Exhibit 10.1
[paceth_logo.jpg]

July 19, 2007
 
Douglas Jeffries
Pacific Ethanol, Inc.
400 Capitol Mall, Suite 2060
Sacramento, CA 95814

Dear Doug:
 
This letter sets forth the terms and conditions of the separation agreement (the
“Agreement”) that Pacific Ethanol, Inc. (the “Company”) is offering to you to
aid in your employment transition.
 
1. Separation Date. Your last day of employment shall be July 19, 2007 (the
“Separation Date”).
 
2. Accrued Salary and Vacation Pay. On the Separation Date, the Company will pay
you all accrued salary and all accrued and unused vacation (if any) earned by
you through the Separation Date, less standard payroll deductions and
withholdings. You are entitled to these payments by law.
 
3. Severance Health Insurance Benefits. To the extent provided by the federal
COBRA law or, if applicable, state insurance laws, and by the Company’s current
group health insurance policies, you will be eligible to continue your group
health insurance benefits at your own expense. Later, you may be able to convert
to an individual policy through the provider of the Company’s health insurance,
if you wish. Although you are not entitled to any severance compensation or
benefits under your Executive Employment Agreement with the Company (the
“Employment Agreement”), if you sign this Agreement and allow the Release
contained herein to become effective, and if you timely elect continued coverage
under COBRA, then the Company will pay your COBRA premiums necessary to continue
your current group health insurance coverage through September 30, 2007.
 
4. Return of Restricted Stock. Pursuant to Section 2.4 of your Employment
Agreement, you were granted 57,500 shares of restricted Company stock (the
“Restricted Stock”), of which 7,500 shares were deemed vested as of your first
date of employment. As part of this Agreement, you agree to return the 7,500
vested shares of Restricted Stock to the Company and hereby relinquish and waive
any and all rights you may have to the Restricted Stock or any portion thereof.
The Company shall reimburse you for any federal or state tax liability you incur
as a direct result of your return of these vested shares of Restricted Stock,
with the calculation of such reimbursement to be performed by the public
accounting firm engaged by the Company for tax advisory purposes, whose
calculations shall be final and binding in the absence of manifest error. You
acknowledge and agree that the vesting of any Restricted Stock shall cease as of
your Separation Date.
 
 
 

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5. No Other Compensation or Benefits. You acknowledge that, except as expressly
provided in this Agreement, you have not earned and will not receive from the
Company any additional compensation, severance, or benefits relating to or
arising from your employment with the Company (or the termination thereof),
after the Separation Date. You acknowledge and agree that you are not and shall
not be entitled to any severance compensation or benefits set forth in your
Employment Agreement, including but not limited to any compensation or benefits
set forth in Section 5 of the Employment Agreement.
 
6. Expense Reimbursement. You agree that, within ten (10) days after the
Separation Date, you will submit your final documented expense reimbursement
statement reflecting all business expenses you incurred through the last day of
your employment, if any, for which you seek reimbursement. The Company will
reimburse you for such expenses pursuant to its regular business practice.
 
7. Return of Company Property. Within ten (10) days after the Separation Date,
you agree to return to the Company all Company documents (and all copies
thereof) and other Company property in your possession or control. You agree
that you will make a diligent search to locate any such documents, property and
information. In addition, if you have used any personal computer, server, or
e-mail system to receive, store, prepare or transmit any Company confidential or
proprietary data, materials or information, you agree to immediately provide the
Company with a computer-useable copy of all such information, and once you have
done so you agree to permanently delete and expunge all Company confidential or
proprietary information and data from those systems; and you agree to provide
the Company access to your system as reasonably requested to verify that the
necessary copying and/or deletion is completed. Your timely return of all such
Company documents and other property is a precondition to your receipt of the
benefits provided under this Agreement.
 
8. Proprietary Information Obligations. You acknowledge that during your
employment with the Company you had access to and obtained proprietary
information and trade secrets of the Company. You acknowledge and agree that you
shall continue to be bound by the Proprietary Information and Inventions
Agreement attached hereto as Exhibit A.
 
9. Nondisparagement. You agree not to disparage the Company or its officers,
directors, employees, shareholders and agents, in any manner likely to be
harmful to them or their business, business reputations or personal reputations;
and the Company (through its officers and directors) agrees not to disparage you
in any manner likely to be harmful to you or your business, business reputation
or personal reputation; provided that you and the Company may respond accurately
and fully to any inquiry or request for information if required by legal
process.
 
10. No Voluntary Adverse Action. You agree that you will not voluntarily (except
in response to legal compulsion) assist any third party in bringing or pursuing
any proposed or pending litigation, arbitration, administrative claim or other
formal proceeding against the Company, its parent or subsidiary entities,
affiliates, officers, directors, employees or agents.
 
 
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11. Cooperation. You agree to cooperate fully with the Company in connection
with its actual or contemplated defense, prosecution, or investigation of any
claims or demands by or against third parties, or other matters arising from
events, acts, or failures to act that occurred during the period of your
employment by the Company. Such cooperation includes, without limitation, making
yourself available to the Company upon reasonable notice, without subpoena, to
provide complete, truthful and accurate information in witness interviews,
depositions and trial testimony. The Company will reimburse you for reasonable
out-of-pocket expenses you incur in connection with any such cooperation
(excluding forgone wages, salary, or other compensation) and will make
reasonable efforts to accommodate your scheduling needs. In addition, you agree
to execute all documents (if any) necessary to carry out the terms of this
Agreement. 
 
12. Release of Claims. 
 
(a) General Release. In exchange for the consideration under this Agreement to
which you would not otherwise be entitled, you hereby generally and completely
release the Company and its parent, subsidiary, and affiliated entities (along
with their predecessors and successors) and their directors, officers,
employees, shareholders, partners, agents, attorneys, insurers, affiliates and
assigns, from any and all claims, liabilities and obligations, both known and
unknown, that arise from or are in any way related to events, acts, conduct, or
omissions occurring at any time prior to and including the date that you sign
this Agreement.
 
(b) Claims Released. This general release includes, but is not limited to: (i)
all claims arising out of or in any way related to your employment with the
Company or the termination of that employment; (ii) all claims related to your
compensation or benefits from the Company, including salary, bonuses,
commissions, vacation pay, expense reimbursements, severance payments, fringe
benefits, stock, stock options, or any other ownership or equity interests in
the Company; (iii) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (iv) all tort
claims, including but not limited to claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (v) all federal,
state, and local statutory claims, including but not limited to claims for
discrimination, harassment, retaliation, attorneys’ fees, or other claims
arising under the federal Civil Rights Act of 1964 (as amended), the federal
Americans with Disabilities Act of 1990 (as amended), the federal Age
Discrimination in Employment Act of 1967 (as amended) (the “ADEA”), the
California Family Rights Act, the California Labor Code (as amended), and the
California Fair Employment and Housing Act.
 
(c) Excluded Claims. Notwithstanding anything in this Section 12, you are not
hereby releasing the Company from: (i) any obligation it may otherwise have to
indemnify you for your acts within the course and scope of your employment with
the Company (including any obligations set forth in your May 29, 2007 Indemnity
Agreement with the Company (the “Indemnity Agreement”)); (ii) any obligations
undertaken by the Company in this Agreement (including the obligation to
reimburse you for tax liabilities associated with your return of Restricted
Stock as set forth in Section 4 herein); or (iii) any rights which are not
waivable as a matter of law. In addition, you understand that nothing in this
release prevents you from filing, cooperating with, or participating in any
proceeding before the Equal Employment Opportunity Commission, the Department of
Labor, or the California Department of Fair Employment and Housing, except that
you acknowledge and agree that you shall not recover any monetary benefits in
connection with any such claim, charge or proceeding with regard to any claim
released herein. You represent that you have no lawsuits, claims or actions
pending in your name, or on behalf of any other person or entity, against the
Company or any other person or entity subject to the release granted in this
paragraph. 
 
 
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13. ADEA Waiver. You hereby acknowledge that you are knowingly and voluntarily
waiving and releasing any rights you may have under the ADEA and that the
consideration given for the waiver and release in the preceding paragraph is in
addition to anything of value to which you were already entitled. You further
acknowledge that you have been advised, as required by the ADEA, that: (i) your
waiver and release do not apply to any rights or claims that may arise after the
date that you sign this Agreement; (ii) you should consult with an attorney
prior to signing this Agreement (although you may voluntarily decide not to do
so); (iii) you have twenty-one (21) days within which to consider this
Agreement (although you may choose voluntarily to sign this Agreement earlier);
(iv) you have seven (7) days following the date that you sign this Agreement to
revoke this Agreement (in a written revocation received by the Company’s Chief
Executive Officer); and (v) this Agreement will not be effective until the
eighth day after this Agreement has been signed both by you and by the Company
(the “Effective Date”).
 
14. Section 1542 Waiver. In giving the releases set forth in this Agreement,
which include claims which may be unknown to you at present, you acknowledge
that you have read and understand Section 1542 of the California Civil Code
which reads as follows: “A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his settlement
with the debtor.” You hereby expressly waive and relinquish all rights and
benefits under that section and any law or legal principle of similar effect in
any jurisdiction with respect to the releases granted herein, including but not
limited to the release of unknown and unsuspected claims granted in this
Agreement.
 
15. Representations.  You hereby represent that, except for the payments
required by this Agreement, you have been paid all compensation owed and for all
hours worked, have received all the leave and leave benefits and protections for
which you are eligible, pursuant to the Family and Medical Leave Act or
otherwise, and have not suffered any on-the-job injury for which you have not
already filed a claim. 
 
16. Dispute Resolution. To aid in the rapid and economical resolution of any
disputes which may arise under this Agreement, you and the Company agree that
any and all claims, disputes or controversies of any nature whatsoever arising
from or regarding the interpretation, performance, negotiation, execution,
enforcement or breach of this Agreement shall be resolved by confidential, final
and binding arbitration conducted before a single arbitrator with Judicial
Arbitration and Mediation Services, Inc. (“JAMS”) in Sacramento, California,
under JAMS’ then-applicable arbitration rules. The parties acknowledge that by
agreeing to this arbitration procedure, they waive the right to resolve any such
dispute through a trial by jury, judge or administrative proceeding. You will
have the right to be represented by legal counsel at any arbitration proceeding.
The arbitrator shall: (i) have the authority to compel adequate discovery for
the resolution of the dispute and to award such relief as would otherwise be
available under applicable law in a court proceeding; and (ii) issue a written
statement signed by the arbitrator regarding the disposition of each claim and
the relief, if any, awarded as to each claim, the reasons for the award, and the
arbitrator’s essential findings and conclusions on which the award is based. The
Company shall bear the JAMS arbitration fees and administrative costs. Nothing
in this Agreement shall prevent either you or the Company from obtaining
injunctive relief in court to prevent irreparable harm pending the conclusion of
any such arbitration. 
 
 
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17. Miscellaneous. This Agreement, including Exhibit A, and your Indemnity
Agreement constitutes the complete, final and exclusive embodiment of the entire
agreement between you and the Company with regard to this subject matter. It is
entered into without reliance on any promise or representation, written or oral,
other than those expressly contained herein, and it supersedes any other such
promises, warranties or representations (including but not limited to any
promises set forth in the Employment Agreement). This Agreement may not be
modified or amended except in a writing signed by both you and a duly authorized
officer of the Company. This Agreement will bind the heirs, personal
representatives, successors and assigns of both you and the Company, and inure
to the benefit of both you and the Company, their heirs, successors and assigns.
If any provision of this Agreement is determined to be invalid or unenforceable,
in whole or in part, this determination will not affect any other provision of
this Agreement and the provision in question will be modified by the court so as
to be rendered enforceable. This Agreement will be deemed to have been entered
into and will be construed and enforced in accordance with the laws of the State
of California without regard to conflicts of law principles. This Agreement may
be executed in counterparts, each of which shall be deemed to part of one
original, and facsimile signatures shall be equivalent to original signatures.
 

 
 
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If this Agreement is acceptable to you, please sign below on or within
twenty-one (21) days after the Separation Date and return the signed original to
me. If I do not receive the fully executed Agreement from you by such date, the
Company’s offer contained herein will expire.
 
Sincerely,
 
Pacific Ethanol, Inc.  
 
By: /s/ NEIL M. KOEHLER 
Neil M. Koehler
Chief Executive Officer

 
Understood and Agreed:
 
/s/ DOUGLAS JEFFRIES 
Douglas Jeffries
 

Date: July 19, 2007 

Exhibit A -Proprietary Information and Inventions Agreement
 
 
 
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