paceth_8k-032608.htm
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
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Date
of Report (Date of earliest event reported)
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March
26,
2008
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PACIFIC ETHANOL,
INC.
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(Exact
name of registrant as specified in its
charter)
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Delaware
(State
or other jurisdiction
of
incorporation)
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000-21467
(Commission
File Number)
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41-2170618
(IRS
Employer
Identification
No.)
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400
Capitol Mall, Suite 2060
Sacramento, California
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95814
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
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(916)
403-2123
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(Former
name or former address, if changed since last
report)
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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):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01.
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Entry
into a Material Definitive
Agreement.
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Investment
by Lyles United, LLC
On March
27, 2008, Pacific Ethanol, Inc. (the “Company”) closed the
transactions described below in connection with the sale of its Series B
Cumulative Convertible Preferred Stock (the “Series B Preferred
Stock”).
Securities
Purchase Agreement dated March 18, 2008 between Pacific Ethanol, Inc. and Lyles
United, LLC
On March
18, 2008, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with Lyles United, LLC (the “Purchaser”). The
Purchase Agreement provides for the sale by the Company and the purchase by the
Purchaser of (i) 2,051,282 shares of the Company’s Series B Preferred Stock, all
of which are initially convertible into an aggregate of 6,153,846 shares of the
Company’s common stock based on an initial three-for-one conversion ratio, and
(ii) a warrant (the “Warrant”) to purchase
an aggregate of 3,076,923 shares of the Company’s common stock at an exercise
price of $7.00 per share, for an aggregate purchase price of $40 million. The
Series B Preferred Stock is to be created under the Certificate of Designations
described below. The Purchase Agreement includes customary
representations and warranties on the part of both the Company and the Purchaser
and other customary terms and conditions. In addition, the Purchase
Agreement provides that the Company shall not undertake any project or series of
projects involving the investment of more than $1.0 million of new capital, for
the acquisition or improvement of a fixed asset which extends the life or
increases the productivity of the asset, individually or in the aggregate, which
is not already contemplated by the Company’s cash flow projections until the
Company repays an aggregate of $30.0 million in debt loaned to the Company by
the Purchaser as further described below.
The
description of the Purchase Agreement does not purport to be complete and is
qualified in its entirety by reference to the Purchase Agreement, which is filed
as Exhibit 10.1 to this report and incorporated by reference
herein.
Warrant
dated March 27, 2008 issued by Pacific Ethanol, Inc. in favor of Lyles United,
LLC
The
Warrant is exercisable for up to 3,076,923 shares of the Company’s common stock
at an exercise price of $7.00 per share at any time during the period commencing
on the date that is six months and one day from the date of the Warrant and
ending ten years from the date of the Warrant. The Warrant contains
customary anti-dilution provisions for stock splits, stock dividends and the
like and other customary terms and conditions.
The
description of the Warrant does not purport to be complete and is qualified in
its entirety by reference to the Warrant, which is filed as Exhibit 10.3 to this
report and incorporated by reference herein.
Certificate
of Designations, Powers, Preferences and Rights of the Series B Cumulative
Convertible Preferred Stock
The
Certificate of Designations, Powers, Preferences and Rights of the Series B
Cumulative Convertible Preferred Stock (the “Certificate of
Designations”) designates 3,000,000 shares of preferred stock as Series B
Cumulative Convertible Preferred Stock.. The Series B Preferred Stock
ranks senior in liquidation and dividend preferences to the Company’s common
stock and on parity with respect to dividend and liquidation rights with the
Company’s Series A Cumulative Redeemable Convertible Preferred Stock (“Series A Preferred
Stock”). Holders of Series B Preferred Stock are entitled to
quarterly cumulative dividends payable in arrears in cash in an amount equal to
7.00% of the purchase price per share of the Series B Preferred Stock on a pari passu basis with the
holders of Series A Preferred Stock; however, subject to the provisions of the
Letter Agreement described below, such dividends may, at the option of the
Company, be paid in additional shares of Series B Preferred Stock based
initially on the value of the purchase price per share of the Series B Preferred
Stock. The holders of Series B Preferred Stock have a liquidation preference
over the holders of the Company’s common stock equivalent to the purchase price
per share of the Series B Preferred Stock plus any accrued and unpaid dividends
on the Series B Preferred Stock but on a pro rata and pari passu basis with the
holders of Series A 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 Series B Preferred Stock vote
affirmatively in favor of or otherwise consent that such transaction shall not
be treated as a liquidation.
The
holders of the Series B Preferred Stock have conversion rights initially
equivalent to three shares of common stock for each share of Series B 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 $6.50 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) any common
stock issued upon conversion of the Series A Preferred Stock or as payment of
dividends thereon, (iii) Series B Preferred Stock and any common stock issued
upon conversion of the Series B Preferred Stock or as payment of dividends
thereon, (iv) 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 (v) 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 Series B Preferred Stock is already made. The shares of
Series B 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 Series B 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 Series B Preferred Stock will be
subject to forced conversion unless the shares of common stock issued or
issuable to the holders upon conversion of the Series B Preferred Stock are
registered for resale with the SEC 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 Series B Preferred Stock. Accrued but unpaid dividends on
the Series B Preferred Stock are to be paid in cash upon any conversion of the
Series B Preferred Stock.
The
holders of Series B Preferred Stock vote together as a single class with the
holders of the Company’s Series A Preferred Stock and common stock on all
actions to be taken by the Company’s stockholders. Each share of
Series B Preferred Stock entitles the holder to the number of votes equal to the
number of shares of common stock into which each share of Series B Preferred
Stock is convertible on all matters to be voted on by the stockholders of the
Company. Notwithstanding the foregoing, the holders of Series B
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 Series B Preferred Stock. These protective provisions include
limitations on (i) the increase or decrease of the number of authorized shares
of Series B 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 Series B Preferred Stock,
(iv) the authorization, creation or sale of any securities senior to or on
parity with the Series B 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 Series B 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 Series B Preferred Stock other than the shares of Series B Preferred
Stock authorized, created and sold under the Purchase Agreement, and (vii)
engaging in a transaction that would result in an internal rate of return to
holders of Series B Preferred Stock of less than 25%.
The
holders of the Series B Preferred Stock are afforded preemptive rights with
respect to certain securities offered by the Company. The preemptive
rights of the holders of the Series B Preferred Stock are subordinate to the
preemptive rights of, and prior exercise thereof by, the holders of the Series A
Preferred Stock. So long as 50% of the shares of Series B Preferred
Stock remain outstanding, and not including any securities of the Company as to
which any holder of the Series A Preferred Stock has exercised its preemptive
rights, each holder of Series B Preferred Stock has the right to purchase a
pro rata portion of
such securities equivalent to the number of shares of common stock then held by
such holder (giving effect to the conversion of all shares of convertible
preferred stock then held by such holder), divided by the total number of shares
of common stock then held by all holders of the Series B Preferred Stock (giving
effect to the conversion of all outstanding shares of convertible preferred
stock then held by such holders), plus any amounts not purchased by other
holders of Series B Preferred Stock. Notwithstanding the foregoing, certain
proposed securities offerings will not result in preemptive rights in favor of
the holders of the Series B 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
description of the Certificate of Designations does not purport to be complete
and is qualified in its entirety by reference to the Certificate of
Designations, which is filed as Exhibit 10.2 to this report and incorporated by
reference herein.
Registration
Rights Agreement dated as of March 27, 2008 between Pacific Ethanol, Inc. and
Lyles United, LLC
A
Registration Rights Agreement between the Company and the Purchaser was executed
upon the closing of the transactions contemplated by the Purchase Agreement. The
Registration Rights Agreement is effective until the holders of the Series B
Preferred Stock, and their affiliates, as a group, own less than 10% of the
Series B Preferred Stock issued under the Purchase Agreement, including common
stock into which such Series B Preferred Stock has been converted (the “Termination
Date”). The Registration Rights Agreement provides that
holders of a majority of the Series B Preferred Stock, including common stock
into which such Series B 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 Series B Preferred Stock and as payment of
dividends thereon, and upon exercise of the Warrant as well as upon exercise of
a warrant to purchase 100,000 shares of the Company’s common stock at an
exercise price of $8.00 per share and issued in connection with the extension of
the maturity date of a loan, as discussed further below (collectively, the
“Registrable
Securities”). Following such demand, the Company is required
to notify any other holders of the Series B 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 for sales of
Registrable Securities without registration under the Securities Act of 1933, as
amended. The holders are entitled to two demand registrations on Form S-1 and
unlimited demand registrations on Form S-3; provided, however, that the
Company is not obligated to effect more than one demand registration on Form S-3
in any calendar year.
In
addition to the demand registration rights afforded the holders under the
Registration 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 Registration 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 Registration Rights Agreement also provides for
customary registration procedures. The Company is responsible for all costs of
registration, plus reasonable fees of one legal counsel for the holders, which
fees are not to exceed $25,000 per registration.
The
Registration 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.
In
addition, the Registration 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. The Registration Rights Agreement includes customary
representations and warranties on the part of both the Company and the Purchaser
and other customary terms and conditions.
The
description of the Registration Rights Agreement does not purport to be complete
and is qualified in its entirety by reference to the Purchase Agreement, which
is filed as Exhibit 10.4 to this report and incorporated by reference
herein.
Relationship
with Lyles United, LLC
The
Company has had a lengthy business relationship with affiliates of, as well as
prior business dealings with, Lyles United, LLC, as further described
below.
In June
2003, Lyles Diversified, Inc., an affiliate of Lyles United, LLC, loaned $5.1
million to Pacific Ethanol California, Inc. (“PEI
California”). As partial consideration for the loan, PEI
California issued 1,000,000 shares of common stock to Lyles Diversified,
Inc. Up to $1.5 million of the loan was convertible into additional
shares of PEI California’s common stock at a rate of $1.50 per
share. Lyles Diversified, Inc. converted portions of the loan from
time to time into an aggregate of 335,121 shares of PEI California’s common
stock. PEI California subsequently became a wholly-owned subsidiary
of the Company’s and in connection therewith, all of Lyles Diversified, Inc.’s
shares of PEI California’s common stock were exchanged for shares of the
Company’s common stock on a one-for-one basis. The loan was
subsequently assigned to the Company and Lyles Diversified, Inc. converted the
remaining balance of the $1.5 million initially eligible to be converted into
664,879 shares of the Company’s common stock. In aggregate, Lyles Diversified,
Inc. received 2,000,000 shares of the Company’s common stock in connection with
the loan transaction and the conversion of $1.5 million of debt. The
loan was later further assigned to Pacific Ethanol Madera LLC (“PEI Madera”), an
indirect subsidiary of the Company.
In
November 2005, PEI Madera entered into a Design-Build Agreement with W.M. Lyles
Co., an affiliate of Lyles United, LLC, that provided for design and build
services to be rendered by W.M. Lyles Co. to PEI Madera with respect to the
Company’s ethanol production facility in Madera, California. The
Madera facility was completed in October 2006.
In
September 2007, Pacific Ethanol Stockton LLC (“PEI Stockton”), an
indirect subsidiary of the Company, entered into a Construction Agreement with
W.M. Lyles Co., an affiliate of Lyles United, LLC, for W.M. Lyles Co. to provide
construction management and construction services to PEI Stockton with respect
to the Company’s ethanol production facility in Stockton,
California. In December 2007, W.M. Lyles Co. assigned the
Construction Agreement to Lyles Mechanical Co., another affiliate of Lyles
United, LLC. The Stockton facility is in the process of being
constructed.
In
November 2007, Pacific Ethanol Imperial, LLC (“PEI Imperial”), an
indirect subsidiary of the Company, borrowed $15.0 million from Lyles United,
LLC under a Secured Promissory Note containing customary terms and
conditions. The loan accrues interest at a rate equal to the Prime
Rate of interest as reported from time to time in The Wall Street Journal, plus
two percent (2.00%), computed on the basis of a 360-day year of twelve 30-day
months. The loan was due 90-days after issuance or, if extended at
the option of PEI Imperial, 365-days after the end of such 90-day period. This
loan was extended by PEI Imperial and is due February 25, 2009. The
Secured Promissory Note provided that if the loan was extended, the Company was
to issue a warrant to purchase 100,000 shares of the Company’s common stock at
an exercise price of $8.00 per share. The Company issued the warrant
simultaneously with the closing of the transactions contemplated by the Purchase
Agreement. The warrant is exercisable at any time during the 18-month
period after the date of issuance. The loan is secured by
substantially all of the assets of PEI Imperial pursuant to a Security Agreement
dated November 28, 2007 by and between PEI Imperial and Lyles United, LLC that
contains customary terms and conditions and an Amendment No. 1 to Security
Agreement dated December 27, 2007 by and between PEI Imperial and Lyles United,
LLC (collectively, the “Security
Agreement”). The Company has guaranteed the repayment of the
loan pursuant to an Unconditional Guaranty dated November 28, 2007 containing
customary terms and conditions. In connection with the loan, PEI
Imperial entered into a Letter Agreement dated November 28, 2007 with Lyles
United, LLC under which PEI Imperial committed to award the primary construction
and mechanical contract to Lyles United, LLC or one of its affiliates for the
construction of an ethanol production facility at the Company’s Imperial Valley
site near Calipatria, California (the “Project”),
conditioned upon PEI Imperial electing, in its sole discretion, to proceed with
the Project and Lyles United, LLC or its affiliate having all necessary licenses
and is otherwise ready, willing and able to perform the primary construction and
mechanical contract. In the event the foregoing conditions are
satisfied and PEI Imperial awards such contract to a party other than Lyles
United, LLC or one of its affiliates, PEI Imperial will be required to pay to
Lyles United, LLC, as liquidated damages, an amount equal to $5.0
million.
In
December 2007, PEI Imperial borrowed an additional $15.0 million from Lyles
United, LLC under a second Secured Promissory Note containing customary terms
and conditions. The loan accrues interest at a rate equal to the
Prime Rate of interest as reported from time to time in The Wall Street Journal, plus
two percent (2.00%), computed on the basis of a 360-day year of twelve 30-day
months. The loan is due on March 31, 2008 or, if extended at the
option of PEI Imperial, on March 31, 2009. If the loan is extended,
the interest rate increases by two percentage points. The loan is secured by
substantially all of the assets of PEI Imperial pursuant to the Security
Agreement. The Company has guaranteed the repayment of the loan pursuant to an
Unconditional Guaranty dated December 27, 2007 containing customary terms and
conditions. The Company intends to extend the due date of the second
Secured Promissory Note.
Ancillary
Agreements
Letter
Agreement dated March 27, 2008 by and between Pacific Ethanol, Inc., and Lyles
United, LLC
In
connection with the closing of the transactions contemplated by the Purchase
Agreement, the Company entered into a Letter Agreement with Lyles United, LLC
under which the Company expressly waives its rights under the Certificate of
Designation to make dividend payments in additional shares of Series B Preferred
Stock in lieu of cash dividend payments without the prior written consent of
Lyles United, LLC.
The
description of the Letter Agreement does not purport to be complete and is
qualified in its entirety by reference to the Letter Agreement, which is filed
as Exhibit 10.5 to this report and incorporated by reference
herein.
Series
A Preferred Stockholder Consent and Waiver dated March 27, 2008 by and between
Pacific Ethanol, Inc. and Cascade Investment, L.L.C.
On March
27, 2008, the Company entered into a Series A Preferred Stockholder Consent and
Waiver (the “Consent and Waiver”) with Cascade Investment, L.L.C. (“Cascade”),
the sole holder of the Company’s issued and outstanding shares of Series A
Preferred Stock. Pursuant to the Consent and Waiver, Cascade waived
its preemptive rights as to the issuance and sale of the Series B Preferred
Stock, consented to the authorization, creation, issuance and
sale of the Series B Preferred Stock, and consented to the registration rights
granted under the aforementioned Registration Rights Agreement. In
addition, each of the Company and Cascade waived the right to adjust the
conversion price of the Series A Preferred Stock with respect to the sale and
issuance of the Series B Preferred Stock and any shares of common stock issuable
on conversion thereof or shares of Series B Preferred Stock payable as a
dividend thereon. Under the Consent and Waiver, the Company expressly
waived its rights under the Certificate of Designations, Powers, Preferences and
Rights of the Series A Preferred Stock to make dividend payments in additional
shares of Series A Preferred Stock in lieu of cash dividend payments without the
prior written consent of Cascade.
The
description of the Consent and Waiver does not purport to be complete and is
qualified in its entirety by reference to the Consent and Waiver, which is filed
as Exhibit 10.6 to this report and incorporated by reference
herein.
Waiver
of Defaults under Credit Agreement and Amendment to Credit
Agreement
Form
of Waiver and Third Amendment to Credit Agreement dated as of March 25, 2008 by
and among Pacific Ethanol, Inc. and the parties thereto
As
previously disclosed, in the Company’s Form 8-K for March 18, 2008 as filed with
the Securities and Exchange Commission on March 18, 2008, in March 2008, the
Company became aware of various events or circumstances which constituted
defaults under its Credit Agreement. These events or circumstances included the
existence of material weaknesses in the Company’s internal control over
financial reporting as of December 31, 2007, cash management activities that
violated covenants in its Credit Agreement, failure to maintain adequate amounts
in a designated debt service reserve account, the existence of a number of
Eurodollar loans in excess of the maximum number permitted under the Company’s
Credit Agreement, and the Company’s failure to pay all remaining project costs
on its Madera and Boardman facilities by certain stipulated deadlines. On March
26, 2008, the Company obtained waivers from its lenders as to these defaults and
was required to pay the lenders a consent fee in an aggregate amount of up to
approximately $600,000. In addition to the waivers, the Company’s
lenders agreed to amend the Credit Agreement. These amendments include an
increase in the frequency with which the Company is to deposit certain revenues
into a restricted account each month, an increase the allowable Eurodollar loans
from a maximum of seven to a maximum of ten, and the Company is required to pay
all remaining project costs on its Madera and Boardman facilities by May 16,
2008.
The
description of the Form of Waiver and Third Amendment to Credit Agreement does
not purport to be complete and is qualified in its entirety by reference to the
Form of Waiver and Third Amendment to Credit Agreement, which is filed as
Exhibit 10.7 to this report and incorporated by reference herein.
Credit
Facility
On
February 27, 2007, the Company closed a debt financing transaction in the
aggregate amount of up to $325,000,000 through certain of its wholly-owned
indirect subsidiaries (the “Borrowers”). The primary purpose of the debt
financing (the “Debt Financing”) was to provide debt financing for the
development, construction, installation, engineering, procurement, design,
testing, start-up, operation and maintenance of five ethanol production
facilities. On November 27, 2007, the Company amended the agreement to apply to
four ethanol production facilities, thereby reducing the aggregate amount of
available financing to up to $250,769,000. As of December 31, 2007, two of the
four plants have been funded, with the remaining two expected to be funded in
2008. As of December 31, 2007, the outstanding balance under the Debt Financing
was $101,508,000, comprised of $92,308,000 in construction loans and $9,200,000
in used lines of credit.
The Debt
Financing, as amended, includes:
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four
construction loan facilities in an aggregate amount of up to $230,800,000.
Loans made under the construction loan facilities do not amortize, but
require payment of accrued interest, and are fully due and payable on the
earlier of October 27, 2008 or the date the construction loans made
thereunder are converted into term loans (the “Conversion Date”), the
latter of which is to be the date the last of the four plants achieves
commercial operations. On the Conversion Date, the construction loans are
to be converted into term loans;
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four
term loan facilities in an aggregate amount of up to $230,800,000, which
are intended to refinance the loans made under the construction loan
facilities. The term loans are to be repaid ratably by each Borrower on a
quarterly basis from and after the Conversion Date in an amount equal to
1.5% of the aggregate original principal amount of the corresponding term
loan. The remaining principal balance and all accrued and unpaid interest
on the term loans are fully due and payable on the date that is 84 months
after the Conversion Date; and
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a
working capital and letter of credit facility in an aggregate amount of up
to $20,000,000 ($5,000,000 per facility) that is fully due and payable on
the date that is 12 months after the Conversion Date, but is expected to
be renewed on similar terms and conditions. During the term of the working
capital and letter of credit facility, the Borrowers may borrow, repay and
re-borrow amounts available under the
facility.
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Loans and
letters of credit under the Debt Financing are subject to conditions precedent,
including, among others, the absence of a material adverse effect; the absence
of defaults or events of defaults; the accuracy of certain representations and
warranties; the maintenance of a debt-to-equity ratio that is not in excess of
65:35; the contribution of all required equity by the Company to the Borrowers,
which is expected to be approximately $227,000,000 in the aggregate; and the
attainment of at least a 1.5-to-1.0 debt service coverage ratio. Also, the
Borrowers may not be able to fully utilize the Debt Financing if the completed
ethanol plants fail to meet certain minimum performance standards. Loans made
under the construction and term loan facilities may not be re-borrowed once
repaid or re-borrowed once prepaid. Finally, loan amounts under the construction
and term loan facilities are limited to a percentage of project costs of the
corresponding plant but are not to exceed approximately $1.15 per gallon of
annual production capacity of the plant.
The
Borrowers have the option to select from multiple interest rates that float with
common interest rate indices, such as the LIBOR, with reset periods of differing
durations. Depending upon the floating interest rate selected, the type of loan
and whether the loan is made under a construction loan facility, a term loan
facility or the working capital and letter of credit facility, loans under the
Debt Financing bear interest at rates ranging from 3.75% to 4.35% over the
selected interest rate index.
In
addition to scheduled principal payments, starting after the Conversion Date,
the term loan facilities require mandatory repayments of principal in amounts
based on the Borrowers’ free cash flow. The percentage of the Borrowers’ free
cash flow to be applied to principal repayments is to vary from 50% in the first
two years following the Conversion Date to 75-100% in succeeding years, based
upon repayment amounts measured against targeted balances.
Borrowings
and the Borrowers’ obligations under the Debt Financing are secured by a
first-priority security interest in all of the equity interests in the Borrowers
and substantially all the assets of the Borrowers. The security interests
granted by the Borrowers under the Debt Financing restrict the assets and
revenues of the Borrowers and therefore may inhibit the Company’s ability to
obtain other debt financing.
In
connection with the Debt Financing, the Company also entered into a Sponsor
Support Agreement under which the Company is to provide limited contingent
equity support in connection with the development, construction, installation,
engineering, procurement, design, testing, start-up and maintenance of the four
ethanol production facilities. In particular, the Company has agreed to
contribute to the Borrowers up to an aggregate of approximately $28,083,000 (the
“Sponsor Funding Cap”) of contingent equity in the event the Borrowers have
insufficient funds to either pay their project costs as they become due and
payable or, by delay in payment, cause the ethanol production facilities to fail
to be completed by the Conversion Date. The Company has agreed to provide a
warranty with respect to all ethanol plants other than its Madera facility,
which is under standard warranty through the contractor. The warranty
obligations of the Company with respect to the other three facilities extend one
year beyond final completion of each facility. The warranty obligation will
cease one year from the date the third ethanol plant achieves final completion.
The Company’s obligations under the warranty are capped at the Sponsor Funding
Cap. Until the Company’s contingent equity obligations have been fully performed
or the warranty period has expired, the Company may not incur any secured
indebtedness for borrowed money, grant liens on its assets or provide any
secured credit enhancements in an aggregate amount in excess of $10,000,000
unless the Company provides the lenders under the Debt Financing with the same
liens or credit support.
|
Item
3.02
|
Unregistered
Sales of Equity Securities.
|
As
described in Item 1.01 above, on March 27, 2008, the Company issued to Lyles
United, LLC (i) 2,051,282 shares of the Company’s Series B Preferred Stock, all
of which are initially convertible into an aggregate of 6,153,846 shares of the
Company’s common stock based on an initial three-for-one conversion ratio, and
(ii) a warrant to purchase an aggregate of 3,076,923 shares of the Company’s
common stock at an exercise price of $7.00 per share, for an aggregate purchase
price of $40 million.
As
described in Item 1.01 above, on March 27, 2008, the Company issued to Lyles
United, LLC a warrant to purchase 100,000 shares of the Company’s common stock
at an exercise price of $8.00 per share in connection with the extension of the
maturity date of a loan. The disclosures contained in Item 1.01 above are
incorporated herein by reference.
Exemption
from the registration provisions of the Securities Act of 1933 for the
transaction described above is claimed under Section 4(2) of the Securities Act
of 1933, among others, on the basis that such transaction did not involve any
public offering and Lyles United, LLC was an accredited investor and had access
to the kind of information that registration would
provide. Appropriate investment representations were obtained, and
the securities were or will be issued with restricted securities
legends.
|
Item
3.03
|
Material
Modification to Rights of Security
Holders.
|
(a) Not
applicable.
(b) Effective
as of March 27, 2008, the Company consummated the sale of its Series B Preferred
Stock to Lyles United, LLC as described above under Item 1.01. The rights and
preferences of the Series B Preferred Stock are set forth in the Certificate of
Designations, Powers, Preferences and Rights of the Series B Cumulative
Convertible Preferred Stock as also described above under Item
1.01.
|
Item
5.03
|
Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
|
(a) Effective
as of March 27, 2008, the Company consummated the sale of its Series B Preferred
Stock to Lyles United, LLC as described above under Item 1.01. The rights and
preferences of the Series B Preferred Stock are set forth in the Certificate of
Designations, Powers, Preferences and Rights of the Series B Cumulative
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. Not applicable.
(b) Pro forma financial
information. Not applicable.
(c) Shell company
transactions. Not applicable.
(d) Exhibits.
|
Number
|
Description
|
|
10.1
|
Securities
Purchase Agreement dated March 18, 2008 between Pacific Ethanol, Inc. and
Lyles United, LLC (*)
|
|
10.2
|
Certificate
of Designations, Powers, Preferences and Rights of the Series B Cumulative
Convertible Preferred Stock
|
|
10.3
|
Warrant
dated March 27, 2008 issued by Pacific Ethanol, Inc. to Lyles United,
LLC
|
|
10.4
|
Registration
Rights Agreement dated as of March 27, 2008 by and between Pacific
Ethanol, Inc. and Lyles United, LLC
|
|
10.5
|
Letter
Agreement dated March 27, 2008 by and among Pacific Ethanol, Inc., Lyles
United, LLC and Cascade Investment, L.L.C.
|
|
10.6
|
Series
A Preferred Stockholder Consent and Waiver dated March 27, 2008 by and
between Pacific Ethanol, Inc. and Cascade Investment,
L.L.C.
|
|
10.7
|
Form
of Waiver and Third Amendment to Credit Agreement dated as of March 25,
2008 by and among Pacific Ethanol, Inc. and the parties
thereto.
|
|
_______________
|
|
|
(*)
|
Filed
as an exhibit to the Registrant’s current report on Form 8-K for March 18,
2008 filed with the Securities and Exchange Commission on March 18, 2008
and incorporated herein by
reference.
|
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: March
27, 2008
|
PACIFIC
ETHANOL, INC.
|
|
|
|
|
|
By:
/S/ JOSEPH W.
HANSEN
|
|
|
Joseph
W. Hansen
|
|
|
Chief
Financial Officer
|
EXHIBITS
FILED WITH THIS REPORT
|
Number
|
Description
|
|
10.2
|
Certificate
of Designations, Powers, Preferences and Rights of the Series B Cumulative
Convertible Preferred Stock
|
|
10.3
|
Warrant
dated March 27, 2008 issued by Pacific Ethanol, Inc. to Lyles United,
LLC
|
|
10.4
|
Registration
Rights Agreement dated as of March 27, 2008 by and between Pacific
Ethanol, Inc. and Lyles United, LLC
|
|
10.5
|
Letter
Agreement dated March 27, 2008 by and among Pacific Ethanol, Inc., Lyles
United, LLC and Cascade Investment, L.L.C.
|
|
10.6
|
Series
A Preferred Stockholder Consent and Waiver dated March 27, 2008 by and
between Pacific Ethanol, Inc. and Cascade Investment,
L.L.C.
|
|
10.7
|
Form
of Waiver and Third Amendment to Credit Agreement dated as of March 25,
2008 by and among Pacific Ethanol, Inc. and the parties
thereto.
|