[Letterhead of Rutan & Tucker, LLP]
LARRY A. CERUTTI
Direct Dial: (714) 641-3450
E-mail: lcerutti@rutan.com November 30, 2005
VIA FEDEX AND
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EDGAR CORRESPONDENCE
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Jennifer Hardy, Esq.
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
Mail Stop 7010
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Pacific Ethanol, Inc.
Amendment No. 2 to Registration Statement on Form S-1
Filed on November 22, 2005
File No. 333-127714
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Dear Ms. Hardy:
This letter responds to the comments of your letter dated November 28, 2005
relating to Pacific Ethanol, Inc. (the "Company"), a copy of which letter is
enclosed for your convenience.
The enclosed clean and marked-to-show-changes copies of Amendment No. 3 to
the Company's Registration Statement on Form S-1, Reg. No. 333-127714 (the
"Registration Statement") contain revisions that are directly in response to
your comments. We have reproduced below in bold font each of your comments set
forth in your letter of November 28, 2005, together with the Company's responses
in regular font immediately following each reproduced comment. The Company's
responses in this letter correspond to the numbers you placed adjacent to your
comments in your letter of November 28, 2005. We have indicated below whether
the comment has been responded to in the Registration Statement or the reasons
why the Company believes a response is either inapplicable or inappropriate. The
page numbers referenced below correspond to the marked versions of the documents
enclosed herewith.
Prospectus Summary, page 2
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1. INCLUDE A RECENT DEVELOPMENTS SECTION DESCRIBING THE CASCADE TRANSACTION
AND THE POTENTIAL EFFECT TO THE COMMON STOCK SHAREHOLDERS. INCLUDE A
DISCUSSION OF THE PROTECTIVE, DIVIDEND AND VOTING RIGHTS OF THE PREFERRED
SHAREHOLDERS AND THE POTENTIAL CHANGES TO YOUR BOARD.
Jennifer Hardy, Esq.
November 30, 2005
Page 2
Additional disclosure has been added commencing on page 3 of the
Registration Statement to add a Recent Developments section describing the
Cascade transaction and the potential effects on the common stockholders. Also
included is a discussion of the protective, dividend and voting rights of the
preferred stockholders and the potential changes to the Company's board of
directors.
Risk Factors, page 9
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We have entered into an agreement for an $84 million . . . , page 16
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2. WE NOTE THE DISPARITY BETWEEN THE REGISTRANT'S QUOTED STOCK PRICE AND THE
CONVERSION PRICE OF THE REFERENCED PREFERRED STOCK. PLEASE EXPAND THIS RISK
FACTOR TO DISCUSS THE EXPECTED IMPACT OF THIS TRANSACTION ON THE
REGISTRANT'S FUTURE EPS. IT APPEARS THAT THE IMPACT WILL BE MATERIAL IN THE
PERIOD OF ISSUANCE. SEE THE GUIDANCE IN EITF 98-5 AND EITF 00-27.
Additional disclosure has been added on page 16 of the Registration
Statement to discuss the expected impact of this transaction on the Company's
future earnings per share as it relates to dilution. Please note that the
Company is unable to quantify the reduction in income available to common
stockholders that may result from the application of the guidance provided by
EITF 98-5 and EITF 00-27. The amount of any such reduction will depend on the
fair market value of the Company's common stock at the time of the closing of
the purchase and sale of the Series A Preferred Stock and will be based on the
$8 per common share effective purchase price of the Series A Preferred Stock (on
an as-converted basis). The Company has, however, included disclosure to discuss
this reduction generally.
3. PLEASE DISCLOSE THE EFFECT OF THE ISSUANCE OF THE PREFERRED STOCK TO THE
EXISTING COMMON STOCK SHAREHOLDERS. DISCUSS, FOR EXAMPLE:
o THE DILUTIVE IMPACT RELATED TO THE CONVERSION RIGHTS;
o THAT THE PREFERRED STOCK IS CONVERTIBLE AT ANY TIME BY THE HOLDER;
o THAT THE PREFERRED STOCK RANKS SENIOR IN LIQUIDATION AND DIVIDEND
PREFERENCES TO THE COMMON STOCK;
o THAT THE PREFERRED SHAREHOLDERS ARE ENTITLED TO VOTE ON AN
AS-CONVERTED BASIS AND DISCLOSE WHETHER THE PREFERRED SHAREHOLDERS
WILL HAVE VOTING RIGHTS AT A HIGHER RATE THAN THE COMMON STOCK
SHAREHOLDERS;
o THE PROTECTIVE PROVISIONS; AND
o ANY POTENTIAL CHANGE OF CONTROL.
Jennifer Hardy, Esq.
November 30, 2005
Page 3
PLEASE ALSO REVISE YOUR PROXY STATEMENT TO INCLUDE THIS DISCLOSURE.
Additional disclosure has been added on page 16 of the Registration
Statement to discuss the effects on the Company's common stockholders of the
issuance of the Series A Preferred Stock.
In addition, the Company has revised its proxy statement to include
conforming disclosure.
Selling Security Holders, page 84
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4. WE NOTE YOUR DISCLOSURE REGARDING CAGAN-MCAFEE. SUPPLEMENTALLY, PLEASE TELL
US ABOUT THE SETTLEMENT AGREEMENT, DATED NOVEMBER 1, 2005, AMONG THE
COMPANY, CAGAN-MCAFEE CAPITAL PARTNERS, LLC AND CHADBOURN SECURITIES, INC.
The Settlement Agreement and Release (the "Settlement Agreement") dated
November 1, 2005 among the Company ("PEI"), Cagan-McAfee Capital Partners, LLC
("CMCP") and Chadbourn Securities, Inc. ("Chadbourn") relates to a dispute over
fees allegedly earned by CMCP and Chadbourn in connection with the Cascade
transaction. The factual recitals to the Settlement Agreement are as follows:
"A. PEI and CMCP are parties to that certain letter agreement dated
April 14, 2004 relating to certain financial advisory services to be
performed by CMCP and Chadbourn on behalf of PEI (the "Advisory
Agreement").
B. Although Chadbourn is not a signatory to the Advisory Agreement,
Chadbourn is an intended third-party beneficiary of the Advisory Agreement.
C. PEI is engaged in discussions with Cascade Investment, L.L.C.
("Cascade") regarding a potential investment by Cascade in PEI (the
"Cascade Investment").
D. Differences have arisen between PEI on the one hand, and CMCP and
Chadbourn on the other, as to what fees, if any, PEI would owe CMCP and/or
Chadbourn under the Advisory Agreement should Cascade complete the Cascade
Investment.
E. PEI on the one hand, and CMCP and Chadbourn on the other, wish to
settle all differences between them which arise out of or which in any way
are connected with or related to fees payable under the Advisory Agreement.
Jennifer Hardy, Esq.
November 30, 2005
Page 4
F. Without acknowledging the validity of PEI's, CMCP's or Chadbourn's
differences, and in order for PEI on the one hand, and CMCP and Chadbourn
on the other, to settle all differences between them related to fees
payable under the Advisory Agreement, and in consideration of the mutual
covenants, agreements and promises set forth in this Agreement, and other
good and valuable consideration, each party to this Agreement agrees as
follows: . . ."
Pursuant to the terms of the Settlement Agreement, the Company paid
CMCP $150,000 on November 1, 2005 and agreed to pay the amount of $960,000
within five business days of the closing of the Cascade transaction. If the
Cascade transaction does not close by March 31, 2006, then the Advisory
Agreement will be reinstated.
5. WE NOTE YOUR REVISED DISCLOSURE THAT EACH OF THE SELLING SHAREHOLDERS "HAS
REPRESENTED TO THAT IT IS NOT ACTING AS AN UNDERWRITER IN THIS OFFERING."
PLEASE REVISE HERE TO CLARIFY THAT NOTWITHSTANDING THIS REPRESENTATION,
CERTAIN SELLING SHAREHOLDERS MAY BE DEEMED TO BE UNDERWRITERS.
Additional disclosure has been added on page 74 of the Registration
Statement to clarify that, notwithstanding the fact that each of the selling
security holders has represented to the Company that it is not acting as an
underwriter in the offering, certain selling security holders may be deemed
underwriters with respect to their respective shares of common stock offered for
resale under the Registration Statement.
Description of Preferred Stock, page 96
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6. PLEASE DESCRIBE THE TERMS OF THE SERIES A PREFERRED STOCK IN GREATER
DETAIL.
Additional disclosure has been added commencing on page 91 of the
Registration Statement to describe the terms of the Series A Preferred Stock in
greater detail.
We trust that the foregoing is responsive to your comments in your letter
of comments dated November 28, 2005. If you have any questions, please call me
at (714) 641-3450 or my associate John T. Bradley, Esq. at (714) 662-4659.
Jennifer Hardy, Esq.
November 30, 2005
Page 5
Sincerely yours,
RUTAN & TUCKER, LLP
/s/ LARRY A. CERUTTI
Larry A. Cerutti
LAC:jtb
cc: Brigitte Lippmann, Esq. (w/encl.)
Neil M. Koehler (w/encl.)
Ryan W. Turner (w/encl.)
William G. Langley (w/encl.)