Exhibit 10.3
LOAN
AGREEMENT
Date:
November 9, 2007
Panda
Ethanol, Inc.
4100 Spring Valley, Suite 1002
Dallas, Texas 75244
Attention: Chief Executive Officer
Ladies
and Gentlemen:
The undersigned, Panda Ethanol, Inc.
(“Borrower”), a corporation duly organized, existing
and in good standing under the laws of the State of Nevada, has
requested that Panda Energy International, Inc.
(“Lender”) lend to Borrower a term loan in the
aggregate maximum amount not to exceed $1,000,000 (the
“Loan”), for the purposes set forth in Section 5(m)
below. Lender has advised Borrower that Lender is willing to lend
such funds to Borrower upon the terms and subject to the conditions
set forth in this Loan Agreement (the “Agreement”). In
consideration for the above premises and the mutual promises and
covenants herein contained, Borrower and Lender do hereby agree as
follows:
1. Loan .
(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 $1,000,000, 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 $250,000 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 $1,000,000, 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, 2009 (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, and
(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). Such
mandatory prepayments shall be applied to the principal balance of
the Note in the inverse order of maturity.
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; and
(c) 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 the date hereof, 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
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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;
(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
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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 standards in maintaining and operating its assets,
properties and investments;
(b) Borrower shall, and shall cause
each of its Subsidiaries to, maintain complete and accurate books
and records of its transactions in accordance with generally
accepted accounting principles, and will give Lender access during
business hours to all books, records and documents of Borrower and
permit Lender to make and take away copies thereof;
(c) Borrower shall furnish to Lender
as soon as available and in any event within forty-five
(45) days after the end of each quarterly fiscal period
(except the last) of each fiscal year of Borrower, copies of the
balance sheet of Borrower and its Subsidiaries, on a consolidated
basis, as of the end of such fiscal period, and statements of
income and retained earnings and changes in cash flow of Borrower
and its Subsidiaries, on a consolidated basis, for that quarterly
fiscal period and for the portion of the fiscal year ending with
such period, all in reasonable detail, and certified by the chief
financial officer of Borrower as being true and correct and as
having been prepared in accordance with ge
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