Exhibit 10.1
 

Pacific Ethanol, Inc.
 
EXECUTIVE EMPLOYMENT AGREEMENT
for
DOUGLAS JEFFRIES
 
This Executive Employment Agreement (“Agreement”) by and between Douglas
Jeffries (“Executive”) and Pacific Ethanol, Inc. (the “Company”) (collectively,
the “Parties”) is effective as of the last date signed by the Parties.
 
Whereas, the Company desires to employ Executive to provide personal services to
the Company, and wishes to provide Executive with certain compensation and
benefits in return for his services;
 
Whereas, Executive wishes to be employed by the Company and to provide personal
services to the Company in return for certain compensation and benefits; and
 
Whereas, the Parties entered into an offer letter agreement on or about April
25, 2007 setting forth certain terms of Executive’s employment with the Company
(the “Offer Letter”) and now seek to supersede and replace the Offer Letter with
this Agreement;
 
Now, Therefore, in consideration of the mutual promises and covenants contained
herein, it is hereby agreed by and between the parties hereto as follows:
 
1.     Employment by the Company.
 
1.1 Position. Subject to terms and conditions set forth herein, the Company
agrees to employ Executive in the position of Chief Financial Officer and
Executive hereby accepts such employment. During the term of Executive’s
employment with the Company, Executive will devote Executive’s best efforts and
substantially all of Executive’s business time and attention to the business of
the Company, except for vacation periods as set forth herein and reasonable
periods of illness or other incapacities permitted by the Company’s general
employment policies. Executive’s first date of employment shall be May 29, 2007.
 
1.2 Duties and Location. Executive shall serve in an executive capacity and
shall perform such duties as are customarily associated with Executive’s then
current title, consistent with the bylaws of the Company and as required by the
Company’s Board of Directors (the “Board”) and Chief Executive Officer.
Executive shall report to the Company’s Chief Executive Officer. Executive’s
primary office location shall be a location mutually acceptable to both the
Executive and the Company. The Company reserves the right to reasonably require
Executive to perform Executive’s duties at places other than Executive’s primary
office location from time to time as agreed to by Executive, and to require
reasonable business travel.
 
1.3 Policies and Procedures. The employment relationship between the parties
shall be governed by the general employment policies and practices of the
Company, except that when the terms of this Agreement differ from or are in
conflict with the Company’s general employment policies or practices, this
Agreement shall control.
 
 
 

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2.
Compensation.

 
2.1 Salary. For services to be rendered hereunder, Executive shall receive an
annual salary at the rate of $240,000.00, paid bi-weekly in the amount of
$9,230.77 (the “Base Salary”), subject to standard payroll deductions and
withholdings and payable in accordance with the Company’s regular payroll
schedule. Executive’s Base Salary shall be reviewed annually and may be
increased as approved by the Board in its sole discretion.
 
2.2 Annual Bonus. Executive will be eligible for an annual discretionary bonus
of up to fifty percent (50%) of his Base Salary (the “Annual Bonus”); provided
that for calendar year 2007, this potential bonus amount shall be prorated based
upon Executive’s actual length of service with the Company in 2007 Whether any
Annual Bonus will be awarded, and the amount of the Annual Bonus awarded to
Executive, shall be determined by the Board in its sole discretion based upon
its consideration of both the Company’s performance and Executive’s performance.
Since the Annual Bonus is intended both to reward past Company and Executive
performance and to provide an incentive for Executive to remain with the
Company, Executive must remain an active employee through the date that any such
bonus is awarded to him in order to earn any such bonus. Executive will not earn
any Annual Bonus (including a prorated bonus) if Executive’s employment
terminates for any reason before the Annual Bonus is awarded to him Any Annual
Bonus awarded by the Board shall be paid within the first quarter after the end
of the calendar year.
 
2.3 Standard Company Benefits. Executive shall be entitled to participate in all
employee benefit programs for which Executive is eligible under the terms and
conditions of the benefit plans which may be in effect from time to time and
provided by the Company to its employees generally; provided, however, that
Executive shall not be entitled to accrued vacation pay.
 
2.4 Restricted Stock; Options. Subject to the approval of the Board, Executive
shall be granted 57,500 shares of restricted Company stock (the “Restricted
Stock”). The Restricted Stock shall vest according to a vesting schedule set
forth in the governing restricted stock purchase agreement which shall be: 7,500
shares will be deemed vested as of Executive’s first date of employment and the
remaining 50,000 shares shall vest at the rate of 10,000 shares each October 4,
beginning on October 4, 2007 and continuing thereafter, provided that Executive
remains employed by the Company. Executive shall also be eligible for additional
grants of restricted stock and/or stock options from time to time as shall be
determined by the Compensation Committee of the Board in its sole discretion,
and shall be subject to such vesting, exercisability, and other provisions as
the Board may determine in its discretion, after reviewing the performance of
both Executive and the Company. Both the Restricted Stock and any stock options
shall be governed in all respects by the terms of the applicable restricted
stock purchase agreement, stock option agreement, grant notice and plan
documents.
 
 
 

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3.
Confidential Information Obligations.

 
3.1 Confidential Information Agreement. As a condition of employment, Executive
agrees to execute and abide by the Employee Confidential Information and
Inventions Agreement attached hereto as Exhibit A.
 
3.2 Third Party Agreements and Information. Executive represents and warrants
that Executive’s employment by the Company will not conflict with any prior
employment or consulting agreement or other agreement with any third party, and
that Executive will perform Executive’s duties to the Company without violating
any such agreement. Executive represents and warrants that Executive does not
possess confidential information arising out of prior employment, consulting, or
other third party relationships, which would be used in connection with
Executive’s employment by the Company, except as expressly authorized by that
third party. During Executive’s employment by the Company, Executive will use in
the performance of Executive’s duties only information which is generally known
and used by persons with training and experience comparable to Executive’s own,
common knowledge in the industry, otherwise legally in the public domain, or
obtained or developed by the Company or by Executive in the course of
Executive’s work for the Company.
 

 
4.
Outside Activities During Employment.

 
4.1 Non-Company Business. Except with the prior written consent of the Chief
Executive Officer (in consultation with the General Counsel), Executive will not
during the term of Executive’s employment with the Company undertake or engage
in any other employment, occupation or business enterprise, other than ones in
which Executive is a passive investor. Executive may engage in civic and
not-for-profit activities so long as such activities do not materially interfere
with the performance of Executive’s duties hereunder.
 
4.2 No Adverse Interests. Executive agrees not to acquire, assume or participate
in, directly or indirectly, any position, investment or interest known by him to
be adverse or antagonistic to the Company, its business or prospects, financial
or otherwise, except as a passive investor in mutual or exchange traded funds.
 

 
5.
Termination Of Employment.

 
5.1 At-Will Relationship. Executive’s employment relationship is at-will. Either
Executive or the Company may terminate the employment relationship at any time,
with or without Cause or advance notice.
 
5.2 Termination without Cause; Resignation for Good Reason. If, at any time, the
Company terminates Executive’s employment without Cause (as defined herein), or
Executive resigns with Good Reason (as defined herein), and Executive executes
and delivers the Separation Date Release of all claims set forth as Exhibit B
hereto and allows such release to become effective, then the Company will
provide Executive with the following severance benefits:
 
 
 

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(a) Cash Severance. The Company shall pay Executive severance in the form of
continuation of Executive’s Base Salary in effect on Executive’s last day of
employment for a period of twelve (12) months after Executive’s termination,
subject to standard payroll deductions and withholdings and payable on the
Company’s regular payroll schedule; provided, however, that in the event the
Company terminates Executive’s employment without Cause, or Executive resigns
with Good Reason, within three (3) months before or otherwise in anticipation
of, or within twelve (12) months after, a Change in Control (as defined below),
then the Company shall pay Executive severance in the form of continuation of
Executive’s Base Salary in effect on Executive’s last day of employment for a
period of eighteen (18) months after Executive’s termination, subject to
standard payroll deductions and withholdings and payable on the Company’s
regular payroll schedule. Each payment made pursuant to this Section 5.2(a) is
intended to be a separate payment (as defined in Treasury Regulations Section
1.409A-2(b)(2)) from any other payments made pursuant to this Section 5.2(a) for
purposes of the “short term deferral rule” under Treasury Regulations Section
1.409A-1(b)(4).
 
(b) Continued Health Insurance Coverage. To the extent provided by the federal
COBRA law or, if applicable, state insurance laws, and by the Company’s
then-current group health insurance policies, Executive may be eligible to
continue Executive’s then-current group health insurance benefits after
termination of Employment. If eligible and if Executive timely elects continued
health insurance coverage, then the Company shall pay the Company’s portion of
any premiums necessary to provide coverage for a period of twelve (12) months
after the termination date; provided, however, that no such premium payments
shall be made following the effective date of Executive’s coverage by a medical,
dental or vision insurance plan of a subsequent employer. Executive shall notify
the Company immediately if he becomes covered by a medical, dental or vision
insurance plan of a subsequent employer. Notwithstanding the foregoing, in the
event the Company terminates Executive’s employment without Cause, or Executive
resigns with Good Reason, within three (3) months before or otherwise in
anticipation of, or within twelve (12) months after, a Change in Control (as
defined below), then (if eligible and coverage elected) the Company shall pay
the Company’s portion of any premiums necessary to provide coverage for a period
of eighteen (18) months after the termination date; provided, however, that no
such premium payments shall be made following the effective date of Executive’s
coverage by a medical, dental or vision insurance plan of a subsequent employer
and Executive agrees to immediately notify the Company of any such coverage.
 
(c) Accelerated Vesting. If Executive has been employed by the Company for one
full year or longer, then the Company will accelerate the vesting of any equity
awards granted to Executive prior to Executive’s employment termination such
that twenty-five percent (25%) of all shares or options subject to such awards
which are unvested as of the employment termination date shall be accelerated
and deemed fully vested as of Executive’s last day of employment; provided,
however, that in the event, and without the requirement that Executive be
employed for one full year or longer, the Company terminates Executive’s
employment without Cause, or Executive resigns with Good Reason, within three
(3) months before or otherwise in anticipation of, or within twelve (12) months
after, a Change in Control (as defined below), then the Company will accelerate
the vesting of any equity awards granted to Executive prior to Executive’s
employment termination such that one hundred percent (100%) of all shares or
options subject to such awards which are unvested as of the employment
termination date shall be accelerated and deemed fully vested as of Executive’s
last day of employment.
 
 
 

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5.3 Termination for Cause; Resignation Without Good Reason. If the Company
terminates Executive’s employment with the Company for Cause, or Executive
resigns without Good Reason, then Executive will not be entitled to any further
compensation from the Company (other than accrued salary, and accrued and unused
vacation, through Executive’s last day of employment), including severance pay,
pay in lieu of notice or any other such compensation.
 
5.4 Termination Due to Death or Disability.
 
(a) Death. This Agreement shall terminated immediately upon Executive’s death
and Executive’s estate shall not be entitled to any further compensation from
the Company (other than accrued salary, and accrued and unused vacation, through
Executive’s last day of employment), including severance pay, pay in lieu of
notice or any other such compensation.
 
(b) Disability. If Executive is incapacitated by accident, sickness or otherwise
such that Executive is incapable of performing the services set forth in Section
1.1 herein, and such incapacity is certified by a qualified medical doctor, then
this Agreement shall terminate. In such an event, and if Executive or someone
authorized to act on his behalf executes and delivers the Separation Date
Release of all claims set forth as Exhibit B hereto and allows such release to
become effective, then the Company will provide Executive with the following
severance benefits; provided, however, that these severance benefits shall be
reduced by any amounts provided to Executive by any federal or state disability
insurance payments or benefits, and any private insurance disability payments or
benefits, provided to Executive:
 
(i) Cash Severance. The Company shall pay Executive severance in the form of
continuation of Executive’s Base Salary in effect on Executive’s last day of
employment for a period of twelve (12) months after Executive’s termination,
subject to standard payroll deductions and withholdings and payable on the
Company’s regular payroll schedule.
 
(ii) Continued Health Insurance Coverage. To the extent provided by the federal
COBRA law or, if applicable, state insurance laws, and by the Company’s
then-current group health insurance policies, Executive may be eligible to
continue Executive’s then-current group health insurance benefits after
termination of Employment. If eligible and if Executive timely elects continued
health insurance coverage, then the Company shall pay the Company’s portion of
any premiums necessary to provide coverage for a period of twelve (12) months
after the termination date; provided, however, that no such premium payments
shall be made following the effective date of Executive’s coverage by a medical,
dental or vision insurance plan of a subsequent employer. Executive shall notify
the Company immediately if he becomes covered by a medical, dental or vision
insurance plan of a subsequent employer.
 
(iii) Accelerated Vesting. If Executive has been employed by the Company for one
full year or longer, then the Company will accelerate the vesting of any equity
awards granted to Executive prior to Executive’s employment termination such
that twenty-five percent (25%) of all shares or options subject to such awards
which are unvested as of the employment termination date shall be accelerated
and deemed fully vested as of Executive’s last day of employment.
 
 
 

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5.5 Deferred Compensation. If the Company determines that any of the severance
benefit payments fail to satisfy the distribution requirement of Section
409A(a)(2)(A) of the Internal Revenue Code as a result of Section
409A(a)(2)(B)(i) of the Internal Revenue Code, the payment of such benefit shall
be accelerated to the minimum extent necessary so that the benefit is not
subject to the provisions of Section 409A(a)(1) of the Internal Revenue Code.
(It is the intention of the preceding sentence to apply the short-term deferral
provisions of Section 409A of the Internal Revenue Code, and the regulations and
other guidance thereunder, to the severance benefit payments, and the payment
schedule as revised after the application of the preceding sentence shall be
referred to as the “Revised Payment Schedule.”) However, if there is no Revised
Payment Schedule that would avoid the application of Section 409A(a)(1) of the
Internal Revenue Code, the payment of such benefits shall not be paid pursuant
to a Revised Payment Schedule and instead shall be delayed to the minimum extent
necessary so that such benefits are not subject to the provisions of Section
409A(a)(1) of the Internal Revenue Code. The Board may attach conditions to or
adjust the amounts paid pursuant to this Section 5.5 to preserve, as closely as
possible, the economic consequences that would have applied in the absence of
this Section 5.5; provided, however, that no such condition or adjustment shall
result in the payments being subject to Section 409A(a)(1) of the Internal
Revenue Code.
 
5.6 Limitation on Payments. In the event that the payments or other benefits
provided for in this Agreement or otherwise payable to Executive (i) constitute
“parachute payments” within the meaning of Section 280G of the Code, and (ii)
would be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then Executive’s benefits under this Agreement shall be either
(a) delivered in full, or (b) delivered to such lesser extent which would result
in no portion of such benefits being subject to the Excise Tax, whichever of the
foregoing amounts, taking into account the applicable federal, state and local
income taxes and the Excise Tax, results in the receipt by Executive on an
after-tax basis, of the greatest amount of benefits, notwithstanding that all or
some portion of such benefits may be taxable under Section 4999 of the Code. If
a reduction in payments or benefits constituting “parachute payments” is
necessary pursuant to the foregoing provision, reduction shall occur in the
following order unless the Executive elects in writing a different order
(provided, however, that such election shall be subject to Company approval if
made on or after the date on which the event that triggers the parachute payment
occurs): reduction of cash payments; cancellation of accelerated vesting of
stock awards; reduction of employee benefits. If acceleration of vesting of
stock award compensation is to be reduced, such acceleration of vesting shall be
cancelled in the reverse order of the date of grant of the Executive’s stock
awards unless the Executive elects in writing a different order for
cancellation.
 
Unless the Company and Executive otherwise agree in writing, any determination
required under this Section 5.6 shall be made in writing by the Company’s
independent public accountants (the “Accountants”), whose determination shall be
conclusive and binding upon Executive and the Company for all purposes and may
be relied upon by the Company. For purposes of making the calculations required
by this Section 5.6, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Section 280G and 4999 of the
Code. The Company and Executive shall further to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section 5.6. The Company shall bear all costs
the Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.6.
 
 
 

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5.7 No Mitigation. Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by Executive as the result
of employment by another employer after the date of termination, or otherwise,
except for health insurance benefits as set forth herein.
 
5.8 Definitions.
 
(a) For purposes of this Agreement, “Cause” shall mean any one or more of the
following:
 
(i) Executive’s indictment or conviction of any felony or of any crime involving
dishonesty;
 
(ii) Executive’s participation in any fraud or other act of willful misconduct
against the Company (including any material breach of Company policy that causes
or reasonably could cause harm to the Company);
 
(iii) Executive’s refusal to comply with any lawful directive of the Company;
 
(iv) Executive’s material breach of Executive’s fiduciary, statutory,
contractual, or common law duties to the Company (including any material breach
of this Agreement or the Confidential Information and Inventions Agreement); or
 
(v) Conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve.
 
Provided, however, that in the event that any of the foregoing events is
reasonably capable of being cured, the Company shall, within twenty (20) days
after the discovery of such event, provide written notice to the Executive
describing the nature of such event and Executive shall thereafter have ten (10)
business days to cure such event.
 
(b) For purposes of this Agreement, Executive shall have “Good Reason” for
Executive’s resignation if: (w) any of the following occurs without Executive’s
consent; (x) Executive notifies the Company in writing, within twenty (20) days
after the occurrence of one of the following events that Executive intends to
terminate his employment no earlier than thirty (30) days after providing such
notice; (y) the Company does not cure such condition within thirty (30) days
following its receipt of such notice or states unequivocally in writing that it
does not intend to attempt to cure such condition, and (z) the Executive resigns
from employment within thirty (30) days following the end of the period within
which the Company was entitled to remedy the condition constituting Good Reason
but failed to do so:
 
 
 

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(i) the assignment to Executive of any duties or responsibilities which result
in the material diminution of Executive’s authority, duties or responsibility;
provided, however, that the acquisition of the Company and subsequent conversion
of the Company to a division or unit of the acquiring corporation will not by
itself result in a material diminution of Executive’s authority, duties or
responsibility;
 
(ii) a material reduction by the Company in Executive’s annual base salary,
except to the extent the base salaries of all other executive officers of the
Company are accordingly reduced;
 
(iii) a relocation of Executive’s place of work, or the Company’s principal
executive offices if Executive’s principal office is at such offices, to a
location that increases Executive’s daily one-way commute by more than
thirty-five (35) miles; or
 
(iv) any material breach by the Company of any material provision of this
Agreement, including but not limited to Section 7.7.
 
(c) For purposes of this Agreement, “Change in Control” shall be deemed to have
occurred if, in a single transaction or series of related transactions: (i) any
person (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934 (“Exchange Act”)), or persons acting as a group, other than
a trustee or fiduciary holding securities under an employment benefit program,
is or becomes a “beneficial owner” (as defined in Rule 13-3 under the Exchange
Act), directly or indirectly of securities of the Company representing 51% or
more of the combined voting power of the Company, (ii) there is a merger,
consolidation or other business combination transaction of the Company with or
into another corporation, entity or person, other than a transaction in which
the holders of at least a majority of the shares of voting capital stock of the
Company outstanding immediately prior to such transaction continue to hold
(either by such shares remaining outstanding or by their being converted into
shares of voting capital stock of the surviving entity) a majority of the total
voting power represented by the shares of voting capital stock of the Company
(or the surviving entity) outstanding immediately after such transaction, or
(iii) all or substantially all of the Company’s assets are sold.
 
6.     Arbitration.
 
To ensure the timely and economical resolution of disputes that may arise in
connection with Executive’s employment with the Company, Executive and the
Company agree that any and all disputes, claims, or causes of action arising
from or relating to the enforcement, breach, performance, negotiation,
execution, or interpretation of this Agreement, Executive’s employment, or the
termination of Executive’s employment, shall be resolved to the fullest extent
permitted by law by final, binding and confidential arbitration, by a single
arbitrator, in Sacramento, California, conducted by JAMS under the then
applicable JAMS rules. By agreeing to this arbitration procedure, both Executive
and the Company waive the right to resolve any such dispute through a trial by
jury or judge or administrative proceeding. The arbitrator shall: (a) have the
authority to compel adequate discovery for the resolution of the dispute and to
award such relief as would otherwise be permitted by law; and (b) issue a
written arbitration decision, to include the arbitrator’s essential findings and
conclusions and a statement of the award. The arbitrator shall be authorized to
award any or all remedies that Executive or the Company would be entitled to
seek in a court of law. The Company shall pay all JAMS’ arbitration fees in
excess of the amount of court fees that would be required if the dispute were
decided in a court of law. Nothing in this Agreement is intended to prevent
either Executive or the Company from obtaining injunctive relief in court to
prevent irreparable harm pending the conclusion of any such arbitration.
 
 
 

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7.     General Provisions.
 
7.1 Notices. Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by fax) or the next day after sending by overnight carrier, to the
Company at its primary office location and to Executive at his address as listed
on the Company payroll.
 
7.2 Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction to the extent possible in
keeping with the intent of the parties.
 
7.3 Waiver. Any waiver of any breach of any provisions of this Agreement must be
in writing to be effective, and it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.
 
7.4 Complete Agreement. This Agreement, including Exhibit A, constitutes the
entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. This Agreement supersedes and replaces the Offer Letter in its entirety
and the Offer Letter shall have no further force or effect. It is entered into
without reliance on any promise or representation other than those expressly
contained herein, and it cannot be modified or amended except in a writing
signed by the Executive and a duly authorized officer of the Company.
 
7.5 Counterparts. This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement.
 
7.6 Headings. The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof.
 
7.7 Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive and the Company, and their respective
successors, assigns, heirs, executors and administrators, except that Executive
may not assign any of his duties hereunder and he may not assign any of his
rights hereunder without the written consent of the Company, which shall not be
withheld unreasonably. The Company shall obtain the assumption of this Agreement
by any successor or assign of the Company.
 
 
 

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7.8 Choice of Law. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State of
California.
 
In Witness Whereof, the parties have executed this Agreement.
 
Pacific Ethanol, Inc.
 
By: /s/ NEIL M. KOEHLER
Neil M. Koehler
President and Chief Executive Officer
 
Date: May 4, 2007 
 

 
Understood and Agreed:

Executive

By: /s/ DOUGLAS JEFFRIES 
 Douglas Jeffries

Date: May 4, 2007