Pacific
Ethanol, Inc.
EXECUTIVE
EMPLOYMENT AGREEMENT
for
DOUGLAS
JEFFRIES
This
Executive Employment Agreement (“Agreement”) by and between Douglas Jeffries
(“Executive”) and Pacific Ethanol, Inc. (the “Company”) (collectively, the
“Parties”) is effective as of the last date signed by the Parties.
Whereas,
the
Company desires to employ Executive to provide personal services to the Company,
and wishes to provide Executive with certain compensation and benefits in
return
for his services;
Whereas,
Executive wishes to be employed by the Company and to provide personal services
to the Company in return for certain compensation and benefits; and
Whereas,
the
Parties entered into an offer letter agreement on or about April 25, 2007
setting forth certain terms of Executive’s employment with the Company (the
“Offer Letter”) and now seek to supersede and replace the Offer Letter with this
Agreement;
Now,
Therefore,
in
consideration of the mutual promises and covenants contained herein, it is
hereby agreed by and between the parties hereto as follows:
1. Employment
by the Company.
1.1 Position.
Subject
to terms and conditions set forth herein, the Company agrees to employ Executive
in the position of Chief Financial Officer and Executive hereby accepts such
employment. During the term of Executive’s employment with the Company,
Executive will devote Executive’s best efforts and substantially all of
Executive’s business time and attention to the business of the Company, except
for vacation periods as set forth herein and reasonable periods of illness
or
other incapacities permitted by the Company’s general employment policies.
Executive’s first date of employment shall be May 29, 2007.
1.2 Duties
and Location.
Executive shall serve in an executive capacity and shall perform such duties
as
are customarily associated with Executive’s then current title, consistent with
the bylaws of the Company and as required by the Company’s Board of Directors
(the “Board”) and Chief Executive Officer. Executive shall report to the
Company’s Chief Executive Officer. Executive’s primary office location shall be
a location mutually acceptable to both the Executive and the Company. The
Company reserves the right to reasonably require Executive to perform
Executive’s duties at places other than Executive’s primary office location from
time to time as agreed to by Executive, and to require reasonable business
travel.
1.3 Policies
and Procedures.
The
employment relationship between the parties shall be governed by the general
employment policies and practices of the Company, except that when the terms
of
this Agreement differ from or are in conflict with the Company’s general
employment policies or practices, this Agreement shall control.
2.1 Salary.
For
services to be rendered hereunder, Executive shall receive an annual salary
at
the rate of $240,000.00, paid bi-weekly in the amount of $9,230.77 (the “Base
Salary”), subject to standard payroll deductions and withholdings and payable in
accordance with the Company’s regular payroll schedule. Executive’s Base Salary
shall be reviewed annually and may be increased as approved by the Board
in its
sole discretion.
2.2 Annual
Bonus.
Executive will be eligible for an annual discretionary bonus of up to fifty
percent (50%) of his Base Salary (the “Annual Bonus”); provided that for
calendar year 2007, this potential bonus amount shall be prorated based upon
Executive’s actual length of service with the Company in 2007 Whether any
Annual Bonus will be awarded, and the amount of the Annual Bonus awarded
to
Executive, shall be determined by the Board in its sole discretion based
upon
its consideration of both the Company’s performance and Executive’s performance.
Since the Annual Bonus is intended both to reward past Company and Executive
performance and to provide an incentive for Executive to remain with the
Company, Executive must remain an active employee through the date that any
such
bonus is awarded to him in order to earn any such bonus. Executive will not
earn
any Annual Bonus (including a prorated bonus) if Executive’s employment
terminates for any reason before the Annual Bonus is awarded to him Any
Annual
Bonus awarded by the Board shall be paid within the first quarter after the
end
of the calendar year.
2.3 Standard
Company Benefits.
Executive shall be entitled to participate in all employee benefit programs
for
which Executive is eligible under the terms and conditions of the benefit
plans
which may be in effect from time to time and provided by the Company to its
employees generally; provided,
however,
that
Executive shall not be entitled to accrued vacation pay.
2.4 Restricted
Stock; Options. Subject
to the approval of the Board, Executive shall be granted 57,500 shares of
restricted Company stock (the “Restricted Stock”). The Restricted Stock shall
vest according to a vesting schedule set forth in the governing restricted
stock
purchase agreement which shall be: 7,500 shares will be deemed vested as
of
Executive’s first date of employment and the remaining 50,000 shares shall vest
at the rate of 10,000 shares each October 4, beginning on October 4, 2007
and
continuing thereafter, provided
that
Executive remains employed by the Company. Executive shall also be eligible
for
additional grants of restricted stock and/or stock options from time to time
as
shall be determined by the Compensation Committee of the Board in its sole
discretion, and shall be subject to such vesting, exercisability, and other
provisions as the Board may determine in its discretion, after reviewing
the
performance of both Executive and the Company. Both the Restricted Stock
and any
stock options shall be governed in all respects by the terms of the applicable
restricted stock purchase agreement, stock option agreement, grant notice
and
plan documents.
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3.
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Confidential
Information Obligations.
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3.1 Confidential
Information Agreement.
As a
condition of employment, Executive agrees to execute and abide by the Employee
Confidential Information and Inventions Agreement attached hereto as
Exhibit A.
3.2 Third
Party Agreements and Information.
Executive represents and warrants that Executive’s employment by the Company
will not conflict with any prior employment or consulting agreement or other
agreement with any third party, and that Executive will perform Executive’s
duties to the Company without violating any such agreement. Executive represents
and warrants that Executive does not possess confidential information arising
out of prior employment, consulting, or other third party relationships,
which
would be used in connection with Executive’s employment by the Company, except
as expressly authorized by that third party. During Executive’s employment by
the Company, Executive will use in the performance of Executive’s duties only
information which is generally known and used by persons with training and
experience comparable to Executive’s own, common knowledge in the industry,
otherwise legally in the public domain, or obtained or developed by the Company
or by Executive in the course of Executive’s work for the Company.
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4.
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Outside
Activities During
Employment.
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4.1 Non-Company
Business. Except
with the prior written consent of the Chief Executive Officer (in consultation
with the General Counsel), Executive will not during the term of Executive’s
employment with the Company undertake
or engage in any other employment, occupation or business enterprise, other
than
ones in which Executive is a passive investor. Executive may engage in civic
and
not-for-profit activities so long as such activities do not materially interfere
with the performance of Executive’s
duties
hereunder.
4.2 No
Adverse Interests. Executive
agrees
not to acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business or prospects, financial or otherwise, except as a passive
investor in mutual or exchange traded funds.
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5.
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Termination
Of Employment.
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5.1 At-Will
Relationship.
Executive’s employment relationship is at-will. Either Executive or the Company
may terminate the employment relationship at any time, with or without Cause
or
advance notice.
5.2 Termination
without Cause; Resignation for Good Reason. If,
at
any time, the Company terminates Executive’s employment without Cause (as
defined herein), or Executive resigns with Good Reason (as defined herein),
and
Executive executes and delivers the Separation Date Release of all claims
set
forth as Exhibit B hereto and allows such release to become effective, then
the
Company will provide Executive with the following severance
benefits:
(a) Cash
Severance.
The
Company shall pay Executive severance in the form of continuation of Executive’s
Base Salary in effect on Executive’s last day of employment for a period of
twelve (12) months after Executive’s termination, subject to standard payroll
deductions and withholdings and payable on the Company’s regular payroll
schedule; provided,
however,
that in
the event the Company terminates Executive’s employment without Cause, or
Executive resigns with Good Reason, within three (3) months before or otherwise
in anticipation of, or within twelve (12) months after, a Change in Control
(as
defined below), then the Company shall pay Executive severance in the form
of
continuation of Executive’s Base Salary in effect on Executive’s last day of
employment for a period of eighteen (18) months after Executive’s termination,
subject to standard payroll deductions and withholdings and payable on the
Company’s regular payroll schedule. Each payment made pursuant to this Section
5.2(a) is intended to be a separate payment (as defined in Treasury Regulations
Section 1.409A-2(b)(2)) from any other payments made pursuant to this Section
5.2(a) for purposes of the “short term deferral rule” under Treasury Regulations
Section 1.409A-1(b)(4).
(b) Continued
Health Insurance Coverage.
To the
extent provided by the federal COBRA law or, if applicable, state insurance
laws, and by the Company’s then-current group health insurance policies,
Executive may be eligible to continue Executive’s then-current group health
insurance benefits after termination of Employment. If eligible and if Executive
timely elects continued health insurance coverage, then the Company shall
pay
the Company’s portion of any premiums necessary to provide coverage for a period
of twelve (12) months after the termination date; provided,
however,
that no
such premium payments shall be made following the effective date of Executive’s
coverage by a medical, dental or vision insurance plan of a subsequent employer.
Executive shall notify the Company immediately if he becomes covered by a
medical, dental or vision insurance plan of a subsequent employer.
Notwithstanding the foregoing, in the event the Company terminates Executive’s
employment without Cause, or Executive resigns with Good Reason, within three
(3) months before or otherwise in anticipation of, or within twelve (12)
months
after, a Change in Control (as defined below), then (if eligible and coverage
elected) the Company shall pay the Company’s portion of any premiums necessary
to provide coverage for a period of eighteen (18) months after the termination
date; provided,
however, that
no
such premium payments shall be made following the effective date of Executive’s
coverage by a medical, dental or vision insurance plan of a subsequent employer
and Executive agrees to immediately notify the Company of any such
coverage.
(c) Accelerated
Vesting.
If
Executive has been employed by the Company for one full year or longer, then
the
Company will accelerate the vesting of any equity awards granted to Executive
prior to Executive’s employment termination such that twenty-five percent (25%)
of all shares or options subject to such awards which are unvested as of
the
employment termination date shall be accelerated and deemed fully vested
as of
Executive’s last day of employment; provided,
however,
that in
the event, and without the requirement that Executive be employed for one
full
year or longer, the Company terminates Executive’s employment without Cause, or
Executive resigns with Good Reason, within three (3) months before or otherwise
in anticipation of, or within twelve (12) months after, a Change in Control
(as
defined below), then the Company will accelerate the vesting of any equity
awards granted to Executive prior to Executive’s employment termination such
that one hundred percent (100%) of all shares or options subject to such
awards
which are unvested as of the employment termination date shall be accelerated
and deemed fully vested as of Executive’s last day of employment.
5.3 Termination
for Cause; Resignation Without Good Reason.
If the
Company terminates Executive’s employment with the Company for Cause, or
Executive resigns without Good Reason, then Executive will not be entitled
to
any further compensation from the Company (other than accrued salary, and
accrued and unused vacation, through Executive’s last day of employment),
including severance pay, pay in lieu of notice or any other such
compensation.
5.4 Termination
Due to Death or Disability.
(a) Death.
This
Agreement shall terminated immediately upon Executive’s death and Executive’s
estate shall not be entitled to any further compensation from the Company
(other
than accrued salary, and accrued and unused vacation, through Executive’s last
day of employment), including severance pay, pay in lieu of notice or any
other
such compensation.
(b) Disability.
If
Executive is incapacitated by accident, sickness or otherwise such that
Executive is incapable of performing the services set forth in Section 1.1
herein, and such incapacity is certified by a qualified medical doctor, then
this Agreement shall terminate. In such an event, and if Executive or someone
authorized to act on his behalf executes and delivers the Separation Date
Release of all claims set forth as Exhibit B hereto and allows such release
to
become effective, then the Company will provide Executive with the following
severance benefits; provided,
however,
that
these severance benefits shall be reduced by any amounts provided to Executive
by any federal or state disability insurance payments or benefits, and any
private insurance disability payments or benefits, provided to
Executive:
(i) Cash
Severance.
The
Company shall pay Executive severance in the form of continuation of Executive’s
Base Salary in effect on Executive’s last day of employment for a period of
twelve (12) months after Executive’s termination, subject to standard payroll
deductions and withholdings and payable on the Company’s regular payroll
schedule.
(ii) Continued
Health Insurance Coverage.
To the
extent provided by the federal COBRA law or, if applicable, state insurance
laws, and by the Company’s then-current group health insurance policies,
Executive may be eligible to continue Executive’s then-current group health
insurance benefits after termination of Employment. If eligible and if Executive
timely elects continued health insurance coverage, then the Company shall
pay
the Company’s portion of any premiums necessary to provide coverage for a period
of twelve (12) months after the termination date; provided,
however,
that no
such premium payments shall be made following the effective date of Executive’s
coverage by a medical, dental or vision insurance plan of a subsequent employer.
Executive shall notify the Company immediately if he becomes covered by a
medical, dental or vision insurance plan of a subsequent employer.
(iii) Accelerated
Vesting.
If
Executive has been employed by the Company for one full year or longer, then
the
Company will accelerate the vesting of any equity awards granted to Executive
prior to Executive’s employment termination such that twenty-five percent (25%)
of all shares or options subject to such awards which are unvested as of
the
employment termination date shall be accelerated and deemed fully vested
as of
Executive’s last day of employment.
5.5 Deferred
Compensation. If
the
Company determines that any of the severance benefit payments fail to satisfy
the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue
Code as a result of Section 409A(a)(2)(B)(i) of the Internal Revenue Code,
the
payment of such benefit shall be accelerated to the minimum extent necessary
so
that the benefit is not subject to the provisions of Section 409A(a)(1) of
the
Internal Revenue Code. (It is the intention of the preceding sentence to
apply
the short-term deferral provisions of Section 409A of the Internal Revenue
Code,
and the regulations and other guidance thereunder, to the severance benefit
payments, and the payment schedule as revised after the application of the
preceding sentence shall be referred to as the “Revised Payment Schedule.”)
However, if there is no Revised Payment Schedule that would avoid the
application of Section 409A(a)(1) of the Internal Revenue Code, the payment
of
such benefits shall not be paid pursuant to a Revised Payment Schedule and
instead shall be delayed to the minimum extent necessary so that such benefits
are not subject to the provisions of Section 409A(a)(1) of the Internal Revenue
Code. The Board may attach conditions to or adjust the amounts paid pursuant
to
this Section 5.5 to preserve, as closely as possible, the economic consequences
that would have applied in the absence of this Section 5.5; provided,
however,
that no
such condition or adjustment shall result in the payments being subject to
Section 409A(a)(1) of the Internal Revenue Code.
5.6 Limitation
on Payments.
In the
event that the payments or other benefits provided for in this Agreement
or
otherwise payable to Executive (i) constitute “parachute payments” within the
meaning of Section 280G of the Code, and (ii) would be subject to the excise
tax
imposed by Section 4999 of the Code (the “Excise Tax”), then Executive’s
benefits under this Agreement shall be either (a) delivered in full, or (b)
delivered to such lesser extent which would result in no portion of such
benefits being subject to the Excise Tax, whichever of the foregoing amounts,
taking into account the applicable federal, state and local income taxes
and the
Excise Tax, results in the receipt by Executive on an after-tax basis, of
the
greatest amount of benefits, notwithstanding that all or some portion of
such
benefits may be taxable under Section 4999 of the Code. If a reduction in
payments or benefits constituting “parachute payments” is necessary pursuant to
the foregoing provision, reduction shall occur in the following order unless
the
Executive elects in writing a different order (provided,
however,
that
such election shall be subject to Company approval if made on or after the
date
on which the event that triggers the parachute payment occurs): reduction
of
cash payments; cancellation of accelerated vesting of stock awards; reduction
of
employee benefits. If acceleration of vesting of stock award compensation
is to
be reduced, such acceleration of vesting shall be cancelled in the reverse
order
of the date of grant of the Executive’s stock awards unless the Executive elects
in writing a different order for cancellation.
Unless
the Company and Executive otherwise agree in writing, any determination required
under this Section 5.6 shall be made in writing by the Company’s independent
public accountants (the “Accountants”), whose determination shall be conclusive
and binding upon Executive and the Company for all purposes and may be relied
upon by the Company. For purposes of making the calculations required by
this
Section 5.6, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Section 280G and 4999 of the
Code.
The Company and Executive shall further to the Accountants such information
and
documents as the Accountants may reasonably request in order to make a
determination under this Section 5.6. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.6.
5.7 No
Mitigation.
Executive shall not be required to mitigate damages or the amount of any
payment
provided for under this Agreement by seeking other employment or otherwise,
nor
shall the amount of any payment provided for under this Agreement be reduced
by
any compensation earned by Executive as the result of employment by another
employer after the date of termination, or otherwise, except for health
insurance benefits as set forth herein.
5.8 Definitions.
(a) For
purposes of this Agreement, “Cause”
shall
mean any one or more of the following:
(i) Executive’s
indictment or conviction of any felony or of any crime involving dishonesty;
(ii) Executive’s
participation in any fraud or other act of willful misconduct against the
Company (including any material breach of Company policy that causes or
reasonably could cause harm to the Company);
(iii) Executive’s
refusal to comply with any lawful directive of the Company;
(iv) Executive’s
material breach of Executive’s fiduciary, statutory, contractual, or common law
duties to the Company (including any material breach of this Agreement or
the
Confidential Information and Inventions Agreement); or
(v) Conduct
by Executive which in the good faith and reasonable determination of the
Board
demonstrates gross unfitness to serve.
Provided,
however,
that in
the event that any of the foregoing events is reasonably capable of being
cured,
the Company shall, within twenty (20) days after the discovery of such event,
provide written notice to the Executive describing the nature of such event
and
Executive shall thereafter have ten (10) business days to cure such event.
(b) For
purposes of this Agreement, Executive shall have “Good
Reason”
for
Executive’s resignation if: (w) any of the following occurs without Executive’s
consent; (x) Executive notifies the Company in writing, within twenty
(20) days after the occurrence of one of the following events that
Executive intends to terminate his employment no earlier than thirty (30)
days
after providing such notice; (y) the Company does not cure such condition
within thirty (30) days following its receipt of such notice or states
unequivocally in writing that it does not intend to attempt to cure such
condition, and (z) the Executive resigns from employment within thirty (30)
days
following the end of the period within which the Company was entitled to
remedy
the condition constituting Good Reason but failed to do so:
(i) the
assignment to Executive of any duties or responsibilities which result in
the
material diminution of Executive’s authority, duties or responsibility;
provided,
however,
that the
acquisition of the Company and subsequent conversion of the Company to a
division or unit of the acquiring corporation will not by itself result in
a
material diminution of Executive’s authority, duties or
responsibility;
(ii) a
material reduction by the Company in Executive’s annual base salary, except to
the extent the base salaries of all other executive officers of the Company
are
accordingly reduced;
(iii) a
relocation of Executive’s place of work, or the Company’s principal executive
offices if Executive’s principal office is at such offices, to a location that
increases Executive’s daily one-way commute by more than thirty-five (35) miles;
or
(iv) any
material breach by the Company of any material provision of this Agreement,
including but not limited to Section 7.7.
(c) For
purposes of this Agreement, “Change
in Control”
shall be
deemed to have occurred if, in a single transaction or series of related
transactions: (i) any person (as such term is used in Section 13(d) and 14(d)
of
the Securities Exchange Act of 1934 (“Exchange Act”)), or persons acting as a
group, other than a trustee or fiduciary holding securities under an employment
benefit program, is or becomes a “beneficial owner” (as defined in Rule 13-3
under the Exchange Act), directly or indirectly of securities of the Company
representing 51% or more of the combined voting power of the Company, (ii)
there
is a merger, consolidation or other business combination transaction of the
Company with or into another corporation, entity or person, other than a
transaction in which the holders of at least a majority of the shares of
voting
capital stock of the Company outstanding immediately prior to such transaction
continue to hold (either by such shares remaining outstanding or by their
being
converted into shares of voting capital stock of the surviving entity) a
majority of the total voting power represented by the shares of voting capital
stock of the Company (or the surviving entity) outstanding immediately after
such transaction, or (iii) all or substantially all of the Company’s assets are
sold.
6. Arbitration.
To
ensure
the timely and economical resolution of disputes that may arise in connection
with Executive’s employment with the Company, Executive and the Company agree
that any and all disputes, claims, or causes of action arising from or relating
to the enforcement, breach, performance, negotiation, execution, or
interpretation of this Agreement, Executive’s employment, or the termination of
Executive’s employment, shall be resolved to the fullest extent permitted by law
by final, binding and confidential arbitration, by a single arbitrator, in
Sacramento, California, conducted by JAMS under the then applicable JAMS
rules.
By
agreeing to this arbitration procedure, both Executive and the Company waive
the
right to resolve any such dispute through a trial by jury or judge or
administrative proceeding.
The
arbitrator shall: (a) have the authority to compel adequate discovery for
the
resolution of the dispute and to award such relief as would otherwise be
permitted by law; and (b) issue a written arbitration decision, to include
the
arbitrator’s essential findings and conclusions and a statement of the award.
The arbitrator shall be authorized to award any or all remedies that Executive
or the Company would be entitled to seek in a court of law. The Company shall
pay all JAMS’ arbitration fees in excess of the amount of court fees that would
be required if the dispute were decided in a court of law. Nothing in this
Agreement is intended to prevent either Executive or the Company from obtaining
injunctive relief in court to prevent irreparable harm pending the conclusion
of
any such arbitration.
7. General
Provisions.
7.1 Notices.
Any
notices provided hereunder must be in writing and shall be deemed effective
upon
the earlier of personal delivery (including personal delivery by fax) or
the
next day after sending by overnight carrier, to the Company at its primary
office location and to Executive at his address as listed on the Company
payroll.
7.2 Severability.
Whenever
possible, each provision of this Agreement will be interpreted in such manner
as
to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule
in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction to the extent possible
in
keeping with the intent of the parties.
7.3 Waiver.
Any
waiver of any breach of any provisions of this Agreement must be in writing
to
be effective, and it shall not thereby be deemed to have waived any preceding
or
succeeding breach of the same or any other provision of this
Agreement.
7.4 Complete
Agreement.
This
Agreement, including Exhibit A, constitutes the entire agreement between
Executive and the Company and it is the complete,
final,
and exclusive embodiment of their agreement with regard to this subject matter.
This Agreement supersedes and replaces the Offer Letter in its entirety and
the
Offer Letter shall have no further force or effect. It is entered into without
reliance on any promise or representation other than those expressly contained
herein, and it cannot be modified or amended except in a writing signed by
the
Executive and a duly authorized officer of the Company.
7.5 Counterparts.
This
Agreement may be executed in separate counterparts, any one of which need
not
contain signatures of more than one party, but all of which taken together
will
constitute one and the same Agreement.
7.6 Headings.
The
headings of the sections hereof are inserted for convenience only and shall
not
be deemed to constitute a part hereof nor to affect the meaning
thereof.
7.7 Successors
and Assigns.
This
Agreement is intended to bind and inure to the benefit of and be enforceable
by
Executive and the Company, and their respective successors, assigns, heirs,
executors and administrators, except that Executive may not assign any of
his
duties hereunder and he may not assign any of his rights hereunder without
the
written consent of the Company, which shall not be withheld unreasonably.
The
Company
shall obtain the assumption of this Agreement by any successor or assign
of the
Company.
7.8 Choice
of Law.
All
questions concerning
the
construction, validity and interpretation of this Agreement will be governed
by
the law of the State of California.
In
Witness Whereof,
the
parties have executed this Agreement.
Pacific
Ethanol, Inc.
By:
/s/
NEIL M. KOEHLER
Neil
M.
Koehler
President
and Chief Executive Officer
Date:
May
4,
2007
Understood
and Agreed:
Executive
By:
/s/
DOUGLAS JEFFRIES
Douglas
Jeffries
Date:
May
4,
2007