SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under § 240.14a-12
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PACIFIC ETHANOL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Fees paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Form, Schedule or Registration Statement No.:
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PACIFIC
ETHANOL, INC.
400 Capitol Mall, Suite 2060
Sacramento, California 95814
October 2, 2020
Dear Fellow Stockholder:
We cordially invite you to attend the 2020
annual meeting (“Annual Meeting”) of stockholders of Pacific Ethanol, Inc., which will be held at 9:00 a.m., local
time, on Wednesday, November 18, 2020 at our corporate headquarters at 400 Capitol Mall, Suite 2060, Sacramento, California 95814.
All stockholders of record at the close of business on September 23, 2020 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 2016 Stock Incentive Plan to increase the number of shares of common stock authorized for issuance under the
plan from 5,650,000 shares to 7,400,000 shares; and (iv) ratify the appointment of RSM US LLP to serve as our independent
registered public accounting firm for the year ending December 31, 2020.
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.
We 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 each stockholder 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.
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.
Please note we are actively monitoring
developments with respect to the coronavirus (COVID-19) and the advice and guidance of public health officials, including guidelines
on limits to the number of people permitted to congregate in one location. We are sensitive to the public health and travel concerns
our stockholders may have and the protocols that federal, state, and local governments may impose. In the event it is not possible
or advisable to hold the Annual Meeting in person, we will announce any change in date, time or location of the meeting as promptly
as practicable, which may include postponing or adjourning the Annual Meeting or holding the Annual Meeting by means of remote
communication. We will make any announcement regarding a change to the date, location or format of the Annual Meeting by issuing
a press release, by filing definitive additional materials with the Securities and Exchange Commission and by taking all other
steps necessary to inform our stockholders of the change. Please monitor our website at www.pacificethanol.com, news releases and
our filings with the Securities and Exchange Commission for updated information. If you are planning to attend the Annual Meeting,
please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the Annual
Meeting.
We look forward to seeing you November 18th.
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Sincerely,
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William L. Jones,
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Chairman of the Board
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PACIFIC ETHANOL, INC.
NOTICE OF THE 2020 ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD NOVEMBER 18, 2020
NOTICE IS HEREBY GIVEN that the 2020 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, November 18, 2020 at our corporate headquarters at 400 Capitol Mall, Suite 2060, Sacramento, California
95814, for the following purposes, as more fully described in the Proxy Statement accompanying this notice:
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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, Michael D. Kandris, Terry L. Stone,
John L. Prince, Douglas L. Kieta, Gilbert E. Nathan and Dianne S. Nury.
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To cast a non-binding advisory vote to approve our executive compensation (“say-on-pay”).
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To approve an amendment to our 2016 Stock Incentive Plan to increase the number of shares of common stock authorized for issuance
under the plan from 5,650,000 shares to 7,400,000 shares.
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To ratify the appointment of RSM US LLP as our independent registered public accounting firm for the year ending December 31,
2020.
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To transact such other business as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.
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All stockholders of record at the close
of business on September 23, 2020 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 4 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.
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By Order of the Board of Directors,
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William L. Jones,
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Chairman of the Board
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Sacramento, California
October 2, 2020
INTERNET AVAILABILITY
OF PROXY MATERIALS
WE
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 EACH STOCKHOLDER 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.
PACIFIC ETHANOL, INC.
PROXY STATEMENT
FOR THE 2020 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 18, 2020
TABLE OF CONTENTS
PACIFIC ETHANOL, INC.
400
Capitol Mall, Suite 2060
Sacramento,
California 95814
PROXY STATEMENT
FOR THE 2020 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 2020 annual meeting
(“Annual Meeting”) of stockholders to be held on Wednesday, November 18, 2020, at 9:00 a.m., local time, at our corporate
headquarters at 400 Capitol Mall, Suite 2060, Sacramento, California 95814, 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 October 2,
2020. Our stockholders are invited to attend the Annual Meeting and are requested to vote on the proposals described in this Proxy
Statement.
Please note that we are continuing to monitor
the public health and safety concerns related to the coronavirus (COVID-19) and the various measures being implemented to reduce
its spread. If we determine it is advisable not to hold the Annual Meeting in person, we may decide to change the date, time or
location of the meeting, including to hold it “virtually”. If we do make such a change, we will promptly provide public
notice in a manner compliant with applicable Securities and Exchange Commission guidance.
IMPORTANT NOTICE REGARDING
THE INTERNET AVAILABILITY
OF PROXY MATERIALS
FOR THE 2020 ANNUAL MEETING
OF STOCKHOLDERS TO
BE HELD NOVEMBER 18, 2020
This Proxy Statement and our Annual Report
on Form 10-K for the year ended December 31, 2019 are available at the website address at http://proxyvote.com. You will need your
control number located in our Notice of Internet Availability of Proxy Materials sent to you to access the proxy materials. Your
control number is also located in your proxy card and your voting instruction form. 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:
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Proposal 1
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Election to our Board of the seven nominees named in this Proxy Statement;
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Proposal 2
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A non-binding advisory vote to approve our executive compensation (“say-on-pay”);
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Proposal 3
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A proposal to amend our 2016 Stock Incentive Plan (the “2016 Plan”) to increase the number of shares of common stock authorized for issuance under the 2016 Plan; and
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Proposal 4
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Ratification of the appointment of RSM US LLP as our independent registered public accounting firm for 2020.
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What are the Board’s Voting Recommendations?
The Board recommends that you vote your
shares as follows:
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Proposal 1
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“FOR” each of the nominees to our Board;
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Proposal 2
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“FOR” the approval of our executive compensation (“say-on-pay”);
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Proposal 3
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“FOR” the proposal to amend our 2016 Plan to increase the number of shares of common stock authorized for issuance under the 2016 Plan; and
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Proposal 4
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“FOR” the ratification of the appointment of RSM US LLP as our independent registered public accounting firm for 2020.
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Who is entitled to vote?
To be able to vote, you must have been a
stockholder on September 23, 2020, the record date for determination of stockholders entitled to notice of and to vote at the Annual
Meeting. As of the record date, 63,497,076 shares of our voting 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.
As of the record date, 896 shares of our
non-voting common stock, par value $0.001 per share (“Non-Voting Common Stock”), were also issued and outstanding.
Holders of our Non-Voting Common Stock are entitled to notice of and to attend the Annual Meeting but are not entitled to vote
on any matters in respect of their shares of Non-Voting Common Stock.
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 63,523,557 votes may be cast at the Annual Meeting, of which holders of common stock will be entitled to cast 63,497,076
votes and holders of Series B Preferred Stock will be entitled to cast 26,481 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 31,761,779 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 the 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, Two and 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, Two and 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 NASDAQ’s
listing rules. 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 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 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 Proposals Three and Four. Abstentions
will be counted toward the tabulation of votes present or represented on these proposals and will have the same effect as votes
against Proposals Three and Four.
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 an enclosed 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, November 17, 2020 for shares held directly and at 11:59 p.m. Eastern Time, Monday, November 16, 2020 for shares
held in a plan.
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 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, Three and 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 soliciting
proxies for the Annual Meeting, including the cost of preparing, assembling, printing and mailing the Notice of Internet Availability
of Proxy Materials, this Proxy Statement, the proxy card and any additional solicitation materials furnished to our 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.
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, Michael D. Kandris, Terry L. Stone, John L. Prince, Douglas L. Kieta, Gilbert E. Nathan and Dianne S. Nury. 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 present directors of Pacific Ethanol. All of the nominees 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 in favor of 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 Corporate 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 September 23, 2020:
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Age
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Position(s) Held
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William L. Jones(1)
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70
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Chairman of the Board, Director and Director Nominee
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Michael D. Kandris
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73
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Co-Chief Executive Officer, Co-President, Chief Operating Officer, Director and Director Nominee
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Neil M. Koehler
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62
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Co-Chief Executive Officer, Co-President and Director
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Terry L. Stone(2)
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71
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Director and Director Nominee
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John L. Prince(3)
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77
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Director and Director Nominee
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Douglas L. Kieta(4)
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77
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Director and Director Nominee
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Gilbert E. Nathan(1)
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41
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Director and Director Nominee
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Dianne S. Nury(5)
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60
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Director and Director Nominee
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(1)
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Member of the Audit and Nominating and Corporate Governance
Committees.
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(2)
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Member of the Audit and Compensation Committees.
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(3)
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Member of the Audit, Compensation and Nominating and Corporate
Governance Committees.
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(4)
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Member of the Compensation and Nominating and Corporate
Governance Committees.
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(5)
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Member of the Compensation Committee.
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Experience and Background
The biographies below describe the skills,
qualities, 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:
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co-founder of PEI California;
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knowledge gained through his extensive work as our Chairman since our inception in 2005;
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extensive knowledge of and experience in the agricultural and feed industries, as well as a deep understanding of operations
in political environments; and
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background as an owner of a farming company in California, and his previous role in the California state government.
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Michael D. Kandris has served
as a director since June 2008 and as our Chief Operating Officer since January 6, 2013. Mr. Kandris was appointed as our Co-Chief
Executive Officer and Co-President in May 2020. 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 of the Western Division of Ruan Transportation Management Systems from November 2008 until his retirement
in September 2009. From January 2000 to November 2008, 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:
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extensive experience in various executive leadership positions;
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extensive experience in rail and truck transportation and logistics; and
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day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities.
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Neil M. Koehler served as
Chief Executive Officer, President and as a director since March 2005. Mr. Koehler became our Co-Chief Executive Officer and Co-President
in May 2020. 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, or Kinergy, 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 and marketing industry in the Western United States. Mr.
Koehler is Chairman of the Board of Directors of the Renewable Fuels Association and is a nationally-recognized speaker on the
production and marketing of renewable fuels. Mr. Koehler has a B.A. degree in Government from Pomona College.
Mr. Koehler’s qualifications to serve
on our Board include:
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day-to-day leadership experience as our Chief Executive Officer and President has provided Mr. Koehler with intimate knowledge
of our operations;
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extensive knowledge of and experience in the ethanol production and marketing industry, particularly in the Western United
States;
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prior leadership experience with other companies in the ethanol industry; and
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day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities.
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Terry L. Stone has served
as a director since March 2005. Mr. Stone is a Certified Public Accountant with over forty 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, LLC.
Mr. Stone has a B.S. degree in Accounting from California State University, Fresno.
Mr. Stone’s qualifications to serve
on our Board include:
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extensive experience with financial accounting and tax matters;
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recognized expertise as an instructor of taxation, auditing and financial and management accounting;
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“audit committee financial expert,” as defined by the Securities and Exchange Commission;
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satisfies the “financial sophistication” requirements of NASDAQ’s listing standards; and
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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.
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John L. Prince has served
as a director since July 2005. Mr. Prince is retired but also works as a consultant. 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:
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extensive experience in various executive leadership positions;
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day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities; and
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ability to communicate and encourage discussion helps Mr. Prince discharge his duties effectively as chairman of our Nominating
and Corporate Governance Committee.
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Douglas L. Kieta has served
as a director since April 2006. Mr. Kieta is currently retired but also works as a consultant through Century West Projects, Inc.,
of which he is the President and an owner, providing project and construction management services. 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:
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extensive experience in various leadership positions;
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day-to-day leadership experience affords a deep understanding of business operations, challenges and opportunities; and
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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.
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Gilbert E. Nathan has served
as a director since November 2019 and, prior to formally joining our Board as a director, served as an advisor to our Board since
November 2015. Mr. Nathan is the Managing Member of Jackson Square Advisors LLC, which he founded in 2015. He serves on the Board
of Directors of Ready Capital Corporation, a public company, and also serves as the Chief Executive Officer of Keycon Power Holdings
LLC, a position he has held since November 2018, and as a liquidating trust board member of Hercules Offshore Liquidating Trust.
He previously served on the boards of directors of Owens Realty Mortgage, Inc. and Emergent Capital, Inc. From 2013 to 2015, Mr.
Nathan was a Senior Analyst with Candlewood Investment Group, an investment firm with significant debt and equity investments in
the ethanol industry. From 2002 to 2012, Mr. Nathan was a Principal at Restoration Capital Management, an investment firm focused
on distressed investments, event driven situations, and high-yield debt. Mr. Nathan has a B.S. degree in Management, Major in Finance
from the A. B. Freeman School of Business at Tulane University.
Mr. Nathan’s qualifications to serve
on our Board include:
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experience in research, financial analysis and trading in debt and equity investments;
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experience in energy-related investments, including oil and gas exploration and production; renewable energy; power; and oil
field services;
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experience in fiduciary roles, including service on boards of directors and special committees of public companies, and as
a trustee;
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would qualify as an “audit committee financial expert,” as defined by the Securities and Exchange Commission; and
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satisfies the “financial sophistication” requirements of NASDAQ’s listing standards.
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Dianne S. Nury has served
as a director since November 2019 and, prior to formally joining our Board as a director, served as an advisor to our Board since
August 2018. Ms. Nury has served since 1990 as President and Chief Executive Officer of Vie-Del Company, a family-owned winery,
distillery and fruit juice processor manufacturing liquid ingredients for spirits, wine, food and beverage companies. Ms. Nury
serves on the Board of Directors and is a former Chairman of the Board of the Wine Institute, the largest advocacy and public policy
association for California wine. Ms. Nury is a member of the Juice Products Association, the national trade association representing
the fruit and juice products industry, and formerly served as Chairman of its Board of Directors. She is a member of the Board
of Directors of the Agricultural Foundation for California State University at Fresno, where she serves as the Vice Chairman of
the Viticulture and Enology Industry Advisory Board. Ms. Nury previously served on the USDA Fruit and Vegetable Industry Advisory
Committee. Ms. Nury is a Board Member of the Foundation for Clovis Schools, Clovis, California, and previously served on the Board
of Trustees of the Saint Agnes Medical Center, Fresno, California. Ms. Nury has a B.S. degree in Business from California State
University at Fresno.
Ms. Nury’s qualifications to serve
on our Board include:
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experience in an executive management role as a chief executive officer;
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experience in alcohol, beverage and food ingredient industries;
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experience on boards of alcohol and food products industry associations; and
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her membership on our Board furthers our goal of increasing Board diversity.
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Family Relationships
There are no family relationships among
our directors or director nominees.
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, employees and consultants 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 on our website at http://www.pacificethanol.com/governance. Information on our 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
Our Chairman of the Board is William L.
Jones, who is a non-employee director. Our Co-Chief Executive Officers are Michael D. Kandris and Neil M. Koehler. Messrs. Jones
and Koehler served as our Chairman of the Board and Chief Executive Officer, respectively, since our inception in 2005. Messrs.
Kandris and Koehler have served as Co-Chief Executive Officers since May 2020. 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.
Our 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, and who is currently John L. Prince, 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 the management, including the identification, assessment and mitigation, 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, and assesses options for risk mitigation. Certain Board committees oversee various categories
of risks based on the committee’s scope of duties, but our entire Board stays informed such as with respect to strategic,
competitive, economic, operational, financial, legal, compliance, regulatory and compensatory risks. 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 compliance matters, tax matters and internal controls. Our Nominating
and Corporate Governance Committee manages risks associated with the independence of members of our Board, potential conflicts
of interest, the composition of our Board and other corporate governance matters. 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 Michael D. Kandris, who serves as our Co-Chief Executive Officer, Co-President
and Chief Operating Officer, and Neil M. Koehler, who serves as our Co-Chief Executive Officer and Co-President. Messrs. Kandris
and Koehler 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 2019, our Board
held 23 meetings and took action by written consent on various other occasions. All directors attended at least 75% of all 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 2019, 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 2019 annual meeting, we had seven members on our Board, all of
whom 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 on our website at http://www.pacificethanol.com/governance. Information on our 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’s general functions
include monitoring the integrity of our financial reporting process; overseeing processes for monitoring auditor independence;
overseeing the implementation of new accounting standards; overseeing and participating in the resolution of internal control issues,
when and if identified; communicating with our independent auditors on matters related to the conduct of audits; and reviewing
and understanding non-GAAP measures, and related company policies and disclosure controls. Moreover, 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, Jones and Prince
served on our Audit Committee for all of 2019. Mr. Nathan was appointed as a member of our Audit Committee on January 23, 2020.
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 2019, our Audit Committee
held five meetings. The Audit Committee Report for 2019 can be found on page 35 of this Proxy Statement.
Compensation Committee
Our Compensation Committee is responsible
for establishing, updating and administering our compensation program for executive officers including, among other things, annual
salaries and bonuses, stock options, stock grants, other stock-based awards, and other incentive compensation arrangements. The
Compensation Committee establishes the elements and mix of total compensation, sets the parameters and specific target metrics
of our performance-based incentive compensation plan, and determines the target compensation of our executive officers. In addition,
our Compensation Committee establishes the compensation philosophy and objectives, and oversees the administration of our compensation
program for all other employees. Our Compensation Committee also has the authority to administer our equity incentive plans with
respect to grants to executive officers and directors, and has authority to make equity awards under our equity incentive plans
to all other eligible individuals. However, our Board may retain, reassume or exercise from time to time the power to administer
our equity incentive plans. Equity awards made to members of the Compensation Committee must be authorized and approved by a disinterested
majority of our Board.
Our Compensation Committee believes that
our compensation program offered to our executive officers should attract, retain, motivate and reward key executive officers responsible
for our success; align and strengthen the mutuality of interests of our executive officers, our company and our stockholders; deliver
compensation that reflects our financial and operational performance, while providing the opportunity to earn above-targeted total
compensation for exceptional performance; and provide total compensation to each executive officer that is internally equitable,
competitive, and influenced by company and individual performance.
Our Compensation Committee has the authority
to retain consultants and other advisors, and in furtherance of the foregoing objectives, our Compensation Committee initially
in 2013, and again in each of the years 2014 and 2015, engaged Hay Group, a global human resources consulting firm, and in 2016
through 2019 engaged its successor, Korn Ferry Hay Group (collectively, “Korn Ferry Hay Group”), to conduct reviews
of our compensation program for our executive officers and other employees. From those reviews, Korn Ferry Hay Group provided our
Compensation Committee with relevant market data and alternatives to consider when making compensation decisions as to our executive
officers and other employees.
Messrs. Kieta, Stone and Prince, and Larry
D. Layne, a former director, served on our Compensation Committee for all of 2019. Ms. Nury was appointed as a member of our Compensation
Committee on January 23, 2020. Our Board has determined that each member of the Compensation Committee is “independent”
under the current NASDAQ listing standards. During 2019, our Compensation Committee held three meetings, conferred informally on
several occasions, and took action by written consent on three 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. Messrs. Prince, Kieta and Jones, and Larry D. Layne, a former director,
served on our Nominating and Corporate Governance Committee for all of 2019. Mr. Nathan was appointed as a member of our Nominating
and Corporate Governance Committee on January 23, 2020. Our Board has determined that each member of the Nominating and Corporate
Governance Committee is “independent” under the current NASDAQ listing standards. During 2019, our Nominating and Corporate
Governance Committee held two meetings.
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 45th 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 2019 annual meeting on or about September 20, 2019 and
anticipate mailing our proxy materials for our Annual Meeting on or about October 2, 2020. 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:
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the candidate’s independence from management;
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whether the candidate has relevant business experience;
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judgment, skill, integrity and reputation;
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existing commitments to other businesses;
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corporate governance background;
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financial and accounting background, to enable the committee to determine whether the candidate would be suitable for Audit
Committee membership; and
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the size and composition of our Board.
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In addition, our Board and our Nominating
and Corporate Governance Committee are committed to seeking out highly qualified women and minority candidates as well as candidates
with diverse backgrounds, skills and experiences as part of each Board member candidate search the Nominating and Corporate Governance
Committee undertakes. When searching for director nominees, our Nominating and Corporate Governance Committee will include highly
qualified diverse candidates (including gender, race and ethnicity) in the pool from which nominees are chosen.
Our Nominating and Corporate Governance
Committee has the authority to retain and terminate any search firm to be used to identify director nominees, including the authority
to approve the firm’s fees and other retention terms. Our Nominating and Corporate Governance Committee will direct any search
firm it retains to include qualified women and minority candidates in the firm’s list of potential director candidates. We
will provide funding, as determined by our Nominating and Corporate Governance Committee, for the payment of compensation to any
such search firms.
We intend to evaluate our diversity policy’s
effectiveness by periodically reviewing our ability to successfully include highly qualified diverse candidates in the pool from
which 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:
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compensation should pay directors fairly for work required in a company of our size and scope;
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compensation should align directors’ interests with the long-term interests of our stockholders; and
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the structure of the compensation should be clearly disclosed to our stockholders.
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In making compensation decisions for 2019
as to our directors, our Compensation Committee compared our cash and equity compensation payable to directors against market data
obtained by Korn Ferry Hay Group in 2015. Our Compensation Committee determined that this data from 2015 remained relevant to its
compensation decisions for 2019. The Korn Ferry Hay Group data included a survey of 1,400 companies across 24 industries with revenues
between $1 billion and $2.5 billion. For 2019, our Compensation Committee targeted compensation for our directors at approximately
the median of compensation paid to directors of the companies contained in the Korn Ferry Hay Group data.
Cash Compensation
Our annual cash compensation program for
directors includes the following:
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annual cash compensation provided to the Chairman of our Board is $112,500;
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base annual cash compensation provided to our non-employee directors, other than our Chairman, is $50,000;
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additional annual cash compensation provided to each of our Board committee chairs is $25,000; and
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additional annual cash compensation provided to our lead independent director is $12,000.
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These amounts are paid in advance in bi-weekly
installments. In addition, directors are reimbursed for specified reasonable and documented expenses in connection with attendance
at meetings of our Board and its committees. 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
at the earlier of our next annual meeting or approximately one year after the date of grant. Vesting is typically subject to continued
service on our Board during the full year.
In determining the amount of equity compensation
for 2019, the Compensation Committee determined a target value of total compensation of approximately the median of compensation
paid to directors of the companies comprising the market data provided to us by Korn Ferry Hay Group in 2015. 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.
Our annual equity compensation program for
directors includes the following:
|
|
●
|
the value of annual equity compensation provided to the Chairman of our Board is $142,500; and
|
|
|
●
|
the value of annual equity compensation provided to our non-employee directors, other than our Chairman, is $95,000.
|
In addition, our Compensation Committee
may grant, and has from time to time granted, additional equity compensation to directors at its discretion.
Compensation of Employee Directors
Messrs. Kandris and Koehler were compensated
as full-time employees and officers and therefore received no additional compensation for service as Board members during 2019.
Information regarding the compensation awarded to Messrs. Kandris and Koehler is included in “Executive Compensation and
Related Information—Summary Compensation Table” below.
Director Compensation Table – 2019
The following table summarizes the compensation
of our non-employee directors for the year ended December 31, 2019:
|
Name
|
|
Fees Earned
or Paid in Cash
($)(1)
|
|
|
|
|
|
Total
($)(2)
|
|
|
William L. Jones
|
|
$
|
112,500
|
|
|
$
|
25,175
|
(3)
|
|
$
|
137,675
|
|
|
Terry L. Stone
|
|
$
|
75,000
|
|
|
$
|
16,783
|
(4)
|
|
$
|
91,783
|
|
|
John L. Prince
|
|
$
|
87,000
|
|
|
$
|
16,783
|
(5)
|
|
$
|
103,783
|
|
|
Douglas L. Kieta
|
|
$
|
75,000
|
|
|
$
|
16,783
|
(6)
|
|
$
|
91,783
|
|
|
Larry D. Layne
|
|
$
|
75,000
|
|
|
$
|
16,783
|
(7)
|
|
$
|
91,783
|
|
|
Gilbert E. Nathan
|
|
$
|
50,000
|
(8)
|
|
$
|
16,783
|
(9)
|
|
$
|
66,783
|
|
|
Dianne S. Nury
|
|
$
|
50,000
|
(8)
|
|
$
|
16,783
|
(10)
|
|
$
|
66,783
|
|
|
|
(1)
|
For a description of annual director fees and fees for
chair and lead independent director positions, see the disclosure above under “Compensation of Directors—Cash Compensation.”
|
|
|
(2)
|
The value of perquisites and other personal benefits was
less than $10,000 in aggregate for each director.
|
|
|
(3)
|
At December 31, 2019, Mr. Jones held 105,869 vested shares
from stock awards. Mr. Jones was granted 47,500 shares of our common stock on November 18, 2019 having an aggregate grant date
fair value of $25,175, calculated based on the fair market value of our common stock on the applicable grant date. The shares
vest on the earlier of July 1, 2020 or the date of our next annual stockholders meeting.
|
|
|
(4)
|
At December 31, 2019, Mr. Stone held 90,880 vested shares
from stock awards. Mr. Stone was granted 31,666 shares of our common stock on November 18, 2019 having an aggregate grant date
fair value of $16,783, calculated based on the fair market value of our common stock on the applicable grant date. The shares
vest on the earlier of July 1, 2020 or the date of our next annual stockholders meeting.
|
|
|
(5)
|
At December 31, 2019, Mr. Prince held 73,134 vested shares
from stock awards. Mr. Prince was granted 31,666 shares of our common stock on November 18, 2019 having an aggregate grant date
fair value of $16,783, calculated based on the fair market value of our common stock on the applicable grant date. The shares
vest on the earlier of July 1, 2020 or the date of our next annual stockholders meeting.
|
|
|
(6)
|
At December 31, 2019, Mr. Kieta held 102,854 vested shares
from stock awards. Mr. Kieta was granted 31,666 shares of our common stock on November 18, 2019 having an aggregate grant date
fair value of $16,783, calculated based on the fair market value of our common stock on the applicable grant date. The shares
vest on the earlier of July 1, 2020 or the date of our next annual stockholders meeting.
|
|
|
(7)
|
At December 31, 2019, Mr. Layne held 79,517 vested shares
from stock awards. Mr. Layne was granted 31,666 shares of our common stock on November 18, 2019 having an aggregate grant date
fair value of $16,783, calculated based on the fair market value of our common stock on the applicable grant date. The shares
vest on the earlier of July 1, 2020 or the date of our next annual stockholders meeting.
|
|
|
(8)
|
Includes $42,308 in consulting fees prior to becoming a
director.
|
|
|
(9)
|
At December 31, 2019, Mr. Nathan held no vested shares
from stock awards. Mr. Nathan was granted 31,666 shares of our common stock on November 18, 2019 having an aggregate grant date
fair value of $16,783, calculated based on the fair market value of our common stock on the applicable grant date. The shares
vest on the earlier of July 1, 2020 or the date of our next annual stockholders meeting.
|
|
|
(10)
|
At December 31, 2019, Ms. Nury held no vested shares from
stock awards. Ms. Nury was granted 31,666 shares of our common stock on November 18, 2019 having an aggregate grant date fair
value of $16,783, calculated based on the fair market value of our common stock on the applicable grant date. The shares vest
on the earlier of July 1, 2020 or the date of our next annual stockholders meeting.
|
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 under
Section 14A of the Securities Exchange Act of 1934, as amended (“Exchange Act”), 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.
Our compensation program for our executive
officers utilizes elements including base salary, annual performance-based cash incentive compensation, long-term equity incentive
compensation, and health and other benefits to achieve the following goals:
|
|
●
|
attract, retain, motivate and reward key executive officers responsible for our success;
|
|
|
●
|
align and strengthen the mutuality of interests of our executive officers, our company and our stockholders;
|
|
|
●
|
deliver compensation that reflects our financial and operational performance, while providing the opportunity to earn above-targeted
total compensation for exceptional performance; and
|
|
|
●
|
provide total compensation to each executive officer that is internally equitable, competitive, and influenced by company and
individual performance.
|
We believe that our success depends in large
part on our ability to attract, retain and motivate qualified executives through competitive compensation arrangements. We also
believe that the compensation paid to our executive officers should be influenced by the value we create for our stockholders.
For these reasons, our Compensation Committee believes that our compensation program should provide incentives to attain both short-
and long-term financial and other business objectives and reward those executive officers who contribute meaningfully to attaining
those objectives. The Compensation Committee supports a pay-for-performance philosophy within a compensation structure that is
competitive, internally equitable and responsible.
Our Compensation Committee’s process
for determining overall target compensation for each executive officer is based in part on an analysis of compensation of similarly
situated personnel at third-party survey group companies derived from market data provided by the Compensation Committee’s
compensation consultant.
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 the Annual Meeting:
“RESOLVED, that the compensation
paid to Pacific Ethanol’s named executive officers, as disclosed in Pacific Ethanol’s proxy statement for its 2020
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
and Related Information” section of this Proxy Statement for additional details about our executive compensation program
and the different components of the program, including information about the total compensation of our named executive officers
in 2019. See also “Information About our Board of Directors, Board Committees and Related Matters – Board Committees
and Meetings – Compensation Committee” on page 7 of this Proxy Statement.
The say-on-pay vote is advisory, and therefore
not binding on us, 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 2019 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 2016 Stock Incentive Plan
In 2016, our Board adopted and our stockholders
ratified and approved the adoption of our 2016 Plan. On March 29, 2018, our Board approved, and on June 14, 2018 our stockholders
approved, an increase in the number of shares of common stock authorized for issuance under our 2016 Plan from 1,150,000 shares
to 3,650,000 shares. On August 6, 2019, our Board approved, and on November 7, 2019 our stockholders approved, a further increase
in the number of shares of common stock authorized for issuance under our 2016 Plan from 3,650,000 shares to 5,650,000 shares as
well as other amendments to the Plan. On September 2, 2020, our Board approved, subject to stockholder approval, a further increase
in the number of shares of common stock authorized for issuance under our 2016 Plan from 5,650,000 to 7,400,000 shares.
Our Board recommends approval of the amendment
to the 2016 Plan to enable the continued use of the 2016 Plan for stock-based grants consistent with the objectives of our compensation
program. The 2016 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 2016 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 5,650,000 shares of common stock
are authorized for issuance under the 2016 Plan. A total of 7,400,000 shares of common stock will be authorized for issuance under
the 2016 Plan upon stockholder approval of this proposal. Currently, equity awards totaling 4,952,968 shares of common stock have
been issued under the 2016 Plan. We believe that the 2016 Plan will be exhausted of shares available for issuance in 2021, leaving
insufficient shares available for equity grants in 2021 and future years. By increasing the number of shares authorized for issuance
under the 2016 Plan by 1,750,000, a total of 7,400,000 shares of common stock would be available for issuance. This increase would,
in essence, 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 share increase amendment will
not be implemented unless approved by our stockholders, and no additional equity awards beyond the existing 5,650,000 shares of
common stock have been or will be issued under the 2016 Plan unless and until stockholder approval of the amended 2016 Plan is
obtained. If the proposed share increase amendment is not approved by our stockholders, the 2016 Plan will remain in effect in
its present form together with the amendments described above that are unrelated to the share increase.
Set forth below is information concerning
awards of restricted stock and options under our 2016 Plan and our prior 2006 Stock Incentive Plan (“2006 Plan”) for
each of the years ended December 31, 2015, 2016, 2017, 2018 and 2019. No other equity incentive compensation, whether under the
2006 Plan, the 2016 Plan or otherwise, was awarded in such years.
|
|
|
Year Ended December 31,
|
|
|
Three-Year
|
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
Average
|
|
|
Shares and options granted
|
|
|
307,078
|
|
|
|
741,595
|
|
|
|
663,823
|
|
|
|
1,175,477
|
|
|
|
1,433,771
|
|
|
|
1,091,024
|
|
|
Shares outstanding at year-end
|
|
|
42,515,104
|
|
|
|
43,312,370
|
|
|
|
43,985,871
|
|
|
|
45,772,318
|
|
|
|
55,508,314
|
|
|
|
48,422,168
|
|
|
Annual run rate(1)
|
|
|
0.7
|
%
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
2.6
|
%
|
|
|
2.6
|
%
|
|
|
2.3
|
%
|
|
Unvested shares and options outstanding at year-end
|
|
|
539,081
|
|
|
|
930,212
|
|
|
|
1,077,408
|
|
|
|
1,864,991
|
|
|
|
2,201,924
|
|
|
|
1,714,774
|
|
|
Overhang(2)
|
|
|
1.3
|
%
|
|
|
2.1
|
%
|
|
|
2.4
|
%
|
|
|
4.1
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
(1)
|
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.
|
|
|
(2)
|
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.
|
The following is a summary of the principal
features of our 2016 Plan, as amended to reflect the proposed plan amendment. The summary does not purport to be a complete description
of all provisions of our 2016 Plan and is qualified in its entirety by the text of the 2016 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 2016 Plan.
Share Reserve
An aggregate of 5,650,000 shares of common
stock are currently authorized for issuance under the 2016 Plan. A total of 7,400,000 shares of common stock will be authorized
for issuance under the 2016 Plan upon stockholder approval of this proposal. No additional equity awards beyond the existing 5,650,000
shares of common stock have been or will be issued under the 2016 Plan unless and until stockholder approval is obtained.
No participant in the 2016 Plan may be granted
equity awards for shares of common stock having a value in excess of $1,000,000 per calendar year.
The shares of common stock issuable under
the 2016 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 of common stock subject to outstanding
awards under the 2016 Plan shall in no event become eligible for reissuance under the 2016 Plan, whether as a result of expiration
or termination of an award, cancellation or repurchase of unvested shares, tender of shares in connection with a net/cashless exercise
program, withholding of shares to cover withholding taxes, or otherwise.
We have registered the issuance of all of
the shares of common stock currently authorized for issuance under our 2016 Plan on Form S-8 under the Securities Act. As soon
as practicable following stockholder approval to increase the number of shares of common stock authorized for issuance under the
2016 Plan, we intend to register the issuance of those securities under the 2016 Plan under a registration statement 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 2016 Plan could be
registered under a registration statement 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 September 23, 2020, six executive
officers, approximately 500 other employees, six non-executive officer members of our Board and an indeterminate number of consultants
and independent advisors were eligible to participate in the 2016 Plan.
Valuation
The fair market value per share of our common
stock on any relevant date under the 2016 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 September 23, 2020, the fair
market value determined on that basis was $7.35 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 (subject to a minimum initial vesting period of one (1) year), 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. Any unvested shares acquired under 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, solely in connection with the optionee’s retirement, 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:
|
|
●
|
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.
|
|
|
●
|
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.
|
|
|
●
|
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 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.
|
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, solely in connection with the optionee’s retirement,
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 (subject to a minimum initial vesting period of one (1) year), and the consideration, if any,
payable per share. The shares issued under an equity award may vest upon the completion of a designated service period (subject
to a minimum initial vesting period of one (1) year), and/or the attainment of pre-established performance goals.
The plan administrator 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 plan
administrator 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, 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 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.
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 Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), 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.
General Provisions
Acceleration. If a change in control
occurs, each outstanding equity award under the Discretionary Grant Program will automatically accelerate and vest 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 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 but will not have the right
to receive any regular cash dividends paid on unvested shares or the right to transfer the shares prior to vesting; however, we
will withhold and retain any dividends on unvested shares until such time as the shares vest, if at all, and will thereafter pay
to the participant any such dividends withheld and retained or, if the shares do not vest, return any such dividends to the corporate
treasury. 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 and subject to the withholding
and retention of dividends with respect to any unvested awards on the same terms as set forth above.
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 2016 Plan; (ii) the maximum number
and/or class of securities for which any one person may be granted equity awards under the 2016 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 2016 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 2016 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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●
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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.
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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.
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Amendment, Suspension and Termination
Our Board may suspend or terminate the 2016
Plan at any time. Our Board may amend or modify the 2016 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 2016 Plan, materially
expands the class of individuals eligible to receive equity awards under the 2016 Plan, materially increases the benefits accruing
to optionees and other participants under the 2016 Plan or materially reduces the price at which shares of common stock may be
issued or purchased under the 2016 Plan, materially extends the term of the 2016 Plan, expands the types of awards available for
issuance under the 2016 Plan, or as to which stockholder approval is required by applicable laws, rules or regulations.
Unless sooner terminated by our Board, the
2016 Plan will terminate on the earliest to occur of: (i) March 25, 2026; (ii) the date on which all shares available
for issuance under the 2016 Plan have been issued as fully-vested shares; (iii) and the termination of all outstanding equity
awards upon specified changes in control or ownership. If the 2016 Plan terminates on March 25, 2026, 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 the
principal income tax consequences of equity awards granted under the 2016 Plan under current federal income tax law, which is subject
to change, and is intended for general information only. In addition, the tax consequences described below may be 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. We will not summarize
the special rules that may apply if the recipient pays the exercise price of any equity award or any associated tax withholdings
by delivery of shares the recipient already owns or will acquire with respect to the equity award.
Option Grants. Options granted under
the 2016 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 of the underlying
shares 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 or long-term capital loss to the extent the amount realized
is less than 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 if the amount realized exceeds the sum of that excess plus the exercise price paid for the shares. Otherwise, only
the excess of the amount realized over the price paid for the shares will be treated 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 (long-term if the shares were
held for more than one year and short-term otherwise).
If the optionee makes a disqualifying disposition
of the purchased shares, we will generally be entitled to an income tax deduction, for our taxable year in which the disposition
occurs, equal to the amount of ordinary income the optionee is to recognize. 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 (assuming the option is exempt from Code
Section 409A). 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 from the optionee on that amount of ordinary income. A participant’s subsequent
disposition of shares acquired upon the exercise of an option generally will result in only capital gain or loss.
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, however the optionee will not recognize any taxable income at the time of exercise but will have to
report as ordinary income (and we will have to withhold with respect thereto), 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 settled in an amount equal to the cash and the fair market value of the shares of common
stock on the settlement date received for the right, and we will be required to collect withholding taxes from the holder on that
ordinary income. A participant’s subsequent disposition of shares acquired upon the exercise of a stock appreciation right
generally will result in only capital gain or loss.
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 2016 Plan may include issuances of unrestricted stock, restricted stock and restricted stock units.
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 (minus the amount, if any, paid by the participant for the
shares), and we will be required to collect withholding taxes from the holder on that ordinary income. A participant’s subsequent
disposition of shares issued pursuant to an unrestricted stock grant generally will result in only capital gain or loss.
We generally 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 restricted stock 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. In that event,
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 at the time of issuance (and we will be required to withhold on that amount). 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 recipient 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 from the holder at that time on that ordinary income. A participant’s subsequent disposition of shares issued pursuant
to a restricted stock grant generally will result in only capital gain or loss.
The holder also will recognize ordinary
income and be subject to withholdings with respect to any cash dividends that are paid in connection with a restricted stock grant
if they are paid prior to the time the shares vest (and assuming the holder does not make the election under Code Section 83(b)).
If the holder makes the Code Section 83(b) election, all dividends received on a restricted stock award will be taxed as an ordinary
dividend.
We generally 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 equal to the amount
of ordinary income recognized by the holder 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 cash is paid and/or shares subject to that unit are actually issued to the holder. The amount of that income
will be equal to the cash and the fair market value of the shares received on the date of issuance, and we will be required to
collect withholding taxes from the holder on that ordinary income. A participant’s subsequent disposition of shares issued
pursuant to a restricted stock unit grant generally will result in only capital gain or loss.
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.
Code 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, might 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 at the
time of vesting (as opposed to settlement) and the related withholding. The foregoing tax discussion assumes that the applicable
equity award is exempt from Code Section 409A. Equity awards subject to Code Section 409A may only be paid on certain trigger events
and are subject to a myriad number of other requirements.
Deductibility of Executive Compensation
Any compensation deemed paid by us in connection
with awards under the 2016 Plan may be taken into account for purposes of the annual $1,000,000 limitation per covered individual
on the deductibility of compensation paid to certain executive officers under Code Section 162(m), except to the extent the vesting
of those awards was based solely on one or more of the performance milestones specified above and those equity awards otherwise
comply with the terms of “qualified performance based compensation” within the meaning of Code Section 162(m). Effective
for years beginning on or after January 1, 2018, the exception for qualified performance-based compensation generally no longer
applies. However, a transition rule continues to apply to any such awards that are outstanding as of November 2, 2017, or are granted
pursuant to a legally binding contract in effect as of November 2, 2017, to the extent the awards or contract are not materially
modified thereafter. To the extent the plan administrator grants an award under the 2016 Plan that qualifies under the transition
rule, the 2016 Plan will require the award to continue to be administered so as to retain the award’s eligibility for the
transition rule.
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 2016
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 2016 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 2016 Plan
are determinable at this time because awards under the 2016 Plan are discretionary and no specific additional awards have been
approved by the plan administrator beyond currently outstanding unvested restricted stock grants in respect of 2,267,948 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 2019 is included in this Proxy Statement under the heading “Equity Compensation
Plan Information.”
Interests of Related Parties
The 2016 Plan provides that our officers,
employees, non-employee directors, and some consultants and independent advisors will be eligible to receive awards under the 2016
Plan. However, if this proposal is not approved by our stockholders, then no awards in excess of the existing 5,650,000 shares
authorized for issuance under the 2016 Plan will be made under the 2016 Plan unless stockholder approval is otherwise obtained.
As discussed above, we may be eligible in
some circumstances to receive a tax deduction for some executive compensation resulting from awards under the 2016 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 2016 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 provisions providing for the acceleration of the exercisability
or vesting of outstanding options and other incentive compensation upon a hostile takeover or other change in control, including
a tender or exchange offer, merger, consolidation, other business combination, sale of all or substantially all of our assets,
significant changes in the composition of our Board, 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 2016 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.
Clawback Policy
The plan administrator has the power and
authority, and is required, to terminate any vested or unvested award or require repayment to us of the proceeds received by our
executive officers, including any named executive officer, arising from any award, to apply our Policy for Recoupment of Incentive
Compensation dated March 29, 2018. The plan administrator will also apply any amended or successor “clawback” or similar
policy adopted by us, including any policy or policy changes mandated by or implemented pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act or the applicable listing requirements or rules and regulations of The NASDAQ Capital Market,
if applicable, and any other stock exchange or other market on which our common stock is then quoted or listed for trading.
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 Four 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 RSM US LLP to audit and comment on our financial statements for the year ending December 31,
2020, and to conduct whatever audit functions are deemed necessary. RSM US LLP audited our financial statements for the year ended
December 31, 2019 that were included in our most recent Annual Report on Form 10-K.
A representative of RSM US LLP will not
be present at the Annual Meeting.
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 RSM US 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 RSM US LLP TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2020.
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 or her judgment on such
matters.
Audit Matters
Principal Accountant Fees and Services
The following table presents fees for professional
audit services rendered by RSM US LLP for the years ended December 31, 2019 and 2018.
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2019
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2018
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Audit Fees
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$
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630,893
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|
|
$
|
656,618
|
|
|
Audit-Related Fees
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|
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32,445
|
|
|
|
29,676
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Tax Fees
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|
|
—
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|
|
|
525
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|
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All Other Fees
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|
|
—
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|
|
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—
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Total
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$
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663,338
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|
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$
|
686,819
|
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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, reviews of our interim consolidated financial statements included in our Quarterly Reports on Form 10-Q
and our Registration Statements on Form S-3 and S-8.
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 would include amounts billed
for professional services performed in connection with mergers and acquisitions, audits of 401(k) plans, pension plans and RIN
audits.
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.
Our Audit Committee considered all non-audit
services provided by RSM US LLP and determined that the provision of such services was compatible with maintaining such firm’s
audit independence.
Audit Committee Pre-Approval Policy
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 2019 and 2018, all services performed by RSM US LLP were pre-approved by our Audit Committee in accordance
with these policies and applicable Securities and Exchange Commission regulations.
Audit
Committee Report
The 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. The Audit Committee operates under a written charter adopted by the Board that is available on Pacific Ethanol’s
website at http://www.pacificethanol.com/audit-committee-charter. As described more fully in its charter, the Audit Committee oversees
the financial reporting process, the internal control structure and disclosure controls and procedures on behalf of the Board.
Management is responsible for the preparation,
presentation and integrity of Pacific Ethanol’s financial statements; the appropriateness of the accounting principles and
reporting policies that are used; and procedures designed to reasonably assure compliance with accounting standards, and applicable
laws and regulations. Management is also responsible for the effectiveness of Pacific Ethanol’s internal control over financial
reporting, and reports to the Audit Committee on any deficiencies found.
Pacific Ethanol’s independent registered
public accounting firm, RSM US LLP, is responsible for performing an independent audit of Pacific Ethanol’s consolidated
financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States) and, when required,
expressing an opinion on the effectiveness of Pacific Ethanol’s internal control over financial reporting. The Audit Committee
is directly responsible for the selection, compensation, evaluation and oversight, and retention of Pacific Ethanol’s independent
registered public accounting firm, and evaluates its independence.
Under its written charter, the Audit Committee
has the authority to conduct any investigation appropriate to fulfilling its responsibilities, has direct access to Pacific Ethanol’s
independent registered public accounting firm as well as any of Pacific Ethanol’s employees, and has the ability to retain,
at Pacific Ethanol’s expense, special legal, accounting, or other experts or advisors it deems necessary in the performance
of its duties, apart from counsel or advisors hired by management.
Audit Committee members are not acting as
professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management
or Pacific Ethanol’s independent registered public accounting firm. The Audit Committee serves a Board-level oversight role
in which it provides advice, counsel, and direction to management and to the auditors on the basis of the information it receives,
discussions with management and the auditors, and the experience of the Audit Committee’s members in business, financial,
and accounting matters.
In accordance with Audit Committee policy
and the requirements of law, the Audit Committee pre-approves all services to be provided by Pacific Ethanol’s independent
registered public accounting firm. Pre-approval includes audit services, audit-related services, tax services, and all other services.
The Audit Committee reviewed and discussed
with management its assessment of and report on the effectiveness of Pacific Ethanol’s internal control over financial reporting
as of December 31, 2019, which it made based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
The Audit Committee reviewed and discussed
the audited financial statements in Pacific Ethanol’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019
with management and RSM US LLP. The Audit Committee also discussed with RSM US LLP the matters required to be discussed by the applicable requirements
of the Public Company Accounting Oversight Board and the Securities and Exchange Commission. In addition, the Audit Committee obtained
from RSM US 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 RSM US LLP its independence from Pacific Ethanol, Inc. and management.
Our Audit Committee considered all non-audit
services provided by RSM US LLP and determined that the provision of such services was compatible with maintaining such firm’s
audit independence.
Based on the reviews and discussions referred
to above, as well as such other matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended
to the Board, and the Board approved, the inclusion of the audited financial statements referred to above in Pacific Ethanol’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for filing with the Securities and Exchange Commission.
|
|
Respectfully submitted,
|
|
|
|
|
|
Audit Committee
|
|
|
|
|
|
Terry L. Stone, Chairman
|
|
|
William L. Jones
|
|
|
John L. Prince
|
|
|
Gilbert E. Nathan
|
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 September 23, 2020, the date of the table, by:
|
|
●
|
each of our named executive officers;
|
|
|
●
|
all of our named executive officers and directors as a group; and
|
|
|
●
|
each person known by us to beneficially own more than 5% of the outstanding shares of any class of our voting capital stock.
|
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 63,497,076 shares of
common stock and 926,942 shares of Series B Preferred Stock outstanding as of the date of the table.
The table below excludes an aggregate of
896 shares of our Non-Voting Common Stock. Our Non-Voting Common Stock is convertible on a one-for-one basis into shares of our
common stock; provided, that our Non-Voting Common Stock may not be converted:
|
|
●
|
to the extent that, after giving effect to the conversion, the holder and its affiliates would beneficially own, in the aggregate,
more than 9.99% of our outstanding shares of common stock; and
|
|
|
●
|
except upon 61-days’ prior written notice of conversion to us, including surrender of the stock certificates representing
the Non-Voting Common Stock to be converted.
|
|
Name and Address of Beneficial Owner(1)
|
|
Title of Class
|
|
Amount and Nature
of Beneficial Ownership
|
|
|
Percent
of Class
|
|
|
William L. Jones
|
|
Common
|
|
|
163,951
|
(2)
|
|
|
*
|
|
|
|
|
Series B Preferred
|
|
|
12,820
|
|
|
|
1.38
|
%
|
|
Neil M. Koehler
|
|
Common
|
|
|
1,250,483
|
(3)
|
|
|
1.96
|
%
|
|
|
|
Series B Preferred
|
|
|
256,410
|
|
|
|
27.66
|
%
|
|
Bryon T. McGregor
|
|
Common
|
|
|
321,186
|
(4)
|
|
|
*
|
|
|
Terry L. Stone
|
|
Common
|
|
|
122,546
|
|
|
|
*
|
|
|
John L. Prince
|
|
Common
|
|
|
108,800
|
|
|
|
*
|
|
|
Douglas L. Kieta
|
|
Common
|
|
|
135,500
|
|
|
|
*
|
|
|
Michael D. Kandris
|
|
Common
|
|
|
457,969
|
(5)
|
|
|
*
|
|
|
Gilbert E. Nathan
|
|
Common
|
|
|
219,391
|
(6)
|
|
|
*
|
|
|
Dianne S. Nury
|
|
Common
|
|
|
31,666
|
|
|
|
*
|
|
|
Frank P. Greinke
|
|
Common
|
|
|
70,312
|
(7)
|
|
|
*
|
|
|
|
|
Series B Preferred
|
|
|
85,180
|
|
|
|
9.19
|
%
|
|
Lyles United, LLC
|
|
Common
|
|
|
426,799
|
(8)
|
|
|
*
|
|
|
|
|
Series B Preferred
|
|
|
512,820
|
|
|
|
55.32
|
%
|
|
BlackRock, Inc.
|
|
Common
|
|
|
6,136,866
|
(9)
|
|
|
9.66
|
%
|
|
Hightower Advisors, LLC
|
|
Common
|
|
|
4,073,641
|
(10)
|
|
|
6.42
|
%
|
|
All named executive officers and directors as a group (9 persons)
|
|
Common
|
|
|
2,811,492
|
(11)
|
|
|
4.40
|
%
|
|
|
|
Series B Preferred
|
|
|
282,050
|
|
|
|
30.43
|
%
|
|
|
(1)
|
Messrs. Jones, Kandris, Koehler, Stone, Prince, Kieta and
Nathan, and Ms. Nury, are directors of Pacific Ethanol. Messrs. Kandris, Koehler and McGregor 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 153,369 shares of common stock held by
William L. Jones and Maurine Jones, husband and wife, as community property and 10,582 shares of common stock underlying our Series
B Preferred Stock held by Mr. Jones.
|
|
|
(3)
|
Amount represents 921,699 shares of common stock held directly,
211,655 shares of common stock underlying our Series B Preferred Stock and 117,129 shares of common stock underlying options.
|
|
|
(4)
|
Includes 33,461 shares of common stock underlying options.
|
|
|
(5)
|
Includes 31,746 shares of common stock underlying options.
|
|
|
(6)
|
Includes 20,000 shares of common stock held by Mr. Nathan’s
spouse.
|
|
|
(7)
|
Amount represents 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.
|
|
|
(8)
|
Amount includes 423,311 shares of common stock underlying
our Series B Preferred Stock. In addition, 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.
|
|
|
(9)
|
The information with respect to BlackRock, Inc., including
the information in this footnote, is based solely on the Schedule 13G/A filed with the Securities and Exchange Commission on May
8, 2020 by BlackRock, Inc. as the reporting person. BlackRock, Inc. holds sole voting power over 5,879,322 shares, sole dispositive
power over 6,136,866 shares and beneficially owns 6,136,866 shares. The address of BlackRock, Inc. is 55 East 52nd Street, New
York, New York 10055.
|
|
|
(10)
|
The information with respect to Hightower Advisors, LLC,
including the information in this footnote, is based solely on the Schedule 13G filed with the Securities and Exchange Commission
on July 18, 2019 by Hightower Advisors, LLC as the reporting person. Hightower Advisors, LLC holds sole voting and dispositive
power over, and beneficially owns, 4,073,641 shares. The address of Hightower Advisors, LLC is 200 W Madison, Suite 2500, Chicago,
Illinois 60606.
|
|
|
(11)
|
Amount represents 2,406,919 shares of common stock held
directly, 182,336 shares of common stock underlying options and 222,237 shares of common stock underlying our Series B Preferred
Stock.
|
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, 2019.
|
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:
|
|
|
|
|
|
|
|
|
|
|
2006 Stock Incentive Plan(1)
|
|
|
229,212
|
|
|
$
|
4.15
|
|
|
|
—
|
|
|
2016 Stock Incentive Plan
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,214,745
|
|
|
|
(1)
|
Our 2006 Plan terminated on July 19, 2016 except to the
extent of unvested shares of our restricted common stock and options to purchase shares of our common stock outstanding as of
that date.
|
|
|
(2)
|
Excludes an additional 1,750,000 shares of common stock
available for future issuance upon approval by our stockholders of an amendment to the 2016 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 September 23, 2020:
|
Name
|
|
Age
|
|
Position(s) Held
|
|
Michael D. Kandris
|
|
73
|
|
Co-Chief Executive Officer, Co-President, Chief Operating Officer and Director
|
|
Neil M. Koehler
|
|
62
|
|
Co-Chief Executive Officer, Co-President and Director
|
|
Bryon T. McGregor
|
|
57
|
|
Chief Financial Officer
|
|
Christopher W. Wright
|
|
67
|
|
Vice President, General Counsel and Secretary
|
|
Paul P. Koehler
|
|
61
|
|
Vice President, Commodities and Corporate Development
|
|
James R. Sneed
|
|
54
|
|
Vice President, Supply and Trading
|
Michael D. Kandris has served
as a director since June 2008 and as our Chief Operating Officer since January 6, 2013. Mr. Kandris was appointed as our Co-Chief
Executive Officer and Co-President in May 2020. 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 of the Western Division of Ruan Transportation Management Systems from November 2008 until his retirement
in September 2009. From January 2000 to November 2008, 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.
Neil M. Koehler served as
our Chief Executive Officer and President, and as a director, since March 2005. Mr. Koehler became our Co-Chief Executive Officer
and Co-President in May 2020. 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, 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 and marketing industry in the Western United
States. Mr. Koehler is the Chairman of the Board of Directors of the Renewable Fuels Association and is a nationally-recognized
speaker on the production and marketing of renewable fuels. 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.
Paul P. Koehler has served
as a Vice President 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 also served as a member of the board of directors of Towerstream Corporation,
a public company, from May 30, 2007 to January 31, 2018. 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 a Vice President 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.
Family Relationships
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,
as of December 31, 2019 and 2018, concerning the compensation of (i) our Chief Executive Officer and President, who served
during 2019 and 2018 as our principal executive officer, (ii) our Chief Operating Officer, and (iii) our Chief Financial Officer,
who served during 2019 and 2018 as our principal financial officer (collectively, the “named executive officers”),
for all services rendered in all capacities to us for the years then ended.
|
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Stock
Awards
($)(1)
|
|
|
All
Other
Compensation (2)
|
|
|
Total
($)
|
|
|
Neil M. Koehler
|
|
2019
|
|
$
|
489,305
|
|
|
$
|
187,040
|
|
|
$
|
18,600
|
|
|
$
|
694,945
|
|
|
Chief
Executive Officer and President(3)
|
|
2018
|
|
$
|
484,955
|
|
|
$
|
427,775
|
|
|
$
|
18,200
|
|
|
$
|
930,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Kandris
|
|
2019
|
|
$
|
350,745
|
|
|
$
|
64,400
|
|
|
$
|
18,400
|
|
|
$
|
433,545
|
|
|
Chief
Operating Officer(4)
|
|
2018
|
|
$
|
347,601
|
|
|
$
|
146,325
|
|
|
$
|
16,500
|
|
|
$
|
510,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryon T. McGregor
|
|
2019
|
|
$
|
317,963
|
|
|
$
|
64,400
|
|
|
$
|
18,600
|
|
|
$
|
400,963
|
|
|
Chief Financial Officer
|
|
2018
|
|
$
|
315,148
|
|
|
$
|
146,325
|
|
|
$
|
18,200
|
|
|
$
|
479,673
|
|
|
|
(1)
|
The amounts shown are the fair value of stock awards
on the date of grant. The 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 2016 Stock Incentive
Plan. Information regarding the grants of restricted stock and vesting schedules for the named executive officers is included
in the “Outstanding Equity Awards at Fiscal Year-End−2019” table below, the footnotes to that table, and in
“Certain Relationships and Related Transactions.”
|
|
|
(2)
|
Except as specifically noted, the amounts represent matching
contributions under our 401(k) plan and contributions to the executive’s health savings account. In addition, 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.
|
|
|
(3)
|
Mr. Koehler became our Co-Chief Executive Officer and
Co-President in May 2020.
|
|
|
(4)
|
Mr. Kandris was appointed as our Co-Chief Executive Officer
and Co-President in May 2020, and retains the position of Chief Operating Officer.
|
Executive Employment Agreements
Michael D. Kandris
Our Second Amended and Restated Employment
Agreement with Michael D. Kandris provides for at-will employment as our Co-Chief Executive Officer and Co-President; provided,
that upon the retirement of Neil M. Koehler, Mr. Kandris will be our sole President and Chief Executive Officer. Mr. Kandris’s
annual base salary is $489,000. Mr. Kandris is eligible to participate in our short-term incentive plan with a pay-out target of
70% of his base salary, to be paid based upon performance criteria set by our Compensation Committee.
Upon termination by us without cause or
resignation by Mr. Kandris for good reason, Mr. Kandris is entitled to receive (i) severance equal to eighteen months of his base
salary, (ii) 150% of his total target short-term incentive plan award, (iii) continued health insurance coverage for eighteen months
or until the earlier effective date of coverage under a subsequent employer’s plan, and (iv) accelerated vesting of 25% of
all shares or options subject to any equity awards granted to Mr. Kandris prior to Mr. Kandris’s termination which are unvested
as of the date of termination.
However, if Mr. Kandris is terminated without
cause or resigns for good reason in anticipation of or twenty-four months after a change in control, Mr. Kandris is entitled to
(i) severance equal to thirty-six months of base salary, (ii) 300% of his total target short-term incentive plan award, (iii) continued
health insurance coverage for thirty-six months or until the earlier effective date of coverage under a subsequent employer’s
plan, and (iv) accelerated vesting of 100% of all shares or options subject to any equity awards granted to Mr. Kandris prior to
Mr. Kandris’s termination that are unvested as of the date of termination.
If we terminate Mr. Kandris’s employment
upon his disability, Mr. Kandris is entitled to severance equal to twelve months of base salary. In addition, in the event of Mr.
Kandris’s disability and if he or someone authorized to act on his behalf executes and delivers an agreed release agreement
and allows the release to become effective, we have agreed to accelerate the vesting of any equity awards granted to Mr. Kandris
prior to the termination of his employment such that 100% of all shares or options subject to such awards which are unvested as
of termination shall be accelerated and deemed fully vested as of the effectiveness of the release.
If Mr. Kandris dies, we have agreed to accelerate
the vesting of any equity awards granted to Mr. Kandris prior to his death such that 100% of all shares or options subject to such
awards which are unvested as of his death will be accelerated and deemed fully vested.
The term “cause” is defined
in the Second Amended and Restated Employment Agreement as (i) Mr. Kandris’s indictment or conviction of any felony or of
any crime involving dishonesty, (ii) Mr. Kandris’s participation in any fraud or other act of willful misconduct against
us, (iii) Mr. Kandris’s refusal to comply with any of our lawful directives, (iv) Mr. Kandris’s material breach of
his fiduciary, statutory, contractual, or common law duties to us, or (v) conduct by Mr. Kandris which, in the good faith and reasonable
determination of our board of directors, demonstrates gross unfitness to serve; provided, however, that in the event that any of
the foregoing events is reasonably capable of being cured, we shall provide written notice to Mr. Kandris describing the nature
of the event and Mr. Kandris shall thereafter have three business days to cure the event.
The term “for good reason” is
defined in the Second Amended and Restated Employment Agreement as (i) the assignment to Mr. Kandris of any duties or responsibilities
that result in the material diminution of Mr. Kandris’s authority, duties or responsibility, (ii) a material reduction by
us in Mr. Kandris’s annual base salary, except to the extent the base salaries of all or our other executive officers are
accordingly reduced, (iii) a relocation of Mr. Kandris’s place of work, or our principal executive offices if Mr. Kandris’s
principal office is at these offices, to a location that increases Mr. Kandris’s daily one-way commute by more than thirty-five
miles, or (iv) any material breach by us of any material provision of Mr. Kandris’s employment agreement.
A “change in control” 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 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 our securities representing a majority of our combined voting power, (ii) we merge, consolidate or otherwise engage in a business
combination with or into another corporation, entity or person, other than a transaction in which the holders of at least a majority
of our shares of 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 our shares of voting capital stock (or the surviving entity) outstanding immediately after the transaction,
or (iii) all or substantially all of our assets are sold.
Neil M. Koehler
Our Amended and Restated Employment Agreement
with Neil M. Koehler provides for at-will employment as our Co-Chief Executive Officer and Co-President and, as amended, contemplates
Mr. Koehler’s retirement on September 30, 2020. Mr. Koehler’s annual base salary is $489,305. Mr. Koehler is eligible
to participate in our short-term incentive plan with a pay-out target of 70% of his base salary, to be paid based upon performance
criteria set by our Compensation Committee.
Upon termination by us without cause or
resignation by Mr. Koehler for good reason, Mr. Koehler is entitled to receive (i) severance equal to eighteen months of his base
salary, less the sum of Mr. Koehler’s base salary paid from May 22, 2020 through Mr. Koehler’s last day of employment,
(ii) continued health insurance coverage for eighteen months or until the earlier effective date of coverage under a subsequent
employer’s plan, and (iii) accelerated vesting of 100% 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.
If we terminate Mr. Koehler’s employment
upon his disability, Mr. Koehler is entitled to severance equal to twelve months of base salary. In addition, the event of Mr.
Koehler’s disability and if he or someone authorized to act on his behalf executes and delivers an agreed release agreement
and allows the release to become effective, we have agreed to accelerate the vesting of any equity awards granted to Mr. Koehler
prior to the termination of his employment such that 100% of all shares or options subject to such awards which are unvested as
of termination shall be accelerated and deemed fully vested as of the effectiveness of the release.
The terms “cause” and “for
good reason” have the same meanings as set forth above under the description of Mr. Kandris’s employment agreement.
Mr. Koehler’s scheduled retirement
on September 30, 2020, and his resignation in connection therewith, will be deemed a termination for good reason.
Bryon T. McGregor
Our Amended and Restated Employment Agreement
with Bryon T. McGregor, as amended, provides for at-will employment as our Chief Financial Officer, Vice President and Assistant
Secretary. Mr. McGregor’s annual base salary is $317,963. Mr. McGregor is eligible to participate in our short-term incentive
plan with a pay-out target of 50% of his base salary, to be paid based upon performance criteria set by our Compensation Committee.
Upon termination by us without cause or
resignation by Mr. McGregor for good reason, Mr. McGregor is entitled to receive (i) severance equal to twelve months of his base
salary, (ii) 100% of his total target short-term incentive plan award, (iii) continued health insurance coverage for twelve months
or until the earlier effective date of coverage under a subsequent employer’s plan, and (iv) accelerated vesting of 25% of
all shares or options subject to any equity awards granted to Mr. McGregor prior to Mr. McGregor’s termination which are
unvested as of the date of termination.
However, if Mr. McGregor is terminated without
cause or resigns for good reason in anticipation of or twenty-four months after a change in control, Mr. McGregor is entitled to
(i) severance equal to twenty-four months of base salary, (ii) 200% of his total target short-term incentive plan award, (iii)
continued health insurance coverage for twenty-four months or until the earlier effective date of coverage under a subsequent employer’s
plan, and (iv) accelerated vesting of 100% of all shares or options subject to any equity awards granted to Mr. McGregor prior
to Mr. McGregor’s termination that are unvested as of the date of termination.
All other terms and conditions of Mr. McGregor’s
employment agreement are substantially the same as those contained in Mr. Kandris’s employment agreement described above.
Clawback Policy
On March 29, 2018, our Compensation Committee
instituted a new “clawback” policy with respect to incentive compensation. Except as otherwise required by applicable
law and regulations, the clawback policy applies to any incentive compensation, including any cash or equity incentive compensation,
awarded or paid after March 29, 2018. The clawback policy is intended to mitigate the risks associated with our compensation policies
because our executive officers, including all of our NEOs, will be required to repay compensation as provided under the policy.
The clawback policy requires recoupment
of all incentive compensation, including any cash or equity incentive compensation, awarded or paid to any of our executive officers,
including all of our NEOs, in the event our financial statements are required to be restated, regardless of cause, including, without
limitation, due to: (i) material noncompliance with any financial reporting requirements under the federal securities laws, (ii)
an error, miscalculation or omission, or (iii) the commission of an act of fraud or other misconduct, including dishonesty, unethical
conduct or falsification of our records. The recoupment period is the three-year period commencing from the date of the financial
statement required to be restated; and if more than one financial statement is required to be restated, the date of the earliest
dated financial statement. The amount of incentive compensation subject to recoupment is the amount received that exceeds the amount
that otherwise would have been received had it been determined based on the accounting restatement, and is computed without regard
to any taxes paid. We are prohibited under the policy from indemnifying or agreeing to indemnify any executive officer from the
loss of any erroneously awarded incentive compensation.
Our clawback policy is a “no-fault”
policy and applies even if the executive officer did not engage in any misconduct and even if the executive officer had no responsibility
for the financial statement errors, miscalculations, omissions or other reasons requiring restatement.
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 – 2019
The following table sets forth information
about outstanding equity awards held by our named executive officers as of December 31, 2019.
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Name
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
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)
|
|
|
Michael D. Kandris
|
|
|
31,746
|
(3)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
8,615
|
(4)
|
|
$
|
5,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,831
|
(5)
|
|
$
|
20,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,500
|
(6)
|
|
$
|
37,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil M. Koehler
|
|
|
3,750
|
(7)
|
|
$
|
12.90
|
|
|
8/1/2021
|
|
|
25,186
|
(8)
|
|
$
|
16,371
|
|
|
|
|
|
113,379
|
(9)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
93,055
|
(10)
|
|
$
|
60,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,000
|
(11)
|
|
$
|
108,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryon T. McGregor
|
|
|
1,715
|
(12)
|
|
$
|
12.90
|
|
|
8/1/2021
|
|
|
8,615
|
(4)
|
|
$
|
5,600
|
|
|
|
|
|
31,746
|
(3)
|
|
$
|
3.74
|
|
|
6/24/2023
|
|
|
31,831
|
(5)
|
|
$
|
20,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,500
|
(6)
|
|
$
|
37,375
|
|
|
|
(1)
|
The stock awards reported in the above table represent
shares of restricted stock and stock options granted under our 2006 Stock Incentive Plan or 2016 Stock Incentive Plan.
|
|
|
(2)
|
Represents the fair market value per share of our common
stock of $0.65 on December 31, 2019, the last business day of the most recently completed fiscal year, multiplied by the number
of shares that had not vested as of that date.
|
|
|
(3)
|
Represents shares underlying a stock option granted on
June 24, 2013. The option vested as to 33%, 33% and 34% of the 31,746 shares underlying the option on April 1, 2014, 2015 and
2016, respectively.
|
|
|
(4)
|
Represents shares granted on March 15, 2017. The grant
vested as to 8,615 shares on April 1, 2020.
|
|
|
(5)
|
Represents shares granted on June 14, 2018. The grant
vested as to 15,677 shares on April 1, 2020 and vests as to 16,154 shares on April 1, 2021.
|
|
|
(6)
|
Represents shares granted on April 22, 2019. The grant
vested as to 28,750 shares on April 1, 2020 and vests as to 28,750 shares on April 1, 2021.
|
|
|
(7)
|
Represents shares underlying a stock option granted on
August 1, 2011. The option vested as to 1/3rd of the 3,750 shares underlying the option on each of April 1, 2012, 2013
and 2014.
|
|
|
(8)
|
Represents shares granted on March 15, 2017. The grant
vested as to 25,186 shares on April 1, 2020.
|
|
|
(9)
|
Represents shares underlying a stock option granted on
June 24, 2013. The option vested as to 33%, 33% and 34% of the 113,379 shares underlying the option on April 1, 2014, 2015 and
2016, respectively.
|
|
|
(10)
|
Represents shares granted on June 14, 2018. The grant
vested as to 45,833 shares on April 1, 2020 and vests as to 47,222 shares on April 1, 2021.
|
|
|
(11)
|
Represents shares granted on April 22, 2019. The grant
vested as to 83,500 shares on April 1, 2020 and vests as to 83,500 shares on April 1, 2021.
|
|
|
(12)
|
Represents shares underlying a stock option granted on
August 1, 2011. The option vested as to 1/3rd of the 1,715 shares underlying the option on each of April 1, 2012, 2013 and 2014.
|
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 members of our Board or the members of an appropriate independent committee of our Board.
Under our written policies and procedures, the Board, or an appropriate independent committee of our Board, 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, 2018, 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 ratified and/or approved by our Board
or an appropriate independent committee of 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 “Executive Compensation and Related
Information”. In addition, 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.
Michael D. Kandris
Restricted Stock Grants
On July 13, 2020, we granted 250,000 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 $181,025. The shares vest 50% on April 1, 2021 and 50% on April 1, 2022.
On April 22, 2019, we granted 57,500 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 $64,400. The shares vested 50% on April 1, 2020 and vest 50% on April 1, 2021.
On June 14, 2018, we granted 47,508 shares
of our restricted common stock to Mr. Kandris in consideration of services to be provided. The value of the common stock granted
was determined to be $146,325. The shares vested 33% on each of April 1, 2019 and 2020, and vest 34% on April 1, 2021.
Neil M. Koehler
Series B Preferred Stock
On May 20, 2008, we sold to Neil M. Koehler,
who is our Co-Chief Executive Officer and Co-President, 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
stock 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 increased to approximately 1-for-0.68.
For the years ended December 31, 2019 and
2018, we accrued and paid cash dividends in the amount of $261,781 and $350,000, respectively, in respect of shares of Series B
Preferred Stock held by Mr. Koehler.
On December 19, 2019, certain holders of
our outstanding Series B Preferred Stock, including Mr. Koehler, agreed to waive any and all of their respective rights and remedies
against us with respect to any unpaid quarterly cumulative dividends on our Series B Preferred Stock until we pay in full all of
our obligations under our senior secured notes or upon certain events of default, whichever is earlier.
As of June 30, 2020, an aggregate of $262,739
of dividends in respect of shares of our Series B Preferred Stock held by Mr. Koehler were accrued and unpaid.
Restricted Stock Grants
On April 22, 2019, we granted 167,000 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 $187,040. The shares vest 50% on April 1, 2020 and vest 50% on April 1, 2021.
On June 14, 2018, we granted 138,888 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 $427,775. The shares vested 33% on each of April 1, 2019 and 2020, and vest 34% on April 1, 2021.
Paul P. Koehler
Paul P. Koehler, a brother of Neil M. Koehler,
who is our Co-Chief Executive Officer and Co-President, and one of our directors, is employed by us as Vice President of Commodities
and Corporate Development. Mr. Koehler’s base salary rate was $252,916 per year at the end of 2017 and was increased to $260,504
per year effective April 15, 2018. In addition, Mr. Koehler received compensation of $9,180 for 2019 and $4,349 for 2018 in perquisites
or personal benefits relating to payment or reimbursement of commuting expenses from Mr. Koehler’s home to our corporate
offices in Sacramento, California, and housing and other living expenses.
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 increased to approximately
1-for-0.68.
For each of the years ended December 31,
2019 and 2018, we accrued and paid cash dividends in the amount of $13,089 and $17,500, respectively, in respect of shares of Series
B Preferred Stock held by Mr. Koehler.
On December 19, 2019, certain holders of
our outstanding Series B Preferred Stock, including Mr. Koehler, agreed to waive any and all of their respective rights and remedies
against us with respect to any unpaid quarterly cumulative dividends on our Series B Preferred Stock until we pay in full all of
our obligations under our senior secured notes or upon certain events of default, whichever is earlier.
As of June 30, 2020, an aggregate of $13,136
of dividends in respect of shares of our Series B Preferred Stock held by Mr. Koehler were accrued and unpaid.
Restricted Stock Grants
On July 13, 2020, we granted 62,500 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 $45,256. The shares vest 50% on April 1, 2021 and vest 50% on April 1, 2022.
On April 22, 2019, we granted 42,000 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 $47,040. The shares vested 50% on April 1, 2020 and vest 50% on April 1, 2021.
On June 14, 2018, we granted 34,722 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 $106,944. The shares vested 33% on each of April 1, 2019 and 2020 and vest 34% on April 1, 2021.
Annual Cash Incentive Compensation
In April 2018, we paid Mr. Koehler annual
performance-based cash incentive compensation of $20,120 based on his 2017 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 Co-Chief Executive Officer and Co-President, 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 increased to approximately 1-for-0.68.
For each of the years ended December 31,
2019 and 2018, we accrued and paid cash dividends in the amount of $13,089 and $17,500, respectively, in respect of shares of Series
B Preferred Stock held by Mr. Koehler.
On December 19, 2019, certain holders of
our outstanding Series B Preferred Stock, including Mr. Koehler, agreed to waive any and all of their respective rights and remedies
against us with respect to any unpaid quarterly cumulative dividends on our Series B Preferred Stock until we pay in full all of
our obligations under our senior secured notes or upon certain events of default, whichever is earlier.
As of June 30, 2020, an aggregate of $13,136
of dividends in respect of shares of our Series B Preferred Stock held by Mr. Koehler were accrued and unpaid.
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 $7,500 per month under this arrangement during 2019 and 2018 and through the filing of this Proxy Statement.
William L. Jones
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 increased to approximately 1-for-0.68.
For each of the years ended December 31,
2019 and 2018, we accrued and paid cash dividends in the amount of $13,089 and $17,500, respectively, in respect of shares of Series
B Preferred Stock held by Mr. Jones.
On December 19, 2019, certain holders of
our outstanding Series B Preferred Stock, including Mr. Jones, agreed to waive any and all of their respective rights and remedies
against us with respect to any unpaid quarterly cumulative dividends on our Series B Preferred Stock until we pay in full all of
our obligations under our senior secured notes or upon certain events of default, whichever is earlier.
As of June 30, 2020, an aggregate of $13,136
of dividends in respect of shares of our Series B Preferred Stock held by Mr. Jones were accrued and unpaid.
Restricted Stock Grants
On November 18, 2019, we granted 47,500
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 $25,175. The shares vest on the earlier of (i) July 1, 2020, and (ii) the date of our next annual meeting of stockholders.
On June 14, 2018, we granted 48,966 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 $150,815. The shares vested on July 1, 2019.
Bryon T. McGregor
Restricted Stock Grants
On July 13, 2020, we granted 85,515 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 $61,921. The shares vest 50% on April 1, 2021 and 50% on April 1, 2022.
On April 22, 2019, we granted 57,500 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 $64,400. The shares vested 50% on April 1, 2020 and vest 50% on April 1, 2021.
On June 14, 2018, we granted 47,508 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 $146,325. The shares vested 33% on each of April 1, 2019 and 2020, and vest 34% on April 1, 2021.
Christopher W. Wright
Christopher W. Wright is employed by us
as Vice President, General Counsel and Secretary. Mr. Wright’s base salary rate was $298,093 per year at the end of 2017
and was increased to $307,036 per year effective April 15, 2018. In addition, Mr. Wright received compensation of $16,637 for 2019
and $21,816 for 2018 in perquisites or personal benefits relating to payment or reimbursement of commuting expenses from Mr. Wright’s
home to our corporate offices in Sacramento, California, and housing and other living expenses.
Restricted Stock Grants
On July 13, 2020, we granted 85,515 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 $61,921. The shares vest 50% on April 1, 2021 and vest 50% on April 1, 2022.
On April 22, 2019, we granted 57,500 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 $64,400. The shares vested 50% on April 1, 2020 and vest 50% on April 1, 2021.
On June 14, 2018, we granted 47,508 shares
of our restricted common stock to Mr. Wright in consideration of services to be provided. The value of the common stock granted
was determined to be $146,325. The shares vested 33% on each of April 1, 2019 and 2020, and vest 34% on April 1, 2021.
Annual Cash Incentive Compensation
In April 2018, we paid Mr. Wright annual
performance-based cash incentive compensation of $29,642 based on his 2017 performance.
James R. Sneed
James R. Sneed is employed by us as Vice
President of Supply and Trading. Mr. Sneed’s base salary rate was $252,916 per year at the end of 2017 and was increased
to $260,504 per year effective April 15, 2018 and to $300,000 per year effective June 23, 2019.
Restricted Stock Grants
On July 13, 2020, we granted 85,515 shares
of our restricted common stock to Mr. Sneed in consideration of services to be provided. The value of the common stock was determined
to be $61,921. The shares vest 50% on April 1, 2021 and vest 50% on April 1, 2022.
On October 10, 2019, we granted 11,896 shares
of our restricted common stock to Mr. Sneed in consideration of services to be provided. The value of the common stock was determined
to be $6,543. The shares vested 50% on April 1, 2020 and vest 50% on April 1, 2021.
On April 22, 2019, we granted 42,000 shares
of our restricted common stock to Mr. Sneed in consideration of services to be provided. The value of the common stock was determined
to be $47,040. The shares vested 50% on April 1, 2020 and vest 50% on April 1, 2021.
On June 14, 2018, we granted 34,722 shares
of our restricted common stock to Mr. Sneed in consideration of services to be provided. The value of the common stock was determined
to be $106,944. The shares vested 33% on each of April 1, 2019 and 2020, and vest 34% on April 1, 2021.
Annual Cash Incentive Compensation
In April 2018, we paid Mr. Sneed annual
performance-based cash incentive compensation of $20,121 based on his 2017 performance.
Terry L. Stone, John L. Prince and Douglas
L. Kieta
Restricted Stock Grants
On November 18, 2019, we granted 31,666
shares of our restricted common stock to certain of our non-employee directors in consideration of services to be provided. The
value of the common stock granted to each of Messrs. Stone, Prince and Kieta was determined to be $16,783. The shares vest on the
date of our Annual Meeting.
On June 14, 2018, we granted 32,759 shares
of our restricted common stock to certain of our non-employee directors in consideration of services to be provided. The value
of the common stock granted to each of Messrs. Stone, Prince and Kieta was determined to be $100,898. The shares vested on July
1, 2019.
Gilbert E. Nathan
Restricted Stock Grants
On November 18, 2019, we granted 31,666
shares of our restricted common stock to Gilbert E. Nathan in consideration of services to be provided. The value of the common
stock granted to Mr. Nathan was determined to be $16,783. The shares vest on the date of our Annual Meeting.
Consulting Agreement
On November 10, 2015, we entered into a
Consulting Agreement with Gilbert E. Nathan, one of our current directors and a director nominee, for the provision of strategic
consulting services prior to Mr. Nathan becoming a director. Mr. Nathan was compensated at a rate of $50,000 per year under this
arrangement during 2018 and through November 6, 2019. Under this arrangement, we issued 3,500 shares of our common stock to Mr.
Nathan in 2018 having a value of $15,000 on the date of grant.
Dianne S. Nury
Restricted Stock Grants
On November 18, 2019, we granted 31,666
shares of our restricted common stock to Dianne S. Nury in consideration of services to be provided. The value of the common stock
granted to Ms. Nury was determined to be $16,783. The shares vest on the date of our Annual Meeting.
Consulting Agreement
On August 8, 2018, we entered into a Consulting
Agreement with Dianne S. Nury, one of our current directors and a director nominee, for the provision of strategic consulting services
prior to becoming a director. Ms. Nury was compensated at a rate of $50,000 per year under this arrangement during 2018 and through
November 6, 2019. Under this arrangement, we issued 3,500 shares of our common stock to Ms. Nury in 2018 having a value of $15,000
on the date of grant.
Larry D. Layne
Restricted Stock Grants
On November 18, 2019, we granted 31,666
shares of our restricted common stock to Larry D. Layne, who is now a former director, in consideration of services to be provided.
The value of the common stock granted to Mr. Layne was $16,783. The shares vested upon his retirement on March 10, 2020.
On June 14, 2018, we granted 32,759 shares
of our restricted common stock to Mr. Layne in consideration of services to be provided. The value of the common stock granted
to Mr. Layne was determined to be $100,898. The shares vested on July 1, 2019.
Director Fees
For 2018 and 2019, we paid Mr. Layne director
fees totaling $75,000 and $75,000, respectively, for his service on our Board and its committees.
Lyles United, LLC
On March 27, 2008, we sold to Lyles United,
LLC an aggregate of 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 increased to approximately 1-for-0.68.
For each of the years ended December 31,
2019 and 2018, we accrued and paid cash dividends in the amount of $523,561 and $700,000, respectively, in respect of shares of
Series B Preferred Stock held by Lyles United, LLC.
On December 19, 2019, Lyles United, LLC
agreed to waive any and all of its rights and remedies against us with respect to any unpaid quarterly cumulative dividends on
our Series B Preferred Stock until we pay in full all of our obligations under the our senior secured notes, upon certain events
of default, or December 19, 2021, whichever is earliest.
As of June 30, 2020, an aggregate of $525,479
of dividends in respect of shares of our Series B Preferred Stock held by Lyles United were accrued and unpaid.
Frank P. Greinke
Frank P. Greinke was one of our former directors
and the trustee of the Greinke Personal Living Trust Dated April 20, 1999 (“Greinke Trust”). The Greinke Trust acquired
shares of Series B Preferred Stock from Lyles United, LLC in December 2009. The preferred-to-common conversion ratio of the Series
B Preferred Stock is approximately 1-for-0.68.
For each of the years ended December 31,
2019 and 2018, we accrued and paid cash dividends in the amount of $86,964 in respect of shares of Series B Preferred Stock held
by the Greinke Trust. As of June 30, 2020, an aggregate of $87,283 of dividends in respect of shares of our Series B Preferred
Stock held by the Greinke Trust were accrued and unpaid.
Black Rock, Inc.
In December 2016 and June 2017, we entered
into Note Purchase Agreements with various accredited investors under which we sold $55.0 million and $13.9 million, respectively,
in aggregate principal amount of our senior secured notes in private offerings for aggregate gross proceeds of 97% of the principal
amount of the notes sold.
The notes had an original maturity date
of December 15, 2019. Interest on the notes accrued at an annual rate equal to (i) the greater of 1% and the three-month LIBOR,
plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and three-month LIBOR, plus 9% between December 15,
2017 and December 14, 2018, and (iii) the greater of 1% and three-month LIBOR plus 11% between December 15, 2018 and the original
maturity date.
On December 16, 2019, we amended the notes
to extend the maturity date from December 15, 2019 to December 23, 2019 and amended the annual interest rate to 15% commencing
on September 15, 2019. Under the amendment, we also agreed to pay the December 15, 2019 interest payment 50% in cash and 50% in-kind
through the issuance of an additional note in the principal amount equal thereto.
On December 22, 2019, we amended and restated
the notes which extended the maturity date from December 23, 2019 to December 15, 2021. Interest on the Notes accrues at a rate
of 15% per annum, payable quarterly. In addition to the collateral described below, the notes are secured by a first-priority security
interest in the equity interest held by Pacific Ethanol, Inc. in PE Op. Co., the entity that holds our West Coast assets.
On March 20, 2020, we and the noteholders
agreed to defer a $2.5 million aggregate interest payment due March 15, 2020 until May 20, 2020. On that same date, our subsidiary,
Illinois Corn Processing LLC (“ICP”), granted a junior lien in certain of its personal property to the noteholders,
and our subsidiary, Pacific Ethanol Central, LLC (“PE Central”), granted a junior lien in certain of its personal property
to the noteholders. PE Central also pledged its equity interests in our subsidiaries, Pacific Aurora, LLC, Pacific Ethanol Pekin,
LLC (“PE Pekin”) and ICP, in favor of the noteholders. In addition, PE Op Co. and Pacific Ethanol West, LLC, which
directly owns our plants located on the West Coast, granted a security interest in certain of their personal property to the noteholders.
We also entered into intercreditor agreements with the lenders to our PE Pekin and ICP subsidiaries, and the agent for the noteholders,
to address issues of priority and the allocation of proceeds from asset sales.
The noteholders include the following entities,
which we believe are affiliates of BlackRock, Inc. BlackRock, Inc. is reported as beneficially owning more than 5% of the outstanding
shares of our common stock.
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Orange 2015 DisloCredit Fund, L.P., which holds $13,527,279
in principal amount of our senior secured notes;
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CIF Income Partners (A), LLC, which holds $8,714,409
in principal amount of our senior secured notes;
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Sainsbury’s Credit Opportunities Fund, Ltd., which
holds $1,127,273 in principal amount of our senior secured notes;
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Co-Investment Income Fund, L.P. - US Tax-Exempt Series,
which holds $1,050,118 in principal amount of our senior secured notes; and
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Co-Investment Income Fund, L.P. - US Taxable Series,
which holds $753,519 in principal amount of our senior secured notes.
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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, 2021 in order to be considered for inclusion in our proxy materials
relating to our 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:
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In the case of an annual meeting, the close of business
on March 21, 2021. 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.
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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.
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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, 2019 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, 2019 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 guaranties 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, 2019, 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 for any reason, except as required
by law.
APPENDIX A
PACIFIC ETHANOL, INC.
2016 STOCK INCENTIVE PLAN
(Adopted March 25, 2016, and ratified
by Stockholders June 16, 2016;
Amended March 29, 2018, and ratified
by Stockholders June 14, 2018;
Amended August 6, 2019, and ratified
by Stockholders November 7, 2019;
Amended September 2, 2020, and ratified
by Stockholders November 18, 2020)
ARTICLE
ONE
GENERAL PROVISIONS
I. Purpose of the Plan.
This 2016 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.
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A.
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The Plan is divided into two equity-based incentive programs:
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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
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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).
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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.
IV. Eligibility.
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, subject to a minimum initial vesting period of one (1) year,
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, subject to a minimum initial
vesting period of one (1) year, 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 7,400,000 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 in no event become eligible for reissuance under the Plan, whether as a result of expiration or termination
of an Award, cancellation or repurchase of unvested shares, tender of shares in connection with a net/cashless exercise program,
withholding of shares to cover withholding taxes, or otherwise.
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.
VI. Clawback Policy.
The Plan Administrator shall, notwithstanding
anything to the contrary contained in any Award document or in any employment or other agreement, have full power and authority,
and is required, to terminate any vested or unvested Award or require repayment to the Corporation of the proceeds received by
a participant arising from any Award, to apply the Corporation’s Policy for Recoupment of Incentive Compensation dated March
29, 2018, as such policy may be amended by the Corporation from time to time, or any successor “clawback” or similar
policy adopted by the Corporation, including any such policy or policy changes mandated by or implemented pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act or the applicable listing requirements or rules and regulations of The NASDAQ Capital
Market, if applicable, and any other stock exchange or other market on which common stock is then quoted or listed for trading.
ARTICLE TWO
DISCRETIONARY GRANT PROGRAM
I. Option Terms.
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.
II. Incentive Options.
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.
IV. 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 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.
F. 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.
G. 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, subject to a minimum initial vesting period of one (1) year,
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, vest in one or more installments over the Participant’s period
of Service, subject to a minimum initial vesting period of one (1) year, 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, subject to a minimum initial vesting period
of one (1) year, 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; provided, however, that the Corporation shall withhold and retain any dividends on unvested
shares until such time as the shares vest, if at all, and shall thereafter promptly pay to the Participant any such dividends withheld
and retained or, if the shares do not vest, return any such dividends to the corporate treasury. Accordingly, the Participant shall
have the right to vote all such shares but shall not receive any cash dividends paid on any unvested shares unless and until the
shares vest. 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 and subject to
the withholding and retention of dividends with respect to any unvested awards on the same terms as set forth above.
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. In the event of the Participant’s retirement,
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. 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 as a result of the Participant’s retirement.
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.
II. 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 full
power and authority to structure one or more outstanding Awards under the Stock Issuance Program so that the shares of common stock
subject to those Awards shall immediately vest (or vest and become issuable) as to all of the shares at the time subject to those
Awards in the event the Participant’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.
D. The Plan Administrator’s authority
under Paragraph C 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 of this Section II
may result in their loss of performance-based status under Code Section 162(m).
E. 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
I. Tax Withholding.
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.
(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. Share Escrow/Legends.
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. Effective Date and Term of the Plan.
A. The Plan was initially adopted by the
Board on March 25, 2016 and ratified and approved by the Corporation’s stockholders on June 16, 2016. The Plan was amended
by the Board on March 29, 2018, which was ratified and approved by the Corporation’s stockholders on June 14, 2018, to increase
the number of shares authorized for issuance under the Plan from 1,150,000 shares to 3,650,000 shares and to implement other updates.
The Plan was further amended by the Board on August 6, 2019, which was ratified and approved by the Corporation’s stockholders
on November 7, 2019, to increase the number of shares authorized for issuance under the Plan from 3,650,000 shares to 5,650,000
shares and to implement other updates. The Plan was further amended by the Board on September 2, 2020, which was ratified and approved
by the Corporation’s stockholders on November 18, 2020, to increase the number of shares authorized for issuance under the
Plan from 5,650,000 shares to 7,400,000 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) March 25, 2026, (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 March 25, 2026 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. 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.
V. Use of Proceeds.
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. Regulatory Approvals.
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 other stock exchange or other market on which common stock is then quoted or listed for trading.
VII. No Employment/Service Rights.
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. Non-Exclusivity of the Plan.
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.
IX. Governing Law.
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. Information to Optionees and Participants.
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
2016 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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