AMENDED AND RESTATED LOAN
AGREEMENT
This Amended and
Restated Loan Agreement (this “Agreement”), dated
July 29, 2008, is entered into by and between Panda Ethanol,
Inc. (“Borrower”), a corporation duly organized,
existing and in good standing under the laws of the State of
Nevada, and Panda Energy International, Inc.
(“Lender”).
WHEREAS, Borrower
and Lender are parties to the Loan Agreement, originally executed
and delivered November 9, 2007, by which Lender agreed to
provide Borrower a term loan in the aggregate maximum principal
amount not to exceed $1,000,000, upon the terms and subject to the
conditions set forth therein;
WHEREAS, Borrower
and Lender desire to amend the Loan Agreement to increase the
principal amount of the term loan to an aggregate maximum amount
not to exceed $1,700,000 (the “Loan”), to extend the
maturity date of the Loan and to require its earlier repayment in
the event of a qualified offering of the Borrower’s equity
securities, among other things;
NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained
herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Borrower and Lender agree
as follows:
(a) Subject
to the conditions set forth herein, Lender agrees to extend to
Borrower, from the date hereof through the Advance Termination Date
(as defined below), one (1) or more Advances (as defined
below) which, in the aggregate, shall not exceed at any one time
$1,700,000, no portion of which may be repaid and then reborrowed.
Borrower may request an Advance under this Agreement by submitting
a Notice of Borrowing, which is irrevocable and binding upon
Borrower. Such Notice of Borrowing shall be received by Lender on
or before 10:00 a.m. (Dallas, Texas time) ten (10) Business
Days prior to such Advance. Each Advance under this Agreement shall
be in the minimum amount of $100,000 or a greater integral multiple
thereof. Subject to the terms and conditions in this Agreement, by
not later than 2:00 p.m., Dallas, Texas time, on the date of such
Advance, Lender shall make available to Borrower, at an account
designated by Borrower, the amount of a requested Advance under
this Agreement in immediately available funds.
(b) Each
Notice of Borrowing shall be irrevocable and binding on Borrower
and Borrower shall indemnify Lender against any loss, cost, or
expense incurred or suffered by Lender as a result of (i) any
failure to fulfill, on or before the date specified for such
Advance, any condition to such Advance set forth in this Agreement,
or (ii) Borrower’s request that an Advance not be made
on the date specified for such Advance in the Notice of Borrowing.
A certificate of Lender establishing the amount due from Borrower
according to the preceding sentence, together with a description in
reasonable detail of the manner in which such amount has been
calculated, shall be conclusive in the absence of manifest
error.
(c) The
obligation of Lender to make any Advance (including the initial
Advance) under this Agreement shall be subject to the conditions
precedent that, as of the date of such Advance and after giving
effect thereto: (a) all representations and warranties made by
Borrower to Lender are true and correct, as if made on such date;
(b) no condition or event exists which constitutes an Event of
Default (as hereinafter defined) or which, with the lapse of time
and/or giving of notice, would constitute an Event of Default;
(c) Lender shall have received from Borrower a Notice of
Borrowing and all of the statements contained in such Notice of
Borrowing shall be true and correct; and (d) the
representations and warranties contained in each of the Loan
Documents (as defined below) shall be true in all respects as
though made on the date of such Advance.
(d) As used
herein, the following terms have the meaning ascribed to them
below:
(i)
“Advance” means the disbursement by Lender of a sum or
sums lent to Borrower pursuant to this Agreement.
(ii)
“Advance Termination Date” means January 1,
2009.
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(iii)
“Business Day” means for all purposes, any day other
than a Saturday, Sunday, or day on which national banks are
authorized to be closed under the laws of the State of
Texas.
(iv) “Notice
of Borrowing” means a notice substantially in the form of
Exhibit A.
2.
Promissory Note . The Loan shall be evidenced by a
promissory note in the form of Exhibit B attached
hereto, duly executed by Borrower (herein called, together with any
renewals and extensions thereof, the “Note”), dated of
even date herewith, in the principal amount of $1,700,000, and made
payable to the order of Lender. Principal and interest on the Note
shall be due and payable in the manner and at the times set forth
below with final maturity of the Note being on or before
November 1, 2010 (the “Maturity Date”). Should the
principal of, or any installment of interest on, the Note become
due and payable on any day other than a Business Day, the maturity
thereof shall be extended to the next succeeding business day, and
interest shall be payable with respect to such
extension.
All payments on
the Note shall be made to Lender at its principal office in Dallas,
Texas in federal or other immediately available funds, and payments
shall be applied first to accrued interest and then to
principal.
The principal
balance of, and interest on, the Note shall be due and payable as
follows:
(a) Interest,
computed as provided in the Note, shall accrue monthly, commencing
on the date of the first Advance, and thereafter, on the
1 st day of each succeeding calendar month during the
term of the Note, and all such accrued and unpaid interest shall be
due and payable on the Maturity Date; and
(b) Principal
shall be due and payable in one (1) final installment, on the
Maturity Date, in the amount of the unpaid principal balance of the
Note as of such date.
In addition to
the foregoing, Borrower shall make mandatory prepayments of the
principal of the Note: (a) on or before the last day of each
March, June, September, and December (such dates being referred to
as a “Cash Flow Payment Date”), equal to the Cash Flow
Payment (hereafter defined) due on such date; provided that Cash
Flow (as defined below) sufficient to satisfy selling, general, and
operating expenses (as determined by a budget of Borrower as
acceptable to Lender in Lender’s sole discretion) for the
calendar quarter immediately following the applicable Cash Flow
Payment Date, in a minimum amount of $2,500,000 per fiscal quarter,
on an annualized basis, shall be set aside in a separate account in
the name of Borrower each calendar quarter prior to any prepayments
in respect of the Loan, (b) immediately upon the receipt of
Net Proceeds in an amount in any single transaction or series of
transactions exceeding $150,000, of any sale, liquidation or
disposition (other than in the ordinary course of Borrower’s
business) of any assets of Borrower (and after giving effect to
clause (a) immediately above), in the amount of such Net
Proceeds (as defined below), and (c) within five days of the
closing of an offering of any class of equity securities of
Borrower, in which Borrower receives aggregate gross proceeds of at
least $1,700,000, in an amount equal to the proceeds received from
Lender as a purchaser in such equity offering. Such mandatory
prepayments shall be applied to the principal balance of the Note
in the inverse order of maturity.
In the event
Borrower fails to make payment of the outstanding principal balance
of, and interest on, the Note due and payable on the Maturity Date,
Lender shall have the right, exercisable at its option and upon
notice to Borrower, to exchange the Note for shares of common
stock, par value $0.001 per share, of Borrower (the “Common
Stock”). The number of shares of Common Stock issuable on
conversion of the Note shall be equal to (x) the amount of the
outstanding obligations on the Note due and payable, divided by
(y) the Fair Market Value of the Common Stock on the Maturity
Date. No fractional shares shall be issued.
As used herein:
(a) the term “Cash Flow Payment” means, for any
Cash Flow Payment Date, an amount equal to fifty percent (50%) of
Borrower’s Cash Flow for the fiscal quarter ending as of such
Cash Flow Payment Date; (b) the term “Cash Flow”
means, for any period, the net earnings (or loss) after taxes of
Borrower for such period determined in accordance with GAAP
(“Net Income”), plus all non-cash items reducing
Net Income, minus all non-cash items increasing Net Income;
provided, however, that if, for any period, such amount is
less than zero, then Cash Flow for such period shall be equal to
zero; (c) the term “Fair Market Value” means, as
of a particular date, (i) if the Common Stock is traded on a
national securities exchange, the average closing sales price
reported for the immediately preceding ten days, (ii) if the
Common Stock is traded on the OTC Bulletin Board, the mean of the
average closing bid price and the average closing ask price
reported for the immediately preceding ten days, or
(iii)
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if the Common
Stock is not publicly traded, the amount as determined in good
faith by the Board of Directors of Borrower; and (d) the term
“Net Proceeds” means with respect to any sale or
disposition of property or assets (tangible or intangible) (an
“asset disposition”), the gross proceeds, whether
received in cash or otherwise, received, on or after the date of
consummation of such asset disposition, by Borrower from such asset
disposition, after payment of all usual and customary brokerage
commissions and all other reasonable fees and expenses related to
such asset disposition (including, without limitation, reasonable
attorneys’ fees and closing costs and reasonable
environmental remediation costs incurred in connection with such
asset disposition).
3.
Collateral . The Loan shall be secured by a perfected, first
priority, security interest in and to the Collateral as set forth
in the Pledge and Security Agreement dated November 9, 2007,
executed by Borrower for the benefit of Lender (as amended,
modified, renewed, extended, revised, restated, or replaced, the
“Security Agreement”).
4.
Conditions Precedent . The obligation of Lender to make the
Loan to Borrower is subject to the conditions precedent that, as of
the date of the initial Advance of the Loan: (a) Lender shall have
received duly executed copies of each document listed on
Exhibit C attached hereto, in form and substance
acceptable to Lender and its legal counsel (such documents and any
modifications thereof, to be hereinafter collectively referred to
as the “Loan Documents”); (b) all representations
and warranties made by Borrower to Lender are true and correct, as
if made on such date, and no condition or event exists which
constitutes an Event of Default (as hereinafter defined) or which,
with the lapse of time and/or giving of notice, would constitute an
Event of Default; and (d) Borrower shall have paid to Lender
on the earlier date of the first draw hereunder or the retirement
of the Loan if no draw is made, as consideration for the making of
the Loan, an origination fee equal to $ 10,000 .
5.
Representations and Warranties . In order to induce Lender
to make the Loan hereunder, Borrower represents and warrants to
Lender that:
(a) Borrower is a
corporation, duly organized and in good standing, under the laws of
the State of Nevada and has the power to own its property and to
carry on its business in each jurisdiction in which Borrower
operates;
(b) Borrower has
full power and authority to enter into this Agreement, to make the
borrowing hereunder, to execute and deliver the Loan Documents and
to incur the obligations provided for in the Loan Documents, all of
which has been duly authorized by all necessary corporate
action;
(c) The Loan
Documents are the legal and binding obligations of Borrower,
enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors’
rights;
(d) Neither the
execution and delivery of this Agreement and the other Loan
Documents, nor consummation of any of the transactions herein or
therein contemplated, nor compliance with the terms and provisions
hereof or thereof, will contravene or conflict with any provision
of law, statute or regulation to which Borrower is subject or any
judgment, license, order or permit applicable to Borrower or any
indenture, mortgage, deed of trust or other instrument to which
Borrower may be subject; no consent, approval, authorization or
order of any court, governmental authority or third party is
required in connection with the execution and delivery by Borrower
of this Agreement or any of the other Loan Documents or to
consummate the transactions contemplated herein or
therein;
(e) All financial
statements delivered by Borrower to Lender prior to the date hereof
are true and correct, fairly present the financial condition of
such person and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and no
material adverse changes have occurred in the financial condition
or business of Borrower since the date of the most recent financial
statements which Borrower has delivered to Lender;
(f) No litigation,
investigation, or governmental proceeding is pending, or, to the
knowledge of any of Borrower’s officers, threatened against
or affecting Borrower, which may result in any material adverse
change in Borrower’s business, properties or
operations;
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(g) There is no
fact known to Borrower that Borrower has not disclosed to Lender in
writing which may result in any material adverse change in
Borrower’s business, properties or operations;
(h) Borrower owns
all of the assets reflected on its most recent balance sheet free
and clear of all liens, security interests or other encumbrances,
except as previously disclosed in writing to Lender;
(i) The principal
office, chief executive office and principal place of business of
Borrower is in Dallas, Texas;
(j) All taxes
required to be paid by Borrower have in fact been paid;
(k) Borrower is
not in violation of any law, ordinance, governmental rule or
regulation to which it is subject, and is not in default under any
material agreement, contract or understanding to which it is a
party;
(l) Borrower and
any properties or assets owned by Borrower are not in violation of,
in any material respect, any environmental laws, nor is there
existing, pending or threatened any investigation or inquiry by any
governmental authority pursuant to any environmental laws, nor is
there existing or pending any remedial obligations under any
environmental laws; and
(m) Borrower shall
use the proceeds of all Advances solely to (i) finance the
monthly corporate overhead expenses of Borrower and its
Subsidiaries (as defined below) in an amount not to exceed
$1,000,000 per month on an annualized basis, (ii) pay up to
$3,000,000 in breakage fees and other deal-related expenses
associated with the aborted 144A and debt financing of the Yuma
project, and (iii) pay transaction fees associated with the
Loan.
6.
Affirmative Covenants . Until payment in full of the Note
and all other obligations and liabilities of Borrower hereunder,
Borrower agrees and covenants that (unless Lender shall otherwise
consent in writing):
(a) Borrower
shall, and shall cause each of its Subsidiaries to, conduct its
business in an orderly and efficient manner consistent with good
business practices and in accordance with all valid regulations,
laws and orders of any governmental authority and will act in
accordance with customary industry standard
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