Document:

paceth_8k-ex1002.htm

    Exhibit
      10.2

    PACIFIC
      ETHANOL, INC.

     

    INDEMNITY
      AGREEMENT

     

    This
      Indemnity Agreement (this “Agreement”) dated as of
      January 2, 2008, is made by and between Pacific Ethanol, Inc.,
a Delaware corporation (the “Company”), and Joseph
      W.
      Hansen (“Indemnitee”).

     

    Recitals

     

    A.           The
      Company desires to attract and retain the services of highly qualified
      individuals as directors, officers, employees and agents.

     

    B.           The
      Company’s bylaws (the “Bylaws”) require that the Company
      indemnify its directors, and empowers the Company to indemnify
      its officers, employees and agents, as authorized by the
      Delaware General Corporation Law, as amended (the “Code”),
      under which the Company is organized and such Bylaws expressly provide that
      the
      indemnification provided therein is not exclusive and contemplates that the
      Company may enter into separate agreements with its directors, officers and
      other persons to set forth specific indemnification provisions.

     

    C.           Indemnitee
      does not regard the protection currently provided by applicable law, the
      Company’s governing documents and available insurance as adequate under the
      present circumstances, and the Company has determined that Indemnitee and other
      directors, officers, employees and agents of the Company may not be willing
      to
      serve or continue to serve in such capacities without additional
      protection.

     

    D.           The
      Company desires and has requested Indemnitee to serve or continue to serve
      as a
      director, officer, employee or agent of the Company, as the case may be, and
      has
      proferred this Agreement to Indemnitee as an additional inducement to serve
      in
      such capacity.

     

    E.           Indemnitee
      is willing to serve, or to continue to serve, as a director, officer, employee
      or agent of the Company, as the case may be, if Indemnitee is furnished the
      indemnity provided for herein by the Company.

     

    Agreement

     

    Now
      Therefore, in consideration of the mutual covenants and agreements set
      forth herein, the parties hereto, intending to be legally bound, hereby agree
      as
      follows:

     

    1.  Definitions.

     

    (a)  Agent.  For
      purposes of this Agreement, the term “agent” of the Company means any person
      who:  (i) is or was a director, officer,
      employee or other fiduciary of the Company or a subsidiary of the Company;
      or
      (ii) is or was serving at the request or for the convenience of, or
      representing the interests of, the Company or a subsidiary of the Company,
      as a
      director, officer, employee or other fiduciary of a foreign or domestic
      corporation, partnership,  joint venture, trust or other
      enterprise.

     

    
      
         

      

      
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    (b)  Expenses.  For
      purposes of this Agreement, the term “expenses” shall be broadly construed and
      shall include, without limitation, all direct and indirect costs of any type
      or
      nature whatsoever (including, without limitation, all attorneys’, witness, or
      other professional fees and related disbursements, and other out-of-pocket
      costs
      of whatever nature), actually and reasonably incurred by Indemnitee in
      connection with the investigation, defense or appeal of a proceeding or
      establishing or enforcing a right to indemnification under this Agreement,
      the
      Code or otherwise, and amounts paid in settlement by or on behalf of Indemnitee,
      but shall not include any judgments, fines or penalties actually levied against
      Indemnitee for such individual’s violations of law. The term “expenses” shall
      also include reasonable compensation for time spent by Indemnitee for which
      he
      is not compensated by the Company or any subsidiary or third party (i) for
      any
      period during which Indemnitee is not an agent, in the employment of, or
      providing services for compensation to, the Company or any subsidiary; and
      (ii)
      if the rate of compensation and estimated time involved is approved by the
      directors of the Company who are not parties to any action with respect to
      which
      expenses are incurred, for Indemnitee while an agent of, employed by, or
      providing services for compensation to, the Company or any
      subsidiary.

     

    (c)  Proceedings.  For
      purposes of this Agreement, the term “proceeding” shall be broadly construed and
      shall include, without limitation, any threatened, pending, or completed action,
      suit, arbitration, alternate dispute resolution mechanism, investigation,
      inquiry, administrative hearing or any other actual, threatened or completed
      proceeding, whether brought in the right of the Company or otherwise and whether
      of a civil, criminal, administrative or investigative nature, and whether formal
      or informal in any case, in which Indemnitee was, is or will be involved as
      a
      party or otherwise by reason of:  (i) the fact that Indemnitee is or
      was a director or officer of the Company; (ii) the fact that any action taken
      by
      Indemnitee or of any action on Indemnitee’s part while acting as director,
      officer, employee or agent of the Company; or (iii) the fact that Indemnitee
      is
      or was serving at the request of the Company as a director, officer, employee
      or
      agent of another corporation, partnership, joint venture, trust, employee
      benefit plan or other enterprise, and in any such case described above, whether
      or not serving in any such capacity at the time any liability or expense is
      incurred for which indemnification, reimbursement, or advancement of expenses
      may be provided under this Agreement.

     

    (d)  Subsidiary.  For
      purposes of this Agreement, the term “subsidiary” means any corporation or
      limited liability company of which more than 50% of the outstanding voting
      securities or equity interests are owned, directly or indirectly, by the Company
      and one or more of its subsidiaries, and any other corporation, limited
      liability company, partnership, joint venture, trust, employee benefit plan
      or
      other enterprise of which Indemnitee is or was serving at the request of the
      Company as a director, officer, employee, agent or fiduciary.

     

    (e)  Independent
      Counsel.  For purposes of this Agreement, the term
“independent counsel” means a law firm, or a partner (or, if applicable, member)
      of such a law firm, that is experienced in matters of corporation law and
      neither presently is, nor in the past five (5) years has
      been, retained to represent: (i) the Company or Indemnitee in any matter
      material to either such party, or (ii) any other party to the proceeding giving
      rise to a claim for indemnification hereunder.  Notwithstanding the
      foregoing, the term “independent counsel” shall not include any person who,
      under the applicable standards of professional conduct then prevailing, would
      have a conflict of interest in representing either the Company or Indemnitee
      in
      an action to determine Indemnitee’s rights under this Agreement.

     

    
      
         

      

      
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    2.  Agreement
      to Serve.  Indemnitee will serve, or continue to serve, as a
      director, officer, employee or agent of the Company or any subsidiary, as the
      case may be, faithfully and to the best of his or her ability, at the will
      of
      such corporation (or under separate agreement, if such agreement exists), in
      the
      capacity Indemnitee currently serves as an agent of such corporation, so long
      as
      Indemnitee is duly appointed or elected and qualified in accordance with the
      applicable provisions of the bylaws or other applicable charter documents of
      such corporation, or until such time as Indemnitee tenders his or her
      resignation in writing; provided, however, that nothing contained in this
      Agreement is intended as an employment agreement between Indemnitee and the
      Company or any of its subsidiaries or to create any right to continued
      employment of Indemnitee with the Company or any of its subsidiaries in any
      capacity.

     

    The
      Company acknowledges that it has entered into this Agreement and assumes the
      obligations imposed on it hereby, in addition to and separate from its
      obligations to Indemnitee under the Bylaws, to induce Indemnitee to serve,
      or
      continue to serve, as a director, officer, employee or
      agent of the Company, and the Company acknowledges that Indemnitee is relying
      upon this Agreement in serving as a director, officer, employee or agent of
      the
      Company.

     

    3.  Indemnification.

     

    (a)  Indemnification
      in Third Party Proceedings.  Subject to Section 10
      below, the Company shall indemnify Indemnitee to the fullest extent permitted
      by
      the Code, as the same may be amended from time to time (but, only to the extent
      that such amendment permits Indemnitee to broader indemnification rights than
      the Code permitted prior to adoption of such amendment), if Indemnitee is a
      party to or threatened to be made a party to or otherwise involved in any
      proceeding, for any and all expenses, actually and reasonably incurred by
      Indemnitee in connection with the investigation, defense, settlement or appeal
      of such proceeding.

     

    (b)  Indemnification
      in Derivative Actions and Direct Actions by the
      Company.  Subject to Section 10 below, the Company shall
      indemnify Indemnitee to the fullest extent permitted by the Code, as the same
      may be amended from time to time (but, only to the extent that such amendment
      permits Indemnitee to broader indemnification rights than the Code permitted
      prior to adoption of such amendment), if Indemnitee is a party to or threatened
      to be made a party to or otherwise involved in any proceeding by or in the
      right
      of the Company to procure a judgment in its favor, against any and all expenses
      actually and reasonably incurred by Indemnitee in connection with the
      investigation, defense, settlement, or appeal of such proceedings.

     

    4.  Indemnification
      of Expenses of Successful Party.  Notwithstanding any other
      provision of this Agreement, to the extent that Indemnitee has been successful
      on the merits or otherwise in defense of any proceeding or in defense of any
      claim, issue or matter therein, including the dismissal of any action without
      prejudice, the Company shall indemnify Indemnitee against all expenses actually
      and reasonably incurred in connection with the investigation, defense or appeal
      of such proceeding.

     

    
      
         

      

      
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    5.  Partial
      Indemnification.  If Indemnitee is entitled under any
      provision of this Agreement to indemnification by the Company for some or a
      portion of any expenses actually and reasonably incurred by Indemnitee in the
      investigation, defense, settlement or appeal of a proceeding, but is precluded
      by applicable law or the specific terms of this Agreement to indemnification
      for
      the total amount thereof, the Company shall nevertheless indemnify Indemnitee
      for the portion thereof to which Indemnitee is entitled.

     

    6.  Advancement
      of Expenses.  To the extent not prohibited by law, the
      Company shall advance  the expenses incurred by Indemnitee in
      connection with any proceeding, and such advancement shall be made within twenty
      (20) days after the receipt by the Company of a statement or statements
      requesting such advances (which shall include invoices received by Indemnitee
      in
      connection with such expenses but, in the case of invoices in connection with
      legal services, any references to legal work performed or to expenditures made
      that would cause Indemnitee to waive any privilege accorded by applicable law
      shall not be included with the invoice) and upon request of the Company, an
      undertaking to repay the advancement of expenses if and to the extent that
      it is
      ultimately determined by a court of competent jurisdiction in a final judgment,
      not subject to appeal, that Indemnitee is not entitled to be indemnified by
      the
      Company.  Advances shall be unsecured, interest free and without
      regard to Indemnitee’s ability to repay the expenses. Advances shall include any
      and all expenses actually and reasonably incurred by Indemnitee pursuing an
      action to enforce Indemnitee’s right to indemnification under this Agreement, or
      otherwise and this right of advancement, including expenses incurred preparing
      and forwarding statements to the Company to support the advances
      claimed.  Indemnitee acknowledges that the execution and delivery of
      this Agreement shall constitute an undertaking providing that Indemnitee shall,
      to the fullest extent required by law, repay the advance if and to the extent
      that it is ultimately determined by a court of competent jurisdiction in a
      final
      judgment, not subject to appeal, that Indemnitee is not entitled to be
      indemnified by the Company.  The right to advances under this Section
      shall continue until final disposition of any proceeding, including any appeal
      therein.  This Section 6 shall not apply to any claim made by
      Indemnitee for which indemnity is excluded pursuant to Section
      10(b).

     

    7.  Notice
      and Other Indemnification Procedures.

     

    (a)  Notification
      of Proceeding.  Indemnitee will notify the Company in writing
      promptly upon being served with any summons, citation, subpoena, complaint,
      indictment, information or other document relating to any proceeding or matter
      which may be subject to indemnification or advancement of expenses covered
      hereunder.  The failure of Indemnitee to so notify the Company shall
      not relieve the Company of any obligation which it may have to Indemnitee under
      this Agreement or otherwise.

     

    (b)  Request
      for Indemnification and Indemnification Payments.  Indemnitee
      shall notify the Company promptly in writing upon receiving notice of nay
      demand, judgment or other requirement for payment that Indemnitee reasonably
      believes to the subject to indemnification under the terms of this Agreement,
      and shall request payment thereof by the Company.  Indemnification
      payments requested by Indemnitee under Section 3 hereof shall be made by
      the Company no later than sixty (60) days after receipt of the written request
      of Indemnitee.  Claims for advancement of expenses shall be made under
      the provisions of Section 6 herein.

     

    
      
         

      

      
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    (c)  Application
      for Enforcement.  In the event the Company fails to make
      timely payments as set forth in Sections 6 or 7(b) above, Indemnitee shall
      have
      the right to apply to any court of competent jurisdiction for the purpose of
      enforcing Indemnitee’s right to indemnification or advancement of expenses
      pursuant to this Agreement.  In such an enforcement hearing or
      proceeding, the burden of proof shall be on the Company to prove by that
      indemnification or advancement of expenses to Indemnitee is not required under
      this Agreement or permitted by applicable law.  Any determination by
      the Company (including its Board of Directors, stockholders or independent
      counsel) that Indemnitee is not entitled to indemnification hereunder, shall
      not
      be a defense by the Company to the action nor create any presumption that
      Indemnitee is not entitled to indemnification or advancement of expenses
      hereunder.

     

    (d)  Indemnification
      of Certain Expenses.  The Company shall indemnify Indemnitee
      against all expenses incurred in connection with any hearing or proceeding
      under
      this Section 7 unless the Company prevails in such hearing or proceeding on
      the merits in all material respects.

     

    8.  Assumption
      of Defense.  In the event the Company shall be requested by
      Indemnitee to pay the expenses of any proceeding, the Company, if appropriate,
      shall be entitled to assume the defense of such proceeding, or to participate
      to
      the extent permissible in such proceeding, with counsel reasonably acceptable
      to
      Indemnitee.  Upon assumption of the defense by the Company and the
      retention of such counsel by the Company, the Company shall not be liable to
      Indemnitee under this Agreement for any fees of counsel subsequently incurred
      by
      Indemnitee with respect to the same proceeding, provided that Indemnitee shall
      have the right to employ separate counsel in such proceeding at Indemnitee’s
      sole cost and expense.  Notwithstanding the foregoing, if Indemnitee’s
      counsel delivers a written notice to the Company stating that such counsel
      has
      reasonably concluded that there may be a conflict of interest between the
      Company and Indemnitee in the conduct of any such defense or the Company shall
      not, in fact, have employed counsel or otherwise actively pursued the defense
      of
      such proceeding within a reasonable time, then in any such event the fees and
      expenses of Indemnitee’s counsel to defend such proceeding shall be subject to
      the indemnification and advancement of expenses provisions of this
      Agreement.

     

    9.  Insurance.
      To the extent that the Company maintains an insurance policy or
      policies providing liability insurance for directors, officers, employees,
      or
      agents of the Company or of any subsidiary (“D&O Insurance”), Indemnitee
      shall be covered by such policy or policies in accordance with its or their
      terms to the maximum extent of the coverage available for any such director,
      officer, employee or agent under such policy or policies.  If, at the
      time of the receipt of a notice of a claim pursuant to the terms hereof, the
      Company has D&O Insurance in effect, the Company shall give prompt notice of
      the commencement of such proceeding to the insurers in accordance with the
      procedures set forth in the respective policies.  The Company shall
      thereafter take all necessary or desirable action to cause such insurers to
      pay,
      on behalf of Indemnitee, all amounts payable as a result of such proceeding
      in
      accordance with the terms of such policies.

     

    
      
         

      

      
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    10.  Exceptions.

     

    (a)  Certain
      Matters.  Any provision herein to the contrary
      notwithstanding, the Company shall not be obligated pursuant to the terms of
      this Agreement to indemnify Indemnitee on account of any proceeding with respect
      to (i) remuneration paid to Indemnitee if it is determined by final
      judgment or other final adjudication that such remuneration was in violation
      of
      law (and, in this respect, both the Company and Indemnitee have been advised
      that the Securities and Exchange Commission believes that indemnification for
      liabilities arising under the federal securities laws is against public policy
      and is, therefore, unenforceable and that claims for indemnification should
      be
      submitted to appropriate courts for adjudication, as indicated in Section 10(d)
      below); (ii) a final judgment rendered against Indemnitee for an
      accounting, disgorgement or repayment of profits made from the purchase or
      sale
      by Indemnitee of securities of the Company against Indemnitee or in connection
      with a settlement by or on behalf of Indemnitee to the extent it is acknowledged
      by Indemnitee and the Company that such amount paid in settlement resulted
      from
      Indemnitee's conduct from which Indemnitee received monetary personal profit,
      pursuant to the provisions of Section 16(b) of the Securities Exchange Act
      of 1934, as amended, or other provisions of any federal, state or local statute
      or rules and regulations thereunder; (iii) a final judgment or other final
      adjudication that Indemnitee’s conduct was in bad faith, knowingly fraudulent or
      deliberately dishonest or constituted willful misconduct (but only to the extent
      of such specific determination); or (iv) on account of conduct that is
      established by a final judgment as constituting a breach of Indemnitee’s duty of
      loyalty to the Company or resulting in any personal profit or advantage to
      which
      Indemnitee is not legally entitled.  For purposes of the foregoing
      sentence, a final judgment or other adjudication may be reached in either the
      underlying proceeding or action in connection with which indemnification is
      sought or a separate proceeding or action to establish rights and liabilities
      under this Agreement.

     

    (b)  Claims
      Initiated by Indemnitee.  Any provision herein to the
      contrary notwithstanding, the Company shall not be obligated to indemnify or
      advance expenses to Indemnitee with respect to proceedings or claims initiated
      or brought by Indemnitee against the Company or its directors, officers,
      employees or other agents and not by way of defense, except (i) with respect
      to
      proceedings brought to establish or enforce a right to indemnification under
      this Agreement or under any other agreement, provision in the Bylaws or
      Certificate of Incorporation or applicable law, or (ii)
      with respect to any other proceeding initiated by Indemnitee that is either
      approved by the Board of Directors or Indemnitee’s participation is required by
      applicable law.  However, indemnification or advancement of expenses
      may be provided by the Company in specific cases if the Board of Directors
      determines it to be appropriate.

     

    (c)  Unauthorized
      Settlements.  Any provision herein to the contrary
      notwithstanding, the Company shall not be obligated pursuant to the terms of
      this Agreement to indemnify Indemnitee under this Agreement for any amounts
      paid
      in settlement of a proceeding effected without the Company’s written
      consent.  Neither the Company nor Indemnitee shall unreasonably
      withhold consent to any proposed settlement; provided, however, that the Company
      may in any event decline to consent to (or to otherwise admit or agree to any
      liability for indemnification hereunder in respect of) any proposed settlement
      if the Company is also a party in such proceeding and determines in good faith
      that such settlement is not in the best interests of the Company and its
      stockholders.

     

    
      
         

      

      
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    (d)  Securities
      Act Liabilities.  Any provision herein to the contrary
      notwithstanding, the Company shall not be obligated pursuant to the terms of
      this Agreement to indemnify Indemnitee or otherwise act in violation of any
      undertaking appearing in and required by the rules and regulations promulgated
      under the Securities Act of 1933, as amended (the “Act”), or in any registration
      statement filed with the SEC under the Act.  Indemnitee acknowledges
      that paragraph (h) of Item 512 of Regulation S-K currently generally
      requires the Company to undertake in connection with any registration statement
      filed under the Act to submit the issue of the enforceability of Indemnitee’s
      rights under this Agreement in connection with any liability under the Act
      on
      public policy grounds to a court of appropriate jurisdiction and to be governed
      by any final adjudication of such issue.  Indemnitee specifically
      agrees that any such undertaking shall supersede the provisions of this
      Agreement and to be bound by any such undertaking.

     

    11.  Nonexclusivity
      and Survival of Rights.  The provisions for indemnification
      and advancement of expenses set forth in this Agreement shall not be deemed
      exclusive of any other rights which Indemnitee may at any time be entitled
      under
      any provision of applicable law, the Company’s Certificate of Incorporation,
      Bylaws or other agreements, both as to action in Indemnitee’s official capacity
      and Indemnitee’s action as an agent of the Company, in any court in which a
      proceeding is brought, and Indemnitee’s rights hereunder shall continue after
      Indemnitee has ceased acting as an agent of the Company and shall inure to
      the
      benefit of the heirs, executors, administrators and assigns of
      Indemnitee.  The obligations and duties of the Company to Indemnitee
      under this Agreement shall be binding on the Company and its successors and
      assigns until terminated in accordance with its terms.  The Company
      shall require any successor (whether direct or indirect, by purchase, merger,
      consolidation or otherwise) to all or substantially all of the business or
      assets of the Company, expressly to assume and agree to perform this Agreement
      in the same manner and to the same extent that the Company would be required
      to
      perform if no such succession had taken place.

     

    No
      amendment, alteration or repeal of this Agreement or of any provision hereof
      shall limit or restrict any right of Indemnitee under this Agreement in respect
      of any action taken or omitted by such Indemnitee in his or her corporate status
      prior to such amendment, alteration or repeal.  To the extent that a
      change in the Code, whether by statute or judicial decision, permits greater
      indemnification or advancement of expenses than would be afforded currently
      under the Company’s Certificate of Incorporation, Bylaws
      and this Agreement, it is the intent of the parties hereto that Indemnitee
      shall
      enjoy by this Agreement the greater benefits so afforded by such
      change.  No right or remedy herein conferred is intended to be
      exclusive of any other right or remedy, and every other right and remedy shall
      be cumulative and in addition to every other right and remedy given hereunder
      or
      now or hereafter existing at law or in equity or otherwise.  The
      assertion or employment of any right or remedy hereunder, or otherwise, by
      Indemnitee shall not prevent the concurrent assertion or employment of any
      other
      right or remedy by Indemnitee.

     

    
      
         

      

      
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    12.  Term.  This
      Agreement shall continue until and terminate upon the later of: (a) five (5)
      years after the date that Indemnitee shall have ceased to serve as a director
      or
      and/or officer, employee or agent of the Company; or (b) one (1) year after
      the
      final termination of any proceeding, including any appeal then pending, in
      respect to which Indemnitee was granted rights of indemnification or advancement
      of expenses hereunder.

     

    No
      legal
      action shall be brought and no cause of action shall be asserted by or in the
      right of the Company against an Indemnitee or an Indemnitee's estate, spouse,
      heirs, executors or personal or legal representatives after the expiration
      of
      five (5) years from the date of accrual of such cause of action, and any claim
      or cause of action of the Company shall be extinguished and deemed released
      unless asserted by the timely filing of a legal action within such five-year
      period; provided, however, that if any shorter period of limitations is
      otherwise applicable to such cause of action, such shorter period shall
      govern.

     

    13.  Subrogation.  In
      the event of payment under this Agreement, the Company shall be subrogated
      to
      the extent of such payment to all of the rights of recovery of Indemnitee,
      who,
      at the request and expense of the Company, shall execute all papers required
      and
      shall do everything that may be reasonably necessary to secure such rights,
      including the execution of such documents necessary to enable the Company
      effectively to bring suit to enforce such rights.

     

    14.  Interpretation
      of Agreement.  It is understood that the parties hereto
      intend this Agreement to be interpreted and enforced so as to provide
      indemnification to Indemnitee to the fullest extent now or hereafter permitted
      by law.

     

    15.  Severability.  If
      any provision of this Agreement shall be held to be invalid, illegal or
      unenforceable for any reason whatsoever, (a) the validity, legality and
      enforceability of the remaining provisions of the Agreement (including without
      limitation, all portions of any paragraphs of this Agreement containing any
      such
      provision held to be invalid, illegal or unenforceable, that are not themselves
      invalid, illegal or unenforceable) shall not in any way be affected or impaired
      thereby; and (b) to the fullest extent possible, the provisions of this
      Agreement (including, without limitation, all portions of any paragraph of
      this
      Agreement containing any such provision held to be invalid, illegal or
      unenforceable, that are not themselves invalid, illegal or unenforceable) shall
      be construed so as to give effect to the intent manifested by the provision
      held
      invalid, illegal or unenforceable and to give effect to Section 14
      hereof.

     

    16.  Amendment
      and Waiver.  No supplement, modification, amendment, or
      cancellation of this Agreement shall be binding unless executed in writing
      by
      the parties hereto.  No waiver of any of the provisions of this
      Agreement shall be deemed or shall constitute a waiver of any other provision
      hereof (whether or not similar) nor shall such waiver constitute a continuing
      waiver.

     

    17.  Notice.  Except
      as otherwise provided herein, any notice or demand which, by the provisions
      hereof, is required or which may be given to or served upon the parties hereto
      shall be in writing and, if by telegram, telecopy or telex, shall be deemed
      to
      have been validly served, given or delivered when sent, if by overnight
      delivery, courier or personal delivery, shall be deemed to have been validly
      served, given or delivered upon actual delivery and, if mailed, shall be deemed
      to have been validly served, given or delivered three (3) business days after
      deposit in the United States mail, as registered or certified mail, with proper
      postage prepaid and addressed to the party or parties to be notified at the
      addresses set forth on the signature page of this Agreement (or such other
      address(es) as a party may designate for itself by like notice).  If
      to the Company, notices and demands shall be delivered to the attention of
      the
      Secretary of the Company.

     

    
      
         

      

      
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    18.  Governing
      Law.  This Agreement shall be governed exclusively by and
      construed according to the laws of the State of California, as applied to
      contracts between California residents entered into and to be performed entirely
      within California.

     

    19.  Counterparts.  This
      Agreement may be executed in one or more counterparts, each of which shall for
      all purposes be deemed to be an original but all of which together shall
      constitute but one and the same Agreement.  Only one such counterpart
      need be produced to evidence the existence of this Agreement.

     

    20.  Headings.  The
      headings of the sections of this Agreement are inserted for convenience only
      and
      shall not be deemed to constitute part of this Agreement or to affect the
      construction hereof.

     

    21.  Entire
      Agreement.  This Agreement constitutes the entire agreement
      between the parties with respect to the subject matter hereof and supersedes
      all
      prior agreements, understandings and negotiations, written and oral, between
      the
      parties with respect to the subject matter of this Agreement; provided, however,
      that this Agreement is a supplement to and in furtherance of the Company’s
      Certificate of Incorporation, Bylaws, the Code and any
      other applicable law, and shall not be deemed a substitute therefor, and does
      not diminish or abrogate any
      rights of Indemnitee thereunder.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    In
      Witness Whereof, the parties hereto have entered into this Agreement
      effective as of the date first above written.

     

    
      	 	
              PACIFIC
                ETHANOL, INC.

               

              By:
                /s/ Neil M. Koehler        

              Neil
                M. Koehler

              President
                and Chief Executive Officer

               

               

            
	 	
              INDEMNITEE

               

              /s/
                Joseph W. Hansen        

              Signature
                of Indemnitee

               

               

              Joseph
                W. Hansen            
                

              Print
                or Type Name of Indemnitee

            

    

    
 

     

     

    10paceth_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.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      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:

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (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.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      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:

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (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.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      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

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