan"), with Hudson
United Capital, a division of TD Banknorth, N.A. ("Hudson") and Comerica Bank
("Comerica"). This debt financing ("Debt Financing") is in the aggregate amount
of up to approximately $34.0 million and will provide a portion of the total
financing necessary for the completion of our ethanol production facility in
Madera County (the "Project"). The Project cost is not to exceed approximately
$65.1 million (the "Project Cost").
Subject to the terms and conditions of the Construction and Term Loan
Agreement and related documents, Hudson will fund up to $22.1 million and
Comerica will fund up to $11.9 million of the Debt Financing. The Debt Financing
includes customary representations, warranties, covenants, default and other
provisions.
Substantial completion of the Project is to occur within 425 days of
the final notice to proceed. The final completion date is the date that the
Project (a) has successfully been constructed and completed; (b) has passed all
performance and acceptance tests reasonably acceptable to Hudson and Comerica
and their engineer; and (c) the engineer has provided an acceptable completion
certificate (the "Final Completion Date"). The Final Completion Date is to occur
within 545 days from the notice to proceed.
The Debt Financing will initially be in the form of a construction loan
(the "Construction Loan"), that will mature on or before the Final Completion
Date, after which the Debt Financing will be converted to a term loan (the "Term
Loan"), that will mature on the seventh anniversary of the closing of the Term
Loan. If the conversion does not occur and PEI Madera elects to repay the
Construction Loan, then PEI Madera must pay a termination fee equal to 5.00% of
the amount of the Construction Loan. The closing of the Term Loan is expected to
be the Final Completion Date. The Construction Loan interest rate will float at
a rate equal to the 30-day London Inter Bank Offered Rate ("LIBOR"), plus 3.75%.
PEI Madera will be required to pay the Construction Loan interest monthly during
the term of the Construction Loan. The Term Loan interest rate will float at a
rate equal to the 90-day LIBOR plus 4.00%. PEI Madera will be required to
purchase interest rate protection in the form of a LIBOR rate cap of no more
than 5.50% from a provider on terms and conditions reasonably acceptable to
Hudson, and in an amount covering no less than 70% of the principal outstanding
on any loan payment date commencing on the first draw down date through the
fifth anniversary of the Term Loan. Loan repayments on the Term Loan are to be
due quarterly in arrears for a total of 28 payments beginning on the closing of
the Term Loan and ending on its maturity date. The loan amortization for the
Project will be established on the closing of the Term Loan based upon the
operating cash projected to be available to PEI Madera from the Project as
determined by closing pro forma projections. The Debt Financing will be senior
to all obligations of the Project and PEI Madera other than direct Project
operating expenses and expenses incurred in the ordinary course of business. All
direct and out-of-pocket expenses of Pacific Ethanol or our direct and indirect
subsidiaries will be reimbursed only after the repayment of the Debt Financing
obligations.
7
The Term Loan amount is to be the lesser of (i) $34.0 Million, (ii)
52.25% of the total Project cost as of the Term Loan conversion date, and (iii)
an amount equal to the present value (discounted at an interest rate of 9.5% per
annum) of 43.67% of the operating cash distributable to and received by PEI
Madera supported by the closing pro forma projections, from the closing of Term
Loan through the seventh anniversary of such closing.
CONSTRUCTION LOAN NOTE DATED APRIL 13, 2006 BY PACIFIC ETHANOL MADERA
LLC IN FAVOR OF HUDSON UNITED CAPITAL, A DIVISION OF TD BANKNORTH, N.A.
The Debt Financing is partially memorialized by a Construction Loan
Note dated April 13, 2006 by PEI Madera in favor of Hudson. The Construction
Loan Note in favor of Hudson has a face value of $22.1 million. This
Construction Loan Note is due October 13, 2007 and contains customary terms and
conditions.
CONSTRUCTION LOAN NOTE DATED APRIL 13, 2006 BY PACIFIC ETHANOL MADERA
LLC IN FAVOR OF COMERICA BANK
The Debt Financing is partially memorialized by a Construction Loan
Note dated April 13, 2006 by PEI Madera in favor of Comerica. The Construction
Loan Note in favor of Comerica has a face value of $11.9 million. This
Construction Loan Note is due October 13, 2007 and contains customary terms and
conditions.
ASSIGNMENT AND SECURITY AGREEMENT DATED APRIL 13, 2006 BY AND BETWEEN
PACIFIC ETHANOL MADERA LLC AND HUDSON UNITED CAPITAL, A DIVISION OF TD
BANKNORTH, N.A.
MEMBER INTEREST PLEDGE AGREEMENT DATED APRIL 13, 2006 BY PACIFIC
ETHANOL MADERA LLC IN FAVOR OF HUDSON UNITED CAPITAL, A DIVISION OF TD
BANKNORTH, N.A.
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING DATED APRIL 13, 2006 BY PACIFIC ETHANOL MADERA LLC IN
FAVOR OF HUDSON UNITED CAPITAL, A DIVISION OF TD BANKNORTH, N.A.
On April 13, 2006, PEI Madera entered into (a) an Assignment and
Security Agreement dated April 13, 2006 with Hudson, (b) a Membership Interest
Pledge Agreement dated April 13, 2006 with Hudson, and (c) a Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing dated
April 13, 2006 in favor of Hudson. Under these Agreements, the Debt Financing is
secured by: (i) a perfected first priority security interest in all of the
assets of PEI Madera, including inventories and all right title and interest in
all tangible and intangible assets of the Project; (ii) a perfected first
priority security interest in the Project's grain facility, including all of PEI
Madera's and Pacific Ethanol's and its affiliates' right title and interest in
all tangible and intangible assets of the Project's grain facility; (iii) a
pledge of 100% of the ownership interest in PEI Madera; (iv) a pledge of the PEI
Madera's ownership interest in the Project; (v) an assignment of all revenues
produced by the Project and PEI Madera; (vi) the pledge and assignment of the
material Project documents, to the extent assignable; (vii) all contractual cash
flows associated with such agreements; and (viii) any other collateral security
as Hudson may reasonably request.
8
DISBURSEMENT AGREEMENT DATED APRIL 13, 2006 BY AND AMONG PACIFIC
ETHANOL MADERA LLC, HUDSON UNITED CAPITAL, A DIVISION OF TD BANKNORTH,
N.A., COMERICA BANK AND WEALTH MANAGEMENT GROUP OF TD BANKNORTH, N.A.
On April 13, 2006, PEI Madera entered into a Disbursement Agreement
dated April 13, 2006 with Hudson, Comerica and Wealth Management Group of TD
Banknorth, N.A. Under the terms of the Disbursement Agreement, Hudson and
Comerica are, from time to time, to fund a construction draw account ("CDA")
with Debt Financing proceeds in an amount equal to PEI Madera's draw request,
subject to the draw schedule. PEI Madera is to submit a Project construction and
draw schedule in order to obtain amounts deposited into the CDA. The Debt
Financing is to be used to finance a portion of qualified project construction
expenses, as approved by PEI Madera and Hudson's engineer ("QPCEs"), not funded
by the Contributed Amount. Beginning on the closing of the Construction Loan,
and continuing for all future draws, PEI Madera will be permitted to withdraw
monthly up to 100% of the QPCEs, including amounts necessary to pay interest,
but only up to the amount held in the CDA, provided that no event of default has
occurred and is continuing, and the withdrawal does not exceed the amount
referenced in the draw schedule. On each draw subsequent to the funding of
amounts into the CDA, the Hudson will withdraw from the CDA the accrued interest
on the Debt Financing.
All revenue from the Project is to be placed in a project revenue
account, which is to be an interest bearing lock-box account controlled by
Hudson (the "PRA"). Hudson is to designate an escrow agent as trustee for the
PRA. PEI Madera is to assign all cash available to PEI Madera from the Project
to the PRA. Withdrawals can be made from the PRA only for qualified operating
and maintenance expenses, principal and interest for debt service, fees and
qualified expenses of Hudson and Comerica, amounts necessary to fund reserves to
required levels, mandatory prepayments, payment of any QPCEs, and distributions
to PEI Madera and the Company. PEI Madera may withdraw excess funds from the PRA
after the payments above have been satisfied.
Upon the closing of the Term Loan, and on each of the first three
payment dates, PEI Madera is to fund a debt service reserve account ("DSRA") in
an amount equal to the scheduled debt service payments that are projected to be
due on the succeeding two payment dates. On the fourth and each subsequent
payment date, PEI Madera is to fund the DSRA in an amount equal to the scheduled
debt service payments that are projected to be due on the succeeding four
payments dates. Once funded, PEI Madera is to maintain funds in the DSRA in an
amount equal to the required balance, such that subsequent to the closing of the
Term Loan, if there is at any time a shortfall between the amount contained in
the DSRA and the required balance, as provided above, then the amount of such
shortfall is to be funded from 100% of operating cash after the payment of
scheduled debt service payments. PEI Madera will be prohibited from making any
distributions or any payment until the DSRA is fully funded up to the amount of
the required balance.
9
The minimum debt service coverage ratio is to be no less than 1.5 to
1.0. In the event that the debt service coverage ratio falls below the stated
minimum, then all excess funds in the project revenue account after the debt
service payments on the Term Loan and the payment of operating expenses are to
be deposited into the DSRA until such time as the DSRA has reached the required
balance plus any additional required balance.
The trustee of the PRA will be required to utilize all operating cash
towards the payment of all obligations of PEI Madera in the following order of
priority: (a) on a monthly basis, on approved and qualified operating and
maintenance expenses with respect to the Project, property taxes, assessments
and other expenses approved by the Hudson; and (b) on a quarterly basis, all
interest, fees, and expenses due Hudson and Comerica, all scheduled principal
payments due under the Term Loan, any amount necessary to fund the DSRA to its
required balances or adjusted required balance, mandatory prepayments due under
the Term Loan, supplemental amortization payments due under the Term Loan,
supplemental principal payments due under the Term Loan, and distributions to
PEI Madera and the Company.
(3) LYLES DIVERSIFIED, INC.
AMENDED AND RESTATED TERM LOAN AGREEMENT EFFECTIVE AS OF APRIL 13, 2006
BY AND BETWEEN LYLES DIVERSIFIED, INC. AND PACIFIC ETHANOL MADERA LLC
On April 13, 2006, PEI Madera entered into an Amended and Restated Term
Loan Agreement ("Amended and Restated Term Loan Agreement") dated April 13, 2006
with Lyles Diversified, Inc. ("Lyles"). Under this Amended and Restated Term
Loan Agreement the Company was replaced by PEI Madera as the obligor under the
Agreement.
The Amended and Restated Term Loan Agreement provides that the
outstanding principal amount on the loan is $3.6 million. Outstanding principal
amounts accrued interest at the rate of five percent per annum through June 19,
2004 and accrue interest at a rate per annum equal to the prime rate as
published in THE WALL STREET JOURNAL plus two percentage points from June 20,
2004 until maturity. One-third of the principal outstanding on June 20, 2006 is
payable on that date and one-half of the principal outstanding on June 20, 2007
is payable on that date. All remaining outstanding principal, together with any
accrued interest thereon, is due and payable on June 20, 2008. PEI Madera will
be required to prepay principal outstanding in the event that (i) PEI Madera's
construction cost for its Madera facility is less than $42.6 million, in which
case PEI Madera is then required to pay the difference between the actual
construction cost and $42.6 million, up to the full amount of the principal
outstanding, or (ii) PEI Madera obtains construction financing for its second
facility to be constructed, in which case PEI Madera is then required to pay all
principal and accrued interest outstanding. The Amended and Restated Term Loan
Agreement contains standard representations and warranties, covenants, events of
default and remedies upon the occurrence of an event of default. Amounts owed by
and obligations of PEI Madera under the Amended and Restated Term Loan Agreement
are subordinated to amounts owed by and obligations of PEI Madera to Hudson and
Comerica in connection with the Construction Loan.
10
LETTER AGREEMENT DATED AS OF APRIL 13, 2006 BY AND AMONG PACIFIC
ETHANOL CALIFORNIA, INC., LYLES DIVERSIFIED, INC. AND PACIFIC ETHANOL
MADERA LLC
On April 13, 2006, PEI Madera and Pacific Ethanol California, Inc.
("PEI California"), one of our direct wholly-owned subsidiaries, entered into a
Letter Agreement (the "Letter Agreement") dated as of April 13, 2006 with Lyles.
The Letter Agreement provides that in the event that PEI Madera is prevented
from paying principal amounts owed to Lyles under the Amended and Restated Term
Loan Agreement as a result of the subordination of such amounts by Lyles in
favor of Hudson and Comerica, then PEI California is to pay such amounts.
DEED OF TRUST (NON-CONSTRUCTION) SECURITY AGREEMENT AND FIXTURE FILING
WITH ASSIGNMENT OF RENTS DATED APRIL 13, 2006 BY PACIFIC ETHANOL MADERA
LLC IN FAVOR OF LYLES DIVERSIFIED, INC.
In connection with the Amended and Restated Term Loan Agreement, Lyles
was granted a security interest in the real property on which the PEI Madera's
facility is to be constructed pursuant to a Deed of Trust (Non-Construction)
Security Agreement and Fixture Filing with Assignment of Rents dated April 13,
2006 by PEI Madera in favor of Lyles.
(4) INDEMNIFICATION AGREEMENTS - THOMAS AND KIETA
INDEMNIFICATION AGREEMENT DATED APRIL 13, 2006 BETWEEN PACIFIC ETHANOL,
INC. AND ROBERT THOMAS
INDEMNIFICATION AGREEMENT DATED APRIL 13, 2006 BETWEEN PACIFIC ETHANOL,
INC. AND DOUGLAS L. KIETA
Effective as of April 13, 2006, the Company entered into
Indemnification Agreements with each of Robert Thomas and Douglas L. Kieta
(each, an "Indemnitee") in connection with service by Messrs. Thomas and Kieta
as members of the Board of Directors of the Company. Messrs. Thomas and Kieta
were appointed as members of the Board of Directors of the Company on April 13,
2006. The form of Indemnification Agreement is included as Exhibit 10.15 to this
Report on Form 8-K.
Under the Indemnification Agreement, the Company has agreed to
indemnify the Indemnitee in connection with any third-party proceeding or
threatened proceeding against the Indemnitee or in connection with a proceeding
or threatened proceeding by or in the right of the Company, such as a
stockholder derivative suit, by reason of the fact that the Indemnitee is or was
an officer and/or director of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another enterprise,
against all Expenses or Losses actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of any such proceeding,
to the fullest extent permitted by the Delaware General Corporation Law, whether
or not the Indemnitee was the successful party in any such proceeding; provided,
however, that any settlement of a third-party proceeding must be approved in
writing by the Company, and any settlement of a proceeding by or in the right of
the Company is settled with the approval of a court of competent jurisdiction or
indemnification of such amounts is otherwise ordered by a court of competent
jurisdiction in connection with such proceeding.
"Expenses" means all costs, charges and expenses incurred in connection
with a proceeding, including, without limitation, attorneys' fees, disbursements
and retainers, accounting and witness fees, travel and deposition costs,
expenses of investigations, judicial or administrative proceedings or appeals,
and any expenses of establishing a right to indemnification pursuant to the
agreement or otherwise, including reasonable compensation for time spent by the
Indemnitee in connection with the investigation, defense or appeal of a
proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party; provided, however, that the term
"Expenses" does not include Losses.
11
"Losses" means any amount which Indemnitee pays or is obligated to pay
in connection with a proceeding, including, without limitation, (i) the amount
of damages, judgments, amounts paid in settlement, fines or penalties relating
to any proceeding, (ii) sums paid in respect of any deductible under any
applicable director and officer insurance or (iii) excise taxes under the
Employee Retirement Income Security Act of 1974, as amended, relating to any
proceeding, either of which are actually levied against the Indemnitee or paid
by or on behalf of the Indemnitee; provided, however, that the term "Losses"
does not include Expenses.
With respect to any proceeding that is other than by or in the right of
the Company, the Indemnitee may require the Company to defend him. In the event
that Indemnitee requires the Company to defend him, the Company must promptly
undertake to defend any such proceeding at the Company's sole expense, employing
counsel satisfactory to the Indemnitee. If the Company fails timely to defend,
contest or otherwise protect the Indemnitee against any proceeding which is not
by or in the right of the Company, the Indemnitee shall have the right to do so,
including without limitation, the right to make any compromise or settlement
thereof, and to recover from the Company all Expenses and Losses and amounts
paid as a result thereof.
In addition, the Company is required to advance expenses on behalf of
the Indemnitee in connection with Indemnitee's defense in any such proceeding;
provided, that the Indemnitee undertakes in writing to repay such amounts to the
extent that it is ultimately determined that the Indemnitee is not entitled to
indemnification by the Company.
No indemnification payments or payments for Expenses or Losses may be
made by the Company under the agreement (i) to indemnify or advance Expenses to
the Indemnitee with respect to actions initiated or brought voluntarily by the
Indemnitee and not by way of defense, except with respect to actions brought to
establish or enforce a right to indemnification or advancement of Expenses or
Losses under the agreement or any other statute or law or otherwise as required
under the Delaware General Corporation Law, but such indemnification or
advancement of Expenses or Losses may be provided by the Company in specific
cases if approved by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who are not parties to such action, (ii) to
indemnify the Indemnitee for any Expenses or Losses for which payment is
actually made to the Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount paid under such insurance,
(iii) to indemnify the Indemnitee for any Expenses or Losses for which the
Indemnitee has been or is indemnified by the Company or any other party
otherwise than pursuant to the agreement, or (iv) to indemnify the Indemnitee
for any Expenses or Losses sustained in any proceeding for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Company pursuant to the provisions of Section 16(b) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder or similar
provisions of any federal, state or local statutory law.
12
The Company is also required under the agreement, at the Indemnitee's
request, to maintain in full force and effect, at its sole cost and expense,
directors' and officers' liability insurance by an insurer, in an amount and
with a deductible reasonably acceptable to the Indemnitee covering the period
during which the Indemnitee is serving in any one or more of the capacities
covered by the agreement and for so long thereafter as the Indemnitee shall be
subject to any possible claim or threatened, pending or completed proceeding by
reason of the fact that the Indemnitee is serving in any of the capacities
covered by the agreement.
(5) INDEMNIFICATION AGREEMENTS - EXECUTIVE OFFICERS AND DIRECTORS
INDEMNIFICATION AGREEMENTS BETWEEN PACIFIC ETHANOL, INC. AND EACH OF
ITS EXECUTIVE OFFICERS AND DIRECTORS
The Company entered into new Indemnification Agreements effective as of
April 13, 2006 with each of its executive officers and members of its Board of
Directors other than Messrs. Thomas and Kieta in connection with service to the
Company by such persons. The form of Indemnification Agreement is included as
Exhibit 10.15 to this Report on Form 8-K.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
(a) Effective as of April 13, 2006, the Company consummated a Loan
Financing Transaction with Hudson United Capital and Comerica Bank as described
above under Item 1.01.
(b) Not applicable.
ITEM 3.03 MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS
(a) Not applicable.
(b) Effective as of April 13, 2006, the Company consummated the sale of
its Series A Preferred Stock to Cascade Investment, L.L.C. as described above
under Item 1.01. The rights and preferences of the Series A Preferred Stock are
set forth in the Certificate of Designations, Powers, Preferences and Rights of
the Series A Cumulative Redeemable Convertible Preferred Stock as also described
above under Item 1.01.
ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS.
(a) Not applicable.
(b) Effective as of April 13, 2006, Charles W. Bader and Kenneth J.
Friedman each resigned as members of the Board of Directors of the Company.
Effective as of April 13, 2006, Mr. Friedman also resigned as a member of the
Audit, Nominating and Corporate Governance, and Compensation Committees of the
Board of Directors of the Company.
(c) Not applicable.
13
(d) Effective as of April 13, 2006, the Board of Directors of the
Company appointed Robert Thomas and Douglas L. Kieta as members of the Board of
Directors of the Company. Effective as of April 13, 2006, the Board of Directors
of the Company also appointed Mr. Thomas as a member of the Audit and
Compensation Committees of the Board of Directors of the Company and appointed
Mr. Kieta as a member of the Nominating and Governance Committee of the Board of
Directors of the Company. Effective as of April 13, 2006, Mr. Thomas was also
appointed as the Chairman of the Compensation Committee.
Messrs. Thomas and Kieta were appointed by the Board of Directors of
the Company as contemplated by the Registration Rights and Stockholders
Agreement described above.
ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR
(a) Effective as of April 13, 2006, the Company consummated the sale of
its Series A Preferred Stock to Cascade Investment, L.L.C. as described above
under Item 1.01. The rights and preferences of the Series A Preferred Stock are
set forth in the Certificate of Designations, Powers, Preferences and Rights of
the Series A Cumulative Redeemable Convertible Preferred Stock as also described
above under Item 1.01.
(b) Not applicable.
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. (1)
10.2 Certificate of Designations, Powers, Preferences
and Rights of the Series A Cumulative Redeemable
Convertible Preferred Stock (2)
10.3 Deposit Agreement dated April 13, 2006 by and
between Pacific Ethanol, Inc. and Comerica Bank
(2)
10.4 Registration Rights and Stockholders Agreement
dated as of April 13, 2006 by and between Pacific
Ethanol, Inc. and Cascade Investment, L.L.C. (2)
14
10.5 Construction and Term Loan Agreement dated April
10, 2006 by and among Pacific Ethanol Madera LLC,
Comerica Bank and Hudson United Capital, a
division of TD Banknorth, N.A. (2)
10.6 Construction Loan Note dated April 13, 2006 by
Pacific Ethanol Madera LLC in favor of Hudson
United Capital, a division of TD Banknorth, N.A.
(2)
10.7 Construction Loan Note dated April 13, 2006 by
Pacific Ethanol Madera LLC in favor of Comerica
Bank (2)
10.8 Assignment and Security Agreement dated April 13,
2006 by and between Pacific Ethanol Madera LLC and
Hudson United Capital, a division of TD Banknorth,
N.A. (2)
10.9 Member Interest Pledge Agreement dated April 13,
2006 by Pacific Ethanol Madera LLC in favor of
Hudson United Capital, a division of TD Banknorth,
N.A. (2)
10.10 Disbursement Agreement dated April 13, 2006 by and
among Pacific Ethanol Madera LLC, Hudson United
Capital, a division of TD Banknorth, N.A.,
Comerica Bank and Wealth Management Group of TD
Banknorth, N.A. (2)
10.11 Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing dated April
13, 2006 by Pacific Ethanol Madera LLC in favor of
Hudson United Capital, a division of TD Banknorth,
N.A. (*)
10.12 Amended and Restated Term Loan Agreement effective
as of April 13, 2006 by and between Lyles
Diversified, Inc. and Pacific Ethanol Madera LLC
(2)
10.13 Letter Agreement dated as of April 13, 2006 by and
among Pacific Ethanol California, Inc., Lyles
Diversified, Inc. and Pacific Ethanol Madera LLC
(2)
10.14 Deed of Trust (Non-Construction) Security
Agreement and Fixture Filing with Assignment of
Rents dated April 13, 2006 by Pacific Ethanol
Madera LLC in favor of Lyles Diversified, Inc. (*)
10.15 Form of Indemnification Agreement between the
Company and each of its Executive Officers and
Directors (2)
---------------
* Filed herewith.
(1) Filed as an exhibit to the Company's current report
on Form 8-K for November 10, 2005 filed with the
Securities and Exchange Commission on November 15,
2005 and incorporated herein by reference.
(2) Filed as an exhibit to the Company's annual report on
Form 10-KSB for December 31, 2005 (File No. 0-21467)
filed with the Securities and Exchange Commission on
April 14, 2006 and incorporated herein by reference.
15
SIGNATURES
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: April 19, 2006 PACIFIC ETHANOL, INC.
By: /S/ WILLIAM G. LANGLEY
-------------------------------------------
William G. Langley, Chief Financial Officer
16
EXHIBITS FILED WITH THIS REPORT
Number Description
------ -----------
10.11 Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing dated April 13, 2006 by Pacific Ethanol Madera LLC in
favor of Hudson United Capital, a division of TD Banknorth, N.A.
10.14 Deed of Trust (Non-Construction) Security Agreement and Fixture
Filing with Assignment of Rents dated April 13, 2006 by Pacific
Ethanol Madera LLC in favor of Lyles Diversified, Inc.
17