EXHIBIT 10.3 DEPOSIT AGREEMENT

 

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                                                                    EXHIBIT 10.3

 

 

                                DEPOSIT AGREEMENT

 

                                     BETWEEN

 

                              PACIFIC ETHANOL, INC.

 

                                       AND

 

                                 [ ], AS TRUSTEE

 

 

 

                           DATED [_________ __], 200_

 

 

 

 

 

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                                                  TABLE OF CONTENTS

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                                                                                                               PAGE

 

 

ARTICLE I.            APPOINTMENT OF TRUSTEE; ESTABLISHMENT OF RESTRICTED CASH ACCOUNT............................1

 

     SECTION 1.01          Appointment of Trustee.................................................................1

     SECTION 1.02          Establishment of Restricted Cash Account...............................................1

     SECTION 1.03          Investment and Liquidation of Deposit Fund.............................................2

 

ARTICLE II.           REPRESENTATIONS, WARRANTIES AND COVENANTS...................................................2

 

     SECTION 2.01          Representations and Warranties of the Company..........................................2

     SECTION 2.02          Covenant of the Company................................................................2

 

ARTICLE III.          DISBURSEMENT FROM THE RESTRICTED CASH ACCOUNT...............................................2

 

     SECTION 3.01          Disbursements for Payment of Construction Costs........................................2

     SECTION 3.02          Disbursements for Payment of Acquisition Costs.........................................3

     SECTION 3.03          Disbursements upon Redemption of Preferred Shares......................................3

     SECTION 3.04          Trustee's Reliance on Requisitions.....................................................3

     SECTION 3.05          Records of Disbursements...............................................................4

 

ARTICLE IV.           RIGHTS AND DUTIES OF TRUSTEE; RESIGNATION...................................................4

 

     SECTION 4.01          Rights and Duties of Trustee...........................................................4

     SECTION 4.02          Resignation or Removal.................................................................4

     SECTION 4.03          Compensation of Trustee................................................................4

     SECTION 4.04          Indemnity..............................................................................5

 

ARTICLE V.            MISCELLANEOUS...............................................................................5

 

     SECTION 5.01          No Assignment..........................................................................5

     SECTION 5.02          Further Assurances.....................................................................5

     SECTION 5.03          Notices................................................................................5

     SECTION 5.04          Governing Law..........................................................................5

     SECTION 5.05          Submission to Jurisdiction; Consent to Service of Process..............................6

     SECTION 5.06          Third Party Beneficiary................................................................6

     SECTION 5.07          Entire Agreement.......................................................................6

     SECTION 5.08          Counterparts...........................................................................6

     SECTION 5.09          Amendments and Termination.............................................................6

     SECTION 5.10          Severability...........................................................................7

     SECTION 5.11          Titles and Subtitles; Interpretive Matters.............................................7

     SECTION 5.12          Facsimile Signatures...................................................................7

     SECTION 5.13          Certain Defined Terms..................................................................7

 

 

INDEX TO EXHIBITS

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EXHIBIT A                  Trustee Wire Instructions

EXHIBIT B                  Form of Construction Cost Requisition

EXHIBIT C                  Form of Acquisition Cost Requisition

 

 

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                              PACIFIC ETHANOL, INC.

 

                                DEPOSIT AGREEMENT

 

 

         THIS DEPOSIT AGREEMENT is made on the [__] day of [__], 200_ (the

"AGREEMENT"), by and between Pacific Ethanol, Inc., a Delaware corporation (the

"COMPANY"), and [ ], a [ ], in its capacity as trustee (the "TRUSTEE"). Certain

capitalized terms used herein are defined in Section 5.13 of this Agreement.

 

         WHEREAS, the Company and Cascade Investment, L.L.C., a Washington

limited liability company (the "PURCHASER") have entered into a Purchase

Agreement, dated as of November 14, 2005 (the "PURCHASE AGREEMENT"), pursuant to

which the Purchaser has purchased from the Company, and the Company has sold to

the Purchaser, the Preferred Shares (as defined in the Purchase Agreement);

 

         WHEREAS, pursuant to the terms of the Purchase Agreement, $80,000,000

of the purchase price paid by the Purchaser to the Company in consideration of

the Preferred Shares is to be deposited into a restricted cash account (the

"RESTRICTED CASH ACCOUNT") to be held by the Trustee and applied in the manner

provided in this Agreement;

 

         WHEREAS, to induce the Purchaser to acquire the Preferred Shares, the

Company has agreed to enter into this Agreement, establish the Restricted Cash

Account and utilize the amounts maintained in the Restricted Cash Account in

accordance with this Agreement; and

 

         WHEREAS, the parties hereto desire to set forth the terms of the

Restricted Cash Account and to appoint the Trustee to act in accordance with the

terms of this Agreement.

 

         NOW, THEREFORE, in consideration of the premises, representations,

warranties and the mutual covenants contained in this Agreement and the Purchase

Agreement, and for good and valuable consideration, the receipt and sufficiency

of which are hereby acknowledged, the parties agree as follows:

 

                                   ARTICLE I.

 

        APPOINTMENT OF TRUSTEE; ESTABLISHMENT OF RESTRICTED CASH ACCOUNT

 

         SECTION 1.01 APPOINTMENT OF TRUSTEE. The Company hereby appoints the

Trustee as the trustee under this Agreement, and the Trustee accepts this

appointment in accordance with the terms and conditions set forth in this

Agreement and agrees to assume and perform the duties of the trustee pursuant to

this Agreement.

 

         SECTION 1.02 ESTABLISHMENT OF RESTRICTED CASH ACCOUNT. Subject to the

terms and conditions set forth in this Agreement, on the date hereof the

Purchaser has deposited with the Trustee an amount equal to $80,000,000 (the

"DEPOSIT AMOUNT") by wire transfer of immediately available funds to the account

of the Trustee referenced on EXHIBIT A attached hereto. The Deposit Amount,

together with any and all interest, income and other earnings thereon, is

referred to as the "DEPOSIT FUND." The Trustee shall hold, invest, manage,

administer, distribute and dispose of the Deposit Fund in accordance with the

terms and conditions of this Agreement.

 

 

 

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         SECTION 1.03 INVESTMENT AND LIQUIDATION OF DEPOSIT FUND.

 

         (a) Pending disbursement, the Trustee shall invest and reinvest the

Deposit Fund in Permitted Investments, and liquidate such Permitted Investments,

pursuant to and in accordance with the written instructions of an Authorized

Officer of the Company as provided to the Trustee from time to time. Interest,

income and other earnings, if any, earned on the investment of any Deposit Fund

moneys shall be credited to the Restricted Cash Account. The Trustee shall not

be liable for any loss resulting from any investment made, or any sale or

redemption of any investment made, in accordance with instructions received from

an Authorized Officer of the Company or in accordance with paragraph (b) of this

Section 1.03.

 

         (b) If and when cash is required to be disbursed in accordance with

this Agreement, and cash is not otherwise available in the Restricted Cash

Account, the Trustee is authorized, without instructions from an Authorized

Officer of the Company, to cause Permitted Investments to be sold or otherwise

liquidated into cash (without regard to maturity) in such manner as the Trustee

shall direct; provided that the Trustee shall attempt to liquidate any and all

investments as so needed in such manner as will minimize, to the extent

reasonably practicable, the costs, penalties and losses associated with any such

liquidation.

 

                                  ARTICLE II.

 

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

 

         SECTION 2.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Each

submission of a requisition to the Trustee shall constitute a representation and

warranty by the Company that all of the information contained in such

requisition is true and correct.

 

         SECTION 2.02 COVENANT OF THE COMPANY. The Company covenants and agrees

that it shall not withdraw moneys from the Restricted Cash Account or utilize

any moneys that have been withdrawn from the Restricted Cash Account except in

accordance with the terms and provisions of this Agreement and the applicable

requisition under which such moneys are to be withdrawn.

 

                                  ARTICLE III.

 

                  DISBURSEMENT FROM THE RESTRICTED CASH ACCOUNT

 

         SECTION 3.01 DISBURSEMENTS FOR PAYMENT OF CONSTRUCTION COSTS. The

Trustee is hereby authorized and directed to disburse moneys in the Restricted

Cash Account to or upon the order of the Company, from time to time, upon

receipt by it of a requisition signed by two Authorized Officers of the Company,

which requisition shall state with respect to each payment to be made: (1) the

requisition number, (2) identify the ethanol production facility in respect of

which such requisition is being made, (3) the name and address of the Person to

whom payment is due or has been made, (4) the aggregate amount paid or to be

paid to such Person, (5) an accurate description of the work performed, services

rendered, materials, equipment or supplies delivered or any other purpose for

which such payment was or is to be made, with invoices with respect thereto

 

 

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attached, (6) the proposed date of payment and the payment or wire instructions

for the payment or transfer of such amounts by the Trustee to such Person, (7)

that each obligation, item of cost or expense mentioned therein has been

properly incurred and has been paid or is then due and payable (or is required

to be deposited at this time as equity in a Subsidiary project financing under a

binding agreement with a third party which is not an Affiliate) as an item of

the Cost of Construction, is a proper charge against the Restricted Cash

Account, and has not been the basis of any previous payment therefrom, (8) all

amounts previously drawn from the Restricted Cash Account under Construction

Cost Requisitions (i) have been applied to pay the Costs of Construction listed

on the applicable Construction Cost Requisition with respect to which such

amounts were drawn or (ii) have not yet been expended and are still available to

the Company or a Subsidiary of the Company for the payment of Costs of

Construction, (9) that the amount of such requisition, together with all amounts

previously drawn from the Restricted Cash Account under Construction Cost

Requisitions relating to the ethanol production facility in respect of which the

drawing is being made, does not exceed the Project Limit, and (10) that the

Purchaser shall have approved, in writing, the terms of the debt, if any,

incurred by the Company or a Subsidiary of the Company to finance a portion of

the Costs of Construction of the ethanol production facility in respect of which

the drawing is being made . A form of Construction Cost Requisition is attached

hereto as EXHIBIT B.

 

         SECTION 3.02 DISBURSEMENTS FOR PAYMENT OF ACQUISITION COSTS. The

Trustee is hereby authorized and directed to disburse moneys in the Restricted

Cash Account to or upon the order of the Company and consented to by the

Purchaser, from time to time, upon receipt by it of a requisition signed by two

Authorized Officers of the Company, with a consent thereto signed by an officer

of the Purchaser, which requisition shall state with respect to each payment to

be made: (1) the requisition number, (2) the name and address of the Person to

whom payment is due or has been made, (3) the aggregate amount paid or to be

paid to such Person, (4) the proposed date of payment and the payment or wire

instructions for the payment or transfer of such amounts by the Trustee to such

Person, and (5) that such payment obligation has been incurred in connection

with the acquisition of an ethanol production facility by the Company or a

Subsidiary of the Company and is currently payable, is a proper charge against

the Restricted Cash Account, and has not been the basis of any previous payment

therefrom. A form of Acquisition Cost Requisition is attached hereto as EXHIBIT

C.

 

         SECTION 3.03 DISBURSEMENTS UPON REDEMPTION OF PREFERRED SHARES. The

Trustee is hereby authorized and directed to disburse all moneys in the

Restricted Cash Account to or upon the order of the Company upon receipt by it

of a written requisition signed by two Authorized Officers of the Company, which

instrument shall state (1) the name and address of the Person to whom payment

shall be made, (2) the aggregate amount to be paid to such Person, (3) the

proposed date of payment and the payment or wire instructions for the payment or

transfer of such amounts by the Trustee to such Person, and (4) that such

payment is being made to fund the payment of the redemption price of the

Preferred Shares on the date that the Preferred Shares are being redeemed in

accordance with the terms and provisions thereof, is a proper charge against the

Restricted Cash Account, and has not been the basis of any previous payment

therefrom.

 

         SECTION 3.04 TRUSTEE'S RELIANCE ON REQUISITIONS. In paying any

requisition under this Article III, the Trustee may rely as to the completeness

and accuracy of all statements in such requisition upon the approval of such

requisition by an Authorized Officer of the Company, execution thereof to be

conclusive evidence of such approval, and the Company hereby covenants and

agrees to indemnify and save harmless the Trustee from any liability incurred in

connection with the payment of any requisition so executed by an Authorized

Officer of the Company.

 

 

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         SECTION 3.05 RECORDS OF DISBURSEMENTS. The Trustee shall keep and

maintain adequate records pertaining to all requisitions and disbursements from

the Restricted Cash Account and, if requested by the Company or the Purchaser,

shall promptly provide such requestor with a copy of each such requisition

submitted to the Trustee for payment under this Article III.

 

                                  ARTICLE IV.

 

                    RIGHTS AND DUTIES OF TRUSTEE; RESIGNATION

 

         SECTION 4.01 RIGHTS AND DUTIES OF TRUSTEE. It is understood and agreed

that the Trustee:

 

         (a) undertakes to perform only those duties as are expressly set forth

in this Agreement;

 

         (b) shall not be required to take any action which is contrary to this

Agreement or applicable law;

 

         (c) shall not be liable for any action taken or omitted to be taken in

good faith by it hereunder, except to the extent that any loss or damage results

from the Trustee's gross negligence or willful misconduct; and

 

         (d) shall be protected in acting upon any document, instrument or

signature believed by it to be genuine, and it may be assumed that any person

purporting to give any notice or instructions in accordance with this Agreement

has been duly authorized to do so. The Trustee may consult with legal counsel,

and the advice or opinion of such counsel shall be full and complete

authorization and protection in r