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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October
17, 2006
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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 |
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000-21467 |
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41-2170618 |
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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5711
N. West Avenue, Fresno, California
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93711
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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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(559)
435-1771
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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))
Item
1.01. Entry
Into a Material Definitive Agreement.
(1) Acquisition
of Membership Units of Front Range Energy, LLC
Membership
Interest Purchase Agreement dated as of October 17, 2006 by and among Eagle
Energy, LLC, Pacific Ethanol California, Inc. and Pacific Ethanol,
Inc.
On
October 17, 2006, Pacific Ethanol California, Inc. (“PE California”), a
wholly-owned subsidiary of Pacific Ethanol, Inc.(the “Company”), and the
Company, entered into a Membership Interest Purchase Agreement (the “Purchase
Agreement”) dated as of October 17, 2006 with Eagle Energy, LLC (“Eagle
Energy”). Under the Purchase Agreement, PE California purchased from Eagle
Energy 10,095 Class B Voting Units of Front Range Energy, LLC (“Front Range”)
and thereby acquired approximately 42% of the outstanding membership interests
of Front Range. PE California paid to Eagle Energy $30 million in cash and
the
Company issued to Eagle Energy 2,081,888 shares of the Company’s common stock
and a warrant to purchase up to 693,963 shares of the Company’s common stock at
an exercise price of $14.41 per share. The Purchase Agreement contains customary
representations, warranties and covenants by the parties and other customary
obligations, including those relating to indemnification and
confidentiality.
Warrant
to Purchase Common Stock dated October 17, 2006 issued to Eagle Energy, LLC
by
Pacific Ethanol, Inc.
On
October 17, 2006, the Company issued a Warrant to Purchase Common Stock dated
October 17, 2006 to Eagle Energy (the “Warrant”). Under the Warrant, Eagle
Energy has the right to purchase up to 693,963 share of the Company’s common
stock at an exercise price of $14.41 per share. The Warrant is exercisable
immediately through and including October 17, 2007. The Warrant includes both
cash and cashless exercise provisions.
Registration
Rights Agreement dated as of October 17, 2006 by and between Pacific Ethanol,
Inc. and Eagle Energy, LLC
On
October 17, 2006, the Company entered into a Registration Rights Agreement
dated
as of October 17, 2006 with Eagle Energy (the “Registration Rights Agreement”).
The Registration Rights Agreement provides that the Company must register for
resale by Eagle Energy the 2,081,888 shares of common stock issued to Eagle
Energy and the 693,963 shares of common stock underlying the
Warrant.
The
registration obligations require, among other things, that the Company file
an
initial registration statement with the Securities and Exchange Commission
(“SEC”) no later than October 31, 2006 and cause the registration statement to
be declared effective within 120 days of October 17, 2006, or earlier if the
registration statement is not reviewed or is no longer subject to review by
the
SEC. If the Company is unable to meet these obligations, is unable to maintain
the effectiveness of the registration in accordance with the requirements of
the
Registration Rights Agreement or is unable to satisfy certain other obligations
under the Registration Rights Agreement, then an event of default will have
occurred, and the upon the occurrence of such event and upon every monthly
anniversary thereafter until such event is cured, the Company will be required
to pay to Eagle Energy, as liquidated damages and not as a penalty, an amount
equal to 1% of (i) the sum of the number of shares of common stock held by
Eagle
Energy and the shares of common stock issuable upon exercise of the Warrant
as
of the date of default, multiplied by (ii) the closing market price of the
Company’s common stock on such date; provided, that the maximum aggregate amount
of such damages is not to exceed $3 million.
The
Registration Rights Agreement contains customary covenants and obligations
on
the part of the Company and Eagle Energy, including various indemnification
provisions in connection with the offering and registration of the shares of
common stock issued to Eagle Energy and shares of common stock underlying the
Warrant.
Second
Amended and Restated Operating Agreement of Front Range Energy, LLC among the
members identified therein (as amended by Amendment No. 1 described
below)
On
October 17, 2006, the Company became a party to a Second Amended and Restated
Operating Agreement of Front Range Energy, LLC among the members identified
therein (as amended by Amendment No. 1 described below) (the “Operating
Agreement”). The Operating Agreement governs the rights and obligations of the
members (“Members”) of Front Range. The Operating Agreement contains numerous
customary provisions relating to rights and obligations of the Members, the
authority of the manager (the “Manager”) and the manner in which Front Range is
to be operated.
The
Operating Agreement provides that Members may be subject to additional capital
calls upon the approval of 2/3 of the Members requiring them to make additional
cash contributions to Front Range. In the event that a Member fails to fulfill
its capital call obligations, other Members may contribute pro rata and thereby
obtain additional membership units. In the event that other Members do not
contribute the entire amount of the capital call, the unpaid amount will
constitute an ongoing obligation of the Member that failed to initially
contribute. The Operating Agreement provides that each Member, by execution
of
the Operating Agreement, is deemed to have granted the Company a first and
prior
lien and security interest in such Member’s units as security for the payment of
all required contributions by such Member.
Cash
distributions by Front Range are to be distributed first to all Members in
an
amount equal to the estimated federal and state income tax liability
attributable to such Member’s proportionate share of the net taxable income of
Front Range. The Manager’s determination of the amount of the minimum mandatory
distribution is binding and conclusive on all Members. Cash distributions by
Front Range, are to be distributed second to all Members in proportion to the
percentage of outstanding units held by each Member but reduced by any amount
distributed to that Member to cover its tax liability, as described above.
All
cash distributions are subject to the determination by the Manager that
available cash exists in order to make such distributions after taking into
account working capital needs, future expenditures and agreements to which
Front
Range is a party.
There
is
to be one Manager of Front Range. Initially, the Manager is Daniel A. Sanders.
The Manager is to be appointed by the holders of Class A Units of Front Range.
Mr. Sanders holds 100% of all Class A Units and therefore controls who will
act
as Manager of Front Range. The Manager’s compensation for services to Front
Range is to be determined by the Members. Mr. Sanders holds a majority of the
outstanding membership units and therefore controls the compensation payable
to
the Manager. The Manager will not be liable to Front Range or any Member for
any
loss, damage, liability or expense suffered except in the case of fraud, gross
negligence or willful or wanton misconduct. No Member is liable for any debt,
obligation or liability of Front Range, except as provided in the Operating
Agreement. The Operating Agreement provides customary indemnification provisions
for the benefit of the Manager and the Members and their affiliates and
representatives and agents.
The
Manager has broad discretion to operate Front Range and to execute agreements
on
its behalf. Certain matters require approval from at least 2/3 of the Members,
including the sale or disposition of all or substantially all assets or any
property other than in the ordinary course of business, the acquisition of
property in any fiscal year having a value in excess of $300,000, the entering
into a joint venture or partnership agreement, the entering into a merger or
other reorganization, the borrowing of funds in any fiscal year in excess of
$300,000, the lending of funds in any fiscal year in excess of $300,000 and
the
commencement of a voluntary case in bankruptcy.
Each
Member is entitled to appoint a representative to act as a board member and
who
is to vote such Member’s membership units on matters requiring consent of the
Members. The Manager is required to prepare an annual operating plan for the
approval of the board members. The board members are entitled to review and
comment on the proposed annual operating plan and following the plan’s approval
by at least 2/3 of the board members, the Manager is to implement the plan
and
is authorized only to make expenditures and incur only the obligations provided
therein.
The
Operating Agreement expressly provides that the Manager and Members may engage
in other business activities, including those in competition with the business
of Front Range. The Operating Agreement includes confidentiality obligations
on
the part of the Manager and Members. The Operating Agreement also provides
that
the Manager has no fiduciary duty to Front Range or to any Member, except to
act
in good faith, a general obligation of fair dealing with respect to property
of
Front Range and any duty expressly set forth in the Operating Agreement or
any
other written agreement.
The
Operating Agreement provides for restrictions on the Members’ transfer of their
membership units, with certain customary exceptions, unless approved by at
least
a majority of the Members. Upon a proposed transfer of membership units by
a
Member, each other Member and Front Range have options to purchase those units
on the same terms as the bona fide offer received by the proposed transferor.
The Operating Agreement contains customary procedures for the Members and Front
Range to exercise this option. The Operating Agreement also provides for the
right of the Members and Front Range to purchase a Member’s membership units in
the event that they become subject to involuntary transfer or upon death,
termination, liquidation or dissolution of the Member. The purchase price for
membership units subject to involuntary transfer is the fair market value of
the
units as agreed by the disposing Member and at least a majority of the other
Members, and if they are unable to agree, as determined by a third-party
appraiser.
The
Operating Agreement contains buy-sell provisions that allow the owners of the
Class A Units or the owners of the Class B Units to collectively make a buy-sell
offer to the other group. Following such offer, the other group is entitled
to
accept such offer or decline such offer and force the offering group to purchase
its units at the same price and on the same terms and conditions as in the
initial offer.
The
Operating Agreement contains preemptive rights in favor of the Members requiring
Front Range to first offer new membership units pro rata to the existing
Members. The Operating Agreement contains customary provisions relating to
the
exercise by Members of their preemptive rights.
Amendment
No. 1, dated as of October 17, 2006, of the Second Amended and Restated
Operating Agreement of Front Range Energy, LLC to Add a Substitute Member and
for Certain Other Purposes
On
October 17, 2006, the Company entered into an Amendment No. 1, dated as of
October 17, 2006, of the Second Amended and Restated Operating Agreement of
Front Range Energy, LLC to Add a Substitute Member and for Certain Other
Purposes (the “Amendment”). The Amendment authorizes and approves the admission
of PE California as a member of Front Range and causes PE California to be
bound
by all of the terms and conditions of the Operating Agreement. The Amendment
also includes an amended Section 6.14 to the Operating Agreement that includes
certain exclusions in order to facilitate the Company’s compliance with its
disclosure obligations under applicable securities laws.
Non-Competition
Agreements dated as of October 17, 2006 by and among Pacific Ethanol, Inc.,
Front Range Energy, LLC and each of the members of Eagle Energy,
LLC
On
October 17, 2006, the Company entered into Non-Competition Agreements dated
as
of October 17, 2006 with Front Range and each of the members (the “Eagle
Members”) of Eagle Energy (the “Non-Competition Agreements”). The
Non-Competition Agreements provide that the Eagle Members may not compete with
the business of Front Range for a period of two years within a fifty mile radius
of Front Range’s ethanol production facility in Windsor, Colorado. The
Non-Competition Agreements also provide non-disclosure and confidentiality
obligations on the part of the Eagle Members and provide obligations prohibiting
the diversion of business from or inducement of competition with the business
of
Front Range. In addition, the Non-Competition Agreements prohibit the Eagle
Members from hiring, engaging or attempting to hire or engage any person who
has
been a consultant or employee of Front Range.
(2) Amendment
of Amended and Restated Ethanol Purchase and Sale Agreement with Front Range
Energy, LLC
Amendment
to Amended and Restated Ethanol Purchase and Sale Agreement dated October 17,
2006 between Kinergy Marketing, LLC and Front Range Energy,
LLC
On
October 17, 2006, Kinergy Marketing, LLC (“Kinergy”), a wholly-owned subsidiary
of the Company, entered into an Amendment to Amended and Restated Ethanol
Purchase and Sale Agreement dated October 17, 2006 with Front Range. The
Amendment amends a certain Amended and Restated Ethanol Purchase and Sale
Agreement dated as of August 9, 2006 by and between Kinergy and Front Range
(the
“Restated Agreement”). The Amendment is described immediately below and is filed
herewith as Exhibit 10.7. The Restated Agreement is described below and is
filed
herewith as Exhibit 10.8.
The
Amendment extends the initial term of the Restated Agreement from three years
to
a term ending May 31, 2013 with automatic renewals for additional one-year
periods thereafter unless a party to the Restated Agreement delivers written
notice of termination at least 60 days prior to the end of the original or
renewal term.
Amended
and Restated Ethanol Purchase and Sale Agreement dated as of August 9, 2006
by
and between Kinergy Marketing, LLC and Front Range Energy,
LLC
On
August
9, 2006, Kinergy entered into an Amended and Restated Ethanol Purchase and
Sale
Agreement dated as of August 9, 2006 with Front Range. The Restated Agreement
amended an underlying agreement first signed on August 31, 2005. The Restated
Agreement was initially effective for three years with automatic renewals for
additional one-year periods thereafter unless a party to the Restated Agreement
delivers written notice of termination at least 60 days prior to the end of
the
original or renewal term. The Amendment described above extended the initial
term to May 31, 2013 and includes the same renewal provisions. Under the
Restated Agreement, Kinergy is to provide denatured fuel ethanol marketing
services for the production facility. Kinergy is to have the exclusive right
to
market and sell all of the ethanol from the facility, an estimated 40 million
gallons per year. Pursuant to the terms of the Restated Agreement, the purchase
price of the ethanol may be negotiated from time to time between Kinergy and
the
owner of the ethanol production facility without regard to the price at which
Kinergy will re-sell the ethanol to its customers. Alternately, Kinergy may
pay
to the owner the gross payments received by Kinergy from third parties for
forward sales of ethanol (the “Purchase Price”) less certain transaction costs
and fees. From the Purchase Price, Kinergy may deduct all reasonable
out-of-pocket and documented costs and expenses incurred by or on behalf of
Kinergy in connection with the marketing of ethanol pursuant to the Restated
Agreement, including truck, rail and terminal costs for the transportation
and
storage of the facility’s ethanol to third parties and reasonable, documented
out-of-pocket expenses incurred in connection with the negotiation and
documentation of sales agreements between Kinergy and third parties (the
“Transaction Costs”). From the Purchase Price, Kinergy may also deduct and
retain the product of 1.0% multiplied by the difference between the Purchase
Price and the Transaction Costs. In addition, Kinergy is to split the profit
from any logistical arbitrage associated with ethanol supplied by the
facility.
Item
3.02. Unregistered
Sales of Equity Securities.
As
described in Item 1.01 above, on October 17, 2006, the Company sold to Eagle
Energy an aggregate of 2,081,888 shares of common stock as part consideration
for the sale of 10,095 Class B Voting Units of Front Range, which amount
represents approximately 42% of the outstanding membership interests of Front
Range. The Company also sold to Eagle Energy a warrant to purchase 693,963
shares of common stock at an exercise price of $14.41 per share as part
consideration for the sale of the Class B Voting Units, as described above.
The
disclosures contained in Item 1.01 of this Report on Form 8-K are incorporated
herein by reference.
Exemption
from the registration provisions of the Securities Act of 1933 for the
transactions described above is claimed under Section 4(2) of the Securities
Act
of 1933, among others, on the basis that such transactions did not involve
any
public offering and the purchasers were accredited investors and had access
to
the kind of information registration would provide. Appropriate investment
representations were obtained, and the securities were or will be issued with
restricted securities legends.
Item
5.02. Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers.
(a) Not
applicable.
(b) Effective
as of October 17, 2006, Frank P. Greinke resigned as a member of the Board
of
Directors of the Company.
(c) Not
applicable.
(d) Effective
as of October 17, 2006, the Board of Directors of the Company appointed Daniel
A. Sanders as a member of the Board of Directors of the Company. Mr. Sanders
is
the Manager and majority Member of Front Range, which is a party to the
agreements of Front Range described in Item 1.01 above. The disclosures in
Item
1.01 above are incorporated herein by this reference.
Item
9.01. Financial
Statements and Exhibits.
(a) Financial
Statements of Businesses Acquired.
None.
(b) Pro
Forma Financial Information.
None.
(c) Exhibits.
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Number
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Description
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10.1
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Membership
Interest Purchase Agreement dated as of October 17, 2006 by and
among
Eagle Energy, LLC, Pacific Ethanol California, Inc. and Pacific Ethanol,
Inc.
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10.2
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Warrant
to Purchase Common Stock dated October 17, 2006 issued to Eagle
Energy,
LLC by Pacific Ethanol, Inc.
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10.3
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Registration
Rights Agreement dated as of October 17, 2006 by and between Pacific
Ethanol, Inc. and Eagle Energy, LLC
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10.4
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Second
Amended and Restated Operating Agreement of Front Range Energy,
LLC among
the members identified therein (as amended by Amendment No. 1 described
below)
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10.5
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Amendment
No. 1, dated as of October 17, 2006, of the Second Amended and
Restated
Operating Agreement of Front Range Energy, LLC to Add a Substitute
Member
and for Certain Other Purposes
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| |
10.6
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Form
of Non-Competition Agreement dated as of October 17, 2006 by and
among
Pacific Ethanol, Inc., Front Range Energy, LLC and each of the
members of
Eagle Energy, LLC
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10.7
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Amendment
to Amended and Restated Ethanol Purchase and Sale Agreement dated
October
17, 2006 between Kinergy Marketing, LLC and Front Range Energy,
LLC
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10.8
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Amended
and Restated Ethanol Purchase and Sale Agreement dated as of August
9,
2006 by and between Kinergy Marketing, LLC and Front Range Energy,
LLC
(*)
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_________________
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(*)
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Filed
as an exhibit to the Registrant’s current report on Form 8-K for August 9,
2006 filed with the Securities and Exchange Commission on August
15,
2006.
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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.
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| Date:
October 23, 2006 |
PACIFIC
ETHANOL,
INC. |
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By: |
/s/ WILLIAM
G. LANGLEY |
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William
G. Langley
Chief Financial
Officer
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EXHIBITS
FILED WITH THIS REPORT
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Number
|
Description
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10.1
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Membership
Interest Purchase Agreement dated as of October 17, 2006 by and
among
Eagle Energy, LLC, Pacific Ethanol California, Inc. and Pacific
Ethanol,
Inc.
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10.2
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Warrant
to Purchase Common Stock dated October 17, 2006 issued to Eagle
Energy,
LLC by Pacific Ethanol, Inc.
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|
10.3
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Registration
Rights Agreement dated as of October 17, 2006 by and between Pacific
Ethanol, Inc. and Eagle Energy, LLC
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10.4
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Second
Amended and Restated Operating Agreement of Front Range Energy,
LLC among
the members identified therein (as amended by Amendment No. 1 described
below)
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10.5
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Amendment
No. 1, dated as of October 17, 2006, of the Second Amended and
Restated
Operating Agreement of Front Range Energy, LLC to Add a Substitute
Member
and for Certain Other Purposes
|
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10.6
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Form
of Non-Competition Agreement dated as of October 17, 2006 by and
among
Pacific Ethanol, Inc., Front Range Energy, LLC and each of the
members of
Eagle Energy, LLC
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10.7
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Amendment
to Amended and Restated Ethanol Purchase and Sale Agreement dated
October
17, 2006 between Kinergy Marketing, LLC and Front Range Energy,
LLC
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8