paceth_8k-ex1003.htm


    Exhibit
      10.3

     

    
      PACIFIC
        ETHANOL, INC.

       

      AMENDED
        AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

      for

      NEIL
        M. KOEHLER

       

      This
        Amended and Restated Executive Employment Agreement (“Agreement”) by and between
        Neil M. Koehler (“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;

       

      WHEREAS,
        the Parties entered into an Executive Employment Agreement on or about March
        25,
        2005, setting forth certain terms of Executive’s employment with the Company
        (the “Original Employment Agreement”) and now seek to supersede and replace the
        Original Employment Agreement with this Agreement;

       

      WHEREAS,
        once this Agreement is effective, the parties agree that the Original Employment
        Agreement shall have no further force or effect;

       

      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 President and Chief Executive 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.

       

      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”).  Executive shall
        report to the Board.  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

          
            

          

        

        
          
          

        

      

       

      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.

       

      2.     
        COMPENSATION.

       

      2.1  Salary.  For
        services to be rendered hereunder, Executive shall receive an annual salary
        at
        the rate of $300,000.00, paid bi-weekly in the amount of $11,538.46 (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 seventy percent (70%) of his Base Salary (the
        “Annual Bonus”).  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  Additional
        Cash Bonus.  In addition to the Annual Bonus provided for in
        Section 2.2 above, Executive will be eligible for an additional cash bonus
        not
        to exceed 50% of the net free cash flow (defined as revenues of Kinergy
        Marketing, LLC, less Executive’s salary and Annual Bonus, less capital
        expenditures and all expenses incurred specific to Kinergy Marketing, LLC),
        subject to a maximum of $300,000 in any given year;
provided, however, that such percentage will
        be reduced by ten percentage points each year, commencing in 2005, such that
        2009 will be the final year of such bonus as 10% of net free cash
        flow.

       

      2.4  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.

       

      2.5  Restricted
        Stock; Options.  Executive has been granted certain shares of
        restricted Company stock (the “Restricted Stock”).  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
        Board, 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 terminate 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
        a majority (e.g., 50% plus one share) 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 Original
        Employment Agreement in its entirety and the Original Employment Agreement
        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.

       

      
        
          
          

        

        
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      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.

       

      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/ John
                L. Prince	 
	 	 	The
                Head of the Board's
                Compensation Committee	 
	 	 	 	 
	 	 	 	 
	 	Date:	 12/11/2007	 
	 	 	 	 


      

       

      


       

      Understood
        and Agreed:

      


      Executive

      


      


      


      By:
        /s/ Neil M. Koehler        

      Neil
        M. Koehler

      


      Date:
        12/11/2007            

       

       

       

      10