424B3
PROSPECTUS
2,775,851
Shares
PACIFIC
ETHANOL, INC.
Common
Stock
_____________________
This
a
public offering of 2,775,851 shares of our common stock, including an aggregate
of 2,081,888 issued and outstanding shares of our common stock and an aggregate
of 693,963 shares of our common stock underlying a warrant. All shares are
being
offered by the selling security holder identified in this prospectus. We will
not receive any of the proceeds from the sale of shares by the selling security
holder. Our common stock is quoted on the Nasdaq Global Market under the symbol
“PEIX.” On November 3, 2006, the closing sale price of our common stock on the
Nasdaq Global Market was $15.34 per share.
The
mailing address and the telephone number of our principal executive offices
are
5711 N. West Avenue, Fresno, California 93711, (559) 435-1771.
_____________________
Investing
in our shares of common stock involves risks. See “Risk Factors” beginning on
page 7 for factors you should consider before buying shares of our common
stock.
_____________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
accurate or complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is November 6, 2006.
TABLE
OF CONTENTS
To
fully understand this offering and its consequences to you, you should read
the
following summary along with the more detailed information and our consolidated
financial statements and the notes to those statements incorporated by reference
in this prospectus. In this prospectus, the words “we,” “us,” “our” and similar
terms refer to Pacific Ethanol, Inc., a Delaware corporation, together with
its
subsidiaries unless the context provides otherwise.
Pacific
Ethanol, Inc.
Our
primary goal is to become the leading producer and marketer of renewable
fuels
in the Western United States.
We
are
currently engaged in the business of producing and marketing ethanol in the
Western United States. We provide transportation, storage and delivery of
ethanol through third-party service providers and sell ethanol primarily
in
California, Nevada, Arizona, Washington, Oregon and Colorado. We have extensive
customer relationships throughout the Western United States and extensive
supplier relationships throughout the Western and Midwestern United
States.
We
believe that we have a competitive advantage due to the market niche that
we
have developed by supplying ethanol to customers in several major metropolitan
and rural markets in California and other Western states. We also believe
that
the experience of our management over the past two decades and our ethanol
marketing and sales operations conducted over the past five years have enabled
us to establish valuable relationships in the ethanol marketing industry
and
understand the business of marketing ethanol.
We
have
recently completed construction of an ethanol production facility in Madera
County, California, which is expected to produce at least 35 million gallons
of
ethanol per year. This facility is currently undergoing start-up testing
and we
expect to begin the production and sale of ethanol and its co-products by
mid-November 2006. We are also constructing an ethanol production facility
located in Boardman, Oregon, which when completed is expected to produce
at
least 35 million gallons of ethanol per year. In addition, we are currently
in
advanced stages of development of three other ethanol facilities in two Western
states. We also intend to construct or otherwise acquire additional ethanol
production facilities as financing resources and business prospects make
the
construction or acquisition of these facilities advisable.
In
October 2006, we acquired from Eagle Energy, LLC 10,095 Class B Voting
Units
representing approximately 42% of the outstanding membership interests
of Front
Range Energy, LLC, which owns and operates a corn ethanol production facility
located in Windsor, Colorado, with nameplate annual production capacity
of 40
million gallons. The facility is capable of operating at an annual production
rate of approximately 47 million gallons, subject to modification of applicable
permits. As consideration for the acquisition of the membership interests,
we
paid to Eagle Energy, LLC $30 million in cash and issued to Eagle Energy,
LLC an
aggregate of 2,081,888 shares of our common stock and a warrant to purchase
an
aggregate of up to 693,963 shares of our common stock at an exercise price
of
$14.41 per share. The warrant is exercisable immediately through and including
October 17, 2007. The warrant contains both cash and cashless exercise
provisions.
In
May
2006, we raised an aggregate of $145 million in gross proceeds in a private
offering at $26.38 per share and issued 5,496,583 shares of common stock
and
warrants to purchase an aggregate of 2,748,297 shares of common stock at
an
exercise price of $31.55 per share. Net proceeds from this private offering
totaled approximately $138 million, a portion of which will be used to
complete
the construction of additional ethanol production
facilities.
In
April
2006, we raised $84 million in a private offering of our Series A
Cumulative Redeemable Convertible Preferred Stock and secured up to
approximately $34
million in debt financing. A portion of the preferred stock financing
and the
entire amount of the debt financing may be used to complete the construction
of
additional ethanol production facilities. The debt financing may also
be used in
connection with a refinancing of our ethanol production facility in Madera
County.
A
portion
of the preferred stock financing and the entire amount of the debt financing
may
be used to complete the construction of additional ethanol production
facilities.
In
March
2005, we completed a share exchange transaction, or Share Exchange Transaction,
with the shareholders of PEI California, and the holders of the membership
interests of each of Kinergy Marketing, LLC, or Kinergy, and ReEnergy,
LLC, or
ReEnergy. Upon completion of the Share Exchange Transaction, we acquired
all of
the issued and outstanding shares of capital stock of PEI California
and all of
the outstanding membership interests of each of Kinergy and ReEnergy.
Immediately prior to the consummation of the Share Exchange Transaction,
our
predecessor, Accessity Corp., a New York corporation, or Accessity,
reincorporated in the State of Delaware under the name Pacific Ethanol,
Inc.
Corporate
Information
Our
principal executive offices are located at 5711 N. West Avenue, Fresno,
California 93711. Our telephone number is (559) 435-1771. Our Internet
address
is www.pacificethanol.net.
Information contained on, or that is accessible through, our websites
should not
be considered to be part of this prospectus.
|
Common
stock offered by the selling security holder
|
2,775,851
shares
|
|
Common
stock outstanding prior to this offering
|
40,293,434
shares
|
|
Common
stock to be outstanding after this offering
|
40,987,397
shares(1)
|
|
Use
of proceeds
|
All
proceeds of this offering will be received by the selling
security holder
for its own account. See “Use of Proceeds.”
|
|
Nasdaq
Global Market symbol
|
PEIX
|
__________
| (1)
|
Represents
40,293,434 shares of common stock currently outstanding plus
693,963
shares of common stock underlying a warrant to purchase common
stock.
Other than the 693,963 shares of common stock underlying
the warrant, all
shares of common stock offered by the selling security holder
are issued
and outstanding.
|
The
number of shares of common stock being offered by the selling security
holder
includes an aggregate of 2,081,888 outstanding shares of common stock
held by
the selling security holder and assumes the exercise of a warrant whose
underlying shares of common stock are covered by this prospectus in
exchange for
693,963 shares of common stock, and the immediate resale of all of
those
2,775,851 shares of common stock. The number of shares of common stock
that will
be outstanding upon the completion of this offering is based on the
40,293,434
shares outstanding as of November 3, 2006, and excludes the
following:
| · |
1,106,997
shares of common stock remaining reserved for issuance under
our 2006
Stock Incentive Plan;
|
| · |
665,000
shares of common stock remaining reserved for issuance under our
2004
Stock Option Plan, of which options to purchase 665,000 shares were
outstanding as of that date, at a weighted average exercise price
of $7.83
per share;
|
| · |
options
to purchase 63,000 shares of common stock outstanding as of that
date
under our Amended 1995 Incentive Stock Plan, at a weighted average
exercise price of $5.83 per share;
|
| · |
2,934,798
shares of common stock underlying warrants outstanding as of that
date,
not including warrants covered by the registration statement of which
this
prospectus is a part, at a weighted average exercise price of $29.19
per
share;
|
| · |
any
additional shares of common stock we may issue from time to time
after
that date.
|
Summary
Consolidated Historical Financial Data
The
following financial data should be read in conjunction with the consolidated
financial statements and the related notes thereto and our “Management’s
Discussion and Analysis or Plan of Operation” discussions, all of which are
incorporated by reference into this prospectus.
The
consolidated statements of operations data for the six months ended June 30,
2006 and 2005 and the consolidated balance sheet data at June 30, 2006 and
2005
are derived from the consolidated unaudited financial statements incorporated
by
reference into this prospectus. The consolidated statements of operations data
for the years ended December 31, 2005, 2004 and 2003 and the consolidated
balance sheet data at December 31, 2005, 2004 and 2003 are derived from the
consolidated audited financial statements incorporated by reference into this
prospectus. The historical results that appear below are not necessarily
indicative of results to be expected for any future periods.
|
|
|
Six
Months Ended
June
30,
|
|
Year
Ended December 31,
|
|
| |
|
2006
|
|
2005
|
|
2005
|
|
2004
|
|
2003
|
|
|
Consolidated
Statements of Operations Data
and
other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
84,700,244
|
|
$
|
25,116,430
|
|
$
|
87,599,012
|
|
$
|
19,764
|
|
$
|
1,016,594
|
|
|
Cost
of goods sold
|
|
|
79,067,377
|
|
|
24,917,278
|
|
|
84,444,183
|
|
|
12,523
|
|
|
946,012
|
|
|
Gross
profit
|
|
|
5,632,867
|
|
|
199,152
|
|
|
3,154,829
|
|
|
7,241
|
|
|
70,582
|
|
|
Selling,
general and administrative expenses
|
|
|
7,743,080
|
|
|
3,136,304
|
|
|
10,994,630
|
|
|
2,277,510
|
|
|
647,731
|
|
|
Services
rendered in connection with feasibility study
|
|
|
--
|
|
|
852,250
|
|
|
852,250
|
|
|
--
|
|
|
--
|
|
|
Acquisition
cost expense in excess of cash received
|
|
|
--
|
|
|
--
|
|
|
480,948
|
|
|
--
|
|
|
--
|
|
|
Discontinued
design of cogeneration facility
|
|
|
--
|
|
|
--
|
|
|
310,522
|
|
|
--
|
|
|
--
|
|
|
Loss
from operations
|
|
|
(2,110,213
|
)
|
|
(3,789,402
|
)
|
|
(9,483,521
|
)
|
|
(2,270,269
|
)
|
|
(577,149
|
)
|
|
Other
income (expense), net
|
|
|
1,329,257
|
|
|
(89,559
|
)
|
|
(433,998
|
)
|
|
(530,698
|
)
|
|
(279,930
|
)
|
|
Loss
from operations before income taxes
|
|
|
(780,956
|
)
|
|
(3,878,961
|
)
|
|
(9,917,519
|
)
|
|
(2,800,967
|
)
|
|
(857,079
|
)
|
|
Provision
for income taxes
|
|
|
13,181
|
|
|
4,800
|
|
|
5,600
|
|
|
1,600
|
|
|
1,600
|
|
|
Net
loss
|
|
$
|
(794,137
|
)
|
$
|
(3,883,761
|
)
|
$
|
(9,923,119
|
)
|
$
|
(2,802,567
|
)
|
$
|
(858,679
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
$
|
(897,534
|
)
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
Deemed
dividend on preferred stock
|
|
|
(84,000,000
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
Loss
available to common stockholders
|
|
$
|
(85,691,671
|
)
|
$
|
(3,883,761
|
)
|
$
|
(9,923,119
|
)
|
$
|
(2,802,567
|
)
|
$
|
(858,679
|
)
|
|
Loss
per common share, basic and diluted
|
|
$
|
(2.73
|
)
|
$
|
(0.18
|
)
|
$
|
(0.40
|
)
|
$
|
(0.23
|
)
|
$
|
(0.07
|
)
|
|
Weighted-average
shares outstanding, basic and diluted
|
|
|
31,410,920
|
|
|
21,415,102
|
|
|
25,065,872
|
|
|
12,396,895
|
|
|
11,733,200
|
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
139,994,795
|
|
$
|
16,427,839
|
|
$
|
4,521,111
|
|
$
|
42
|
|
$
|
249,084
|
|
|
Working
capital (deficit)
|
|
|
136,630,568
|
|
|
15,734,748
|
|
|
(2,894,133
|
)
|
|
(1,024,747
|
)
|
|
(357,576
|
)
|
|
Total
assets
|
|
|
283,162,429
|
|
|
40,685,355
|
|
|
48,184,812
|
|
|
7,179,263
|
|
|
6,559,634
|
|
|
Stockholders’
equity
|
|
|
258,864,572
|
|
|
32,751,883
|
|
|
28,515,431
|
|
|
1,355,732
|
|
|
1,367,828
|
|
No
cash
dividends on our common stock were declared during any of the periods presented
above.
Various
factors materially affect the comparability of the information presented in
the
above table. These factors relate primarily to a Share Exchange Transaction
that
was consummated on March 23, 2005 with the shareholders of PEI California,
and the holders of the membership interests of each of Kinergy and ReEnergy,
pursuant to which we acquired all of the issued and outstanding capital stock
of
PEI California and all of the outstanding membership interests of Kinergy and
ReEnergy.
The
following summarizes material risks that you should carefully consider before
you decide to buy our common stock in this offering. Any of the following risks,
if they actually occur, would likely harm our business, financial condition
and
results of operations. As a result, the trading price of our common stock could
decline, and you could lose the money you paid to buy our common
stock.
Risks
Related to our Business
We
have incurred significant losses in the past and we may incur significant losses
in the future. If we continue to incur losses, we will experience negative
cash
flow, which may hamper our operations, may prevent us from expanding our
business and may cause our stock price to decline.
We
have
significant incurred losses in the past. For the six months ended June 30,
2006,
we incurred a net loss of approximately $794,000. For the year ended
December 31, 2005, we incurred a net loss of approximately $9.9 million. We
expect to incur losses for the foreseeable future. We expect to rely on cash
on
hand, cash, if any, generated from our operations and future financing
activities to fund all of the cash requirements of our business. If our net
losses continue, we will experience negative cash flow, which may hamper current
operations and may prevent us from expanding our business. We may be unable
to
attain, sustain or increase profitability on a quarterly or annual basis in
the
future. If we do not achieve, sustain or increase profitability our stock price
may decline.
The
high concentration of our sales within the ethanol production and marketing
industry could result in a significant reduction in sales and negatively affect
our profitability if demand for ethanol declines.
Our
revenue is and will continue to be derived primarily from sales of ethanol.
Currently, the predominant oxygenate used to blend with gasoline is ethanol.
Ethanol competes with several other existing products and other alternative
products could also be developed for use as fuel additives. We expect to be
completely focused on the production and marketing of ethanol and its
co-products for the foreseeable future. We may be unable to shift our business
focus away from the production and marketing of ethanol to other renewable
fuels
or competing products. Accordingly, an industry shift away from ethanol or
the
emergence of new competing products may reduce the demand for ethanol. A
downturn in the demand for ethanol would significantly and adversely affect
our
sales and profitability.
If
the expected increase in ethanol demand does not occur, or if ethanol demand
decreases, there may be excess capacity in our industry which would likely
cause
a decline in ethanol prices, adversely impacting our results of operations,
cash
flows and financial condition.
Domestic
ethanol production capacity has increased steadily from 1.7 billion gallons
per
year in January of 1999 to 4.8 billion gallons per year at June 2006 according
to the Renewable Fuels Association, or RFA. In addition, there is a significant
amount of capacity being added to our industry. We believe that approximately
2.0 billion gallons per year of production capacity is currently under
construction. This capacity is being added to address anticipated increases
in
demand. Moreover, under the United States Department of Agriculture’s CCC
Bioenergy Program, which expired September 30, 2006, the federal government
made
payments of up to $150.0 million annually to ethanol producers that increase
their production. This created an additional incentive to develop excess
capacity. However, demand for ethanol may not increase as quickly as expected,
or at all. If the ethanol industry has excess capacity, a fall in prices will
likely occur which will have an adverse impact on our results of operations,
cash flows and financial condition. Excess capacity may result from the
increases in capacity coupled with insufficient demand. Demand could be impaired
due to a number of factors, including regulatory developments and reduced United
States gasoline consumption. Reduced gasoline consumption could occur as a
result of increased gasoline or oil prices. For example, price increases could
cause businesses and consumers to reduce driving or acquire vehicles with more
favorable gasoline mileage capabilities.
Our
independent registered public accounting firm has advised management and our
audit committee that they have identified a material weakness in our internal
controls and we have concluded that we have a material weakness in our
disclosure controls and procedures. Our business and stock price may be
adversely affected if we do not remediate this material weakness or if we have
other material weaknesses in our internal controls.
In
connection with its audit of our consolidated financial statements for the
year
ended December 31, 2005, our independent registered public accounting firm
advised management of the following matter that the accounting firm considered
to be a material weakness: The current organization of our accounting department
does not provide us with the appropriate resources and adequate technical skills
to accurately account for and disclose our activities. Our resources to produce
reliable financial reports and fulfill our other obligations as a public company
are limited due to our small number of employees and the limited public company
experience of our management. The existence of one or more material weaknesses
in our internal controls could result in errors in our financial statements
and
substantial costs and resources may be required to rectify these material
weaknesses. If we are unable to produce reliable financial reports, investors
could lose confidence in our reported financial information, the market price
of
our stock could decline significantly, we may be unable to obtain additional
financing to operate and expand our business, and our business and financial
condition could be harmed.
We
may not be able to implement our planned expansion strategy, including as a
result of our failure to successfully manage our growth, which would prevent
us
from achieving our goals.
Our
strategy envisions a period of rapid growth. We plan to grow our business by
investing in new facilities and/or acquiring existing facilities as well as
pursuing other business opportunities such as the production of other renewable
fuels to the extent we deem those opportunities advisable. We believe that
there
is increasing competition for suitable production sites. We may not find
suitable additional sites for construction of new facilities, suitable
acquisition candidates or other suitable expansion opportunities.
We
will
need additional financing to implement our expansion strategy and we may not
have access to the funding required for the expansion of our business or such
funding may not be available to us on acceptable terms. We plan to finance
the
expansion of our business with additional indebtedness. We may also issue
additional equity securities to help finance our expansion. We could face
financial risks associated with incurring additional indebtedness, such as
reducing our liquidity and access to financial markets and increasing the amount
of cash flow required to service such indebtedness, or associated with issuing
additional stock, such as dilution of ownership and earnings. In addition,
we
are planning the financing of our expansion strategy, and are initially using
our existing cash to implement this strategy, based on the belief that we can
secure additional debt financing in the future in order to complete our
expansion. If we are unable to secure this debt financing, we will suffer from
a
lack of capital resources, our planned expansion strategy may be less successful
than if we had planned solely on using our existing cash to finance our
expansion, and our business and prospects may be materially and adversely
effected.
We
must
also obtain numerous regulatory approvals and permits in order to construct
and
operate additional or expanded facilities. These requirements may not be
satisfied in a timely manner or at all. Federal and state governmental
requirements may substantially increase our costs, which could have a material
adverse effect on our results of operations and financial position. Our
expansion plans may also result in other unanticipated adverse consequences,
such as the diversion of management’s attention from our existing operations.
Our
construction costs may also increase to levels that would make a new facility
too expensive to complete or unprofitable to operate. We have not entered into
any construction contracts, other than site acquisition arrangements, that
might
limit our exposure to higher costs in developing and completing any new
facilities. Contractors, engineering firms, construction firms and equipment
suppliers also receive requests and orders from other ethanol companies and,
therefore, we may not be able to secure their services or products on a timely
basis or on acceptable financial terms. We may suffer significant delays or
cost
overruns as a result of a variety of factors, such as shortages of workers
or
materials, transportation constraints, adverse weather, unforeseen difficulties
or labor issues, any of which could prevent us from commencing operations as
expected at our facilities.
Rapid
growth may impose a significant burden on our administrative and operational
resources. Our ability to effectively manage our growth will require us to
substantially expand the capabilities of our administrative and operational
resources and to attract, train, manage and retain qualified management,
technicians and other personnel. We may be unable to do so.
We
may
not find additional appropriate sites for new facilities and we may not be
able
to finance, construct, develop or operate these new facilities successfully.
We
also may be unable to find suitable acquisition candidates. Accordingly, we
may
fail to implement our planned expansion strategy, including as a result of
our
failure to successfully manage our growth, and as a result, we may fail to
achieve our goals.
The
market price of ethanol is volatile and subject to significant fluctuations,
which may cause our profitability
to fluctuate significantly.
The
market price of ethanol is dependent upon many factors, including the price
of
gasoline, which is in turn dependent upon the price of petroleum. Petroleum
prices are highly volatile and difficult to forecast due to frequent changes
in
global politics and the world economy. The distribution of petroleum throughout
the world is affected by incidents in unstable political environments, such
as
Iraq, Iran, Kuwait, Saudi Arabia, the former U.S.S.R. and other countries and
regions. The industrialized world depends critically upon oil from these areas,
and any disruption or other reduction in oil supply can cause significant
fluctuations in the prices of oil and gasoline. We cannot predict the future
price of oil or gasoline and may establish unprofitable prices for the sale
of
ethanol due to significant fluctuations in market prices. For example, our
average sales price of ethanol declined by approximately 25% from our 2004
average sales price per gallon in five months from January 2005 through May
2005
and reversed this decline and increased to approximately 55% above our 2004
average sales price per gallon in four months from June 2005 through September
2005; and from September through December 2005, our average sales price of
ethanol trended downward, but reversed its trend in the first nine months of
2006 by rising approximately 38% above our 2005 average price per gallon. In
recent years, the prices of gasoline, petroleum and ethanol have all reached
historically unprecedented high levels. If the prices of gasoline and petroleum
decline, we believe that the demand for and price of ethanol may be adversely
affected. Fluctuations in the market price of ethanol may cause our
profitability to fluctuate significantly.
We
believe that the production of ethanol is expanding rapidly. There are a number
of new plants under construction and planned for construction, both inside
and
outside California. We expect existing ethanol plants to expand by increasing
production capacity and actual production. Increases in the demand for ethanol
may not be commensurate with increasing supplies of ethanol. Thus, increased
production of ethanol may lead to lower ethanol prices. The increased production
of ethanol could also have other adverse effects. For example, increased ethanol
production could lead to increased supplies of co-products from the production
of ethanol, such as wet distillers grain, or WDG. Those increased supplies
could
lead to lower prices for those co-products. Also, the increased production
of
ethanol could result in increased demand for corn. This could result in higher
prices for corn and cause higher ethanol production costs and, in the event
that
we are unable to pass increases in the price of corn to our customers, will
result in lower profits. We cannot predict the future price of ethanol, WDG
or
corn. Any material decline in the price of ethanol or WDG, or any material
increase in the price of corn, will adversely affect our sales and
profitability.
We
rely heavily on our President and Chief Executive Officer, Neil Koehler. The
loss of his services could adversely affect our ability to source ethanol from
our key suppliers and our ability to sell ethanol to our customers.
Our
success depends, to a significant extent, upon the continued services of Neil
Koehler, who is our President and Chief Executive Officer. For example, Mr.
Koehler has developed key personal relationships with our ethanol suppliers
and
customers. We greatly rely on these relationships in the conduct of our
operations and the execution of our business strategies. The loss of Mr. Koehler
could, therefore, result in the loss of our favorable relationships with one
or
more of our ethanol suppliers and customers. In addition, Mr. Koehler has
considerable experience in the construction, start-up and operation of ethanol
production facilities and in the ethanol marketing business. Although we have
entered into an employment agreement with Mr. Koehler, that agreement is of
limited duration and is subject to early termination by Mr. Koehler under
certain circumstances. In addition, we do not maintain “key person” life
insurance covering Mr. Koehler or any other executive officer. The loss of
Mr.
Koehler could also significantly delay or prevent the achievement of our
business objectives.
The
raw materials and energy necessary to produce ethanol may be unavailable or
may
increase in price, adversely affecting our sales and profitability.
The
principal raw material we use to produce ethanol and its co-products is corn.
As
a result, changes in the price of corn can significantly affect our business.
In
general, rising corn prices produce lower profit margins and, therefore,
represent unfavorable market conditions. This is especially true since market
conditions generally do not allow us to pass along increased corn costs to
our
customers because the price of ethanol is primarily determined by other factors,
such as the price of oil and gasoline. At certain levels, corn prices may make
ethanol uneconomical to use in markets where the use of fuel oxygenates is
not
mandated.
The
price
of corn is influenced by general economic, market and regulatory factors. These
factors include weather conditions, farmer planting decisions, government
policies and subsidies with respect to agriculture and international trade
and
global demand and supply. The significance and relative impact of these factors
on the price of corn is difficult to predict. Any event that tends to negatively
impact the supply of corn will tend to increase prices and potentially harm
our
business. Corn bought by ethanol plants represented approximately 13% of the
2005 total corn supply according to 2005 results reported by the National Corn
Growers Association. The increasing ethanol capacity could boost demand for
corn
and result in increased prices for corn.
The
production of ethanol also requires a significant amount of other raw materials
and energy, primarily water, electricity and natural gas. For example, we
estimate that our Madera County ethanol production facility will require
significant and uninterrupted supplies of water, electricity and natural gas.
The prices of electricity and natural gas have fluctuated significantly in
the
past and may fluctuate significantly in the future. Local water, electricity
and
gas utilities may not be able to reliably supply the water, electricity and
natural gas that our facilities will need or may not be able to supply such
resources on acceptable terms. In addition, if there is an interruption in
the
supply of water or energy for any reason, we may be required to halt ethanol
production.
The
United States ethanol industry is highly dependent upon a myriad of federal
and
state legislation and regulation and any changes in such legislation or
regulation could materially adversely affect our results of operations and
financial condition.
The
elimination or significant reduction in the Federal Excise Tax Credit could
have
a material adverse effect on our results of operations.
The
production of ethanol is made significantly more competitive by federal tax
incentives. The Federal Excise Tax Credit, or FETC, program, which is scheduled
to expire on December 31, 2010, allows gasoline distributors who blend ethanol
with gasoline to receive a federal excise tax rate reduction for each blended
gallon they sell regardless of the blend rate. The current federal excise tax
on
gasoline is $0.184 per gallon, and is paid at the terminal by refiners and
marketers. If the fuel is blended with ethanol, the blender may claim a $0.51
tax credit for each gallon of ethanol used in the mixture. The FETC may not
be
renewed prior to its expiration in 2010, or if renewed, it may be renewed on
terms significantly less favorable than current tax incentives. The elimination
or significant reduction in the FETC could have a material adverse effect on
our
results of operations.
Waivers
of the Renewable Fuels Standard minimum levels of renewable fuels included
in
gasoline could have a material adverse affect on our results of
operations.
Under
the
Energy Policy Act of 2005, the Department of Energy, in consultation with the
Secretary of Agriculture and the Secretary of Energy, may waive the Renewable
Fuels Standard, or RFS, mandate with respect to one or more states if the
Administrator determines that implementing the requirements would severely
harm
the economy or the environment of a state, a region or the United States, or
that there is inadequate supply to meet the requirement. In addition, the
Department of Energy was directed under the Energy Policy Act of 2005 to conduct
a study by January 2006 to determine if the RFS will have a severe adverse
impact on consumers in 2006 on a national, regional or state basis. Based on
the
results of the study, the Secretary of Energy must make a recommendation to
the
EPA as to whether the RFS should be waived for 2006. Any waiver of the RFS
with
respect to one or more states or with respect to 2006 would adversely offset
demand for ethanol and could have a material adverse effect on our results
of
operations and financial condition.
While
the Energy Policy Act of 2005 imposes the RFS, it does not mandate the use
of
ethanol and eliminates the oxygenate requirement for reformulated gasoline
in
the Reformulated Gasoline Program included in the Clean Air
Act.
The
Reformulated Gasoline, or RFG, program’s oxygenate requirements contained in the
Clean Air Act, which, according to the RFA, accounted for approximately 2.0
billion gallons of ethanol use in 2004, was completely eliminated on May 5,
2006
by the Energy Policy Act of 2005. While the RFA expects that ethanol should
account for the largest share of renewable fuels produced and consumed under
the
RFS, the RFS is not limited to ethanol and also includes biodiesel and any
other
liquid fuel produced from biomass or biogas. The elimination of the oxygenate
requirement for reformulated gasoline in the RFG program included in the Clean
Air Act may result in a decline in ethanol consumption in favor of other
alternative fuels, which in turn could have a material adverse effect on our
results of operations and financial condition.
Certain
countries can export ethanol to the United States duty-free, which may undermine
the ethanol production industry in the United States.
Imported
ethanol is generally subject to a $0.54 per gallon tariff and a 2.5% ad valorem
tax that was designed to offset the $0.51 per gallon ethanol subsidy available
under the federal excise tax incentive program for refineries that blend ethanol
in their fuel. There is a special exemption from the tariff for ethanol imported
from 24 countries in Central America and the Caribbean islands which is limited
to a total of 7.0% of United States production per year (with additional
exemptions for ethanol produced from feedstock in the Caribbean region over
the
7.0% limit). In May 2006, bills were introduced in both the U.S. House of
Representatives and U.S. Senate to repeal the $0.54 per gallon tariff. We do
not
know the extent to which the volume of imports would increase or the effect
on
United States prices for ethanol if this proposed legislation is enacted or
if
the tariff is not renewed beyond its current expiration in December 2007. In
addition The North America Free Trade Agreement countries, Canada and Mexico,
are exempt from duty. Imports from the exempted countries have increased in
recent years and are expected to increase further as a result of new plants
under development. In particular, the ethanol industry has expressed concern
with respect to a new plant under development by Cargill, Inc., the fifth
largest ethanol producer in the United States, in El Salvador that would take
the water out of Brazilian ethanol and then ship the dehydrated ethanol from
El
Salvador to the United States duty-free. Since production costs for ethanol
in
Brazil are estimated to be significantly less than what they are in the United
States, the import of the Brazilian ethanol duty-free through El Salvador or
another country exempted from the tariff may negatively impact the demand for
domestic ethanol and the price at which we sell our ethanol.
Our
purchase and sale commitments as well as inventory of ethanol held for sale
subject us to the risk of fluctuations in the price of ethanol, which may result
in lower or even negative gross profit margins and which could materially and
adversely affect our profitability.
Our
purchases and sales of ethanol are not always matched with sales and purchases
of ethanol at prevailing market prices. We commit from time to time to the
sale
of ethanol to our customers without corresponding and commensurate commitments
for the supply of ethanol from our suppliers, which subjects us to the risk
of
an increase in the price of ethanol. We also commit from time to time to the
purchase of ethanol from our suppliers without corresponding and commensurate
commitments for the purchase of ethanol by our customers, which subjects us
to
the risk of a decline in the price of ethanol. In addition, we generally
increase inventory levels in anticipation of rising ethanol prices and decrease
inventory levels in anticipation of declining ethanol prices. As a result,
we
are subject to the risk of ethanol prices moving in unanticipated directions,
which could result in declining or even negative gross profit margins.
Accordingly, our business is subject to fluctuations in the price of ethanol
and
these fluctuations may result in lower or even negative gross margins and which
could materially and adversely affect our profitability.
We
depend on a small number of customers for the vast majority of our sales. A
reduction in business from any of these customers could cause a significant
decline in our overall sales and profitability.
The
vast
majority of our sales are generated from a small number of customers. During
2005, sales to our three largest customers, each of whom accounted for 10%
or
more of total net sales, represented approximately 18%, 11% and 10%,
respectively, representing an aggregate of approximately 39%, of our total
net
sales. During 2004, sales to Kinergy’s four largest customers, each of whom
accounted for 10% or more of total net sales, represented approximately 13%,
12%, 12% and 12%, respectively, representing an aggregate of approximately
49%,
of Kinergy’s total net sales. We expect that we will continue to depend for the
foreseeable future upon a small number of customers for a significant portion
of
our sales. Our agreements with these customers generally do not require them
to
purchase any specified amount of ethanol or dollar amount of sales or to make
any purchases whatsoever. Therefore, in any future period, our sales generated
from these customers, individually or in the aggregate, may not equal or exceed
historical levels. If sales to any of these customers cease or decline, we
may
be unable to replace these sales with sales to either existing or new customers
in a timely manner, or at all. A cessation or reduction of sales to one or
more
of these customers could cause a significant decline in our overall sales and
profitability.
Our
lack of long-term ethanol orders and commitments by its customers could lead
to
a rapid decline in our sales and profitability.
We
cannot
rely on long-term ethanol orders or commitments by our customers for protection
from the negative financial effects of a decline in the demand for ethanol
or a
decline in the demand for our marketing services. The limited certainty of
ethanol orders can make it difficult for us to forecast our sales and allocate
our resources in a manner consistent with our actual sales. Moreover, our
expense levels are based in part on our expectations of future sales and, if
our
expectations regarding future sales are inaccurate, we may be unable to reduce
costs in a timely manner to adjust for sales shortfalls. Furthermore, because
we
depend on a small number of customers for a significant portion of our sales,
the magnitude of the ramifications of these risks is greater than if our sales
were less concentrated. As a result of our lack of long-term ethanol orders
and
commitments, we may experience a rapid decline in our sales and
profitability.
We
depend on a small number of suppliers for the vast majority of the ethanol
that
we sell. If any of these suppliers is unable or decides not to continue to
supply us with ethanol in adequate amounts, we may be unable to satisfy the
demands of our customers and our sales, profitability
and relationships with our customers will be adversely
affected.
We
depend
on a small number of suppliers for the vast majority of the ethanol that we
sell. During 2005, our three largest suppliers, each of whom accounted for
10%
or more of total purchases, represented approximately 22%, 20%, and 17%,
respectively, of purchases, representing an aggregate of approximately 59%,
of
the total ethanol we purchased for resale. During 2004, Kinergy’s three largest
suppliers, each of whom accounted for 10% or more of the total purchases,
represented approximately 27%, 23% and 14%, respectively, of purchases,
representing an aggregate of approximately 64% of the total ethanol Kinergy
purchased for resale. We expect to continue to depend for the foreseeable future
upon a small number of suppliers for a significant majority of the ethanol
that
we purchase. In addition, we source the ethanol that we sell primarily from
suppliers in the Midwestern United States. The delivery of the ethanol that
we
sell is therefore subject to delays resulting from inclement weather and other
conditions. If any of these suppliers is unable or declines for any reason
to
continue to supply us with ethanol in adequate amounts, we may be unable to
replace that supplier and source other supplies of ethanol in a timely manner,
or at all, to satisfy the demands of its customers. If this occurs, our sales
and profitability and our relationships with our customers will be adversely
affected.
We
may be adversely affected by environmental, health and safety laws, regulations
and liabilities.
We
are
subject to various federal, state and local environmental laws and regulations,
including those relating to the discharge of materials into the air, water
and
ground, the generation, storage, handling, use, transportation and disposal
of
hazardous materials, and the health and safety of our employees. In addition,
some of these laws and regulations require our facilities to operate under
permits that are subject to renewal or modification. These laws, regulations
and
permits can often require expensive pollution control equipment or operational
changes to limit actual or potential impacts to the environment. A violation
of
these laws and regulations or permit conditions can result in substantial fines,
natural resource damages, criminal sanctions, permit revocations and/or facility
shutdowns. In addition, we have made, and expect to make, significant capital
expenditures on an ongoing basis to comply with increasingly stringent
environmental laws, regulations and permits.
We
may be
liable for the investigation and cleanup of environmental contamination at
each
of the properties that we own or operate and at off-site locations where we
arrange for the disposal of hazardous substances. If these substances have
been
or are disposed of or released at sites that undergo investigation and/or
remediation by regulatory agencies, we may be responsible under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
or
CERCLA, or other environmental laws for all or part of the costs of
investigation and/or remediation, and for damages to natural resources. We
may
also be subject to related claims by private parties alleging property damage
and personal injury due to exposure to hazardous or other materials at or from
those properties. Some of these matters may require us to expend significant
amounts for investigation, cleanup or other costs.
In
addition, new laws, new interpretations of existing laws, increased governmental
enforcement of environmental laws or other developments could require us to
make
additional significant expenditures. Continued government and public emphasis
on
environmental issues can be expected to result in increased future investments
for environmental controls at our production facilities. Present and future
environmental laws and regulations (and interpretations thereof) applicable
to
our operations, more vigorous enforcement policies and discovery of currently
unknown conditions may require substantial expenditures that could have a
material adverse effect on our results of operations and financial position.
The
hazards and risks associated with producing and transporting our products (such
as fires, natural disasters, explosions, and abnormal pressures and blowouts)
may also result in personal injury claims or damage to property and third
parties. As protection against operating hazards, we maintain insurance coverage
against some, but not all, potential losses. However, we could sustain losses
for uninsurable or uninsured risks, or in amounts in excess of existing
insurance coverage. Events that result in significant personal injury or damage
to our property or third parties or other losses that are not fully covered
by
insurance could have a material adverse effect on our results of operations
and
financial position.
The
ethanol production and marketing industry is extremely competitive. Many of
our
significant competitors have greater financial and other resources than we
do
and one or more of these competitors could use their greater resources to gain
market share at our expense. In addition, certain of our suppliers may
circumvent our marketing services, causing our sales and profitability to
decline.
The
ethanol production and marketing industry is extremely competitive. Many of
our
significant competitors in the ethanol production and marketing industry, such
as Archer Daniels Midland Company, or ADM, Cargill, Inc., VeraSun Energy
Corporation, Aventine Renewable Energy, Inc., and Abengoa Bioenergy Corp.,
have
substantially greater production, financial, research and development, personnel
and marketing resources than we do. In addition, we have not yet begun
full-scale production of ethanol and therefore are unable to capture the higher
gross profit margins generally associated with full-scale production activities.
As a result, our competitors, who are presently producing ethanol, may have
greater relative advantages resulting from greater capital resources due to
higher gross profit margins. As a result, our competitors may be able to compete
more aggressively and sustain that competition over a longer period of time
than
we could. Our lack of resources relative to many of our significant competitors
may cause us to fail to anticipate or respond adequately to new developments
and
other competitive pressures. This failure could reduce our competitiveness
and
cause a decline in our market share, sales and profitability.
In
addition, some of our suppliers are potential competitors and, especially if
the
price of ethanol remains at historically high levels, they may seek to capture
additional profits by circumventing our marketing services in favor of selling
directly to our customers. If one or more of our major suppliers, or numerous
smaller suppliers, circumvent our marketing services, our sales and
profitability will decline.
We
also
face increasing competition from international suppliers. Although there is
a
$0.54 per gallon tariff, which is scheduled to expire in 2007, on
foreign-produced ethanol that is approximately equal to the blenders’ credit,
ethanol imports equivalent to up to 7% of total domestic production in any
given
year from various countries were exempted from this tariff under the Caribbean
Basin Initiative to spur economic development in Central America and the
Caribbean. Currently, international suppliers produce ethanol primarily from
sugar cane and have cost structures that are generally substantially lower
than
ours.
Any
increase in domestic or foreign competition could cause us to reduce our prices
and take other steps to compete effectively, which could adversely affect our
results of operations and financial position.
We
engage in hedging transactions and other risk mitigation strategies that could
harm our results.
In
an
attempt to partially offset the effects of volatility of ethanol prices and
corn
and natural gas costs, we often enter into contracts to supply a portion of
our
ethanol production or purchase a portion of our corn or natural gas requirements
on a forward basis and also engage in other hedging transactions involving
exchange-traded futures contracts for corn, natural gas and unleaded gasoline
from time to time. The financial statement impact of these activities is
dependent upon, among other things, the prices involved and our ability to
sell
sufficient products to use all of the corn and natural gas for which we have
futures contracts. Hedging arrangements also expose us to the risk of financial
loss in situations where the other party to the hedging contract defaults on
its
contract or, in the case of exchange-traded contracts, where there is a change
in the expected differential between the underlying price in the hedging
agreement and the actual prices paid or received by us. Hedging activities
can
themselves result in losses when a position is purchased in a declining market
or a position is sold in a rising market. A hedge position is often settled
in
the same time frame as the physical commodity is either purchased or sold.
Hedging losses may be offset by a decreased cash price for corn and natural
gas
and an increased cash price for ethanol. We also vary the amount of hedging
or
other risk mitigation strategies we undertake, and we may choose not to engage
in hedging transactions at all. As a result, our results of operations and
financial position may be adversely affected by increases in the price of corn
or natural gas or decreases in the price of ethanol or unleaded
gasoline.
We
are a minority member of Front Range Energy, LLC with no control over virtually
all of that entity’s business decisions. We are therefore dependent upon the
business judgment and conduct of the manager and majority member of that entity.
As a result, our interests may not be as well served as if we were in control
of
Front Range Energy, LLC, which could adversely affect its contribution to our
results of operations and our business prospects related to that
entity.
Front
Range Energy, LLC operates an ethanol production facility located in Windsor,
Colorado. We own approximately 42% of Front Range Energy, LLC, which represents
a minority interest in that entity. The manager and majority member of Front
Range Energy, LLC owns approximately 51% of that entity and has full control
over virtually all of that entity’s business decisions, including those related
to day-to-day operations. The manager and majority member of Front Range Energy,
LLC has the exclusive right to set the manager’s compensation, determine cash
distributions, decide whether or not to expand the ethanol production facility
and make virtually all other business decisions on behalf of that entity. We
are
therefore dependent upon the business judgment and conduct of the manager and
majority member of Front Range Energy, LLC. As a result, our interests may
not
be as well served as if we were in control of Front Range Energy, LLC.
Accordingly, the contribution by Front Range Energy, LLC to our results of
operations and our business prospectus related to that entity may be adversely
affected by our lack of control over that entity.
Risks
Related to our Common Stock
Our
common stock has a small public float and shares of our common stock eligible
for public sale could cause the market price of our stock to drop, even if
our
business is doing well, and make it difficult for us to raise additional capital
through sales of equity securities.
As
of
November 3, 2006, we had outstanding approximately 40.2 million shares of our
common stock. Approximately 12.8 million of these shares were restricted under
the Securities Act of 1933, including approximately 5.9 million shares
beneficially owned, in the aggregate, by our executive officers, directors
and
10% stockholders. Accordingly, our common stock has a relatively small public
float of approximately 27.4 million shares.
We
have
registered for resale a substantial number of shares of our common stock,
including shares of our common stock underlying warrants. The holders of these
shares are permitted, subject to few limitations, to freely sell these shares
of
common stock. In addition, we are in the process of registering for resale
approximately 2.8 million shares of our common stock, including shares of our
common stock underlying a warrant, in the registration statement of which this
prospectus forms a part. If and when the registration statement covering these
shares of common stock is declared effective, holders of these shares will
be
permitted, subject to few limitations, to freely sell these shares of common
stock. As a result of our relatively small public float, sales of substantial
amounts of common stock, including shares issued upon the exercise of stock
options or warrants, or an anticipation that such sales could occur, may
materially and adversely affect prevailing market prices for our common stock.
In addition, any adverse effect on the market price of our common stock could
make it difficult for us to raise additional capital through sales of equity
securities at a time and at a price that we deem appropriate.
As
a result of our issuance of shares of Series A Preferred Stock to Cascade
Investment, L.L.C., our
common stockholders may experience numerous negative effects and most of the
rights of our common stockholders will be subordinate to the rights of Cascade
Investment, L.L.C.
As
a
result of our issuance of shares of Series A Preferred Stock to Cascade
Investment, L.L.C., or Cascade, common stockholders may experience numerous
negative effects, including substantial dilution. The 5,250,000 shares of Series
A Preferred Stock issued to Cascade are immediately convertible into 10,500,000
shares of our common stock, which amount, when issued, would, based upon the
number of shares of our common stock outstanding as of November 3, 2006,
represent approximately 21% of our shares outstanding and, in the event that
we
are profitable, would likewise result in a decrease in our diluted earnings
per
share by approximately 21%, without taking into account cash or stock payable
as
dividends on the Series A Preferred Stock.
Other
negative effects to our common stockholders will include potential additional
dilution from dividends paid in Series A Preferred Stock and certain
antidilution adjustments. In addition, rights in favor of holders of our Series
A Preferred Stock include: seniority in liquidation and dividend preferences;
substantial voting rights; numerous protective provisions; the right to appoint
two persons to our board of directors and periodically nominate two persons
for
election by our stockholders to our board of directors; preemptive rights;
and
redemption rights. Also, the Series A Preferred Stock could have the effect
of
delaying, deferring and discouraging another party from acquiring control of
Pacific Ethanol. In addition, based on our current number of shares of common
stock outstanding, Cascade has approximately 21% of all outstanding voting
power
as compared to approximately 12% of all outstanding voting power held in
aggregate by our current executive officers and directors. Any of the above
factors may materially and adversely affect our common stockholders and the
values of their investments in our common stock.
Our
stock price is highly volatile, which could result in substantial losses for
investors purchasing shares of our common stock and in litigation against
us.
The
market price of our common stock has fluctuated significantly in the past and
may continue to fluctuate significantly in the future. The market price of
our
common stock may continue to fluctuate in response to one or more of the
following factors, many of which are beyond our control:
| ·
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changing
conditions in the ethanol and fuel
markets;
|
| ·
|
the
volume and timing of the receipt of orders for ethanol from major
customers;
|
| ·
|
competitive
pricing pressures;
|
| ·
|
our
ability to produce, sell and deliver ethanol on a cost-effective
and
timely basis;
|
| ·
|
the
introduction and announcement of one or more new alternatives to
ethanol
by our competitors;
|
| ·
|
changes
in market valuations of similar
companies;
|
| ·
|
stock
market price and volume fluctuations
generally;
|
| ·
|
regulatory
developments or increased
enforcement;
|
| ·
|
fluctuations
in our quarterly or annual operating
results;
|
| ·
|
additions
or departures of key personnel;
|
| ·
|
our
inability to obtain construction, acquisition, capital equipment
and/or
working capital financing; and
|
| ·
|
future
sales of our common stock or other
securities.
|
Furthermore,
we believe that the economic conditions in California and other states, as
well
as the United States as a whole, could have a negative impact on our results
of
operations. Demand for ethanol could also be adversely affected by a slow-down
in overall demand for oxygenate and gasoline additive products. The levels
of
our ethanol production and purchases for resale will be based upon forecasted
demand. Accordingly, any inaccuracy in forecasting anticipated revenues and
expenses could adversely affect our business. Furthermore, we recognize revenues
from ethanol sales at the time of delivery. The failure to receive anticipated
orders or to complete delivery in any quarterly period could adversely affect
our results of operations for that period. Quarterly results are not necessarily
indicative of future performance for any particular period, and we may not
experience revenue growth or profitability on a quarterly or an annual
basis.
The
price
at which you purchase shares of our common stock may not be indicative of the
price that will prevail in the trading market. You may be unable to sell your
shares of common stock at or above your purchase price, which may result in
substantial losses to you and which may include the complete loss of your
investment. In the past, securities class action litigation has often been
brought against a company following periods of stock price volatility. We may
be
the target of similar litigation in the future. Securities litigation could
result in substantial costs and divert management’s attention and our resources
away from our business. Any of the risks described above could adversely affect
our sales and profitability and also the price of our common
stock.
This
prospectus contains forward-looking statements, including statements concerning
future conditions in the ethanol marketing and production industries, and
concerning our future business, financial condition, operating strategies,
and
operational and legal risks. We use words like “believe,” “expect,” “may,”
“will,” “could,” “seek,” “estimate,” “continue,” “anticipate,” “intend,” “goal,”
“future,” “plan” or variations of those terms and other similar expressions,
including their use in the negative, to identify forward-looking statements.
You
should not place undue reliance on these forward-looking statements, which
speak
only as to our expectations as of the date of this prospectus. These
forward-looking statements are subject to a number of risks and uncertainties,
including those identified under “Risk Factors” and elsewhere in this
prospectus. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, actual conditions in the ethanol
marketing and production industries, and actual conditions and results in our
business, could differ materially from those expressed in these forward-looking
statements. In addition, none of the events anticipated in the forward-looking
statements may actually occur. Any of these different outcomes could cause
the
price of our common stock to decline substantially. Except as required by law,
we undertake no duty to update any forward-looking statement after the date
of
this prospectus, either to conform any statement to reflect actual results
or to
reflect the occurrence of unanticipated events.
We
will
not receive any of the proceeds from the sale of shares of our common stock
in
this offering. Rather, all proceeds will be received by the selling security
holder.
Upon
exercise of the warrant for cash, the underlying shares of common stock of
which
are offered for sale hereunder, we would receive an aggregate of approximately
$10.0 million. However, the warrant contains cashless exercise provisions and
it
is therefore unlikely that we will receive any cash proceeds upon the exercise
of the warrant. We expect to use any cash proceeds from the exercise of the
warrant for general working capital purposes.
We
have
not declared or paid any cash dividends on our capital stock in the past, and
we
do not anticipate declaring or paying cash dividends on our common stock in
the
foreseeable future.
We
will
pay dividends on our common stock only if and when declared by our board of
directors. Our board of directors’ ability to declare a dividend is subject to
restrictions imposed by Delaware law. In determining whether to declare
dividends, the board of directors will consider these restrictions as well
as
our financial condition, results of operations, working capital requirements,
future prospects and other factors it considers relevant.
Selling
Security Holder Table
This
prospectus covers the offer and sale by the selling security holder of up to
an
aggregate of 2,775,851 shares of common stock, including an aggregate of
2,081,888 issued and outstanding shares of our common stock and an aggregate
of
693,963 shares of our common stock underlying a warrant to purchase common
stock. The warrant is exercisable immediately through and including October
17,
2007 and contains both cash and cashless exercise provisions. We issued these
shares and the warrant to the selling security holder in partial consideration
of our acquisition from the selling security holder of 42% of the Class B Voting
Units of Front Range Energy, LLC on October 17, 2006.
As
part
of that acquisition, we also entered into a Registration Rights Agreement with
the selling security holder that required us to register for resale the shares
of common stock and the shares of common stock underlying the warrant. If we
are
unable to maintain the effectiveness of the registration in accordance with
the
requirements of the Registration Rights Agreement, then an event of default
will
have occurred. On the date of an event of default, and on every monthly
anniversary after the event of default until it is cured, we will be required
to
pay to the selling security holder, as liquidated damages and not as a penalty,
an amount equal to 1.0% of (i) the sum of number of registrable securities
held
by the selling security holder plus the number of warrant shares issuable upon
exercise of the warrant as of the date of the event of default, multiplied
by
(ii) the closing market price of our common stock on that date. The maximum
aggregate amount of liquidated damages that we would be required to pay under
the Registration Rights Agreement is $3.0 million. The Registration Rights
Agreement also contains customary representations, warranties, covenants and
other terms and conditions, including customary indemnity obligations on our
part and on the part of the selling security holder.
The
following table sets forth, to our knowledge, certain information about the
selling security holder as of November 3, 2006, the date of the table, based
on
information furnished to us by the selling security holder. Except as otherwise
indicated in the private offering description or footnotes following the table
(i) the selling security holder has indicated to us that it is acting
individually, not as a member of a group, and (ii) neither the selling security
holder nor its affiliates has held any position or office or had any other
material relationship with us in the past three years.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, or the Commission, and includes voting or investment power
with respect to the securities. To our knowledge, except as indicated by
footnote, and subject to community property laws where applicable, the selling
security holder named in the table below has sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by it.
Shares of common stock underlying derivative securities, if any, that currently
are exercisable or convertible or are scheduled to become exercisable or
convertible for or into shares of common stock within 60 days after the date
of
the table are deemed to be outstanding in calculating the percentage ownership
of each listed person or group but are not deemed to be outstanding as to any
other person or group. Percentage of beneficial ownership is based on 40,293,434
shares of common stock outstanding as of the date of the table. Shares shown
as
beneficially owned after the offering assume that all shares being offered
are
sold.
The
terms
of the warrant to purchase common stock prohibit exercise of the warrant to
the
extent that it would result in the selling security holder, together with its
affiliates, beneficially owning in excess of 4.999% of our outstanding shares
of
common stock. The selling security holder may waive the 4.999% limitation upon
61 days’ prior written notice to us. Also, this limitation does not preclude the
selling security holder from exercising the warrant and selling shares
underlying the warrant, or selling other shares of common stock held by the
selling security holder, in stages over time where each stage does not cause
the
selling security holder and its affiliates to beneficially own shares in excess
of the limitation amount. Despite the limitations contained in the warrant,
the
number of shares shown in the table as beneficially owned by the selling
security holder prior to this offering is in excess of 4.999% of the shares
of
our common stock outstanding based on the date of the table. The number of
shares of common stock being offered by the selling security holder under this
prospectus is in excess of the amount of shares issuable to the selling security
holder without its waiver of the exercise limitations discussed
above.
The
shares of common stock being offered under this prospectus may be offered for
sale from time to time during the period the registration statement of which
this prospectus is a part remains effective, by or for the account of the
selling security holder described below.
|
Name
and Address of
|
|
|
Shares
of Common Stock
Beneficially
Owned
Prior
to Offering
|
|
|
Shares
of
Common
|
|
|
Shares
of
Common
Stock
Beneficially
Owned
After
Offering
|
|
|
Beneficial
Owner
|
|
|
Number
|
|
|
Percentage
|
|
|
Offered
|
|
|
Number
|
|
|
Percentage
|
|
|
Eagle
Energy, LLC
2113
Pebble Beach Lane
Brandon,
South Dakota 57005
|
|
|
2,775,851
(1
|
)
|
|
6.8
|
%
|
|
2,775,851
(1
|
)
|
|
—
|
|
|
—
|
|
_______
| (1) |
Includes
693,963 shares underlying a warrant. Power to vote or dispose of
the
shares is held by David Fick as President and Chairman of the Board
of
Eagle Energy, LLC.
|
The
selling security holder may, from time to time, sell any or all of its shares
of
common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling security holder may use any one or more of the
following methods when selling shares:
| ·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| ·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| ·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| ·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| ·
|
privately
negotiated transactions;
|
| ·
|
broker-dealers
may agree with the selling security holder to sell a specified number
of
such shares at a stipulated price per
share;
|
| ·
|
a
combination of any such methods of sale;
and
|
| ·
|
any
other method permitted pursuant to applicable
law.
|
The
selling security holder may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, or Securities Act, if available, rather than under
this
prospectus.
Broker-dealers
engaged by the selling security holder may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holder (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling security holder does not expect these commissions and discounts to
exceed what is customary in the types of transactions involved. Any profits
on
the resale of shares of common stock by a broker-dealer acting as principal
might be deemed to be underwriting discounts or commissions under the Securities
Act. Discounts, concessions, commissions and similar selling expenses, if any,
attributable to the sale of shares will be borne by the selling security holder.
The selling security holder may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares
if
liabilities are imposed on that person under the Securities Act.
The
selling security holder may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by it and, if it
defaults in the performance of its secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act supplementing
or
amending the list of selling security holders to include the pledgee, transferee
or other successors in interest as a selling security holder under this
prospectus.
The
selling security holder also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed a supplement to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act supplementing or amending
the
list of selling security holders to include the pledgee, transferee or other
successors in interest as selling security holders under this
prospectus.
The
selling security holder and any broker-dealers or agents that are involved
in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event,
any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
We
are
required to pay all fees and expenses incident to the registration of the shares
of common stock. We have agreed to indemnify the selling security holder against
certain losses, claims, damages and liabilities, including liabilities under
the
Securities Act.
The
selling security holder has advised us that it has not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of its shares of common stock, nor is there
an
underwriter or coordinating broker acting in connection with a proposed sale
of
shares of common stock by the selling security holder. If we are notified by
the
selling security holder that any material arrangement has been entered into
with
a broker-dealer for the sale of shares of common stock, if required, we will
file a supplement to this prospectus. If the selling security holder uses this
prospectus for any sale of the shares of common stock, it will be subject to
the
prospectus delivery requirements of the Securities Act.
The
anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934, as amended, or the Exchange Act, may apply to sales of our common stock
and activities of the selling security holder.
The
Commission allows us to incorporate by reference information we file with it,
which means we can disclose important information to you by referring you to
documents we have filed with the Commission. The information incorporated by
reference is considered to be a part of this prospectus. We incorporate by
reference the documents listed below and any future filings we make with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior
to
the termination of the offering covered by this prospectus:
| ·
|
Our
current report on Form 8-K for October 17, 2006, as filed with the
Commission on October 23, 2006 (File No.
0-21467);
|
| ·
|
Our
current report on Form 8-K for October 2, 2006, as filed with the
Commission on October 12, 2006;
|
| ·
|
Our
current report on Form 8-K for October 4, 2006, as filed with the
Commission on October 10, 2006;
|
| ·
|
Our
current report on Form 8-K for September 6, 2006, as filed with the
Commission on September 12, 2006;
|
| ·
|
Our
current report on Form 8-K for August 23, 2006, as filed with the
Commission on August 29, 2006;
|
| ·
|
Our
quarterly report on Form 10-Q for the three months ended June 30,
2006, as
filed with the Commission on August 18,
2006;
|
| ·
|
Our
current report on Form 8-K for August 9, 2006, as filed with the
Commission on August 15, 2006;
|
| ·
|
Our
Proxy Statement for our 2006 Annual Meeting of Stockholders, as filed
with
the Commission on July 25, 2006;
|
| ·
|
Our
current report on Form 8-K for June 26, 2006, as filed with the Commission
on June 27, 2006;
|
| ·
|
Our
current report on Form 8-K for June 20, 2006, as filed with the Commission
on June 21, 2006;
|
| ·
|
Our
current report on Form 8-K for May 25, 2006, as filed with the Commission
on May 31, 2006;
|
| ·
|
Our
quarterly report on Form 10-Q for the three months ended March 31,
2006,
as filed with the Commission on May 15,
2006;
|
| ·
|
Our
current report on Form 8-K for April 19, 2006, as filed with the
Commission on April 24, 2006;
|
| ·
|
Our
current report on Form 8-K for April 13, 2006, as filed with the
Commission on April 19, 2006;
|
| ·
|
Our
annual report on Form 10-KSB for the year ended December 31, 2005,
as
filed with the Commission on April 14,
2006;
|
| ·
|
Our
current report on Form 8-K for January 26, 2006, as filed with the
Commission on February 1, 2006; and
|
| ·
|
The
description of our capital stock contained in Amendment No. 3 to
Registration Statement on Form S-1 (Reg. No. 333-127714), as filed
with
the Commission on November 30, 2005, including any amendments or
reports
filed for the purpose of updating such
description.
|
Any
statement in a document incorporated or deemed to be incorporated by reference
in this prospectus is deemed to be modified or superseded to the extent that
a
statement contained in this prospectus, or in any other document we subsequently
file with the Commission, modifies or supersedes that statement. If any
statement is modified or superseded, it does not constitute a part of this
prospectus, except as modified or superseded.
Information
that is “furnished to” the Commission shall not be deemed “filed with” the
Commission and shall not be deemed incorporated by reference into this
prospectus or the registration statement of which this prospectus is a
part.
We
will
provide to each person, including any beneficial owner, to whom a prospectus
is
delivered, a copy of any or all of the information that has been incorporated
by
reference in this prospectus but not delivered with this prospectus. You may
request a copy of these filings, at no cost, by writing or telephoning us at
the
following address and phone number:
Pacific
Ethanol, Inc.
5711
N.
West Avenue
Fresno,
California 93711
Attention:
Secretary
Telephone:
(559) 435-1771
The
validity of the shares of common stock offered in this offering will be passed
upon for us by Rutan & Tucker, LLP, Costa Mesa, California.
The
financial statements incorporated by reference in this prospectus and the
registration statement of which this prospectus forms a part have been audited
by Hein & Associates LLP, an independent registered public accounting firm,
to the extent and for the periods indicated in their report and are incorporated
by reference in reliance upon such report and upon the authority of such Firm
as
experts in accounting and auditing.
The
transfer agent and registrar for our common stock is Continental Stock Transfer
& Trust Company. Its telephone number is (212) 509-4000.
We
have
filed a registration statement on Form S-3 with respect to the common stock
offered in this prospectus with the Commission in accordance with the Securities
Act, and the rules and regulations enacted under its authority. This prospectus,
which constitutes a part of the registration statement, does not contain all
of
the information included in the registration statement and its exhibits and
schedules. Statements contained in this prospectus regarding the contents of
any
document referred to in this prospectus are not necessarily complete, and in
each instance, we refer you to the full text of the document which is filed
as
an exhibit to the registration statement. Each statement concerning a document
which is filed as an exhibit should be read along with the entire document.
For
further information regarding us and the common stock offered in this
prospectus, we refer you to the registration statement and its exhibits and
schedules, which may be inspected without charge at the Commission’s Public
Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call the
Commission at (800) 732-0330 for further information on the Public
Reference Room.
The
Commission also maintains an Internet website that contains reports, proxy
and
information statements, and other information regarding issuers, such as us,
that file electronically with the Commission. The Commission’s website address
is http://www.sec.gov.
PACIFIC
ETHANOL, INC.
PROSPECTUS
November
6, 2006
We
have not authorized any dealer, salesman or other person to give any information
or to make any representation other than those contained in this prospectus
and
any accompanying supplement to this prospectus. You must not rely upon any
information or representation not contained in this prospectus or any
accompanying prospectus supplement. This prospectus and any accompanying
supplement to this prospectus do not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the registered
securities to which they relate, nor do this prospectus and any accompanying
supplement to this prospectus constitute an offer to sell or the solicitation
of
an offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. The
information contained in this prospectus and any accompanying supplement to
this
prospectus is accurate as of the dates on their covers. When we deliver this
prospectus or a supplement or make a sale pursuant to this prospectus or a
supplement, we are not implying that the information is current as of the date
of the delivery or sale.