SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) NOVEMBER 2, 2005
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PACIFIC ETHANOL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 000-21467 41-2170618
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5711 N. WEST AVENUE, FRESNO, CALIFORNIA 93711
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (559) 435-1771
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
AMENDED AND RESTATED PHASE 1 DESIGN-BUILD AGREEMENT DATED NOVEMBER 2, 2005
BY AND BETWEEN PACIFIC ETHANOL MADERA LLC AND W.M. LYLES CO.
AMENDED AND RESTATED PHASE 1 DESIGN-BUILD AGREEMENT
On November 2, 2005, Pacific Ethanol Madera LLC ("PEI Madera"), a
wholly-owned subsidiary of Pacific Ethanol, Inc. (the "Company") entered into an
Amended and Restated Phase 1 Design-Build Agreement (the "Amended Agreement")
with W.M. Lyles Co. ("Builder"). The Amended Agreement amended and restated that
certain Standard Form of Design-Build Agreement and General Conditions dated
July 7, 2003 between Builder and Pacific Ethanol California, Inc. ("PEI
California"), now a wholly-owned subsidiary of the Company. The Standard Form of
Design-Build Agreement and General Conditions was amended by that certain
Contractual Amendment No. 1.0 dated May 10, 2004 and that certain Contractual
Amendment No. 2.0 dated March 18, 2005 between PEI California and Builder (the
Standard Form of Design-Build Agreement and General Conditions together with
Contractual Amendments Nos. 1.0 and 2.0 are collectively referred to as the
"Initial Agreement").
The Amended Agreement provides for design and build services to be rendered
by Builder to PEI Madera with respect to an ethanol production facility
currently under construction in Madera County, California (the "Project"). Under
the Amended Agreement, Builder is to operate in a general contractor capacity
and procure engineering and construction services from third parties. The
Amended Agreement stipulates that the engineer for the Project is to be Delta-T
Corporation. Builder is to prepare and provide preliminary evaluation reports to
PEI Madera regarding the Project with respect to various matters including
access, traffic, drainage, parking, building placement and other factors
affecting the Project. Builder is to prepare and provide to PEI Madera a
preliminary schedule as well as a preliminary cost estimate for the Project.
Builder is also to prepare and submit to PEI Madera design development documents
prepared by the engineer that further define the Project including drawings and
outline specifications. In addition, Builder is to prepare and provide to PEI
Madera construction documents that set forth in detail the requirements for the
construction of the Project. PEI Madera is to be the owner of generally all
documents, drawings, specifications and information prepared with respect to the
Project, provided that final payment on the Project has been made to Builder.
The Amended Agreement provides for a guaranteed maximum price proposal of
$15.0 million. However, PEI Madera is liable for additional costs to the extent
that the scope of work actually performed by Builder exceeds the scope of work
that is the basis for the guaranteed maximum price. In addition, the cost of
services performed directly by the engineer for the Project, Delta-T
Corporation, is not included in such guaranteed maximum price. The completion
date of the work contemplated by the Amended Agreement is to be November 20,
2005.
Builder warrants that all materials and equipment furnished to PEI Madera
under the Agreement are new, of good quality, in conformance with the parties'
agreements and free from defective workmanship and materials. Builder's
warranties commence on the completion date under the Amended Agreement and
continue until one year following Substantial Construction Completion (as
defined below under the Phase 2 Agreement). Any corrective work results in an
additional warranty as to the corrective work performed that lasts until the
earlier of one year from the date of completion of the corrective work or
eighteen months from the date of Substantial Construction Completion.
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PEI Madera is to provide to Builder various information to allow Builder to
perform its obligations, including physical characteristics of the site,
surveys, site evaluations, legal descriptions, environmental studies and other
information. PEI Madera is also to provide various additional assistance, as
necessary, including inspection and testing services, necessary approvals, site
plan review, rezoning, easements and assessments, fees, permits and other
services.
PEI Madera is also to provide reasonable evidence satisfactory to Builder
prior to commencing work and during progress of the work on the Project that
sufficient funds are available and committed for the cost of the Project. In the
event that PEI Madera cannot provide such reasonable evidence, Builder will not
be required to commence or continue work on the Project. Builder may cease work
on the Project after seven days' prior written notice if such reasonable
evidence is not obtained.
PEI Madera is to make monthly progress payments to Builder. Builder is to
submit to PEI Madera an application for payment consisting of the cost of the
work performed up to the end of the month, including costs of materials stored
at the worksite as well as a proportionate share of Builder's service fees. PEI
Madera is to accept or reject such application within ten days after receipt and
is to pay within fifteen days amounts that are accepted. However, if PEI Madera
fails to pay Builder amounts actually owed, then Builder may suspend work upon
seven days' written notice until amounts owed have been received. The final
payment is to be paid when all work is fully completed.
Builder is to indemnify PEI Madera and its affiliates and other related
parties to the extent of the negligence attributed to acts or omissions by
Builder, its subcontractors or anyone employed directly or indirectly by any of
them or by anyone for whose acts they may be liable, or as otherwise caused by a
breach by Builder of its obligations under the Amended Agreement. PEI Madera is
to indemnify Builder and its affiliates and other related parties to the extent
of the negligence attributed to acts or omissions by others that may arise from
the performance of work by others. Builder is required to obtain and maintain
liability insurance and Builder's obligation and liability under the Amended
Agreement is limited to the coverage limits available under the insurance
stipulated in the Amended Agreement. Builder's umbrella excess insurance limit
is $10.0 million with $2.0 million for general aggregate and $1.0 million for
most other items. However, notwithstanding anything to the contrary in the
Agreement, Builder guarantees completion of the work on the Project and Builder
will be responsible for all of PEI Madera's costs arising out of Builder's
failure to complete the work on the Project, up to the full $15.0 million
guaranteed maximum price. This guarantee is, however, substantially reduced by
the Letter Agreement described below.
PEI Madera may terminate the Amended Agreement but must pay Builder for all
costs associated with the work on the Project. If PEI Madera terminates the
Amended Agreement and selects another design-builder, then PEI Madera is to pay
for all costs associated with the work on the Project as well as a $5.0 million
premium. PEI Madera is also required to pay Builder fair compensation for all
equipment retained by Builder and PEI Madera is required to assume all
obligations, commitments and unsettled claims that Builder has undertaken or
incurred in good faith in connection with the work on the Project. In the event
that Builder fails to perform any of its material obligations under the Amended
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Agreement, PEI Madera may terminate the Amended Agreement without the obligation
to pay the $5.0 million premium but only after such failure continues for
forty-five days following receipt by Builder of written notice of such failure.
Upon five days' prior written notice, Builder is entitled to terminate the
Amended Agreement if work has been stopped for sixty days as a result of a court
order or order of other governmental authorities or in the event of a national
emergency or other governmental act after which, through no act or fault of
Builder, materials are not available. PEI Madera is entitled to suspend or delay
work on the Project, without cause, for its convenience; however, the parties
are to make adjustments to compensation payable to Builder associated with any
such suspension or delay. Upon five days' prior written notice, Builder is
entitled to terminate the Amended Agreement if work is suspended by PEI Madera
for sixty consecutive days or PEI Madera fails to furnish reasonable evidence to
Builder that sufficient financing is available and committed for the cost of the
Project. In the event Builder properly terminates the Amended Agreement, it is
entitled to recover from PEI Madera payment for all work performed and for all
proven loss, cost or expense in connection with the work plus all demobilization
costs and reasonable damages.
STANDARD FORM OF DESIGN-BUILD AGREEMENT AND GENERAL CONDITIONS
Numerous provisions of the Initial Agreement are substantially similar to
or the same as the provisions in the Amended Agreement. The Initial Agreement
did not set forth specific completion dates for the Project and instead
established dates for completion based on work performed and payment by PEI
Madera. The warranties provided by Builder under the Initial Agreement extended
for one year following the date of Substantial Construction Completion. The
Initial Agreement did not include express obligations on the part of Builder to
obtain certain permits. The Initial Agreement did not include an express
limitation of liability to the amounts of insurance coverage as does the Amended
Agreement. The Initial Agreement also did not include an express completion
guarantee up to the amount of the guaranteed maximum price as does the Amended
Agreement.
PHASE 2 DESIGN-BUILD AGREEMENT DATED NOVEMBER 2, 2005 BY AND BETWEEN
PACIFIC ETHANOL MADERA LLC AND W.M. LYLES CO.
On November 2, 2005, PEI Madera entered into a Phase 2 Design-Build
Agreement (the "Phase 2 Agreement") with Builder. Numerous provisions of the
Phase 2 Agreement are substantially similar to or the same as the provisions in
the Amended Agreement. The Phase 2 Agreement covers additional work to be
performed by Builder for the completion of the Project.
The final completion date of the work contemplated by the Phase 2 Agreement
is five hundred forty-five days after PEI Madera's notice to Builder to proceed.
As of the date of this report, PEI Madera has not yet delivered to Builder its
notice to proceed. Final completion of the Project will have occurred upon
Substantial Construction Completion, the completion of certain specified
performance tests and the satisfaction of certain performance test guarantees,
the completion of written punch list items and the release or satisfactory
bonding of all written liens on the Project. "Substantial Construction
Completion" is four hundred twenty-five days after PEI Madera's notice to
Builder to proceed. Substantial Construction Completion is to include the
following items: personnel training, final operations and maintenance plans
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delivered to PEI Madera, mechanical completion of the Project has been achieved,
tasks required to take the facility from mechanical completion to startup have
been completed, punch list items have been agreed upon between PEI Madera and
Builder, the facility is ready for startup operation and Builder has initiated
its performance test and the facility is operating at 95% of its performance
guarantee.
The Phase 2 Agreement provides for a guaranteed maximum price proposal of
approximately $34.0 million. However, PEI Madera is liable for additional costs
to the extent that the scope of work actually performed by Builder exceeds the
scope of work that is the basis for the guaranteed maximum price. In the event
that the total costs and fees for Phase 2 of the Project are less than the
guaranteed maximum price of approximately $34.0 million, then Builder and PEI
Madera are to share such difference equally.
The Phase 2 Agreement provides for warranties on the part of Builder for
the benefit of PEI Madera. The warranties with respect to the Project commence
on the date of Substantial Construction Completion.
The date of commencement of the Project under the Phase 2 Agreement will
not occur until a deed of trust evidencing certain financing parties' security
interest in all or substantially all of the Project site has been properly
recorded.
Delays in work beyond the Substantial Construction Completion date not
caused by PEI Madera will result in PEI Madera being entitled to liquidated
damages. These liquidated damages are to be calculated as $23,000 per day
multiplied by one minus the daily operating rate for such day. The daily
operating rate is calculated based on the actual operating capacity for that
day (expressed in millions of gallons per year) divided by thirty-five million
gallons. As an incentive bonus for achieving Substantial Construction Completion
prior to the specified date, PEI Madera is to pay to Builder $12,500 per day for
each day in advance of such date. Fifty percent of any bonus is payable within
thirty days after Substantial Construction Completion and the remaining fifty
percent is payable once final construction completion is achieved. The aggregate
amount of any liquidated damages or incentive bonus is not to exceed $2.5
million.
In addition to the limitations provided above in the Amended Agreement, the
liability of Builder is further limited such that to the extent any obligation
or liability of Builder is attributable to Delta-T Corporation, the Project's
engineer, Builder's obligation to PEI Madera is not to exceed $10.0 million,
less any liquidated damages paid to PEI Madera; provided, that such limitation
is not to reduce or bar any amounts that are covered by insurance to the extent
of such coverage.
Under the Phase 2 Agreement, Builder guarantees completion of the work on
the Project and Builder is responsible for all of PEI Madera's costs arising out
of Builder's failure to complete the work on the Project, up to the full $34.0
million guaranteed maximum price. This guarantee is, however, substantially
reduced by the Letter Agreement described below. Under the Phase 2 Agreement,
Builder provides certain performance guarantees; however, the amount of the
liquidated performance damages is limited to approximately $7.6 million.
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LETTER AGREEMENT DATED NOVEMBER 2, 2005 BY AND BETWEEN PACIFIC ETHANOL
CALIFORNIA, INC. AND W.M. LYLES CO.
On November 2, 2005, PEI California entered into a Letter Agreement (the
"Letter Agreement") with Builder. The Letter Agreement relates to the Amended
Agreement and the Phase 2 Agreement described above. Under the Letter Agreement,
in the event that Builder pays performance liquidated damages to PEI Madera
under the Phase 2 Agreement as a result of a defect attributable Delta-T
Corporation, the engineer for the Project, or in the event that Builder pays
liquidated damages to PEI Madera under the Phase 2 Agreement as a result of a
delay that is attributable to Delta-T Corporation, then PEI California agrees to
reimburse Builder for such liquidated damages. However, PEI California is not
responsible for the first $2.0 million of reimbursement. In addition, in the
event that Builder recovers amounts from Delta-T Corporation for such defect or
delay, then Builder will not seek reimbursement from PEI California. The
aggregate reimbursement obligations of PEI California under the Letter Agreement
are not to exceed $8.1 million.
CONTINUING GUARANTY DATED AS OF NOVEMBER 3, 2005 BY WILLIAM L. JONES IN
FAVOR OF W.M. LYLES CO.
On November 3, 2005, William L. Jones, the Chairman of the Board of
Directors of the Company, executed a Continuing Guaranty (the "Jones Guaranty")
in favor of W.M. Lyles Co. Under the Jones Guaranty, Mr. Jones guarantees to
Builder the payment obligations of PEI California under the Letter Agreement.
Under the Jones Guaranty, Builder is to seek payment on a pro rata basis from
Mr. Jones and Neil Koehler (as described below), but in the event that Mr.
Koehler fails to make payment, then Mr. Jones is responsible for any shortfall.
However, the full extent of Mr. Jones' liability under the Jones Guaranty,
including for any shortfall for non-payment by Mr. Koehler, is limited to $4.0
million plus any attorneys' fees, costs and expenses.
CONTINUING GUARANTY DATED AS OF NOVEMBER 3, 2005 BY NEIL KOEHLER IN FAVOR
OF W.M. LYLES CO.
On November 3, 2005, Neil Koehler, Chief Executive Officer and President
and a member of the Board of Directors of the Company, executed a Continuing
Guaranty (the "Koehler Guaranty") in favor of W.M. Lyles Co. Under the Koehler
Guaranty, Mr. Koehler guarantees to Builder the payment obligations of PEI
California under the Letter Agreement. Under the Koehler Guaranty, Builder is to
seek payment on a pro rata basis from Messrs. Jones (as described above) and
Koehler, but in the event that Mr. Jones fails to make payment, then Mr. Koehler
is responsible for any shortfall. However, the full extent of Mr. Koehler's
liability under the Koehler Guaranty, including for any shortfall for
non-payment by Mr. Jones, is limited to $4.0 million plus any attorneys' fees,
costs and expenses.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
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None.
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(b) Pro Forma Financial Information.
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None.
(c) Exhibits.
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Number Description
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10.1 Amended and Restated Phase 1 Design-Build Agreement dated
November 2, 2005 by and between Pacific Ethanol Madera LLC
and W.M. Lyles Co.
10.2 Phase 2 Design-Build Agreement dated November 2, 2005 by and
between Pacific Ethanol Madera LLC and W.M. Lyles Co.
10.3 Letter Agreement dated November 2, 2005 by and between
Pacific Ethanol California, Inc. and W.M. Lyles Co.
10.4 Continuing Guaranty dated as of November 3, 2005 by William
L. Jones in favor of W.M. Lyles Co.
10.5 Continuing Guaranty dated as of November 3, 2005 by Neil
Koehler in favor of W.M. Lyles Co.
10.6 Standard Form of Design-Build Agreement and General
Conditions dated July 7, 2003 between Pacific Ethanol
California, Inc. and W.M. Lyles Co. (*)
10.7 Contractual Amendment No. 1.0 dated May 10, 2004 between
Pacific Ethanol California, Inc. and W.M. Lyles Co. (*)
10.8 Contractual Amendment No. 2.0 dated March 18, 2005 between
Pacific Ethanol California, Inc. and W.M. Lyles Co. (*)
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(*) Filed as an exhibit to the Registrant's Registration
Statement on Form S-1 (Reg. No. 333-127714) filed with the
Securities and Exchange Commission on August 19, 2005 and
incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 8, 2005 PACIFIC ETHANOL, INC.
By: /S/ WILLIAM G. LANGLEY
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William G. Langley
Chief Financial Officer
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EXHIBITS FILED WITH THIS REPORT
Number Description
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10.1 Amended and Restated Phase 1 Design-Build Agreement dated November 2,
2005 by and between Pacific Ethanol Madera LLC and W.M. Lyles Co.
10.2 Phase 2 Design-Build Agreement dated November 2, 2005 by and between
Pacific Ethanol Madera LLC and W.M. Lyles Co.
10.3 Letter Agreement dated November 2, 2005 by and between Pacific Ethanol
California, Inc. and W.M. Lyles Co.
10.4 Continuing Guaranty dated as of November 3, 2005 by William L. Jones
in favor of W.M. Lyles Co.
10.5 Continuing Guaranty dated as of November 3, 2005 by Neil Koehler in
favor of W.M. Lyles Co.
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