We cordially invite you to attend the
2014 annual meeting (“Annual Meeting”) of stockholders of Pacific Ethanol, Inc., which will be held at 9:00 a.m., local
time, on Wednesday, June 18, 2014 at ____________________. All stockholders of record at the close of business on April 24, 2014
are entitled to vote at the Annual Meeting. The formal meeting notice and Proxy Statement are attached.
At this year’s Annual Meeting,
stockholders will be asked to (i) elect seven directors; (ii) cast an advisory vote to approve our executive compensation;
(iii) approve an amendment to our 2006 Stock Incentive Plan to increase the number of shares of common stock authorized for
issuance under the plan from 914,286 shares to 1,715,000 shares; and (iv) ratify the appointment of Hein & Associates
LLP to serve as our independent registered public accounting firm for the year ending December 31, 2014.
In addition, stockholders will transact
any other business that may properly come before the Annual Meeting. A report on the business operations of Pacific Ethanol will
also be presented at the meeting and stockholders will have an opportunity to ask questions.
This year we will use the Internet as
our primary means of furnishing proxy materials to our stockholders. Accordingly, most stockholders will not receive paper copies
of our proxy materials. We will instead send our stockholders a notice with instructions for accessing the proxy materials and
voting electronically over the Internet or by telephone. The notice also provides information on how stockholders may request paper
copies of our proxy materials. We believe electronic delivery of our proxy materials and annual report will help us reduce the
environmental impact and costs of printing and distributing paper copies and improve the speed and efficiency by which our stockholders
can access these materials.
Whether or not you plan to attend the
Annual Meeting, it is important that your shares be represented and voted at the meeting and we urge you to vote as soon as possible.
As an alternative to voting in person at the Annual Meeting, you may vote electronically over the Internet or by telephone, or
if you receive a proxy card or voting instruction form in the mail, by mailing the completed proxy card or voting instruction form.
Timely voting by any of these methods will ensure your representation at the Annual Meeting.
NOTICE OF THE 2014 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 2014
__________________________
NOTICE IS HEREBY GIVEN that the 2014 annual
meeting (“Annual Meeting”) of stockholders of Pacific Ethanol, Inc., a Delaware corporation, will be held at 9:00 a.m.,
local time, on Wednesday, June 18, 2014 at ____________________, for the following purposes, as more fully described in the Proxy
Statement accompanying this notice:
|
1.
|
To elect seven directors to serve on our Board of Directors until the next annual meeting of stockholders and/or until their
successors are duly elected and qualified. The nominees for election are William L. Jones, Neil M. Koehler, Terry L. Stone, John
L. Prince, Douglas L. Kieta, Larry D. Layne and Michael D. Kandris.
|
|
2.
|
To cast a non-binding advisory vote to approve our executive compensation (“say-on-pay”).
|
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3.
|
To approve an amendment to our 2006 Stock Incentive Plan to increase the number of shares of common stock authorized for issuance
under the plan from 914,286 shares to 1,715,000 shares.
|
|
4.
|
To ratify the appointment of Hein & Associates LLP as our independent registered public accounting firm for the year ending
December 31, 2014.
|
|
5.
|
To transact such other business as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.
|
All stockholders of record at the close
of business on April 24, 2014 are entitled to notice of and to vote at the Annual Meeting and any adjournment(s) or postponement(s)
thereof.
We cordially invite all stockholders
to attend the Annual Meeting in person. Whether or not you plan to attend, it is important that your shares be represented and
voted at the meeting. As an alternative to voting in person at the Annual Meeting, you can vote your shares electronically over
the Internet, or if you receive a proxy card or voting instruction form in the mail, by mailing the completed proxy card or voting
instruction form. For detailed information regarding voting instructions, please refer to the section entitled “How do I
vote?” on page 5 of the Proxy Statement.
For admission to the Annual Meeting,
each stockholder may be asked to present valid picture identification, such as a driver’s license or passport, and proof
of ownership of our capital stock as of the record date, such as the enclosed proxy card or a brokerage statement reflecting stock
ownership.
|
|
By Order of the Board of Directors,
|
|
|
William L. Jones,
Chairman of the Board
|
Sacramento,
California
May 5, 2014
INTERNET
AVAILABILITY OF PROXY MATERIALS
THIS YEAR WE WILL USE THE INTERNET AS OUR PRIMARY MEANS OF FURNISHING PROXY MATERIALS TO OUR STOCKHOLDERS. CONSEQUENTLY, MOST STOCKHOLDERS WILL NOT RECEIVE PAPER COPIES OF OUR PROXY MATERIALS. WE WILL INSTEAD SEND OUR STOCKHOLDERS A NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS WITH INSTRUCTIONS FOR ACCESSING OVER THE INTERNET THE PROXY MATERIALS, INCLUDING OUR PROXY STATEMENT AND ANNUAL REPORT, AND VOTING ELECTRONICALLY OVER THE INTERNET. THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS ALSO PROVIDES INFORMATION ON HOW STOCKHOLDERS MAY OBTAIN PAPER COPIES OF OUR PROXY MATERIALS IF THEY SO CHOOSE. WE BELIEVE ELECTRONIC DELIVERY OF OUR PROXY MATERIALS AND ANNUAL REPORT WILL HELP PACIFIC ETHANOL, INC. REDUCE THE ENVIRONMENTAL IMPACT AND COSTS OF PRINTING AND DISTRIBUTING PAPER COPIES AND IMPROVE THE SPEED AND EFFICIENCY BY WHICH YOU CAN ACCESS THESE MATERIALS. IF YOU PREVIOUSLY ELECTED TO RECEIVE OUR PROXY MATERIALS ELECTRONICALLY, THESE MATERIALS WILL CONTINUE TO BE SENT VIA EMAIL UNLESS YOU CHANGE YOUR ELECTION.
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PACIFIC ETHANOL, INC.
PROXY STATEMENT
FOR THE 2014 ANNUAL MEETING OF STOCKHOLDERS
JUNE 18, 2014
__________________________
TABLE OF CONTENTS
Page
Voting and Proxy
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2
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Proposal One—Election of Directors
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7
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Information About Our Board of Directors, Board Committees and Related Matters
|
8
|
Proposal Two—Advisory Vote On Executive Compensation
|
19
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Proposal Three—Approval of Amendment to 2006 Stock Incentive Plan
|
20
|
Proposal Four—Ratification of Appointment of Independent Registered Public Accounting Firm
|
32
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Other Matters
|
32
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Audit Matters
|
33
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Audit Committee Report
|
34
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Security Ownership of Certain Beneficial Owners and Management
|
35
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Section 16(a) Beneficial Ownership Reporting Compliance
|
37
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Equity Compensation Plan Information
|
37
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Executive Compensation and Related Information
|
38
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Executive Officers
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38
|
Summary Compensation Table
|
40
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Outstanding Equity Awards at Fiscal Year-End – 2013
|
44
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Certain Relationships and Related Transactions
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45
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Other Information
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52
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APPENDIX
|
|
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APPENDIX A – 2006 Stock Incentive Plan (As Amended
through June 18, 2014)
|
A-1
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PACIFIC ETHANOL, INC.
400
Capitol Mall, Suite 2060
Sacramento,
California 95814
PROXY STATEMENT
FOR THE 2014 ANNUAL MEETING OF STOCKHOLDERS
__________________________
Voting
and Proxy
This Proxy Statement is being
furnished in connection with the solicitation of proxies by our Board of Directors (“Board”) for use at the 2014
annual meeting (“Annual Meeting”) of stockholders to be held on Wednesday, June 18, 2014, at 9:00 a.m., local
time, at ________________, and at any adjournment(s) or postponement(s) of the Annual Meeting. We are providing this
Proxy Statement and the accompanying proxy card to our stockholders on or about May 5, 2014. Our stockholders are
invited to attend the Annual Meeting and are requested to vote on the proposals described in this Proxy Statement.
IMPORTANT NOTICE
REGARDING THE INTERNET AVAILABILITY
OF PROXY MATERIALS FOR
THE 2014 ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD
JUNE 18, 2014
This Proxy Statement and our Annual
Report on Form 10-K for the year ended December 31, 2013 are available at the website address at
http://materials.proxyvote.com/69423U
.
You are encouraged to access and review all of the important information contained in the proxy materials before voting. The Annual
Report is not to be regarded as proxy soliciting material or as a communication through which any solicitation of proxies is made.
What items will be voted on at the Annual
Meeting?
Stockholders will vote on four items
at the Annual Meeting:
Proposal 1 –
|
Election to our Board of the seven nominees named in this Proxy Statement;
|
|
|
Proposal 2 –
|
A non-binding advisory vote to approve our executive compensation (“say-on-pay”);
|
|
|
Proposal 3 –
|
A proposal to amend our 2006 Stock Incentive Plan (the “2006 Plan”) to increase the number of shares of common stock authorized for issuance under the 2006 Plan; and
|
|
|
Proposal 4 –
|
Ratification of the appointment of Hein & Associates LLP as our independent registered public accounting firm for 2014.
|
What are the Board’s Voting Recommendations?
The Board recommends that you vote your
shares as follows:
Proposal 1 –
|
“
FOR
”
each of the nominees to our Board;
|
|
|
Proposal 2 –
|
“
FOR
”
the approval of our executive compensation (“say-on-pay”);
|
|
|
Proposal 3 –
|
“
FOR
”
the proposal to amend our 2006 Plan to increase the number of shares of common stock authorized for issuance under the 2006 Plan;
and
|
|
|
Proposal 4 –
|
“
FOR
”
the ratification of the appointment of Hein & Associates LLP as our independent registered public accounting firm for 2014.
|
Who is entitled to vote?
To be able to vote, you must have been
a stockholder on April 24, 2014, the record date for determination of stockholders entitled to notice of and to vote at the Annual
Meeting. As of the record date, _____ shares of our common stock, par value $0.001 per share (“common stock”), and
926,942 shares of our Series B Cumulative Convertible Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”),
were issued and outstanding.
How many votes do I have?
Holders of common stock and Series B
Preferred Stock will vote at the Annual Meeting as a single class on all matters. Each holder of common stock is entitled to one
vote per share held, and each holder of Series B Preferred Stock is entitled to approximately 0.03 votes per share held. As a result,
a total of _____ votes may be cast at the Annual Meeting, of which holders of common stock will be entitled to cast _____ votes
and holders of Series B Preferred Stock will be entitled to cast 26,484 votes.
What is a quorum?
For business to be conducted at the Annual
Meeting, a quorum must be present. The presence at the Annual Meeting, either in person or by proxy, of holders of shares of outstanding
common stock and Series B Preferred Stock entitled to vote and representing at least a majority of our outstanding voting power
will constitute a quorum for the transaction of business. Accordingly, shares representing _____ votes must be present in person
or by proxy at the Annual Meeting to constitute a quorum.
Abstentions and broker non-votes will
be counted for the purpose of determining whether a quorum is present for the transaction of business.
If a quorum is not present, the Annual
Meeting will be adjourned until a quorum is obtained.
What are abstentions and broker non-votes?
An “abstention” is the voluntary
act of not voting by a stockholder who is present at a meeting in person or by proxy and entitled to vote. “Broker non-votes”
refers to shares held by a brokerage firm or other nominee (for the benefit of its client) that are represented at the meeting,
but with respect to which such broker or nominee is not instructed to vote on a particular proposal and does not have discretionary
authority to vote on that proposal.
If you are a beneficial owner whose shares
are held in street name and you do not submit voting instructions to your broker, your broker may generally vote your shares in
its discretion on routine matters. We believe that Proposal Four is routine and may be voted on by your broker if you do not submit
voting instructions. However, pursuant to rules of The NASDAQ Stock Market (“NASDAQ”), brokers do not have the discretion
to vote their clients’ shares on non-routine matters, unless the broker receives voting instructions from the beneficial
owner. Proposals One through Three are considered non-routine matters. Consequently, if your shares are held in street name, you
must provide your broker with instructions on how to vote your shares in order for your shares to be voted on Proposals One through
Three.
What are the general effects of abstentions
and broker non-votes?
Brokers who hold shares for the accounts
of their clients may vote such shares either as directed by their clients or in their own discretion as permitted under the listing
rules of NASDAQ. For purposes of the Annual Meeting, brokers or nominees are permitted to vote their clients’ proxies in
their own discretion as to the ratification of the appointment of our independent registered public accounting firm if the clients
have not furnished voting instructions within 10 days of the meeting. Certain proposals other than the ratification of the appointment
of the independent registered public accounting firm, such as the election of directors, are “non-discretionary” and
brokers or nominees who have received no instructions from their clients do not have discretion to vote on those items. Abstentions
and broker non-votes will not be counted as a vote “for” or “against” any matter, though in certain cases
abstentions will have the same effect as votes against a matter as they will be counted toward the tabulation of votes present
or represented on the matter. Broker non-votes will not be counted as shares entitled to vote and accordingly will not affect the
outcome with respect to any matter to be voted on at the Annual Meeting.
Please note that the rules regarding
how brokers may vote your shares have changed. Brokers may not vote your shares on the election of directors or other non-routine
matters in the absence of your specific instructions as to how to vote, thus we strongly encourage you to provide instructions
to your broker regarding the voting of your shares you hold in “street name” or through a broker or other nominee.
What vote is required to approve each
proposal?
Proposal One
The seven nominees receiving the highest
number of affirmative votes of the outstanding shares of common stock and Series B Preferred Stock, voting together as a single
class, present at the Annual Meeting in person or represented by proxy and entitled to vote, will be elected as directors to serve
until the next annual meeting of stockholders and/or until their successors are duly elected and qualified. Abstentions will have
no effect on the outcome of the election of nominees for director. Should any nominee(s) become unavailable to serve before the
Annual Meeting, the proxies will be voted by the proxy holders for such other person(s) as may be designated by our Board or for
such lesser number of nominees as may be prescribed by the Board. Votes cast for the election of any nominee who has become unavailable
will be disregarded.
Proposal Two
Under Proposal Two, our stockholders
will have an advisory vote on executive compensation as described in this Proxy Statement (commonly referred to as “say-on-pay”).
The votes under Proposal Two are, however, only advisory in nature, and the outcome of stockholder votes on Proposal Two will not
be binding upon us, or our Compensation Committee or our full Board. However, our Compensation Committee and our full Board will
consider the results of the votes when making future decisions regarding our executive compensation policies and practices and
in determining the frequency of future say-on-pay votes.
Proposals Three and Four
The affirmative vote of a majority of
the votes of the shares of our common stock and Series B Preferred Stock, voting together as a single class, present at the Annual
Meeting in person or represented by proxy and entitled to vote, is required for approval of these proposals. Abstentions will be
counted toward the tabulation of votes present or represented on these proposals and will have the same effect as votes against
these proposals.
How do I vote?
If you are a “registered holder,”
that is, your shares are registered in your own name through our transfer agent, and you are viewing this proxy over the Internet
you may vote electronically over the Internet. For those stockholders who receive a paper proxy in the mail, you may also vote
electronically over the Internet or by telephone or by completing and mailing the proxy card provided. The website identified in
our Notice of Internet Availability of Proxy Materials provides specific instructions on how to vote electronically over the Internet.
Those stockholders who receive a paper proxy by mail, and who elect to vote by mail, should complete and return the mailed proxy
card in the prepaid and addressed envelope that was enclosed with the proxy materials.
If your shares are held in “street
name,” that is, your shares are held in the name of a brokerage firm, bank or other nominee, you will receive instructions
from your record holder that must be followed for your record holder to vote your shares per your instructions. Your broker will
send you a Notice of Internet Availability of Proxy Materials which contains instructions on how to access the website to vote
your shares electronically over the Internet or by telephone. If, however, you have elected to receive paper copies of our proxy
materials from your brokerage firm, bank or other nominee, you will receive a voting instruction form. Please complete and return
the enclosed voting instruction form in the addressed, postage paid envelope provided.
Stockholders who have previously elected
to access our proxy materials and annual report electronically over the Internet will continue to receive an email, referred to
in this Proxy Statement as an email notice, with information on how to access the proxy information and voting instructions.
Only proxy cards and voting instruction
forms that have been signed, dated and timely returned, and only shares that have been timely voted electronically or by telephone
will be counted in the quorum and voted.
The Internet and telephone voting facilities will close at 11:59 p.m. Eastern
Time, Tuesday, June 17, 2014.
Stockholders who vote over the Internet
or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from
telephone companies or Internet service providers. You may also vote your shares in person at the Annual Meeting. If you are a
registered holder, you may request a ballot at the Annual Meeting. If you are a registered holder, you may request a ballot at
the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you must obtain a proxy
issued in your name from the record holder (e.g., your broker) and bring it with you to the Annual Meeting. We recommend that you
vote your shares in advance as described above so that your vote will be counted if you later decide not to attend the Annual Meeting.
What if I receive more than one Notice
of Internet Availability of Proxy Materials, email notice, proxy card or voting instruction form?
If you receive more than one Notice of
Internet Availability of Proxy Materials, email notice, proxy card or voting instruction form because your shares are held in multiple
accounts or registered in different names or addresses, please vote your shares held in
each account
to ensure that all
of your shares will be voted.
Who will count the votes and how will
my vote(s) be counted?
All votes will be tabulated by the inspector
of elections appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker
non-votes.
If your proxy is properly submitted,
the shares represented thereby will be voted at the Annual Meeting in accordance with your instructions. If you are a registered
holder and you do not specify how the shares represented thereby are to be voted, your shares will be voted “
FOR
”
the election of each of the seven nominees to our Board listed in the proxy, “
FOR
” the approval of each of Proposals
Two through Four, and in the discretion of the proxy holder(s) as to any other matters that may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) of the Annual Meeting, as well as any procedural matters. If your shares are held
in street name and you do not specify how the shares represented thereby are to be voted, your broker may exercise its discretionary
authority to vote on Proposal Four.
Can I change my vote after I have voted?
If your shares are registered in your
name, you may revoke or change your vote at any time before the Annual Meeting by voting again electronically over the Internet
or telephone, or by filing a notice of revocation or another proxy card with a later date with our Secretary at Pacific Ethanol,
Inc., 400 Capitol Mall, Suite 2060, Sacramento, California 95814. If you are a registered stockholder and attend the Annual Meeting
and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your
vote at the Annual Meeting will be counted. If your shares are held in street name, you should contact the record holder to obtain
instructions if you wish to revoke or change your vote before the Annual Meeting. Please note that if your shares are held in street
name, your vote in person at the Annual Meeting will not be effective unless you have obtained and present a proxy issued in your
name from the record holder.
Who will bear the cost of soliciting
proxies?
We will bear the entire cost of the solicitation
of proxies for the Annual Meeting, including the preparation, assembly, printing and mailing of the Notice of Internet Availability
of Proxy Materials, this Proxy Statement, the proxy card and any additional solicitation materials furnished to stockholders. Copies
of solicitation materials will be furnished to brokerage firms, fiduciaries and custodians holding shares in their names that are
beneficially owned by others so that they may forward the solicitation materials to the beneficial owners. We may reimburse such
persons for their reasonable expenses in forwarding solicitation materials to beneficial owners. The original solicitation of proxies
may be supplemented by solicitation by personal contact, telephone, facsimile, email or any other means by our directors, officers
or employees, and we will reimburse any reasonable expenses incurred for that purpose. No additional compensation will be paid
to those individuals for any such services.
We have hired Georgeson Inc. to assist
us in the distribution of proxy materials and the solicitation of votes described above. We will pay Georgeson Inc. a base fee
of $9,500 plus customary costs and expenses for these services. We have agreed to indemnify Georgeson Inc. against certain liabilities
arising out of or in connection with its agreement to assist us with distributing proxy materials and soliciting votes.
The matters to be considered and acted
upon at the Annual Meeting are referred to in the preceding notice and are discussed below more fully.
Proposal
One
Election of Directors
Our bylaws provide for seven directors
unless otherwise changed by resolution of our Board. Directors are elected annually and hold office until the next annual meeting
of stockholders and/or until their respective successors are duly elected and qualified. Stockholders who desire to nominate any
person for election to our Board must comply with our bylaws, including our advance notice bylaw provisions relating to the nomination
of persons for election to our Board. See “Information about our Board of Directors, Board Committees and Related Matters—Board
Committees and Meetings, Nominating and Corporate Governance Committee” below. It is intended that the proxies solicited
by our Board will be voted “
FOR
” election of the following seven nominees unless a contrary instruction is made
on the proxy: William L. Jones, Neil M. Koehler, Terry L. Stone, John L. Prince, Douglas L. Kieta, Larry D. Layne and Michael D.
Kandris. If, for any reason, one or more of the nominees is unavailable as a candidate for director, an event that is not expected,
the person named in the proxy will vote for another candidate or candidates nominated by our Nominating and Corporate Governance
Committee. However, under no circumstances may a proxy be voted in favor of a greater number of persons than the number of nominees
named above. All of the nominees for director are, at present, directors of Pacific Ethanol and have been nominated by our Nominating
and Corporate Governance Committee and ratified by our full Board.
Required Vote of Stockholders
The seven nominees receiving the highest
number of affirmative votes of the outstanding shares of our common stock and Series B Preferred Stock, voting together as a single
class, present at the Annual Meeting in person or by proxy and entitled to vote, will be elected as directors to serve until the
next annual meeting of stockholders and/or until their successors are duly elected and qualified. Votes against a candidate, abstentions
and broker non-votes will be counted for purposes of determining whether a quorum is present for this proposal, but will not be
included in the vote totals for this proposal and, therefore, will have no effect on the vote.
Majority Voting Guidelines
We have adopted corporate governance
guidelines that implement a majority voting standard for uncontested elections of directors—that is, an election where the
only nominees are those recommended by the Board. Notwithstanding that a nominee may be within the group of seven nominees receiving
the highest number of affirmative votes, as determined above, if an incumbent nominee for director in an uncontested election receives
a greater number of votes against his or her election than votes for his or her election (a “Majority Against Vote”),
our corporate governance guidelines require that the nominee promptly tender his or her resignation following certification of
the vote. Our Nominating and Corporate Governance Committee will promptly consider the tendered resignation and recommend to the
full Board whether to accept the tendered resignation or take other action, such as rejecting the tendered resignation and addressing
the apparent underlying causes of the Majority Against Vote.
In making this recommendation, our Nominating
and Corporation Governance Committee will consider all factors deemed relevant, including the underlying ascertainable reasons
why stockholders voted against the director, the length of service and qualifications of the director, the director’s contributions
to Pacific Ethanol, Inc., whether by accepting the resignation we will no longer be in compliance with any applicable law, rule,
regulation or governing document, and whether or not accepting the resignation is in the best interests of Pacific Ethanol, Inc.
and our stockholders. Any director who tenders his or her resignation under these guidelines is not to participate in the Nominating
and Corporate Governance Committee recommendation or Board consideration regarding whether or not to accept the tendered resignation.
We will promptly and publicly disclose the Board’s decision and process in a report filed with or furnished to the Securities
and Exchange Commission.
Recommendation of the Board of Directors
OUR
BOARD unanimously recommends a vote “
FOR
” the election of EACH OF the SEVEN director nominees listed above.
Information
About Our Board of Directors,
Board Committees and Related Matters
Directors and Director Nominees
The following table sets forth certain
information regarding our directors and director nominees as of April 24, 2014:
Name
|
|
Age
|
|
Position(s) Held
|
William L. Jones
(1)
|
|
64
|
|
Chairman of the Board, Director and Director Nominee
|
Neil M. Koehler
|
|
56
|
|
Chief Executive Officer, President, Director and Director Nominee
|
Michael D. Kandris
|
|
66
|
|
Chief Operating Officer, Director and Director Nominee
|
Terry L. Stone
(2)
|
|
64
|
|
Director and Director Nominee
|
John L. Prince
(3)
|
|
71
|
|
Director and Director Nominee
|
Douglas L. Kieta
(3)
|
|
71
|
|
Director and Director Nominee
|
Larry D. Layne
(4)
|
|
73
|
|
Director and Director Nominee
|
_______________
(1) Member of the Audit
Committee
(2) Member of the Audit
and Compensation Committees.
(3) Member of the Compensation
and Nominating and Corporate Governance Committees.
(4) Member of the Audit, Compensation and Nominating and Corporate Governance
Committees.
Experience and Background
The biographies below describe the skills,
qualities and attributes and business experience of each of our directors, including the capacities in which they served during
the past five years:
William L. Jones
has served
as Chairman of the Board and as a director since March 2005. Mr. Jones is a co-founder of Pacific Ethanol California, Inc., or
PEI California, which is one of our predecessors, and served as Chairman of the Board of PEI California since its formation in
January 2003 through March 2004, when he stepped off the board of directors of PEI California to focus on his candidacy for one
of California’s United States Senate seats. Mr. Jones was California’s Secretary of State from 1995 to 2003. Since
May 2002, Mr. Jones has also been the owner of Tri-J Land & Cattle, a diversified farming and cattle company in Fresno County,
California. Mr. Jones has a B.A. degree in Agribusiness and Plant Sciences from California State University, Fresno.
Mr. Jones’s qualifications to serve
on our Board include:
|
·
|
co-founder of PEI California;
|
|
·
|
knowledge gained through his extensive work as our Chairman since our inception in 2005;
|
|
·
|
extensive knowledge of and experience in the agricultural and feed industries, as well as a deep understanding of operations
in political environments; and
|
|
·
|
background as an owner of a farming company in California, and his previous role in the California state government.
|
Neil M. Koehler
has served
as Chief Executive Officer, President and as a director since March 2005. Mr. Koehler is a co-founder of PEI California and served
as its Chief Executive Officer since its formation in January 2003 and as a member of its board of directors from March 2004 until
its dissolution in March 2012. Prior to his association with PEI California, Mr. Koehler was the co-founder and General Manager
of Parallel Products, one of the first ethanol production facilities in California, which was sold to a public company in 1997.
Mr. Koehler was also the sole manager and sole limited liability company member of Kinergy Marketing, LLC, which he founded in
September 2000, and which is one of our wholly-owned subsidiaries. Mr. Koehler has over 30 years of experience in the ethanol production,
sales and marketing industry in the Western United States. Mr. Koehler is a Director of the Renewable Fuels Association and is
a nationally-recognized speaker on the production and marketing of renewable fuels. Mr. Koehler also served as an executive officer
of our plant subsidiaries at the time they filed for protection under the United States Bankruptcy Code in 2009. Mr. Koehler has
a B.A. degree in Government from Pomona College.
Mr. Koehler’s qualifications to
serve on our Board include:
|
·
|
day-to-day leadership experience as our current President and Chief Executive Officer provides Mr. Koehler with intimate knowledge
of our operations;
|
|
·
|
extensive knowledge of and experience in the ethanol production, sales and marketing industry, particularly in the Western
United States;
|
|
·
|
prior leadership experience with other companies in the ethanol industry; and
|
|
·
|
day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities.
|
Michael D. Kandris
has
served as a director since June 2008 and as our Chief Operating Officer since January 6, 2013. Mr. Kandris served as an independent
contractor with supervisory responsibility for ethanol plant operations, under the direction of our Chief Executive Officer, from
January 1, 2012 to January 5, 2013. Mr. Kandris was President, Western Division of Ruan Transportation Management Systems from
November 2007 until his retirement in September 2009. From January 2000 to November 2007, Mr. Kandris served as President and Chief
Operating Officer of Ruan Transportation Management Systems, where he had overall responsibility for all operations, finance and
administrative functions. Mr. Kandris has 30 years of experience in all modes of transportation and logistics. Mr. Kandris served
on the Executive Committee of the American Trucking Association and as a board member for the National Tank Truck Organization
until his retirement from Ruan Transportation Management Systems in September 2009. Mr. Kandris has a B.S. degree in Business from
California State University, Hayward.
Mr. Kandris’s qualifications to
serve on our Board include:
|
·
|
extensive experience in various executive leadership positions;
|
|
·
|
extensive experience in rail and truck transportation and logistics; and
|
|
·
|
day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities.
|
Terry L. Stone
has served
as a director since March 2005. Mr. Stone is a Certified Public Accountant with over thirty years of experience in accounting and
taxation. He has been the owner of his own accountancy firm since 1990 and has provided accounting and taxation services to a wide
range of industries, including agriculture, manufacturing, retail, equipment leasing, professionals and not-for-profit organizations.
Mr. Stone has served as a part-time instructor at California State University, Fresno, teaching classes in taxation, auditing and
financial and management accounting. Mr. Stone is also a financial advisor and franchisee of Ameriprise Financial Services, Inc.
Mr. Stone has a B.S. degree in Accounting from California State University, Fresno.
Mr. Stone’s qualifications to serve
on our Board include:
|
·
|
extensive experience with financial accounting and tax matters;
|
|
·
|
recognized expertise as an instructor of taxation, auditing and financial and management accounting;
|
|
·
|
“audit committee financial expert,” as defined by the Securities and Exchange Commission, and satisfies the “financial
sophistication” requirements of NASDAQ’s listing standards; and
|
|
·
|
ability to communicate and encourage discussion, together with his experience as a senior independent director of all Board
committees on which he serves make him an effective chairman of our Audit Committee.
|
John L. Prince
has served
as a director since July 2005. Mr. Prince is retired but also works as a consultant to Ruan Transport Corp. and other companies.
Mr. Prince was an Executive Vice President with Land O’ Lakes, Inc. from July 1998 until his retirement in 2004. Prior to
that time, Mr. Prince was President and Chief Executive Officer of Dairyman’s Cooperative Creamery Association located in
Tulare, California, until its merger with Land O’ Lakes, Inc. in July 1998. Land O’ Lakes, Inc. is a farmer-owned,
national branded organization based in Minnesota with annual sales in excess of $6 billion and membership and operations in over
30 states. Prior to joining the Dairyman’s Cooperative Creamery Association, Mr. Prince was President and Chief Executive
Officer for nine years until 1994, and was Operations Manager for the preceding ten years commencing in 1975, of the Alto Dairy
Cooperative in Waupun, Wisconsin. Mr. Prince has a B.A. degree in Business Administration from the University of Northern Iowa.
Mr. Prince’s qualifications to
serve on our Board include:
|
·
|
extensive experience in various executive leadership positions;
|
|
·
|
day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities; and
|
|
·
|
ability to communicate and encourage discussion helps Mr. Prince discharge his duties effectively as chairman of our Nominating
and Corporate Governance Committee.
|
Douglas L. Kieta
has served
as a director since April 2006. Mr. Kieta is currently retired. Prior to retirement in January 2009, Mr. Kieta was employed by
BE&K, Inc., a large engineering and construction company headquartered in Birmingham, Alabama, where he served as the Vice
President of Power from May 2006 to January 2009. From April 1999 to April 2006, Mr. Kieta was employed at Calpine Corporation
where he was the Senior Vice President of Construction and Engineering. Calpine Corporation is a major North American power company
which leases and operates integrated systems of fuel-efficient natural gas-fired and renewable geothermal power plants and delivers
clean, reliable and fuel-efficient electricity to customers and communities in 21 states and three Canadian provinces. Mr. Kieta
has a B.S. degree in Civil Engineering from Clarkson University and a Master’s degree in Civil Engineering from Cornell University.
Mr. Kieta’s qualifications to serve
on our Board include:
|
·
|
extensive experience in various leadership positions;
|
|
·
|
day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities; and
|
|
·
|
service with Calpine affords a deep understanding of large-scale construction and engineering projects as well as plant operations,
which is particularly relevant to our ethanol production facility operations.
|
Larry D. Layne
has served
as a director since December 2007. Mr. Layne joined First Western Bank in 1963 and served in various capacities with First Western
Bank and its acquiror, Lloyds Bank of California, and Lloyd’s acquiror, Sanwa Bank California, until his retirement in 2000.
Sanwa Bank California was subsequently acquired by Bank of the West. From 1999 to 2000, Mr. Layne was Vice Chairman of Sanwa Bank
California in charge of its Commercial Banking Group which encompassed all of Sanwa Bank California’s 38 commercial and business
banking centers and 12 Pacific Rim branches as well as numerous internal departments. From 1997 to 2000, Mr. Layne was also Chairman
of the Board of The Eureka Funds, a mutual fund family of five separate investment funds with total assets of $900,000,000. From
1996 to 2000, Mr. Layne was Group Executive Vice President of the Relationship Banking Group of Sanwa Bank California in charge
of its 107 branches and 13 commercial banking centers as well as numerous internal departments. Mr. Layne has also served in various
capacities with many industry and community organizations, including as Director and Chairman of the Board of the Agricultural
Foundation at California State University, Fresno; Chairman of the Audit Committee of the Ag. Foundation at California State University,
Fresno; board member of the Fresno Metropolitan Flood Control District; and Chairman of the Ag Lending Committee of the California
Bankers Association. Mr. Layne has a B.S. degree in Dairy Husbandry from California State University, Fresno and is a graduate
of the California Agriculture Leadership Program.
Mr. Layne’s qualifications to serve
on our Board include:
|
·
|
extensive experience in various leadership positions;
|
|
·
|
day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities;
|
|
·
|
experience and involvement in California industry and community organizations provides a useful perspective; and
|
|
·
|
ability to communicate and encourage discussion helps Mr. Layne discharge his duties effectively as chairman of our Compensation
Committee.
|
Relationships
There are no family relationships among
our directors.
Corporate Governance
Corporate Governance Guidelines
Our Board believes that good corporate
governance is paramount to ensure that Pacific Ethanol is managed for the long-term benefit of our stockholders. Our Board has
adopted corporate governance guidelines that guide its actions with respect to, among other things, the composition of the Board
and its decision making processes, Board meetings and involvement of management, the Board’s standing committees and procedures
for appointing members of the committees, and its performance evaluation of our Chief Executive Officer.
Our Board has adopted a Code of Ethics
that applies to all of our directors, officers and employees and an additional Code of Ethics that applies to our Chief Executive
Officer and senior financial officers. The Codes of Ethics, as applied to our principal executive officer, principal financial
officer and principal accounting officer constitutes our “code of ethics” within the meaning of Section 406 of the
Sarbanes-Oxley Act of 2002 and is our “code of conduct” within the meaning of NASDAQ’s listing standards. Our
Codes of Ethics are available at our website at
http://www.pacificethanol.com/investors/governance
.
Information on our Internet website is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into
any other filings we make with the Securities and Exchange Commission.
Board Leadership Structure
The Chairman of our Board is William
L. Jones, who is a non-employee director. Our Chief Executive Officer is Neil M. Koehler. These individuals have served in those
capacities since our inception in 2005. Although we do not have a policy mandating the separation of the roles of Chairman and
Chief Executive Officer, our Board, under our corporate governance guidelines, reserves the right to determine the appropriate
leadership structure for our Board on a case-by-case basis. Our Board believes this separation remains appropriate as it allows
our Chief Executive Officer to focus on the day-to-day business matters, while the Chairman focuses on leading the Board in its
responsibilities of acting in the best interests of Pacific Ethanol and our stockholders. Under our corporate governance guidelines,
our Board will appoint a lead independent director, nominated by our independent directors, whenever the offices of Chairman and
Chief Executive Officer are held by the same individual, and at other times if requested by our independent directors.
The Chairman of the Board is responsible
for managing the business of the Board, including setting the Board agenda (with Board and management input), facilitating communication
among directors, presiding at meetings of the Board and stockholders, sitting as chair at executive sessions at each regularly
scheduled Board meeting, and providing support and counsel to the Chief Executive Officer. Our lead independent director, if separately
appointed, is responsible for coordinating the activities of the independent directors and performing such other duties as the
Board may determine. We believe that this Board leadership structure is appropriate in maximizing the effectiveness of our Board
oversight and in providing perspective to our business that is independent from management.
Risk Oversight
Our Board has an active role, as a whole
and also at the committee level, in overseeing management of Pacific Ethanol’s risks. Our Board regularly reviews information
regarding our credit, liquidity and operations, as well as the risks associated with each of these areas. Our Compensation Committee
is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. Our Audit
Committee oversees management of financial risks, including internal controls. Our Nominating and Corporate Governance Committee
manages risks associated with the independence of members of our Board and potential conflicts of interest. While each committee
is responsible for evaluating certain risks and overseeing the management of such risks, our entire Board is regularly informed
through committee reports about such risks.
Director Independence
Our corporate governance guidelines provide
that a majority of the Board and all members of our Audit, Compensation and Nominating and Corporate Governance Committees shall
be independent. On an annual basis, each director and executive officer is obligated to complete a Director and Officer Questionnaire
that requires disclosure of any transactions with Pacific Ethanol in which a director or executive officer, or any member of his
or her immediate family, have a direct or indirect material interest. Following completion of these questionnaires, the Board,
with the assistance of the Nominating and Corporate Governance Committee, makes an annual determination as to the independence
of each director using the current standards for “independence” established by the Securities and Exchange Commission
and NASDAQ, additional criteria contained in our corporate governance guidelines and consideration of any other material relationship
a director may have with Pacific Ethanol.
The Board has determined that all of
its directors are independent under these standards, except for Neil M. Koehler, who serves as our Chief Executive Officer
and President, and Michael D. Kandris, who serves as our Chief Operating Officer. Messrs. Koehler and Kandris are deemed not to
be independent due to their employment relationships with Pacific Ethanol, Inc.
Stockholder Communications with our Board of Directors
Our Board has implemented a process by
which stockholders may send written communications directly to the attention of our Board or any individual member of our Board.
The Chairman of our Audit Committee, Terry L. Stone, is responsible for monitoring communications from stockholders and providing
copies of such communications to the other directors as he considers appropriate. Communications will be forwarded to all directors
if they relate to substantive matters and include suggestions or comments that the Chairman considers to be important for the directors
to consider. Stockholders who wish to communicate with our Board can write to Chairman of the Audit Committee, The Board of Directors,
Pacific Ethanol, Inc., 400 Capitol Mall, Suite 2060, Sacramento, California 95814.
Board Committees and Meetings
Our business, property and affairs are
managed under the direction of our Board. Our directors are kept informed of our business through discussions with our executive
officers, by reviewing materials provided to them and by participating in meetings of our Board and its committees. During 2013,
our Board held eleven meetings and took action by written consent on various other occasions. All directors attended at least 75%
of the aggregate of the meetings of our Board and of the committees on which they served or that were held during the period they
were directors or committee members.
During 2013, members of our Board and
its committees consulted informally with management from time to time and also acted by written consent without a meeting. Additionally,
the independent members of our Board met in executive session regularly without the presence of management.
It is our policy to invite and encourage
our directors to attend our annual meetings. At the date of our 2013 annual meeting, we had seven members on our Board, all of
whom, except Larry D. Layne, attended the meeting.
Our Board has established standing Audit,
Compensation and Nominating and Corporate Governance Committees. Each committee operates pursuant to a written charter that has
been approved by our Board and the corresponding committee and that is reviewed annually and revised as appropriate. Each charter
is available at our website at
http://www.pacificethanol.com/investors/governance
. Information
on our Internet website is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into any other filings
we make with the Securities and Exchange Commission.
Audit Committee
Our Audit Committee selects our independent
auditors, reviews the results and scope of the audit and other services provided by our independent auditors, reviews our financial
statements for each interim period and for the full year and implements and manages our enterprise risk management program. The
Audit Committee also has the authority to retain consultants, and other advisors. Messrs. Stone and Layne served on our Audit Committee
for all of 2013. Mr. Jones was appointed to, and Mr. Prince rotated off of, our Audit Committee on March 21, 2013. Our Board has
determined that each member of the Audit Committee is “independent” under the current NASDAQ listing standards and
satisfies the other requirements under NASDAQ listing standards and Securities and Exchange Commission rules regarding audit committee
membership. Our Board has determined that Mr. Stone qualifies as an “audit committee financial expert” under applicable
Securities and Exchange Commission rules and regulations governing the composition of the Audit Committee, and satisfies the “financial
sophistication” requirements of NASDAQ’s listing standards. During 2013, our Audit Committee held seven meetings. The
Audit Committee Report for 2013 can be found on page 34 of this Proxy Statement.
Compensation Committee
Our Compensation Committee is responsible
for establishing and administering a compensation policy for executive officers and the compensation to be provided to our executive
officers, including, among other things, annual salaries and bonuses, stock options, stock grants, other stock-based awards, and
other incentive compensation arrangements. In addition, our Compensation Committee reviews the compensation philosophy and policies
and approves the salaries, bonuses and stock compensation arrangements for all other employees. Our Compensation Committee also
has the authority to administer our 2006 Plan with respect to grants to executive officers and directors, and also has authority
to make equity awards under our 2006 Plan to all other eligible individuals. However, our Board may retain, reassume or exercise
from time to time the power to administer our 2006 Plan. Equity awards made to members of the Compensation Committee must be authorized
and approved by a disinterested majority of our Board.
The Compensation Committee evaluates
both performance and compensation to ensure that the total compensation paid to our executive officers is fair, reasonable and
competitive so that we can attract and retain superior employees in key positions. The Compensation Committee believes that compensation
packages offered to our executives, including the named executive officers, should include both cash and equity-based compensation
that reward performance as measured against established goals. The Compensation Committee has the authority to retain consultants
and other advisors, and in furtherance of the foregoing objectives, our Compensation Committee in 2007 engaged Hewitt Associates
LLC, a global human resources consulting firm (“Aon Hewitt”), to conduct a review of our total compensation program
for our named executive officers and other executives. From that review, Aon Hewitt provided our Compensation Committee with relevant
market data and alternatives to consider when making compensation decisions as to the named executive officers and when making
compensation decisions as to other executives.
In making base salary and equity incentive
compensation decisions for 2013, and in setting cash incentive targets, our Compensation Committee compared each element of total
compensation to market data that Aon Hewitt prepared in 2007, augmented by additional market data from two primary sources: (i)
updated market data for certain positions obtained from Aon Hewitt; and (ii) market data obtained from a database provided by Equilar,
Inc., which aggregates information from proxy statements and other documents filed with the Securities and Exchange Commission
to analyze compensation data (including base salary, bonus compensation and equity awards). In addition, our Compensation Committee
utilized the Equilar, Inc. database to develop a compensation peer group and to compile data for benchmarking compensation for
our executives and our Board members against our peer group. To the extent considered necessary, our Compensation Committee may
reengage Aon Hewitt, or may use the data previously obtained, augmented by market data obtained by Equilar, Inc. as a reference
point for future compensation decisions.
For 2013, our Compensation Committee
intended to set the elements of compensation, base salaries, equity incentive compensation and cash incentive targets, such that
the aggregate compensation for the named executive officers approximated the median of aggregate compensation paid to similarly
situated executives of the companies comprising the market data provided to us by compensation consultants, Aon Hewitt and other
sources such as Equilar, Inc.
In
determining the actual cash bonus amounts for 2013, our Compensation Committee intended the bonuses for the named executive officers,
other than for James Sneed who for 2013 was subject to a separate bonus program discussed below, to be at 80% of the targeted amounts.
Messrs. Layne, Kieta, Stone and Prince
served on our Compensation Committee for all of 2013. Our Board has determined that each member of the Compensation Committee is
“independent” under the current NASDAQ listing standards. During 2013, our Compensation Committee held six meetings
and took action by written consent on various other occasions.
Nominating and Corporate Governance
Committee
Our Nominating and Corporate Governance
Committee considers and reports periodically to the Board on matters related to the identification, selection and qualification
of Board members and candidates nominated to the Board. Our Nominating and Corporate Governance Committee also advises and makes
recommendations to the Board with respect to corporate governance matters. The Nominating and Corporate Governance Committee also
has the authority to retain consultants, and other advisors. Our Nominating and Corporate Governance Committee consisted of Messrs.
Prince, Kieta and Layne for all of 2013. Our Board has determined that each member of the Nominating and Corporate Governance Committee
is “independent” under the current NASDAQ listing standards. During 2013, our Nominating and Corporate Governance Committee
held one meeting.
The Nominating and Corporate Governance
Committee will consider candidates for director recommended by any stockholder that is the beneficial owner of shares representing
more than 1.0% of the then-outstanding shares of our common stock and who has beneficially owned those shares for at least one
year. The Nominating and Corporate Governance Committee will evaluate those recommendations by applying its regular nominee criteria
and considering the additional information described in the Nominating and Corporate Governance Committee’s charter. Stockholders
who desire to recommend candidates for the Board for evaluation may do so by contacting Pacific Ethanol in writing, identifying
the potential candidate and providing background and other relevant information. Stockholders must also comply with our bylaws,
including our advance notice bylaw provisions relating to the nomination of persons for election to our Board that, among other
things, require that nominations of persons for election to our Board at annual meetings be submitted to our Secretary at Pacific
Ethanol, Inc., 400 Capitol Mall, Suite 2060, Sacramento, California 95814, unless otherwise notified, by the close of business
on the 45
th
day before the first anniversary of the date on which we first mailed our proxy materials for the prior
year’s annual meeting. We first mailed our proxy materials for our 2013 annual meeting on or about April 29, 2013 and anticipate
mailing our proxy materials for our Annual Meeting on or about May 5, 2014. We have received no stockholder nominations of persons
for election to our Board for our Annual Meeting.
Our Nominating and Corporate Governance
Committee utilizes a variety of methods for identifying and evaluating nominees for director. Candidates may also come to the attention
of the Nominating and Corporate Governance Committee through current Board members, professional search firms and other persons.
In evaluating potential candidates, our Nominating and Corporate Governance Committee will take into account a number of factors,
including, among others, the following:
|
·
|
the candidate’s independence from management;
|
|
·
|
whether the candidate has relevant business experience;
|
|
·
|
judgment, skill, integrity and reputation;
|
|
·
|
existing commitments to other businesses;
|
|
·
|
corporate governance background;
|
|
·
|
financial and accounting background, to enable the committee to determine whether the candidate would be suitable for Audit
Committee membership; and
|
|
·
|
the size and composition of our Board.
|
Our Nominating and Corporate Governance
Committee is committed to actively seeking out highly-qualified women and minority groups to include in the pool from which Board
nominees are chosen.
Compensation of Directors
We use a combination of cash and equity-based
incentive compensation to attract and retain qualified candidates to serve on our Board. In setting the compensation of directors,
we consider the significant amount of time that Board members spend in fulfilling their duties to Pacific Ethanol as well as the
experience level we require to serve on our Board. The Board, through its Compensation Committee, annually reviews the compensation
and compensation policies for Board members. In recommending director compensation, the Compensation Committee is guided by the
following three goals:
|
·
|
compensation should pay directors fairly for work required in a company of our size and scope;
|
|
·
|
compensation should align directors’ interests with the long-term interests of our stockholders; and
|
|
·
|
the structure of the compensation should be clearly disclosed to our stockholders.
|
In making compensation decisions for
2013 as to our directors, our Compensation Committee compared our cash and equity compensation payable to directors against market
data obtained by Aon Hewitt in 2007 and market data obtained from survey data provided by Equilar, Inc. The Aon Hewitt data included
a general industry survey of 235 companies with less than $1,000,000,000 in annual revenues and a general industry survey of 51
companies with between $500,000,000 and $1,000,000,000 in annual revenues. The data provided by Equilar, Inc. included a survey
of 20 companies in the chemicals sector with between $200,000,000 and $1,000,000,000 in annual revenues. For 2013, the Compensation
Committee set compensation for our directors at approximately the median of compensation paid to directors of the companies surveyed
by Aon Hewitt and Equilar, Inc.
Cash Compensation
For 2013, our cash compensation plan
for directors provided the Chairman of our Board annual compensation of $80,000, the Chairman of our Audit Committee annual compensation
of $42,000, our lead independent director, if any, annual compensation of $48,000, the Chairman of our Compensation Committee annual
compensation of $36,000, the Chairman of our Nominating and Corporate Governance Committee annual compensation of $36,000, the
Chairman of our Operations and Feed Committee annual compensation of $36,000 and the Chairman of our Strategic Transactions Committee
annual compensation of $36,000. All other directors, except employee directors, were to receive annual compensation of $24,000.
These amounts were paid in advance in bi-weekly installments. In addition, directors were reimbursed for specified reasonable and
documented expenses in connection with attendance at meetings of our Board and its committees. Except for a short period at the
beginning of 2013 for which we paid Mr. Kandris $1,385 in director compensation, employee directors do not receive director compensation
in connection with their service as directors.
Equity Compensation
Our Compensation Committee or our full
Board typically grants equity compensation to our newly elected or reelected directors which normally vests as to 100% of the grants
no later than one year after the date of grant. Vesting is normally subject to continued service on our Board during the full year.
In determining the amount of equity compensation
for 2013, the Compensation Committee determined the value of total compensation, approximately targeting the median of compensation
paid to directors of the companies comprising the market data provided to us by Aon Hewitt in 2007. The Compensation Committee
then determined the cash component based on this market data. The balance of the total compensation target was then allocated to
equity awards, and the number of shares to be granted to our directors was based on the estimated value of the underlying shares
on the expected grant date.
In addition, our Compensation Committee
may grant, and has from time to time granted, additional equity compensation to directors at its discretion.
Compensation of Employee Directors
Except for a short period at the beginning
of 2013 for which we paid Mr. Kandris $1,385 in director compensation, Messrs. Koehler and Kandris were compensated as a full-time
employees and officers but received no additional compensation for service as Board members during 2013. Information regarding
the compensation awarded to Messrs. Koehler and Kandris is included in “Executive Compensation and Related Information—Summary
Compensation Table” below.
Director Compensation Table – 2013
The following table summarizes the compensation
of our non-employee directors for the year ended December 31, 2013:
Name
|
|
Fees Earned
or Paid in
Cash
($)
(1)
|
|
|
Stock Awards
($)
|
|
|
All other
Compensation
($)
(2)
|
|
|
Total
($)
|
|
William L. Jones
|
|
$
|
80,000
|
|
|
$
|
138,494
|
(3)
|
|
$
|
–
|
|
|
$
|
218,494
|
|
Terry L. Stone
|
|
$
|
42,000
|
|
|
$
|
103,869
|
(4)
|
|
$
|
–
|
|
|
$
|
145,869
|
|
John L. Prince
|
|
$
|
48,000
|
|
|
$
|
103,869
|
(5)
|
|
$
|
–
|
|
|
$
|
151,869
|
|
Douglas L. Kieta
|
|
$
|
36,000
|
|
|
$
|
103,869
|
(6)
|
|
$
|
–
|
|
|
$
|
139,869
|
|
Larry D. Layne
|
|
$
|
36,000
|
|
|
$
|
103,869
|
(7)
|
|
$
|
–
|
|
|
$
|
139,869
|
|
_______________
(1)
|
For a description of annual director fees and fees for chair positions, see the disclosure above
under “Compensation of Directors—Cash Compensation.”
|
(2)
|
Except as contained in the table, the value of perquisites and other personal benefits was less
than $10,000 in aggregate for each director.
|
(3)
|
At December 31, 2013, Mr. Jones held 16,505 vested shares from stock awards and also held options
to purchase an aggregate of 477 shares of common stock. Mr. Jones was granted 13,334 and 17,778 shares of our common stock on January
4, 2013 and June 24, 2013, having aggregate grant date fair values of $72,004 and $66,490, respectively, calculated based on the
fair market value of our common stock on the applicable grant date.
|
(4)
|
At December 31, 2013, Mr. Stone held 12,591 vested shares from stock awards and also held options
to purchase an aggregate of 143 shares of common stock. Mr. Stone was granted 10,000 and 13,334 shares of our common stock on January
4, 2013 and June 24, 2013, having aggregate grant date fair values of $54,000 and $49,869, respectively, calculated based on the
fair market value of our common stock on the applicable grant date.
|
(5)
|
At December 31, 2013, Mr. Prince held 12,591 vested shares from stock awards and also held options
to purchase an aggregate of 143 shares of common stock. Mr. Prince was granted 10,000 and 13,334 shares of our common stock on
January 4, 2013 and June 24, 2013, having aggregate grant date fair values of $54,000 and $49,869, respectively, calculated based
on the fair market value of our common stock on the applicable grant date.
|
(6)
|
At December 31, 2013, Mr. Kieta held 12,591 vested shares from stock awards. Mr. Kieta was granted
10,000 and 13,334 shares of our common stock on January 4, 2013 and June 24, 2013, having aggregate grant date fair values of $54,000
and $49,869, respectively, calculated based on the fair market value of our common stock on the applicable grant date.
|
(7)
|
At December 31, 2013, Mr. Layne held 12,591 vested shares from stock awards. Mr. Layne was granted
10,000 and 13,334 shares of our common stock on January 4, 2013 and June 24, 2013, having aggregate grant date fair values of $54,000
and $49,869, respectively, calculated based on the fair market value of our common stock on the applicable grant date.
|
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation
Law permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with a pending or completed action, suit or proceeding if the officer or director
acted in good faith and in a manner the officer or director reasonably believed to be in the best interests of the corporation.
Our certificate of incorporation provides
that, except in certain specified instances, our directors shall not be personally liable to us or our stockholders for monetary
damages for breach of their fiduciary duty as directors, except liability for the following:
|
·
|
any breach of their duty of loyalty to Pacific Ethanol or our stockholders;
|
|
·
|
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law;
|
|
·
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law; and
|
|
·
|
any transaction from which the director derived an improper personal benefit.
|
In addition, our certificate of incorporation
and bylaws obligate us to indemnify our directors and officers against expenses and other amounts reasonably incurred in connection
with any proceeding arising from the fact that such person is or was an agent of ours. Our bylaws also authorize us to purchase
and maintain insurance on behalf of any of our directors or officers against any liability asserted against that person in that
capacity, whether or not we would have the power to indemnify that person under the provisions of the Delaware General Corporation
Law. We have entered and expect to continue to enter into agreements to indemnify our directors and officers as determined by our
Board. These agreements provide for indemnification of related expenses including attorneys’ fees, judgments, fines and settlement
amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and
officers’ liability insurance.
The limitation of liability and indemnification
provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors
for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers,
even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder’s investment may
be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required
by these indemnification provisions.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (“Securities Act”), may be permitted to our directors, officers
and controlling persons under the foregoing provisions of our certificate of incorporation or bylaws, or otherwise, we have been
informed that in the opinion of the Securities and Exchange Commission, this indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
PROPOSAL TWO
ADVISORY VOTE ON
EXECUTIVE COMPENSATION
We are providing our stockholders with
the opportunity to vote on a non-binding, advisory resolution to approve the compensation paid to our named executive officers,
as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including
the compensation tables and any narrative discussion of our compensation arrangements. This proposal, commonly known as a “say-on-pay”
proposal, gives our stockholders the opportunity to express their views on the compensation paid to our named executive officers.
This vote is not intended to address
any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies
and practices described in this Proxy Statement. Accordingly, we will ask our stockholders to vote “FOR” the following
resolution at Annual Meeting:
“RESOLVED, that the compensation
paid to Pacific Ethanol’s named executive officers, as disclosed in Pacific Ethanol’s proxy statement for its 2014
annual meeting of stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including
the compensation tables and related disclosure, is hereby APPROVED.”
Please read the
Executive Compensation section of this Proxy Statement for additional details about our executive compensation program and
the different components thereof, including information about the total compensation of our named executive officers in 2013.
See also “Information About our Board of Directors, Board Committees and Related Matters - Board Committees and
Meetings - Compensation Committee” on page 14 of this Proxy Statement.
The say-on-pay vote is advisory, and
therefore not binding on us, or our Compensation Committee or our Board. The vote will provide our Compensation Committee and our
Board with information relating to the opinions of our stockholders which the Compensation Committee will consider as it makes
determinations with respect to future action regarding executive compensation and our executive compensation program.
Recommendation of the Board of Directors
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE
“
FOR
” APPROVAL OF THE 2013 COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT
PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.
Proposal
THREE
Approval of Amendment to 2006 Stock Incentive Plan
In 2006, our Board adopted and our stockholders
ratified and approved the adoption of our 2006 Plan. On March 5, 2010, our Board approved an increase in the number of shares of
common stock authorized for issuance under our 2006 Plan from 19,048 shares to 57,143 shares. Our stockholders approved the amendment
to the 2006 Plan on June 3, 2010. Effective October 20, 2010, our Board approved amendments to our 2006 Plan to (i) increase the
limit on annual awards to any plan participant from 250,000 shares to 1,000,000 shares, and (ii) eliminate the authority of the
plan administrator to reduce the exercise or base price of one or more outstanding stock options or stock appreciation rights.
These amendments did not require stockholder approval. On March 25, 2011, our Board approved a further increase in the number of
shares of common stock authorized for issuance under our 2006 Plan from 57,143 shares to 80,952 shares. Our stockholders approved
the amendment to the 2006 Plan on May 19, 2011. Effective April 2, 2012, our Board approved a further increase in the number of
shares of common stock authorized for issuance under our 2006 Plan from 80,952 shares to 414,286 shares. Our stockholders approved
the amendment to the 2006 Plan on December 13, 2012. On March 21, 2013, our Board approved a further increase in the number of
shares of common stock authorized for issuance under our 2006 Plan from 414,286 shares to 914,286 shares. Our stockholders approved
the amendment to the 2006 Plan on June 18, 2013. The 2006 Plan was also amended by our Board effective April 12, 2013 to (i) change
the limit on annual awards to any plan participant from 1,000,000 shares to a limit of $1,000,000, and (ii) eliminate the authority
to replace outstanding options or stock appreciation rights or pay cash or issue shares of common stock in consideration of cancelled
options or stock appreciation rights. On March 6, 2014, our Board approved, subject to stockholder approval, a further increase
in the number of shares of common stock authorized for issuance under our 2006 Plan from 914,286 shares to 1,715,000 shares.
Our Board recommends approval of the
amendment to the 2006 Plan to enable the continued use of the 2006 Plan for stock-based grants consistent with the objectives of
our compensation program. The 2006 Plan is intended to promote our interests by providing eligible persons in our service with
the opportunity to acquire a proprietary or economic interest, or otherwise increase their proprietary or economic interest, in
Pacific Ethanol as an incentive for them to remain in service and render superior performance during their service. The 2006 Plan
consists of two equity-based incentive programs, the Discretionary Grant Program and the Stock Issuance Program. Principal features
of each program are summarized below.
A total of 914,286 shares of common stock
are authorized for issuance under the 2006 Plan. A total of 1,715,000 shares of common stock will be authorized for issuance under
the 2006 Plan upon stockholder approval of this proposal. Currently, equity awards totaling 831,127 shares of common stock, net
of forfeitures and shares withheld to satisfy tax withholding obligations, have been issued under the 2006 Plan. We believe that
the 2006 Plan will be exhausted of shares available for issuance in 2014, leaving insufficient shares available for equity grants
in 2014. By increasing the number of shares authorized for issuance under the 2006 Plan by 800,714, a total of 883,873 additional
shares of common stock would be available for issuance. This increase would, in essence, replenish shares issued since the inception
of the 2006 Plan and provide us with the flexibility to continue to make stock-based grants in amounts deemed appropriate by our
Compensation Committee. We believe that our equity incentive program and grants made under the program are essential to retaining
critical personnel and aligning the incentives of our personnel with our stockholders.
The proposed amendment will not be implemented
unless approved by our stockholders, and no additional equity awards beyond the existing 914,286 shares of common stock have been
or will be issued under the 2006 Plan unless and until stockholder approval of the amended 2006 Plan is obtained. If the proposed
amendment is not approved by our stockholders, the 2006 Plan will remain in effect in its present form.
Set forth below is information concerning
awards of restricted stock and options under our 2006 Plan for each of the years ended December 31, 2009, 2010, 2011, 2012 and
2013. No other equity incentive compensation, whether under the 2006 Plan or otherwise, was awarded in such years.
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Year Ended December 31,
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2009
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2010
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2011
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2012
(3)
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2013
(3)
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Three-Year
Average
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Shares and options granted
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–
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38,971
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31,533
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–
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844,307
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291,947
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Shares outstanding at year-end
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547,330
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861,210
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5,775,444
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9,789,408
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16,126,287
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10,563,713
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Annual run rate
(1)
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0.0%
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4.5%
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0.5%
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0.0%
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5.2%
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2.8%
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Unvested shares and options outstanding at year-end
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2,686
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31,276
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45,467
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24,282
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705,280
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258,343
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Overhang
(2)
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0.5%
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3.6%
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0.8%
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0.2%
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4.4%
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2.4%
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_______________
(1)
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Annual run rate is the number of shares of common stock and options granted during the year, divided by the number of shares
of common stock outstanding at year-end.
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(2)
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Overhang is the number of unvested shares of restricted common stock and options outstanding at year-end, divided by the total
number of shares of common stock outstanding at year-end.
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(3)
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We granted 287,500 shares of restricted common stock in the first quarter of 2013 for 2012 incentive compensation to our directors,
officers and employees.
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The following is a summary of the principal
features of our 2006 Plan, as amended to reflect the proposed plan amendment. The summary does not purport to be a complete description
of all provisions of our 2006 Plan and is qualified in its entirety by the text of the 2006 Plan, a copy of which (as amended to
reflect the proposed plan amendment) is attached to this Proxy Statement as
Appendix A
.
Administration
The Compensation Committee of our Board
has the exclusive authority to administer the Discretionary Grant and Stock Issuance Programs with respect to option grants, restricted
stock awards, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based awards (“equity
awards”) made to executive officers and non-employee Board members, and also has the authority to make equity awards under
those programs to all other eligible individuals. However, the Board may retain, reassume or exercise from time to time the power
to administer those programs. Equity awards made to members of the Compensation Committee must be authorized and approved by a
disinterested majority of the Board.
The term “plan administrator,”
as used in this summary, means the Compensation Committee or the Board, to the extent either entity is acting within the scope
of its administrative jurisdiction under the 2006 Plan.
Share Reserve
An aggregate of 914,286 shares of common
stock are currently authorized for issuance under the 2006 Plan. A total of 1,715,000 shares of common stock will be authorized
for issuance under the 2006 Plan upon stockholder approval of this proposal. No additional equity awards beyond the existing 914,286
shares of common stock have been or will be issued under the 2006 Plan unless and until stockholder approval is obtained.
No participant in the 2006 Plan may be
granted equity awards for shares of common stock having a value in excess of $1,000,000 per calendar year. Prior stockholder approval
constituted approval of the $1,000,000 share limitation for purposes of Code Section 162(m). This limitation is intended to assure
that any deductions to which we would otherwise be entitled, either upon the exercise of stock options or stock appreciation rights
granted under the Discretionary Grant Program with an exercise price per share equal to the fair market value per share of our
common stock on the grant date or upon the subsequent sale of the shares purchased under those options, will not be subject to
the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed under Code
Section 162(m). In addition, shares issued under the Stock Issuance Program may qualify as performance-based compensation that
is not subject to the Code Section 162(m) limitation, if the issuance of those shares is approved by the Compensation Committee
and the vesting is tied solely to the attainment of the corporate performance milestones discussed below in the summary description
of that program.
The shares of common stock issuable under
the 2006 Plan may be drawn from shares of our authorized but unissued shares or from shares reacquired by us, including shares
repurchased on the open market. Shares subject to any outstanding equity awards under the 2006 Plan that expire or otherwise terminate
before those shares are issued will be available for subsequent awards. Unvested shares issued under the 2006 Plan and subsequently
repurchased by us at the option exercise or direct issue price paid per share, under our repurchase rights under the 2006 Plan,
will be added back to the number of shares reserved for issuance under the 2006 Plan and will be available for subsequent reissuance.
If the exercise price of an option under
the 2006 Plan is paid with shares of common stock, then the authorized reserve of common stock under the 2006 Plan will be reduced
only by the net number of new shares issued under the exercised stock option. If shares of common stock otherwise issuable under
the 2006 Plan are withheld in satisfaction of the withholding taxes incurred in connection with the issuance, exercise or vesting
of an equity award, then the number of shares of common stock available for issuance under the 2006 Plan will be reduced only by
the net number of shares issued under that equity award. The withheld shares will not reduce the share reserve. Upon the exercise
of any stock appreciation right granted under the 2006 Plan, the share reserve will only be reduced by the net number of shares
actually issued upon exercise, and not by the gross number of shares as to which the stock appreciation right is exercised.
We have registered the issuance of all
of the shares of common stock currently authorized for issuance under our 2006 Plan on Form S-8 under the Securities Act.
Eligibility
Officers, employees, non-employee directors,
and consultants and independent advisors who are under written contract and whose securities issued under the 2006 Plan could be
registered on Form S-8, all of whom are in our service or the service of any parent or subsidiary of ours, whether now existing
or subsequently established, are eligible to participate in the Discretionary Grant and Stock Issuance Programs.
As of April 24, 2014, six executive officers,
approximately 160 other employees, five non-executive officer members of our Board and an indeterminate number of consultants and
advisors were eligible to participate in the 2006 Plan.
Valuation
The fair market value per share of our
common stock on any relevant date under the 2006 Plan will be deemed to be equal to the closing price per share of our common stock
at the close of regular trading hours on that date on The NASDAQ Capital Market (or any other primary successor exchange or market
on which our securities are listed or traded). If there is no closing price for our common stock on the date in question, the fair
market value will be the closing price on the last preceding date for which a quotation exists. On April 24, 2014, the fair market
value determined on that basis was $__.__ per share.
Discretionary Grant Program
The plan administrator has complete discretion
under the Discretionary Grant Program to determine which eligible individuals are to receive equity awards under that program,
the time or times when those equity awards are to be made, the number of shares subject to each award, the time or times when each
equity award is to vest and become exercisable, the maximum term for which the equity award is to remain outstanding and the status
of any granted option as either an incentive stock option or a non-statutory option under the federal tax laws.
Stock Options.
Each granted option
will have an exercise price per share determined by the plan administrator, provided that the exercise price will not be less than
85% or 100% of the fair market value of a share on the grant date in the case of non-statutory or incentive options, respectively.
No granted option will have a term in excess of ten years. Incentive options granted to an employee who beneficially owns more
than 10% of our outstanding common stock must have exercise prices not less than 110% of the fair market value of a share on the
grant date and a term of not more than five years measured from the grant date. Options generally will become exercisable in one
or more installments over a specified period of service measured from the grant date. However, options may be structured so that
they will be immediately exercisable for any or all of the option shares. Any unvested shares acquired under immediately exercisable
options will be subject to repurchase, at the exercise price paid per share, if the optionee ceases service with us prior to vesting
in those shares.
An optionee who ceases service with us
other than due to misconduct will have a limited time within which to exercise outstanding options for any shares for which those
options are vested and exercisable at the time of cessation of service. The plan administrator has complete discretion to extend
the period following the optionee’s cessation of service during which outstanding options may be exercised (but not beyond
the expiration date) and/or to accelerate the exercisability or vesting of options in whole or in part. Discretion may be exercised
at any time while the options remain outstanding, whether before or after the optionee’s actual cessation of service.
Stock Appreciation Rights.
The
plan administrator has the authority to issue the following three types of stock appreciation rights under the Discretionary Grant
Program:
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Tandem stock appreciation rights, which provide the holders with the right, upon approval of the plan administrator, to surrender
their options for an appreciation distribution in an amount equal to the excess of the fair market value of the vested shares of
common stock subject to the surrendered option over the aggregate exercise price payable for those shares.
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Standalone stock appreciation rights, which allow the holders to exercise those rights as to a specific number of shares of
common stock and receive in exchange an appreciation distribution in an amount equal to the excess of the fair market value on
the exercise date of the shares of common stock as to which those rights are exercised over the aggregate base price in effect
for those shares. The base price per share may not be less than the fair market value per share of the common stock on the date
the standalone stock appreciation right is granted, and the right may not have a term in excess of ten years.
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Limited stock appreciation rights, which may be included in one or more option grants made under the Discretionary Grant Program
to executive officers or directors who are subject to the short-swing profit liability provisions of Section 16 of the Securities
Exchange Act of 1934, as amended (“Exchange Act”). Upon the successful completion of a hostile takeover for more than
50% of our outstanding voting securities or a change in a majority of our Board as a result of one or more contested elections
for Board membership over a period of up to 36 consecutive months, each outstanding option with a limited stock appreciation right
may be surrendered in return for a cash distribution per surrendered option share equal to the excess of the fair market value
per share at the time the option is surrendered or, if greater and the option is a non-statutory option, the highest price paid
per share in the transaction, over the exercise price payable per share under the option.
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Payments with respect to exercised tandem
or standalone stock appreciation rights may, at the discretion of the plan administrator, be made in cash or in shares of common
stock. All payments with respect to exercised limited stock appreciation rights will be made in cash. Upon cessation of service
with us, the holder of one or more stock appreciation rights will have a limited period within which to exercise those rights as
to any shares as to which those stock appreciation rights are vested and exercisable at the time of cessation of service. The plan
administrator will have complete discretion to extend the period following the holder’s cessation of service during which
his or her outstanding stock appreciation rights may be exercised and/or to accelerate the exercisability or vesting of the stock
appreciation rights in whole or in part. Discretion may be exercised at any time while the stock appreciation rights remain outstanding,
whether before or after the holder’s actual cessation of service.
Stock Issuance Program
Shares of common stock may be issued
under the Stock Issuance Program for valid consideration under the Delaware General Corporation Law as the plan administrator deems
appropriate, including cash, past services or other property. In addition, restricted shares of common stock may be issued under
restricted stock awards that vest in one or more installments over the recipient’s period of service or upon attainment of
specified performance objectives. Shares of common stock may also be issued under the program under restricted stock units or other
stock-based awards that entitle the recipients to receive the shares underlying those awards upon the attainment of designated
performance goals, the satisfaction of specified service requirements and/or upon the expiration of a designated time period following
the vesting of those awards or units, including a deferred distribution date following the termination of the recipient’s
service with us.
The plan administrator will have complete
discretion under the Stock Issuance Program to determine which eligible individuals are to receive equity awards under the program,
the time or times when those equity awards are to be made, the number of shares subject to each equity award, the vesting schedule
to be in effect for the equity award and the consideration, if any, payable per share. The shares issued under an equity award
may be fully vested upon issuance or may vest upon the completion of a designated service period and/or the attainment of pre-established
performance goals.
To assure that the compensation attributable
to one or more equity awards under the Stock Issuance Program will qualify as performance-based compensation that will not be subject
to the $1,000,000 limitation on the income tax deductibility of the compensation paid per covered executive officer imposed under
Code Section 162(m), the Compensation Committee will also have the discretionary authority to structure one or more equity awards
under the Stock Issuance Program so that the shares subject to those particular awards will vest only upon the achievement of pre-established
corporate performance goals. Goals may be based on one or more of the following criteria: (i) return on total stockholders’
equity; (ii) net income per share; (iii) net income or operating income; (iv) earnings before interest, taxes, depreciation, amortization
and stock-based compensation costs, or operating income before depreciation and amortization; (v) sales or revenue targets; (vi)
return on assets, capital or investment; (vii) cash flow; (viii) market share; (ix) cost reduction goals; (x) budget comparisons;
(xi) implementation or completion of projects or processes strategic or critical to our business operations; (xii) measures of
customer satisfaction; (xiii) any combination of, or a specified increase in, any of the foregoing; and (xiv) the formation of
joint ventures, research and development collaborations, marketing or customer service collaborations, or the completion of other
corporate transactions intended to enhance our revenue or profitability or expand our customer base; provided, however, that for
purposes of items (ii), (iii) and (vii) above, the Compensation Committee may, at the time the equity awards are made, specify
adjustments to those items as reported in accordance with United States generally accepted accounting principles (“GAAP”),
which will exclude from the calculation of those performance goals one or more of the following: charges related to acquisitions,
stock-based compensation, employer payroll tax expense on stock option exercises, settlement costs, restructuring costs, gains
or losses on strategic investments, non-operating gains, other non-cash charges, valuation allowance on deferred tax assets, and
the related income tax effects, purchases of property and equipment, and any extraordinary non-recurring items as described in
Accounting Principles Board Opinion No. 30 or its successor, provided that those adjustments are in conformity with those reported
by us on a non-GAAP basis. In addition, performance goals may be based upon the attainment of specified levels of our performance
under one or more of the measures described above relative to the performance of other entities and may also be based on the performance
of any of our business groups or divisions thereof or any parent or subsidiary. Performance goals may include a minimum threshold
level of performance below which no award will be earned, levels of performance at which specified portions of an award will be
earned, and a maximum level of performance at which an award will be fully earned. The Compensation Committee may provide that,
if the actual level of attainment for any performance objective is between two specified levels, the amount of the award attributable
to that performance objective shall be interpolated on a straight-line basis.
The plan administrator will have the
discretionary authority at any time to accelerate the vesting of any and all shares of restricted stock or other unvested shares
outstanding under the Stock Issuance Program. However, no vesting requirements tied to the attainment of performance objectives
may be waived with respect to shares that were intended at the time of issuance to qualify as performance-based compensation under
Code Section 162(m), except in the event of specified involuntary terminations or changes in control or ownership.
Outstanding restricted stock units or
other stock-based awards under the Stock Issuance Program will automatically terminate, and no shares of common stock will actually
be issued in satisfaction of those awards, if the performance goals or service requirements established for those awards are not
attained. The plan administrator, however, will have the discretionary authority to issue shares of common stock in satisfaction
of one or more outstanding restricted stock units or other stock-based awards as to which the designated performance goals or service
requirements are not attained. However, no vesting requirements tied to the attainment of performance objectives may be waived
with respect to awards that were intended at the time of issuance to qualify as performance-based compensation under Code Section
162(m), except in the event of specified involuntary terminations or changes in control or ownership.
General Provisions
Acceleration
. If a change in control
occurs, each outstanding equity award under the Discretionary Grant Program will automatically accelerate in full, unless (i) that
award is assumed by the successor corporation or otherwise continued in effect, (ii) the award is replaced with a cash retention
program that preserves the spread existing on the unvested shares subject to that equity award (the excess of the fair market value
of those shares over the exercise or base price in effect for the shares) and provides for subsequent payout of that spread in
accordance with the same vesting schedule in effect for those shares, or (iii) the acceleration of the award is subject to other
limitations imposed by the plan administrator. In addition, all unvested shares outstanding under the Discretionary Grant and Stock
Issuance Programs will immediately vest upon the change in control, except to the extent our repurchase rights with respect to
those shares are to be assigned to the successor corporation or otherwise continued in effect or accelerated vesting is precluded
by other limitations imposed by the plan administrator. Each outstanding equity award under the Stock Issuance Program will vest
as to the number of shares of common stock subject to that award immediately prior to the change in control, unless that equity
award is assumed by the successor corporation or otherwise continued in effect or replaced with a cash retention program similar
to the program described in clause (ii) above or unless vesting is precluded by its terms. Immediately following a change in control,
all outstanding awards under the Discretionary Grant Program will terminate and cease to be outstanding except to the extent assumed
by the successor corporation or its parent or otherwise expressly continued in full force and effect under the terms of the change
in control transaction.
The plan administrator will have the
discretion to structure one or more equity awards under the Discretionary Grant and Stock Issuance Programs so that those equity
awards will vest in full either immediately upon a change in control or in the event the individual’s service with us or
the successor entity is terminated (actually or constructively) within a designated period following a change in control transaction,
whether or not those equity awards are to be assumed or otherwise continued in effect or replaced with a cash retention program.
A change in control will be deemed to
have occurred if, in a single transaction or series of related transactions:
(i) any person (as that term is used
in Section 13(d) and 14(d) of the 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 representing 51% or more of the combined voting power of our company;
(ii) there is a merger, consolidation,
or other business combination transaction of us 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 our voting capital stock outstanding immediately prior to the transaction
continue to hold (either by the 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 our company (or
the surviving entity) outstanding immediately after the transaction; or
(iii) all or substantially all of
our assets are sold.
Stockholder Rights and Option Transferability.
The holder of an option or stock appreciation right will have no stockholder rights with respect to the shares subject to that
option or stock appreciation right unless and until the holder exercises the option or stock appreciation right and becomes a holder
of record of shares of common stock distributed upon exercise of the award. Incentive options are not assignable or transferable
other than by will or the laws of inheritance following the optionee’s death, and during the optionee’s lifetime, may
only be exercised by the optionee. However, non-statutory options and stock appreciation rights may be transferred or assigned
during the holder’s lifetime to one or more members of the holder’s family or to a trust established for the benefit
of the holder and/or one or more family members or to the holder’s former spouse, to the extent the transfer is in connection
with the holder’s estate plan or under a domestic relations order.
A participant will have a number of rights
with respect to shares of common stock issued to the participant under the Stock Issuance Program, whether or not the participant’s
interest in those shares is vested. Accordingly, the participant will have the right to vote the shares and to receive any regular
cash dividends paid on the shares, but will not have the right to transfer the shares prior to vesting. A participant will not
have any stockholder rights with respect to the shares of common stock subject to restricted stock units or other stock-based awards
until the awards vest and the shares of common stock are actually issued. However, dividend-equivalent units may be paid or credited,
either in cash or in actual or phantom shares of common stock, on outstanding restricted stock units or other stock-based awards,
subject to terms and conditions the plan administrator deems appropriate.
Changes in Capitalization.
If
any change is made to the outstanding shares of common stock by reason of any recapitalization, stock dividend, stock split, combination
of shares, exchange of shares or other change in corporate structure effected without our receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities issuable under the 2006 Plan, (ii) the maximum number
and/or class of securities for which any one person may be granted equity awards under the 2006 Plan per calendar year, (iii) the
number and/or class of securities and the exercise price or base price per share in effect under each outstanding option or stock
appreciation right, and (iv) the number and/or class of securities subject to each outstanding restricted stock unit or other stock-based
award under the 2006 Plan and the cash consideration, if any, payable per share. All adjustments will be designed to preclude any
dilution or enlargement of benefits under the 2006 Plan and the outstanding equity awards thereunder.
Special Tax Election.
Subject
to applicable laws, rules and regulations, the plan administrator may permit any or all holders of equity awards to utilize any
or all of the following methods to satisfy all or part of the federal and state income and employment withholding taxes to which
they may become subject in connection with the issuance, exercise or vesting of those equity awards:
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Stock Withholding
: The election to have us withhold, from the shares otherwise issuable upon the issuance, exercise
or vesting of an equity award, a portion of those shares with an aggregate fair market value equal to the percentage of the withholding
taxes (not to exceed 100%) designated by the holder and make a cash payment equal to the fair market value directly to the appropriate
taxing authorities on the individual’s behalf.
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Stock Delivery
: The election to deliver to us shares of common stock previously acquired by the holder (other than in
connection with the issuance, exercise or vesting that triggered the withholding taxes) with an aggregate fair market value equal
to the percentage of the withholding taxes (not to exceed 100%) designated by the holder.
|
|
·
|
Sale and Remittance
: The election to deliver to us, to the extent the award is issued or exercised for vested shares,
through a special sale and remittance procedure under which the optionee or participant will concurrently provide irrevocable instructions
to a brokerage firm to effect the immediate sale of the purchased or issued shares and remit to us, out of the sale proceeds available
on the settlement date, sufficient funds to cover the withholding taxes we are required to withhold by reason of the issuance,
exercise or vesting.
|
Amendment, Suspension and Termination
Our Board may suspend or terminate the
2006 Plan at any time. Our Board may amend or modify the 2006 Plan, subject to any required stockholder approval. Stockholder approval
will be required for any amendment that materially increases the number of shares available for issuance under the 2006 Plan, materially
expands the class of individuals eligible to receive equity awards under the 2006 Plan, materially increases the benefits accruing
to optionees and other participants under the 2006 Plan or materially reduces the price at which shares of common stock may be
issued or purchased under the 2006 Plan, materially extends the term of the 2006 Plan, expands the types of awards available for
issuance under the 2006 Plan, or as to which stockholder approval is required by applicable laws, rules or regulations.
Unless sooner terminated by our Board,
the 2006 Plan will terminate on the earliest to occur of: July 19, 2016; the date on which all shares available for issuance under
the 2006 Plan have been issued as fully-vested shares; and the termination of all outstanding equity awards upon specified changes
in control or ownership. If the 2006 Plan terminates on July 19, 2016, then all equity awards outstanding at that time will continue
to have force and effect in accordance with the provisions of the documents evidencing those awards.
Federal Income Tax Consequences
The following discussion summarizes income
tax consequences of the 2006 Plan under current federal income tax law and is intended for general information only. In addition,
the tax consequences described below are subject to the limitations of Code Section 162(m), as discussed in further detail below.
Other federal taxes and foreign, state and local income taxes are not discussed, and may vary depending upon individual circumstances
and from locality to locality.
Option Grants
. Options granted
under the 2006 Plan may be either incentive stock options, which satisfy the requirements of Code Section 422, or non-statutory
stock options, which are not intended to meet those requirements. The federal income tax treatment for the two types of options
differs as follows:
Incentive Stock Options.
No taxable
income is recognized by the optionee at the time of the option grant, and, if there is no disqualifying disposition at the time
of exercise, no taxable income is recognized for regular tax purposes at the time the option is exercised, although taxable income
may arise at that time for alternative minimum tax purposes equal to the excess of the fair market value of the purchased shares
at the time over the exercise price paid for those shares.
The optionee will recognize taxable income
in the year in which the purchased shares are sold or otherwise made the subject of some dispositions. For federal tax purposes,
dispositions are divided into two categories: qualifying and disqualifying. A qualifying disposition occurs if the sale or other
disposition is made more than two years after the date the option for the shares involved in the sale or disposition was granted
and more than one year after the date the option was exercised for those shares. If either of these two requirements is not satisfied,
a disqualifying disposition will result.
Upon a qualifying disposition, the optionee
will recognize long-term capital gain in an amount equal to the excess of the amount realized upon the sale or other disposition
of the purchased shares over the exercise price paid for the shares. If there is a disqualifying disposition of the shares, the
excess of the fair market value of those shares on the exercise date over the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or any loss recognized upon the disposition will be taxable as a capital
gain or capital loss.
If the optionee makes a disqualifying
disposition of the purchased shares, we will be generally entitled to an income tax deduction, for our taxable year in which the
disposition occurs, equal to the excess of the fair market value of the shares on the option exercise date over the exercise price
paid for the shares. If the optionee makes a qualifying disposition, we will not be entitled to any income tax deduction.
Non-Statutory Stock Options.
No
taxable income is generally recognized by an optionee upon the grant of a non-statutory option. The optionee will, in general,
recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased
shares on the exercise date over the exercise price paid for the shares, and we will be required to collect withholding taxes applicable
to the income from the optionee.
We will generally be entitled to an income
tax deduction equal to the amount of any ordinary income recognized by the optionee with respect to an exercised non-statutory
option. The deduction will in general be allowed for our taxable year in which the ordinary income is recognized by the optionee.
If the shares acquired upon exercise
of the non-statutory option are unvested and subject to repurchase in the event of the optionee’s cessation of service prior
to vesting in those shares, the optionee will not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when our repurchase right lapses, an amount equal to the excess of the fair market value of the shares
on the date the repurchase right lapses over the exercise price paid for the shares. The optionee may elect under Code Section
83(b) to include as ordinary income in the year of exercise of the option an amount equal to the excess of the fair market value
of the purchased shares on the exercise date over the exercise price paid for the shares. If a timely Code Section 83(b) election
is made, the optionee will not recognize any additional income as and when the repurchase right lapses.
Stock Appreciation Rights.
No
taxable income is generally recognized upon receipt of a stock appreciation right. The holder will recognize ordinary income in
the year in which the stock appreciation right is exercised, in an amount equal to the excess of the fair market value of the underlying
shares of common stock on the exercise date over the base price in effect for the exercised right, and we will be required to collect
withholding taxes applicable to the income from the holder.
We will generally be entitled to an income
tax deduction equal to the amount of any ordinary income recognized by the holder in connection with the exercise of a stock appreciation
right. The deduction will in general be allowed for our taxable year in which the ordinary income is recognized by the holder.
Direct Stock Issuances.
Stock
granted under the 2006 Plan may include issuances including unrestricted stock grants, restricted stock grants and restricted stock
units. The federal income tax treatment for the stock issuances is as follows:
Unrestricted Stock Grants
. The
holder will recognize ordinary income in the year in which shares are actually issued to the holder. The amount of that income
will be equal to the fair market value of the shares on the date of issuance, and we will be required to collect withholding taxes
applicable to the income from the holder.
We will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued. The deduction will
in general be allowed for our taxable year in which the ordinary income is recognized by the holder.
Restricted Stock Grants
. No taxable
income is recognized upon receipt of stock that qualifies as performance-based compensation unless the recipient elects to have
the value of the stock (without consideration of any effect of the vesting conditions) included in income on the date of receipt.
The recipient may elect under Code Section 83(b) to include as ordinary income in the year the shares are actually issued an amount
equal to the fair market value of the shares. If a timely Code Section 83(b) election is made, the holder will not recognize any
additional income when the vesting conditions lapse and will not be entitled to a deduction in the event the stock is forfeited
as a result of failure to vest.
If the holder does not file an election
under Code Section 83(b), he will not recognize income until the shares vest. At that time, the holder will recognize ordinary
income in an amount equal to the fair market value of the shares on the date the shares vest. We will be required to collect withholding
taxes applicable to the income of the holder at that time.
We will be entitled to an income tax
deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued, if the holder elects
to file an election under Code Section 83(b), or we will be entitled to an income tax deduction at the time the vesting conditions
occur, if the holder does not elect to file an election under Code Section 83(b).
Restricted Stock Units
. No taxable
income is generally recognized upon receipt of a restricted stock unit award. The holder will recognize ordinary income in the
year in which the shares subject to that unit are actually issued to the holder. The amount of that income will be equal to the
fair market value of the shares on the date of issuance, and we will be required to collect withholding taxes applicable to the
income from the holder.
We will generally be entitled to an income
tax deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued. The deduction
will in general be allowed for our taxable year in which the ordinary income is recognized by the holder.
Section 409A
.
A number
of awards, including non-statutory stock options and stock appreciation rights granted with an exercise price that is less than
fair market value, and some restricted stock units, can be considered “non-qualified deferred compensation” and subject
to Code Section 409A. Awards that are subject to but do not meet the requirements of Code Section 409A will result in an additional
20% tax obligation, plus penalties and interest to the recipient, and may result in accelerated imposition of income tax and the
related withholding.
Deductibility of Executive Compensation
We anticipate that any compensation deemed
paid by us in connection with disqualifying dispositions of incentive stock option shares or the exercise of non-statutory stock
options or stock appreciation rights with exercise prices or base prices equal to or greater than the fair market value of the
underlying shares on the grant date will qualify as performance-based compensation for purposes of Code Section 162(m) and will
not have to be taken into account for purposes of the $1,000,000 limitation per covered individual on the deductibility of the
compensation paid to some executive officers. Accordingly, all compensation deemed paid with respect to those options or stock
appreciation rights should remain deductible without limitation under Code Section 162(m). However, any compensation deemed paid
by us in connection with shares issued under the Stock Issuance Program will be subject to the $1,000,000 limitation on deductibility
per covered individual, except to the extent the vesting of those shares is based solely on one or more of the performance milestones
specified above in the summary of the terms of the Stock Issuance Program.
Accounting Treatment
In accordance with accounting standards
established by the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718,
Stock Compensation
,
we are
required to recognize all share-based payments, including grants of stock options,
restricted stock and restricted stock units, in our financial statements. Accordingly, stock options are valued at fair value as
of the grant date under an appropriate valuation formula, and that value will be charged as stock-based compensation expense against
our reported earnings over the designated vesting period of the award. For shares issuable upon the vesting of restricted stock
units that may be awarded under the 2006 Plan, we are required to expense over the vesting period a compensation cost equal to
the fair market value of the underlying shares on the date of the award. Restricted stock issued under the 2006 Plan results in
a direct charge to our reported earnings equal to the excess of the fair market value of those shares on the issuance date over
the cash consideration (if any) paid for the shares. If the shares are unvested at the time of issuance, then any charge to our
reported earnings is amortized over the vesting period. This accounting treatment for restricted stock units and restricted stock
issuances is applicable whether vesting is tied to service periods or performance criteria.
New Plan Benefits
No additional awards under the 2006 Plan
are determinable at this time because awards under the 2006 Plan are discretionary and no specific additional awards have been
approved by the plan administrator beyond currently outstanding unvested restricted stock grants and outstanding stock options
in respect of 831,127 shares of common stock.
Other Arrangements Not Subject to
Stockholder Action
Information regarding our equity compensation
plan arrangements that existed as of the end of 2013 is included in this Proxy Statement under the heading “Equity Compensation
Plan Information.”
Interests of Related Parties
The 2006 Plan provides that our officers,
employees, non-employee directors, and some consultants and independent advisors will be eligible to receive awards under the 2006
Plan. As discussed above, we may be eligible in some circumstances to receive a tax deduction for some executive compensation resulting
from awards under the 2006 Plan that would otherwise be disallowed under Section 162(m).
Possible Anti-Takeover Effects
Although not intended as an anti-takeover
measure by our Board, one of the possible effects of the 2006 Plan could be to place additional shares, and to increase the percentage
of the total number of shares outstanding, or to place other incentive compensation, in the hands of the directors and officers
of Pacific Ethanol. Those persons may be viewed as part of, or friendly to, incumbent management and may, therefore, under some
circumstances be expected to make investment and voting decisions in response to a hostile takeover attempt that may serve to discourage
or render more difficult the accomplishment of the attempt.
In addition, options or other incentive
compensation may, in the discretion of the plan administrator, contain a provision providing for the acceleration of the exercisability
of outstanding, but unexercisable, installments upon the first public announcement of a tender offer, merger, consolidation, sale
of all or substantially all of our assets, or other attempted changes in the control of Pacific Ethanol. In the opinion of our
Board, this acceleration provision merely ensures that optionees under the 2006 Plan will be able to exercise their options or
obtain their incentive compensation as intended by our Board and stockholders prior to any extraordinary corporate transaction
which might serve to limit or restrict that right. Our Board is, however, presently unaware of any threat of hostile takeover involving
Pacific Ethanol.
Required Vote of Stockholders
NASDAQ Listing Rule 5635(c) generally
requires us to obtain stockholder approval of compensation plans pursuant to which our stock may be acquired by officers, directors,
employees or consultants. The approval of this Proposal Three requires the affirmative vote of a majority of the votes of the shares
of our common stock and Series B Preferred Stock, voting together as a single class, present at the Annual Meeting in person or
by proxy and entitled to vote.
Recommendation of the Board of Directors
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE
“
FOR
” APPROVAL OF PROPOSAL THREE.
Proposal
FOUR
Ratification of Appointment of
Independent Registered Public Accounting Firm
Our Audit Committee has appointed the
independent registered public accounting firm of Hein & Associates LLP to audit and comment on our financial statements for
the year ending December 31, 2014, and to conduct whatever audit functions are deemed necessary. Hein & Associates LLP audited
our financial statements for the year ended December 31, 2013 that were included in our most recent Annual Report on Form 10-K.
A representative of Hein & Associates
LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she so desires and
will be available to respond to appropriate questions from stockholders.
Required Vote of Stockholders
Although a vote of stockholders is not
required on this proposal, our Board is asking our stockholders to ratify the appointment of our independent registered public
accounting firm. The ratification of the appointment of our independent registered public accounting firm requires the affirmative
votes of a majority of the votes of the shares of our common stock and Series B Preferred Stock, voting together as a single class,
present at the Annual Meeting in person or by proxy and entitled to vote.
In the event that our stockholders do
not ratify the appointment of Hein & Associates LLP as our independent registered public accounting firm, the appointment will
be reconsidered by our Audit Committee. Even if the appointment is ratified, our Audit Committee, in its discretion, may direct
the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee
believes that such a change would be in our and our stockholders’ best interests.
Recommendation of the Board of Directors
OUR
BOARD unanimously recommends a vote “
FOR
”
RATIFICATION OF THE APPOINTMENT
OF HEIN & ASSOCIATES LLP TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2014.
Other
Matters
Our
Board knows of no other matters to be brought before the Annual Meeting. However, if other matters should come before the Annual
Meeting, it is the intention of the person named in the proxy to vote such proxy in accordance with his judgment on such matters.
Audit Matters
Principal Accountant Fees and Services
The following table presents fees for professional
audit services rendered by Hein & Associates LLP for the years ended December 31, 2013 and 2012.
|
|
2013
|
|
|
2012
|
|
Audit Fees
|
|
$
|
331,639
|
|
|
$
|
365,100
|
|
Audit-Related Fees
|
|
|
12,630
|
|
|
|
8,400
|
|
Tax Fees
|
|
|
–
|
|
|
|
–
|
|
All Other Fees
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
344,269
|
|
|
$
|
373,500
|
|
Audit Fees
. Consist of amounts
billed for professional services rendered for the audit of our annual consolidated financial statements included in our Annual
Reports on Form 10-K, and reviews of our interim consolidated financial statements included in our Quarterly Reports on Form 10-Q
and our Registration Statements on Forms S-1, S-3 and S-8, including amendments thereto.
Audit-Related Fees
. Audit-Related
Fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of
our consolidated financial statements but are not reported under “Audit Fees.” Such fees include amounts billed for
professional services performed in connection with mergers and acquisitions. The fees for 2013 and 2012 represent amounts billed
for professional services performed in connection with the audit of a 401K plan.
Tax Fees.
Tax Fees consist of
fees for professional services for tax compliance activities, including the preparation of federal and state tax returns and related
compliance matters.
All Other Fees
. Consists of amounts
billed for services other than those noted above.
Hein & Associates LLP did not
provide any non-audit services for the fiscal years ended December 31, 2013 and 2012. The Audit Committee did not, therefore,
consider whether the provision of non-audit services by Hein & Associates LLP is compatible with maintaining its
independence; however, the Audit Committee has satisfied itself with respect to Hein & Associates LLP’s
independence.
Our Audit Committee is responsible for
approving all audit, audit-related, tax and other services. The Audit Committee pre-approves all auditing services and permitted
non-audit services, including all fees and terms to be performed for us by our independent auditor at the beginning of the fiscal
year. Non-audit services are reviewed and pre-approved by project at the beginning of the fiscal year. Any additional non-audit
services contemplated by us after the beginning of the fiscal year are submitted to the Chairman of our Audit Committee for pre-approval
prior to engaging our independent auditor for such services. These interim pre-approvals are reviewed with the full Audit Committee
at its next meeting for ratification. During 2013 and2012, all services performed by Hein & Associates LLP were pre-approved
by our Audit Committee in accordance with these policies and applicable Securities and Exchange Commission regulations.
Audit
Committee Report
Our Audit Committee is comprised entirely
of independent directors who meet the independence requirements of the Listing Rules of NASDAQ and the Securities and Exchange
Commission. Our Audit Committee operates pursuant to a written charter that is available on our website at
http://www.pacificethanol.net/investors/governance/audit-committee-charter
.
Under its written charter, our Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities,
has direct access to our independent registered public accounting firm as well as any of our employees, and has the ability to
retain, at our expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its
duties.
Our Audit Committee oversees our financial
reporting process and internal control structure on behalf of the Board and is directly responsible for the compensation, appointment
and oversight of our independent registered public accounting firm. Management is responsible for the preparation, presentation
and integrity of our financial statements and for the appropriateness of the accounting principles and reporting policies that
are used. Management is also responsible for the effectiveness of our internal control over financial reporting, and reports to
the Audit Committee on any deficiencies found. Our independent registered public accounting firm, Hein & Associates LLP, is
responsible for auditing our financial statements and expressing an opinion as to their conformity with GAAP.
In performing its responsibilities, our
Audit Committee reviewed and discussed the audited financial statements in the Annual Report on Form 10-K for the fiscal year ended
December 31, 2013 with management and Hein & Associates LLP. Our Audit Committee has also discussed with Hein & Associates
LLP the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees” issued
by the Public Company Accounting Oversight Board. In addition, the Audit Committee obtained from Hein & Associates LLP the
written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding
the independent accountants’ communications with the Audit Committee concerning independence and discussed with Hein &
Associates LLP its independence from Pacific Ethanol, Inc. and management.
Hein & Associates LLP did not provide
any non-audit services for the fiscal years ended December 31, 2013 and 2012. The Audit Committee did not, therefore, consider
whether the provision of non-audit services by Hein & Associates LLP is compatible with maintaining its independence; however,
the Audit Committee has satisfied itself with respect to Hein & Associates LLP’s independence.
Based on the reviews and discussions
referred to above, the Audit Committee recommended to our Board (and our Board approved) that the audited financial statements
be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for filing with the Securities and Exchange
Commission.
Respectfully submitted,
Audit Committee
Terry L. Stone
William L. Jones
Larry D. Layne
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth information
with respect to the beneficial ownership of our voting securities as of April 24, 2014, the date of the table, by:
|
·
|
each person known by us to beneficially own more than 5% of the outstanding shares of our common stock;
|
|
·
|
each of our directors and director nominees;
|
|
·
|
each of our current executive officers; and
|
|
·
|
all of our directors and executive officers as a group.
|
Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, and includes voting or investment power with respect to the
securities. To our knowledge, except as indicated by footnote, and subject to community property laws where applicable, the persons
named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially
owned by them. Shares of common stock underlying derivative securities, if any, that currently are exercisable or convertible or
are scheduled to become exercisable or convertible for or into shares of common stock within 60 days after the date of the table
are deemed to be outstanding in calculating the percentage ownership of each listed person or group but are not deemed to be outstanding
as to any other person or group. Except as indicated by footnote, percentage of beneficial ownership is based on _____ shares of
common stock and 926,942 shares of Series B Preferred Stock outstanding as of the date of the table.
Name and Address of Beneficial Owner
(1)
|
|
Title of Class
|
|
Amount and Nature
of Beneficial Ownership
|
|
|
Percent
of Class
|
|
William L. Jones
|
|
Common
|
|
|
65,444
|
(2)
|
|
|
*
|
|
|
|
Series B Preferred
|
|
|
12,820
|
|
|
|
1.38%
|
|
Neil M. Koehler
|
|
Common
|
|
|
522,694
|
(3)
|
|
|
2.58%
|
|
|
|
Series B Preferred
|
|
|
256,410
|
|
|
|
27.66%
|
|
Bryon T. McGregor
|
|
Common
|
|
|
54,026
|
(4)
|
|
|
*
|
|
Christopher W. Wright
|
|
Common
|
|
|
51,356
|
(5)
|
|
|
*
|
|
Terry L. Stone
|
|
Common
|
|
|
25,735
|
(6)
|
|
|
*
|
|
John L. Prince
|
|
Common
|
|
|
25,449
|
(7)
|
|
|
*
|
|
Douglas L. Kieta
|
|
Common
|
|
|
25,922
|
|
|
|
*
|
|
Larry D. Layne
|
|
Common
|
|
|
22,303
|
(8)
|
|
|
*
|
|
Michael D. Kandris
|
|
Common
|
|
|
37,109
|
(9)
|
|
|
*
|
|
Paul P. Koehler
|
|
Common
|
|
|
42,474
|
(10)
|
|
|
*
|
|
|
|
Series B Preferred
|
|
|
12,820
|
|
|
|
1.38%
|
|
James R. Sneed
|
|
Common
|
|
|
13,609
|
(11)
|
|
|
*
|
|
Frank P. Greinke
|
|
Common
|
|
|
58,165
|
(12)
|
|
|
*
|
|
|
|
Series B Preferred
|
|
|
85,180
|
|
|
|
9.19%
|
|
Lyles United, LLC
|
|
Common
|
|
|
379,487
|
(13)
|
|
|
1.85%
|
|
|
|
Series B Preferred
|
|
|
512,820
|
|
|
|
55.32%
|
|
Capital Ventures International
|
|
Common
|
|
|
1,785,723
|
(14)
|
|
|
8.17%
|
|
All executive officers and directors as a group (11 persons)
|
|
Common
|
|
|
886,121
|
(15)
|
|
|
4.35%
|
|
|
|
Series B Preferred
|
|
|
282,050
|
|
|
|
30.43%
|
|
__________
|
(1)
|
Messrs. Jones, Koehler, Stone, Prince, Kieta, Layne and Kandris are directors of Pacific Ethanol. Messrs. N. Koehler,
McGregor, Wright, Kandris, P. Koehler and Sneed are executive officers of Pacific Ethanol. The address of each of these persons
is c/o Pacific Ethanol, Inc., 400 Capitol Mall, Suite 2060, Sacramento, California 95814.
|
|
(2)
|
Amount represents 56,029 shares of common stock held by William L. Jones and Maurine Jones, husband and wife, as community
property, 477 shares of common stock underlying options issued to Mr. Jones, 184 shares of common stock underlying a warrant issued
to Mr. Jones and 8,754 shares of common stock underlying our Series B Preferred Stock held by Mr. Jones.
|
|
(3)
|
Amount represents 302,397 shares of common stock held directly, 3,663 shares of common stock underlying a warrant, 175,091
shares of common stock underlying our Series B Preferred Stock and 41,543 shares of common stock underlying options.
|
|
(4)
|
Includes 12,297 shares of common stock underlying options.
|
|
(5)
|
Includes 12,297 shares of common stock underlying options.
|
|
(6)
|
Includes 143 shares of common stock underlying options.
|
|
(7)
|
Includes 143 shares of common stock underlying options.
|
|
(8)
|
Includes 6,667 shares beneficially owned by Larry D. Layne, as trustee under the Layne Family Trust.
|
|
(9)
|
Includes 10,582 shares of common stock underlying options.
|
|
(10)
|
Amount represents 29,371 shares of common stock held directly, 184 shares of common stock underlying a warrant, 8,754 shares
of common stock underlying our Series B Preferred Stock and 4,165 shares of common stock underlying options.
|
|
(11)
|
Includes 3,401 shares of common stock underlying options.
|
|
(12)
|
Amount represents 58,165 shares of common stock underlying our Series B Preferred Stock. The shares are beneficially owned
by Frank P. Greinke, as trustee under the Greinke Personal Living Trust Dated April 20, 1999. The address of Frank P. Greinke is
P.O. Box 4159, 1800 W. Katella, Suite 400, Orange, California 92863.
|
|
(13)
|
Amount represents 29,305 shares of common stock underlying a warrant and 350,182 shares of common stock underlying our Series
B Preferred Stock. In addition, Lyles Diversified, Inc. holds 5,333 shares of common stock and The Lyles Foundation holds 3,488
shares of common stock. The address of Lyles United, LLC is P.O. Box 4376, Fresno, California 93744-4376.
|
|
(14)
|
Amount includes 1,149,750 shares of common stock underlying warrants. The information with respect to the holdings of Capital
Ventures International is based solely on the Schedule 13G/A filed February 13, 2014 by Capital Ventures International and Heights
Capital Management, Inc. as the reporting persons. Each of the reporting persons shares voting and dispositive power over all shares
beneficially owned. Heights Capital Management, Inc. is the investment manager to Capital Ventures International and as such may
exercise voting and dispositive power over the shares. The shares reported as beneficially owned excludes 1,030,000 shares of common
stock issuable upon exercise of a warrant issued to Capital Ventures International because the warrant contains a blocking provision
under which the holder thereof does not have the right to exercise the warrant to the extent that such exercise would result in
beneficial ownership by the holder thereof or any of its affiliates, of more than 4.99% of our shares of common stock outstanding.
The address for Capital Ventures International is P.O. Box 897, Winward 1, Regatta Office Park, West Bay Road, Grand Cayman KY1-1103,
Cayman Islands. The address for Heights Capital Management, Inc. is 101 California Street, Suite 3250, San Francisco, California
94111.
|
|
(15)
|
Amount represents 604,442 shares of common stock held directly, 85,049 shares of common stock underlying options, 4,031 shares
of common stock underlying warrants and 192,599 shares of common stock underlying our Series B Preferred Stock.
|
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires
our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our common stock,
to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. These officers,
directors and stockholders are required by Securities and Exchange Commission regulations to furnish us with copies of all reports
that they file.
Based solely upon a review of copies
of the reports furnished to us during the year ended December 31, 2013 and thereafter, or any written representations received
by us from directors, officers and beneficial owners of more than 10% of our common stock (“reporting persons”) that
no other reports were required, we believe that, except as set forth below, all reporting persons filed on a timely basis all reports
required by Section 16(a) of the Exchange Act during the year ended December 31, 2013 or prior fiscal years.
Neil M. Koehler did not timely file two
Forms 4 to report two transactions, and each of Bryon T. McGregor and Christopher W. Wright did not timely file one Form 4 to report
one transaction. We believe that each of the foregoing persons has prepared and filed his required Form 4 to report his transactions.
Equity
Compensation Plan Information
The following table provides information
about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation
plans as of December 31, 2013.
Plan Category
|
|
Number of
Securities to be
Issued Upon Exercise of Outstanding
Options, Warrants
and Rights
|
|
|
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
|
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
(1)(2)
|
|
Equity Compensation Plans Approved by Security Holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Plan
(1)
|
|
|
763
|
|
|
$
|
867.23
|
|
|
|
–
|
|
2006 Plan
|
|
|
240,713
|
|
|
$
|
4.18
|
|
|
|
28,558
|
(2)
|
_______________
|
(1)
|
Our 2004 Stock Option Plan was terminated effective September 7, 2006, except to the extent of then-outstanding options.
|
|
(2)
|
Excludes an additional 800,714 shares of common stock available for future issuance upon approval by our stockholders of an
amendment to the 2006 Plan. The amendment is included as Proposal Three of this Proxy Statement.
|
Executive
Compensation and Related Information
Executive Officers
The following table sets forth certain
information regarding our executive officers as of April 24, 2014:
Name
|
|
Age
|
|
Positions Held
|
Neil M. Koehler
|
|
56
|
|
Chief Executive Officer, President and Director
|
Bryon T. McGregor
|
|
50
|
|
Chief Financial Officer
|
Christopher W. Wright
|
|
61
|
|
Vice President, General Counsel and Secretary
|
Michael D. Kandris
|
|
66
|
|
Chief Operating Officer and Director
|
Paul P. Koehler
|
|
54
|
|
Vice President of Corporate Development
|
James R. Sneed
|
|
47
|
|
Vice President of Ethanol Supply and Trading
|
Neil M. Koehler
has served
as Chief Executive Officer, President and as a director since March 2005. Mr. Koehler is a co-founder of PEI California and served
as its Chief Executive Officer since its formation in January 2003 and as a member of its board of directors from March 2004 until
its dissolution in March 2012. Prior to his association with PEI California, Mr. Koehler was the co-founder and General Manager
of Parallel Products, one of the first ethanol production facilities in California, which was sold to a public company in 1997.
Mr. Koehler was also the sole manager and sole limited liability company member of Kinergy Marketing, LLC, which he founded in
September 2000, and which is one of our wholly-owned subsidiaries. Mr. Koehler has over 30 years of experience in the ethanol production,
sales and marketing industry in the Western United States. Mr. Koehler is a Director of the Renewable Fuels Association and is
a nationally-recognized speaker on the production and marketing of renewable fuels. Mr. Koehler also served as an executive officer
of our plant subsidiaries at the time they filed for protection under the United States Bankruptcy Code in 2009. Mr. Koehler has
a B.A. degree in Government from Pomona College.
Bryon T. McGregor
has served
as our Chief Financial Officer since November 19, 2009. Mr. McGregor served as Vice President, Finance at Pacific Ethanol from
September 2008 until he became Interim Chief Financial Officer in April 2009. Prior to joining Pacific Ethanol, Mr. McGregor was
employed as Senior Director for E*TRADE Financial from February 2002 to August 2008, serving in various capacities including International
Treasurer based in London, England from 2006 to 2008, Brokerage Treasurer and Director from 2003 to 2006 and Assistant Treasurer
and Director of Finance and Investor Relations from 2002 to 2003. Prior to joining E*TRADE, Mr. McGregor served as Manager of Finance
and Head of Project Finance for BP (formerly Atlantic Richfield Company – ARCO) from 1998 to 2001. Mr. McGregor has extensive
experience in banking and served as a Director of International Project Finance for Credit Suisse from 1992 to 1998, as Assistant
Vice President for Sumitomo Mitsubishi Banking Corp (formerly The Sumitomo Bank Limited) from 1989 to 1992, and as Commercial Banking
Officer for Bank of America from 1987 to 1989. Mr. McGregor has a B.S. degree in Business Management from Brigham Young University.
Christopher W. Wright
has
served as Vice President, General Counsel and Secretary since June 2006. From April 2004 until he joined Pacific Ethanol in June
2006, Mr. Wright operated an independent consulting practice, advising companies on complex transactions, including acquisitions
and financings. Prior to that time, from January 2003 to April 2004, Mr. Wright was a partner with Orrick, Herrington & Sutcliffe,
LLP, and from July 1998 to December 2002, Mr. Wright was a partner with Cooley Godward LLP, where he served as Partner-in-Charge
of the Pacific Northwest office. Mr. Wright has extensive experience advising boards of directors on compliance, securities matters
and strategic transactions, with a particular focus on guiding the development of rapidly growing companies. He has acted as general
counsel for numerous technology enterprises in all aspects of corporate development, including fund-raising, business and technology
acquisitions, mergers and strategic alliances. Mr. Wright has an A.B. degree in History from Yale College and a J.D. from the University
of Chicago Law School.
Michael D. Kandris
has
served as a director since June 2008 and as our Chief Operating Officer since January 6, 2013. Mr. Kandris served as an independent
contractor with supervisory responsibility for ethanol plant operations, under the direction of our Chief Executive Officer, from
January 1, 2012 to January 5, 2013. Mr. Kandris was President, Western Division of Ruan Transportation Management Systems from
November 2007 until his retirement in September 2009. From January 2000 to November 2007, Mr. Kandris served as President and Chief
Operating Officer of Ruan Transportation Management Systems, where he had overall responsibility for all operations, finance and
administrative functions. Mr. Kandris has 30 years of experience in all modes of transportation and logistics. Mr. Kandris served
on the Executive Committee of the American Trucking Association and as a board member for the National Tank Truck Organization
until his retirement from Ruan Transportation Management Systems in September 2009. Mr. Kandris has a B.S. degree in Business from
California State University, Hayward.
Paul P. Koehler
has served
as Vice President of Corporate Development since 2005. Mr. Koehler has over 25 years of experience in business development and
marketing in the energy industry. Prior to joining Pacific Ethanol in 2005, he served as Director of Business Development for PPM
Energy, Inc., leading PPM’s efforts to develop and acquire several wind power projects. Mr. Koehler was also a co-founder
of ReEnergy, one of the companies acquired by Pacific Ethanol. Mr. Koehler has also served as a member of the board of directors
of Towerstream Corporation, a public company, since May 30, 2007. During the 1990s he worked for Portland General Electric and
Enron in marketing and origination of long-term transactions, risk management, and energy trading. Mr. Koehler has a B.A. degree
from the Honors College at the University of Oregon.
James R. Sneed
has served
as Vice President of Ethanol Supply and Trading since September 2012. Mr. Sneed has worked for over 20 years in various senior
management and executive positions in the ethanol industry. Prior to joining Pacific Ethanol in 2012, Mr. Sneed was employed by
Hawkeye Gold, LLC from April 2010 to September 2012, ultimately serving as Vice President – Ethanol Marketing and Trading.
Prior to that time, from May 2003 to April 2010, Mr. Sneed was employed by Aventine Renewable Energy, an ethanol production and
marketing company, where he helped build its operations from two ethanol plants in two states to marketing for fifteen production
facilities in eight states, ultimately serving as Vice President, Marketing and Logistics. Mr. Sneed is a Certified Public Accountant,
has a B.S. degree in Accounting from Olivet Nazarene University, and has an MBA degree from Northwestern University, Kellogg School
of Management.
Our officers are appointed by and serve
at the discretion of our Board. Except for Neil M. Koehler and Paul P. Koehler, who are brothers, there are no family relationships
among our executive officers and directors.
Summary Compensation Table
The following table sets forth summary
information concerning the compensation of our (i) Chief Executive Officer and President, who serves as our principal executive
officer, (ii) Chief Financial Officer, who serves as our principal financial officer, (iii) Vice President, General
Counsel and Secretary, (iv) Chief Operating Officer, and (v) Vice President of Ethanol Supply and Trading (collectively,
the “named executive officers”), for all services rendered in all capacities to us for the years ended December 31,
2013 and 2012.
Name and
Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
(1)
|
|
|
Option
Awards
($)
(2)
|
|
|
All Other
Compensation
(3)
|
|
|
Total
($)
|
|
Neil M. Koehler
|
|
|
2013
|
|
|
$
|
384,375
|
|
|
$
|
153,750
|
|
|
$
|
665,283
|
|
|
$
|
190,477
|
|
|
$
|
–
|
|
|
$
|
1,393,885
|
|
Chief Executive Officer and President
|
|
|
2012
|
|
|
$
|
384,375
|
|
|
$
|
40,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
424,375
|
|
Bryon T. McGregor
|
|
|
2013
|
|
|
$
|
246,000
|
|
|
$
|
98,400
|
|
|
$
|
191,183
|
|
|
$
|
53,333
|
|
|
$
|
–
|
|
|
$
|
588,916
|
|
Chief Financial Officer
|
|
|
2012
|
|
|
$
|
246,000
|
|
|
$
|
23,370
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
269,370
|
|
Christopher W. Wright
|
|
|
2013
|
|
|
$
|
246,000
|
|
|
$
|
98,400
|
|
|
$
|
191,183
|
|
|
$
|
53,333
|
|
|
$
|
20,573
|
(4)
|
|
$
|
609,489
|
|
Vice President, General Counsel and Secretary
|
|
|
2012
|
|
|
$
|
246,000
|
|
|
$
|
23,370
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
269,370
|
|
Michael D. Kandris
|
|
|
2013
|
|
|
$
|
246,000
|
|
|
$
|
98,400
|
|
|
$
|
112,179
|
|
|
$
|
53,333
|
|
|
$
|
–
|
|
|
$
|
509,912
|
|
Chief Operating Officer
(5)
|
|
|
2012
|
|
|
$
|
–
|
(5)
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
(5)
|
James R. Sneed
|
|
|
2013
|
|
|
$
|
220,000
|
|
|
$
|
525,031
|
|
|
$
|
43,635
|
|
|
$
|
17,143
|
|
|
$
|
17,969
|
(4)
|
|
$
|
823,778
|
|
Vice President of Ethanol Supply and Trading
|
|
|
2012
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
_______________
|
(1)
|
The amounts shown are the fair value of stock awards on the date of grant. Fair value of stock awards is calculated by multiplying
the number of shares of stock granted by the closing price of our common stock on the date of grant. The shares of common stock
were issued under our 2006 Plan. Information regarding the vesting schedules for the named executive officers is included in the
footnotes to the “Outstanding Equity Awards at Fiscal Year-End−2013” table below.
|
|
(2)
|
The amounts shown are the aggregate grant date fair values of grants of stock options to the named executive officers pursuant
to the provisions of Accounting Standards Codification (“ASC”) 718. For a discussion of valuation assumptions used
in ASC 718 calculations, see “Note 10—Stock-Based Compensation” of the Notes to Consolidated Financial Statements
included in Part IV, Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2013. The options were issued under
our 2006 Plan. Information regarding the vesting schedules for the named executive officers is included in the footnotes to the
“Outstanding Equity Awards at Fiscal Year-End−2013” table below.
|
|
(3)
|
Except as specifically noted, the value of perquisites and other personal benefits was less than $10,000 in aggregate for each
of the named executive officers.
|
|
(4)
|
Amount represents perquisites or personal benefits relating to payment of or reimbursement of commuting expenses from the executive
officer’s home to our corporate office locations in Sacramento, California, and housing and other living expenses.
|
|
(5)
|
Mr. Kandris was appointed as our Chief Operating Officer effective January 6, 2013. We paid Mr. Kandris $1,385 in fees for
his services in 2013 as a member of our board of directors. We paid Mr. Kandris $239,135 in consideration of services provided
to us in 2012 under a consulting arrangement. In addition, we paid Mr. Kandris $36,000 in fees for his service in 2012 as a member
of our board of directors. None of the foregoing amounts are included
in the table above. Also, of the stock awards granted to Mr. Kandris in 2013, an award of 10,000 shares of our common stock on
January 4, 2013 having an aggregate grant date fair value of $53,900, calculated based on the fair market value of our common stock
on the applicable grant date, was made in respect of Mr. Kandris’ service as a member of our Board in 2012.
|
Executive Employment Agreements
Neil M. Koehler
Our Amended and Restated Executive Employment
Agreement with Mr. Koehler dated as of December 11, 2007 provides for at-will employment as our President and Chief Executive Officer.
Mr. Koehler initially received a base salary of $300,000 per year, which was increased to $375,000 effective March 1, 2008, further
increased to $384,375 effective April 3, 2011 and further increased to $395,906 on March 5, 2014, and is eligible to receive an
annual discretionary cash bonus of up to 70% of his base salary, to be paid based upon performance criteria set by the Board. For
2013, we paid Mr. Koehler a discretionary cash bonus based on our 2013 performance.
Upon termination by Pacific Ethanol without
cause, resignation by Mr. Koehler for good reason or upon Mr. Koehler’s disability, Mr. Koehler is entitled to receive (i)
severance equal to twelve months of base salary, (ii) continued health insurance coverage for twelve months, and (iii) accelerated
vesting of 25% of all shares or options subject to any equity awards granted to Mr. Koehler prior to Mr. Koehler’s termination
which are unvested as of the date of termination. However, if Mr. Koehler is terminated without cause or resigns for good reason
within three months before or twelve months after a change in control, Mr. Koehler is entitled to (a) severance equal to eighteen
months of base salary, (b) continued health insurance coverage for eighteen months, and (c) accelerated vesting of 100% of all
shares or options subject to any equity awards granted to Mr. Koehler prior to Mr. Koehler’s termination that are unvested
as of the date of termination.
The term “for good reason”
is defined in the Amended and Restated Executive Employment Agreement as (i) the assignment to Mr. Koehler of any duties or responsibilities
that result in the material diminution of Mr. Koehler’s authority, duties or responsibility, (ii) a material reduction by
Pacific Ethanol in Mr. Koehler’s annual base salary, except to the extent the base salaries of all other executive officers
of Pacific Ethanol are accordingly reduced, (iii) a relocation of Mr. Koehler’s place of work, or Pacific Ethanol’s
principal executive offices if Mr. Koehler’s principal office is at these offices, to a location that increases Mr. Koehler’s
daily one-way commute by more than thirty-five miles, or (iv) any material breach by Pacific Ethanol of any material provision
of the Amended and Restated Executive Employment Agreement.
The term “cause” is defined
in the Amended and Restated Executive Employment Agreement as (i) Mr. Koehler’s indictment or conviction of any felony or
of any crime involving dishonesty, (ii) Mr. Koehler’s participation in any fraud or other act of willful misconduct against
Pacific Ethanol, (iii) Mr. Koehler’s refusal to comply with any lawful directive of Pacific Ethanol, (iv) Mr. Koehler’s
material breach of his fiduciary, statutory, contractual, or common law duties to Pacific Ethanol, or (v) conduct by Mr. Koehler
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, Pacific Ethanol shall, within twenty days after
the discovery of the event, provide written notice to Mr. Koehler describing the nature of the event and Mr. Koehler shall thereafter
have ten business days to cure the event.
A “change in control” of
Pacific Ethanol is deemed to have occurred if, in a single transaction or series of related transactions (i) any person (as the
term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), or persons
acting as a group, other than a trustee or fiduciary holding securities under an employee benefit program, is or becomes a “beneficial
owner” (as defined in Rule 13-3 under the Exchange Act), directly or indirectly of securities of Pacific Ethanol representing
a majority of the combined voting power of Pacific Ethanol, (ii) there is a merger, consolidation or other business combination
transaction of Pacific Ethanol 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 Pacific Ethanol outstanding immediately prior to the transaction
continue to hold (either by the 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 Pacific Ethanol
(or the surviving entity) outstanding immediately after the transaction, or (iii) all or substantially all of our assets are sold.
Bryon T. McGregor
Our Amended and Restated Executive Employment
Agreement with Mr. McGregor effective as of November 25, 2009 provides for at-will employment as our Chief Financial Officer. Mr.
McGregor initially received a base salary of $240,000 per year, which was increased to $246,000 effective April 3, 2011 and further
increased to $253,380 on March 5, 2014, and is eligible to receive an annual discretionary cash bonus of up to 50% of his base
salary, to be paid based upon performance criteria set by the Board. For 2013, we paid Mr. McGregor a discretionary cash bonus
based on our 2013 performance. All other terms and conditions of Mr. McGregor’s Amended and Restated Executive Employment
Agreement are substantially the same as those contained in Neil M. Koehler’s Amended and Restated Executive Employment Agreement
described above.
Christopher W. Wright
Our Amended and Restated Executive Employment
Agreement with Mr. Wright dated as of December 11, 2007 provides for at-will employment as our Vice President, General Counsel
and Secretary. Mr. Wright initially received a base salary of $225,000 per year, which was increased to $240,000 effective March
1, 2008, further increased to $246,000 effective April 3, 2011 and further increased to $253,380 on March 5, 2014, and is eligible
to receive an annual discretionary cash bonus of up to 50% of his base salary, to be paid based upon performance criteria set by
the Board. For 2013, we paid Mr. Wright a discretionary cash bonus based on our 2013 performance. All other terms and conditions
of Mr. Wright’s Amended and Restated Executive Employment Agreement are substantially the same as those contained in Neil
M. Koehler’s Amended and Restated Executive Employment Agreement described above.
Michael Kandris
Our Executive Employment Agreement with
Mr. Kandris dated as of January 6, 2013 provides for at-will employment as our Chief Operating Officer. Mr. Kandris initially received
a base salary of $246,000 per year, which was increased to $253,380 on March 5, 2014, and he is eligible to receive an annual discretionary
cash bonus of up to 50% of his base salary, to be paid based upon performance criteria set by the Board. For 2013, we paid Mr.
Kandris a discretionary cash bonus based on our 2013 performance. All other terms and conditions of Mr. Kandris’ Executive
Employment Agreement are substantially the same as those contained in Neil M. Koehler’s Amended and Restated Executive Employment
Agreement described above.
James R. Sneed
Our Employment Agreement with Mr. Sneed
dated as of November 12, 2012 provides for at-will employment as our Vice President of Ethanol Supply and Trading. Mr. Sneed received
a signing bonus of $75,000 upon commencement of his employment. Mr. Sneed initially received a base salary of $220,000 per year,
which was increased to $226,600 on March 5, 2014. Beginning January 1, 2013, Mr. Sneed is eligible to participate in a cash bonus
program based on the financial results of our subsidiary Kinergy Marketing LLC, subject to a guaranteed minimum annual bonus of
$30,000 for 2013. For 2013, we paid Mr. Sneed a cash bonus, in accordance with Kinergy’s 2013 bonus program, based on the
amount by which Kinergy’s net income exceeded Kinergy’s targeted net income for the year.
Clawback Policy
In 2011, our Compensation Committee instituted
a “clawback” policy with respect to incentive compensation. Except as otherwise required by applicable law and regulations,
the clawback policy applies to any incentive-based compensation awarded or paid after January 1, 2011. The clawback policy mitigates
the risks associated with our compensation policies, because certain executive officers will be required to repay compensation
in the circumstances identified in the policy. The clawback policy requires recoupment of the incentive based compensation paid
or granted to certain executive officers in the event of a material noncompliance with any financial reporting requirements under
the federal securities laws (other than to comply with changes in applicable accounting principles).
Our Compensation Committee will reevaluate
and, if necessary, revise our clawback policy to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act once
the rules implementing the clawback requirements have been finalized by the Securities and Exchange Commission.
Outstanding Equity Awards at Fiscal Year-End –
2013
The following table sets forth information
about outstanding equity awards held by our named executive officers as of December 31, 2013.
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
|
|
Option Exercise Price ($)
|
|
|
Option
Expiration
Date
|
|
Number of Shares or Units of Stock That Have Not Vested (#)
(1)
|
|
|
Market Value of Shares
or Units of Stock That Have Not Vested($)
(2)
|
|
Neil M. Koehler
|
|
|
2,500
|
(3)
|
|
|
1,250
|
(3)
|
|
$
|
12.90
|
|
|
8/1/2021
|
|
|
1,429
|
(4)
|
|
$
|
7,274
|
|
|
|
|
–
|
|
|
|
113,379
|
(5)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
2,381
|
(6)
|
|
$
|
12,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,889
|
(7)
|
|
$
|
197,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,667
|
(8)
|
|
$
|
84,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,556
|
(9)
|
|
$
|
282,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryon T. McGregor
|
|
|
1,143
|
(10)
|
|
|
572
|
(10)
|
|
$
|
12.90
|
|
|
8/1/2021
|
|
|
400
|
(11)
|
|
$
|
2,036
|
|
|
|
|
–
|
|
|
|
31,746
|
(12)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
667
|
(13)
|
|
$
|
3,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,556
|
(14)
|
|
$
|
79,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,556
|
(15)
|
|
$
|
79,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher W. Wright
|
|
|
1,143
|
(10)
|
|
|
572
|
(10)
|
|
$
|
12.90
|
|
|
8/1/2021
|
|
|
400
|
(11)
|
|
$
|
2,036
|
|
|
|
|
–
|
|
|
|
31,746
|
(12)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
667
|
(13)
|
|
$
|
3,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,556
|
(14)
|
|
$
|
79,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,556
|
(15)
|
|
$
|
79,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Kandris
|
|
|
–
|
|
|
|
31,746
|
(12)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
15,556
|
(15)
|
|
$
|
79,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James R. Sneed
|
|
|
–
|
|
|
|
10,204
|
(16)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
11,667
|
(17)
|
|
$
|
59,385
|
|
_______________
|
(1)
|
The stock awards reported in the above table represent shares of restricted stock and stock options granted under our 2006
Plan.
|
|
(2)
|
Represents the fair market value per share of our common stock on December 31, 2013, which was $5.09, multiplied by the number
of shares that had not vested as of that date.
|
|
(3)
|
Represents stock options granted on August 1, 2011. The option vested as to 1,250 shares on each of April 1, 2012, 2013 and
2014.
|
|
(4)
|
Represents shares granted on October 20, 2010. Mr. Koehler’s grant vests as to 1,429 shares on October 4, 2014.
|
|
(5)
|
Represents stock options granted on June 24, 2013. The option vested as to 37,793 shares on April 1, 2014 and vests as to 37,793
shares on each of April 1, 2015 and 2016.
|
|
(6)
|
Represents shares granted on August 1, 2011. Mr. Koehler’s grant vested as to 1,190 shares on April 1, 2014 and vests
as to 1,191 shares on April 1, 2015.
|
|
(7)
|
Represents shares granted on March 1, 2013. The grant vested as to 19,444 shares on April 1, 2014 and vests as to 19,445 shares
on April 1, 2015.
|
|
(8)
|
Represents shares granted on April 12, 2013. The grant vested as to 8,333 shares on April 1, 2014 and vests as to 8,334 shares
on April 1, 2015.
|
|
(9)
|
Represents shares granted on June 24, 2013. The grant vested as to 18,519 on April 1, 2014, vests as to 18,519 on April 1,
2015 and vests as to 18,518 on April 1, 2016.
|
|
(10)
|
Represents stock options granted on August 1, 2011. The option vested as to 571 shares on April 1, 2012 and vested as to 572
shares on each of April 1, 2013 and 2014.
|
|
(11)
|
Represents shares granted on October 20, 2010. The grant vests as to 400 shares on October 4, 2014.
|
|
(12)
|
Represents stock options granted on June 24, 2013. The option vested as to 10,582 shares on April 1, 2014 and vests as to 10,582
shares on each of April 1, 2015 and 2016.
|
|
(13)
|
Represents shares granted on August 1, 2011. The grant vested as to 333 shares on April 1, 2014 and vests as to 334 shares
on April 1, 2015.
|
|
(14)
|
Represents shares granted on March 1, 2013. The grant vested as to 7,778 shares on April 1, 2014 and vests as to 7,778 shares
on April 1, 2015.
|
|
(15)
|
Represents shares granted on June 24, 2013. The grant vested as to 5,185 shares on April 1, 2014 and vests as to 5,185 shares
on April 1, 2015 and 5,186 shares on April 1, 2016
|
|
(16)
|
Represents stock options granted on June 24, 2013. The option vested as to 3,401 shares on each of April 1, 2014 and 2015 and
vests as to 3,402 shares on April 1, 2016.
|
|
(17)
|
Represents shares granted on June 24, 2013. The grant vested as to 3,889 shares on each of April 1, 2014, 2015 and 2016.
|
Certain
Relationships and Related Transactions
Policies and Procedures for Approval
of Related Party Transactions
Our Board has the responsibility to review
and discuss with management and approve, and has adopted written policies and procedures relating to approval or ratification of,
interested transactions with related parties. During this process, the material facts as to the related party’s interest
in a transaction are disclosed to all Board members or the Audit Committee. Under the policies and procedures, the Board, through
the Audit Committee, is to review each interested transaction with a related party that requires approval and either approve or
disapprove of the entry into the interested transaction. An interested transaction is any transaction in which we are a participant
and in which any related party has or will have a direct or indirect interest. Transactions that are in the ordinary course of
business and would not require either disclosure required by Item 404(a) of Regulation S-K under the Securities Act or approval
of the Board or an independent committee of the Board as required by applicable NASDAQ rules would not be deemed interested transactions.
No director may participate in any approval of an interested transaction with respect to which he or she is a related party. Our
Board intends to approve only those related party transactions that are in the best interests of Pacific Ethanol and our stockholders.
Other than as described below or elsewhere
in this Proxy Statement, since January 1, 2012, there has not been a transaction or series of related transactions to which Pacific
Ethanol was or is a party involving an amount in excess of $120,000 and in which any director, executive officer, holder of more
than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will
have a direct or indirect material interest. All of the below transactions were separately approved by our Board.
Certain Relationships and Related Transactions
Miscellaneous
We are or have been a party to employment
and compensation arrangements with related parties, as more particularly described above in “Management—Executive Employment
Agreements.” We have entered into an indemnification agreement with each of our directors and executive officers. The indemnification
agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent
permitted by Delaware law.
Neil M. Koehler
Series B Preferred Stock
On May 20, 2008, we sold to Neil M. Koehler,
who is our President and Chief Executive Officer and one of our directors, 256,410 shares of our Series B Preferred Stock, all
of which were initially convertible into an aggregate of 7,326 shares of our common stock based on an initial preferred-to-common
conversion ratio of approximately 1-for-0.03, and warrants to purchase an aggregate of 3,663 shares of our common stock at a split-adjusted
exercise price of $735 per share, for an aggregate purchase price of $5,000,000. As a result of various anti-dilution adjustments,
the conversion ratio of the Series B Preferred Stock has declined to approximately 1-for-1.5. For each of the years ended December
31, 2013 and 2012, we accrued cash dividends in the amount of $350,000 in respect of shares of Series B Preferred Stock held by
Mr. Koehler.
On the following dates we entered into
agreements with Mr. Koehler under which the following amounts of accrued and unpaid dividends in respect of shares of Series B
Preferred Stock held by Mr. Koehler were to be paid in shares of our common stock at the following prices per share. We made such
payments by issuing the following number of shares of common stock to Mr. Koehler on the dates indicated.
Agreement Date
|
|
Accrued Dividends
|
|
|
Price
Per Share
|
|
|
Shares Issued
|
|
|
Issuance Date
|
August 21, 2012
|
|
$
|
105,000
|
|
|
$
|
4.65
|
|
|
|
22,581
|
|
|
August 24, 2012
|
December 26, 2012
|
|
$
|
105,000
|
|
|
$
|
5.06
|
|
|
|
20,753
|
|
|
December 31, 2012
|
March 27, 2013
|
|
$
|
105,000
|
|
|
$
|
5.25
|
|
|
|
20,000
|
|
|
March 28, 2013
|
July 26, 2013
|
|
$
|
105,000
|
|
|
$
|
4.19
|
|
|
|
25,082
|
|
|
July 31, 2013
|
September 13, 2013
|
|
$
|
105,000
|
|
|
$
|
3.72
|
|
|
|
28,247
|
|
|
September 17, 2013
|
As of December 31, 2013, accrued and
unpaid dividends totaling $525,000 had not been paid in respect of shares of Series B Preferred Stock held by Mr. Koehler.
Loan Transaction
On March 30, 2009, we entered into an
unsecured promissory note in favor of Mr. Koehler. The promissory note was for the principal amount of $1,000,000. Interest on
the unpaid principal amount of the promissory note accrues at a rate per annum of 8.00%. On March 29, 2010, we entered into an
amendment to the promissory note to extend its maturity date to January 5, 2011. On October 29, 2010, we paid all accrued interest
under the promissory note, totaling $126,500. On November 5, 2010, we entered into an amendment to the promissory note extending
its maturity date to March 31, 2012. On December 31, 2010, we paid all accrued interest under the promissory note, totaling $13,774.
On November 30, 2011, we made a principal payment of $250,000, resulting in an unpaid principal balance of $750,000. On March 7,
2012, we entered into an amendment to the promissory note further extending its maturity date to March 31, 2013. On February 7,
2013, we entered into an amendment to the promissory note further extending its maturity date to March 31, 2014. For the years
ended December 31, 2013 and 2012, we paid all accrued interest under the promissory note, totaling $60,000 and $60,164, respectively.
On March 31, 2014, we paid in cash the outstanding balance of the promissory note.
Restricted Stock and Option Grants
On March 1, 2013, we granted 66,667 shares
of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined
to be $380,002.
On April 12, 2013, we granted 16,667
shares of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock
was determined to be $77,502.
On June 24, 2013, we granted 55,556 shares
of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined
to be $207,779. On June 24, 2013, we also granted to Mr. Koehler an option to purchase up to 113,379 shares of our common stock
at an exercise price of $3.74 per share as incentive compensation. The option vested as to approximately one-third of the shares
on April 1, 2014 and vests as to approximately one-third of the shares on each of April 1, 2015 and 2016.
Paul P. Koehler
Paul P. Koehler, a brother of
Neil M. Koehler, who is our President and Chief Executive Officer and one of our directors, is employed by us as Vice
President of Corporate Development at an annual salary of $226,600.
Series B Preferred Stock
On May 20, 2008, we sold to Mr. Koehler 12,820 shares of our Series B Preferred Stock, all of which were initially convertible into
an aggregate of 366 shares of our common stock based on an initial preferred-to-common conversion ratio of
approximately 1-for-0.03, and warrants to purchase an aggregate of 184 shares of our common stock at a split-adjusted
exercise price of $735 per share, for an aggregate purchase price of $250,000. As a result of various anti-dilution
adjustments, the conversion ratio of the Series B Preferred Stock has declined to approximately 1-for-1.5. For each of the
years ended December 31, 2013 and 2012, we accrued cash dividends in the amount of $17,500 in respect of shares of Series B
Preferred Stock held by Mr. Koehler.
On the following dates we entered into
agreements with Mr. Koehler under which the following amounts of accrued and unpaid dividends in respect of shares of Series B
Preferred Stock held by Mr. Koehler were to be paid in shares of our common stock at the following prices per share. We made such
payments by issuing the following number of shares of common stock to Mr. Koehler on the dates indicated.
Agreement Date
|
|
Accrued Dividends
|
|
|
Price
Per Share
|
|
|
Shares Issued
|
|
|
Issuance Date
|
August 21, 2012
|
|
$
|
5,250
|
|
|
$
|
4.65
|
|
|
|
1,129
|
|
|
August 24, 2012
|
December 26, 2012
|
|
$
|
5,250
|
|
|
$
|
5.10
|
|
|
|
1,038
|
|
|
December 31, 2012
|
March 27, 2013
|
|
$
|
5,250
|
|
|
$
|
5.25
|
|
|
|
1,000
|
|
|
March 28, 2013
|
July 26, 2013
|
|
$
|
5,250
|
|
|
$
|
4.19
|
|
|
|
1,255
|
|
|
July 31, 2013
|
September 13, 2013
|
|
$
|
5,250
|
|
|
$
|
3.72
|
|
|
|
1,413
|
|
|
September 17, 2013
|
As of December 31, 2013, accrued and
unpaid dividends totaling $26,248 had not been paid in respect of shares of Series B Preferred Stock held by Mr. Koehler.
Restricted Stock and Option Grants
On January 4, 2013, we granted 12,500
shares of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock
was determined to be $67,406.
On June 24, 2013, we granted 11,667 shares
of restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined
to be $43,635. On June 24, 2013, we also granted to Mr. Koehler an option to purchase up to 10,204 shares of our common stock at
an exercise price of $3.74 per share as incentive compensation. The option vested as to approximately one-third of the shares on
April 1, 2014 and vests as to approximately one-third of the shares on each of April 1, 2015 and 2016.
Discretionary Bonus
For 2013, we paid Mr. Koehler a
discretionary cash bonus of $52,800 based on our 2013 performance.
Thomas D. Koehler
Series B Preferred Stock
On May 20, 2008, we sold to Thomas D.
Koehler, a brother of Neil M. Koehler, who is our President and Chief Executive Officer and one of our directors, 12,820 shares
of our Series B Preferred Stock, all of which were initially convertible into an aggregate of 366 shares of our common stock based
on an initial preferred-to-common conversion ratio of approximately 1-for-0.03, and warrants to purchase an aggregate of 184 shares
of our common stock at a split-adjusted exercise price of $735 per share, for an aggregate purchase price of $250,000. As a result
of various anti-dilution adjustments, the conversion ratio of the Series B Preferred Stock has declined to approximately 1-for-1.5.
For each of the years ended December 31, 2013 and 2012, we accrued cash dividends in the amount of $17,500 in respect of shares
of Series B Preferred Stock held by Mr. Koehler.
On the following dates we entered into
agreements with Mr. Koehler under which the following amounts of accrued and unpaid dividends in respect of shares of Series B
Preferred Stock held by Mr. Koehler were to be paid in shares of our common stock at the following prices per share. We made such
payments by issuing the following number of shares of common stock to Mr. Koehler on the dates indicated.
Agreement Date
|
|
Accrued Dividends
|
|
|
Price
Per Share
|
|
|
Shares Issued
|
|
|
Issuance Date
|
August 21, 2012
|
|
$
|
5,250
|
|
|
$
|
4.65
|
|
|
|
1,129
|
|
|
August 24, 2012
|
December 26, 2012
|
|
$
|
5,250
|
|
|
$
|
5.10
|
|
|
|
1,038
|
|
|
December 31, 2012
|
March 27, 2013
|
|
$
|
5,250
|
|
|
$
|
5.25
|
|
|
|
1,000
|
|
|
March 28, 2013
|
July 26, 2013
|
|
$
|
5,250
|
|
|
$
|
4.19
|
|
|
|
1,255
|
|
|
July 31, 2013
|
September 13, 2013
|
|
$
|
5,250
|
|
|
$
|
3.72
|
|
|
|
1,413
|
|
|
September 17, 2013
|
As of December 31, 2013, accrued and
unpaid dividends totaling $26,248 had not been paid in respect of shares of Series B Preferred Stock held by Mr. Koehler.
Independent Contractor Services Agreement
On April 1, 2008, we entered into an
Independent Contractor Services Agreement with Mr. Koehler for the provision of strategic consulting services, including in connection
with promoting Pacific Ethanol, and ethanol as a fuel additive and transportation fuel, with governmental agencies. Mr. Koehler
was compensated at a rate of $5,000 per month under this arrangement from April 1, 2008 through September 30, 2010. Effective October
1, 2010, Mr. Koehler’s compensation was increased to $7,500 per month.
William L. Jones
Series B Preferred Stock
On May 20, 2008, we sold to William L.
Jones, who is our Chairman of the Board and one of our directors, 12,820 shares of our Series B Preferred Stock, all of which were
initially convertible into an aggregate of 366 shares of our common stock based on an initial preferred-to-common conversion ratio
of approximately 1-for-0.03, and warrants to purchase an aggregate of 184 shares of our common stock at a split-adjusted exercise
price of $735 per share, for an aggregate purchase price of $250,000. As a result of various anti-dilution adjustments, the conversion
ratio of the Series B Preferred Stock has declined to approximately 1-for-1.5. For each of the years ended December 31, 2013 and
2012, we accrued cash dividends in the amount of $17,500 in respect of shares of Series B Preferred Stock held by Mr. Jones.
On the following dates we entered into
agreements with Mr. Jones under which the following amounts of accrued and unpaid dividends in respect of shares of Series B Preferred
Stock held by Mr. Jones were to be paid in shares of our common stock at the following prices per share. We made such payments
by issuing the following number of shares of common stock to Mr. Jones on the dates indicated.
Agreement Date
|
|
Accrued Dividends
|
|
|
Price
Per Share
|
|
|
Shares Issued
|
|
|
Issuance Date
|
August 21, 2012
|
|
$
|
5,250
|
|
|
$
|
4.65
|
|
|
|
1,129
|
|
|
August 24, 2012
|
December 26, 2012
|
|
$
|
5,250
|
|
|
$
|
5.06
|
|
|
|
1,038
|
|
|
December 31, 2012
|
March 27, 2013
|
|
$
|
5,250
|
|
|
$
|
5.25
|
|
|
|
1,000
|
|
|
March 28, 2013
|
July 26, 2013
|
|
$
|
5,250
|
|
|
$
|
4.19
|
|
|
|
1,255
|
|
|
July 31, 2013
|
September 13, 2013
|
|
$
|
5,250
|
|
|
$
|
3.72
|
|
|
|
1,413
|
|
|
September 17, 2013
|
As of December 31, 2013, accrued and
unpaid dividends totaling $26,248 had not been paid in respect of shares of Series B Preferred Stock held by Mr. Jones.
Restricted Stock Grants
On January 4, 2013, we granted 13,333
shares of our restricted common stock to Mr. Jones in consideration of services to be provided. The value of the common stock was
determined to be $71,900.
On June 24, 2013, we granted 17,778 shares
of our restricted common stock to Mr. Jones in consideration of services to be provided. The value of the common stock was determined
to be $64,356.
Michael
D. Kandris
Consulting Services
During the year ended December 31, 2012,
Mr. Kandris provided consulting services to us concerning ethanol plant operations and was paid $239,135 for his services.
Restricted Stock and Option Grants
On January 4, 2013, we granted 10,000
shares of our restricted common stock to Mr. Kandris in consideration of services to be provided. The value of the common stock
was determined to be $54,000.
On June 24, 2013, we granted 15,556 shares
of our restricted common stock to Mr. Kandris in consideration of services to be provided. The value of the common stock was determined
to be $58,179. On June 24, 2013, we also granted to Mr. Kandris an option to purchase up to 31,746 shares of our common stock at
an exercise price of $3.74 per share as incentive compensation. The option vested as to approximately one-third of the shares on
April 1, 2014 and vests as to approximately one-third of the shares on each of April 1, 2015 and 2016.
Christopher W. Wright
On March 1, 2013, we granted 23,333 shares
of our restricted common stock to Mr. Wright in consideration of services to be provided. The value of the common stock was determined
to be $133,004.
On June 24, 2013, we granted 15,556 shares
of our restricted common stock to Mr. Wright in consideration of services to be provided. The value of the common stock was determined
to be $58,179. On June 24, 2013, we also granted to Mr. Wright an option to purchase up to 31,746 shares of our common stock at
an exercise price of $3.74 per share as incentive compensation. The option vested as to approximately one-third of the shares on
April 1, 2014 and vests as to approximately one-third of the shares on each of April 1, 2015 and 2016.
Bryon T. McGregor
On March 1, 2013, we granted 23,333 shares
of our restricted common stock to Mr. McGregor in consideration of services to be provided. The value of the common stock was determined
to be $133,004.
On June 24, 2013, we granted 15,556 shares
of our restricted common stock to Mr. McGregor in consideration of services to be provided. The value of the common stock was determined
to be $58,179. On June 24, 2013, we also granted to Mr. McGregor an option to purchase up to 31,746 shares of our common stock
at an exercise price of $3.74 per share as incentive compensation. The option vested as to approximately one-third of the shares
on April 1, 2014 and vests as to approximately one-third of the shares on each of April 1, 2015 and 2016.
James R. Sneed
On June 24, 2013, we granted 11,667 shares
of restricted common stock to Mr. Sneed in consideration of services to be provided. The value of the common stock was determined
to be $43,635. On June 24, 2013, we also granted to Mr. Sneed an option to purchase up to 10,204 shares of our common stock at
an exercise price of $3.74 per share as incentive compensation. The option vested as to approximately one-third of the shares on
April 1, 2014 and vests as to approximately one-third of the shares on each of April 1, 2015 and 2016.
Terry L. Stone, John L. Prince,
Douglas L. Kieta and Larry D. Layne
On January 4, 2013, we granted 10,000
shares of our restricted common stock to each of our non-employee directors (except for the Chairman of our Board, Mr. Jones) in
consideration of services to be provided. The value of the common stock granted to each of Messrs. Stone, Prince, Kieta and Layne
on January 4, 2013 was determined to be $53,925.
On June 24, 2013, we granted 13,333 shares
of our restricted common stock to each of our non-employee directors (except for the Chairman of our Board, Mr. Jones) in consideration
of services to be provided. The value of the common stock was determined to be $48,265.
Lyles United, LLC
On March 27, 2008, we sold to Lyles United,
LLC, or Lyles United, 2,051,282 shares of our Series B Preferred Stock, all of which were initially convertible into an aggregate
of 58,608 shares of our common stock based on an initial preferred-to-common conversion ratio of approximately 1-for-0.03, and
warrants to purchase an aggregate of 29,304 shares of our common stock at a split-adjusted exercise price of $735 per share, for
an aggregate purchase price of $40,000,000. As a result of various anti-dilution adjustments, the conversion ratio of the Series
B Preferred Stock has declined to approximately 1-for-1.5. For each of the years ended December 31, 2013 and 2012, we accrued cash
dividends in the amount of $700,000 in respect of shares of Series B Preferred Stock held by Lyles United.
On the following dates we entered into
agreements with Lyles United under which the following amounts of accrued and unpaid dividends in respect of shares of Series B
Preferred Stock held by Lyles United were to be paid in shares of our common stock at the following prices per share. We made such
payments by issuing the following number of shares of common stock to Lyles United on the dates indicated.
Agreement Date
|
|
Accrued Dividends
|
|
|
Price
Per Share
|
|
|
Shares Issued
|
|
|
Issuance Date
|
August 21, 2012
|
|
$
|
367,068
|
|
|
$
|
4.65
|
|
|
|
78,939
|
|
|
August 24, 2012
|
December 26, 2012
|
|
$
|
367,068
|
|
|
$
|
5.06
|
|
|
|
72,552
|
|
|
December 31, 2012
|
March 27, 2013
|
|
$
|
367,068
|
|
|
$
|
5.25
|
|
|
|
69,918
|
|
|
March 28, 2013
|
July 26, 2013
|
|
$
|
367,068
|
|
|
$
|
4.19
|
|
|
|
87,683
|
|
|
July 31, 2013
|
September 13, 2013
|
|
$
|
367,068
|
|
|
$
|
3.72
|
|
|
|
98,746
|
|
|
September 17, 2013
|
As of December 31, 2013, accrued and
unpaid dividends totaling $1,835,343 had not been paid in respect of shares of Series B Preferred Stock held by Lyles United.
Frank P. Greinke
Series B Preferred Stock
For each of the years ended December
31, 2013 and 2012, we accrued cash dividends in the amount of $116,000 in respect of shares of Series B Preferred Stock held by
the Greinke Personal Living Trust Dated April 20, 1999 (“Greinke Trust”). Frank P. Greinke is one of our former directors
and the trustee of the holder of shares of our issued and outstanding Series B Preferred Stock. The Greinke Trust acquired its
shares of Series B Preferred Stock from Lyles United in December 2009.
Shares of our Series B Preferred Stock,
which were initially convertible into shares of our common stock based on an initial preferred-to-common conversion ratio of approximately
1-for-0.03, were converted into shares of our common stock based on lower conversion ratios resulting from various anti-dilution
adjustments, thereby increasing the number of shares of common stock issued to the Greinke Trust in connection with its conversions
of our Series B Preferred Stock. The current conversion ratio is approximately 1-for-1.5.
On the following dates we entered into
agreements with the Greinke Trust under which the following amounts of accrued and unpaid dividends in respect of shares of Series
B Preferred Stock held by the Greinke Trust were to be paid in shares of our common stock at the following prices per share. We
made such payments by issuing the following number of shares of common stock to the Greinke Trust on the dates indicated.
Agreement Date
|
|
Accrued Dividends
|
|
|
Price
Per Share
|
|
|
Shares Issued
|
|
|
Issuance Date
|
August 21, 2012
|
|
$
|
189,656
|
|
|
$
|
4.65
|
|
|
|
40,786
|
|
|
August 24, 2012
|
December 26, 2012
|
|
$
|
189,656
|
|
|
$
|
5.06
|
|
|
|
37,486
|
|
|
December 31, 2012
|
March 27, 2013
|
|
$
|
189,656
|
|
|
$
|
5.25
|
|
|
|
36,128
|
|
|
March 28, 2013
|
July 26, 2013
|
|
$
|
189,656
|
|
|
$
|
4.19
|
|
|
|
45,304
|
|
|
July 31, 2013
|
September 13, 2013
|
|
$
|
189,656
|
|
|
$
|
3.72
|
|
|
|
51,020
|
|
|
September 17, 2013
|
As of December 31, 2013, accrued and
unpaid dividends totaling $948,283 had not been paid in respect of shares of Series B Preferred Stock held by the Greinke Trust.
Sales of Ethanol
During the years ended December 31, 2013
and 2012, we contracted with Southern Counties Oil Co., an entity controlled by Mr. Greinke, for sales of ethanol in an aggregate
amount of $0 and approximately $1,062,600, respectively.
Other
Information
Stockholder Proposals
Pursuant to Rule 14a–8 under the
Exchange Act, proposals by stockholders that are intended for inclusion in our Proxy Statement and proxy card and to be presented
at our next annual meeting must be received by us no later than January 5, 2015 in order to be considered for inclusion in our
proxy materials relating to the next annual meeting. Such proposals shall be addressed to our corporate Secretary at Pacific Ethanol,
Inc., 400 Capitol Mall, Suite 2060, Sacramento, California 95814 and may be included in next year’s annual meeting proxy
materials if they comply with rules and regulations of the Securities and Exchange Commission governing stockholder proposals.
Stockholder nominations of persons for
election to our Board, or proposals by stockholders that are not intended for inclusion in our proxy materials, may be made by
any stockholder who timely and completely complies with the notice procedures contained in our bylaws, was a stockholder of record
at the time of giving of notice and is entitled to vote at the meeting, so long as the proposal is a proper matter for stockholder
action and the stockholder otherwise complies with the provisions of our bylaws and applicable law. However, stockholder nominations
of persons for election to our Board at a special meeting may only be made if our Board has determined that directors are to be
elected at the special meeting.
To be timely, stockholder nominations
of persons for election to our Board, or proposals not intended for inclusion in our proxy materials, must be delivered to our
Secretary at our corporate headquarters not later than:
|
·
|
In the case of an annual meeting, the close of business on March 21, 2015. However, if the date of the meeting has changed
more than 30 days from the date of the prior year’s meeting, then in order for the stockholder’s notice to be timely
it must be delivered to our corporate Secretary a reasonable time before we mail our proxy materials for the current year’s
meeting. For purposes of the preceding sentence, a “reasonable time” coincides with any adjusted deadline we publicly
announce.
|
|
·
|
In the case of a special meeting, the close of business on the 7th day following the day on which we first publicly announce
the date of the special meeting.
|
Except as otherwise provided by law,
if the chairperson of the meeting determines that a nomination or any business proposed to be brought before a meeting was not
made or proposed in accordance with the procedures set forth in our bylaws and summarized above, the chairperson may prohibit the
nomination or proposal from being presented at the meeting.
Available Information
We are subject to the informational requirements
of the Exchange Act. In accordance with the Exchange Act, we file reports, proxy statements and other information with the Securities
and Exchange Commission. These materials can be inspected and copied at the Public Reference Room maintained by the Securities
and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. Our common stock trades on The
NASDAQ Capital Market under the symbol “PEIX.”
Annual Report
A copy of our Annual Report on Form 10-K
for the year ended December 31, 2013 has been provided concurrently with this Proxy Statement (or made available electronically,
for stockholders who elected to access these materials over the Internet) to all stockholders entitled to notice of and to vote
at the Annual Meeting. The Annual Report is not incorporated into this Proxy Statement and is not deemed to be a part of our proxy
solicitation materials. Copies of our Annual Report on Form 10-K (without exhibits) for the year ended December 31, 2013 will be
furnished by first class mail, without charge, to any person from whom the accompanying proxy is solicited upon written or oral
request to Pacific Ethanol, Inc., 400 Capitol Mall, Suite 2060, Sacramento, California 95814, Attention: Investor Relations, telephone
(916) 403-2123. If exhibit copies are requested, a copying charge of $0.20 per page applies. In addition, all of our public
filings, including our Annual Report, can be found free of charge on the website of the Securities and Exchange Commission at http://www.sec.gov.
ALL STOCKHOLDERS ARE URGED TO COMPLETE,
SIGN AND RETURN PROMPTLY THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
Forward-Looking Statements
All statements included or incorporated
by reference in this Proxy Statement other than statements or characterizations of historical fact, are forward-looking statements,
within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on our current expectations, estimates and projections about our business and industry, management’s
beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified
by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,”
“believes,” “seeks,” “estimates,” “may,” “will,” “should,”
“would,” “could,” “potential,” “continue,” “ongoing,” similar expressions,
and variations or negatives of these words. These forward-looking statements are not guarantees of future results and are subject
to risks, uncertainties and assumptions that could cause our actual results to differ materially and adversely from those expressed
in any forward-looking statement. Important risk factors that could contribute to such differences are discussed in our Annual
Report on Form 10-K for the year ended December 31, 2013, subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
and other Securities and Exchange Commission filings. The forward-looking statements in this proxy statement speak only as of this
date. We undertake no obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
____________
Pacific
Ethanol, Inc.
PACIFIC
ETHANOL, INC.
ATTN:
MIKE KRAMER
400
CAPITOL MALL, SUITE 2060
SACRAMENTO, CA 95814-4407
|
|
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for
electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic
voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company
in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically
via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions
up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
|
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS
M74795-P51601 KEEP
THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD
IS VALID ONLY WHEN SIGNED AND DATED.
Important Notice
Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy
Statement and Form 10-K are available at www.proxyvote.com.
PROXY
FOR 2014 ANNUAL MEETING OF STOCKHOLDERS
PACIFIC ETHANOL,
INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Pacific
Ethanol, Inc. (the "Company") hereby constitutes and appoints Neil M. Koehler and William L. Jones, and each of them,
with the power to appoint their substitute(s), as attorney and proxy to appear, attend and vote all of the shares of common stock
of the Company standing in the name of the undersigned on the record date at the 2014 annual meeting of stockholders of the Company
to be held at 9:00 a.m., local time, on Wednesday, June 18, 2014 at TBD, and at any adjournment or adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR"
EACH OF THE NOMINEES LISTED AND "FOR" ALL OTHER PROPOSALS INDICATED AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY
HOLDER ON ANY OTHER BUSINESS. ALL OTHER PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED IN CONNECTION WITH THE ACTIONS PROPOSED ON
THIS PROXY CARD ARE HEREBY EXPRESSLY REVOKED. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY WRITTEN NOTICE TO THE
SECRETARY OF THE COMPANY, BY ISSUANCE OF A SUBSEQUENT PROXY OR BY VOTING IN PERSON AT THE ANNUAL MEETING.
Address Changes/Comments:
(If you noted any Address Changes/Comments above, please mark
corresponding box on the reverse side.)
Continued and
to be signed on reverse side
APPENDIX A
PACIFIC ETHANOL, INC.
2006 STOCK INCENTIVE PLAN
(As Amended Through June 18, 2014)
ARTICLE
ONE
GENERAL PROVISIONS
This 2006 Stock Incentive Plan is intended
to promote the interests of Pacific Ethanol, Inc. by providing eligible persons in the Corporation’s service with the opportunity
to acquire a proprietary or economic interest, or otherwise increase their proprietary or economic interest, in the Corporation
as an incentive for them to remain in such service and render superior performance during such service. Capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the attached Appendix.
II.
|
|
Structure of the Plan
.
|
A. The Plan is divided into two equity-based
incentive programs:
|
·
|
the Discretionary Grant Program, under which eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of common stock or stock appreciation rights tied to the value of such common stock; and
|
|
·
|
the Stock Issuance Program, under which eligible persons may be issued shares of common stock pursuant to restricted stock
or restricted stock unit awards or other stock-based awards, made by and at the discretion of the Plan Administrator, that vest
upon the completion of a designated service period and/or the attainment of pre-established performance milestones, or under which
shares of common stock may be issued through direct purchase or as a bonus for services rendered to the Corporation (or any Parent
or Subsidiary).
|
B. The provisions of
Articles One
and Four
shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan.
III.
|
|
Administration of the Plan
.
|
A. The Compensation Committee shall
have sole and exclusive authority to administer the Discretionary Grant and Stock Issuance Programs, provided, however, that the
Board may retain, reassume or exercise from time to time the power to administer those programs with respect to all persons. However,
any discretionary Awards to members of the Compensation Committee must be authorized and approved by a disinterested majority of
the Board.
B. The Plan Administrator shall, within
the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan)
to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Grant and Stock
Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of those programs and
any outstanding Awards thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of
its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary
Grant and Stock Issuance Programs under its jurisdiction or any Award thereunder.
C. Service on the Compensation Committee
shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification
and reimbursement as Board members for their service on such committee. No member of the Compensation Committee shall be liable
for any act or omission made in good faith with respect to the Plan or any Award under the Plan.
A. The persons eligible to participate
in the Discretionary Grant and Stock Issuance Programs are as follows:
(i) Employees;
(ii) non-employee members
of the Board or the board of directors of any Parent or Subsidiary; and
(iii) Consultants.
B. The Plan Administrator shall, within
the scope of its administrative jurisdiction under the Plan, have full authority to determine (i) with respect to Awards made under
the Discretionary Grant Program, which eligible persons are to receive such Awards, the time or times when those Awards are to
be made, the number of shares to be covered by each such Award, the status of any awarded option as either an Incentive Option
or a Non-Statutory Option, the exercise price per share in effect for each Award (subject to the limitations set forth in
Article Two
),
the time or times when each Award is to vest and become exercisable and the maximum term for which the Award is to remain outstanding,
and (ii) with respect to Awards under the Stock Issuance Program, which eligible persons are to receive such Awards, the time or
times when the Awards are to be made, the number of shares subject to each such Award, the vesting schedule (if any) applicable
to the shares subject to such Award, and the cash consideration (if any) payable for such shares.
C. The Plan Administrator shall have
the absolute discretion to grant options or stock appreciation rights in accordance with the Discretionary Grant Program and to
effect stock issuances or other stock-based awards in accordance with the Stock Issuance Program.
V.
|
|
Stock Subject to the Plan
.
|
A. The stock issuable under the Plan
shall be shares of authorized but unissued or reacquired common stock, including shares repurchased by the Corporation on the open
market. Subject to any additional shares authorized by the vote of the Board and approved by the stockholders, the number of shares
of common stock reserved for issuance over the term of the Plan shall not exceed 1,715,000 shares. Any or all of the shares of
common stock reserved for issuance under the Plan shall be authorized for issuance pursuant to Incentive Options or other Awards.
B. No one person participating in
the Plan may be granted Awards of common stock having a Fair Market Value on the applicable grant date(s) of more than One Million
Dollars ($1,000,000) in the aggregate per calendar year.
C. Shares of common stock subject
to outstanding Awards under the Plan shall be available for subsequent issuance under the Plan to the extent those Awards expire
or terminate for any reason prior to the issuance of the shares of common stock subject to those Awards. Unvested shares issued
under the Plan and subsequently cancelled or repurchased by the Corporation at the original exercise or issue price paid per share
pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of common stock
reserved for issuance under the Plan and shall accordingly be available for subsequent reissuance under the Plan. In addition,
should the exercise price of an option under the Plan be paid with shares of common stock, the authorized reserve of common stock
under the Plan shall be reduced only by the net number of shares issued under the exercised stock option. Should shares of common
stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection
with the issuance, exercise or vesting of an Award under the Plan, the number of shares of common stock available for issuance
under the Plan shall be reduced only by the net number of shares issued with respect to that Award.
D. If any change is made to the common
stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding common stock as a class without the Corporation’s receipt of consideration, appropriate adjustments
shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the
maximum number and/or class of securities for which any one person may be granted Awards under the Plan per calendar year, (iii)
the number and/or class of securities and the exercise or base price per share (or any other cash consideration payable per share)
in effect under each outstanding Award under the Discretionary Grant Program, and (iv) the number and/or class of securities subject
to each outstanding Award under the Stock Issuance Program and the cash consideration (if any) payable per share thereunder. To
the extent such adjustments are to be made to outstanding Awards, those adjustments shall be effected in a manner that shall preclude
the enlargement or dilution of rights and benefits under those Awards. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY GRANT PROGRAM
Each option shall be evidenced by one
or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with
the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A.
Exercise Price
.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than 85% of the Fair Market Value per share of common stock on the option grant
date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the following forms that the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable
to the Corporation;
(ii) shares of common stock
valued at Fair Market Value on the Exercise Date and held for the period (if any) necessary to avoid any additional charges to
the Corporation’s earnings for financial reporting purposes; or
(iii) to the extent the option
is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently
provide irrevocable instructions to (a) a brokerage firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable federal, state and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm to complete the sale.
Except to the extent such sale and remittance
procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
B.
Exercise and Term of Options
.
Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined
by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess
of ten years measured from the option grant date.
C.
Effect of Termination of Service
.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding
at the time of the Optionee’s cessation of Service for any reason shall remain exercisable for such period of time thereafter
as shall be determined by the Plan Administrator and set forth in the documents evidencing the option or as otherwise specifically
authorized by the Plan Administrator in its sole discretion pursuant to an express written agreement with Optionee, but no such
option shall be exercisable after the expiration of the option term.
(ii) Any option held by the
Optionee at the time of death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative
of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will
or the laws of inheritance or by the Optionee’s designated beneficiary or beneficiaries of that option.
(iii) During the applicable
post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which
that option is at the time exercisable. No additional shares shall vest under the option following the Optionee’s cessation
of Service, except to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion pursuant to
an express written agreement with Optionee. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration
of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not been exercised.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:
(i) extend the period of
time for which the option is to remain exercisable following the Optionee’s cessation of Service from the limited exercise
period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but
in no event beyond the expiration of the option term, and/or
(ii) permit the option to
be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of common
stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one
or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
D.
Stockholder Rights
.
The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E.
Repurchase Rights
. The
Plan Administrator shall have the discretion to grant options that are exercisable for unvested shares of common stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including
the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the
Plan Administrator and set forth in the document evidencing such repurchase right.
F.
Transferability of Options
.
The transferability of options granted under the Plan shall be governed by the following provisions:
(i)
Incentive Options
.
During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or
transferable other than by will or the laws of inheritance following the Optionee’s death.
(ii)
Non-Statutory
Options
. Non-Statutory Options shall be subject to the same limitation on transfer as Incentive Options, except that the
Plan Administrator may structure one or more Non-Statutory Options so that the option may be assigned in whole or in part during
the Optionee’s lifetime to one or more Family Members of the Optionee or to a trust established exclusively for the Optionee
and/or one or more such Family Members, to the extent such assignment is in connection with the Optionee’s estate plan or
pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
(iii)
Beneficiary Designations
.
Notwithstanding the foregoing, the Optionee may designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this
Article Two
(whether Incentive Options or Non-Statutory Options), and those options
shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s
death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms
and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited
time period during which the option may be exercised following the Optionee’s death.
The terms specified below, together with
any additions, deletions or changes thereto imposed from time to time pursuant to the provisions of the Code governing Incentive
Options, shall be applicable to all Incentive Options. Except as modified by the provisions of this
Section II
, all
the provisions of
Articles One, Two and Four
shall be applicable to Incentive Options. Options that are specifically designated
as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this
Section II
.
A.
Eligibility
. Incentive
Options may only be granted to Employees.
B.
Exercise Price
. The
exercise price per share shall not be less than 100% of the Fair Market Value per share of common stock on the option grant date.
C.
Dollar Limitation
. The
aggregate Fair Market Value of the shares of common stock (determined as of the respective date or dates of grant) for which one
or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary)
may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more such options which become exercisable for the first
time in the same calendar year, then for purposes of the foregoing limitation on the exercisability of those options as Incentive
Options, such options shall be deemed to become first exercisable in that calendar year on the basis of the chronological order
in which they were granted, except to the extent otherwise provided under applicable law or regulation.
D.
10% Stockholder
.
If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less
than 110% of the Fair Market Value per share of common stock on the option grant date, and the option term shall not exceed five
years measured from the option grant date.
III.
|
|
Stock Appreciation Rights
.
|
A.
Authority
. The Plan
Administrator shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights in accordance
with this
Section III
to selected Optionees or other individuals eligible to receive option grants under the Discretionary
Grant Program.
B.
Types
. Three types of
stock appreciation rights shall be authorized for issuance under this
Section III
: (i) tandem stock appreciation rights
(“
Tandem Rights
”), (ii) standalone stock appreciation rights (“
Standalone Rights
”) and (iii)
limited stock appreciation rights (“
Limited Rights
”).
C.
Tandem Rights
. The following
terms and conditions shall govern the grant and exercise of Tandem Rights.
1. One or more Optionees may be granted a Tandem
Right, exercisable upon such terms and conditions as the Plan Administrator may establish, to elect between the exercise of the
underlying stock option for shares of common stock or the surrender of that option in exchange for a distribution from the Corporation
in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (ii) the aggregate exercise price
payable for such vested shares.
2. No such option surrender shall be effective
unless it is approved by the Plan Administrator, either at the time of the actual option surrender or at any earlier time. If the
surrender is so approved, then the distribution to which the Optionee shall accordingly become entitled under this
Section III
may be made in shares of common stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate.
3. If the surrender of an option is not approved
by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered
portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (i) five business
days after the receipt of the rejection notice or (ii) the last day on which the option is otherwise exercisable in accordance
with the terms of the instrument evidencing such option, but in no event may such rights be exercised more than ten years after
the date of the option grant.
D.
Standalone Rights
.
The following terms and conditions shall govern the grant and exercise of Standalone Rights under this
Article Two
:
1. One or more individuals eligible to participate
in the Discretionary Grant Program may be granted a Standalone Right not tied to any underlying option under this Discretionary
Grant Program. The Standalone Right shall relate to a specified number of shares of common stock and shall be exercisable upon
such terms and conditions as the Plan Administrator may establish. In no event, however, may the Standalone Right have a maximum
term in excess of ten years measured from the grant date. Upon exercise of the Standalone Right, the holder shall be entitled to
receive a distribution from the Corporation in an amount equal to the excess of (i) the aggregate Fair Market Value (on the exercise
date) of the shares of common stock underlying the exercised right over (ii) the aggregate base price in effect for those shares.
2. The number of shares of common stock underlying
each Standalone Right and the base price in effect for those shares shall be determined by the Plan Administrator in its sole discretion
at the time the Standalone Right is granted. In no event, however, may the base price per share be less than the Fair Market Value
per underlying share of common stock on the grant date.
3. Standalone Rights shall be subject to the
same transferability restrictions applicable to Non-Statutory Options and may not be transferred during the holder’s lifetime,
except to one or more Family Members of the holder or to a trust established exclusively for the holder and/or such Family Members,
to the extent such assignment is in connection with the holder’s estate plan or pursuant to a domestic relations order covering
the Standalone Right as marital property. In addition, one or more beneficiaries may be designated for an outstanding Standalone
Right in accordance with substantially the same terms and provisions as set forth in
Section I.F
of this
Article Two
.
4. The distribution with respect to an exercised
Standalone Right may be made in shares of common stock valued at Fair Market Value on the exercise date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate.
5. The holder of a Standalone Right shall have
no stockholder rights with respect to the shares subject to the Standalone Right unless and until such person shall have exercised
the Standalone Right and become a holder of record of shares of common stock issued upon the exercise of such Standalone Right.
E.
Limited Rights
. The
following terms and conditions shall govern the grant and exercise of Limited Rights under this
Article Two
:
1. One or more Section 16 Insiders may,
in the Plan Administrator’s sole discretion, be granted Limited Rights with respect to their outstanding options under this
Article Two
.
2. Upon the occurrence of a Hostile Take-Over,
the Section 16 Insider shall have the unconditional right (exercisable for a 30-day period following such Hostile Take-Over)
to surrender each option with such a Limited Right to the Corporation. The Section 16 Insider shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the number of shares
in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (ii) the aggregate
exercise price payable for those vested shares. Such cash distribution shall be made within five days following the option surrender
date.
3. The Plan Administrator shall pre-approve,
at the time such Limited Right is granted, the subsequent exercise of that right in accordance with the terms of the grant and
the provisions of this
Section III
. No additional approval of the Plan Administrator or the Board shall be required
at the time of the actual option surrender and cash distribution. Any unsurrendered portion of the option shall continue to remain
outstanding and become exercisable in accordance with the terms of the instrument evidencing such grant.
F.
Post-Service Exercise
.
The provisions governing the exercise of Tandem, Standalone and Limited Stock Appreciation Rights following the cessation of the
recipient’s Service or the recipient’s death shall be substantially the same as those set forth in
Section I.C
of this
Article Two
for the options granted under the Discretionary Grant Program.
G.
Net Counting
. Upon the
exercise of any Tandem, Standalone or Limited Right under this
Section III
, the share reserve under
Section V
of
Article One
shall only be reduced by the net number of shares actually issued by the Corporation upon such
exercise, and not by the gross number of shares as to which such Tandem, Standalone or Limited Right is exercised.
IV.
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Change in Control/ Hostile Take-Over
.
|
A. No Award outstanding under the
Discretionary Grant Program at the time of a Change in Control shall vest and become exercisable on an accelerated basis if and
to the extent that: (i) such Award is, in connection with the Change in Control, assumed by the successor corporation (or parent
thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, (ii) such
Award is replaced with a cash retention program of the successor corporation that preserves the spread existing at the time of
the Change in Control on the shares of common stock as to which the Award is not otherwise at that time vested and exercisable
and provides for subsequent payout of that spread in accordance with the same exercise/vesting schedule applicable to those shares,
or (iii) the acceleration of such Award is subject to other limitations imposed by the Plan Administrator. However, if none of
the foregoing conditions are satisfied, each Award outstanding under the Discretionary Grant Program at the time of the Change
in Control but not otherwise vested and exercisable as to all the shares at the time subject to that Award shall automatically
accelerate so that each such Award shall, immediately prior to the effective date of the Change in Control, vest and become exercisable
as to all the shares of common stock at the time subject to that Award and may be exercised as to any or all of those shares as
fully vested shares of common stock.
B. All outstanding repurchase rights
under the Discretionary Grant Program shall also terminate automatically, and the shares of common stock subject to those terminated
rights shall immediately vest in full, in the event of any Change in Control, except to the extent: (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) or otherwise continue in full force and effect pursuant to the terms
of the Change in Control transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator.
C. Immediately following the consummation
of the Change in Control, all outstanding Awards under the Discretionary Grant Program shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof) or otherwise expressly continued in full force and
effect pursuant to the terms of the Change in Control transaction.
D. Each option that is assumed in
connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change
in Control, to apply to the number and class of securities that would have been issuable to the Optionee in consummation of such
Change in Control had the option been exercised immediately prior to such Change in Control. In the event outstanding Standalone
Rights are to be assumed in connection with a Change in Control transaction or otherwise continued in effect, the shares of common
stock underlying each such Standalone Right shall be adjusted immediately after such Change in Control to apply to the number and
class of securities into which those shares of common stock would have been converted in consummation of such Change in Control
had those shares actually been outstanding at that time. Appropriate adjustments to reflect such Change in Control shall also be
made to (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same, (ii) the base price per share in effect under each outstanding Standalone Right, provided
the aggregate base price shall remain the same, (iii) the maximum number and/or class of securities available for issuance over
the remaining term of the Plan, and (iv) the maximum number and/or class of securities for which any one person may be granted
Awards under the Plan per calendar year. To the extent the actual holders of the Corporation’s outstanding common stock receive
cash consideration for their common stock in consummation of the Change in Control, the successor corporation may, in connection
with the assumption or continuation of the outstanding Awards under the Discretionary Grant Program, substitute, for the securities
underlying those assumed Awards, one or more shares of its own common stock with a fair market value equivalent to the cash consideration
paid per share of common stock in such Change in Control transaction.
E. The Plan Administrator shall have
the discretionary authority to structure one or more outstanding Awards under the Discretionary Grant Program so that those Awards
shall, immediately prior to the effective date of a Change in Control or a Hostile Take-Over, vest and become exercisable as to
all the shares at the time subject to those Awards and may be exercised as to any or all of those shares as fully vested shares
of common stock, whether or not those Awards are to be assumed or otherwise continued in full force and effect pursuant to the
express terms of such transaction. In addition, the Plan Administrator shall have the discretionary authority to structure one
or more of the Corporation’s repurchase rights under the Discretionary Grant Program so that those rights shall immediately
terminate at the time of such Change in Control or consummation of such Hostile Take-Over and shall not be assignable to successor
corporation (or parent thereof), and the shares subject to those terminated rights shall accordingly vest in full at the time of
such Change in Control or consummation of such Hostile Take-Over.
F. The Plan Administrator shall have
full power and authority to structure one or more outstanding Awards under the Discretionary Grant Program so that those Awards
shall immediately vest and become exercisable as to all of the shares at the time subject to those Awards in the event the Optionee’s
Service is subsequently terminated by reason of an Involuntary Termination within a designated period (not to exceed 18 months)
following the effective date of any Change in Control or a Hostile Take-Over in which those Awards do not otherwise vest on an
accelerated basis. Any Awards so accelerated shall remain exercisable as to fully vested shares until the expiration or sooner
termination of their term. In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase
rights under the Discretionary Grant Program so that those rights shall immediately terminate with respect to any shares held by
the Optionee at the time of his or her Involuntary Termination, and the shares subject to those terminated repurchase rights shall
accordingly vest in full at that time.
G. The portion of any Incentive Option
accelerated in connection with a Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable
One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the federal tax laws.
H. Awards outstanding under the Discretionary
Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I.
|
|
Stock Issuance Terms
.
|
A.
Issuances
. Shares of
common stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement that complies with the terms specified below.
Shares of common stock may also be issued under the Stock Issuance Program pursuant to restricted stock awards or restricted stock
units, awarded by and at the discretion of the Plan Administrator, that entitle the recipients to receive the shares underlying
those awards or units upon the attainment of designated performance goals and/or the satisfaction of specified Service requirements
or upon the expiration of a designated time period following the vesting of those awards or units.
B.
Issue Price
.
1. The price per share at which shares of common
stock may be issued under the Stock Issuance Program shall be fixed by the Plan Administrator, but shall not be less than 100%
of the Fair Market Value per share of common stock on the issuance date.
2. Shares of common stock may be issued under
the Stock Issuance Program for any of the following items of consideration that the Plan Administrator may deem appropriate in
each individual instance:
(i) cash or check made payable to the Corporation;
(ii) past services rendered to the Corporation
(or any Parent or Subsidiary); or
(iii) any other valid form of consideration
permissible under the Delaware Corporations Code at the time such shares are issued.
C.
Vesting Provisions
.
1. Shares of common stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in
one or more installments over the Participant’s period of Service and/or upon attainment of specified performance objectives.
The elements of the vesting schedule applicable to any unvested shares of common stock issued under the Stock Issuance Program
shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. Shares of common stock may also
be issued under the Stock Issuance Program pursuant to restricted stock awards or restricted stock units that entitle the recipients
to receive the shares underlying those awards and/or units upon the attainment of designated performance goals or the satisfaction
of specified Service requirements or upon the expiration of a designated time period following the vesting of those awards or units,
including (without limitation) a deferred distribution date following the termination of the Participant’s Service.
2. The Plan Administrator shall also have the
discretionary authority, consistent with Code Section 162(m), to structure one or more Awards under the Stock Issuance Program
so that the shares of common stock subject to those Awards shall vest (or vest and become issuable) upon the achievement of certain
pre-established corporate performance goals based on one or more of the following criteria: (i) return on total stockholders’
equity; (ii) net income per share of common stock; (iii) net income or operating income; (iv) earnings before interest, taxes,
depreciation, amortization and stock-compensation costs, or operating income before depreciation and amortization; (v) sales or
revenue targets; (vi) return on assets, capital or investment; (vii) cash flow; (viii) market share; (ix) cost reduction goals;
(x) budget comparisons; (xi) implementation or completion of projects or processes strategic or critical to the Corporation’s
business operations; (xii) measures of customer satisfaction; (xiii) any combination of, or a specified increase in, any of the
foregoing; and (xiv) the formation of joint ventures, research and development collaborations, marketing or customer service collaborations,
or the completion of other corporate transactions intended to enhance the Corporation’s revenue or profitability or expand
its customer base; provided, however, that for purposes of items (ii), (iii) and (vii) above, the Plan Administrator may, at the
time the Awards are made, specify certain adjustments to such items as reported in accordance with generally accepted accounting
principles in the U.S. (“
GAAP
”), which will exclude from the calculation of those performance goals one or more
of the following: certain charges related to acquisitions, stock-based compensation, employer payroll tax expense on certain stock
option exercises, settlement costs, restructuring costs, gains or losses on strategic investments, non-operating gains or losses,
certain other non-cash charges, valuation allowance on deferred tax assets, and the related income tax effects, purchases of property
and equipment, and any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 or its successor,
provided that such adjustments are in conformity with those reported by the Corporation on a non-GAAP basis. In addition, such
performance goals may be based upon the attainment of specified levels of the Corporation’s performance under one or more
of the measures described above relative to the performance of other entities and may also be based on the performance of any of
the Corporation’s business groups or divisions thereof or any Parent or Subsidiary. Performance goals may include a minimum
threshold level of performance below which no award will be earned, levels of performance at which specified portions of an award
will be earned, and a maximum level of performance at which an award will be fully earned. The Plan Administrator may provide that,
if the actual level of attainment for any performance objective is between two specified levels, the amount of the award attributable
to that performance objective shall be interpolated on a straight-line basis.
3. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend) that the Participant may have the right to receive
with respect to the Participant’s unvested shares of common stock by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the outstanding common stock as a class without the Corporation’s
receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested
shares of common stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
4. The Participant shall have full stockholder
rights with respect to any shares of common stock issued to the Participant under the Stock Issuance Program, whether or not the
Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and
to receive any regular cash dividends paid on such shares. The Participant shall not have any stockholder rights with respect to
the shares of common stock subject to a restricted stock unit award until that award vests and the shares of common stock are actually
issued thereunder. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of
common stock, on outstanding restricted stock unit or restricted stock awards, subject to such terms and conditions as the Plan
Administrator may deem appropriate.
5. Should the Participant cease to remain in
Service while holding one or more unvested shares of common stock issued under the Stock Issuance Program or should the performance
objectives not be attained with respect to one or more such unvested shares of common stock, then except as set forth in
Section
I.C.6
of this
Article Three
, those shares shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash, cash equivalent or otherwise, the Corporation shall repay
to the Participant the same amount and form of consideration as the Participant paid for the surrendered shares.
6. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of common stock that would otherwise occur upon the cessation
of the Participant’s Service or the non-attainment of the performance objectives applicable to those shares. Any such waiver
shall result in the immediate vesting of the Participant’s interest in the shares of common stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment
or non-attainment of the applicable performance objectives. However, no vesting requirements tied to the attainment of performance
objectives may be waived with respect to shares that were intended at the time of issuance to qualify as performance-based compensation
under Code Section 162(m), except in the event of the Participant’s Involuntary Termination or as otherwise provided
in
Section II.E
of this
Article Three
.
7. Outstanding restricted stock awards or restricted
stock units under the Stock Issuance Program shall automatically terminate, and no shares of common stock shall actually be issued
in satisfaction of those awards or units, if the performance goals or Service requirements established for such awards or units
are not attained or satisfied. The Plan Administrator, however, shall have the discretionary authority to issue vested shares of
common stock under one or more outstanding restricted stock awards or restricted stock units as to which the designated performance
goals or Service requirements have not been attained or satisfied. However, no vesting requirements tied to the attainment of performance
goals may be waived with respect to awards or units which were at the time of grant intended to qualify as performance-based compensation
under Code Section 162(m), except in the event of the Participant’s Involuntary Termination or as otherwise provided
in
Section II.E
of this
Article Three
.
II.
|
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Change in Control/ Hostile Take-Over
.
|
A. All of the Corporation’s
outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of common stock
subject to those terminated rights shall immediately vest in full, in the event of any Change in Control, except to the extent
(i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) or otherwise continued in full
force and effect pursuant to the express terms of the Change in Control transaction or (ii) such accelerated vesting is precluded
by other limitations imposed in the Stock Issuance Agreement.
B. Each outstanding Award under the
Stock Issuance Program that is assumed in connection with a Change in Control or otherwise continued in effect shall be adjusted
immediately after the consummation of that Change in Control to apply to the number and class of securities into which the shares
of common stock subject to the Award immediately prior to the Change in Control would have been converted in consummation of such
Change in Control had those shares actually been outstanding at that time, and appropriate adjustments shall also be made to the
cash consideration (if any) payable per share thereunder, provided the aggregate amount of such consideration shall remain the
same. If any such Award is not so assumed or otherwise continued in effect or replaced with a cash retention program which preserves
the Fair Market Value of the shares underlying the Award at the time of the Change in Control and provides for the subsequent payout
of that value in accordance with the vesting schedule in effect for the Award at the time of such Change in Control, such Award
shall vest, and the shares of common stock subject to that Award shall be issued as fully-vested shares, immediately prior to the
consummation of the Change in Control.
C. The Plan Administrator shall have
the discretionary authority to structure one or more unvested Awards under the Stock Issuance Program so that the shares of common
stock subject to those Awards shall automatically vest (or vest and become issuable) in whole or in part immediately upon the occurrence
of a Change in Control or upon the subsequent termination of the Participant’s Service by reason of an Involuntary Termination
within a designated period (not to exceed 18 months) following the effective date of that Change in Control transaction.
D. The Plan Administrator shall also
have the discretionary authority to structure one or more unvested Awards under the Stock Issuance Program so that the shares of
common stock subject to those Awards shall automatically vest (or vest and become issuable) in whole or in part immediately upon
the occurrence of a Hostile Take-Over or upon the subsequent termination of the Participant’s Service by reason of an Involuntary
Termination within a designated period (not to exceed 18 months) following the effective date of that Hostile Take-Over.
E. The Plan Administrator’s
authority under Paragraphs C and D of this
Section II
shall also extend to any Award intended to qualify as performance-based
compensation under Code Section 162(m), even though the automatic vesting of those Awards pursuant to Paragraph C or D of
this
Section II
may result in their loss of performance-based status under Code Section 162(m).
F. Awards outstanding under the Stock
Issuance Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business
or assets.
ARTICLE FOUR
MISCELLANEOUS
A. The Corporation’s obligation
to deliver shares of common stock upon the issuance, exercise or vesting of Awards under the Plan shall be subject to the satisfaction
of all applicable federal, state and local income and employment tax withholding requirements.
B. Subject to applicable laws, rules
and regulations and policies of the Corporation, the Plan Administrator may, in its discretion, provide any or all Optionees or
Participants to whom Awards are made under the Plan with the right to utilize any or all of the following methods to satisfy all
or part of the Withholding Taxes to which those holders may become subject in connection with the issuance, exercise or vesting
of those Awards.
(i)
Stock Withholding
:
The election to have the Corporation withhold, from the shares of common stock otherwise issuable upon the issuance, exercise or
vesting of those Awards a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed 100%) designated by the Optionee or Participant and make a cash payment equal to such Fair Market Value directly
to the appropriate taxing authorities on such individual’s behalf. The shares of common stock so withheld shall not reduce
the number of shares of common stock authorized for issuance under the Plan.
(ii)
Stock
Delivery
: The election to deliver to the Corporation, at the time the Award is issued, exercised or vests, one or more
shares of common stock previously acquired by such the Optionee or Participant (other than in connection with the issuance, exercise
or vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes
(not to exceed 100%) designated by such holder. The shares of common stock so delivered shall not be added to the shares of common
stock authorized for issuance under the Plan.
(iii)
Sale and Remittance
:
The election to deliver to the Corporation, to the extent the Award is issued or exercised for vested shares, through a special
sale and remittance procedure pursuant to which the Optionee or Participant shall concurrently provide irrevocable instructions
to a brokerage firm to effect the immediate sale of the purchased or issued shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the Withholding Taxes required to be withheld by the Corporation
by reason of such issuance, exercise or vesting.
II.
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Share Escrow/Legends
.
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Unvested shares issued under the Plan
may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest
in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those
unvested shares.
III.
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Effective Date and Term of the Plan
.
|
A. The Plan was initially adopted
by the Board on July 19, 2006 and ratified and approved by the Corporation’s stockholders on September 7, 2006. The Plan
was amended by the Board on March 5, 2010 and ratified and approved by the Corporation’s stockholders on June 3, 2010 to
increase the number of shares authorized for issuance under the Plan from 19,048 shares to 57,143 shares. The Plan was further
amended by the Board effective October 20, 2010 to (i) increase the limit on annual awards to any plan participant from 250,000
shares to 1,000,000 shares, and (ii) eliminate the authority of the Plan Administrator to reduce the exercise or base price of
one or more outstanding stock options or stock appreciation rights. The Plan was amended by the Board on March 25, 2011 and ratified
and approved by the Corporation’s stockholders on May 19, 2011 to increase the number of shares authorized for issuance under
the Plan from 57,143 shares to 80,952 shares. The Plan was amended by the Board effective April 2, 2012 and ratified and approved
by the Corporation’s stockholders on December 13, 2012 to increase the number of shares authorized for issuance under the
Plan from 80,952 shares to 414,286 shares. The Plan was amended by the Board effective March 21, 2013 and ratified and approved
by the Corporation’s stockholders on June 18, 2013 to increase the number of shares authorized for issuance under the Plan
from 414,286 shares to 914,286 shares. The Plan was also amended by the Board effective April 12, 2013 to (i) change the limit
on annual awards to any plan participant from 1,000,000 shares to a limit of One Million Dollars ($1,000,000), and (ii) eliminate
the authority of the Plan Administrator to replace outstanding options or stock appreciation rights or pay cash or issue shares
of common stock in consideration of cancelled options or stock appreciation rights. The Plan was amended by the Board on March
6, 2014, subject to stockholder approval, to increase the number of shares authorized for issuance under the Plan from 914,286
shares to 1,715,000 shares.
B. The Plan shall become effective
on the Plan Effective Date. Awards may be granted under the Discretionary Grant Program and the Stock Issuance Program at any time
on or after the Plan Effective Date.
C. The Plan shall terminate upon the
earliest to occur of (i) July 19, 2016, (ii) the date on which all shares available for issuance under the Plan shall have been
issued as fully-vested shares, (iii) the termination of all outstanding Awards in connection with a Change in Control or (iv) such
other date as the Board in its sole discretion terminates the Plan. If the Plan terminates on July 19, 2016 or on such other date
as the Board terminates the Plan, then all Awards outstanding at that time shall continue to have force and effect in accordance
with the provisions of the documents evidencing such Awards.
IV.
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Amendment, Suspension or Termination of the Plan
.
|
The Board may suspend or terminate the
Plan at any time, without notice, and in its sole discretion. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or modification shall materially impair the rights
and obligations with respect to Awards at the time outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification. In addition, stockholder approval will be required for any amendment to the Plan that (i) materially
increases the number of shares of common stock available for issuance under the Plan, (ii) materially expands the class of individuals
eligible to receive option grants or other awards under the Plan, (iii) materially increases the benefits accruing to the Optionees
and Participants under the Plan or materially reduces the price at which shares of common stock may be issued or purchased under
the Plan, (iv) materially extends the term of the Plan, (v) expands the types of awards available for issuance under the Plan or
(vi) is required under applicable laws, rules or regulations to be approved by stockholders.
Any cash proceeds received by the Corporation
from the sale of shares of common stock under the Plan shall be used for general corporate purposes.
VI.
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Regulatory Approvals
.
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A. The implementation of the Plan,
the grant of any Award and the issuance of shares of common stock in connection with the issuance, exercise or vesting of any Award
made under the Plan shall be subject to the Corporation’s procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the Awards made under the Plan and the shares of common stock issuable pursuant
to those Awards.
B. No shares of common stock or other
assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements
of federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares
of common stock issuable under the Plan, and all applicable listing requirements of The NASDAQ Capital Market, if applicable, and
any stock exchange or other market on which common stock is then quoted or listed for trading.
VII.
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No Employment/ Service Rights
.
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Nothing in the Plan shall confer upon
the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee
or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for
any reason, with or without cause.
VIII.
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Non-Exclusivity of the Plan
.
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Nothing contained in the Plan is intended
to amend, modify, or rescind any previously approved compensation plans, programs or options entered into by the Corporation. This
Plan shall be construed to be in addition to and independent of any and all other arrangements. Neither the adoption of the Plan
by the Board nor the submission of the Plan to the stockholders of the Corporation for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt, with or without stockholder approval, such additional or other
compensation arrangements as the Board may from time to time deem desirable.
All questions and obligations under the
Plan and agreements issued pursuant to the Plan shall be construed and enforced in accordance with the laws of the State of Delaware.
X.
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Information to Optionees and Participants
.
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Optionees and Participants under the
Plan who do not otherwise have access to financial statements of the Corporation will receive the Corporation’s financial
statements at least annually.
APPENDIX
The following definitions shall be in
effect under the Plan:
A. “
Award
” means
any of the following stock or stock-based awards authorized for issuance or grant under the Plan: stock option, stock appreciation
right, direct stock issuance, restricted stock or restricted stock unit award or other stock-based award.
B. “
Board
” means
the Corporation’s board of directors.
C. “
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 1934 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
1934 Act), directly or indirectly of securities of the Corporation representing 51% or more of the combined voting power of the
Corporation, or
(ii) there is a merger,
consolidation, or other business combination transaction of the Corporation 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 Corporation 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 Corporation (or surviving entity) outstanding immediately after such transaction, or
(iii) all or substantially
all of the Corporation’s assets are sold.
D. “
Code
” means
the Internal Revenue Code of 1986, as amended.
E. “
common stock
”
means the Corporation’s common stock, $0.001 par value per share.
F. “
Compensation Committee
”
means a committee of the Board comprised solely of two or more Eligible Directors who are appointed by the Board to administer
the Discretionary Grant and Stock Issuance Programs, who are “outside directors” within the meaning of Section 162(m)
of the Code and who are “non-employee directors” within the meaning of Rule 16b-3(b)(3)(i).
G. “
Consultant
”
means a consultant or other independent advisor who is under written contract with the Corporation (or any Parent or Subsidiary)
to provide consulting or advisory services to the Corporation (or any Parent or Subsidiary) and whose securities issued pursuant
to the Plan could be registered on Form S-8.
H. “
Corporation
”
means Pacific Ethanol, Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting
stock of Pacific Ethanol, Inc. that shall by appropriate action adopt the Plan.
I. “
Discretionary Grant Program
”
means the discretionary grant program in effect under
Article Two
of the Plan pursuant to which stock options and stock
appreciation rights may be granted to one or more eligible individuals.
J. “
Eligible Director
”
means a Board member who is not, at the time of such determination, an employee of the Corporation (or any Parent or Subsidiary).
K. “
Employee
” means
an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method of performance.
L. “
Exercise Date
”
means the date on which the Corporation shall have received written notice of the option exercise.
M. “
Fair Market Value
”
per share of common stock on any relevant date shall be determined in accordance with the following provisions:
(i) If the common stock is
at the time traded on The NASDAQ Capital Market, then the Fair Market Value shall be the closing selling price per share of common
stock at the close of regular hours trading (i.e., before after- hours trading begins) on The NASDAQ Capital Market on the date
in question, as such price is reported by the National Association of Securities Dealers. If there is no closing selling price
for the common stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(ii) If the common stock
is not traded on The NASDAQ Capital Market but is at the time listed or quoted on any other market or exchange, then the Fair Market
Value shall be the closing selling price per share of common stock at the close of regular hours trading (i.e., before after-hours
trading begins) on the date in question on the market or exchange determined by the Plan Administrator to be the primary market
for the common stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no
closing selling price for the common stock on the date in question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(iii) In the absence of an
established market for the common stock, the Fair Market Value shall be determined in good faith by the Plan Administrator.
In addition, with respect to any Incentive
Option, the Fair Market Value shall be determined in a manner consistent with any regulations issued by the Secretary of the Treasury
for the purpose of determining fair market value of securities subject to an Incentive Option plan under the Code.
N. “
Family Member
”
means, with respect to a particular Optionee or Participant, any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law,
including adoptive relationships.
O. “
Hostile Take-Over
”
means either of the following events effecting a change in control or ownership of the Corporation:
(i) the acquisition,
directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than 50% of the total combined voting power of the Corporation’s outstanding
securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders that the Board does not
recommend such stockholders to accept, or
(ii) a change in the
composition of the Board over a period of 36 consecutive months or less such that a majority of the Board members ceases, by reason
of one or more contested elections for Board membership, to be composed of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election
or nomination.
P. “
Incentive Option
” means an option that satisfies the requirements of Code Section 422.
Q. “
Involuntary Termination
”
means the termination of the Service of any individual that occurs by reason of:
(i) if such individual is
providing services to the Corporation pursuant to a written contract that defines “cause” or “misconduct”
or similar reasons such individual could be dismissed or discharged by the Corporation, then such individual’s involuntary
dismissal or discharge by the Corporation other than for any of such reasons and other than for Misconduct shall be an Involuntary
Termination;
(ii) if such individual is
not providing services to the Corporation pursuant to a written contract that defines “cause” or “misconduct”
or similar reasons such individual could be dismissed or discharged by the Corporation, then such individual’s involuntary
dismissal or discharge by the Corporation for reasons other than Misconduct shall be an Involuntary Termination;
(iii) if such individual
is providing services to the Corporation pursuant to a written contract that defines “good reason” or similar reasons
such individual could voluntarily resign, then such individual’s voluntary resignation for any of such reasons shall be an
Involuntary Termination; or
(iv) if such individual is
providing services to the Corporation pursuant to a written contract that does not define “good reason” or similar
reasons such individual could voluntarily resign, then such individual’s voluntary resignation following (A) a change in
his or her position with the Corporation that materially reduces his or her duties and responsibilities or the level of management
to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target
bonus under any corporate-performance based bonus or incentive programs) by more than 15% or (C) a relocation of such individual’s
place of employment by more than 50 miles, provided and only if such change, reduction or relocation is effected by the Corporation
without the individual’s consent, shall be an Involuntary Termination.
R. “
Misconduct
”
means the commission of: any act of fraud, embezzlement or dishonesty by the Optionee or Participant; any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary); any illegal or improper
conduct or intentional misconduct, gross negligence or recklessness by such person that has adversely affected or, in the determination
of the Plan Administrator, is likely to adversely affect, the business, reputation, goodwill or affairs of the Corporation (or
any Parent or Subsidiary) in a material manner; any conduct that provides a basis for the Corporation to terminate for “cause,”
“misconduct” or similar reasons the written contract pursuant to which the Optionee or Participant is providing Services
to the Corporation; resignation by the Optionee or Participant on fewer than 30 days’ prior written notice and in violation
of an agreement to remain in Service of the Corporation, in anticipation of a termination for “cause,” “misconduct”
or similar reasons under the agreement, or in lieu of a formal discharge for “cause,” “misconduct” or similar
reasons. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary)
to discharge or dismiss any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary)
for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to constitute
grounds for termination for Misconduct.
S. “
1934 Act
” means
the Securities Exchange Act of 1934, as amended.
T. “
Non-Statutory Option
”
means an option not intended to satisfy the requirements of Code Section 422.
U. “
Optionee
” means
any person to whom an option is granted under the Discretionary Grant Program.
V. “
Parent
” means
any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation
in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other corporations in such chain.
W. “
Participant
”
means any person who is issued shares of common stock or restricted stock units or other stock-based awards under the Stock Issuance
Program.
X. “
Permanent Disability
”
or “
Permanently Disabled
” means the inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of
continuous duration of twelve months or more.
Y. “
Plan
” means
the Corporation’s 2006 Stock Incentive Plan, as set forth in this document.
Z. “
Plan Administrator
”
means the particular entity, whether the Compensation Committee or the Board, which is authorized to administer the Discretionary
Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying
out its administrative functions under those programs with respect to the persons then subject to its jurisdiction.
AA. “
Plan Effective Date
”
means the date that stockholder approval of the Plan is obtained in accordance with
Section III.A.
of
Article Four
.
BB. “
Section 16 Insider
”
means an officer or director of the Corporation subject to the short-swing profit liability provisions of Section 16 of the
1934 Act.
CC. “
Service
” means
the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, an Eligible
Director or a Consultant, except to the extent otherwise specifically provided in the documents evidencing the Award made to such
person. For purposes of the Plan, an Optionee or Participant shall be deemed to cease Service immediately upon the occurrence of
the either of the following events: (i) the Optionee or Participant no longer performs services in any of the foregoing capacities
for the Corporation or any Parent or Subsidiary or (ii) the entity for which the Optionee or Participant is performing such services
ceases to remain a Parent or Subsidiary of the Corporation, even though the Optionee or Participant may subsequently continue to
perform services for that entity.
DD. “
Stock Issuance Agreement
”
means the agreement entered into by the Corporation and the Participant at the time of issuance of shares of common stock under
the Stock Issuance Program.
EE. “
Stock Issuance Program
”
means the stock issuance program in effect under
Article Three
of the Plan.
FF. “
Subsidiary
”
means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing
50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
GG. “
Take-Over Price
”
means the greater of (i) the Fair Market Value per share of common stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or, if applicable, (ii) the highest reported price per share of common stock paid by the
tender offeror in effecting such Hostile Take-Over through the acquisition of such common stock. However, if the surrendered option
is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share.
HH. “
10% Stockholder
”
means the owner of stock (as determined under Code Section 424(d)) possessing more than 10% of the total combined voting power
of all classes of stock of the Corporation (or any Parent or Subsidiary).
II. “
Withholding
Taxes
” means the federal, state and local income and employment taxes to which the Optionee or Participant may become
subject in connection with the issuance, exercise or vesting of the Award made to him or her under the Plan.
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