SECURITIES PURCHASE
AGREEMENT
This Securities
Purchase Agreement (this “ Agreement ”) is made
as of October 6, 2008, by and among Panda Ethanol, Inc.,
Nevada corporation (the “ Company ”), and PLC
II, LLC, a Delaware limited liability company (the “
Investor ”).
WHEREAS, the
Company desires to sell and issue to the Investor, and the Investor
desires to purchase and acquire from the Company, securities of the
Company as described in this Agreement on the terms and subject to
the conditions hereinafter set forth.
NOW, THEREFORE, in
consideration of the premises, the respective representations,
warranties and agreements set forth in this Agreement, and other
good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follow:
1.1
Definitions . As used herein, the following terms shall have
the respective meanings ascribed to them below:
“
Certificate of Designations ” shall mean the
Certificate of Designations of the Series A Convertible Preferred
Stock, attached hereto as Exhibit A .
“
Closing ” has the meaning ascribed to such term in
Section 2.1.
“
Code ” shall mean the Internal Revenue Code of 1986,
as amended from time to time, and any successor statute
thereto.
“ Company
Disclosure Schedule ” shall mean that certain schedule
attached hereto as Annex I qualifying the representations and
warranties contained in Article III.
“ Company
Material Adverse Effect ” shall mean any event, condition
or contingency that has had, or is reasonably likely to have, a
material adverse effect on the business, assets, liabilities,
results of operations, prospects or financial condition of the
Company and its Subsidiaries, taken as a whole..
“
Exchange Act ” shall mean the Securities Exchange Act
of 1934, as amended from time to time, and all regulations
promulgated thereunder.
“ Interim
Completion Waiver ” shall mean that certain Waiver to
Financing Agreement and Depositary and Disbursement Agreement,
dated as of October 6, 2008, by and among Panda Hereford
Ethanol, L.P., Société Générale, as
Administrative Agent, and the Majority Lenders.
“
GAAP ” shall mean United States generally accepted
accounting principles, consistently applied.
“
Governmental Authority ” shall mean any federal,
state, municipal or other governmental authority, department,
commission, board, agency or other instrumentality.
“
Governmental Rules ” shall mean all laws, statutes,
rules, regulations, codes, ordinances, writs, orders or decrees of
any Governmental Authority.
“
Lien ” shall mean a lien, claim, charge, security
interest or encumbrance of any kind other than restrictions on
transfer as provided under applicable securities laws.
“
Person ” shall mean any individual, corporation,
partnership, limited liability company, limited liability
partnership, joint venture, estate, trust, cooperative, foundation,
union, syndicate, league, consortium, coalition, committee,
society, firm, company or other enterprise, association,
organization or other entity or Governmental Authority.
“
Registration Rights Agreement ” shall mean the
Registration Rights Agreement, by and between the Company and the
Investor, in the form of Exhibit B hereto.
“ SEC
” shall mean the Securities and Exchange
Commission.
“
Securities Act ” shall mean the Securities Act of
1933, as amended from time to time, and all regulations promulgated
thereunder.
“
Subsidiary ” shall mean, when used with respect to any
Person, any other Person, whether incorporated or unincorporated,
of which (i) more than fifty percent of the securities or
other ownership interests or (ii) securities or other
interests having by their terms ordinary voting power to elect more
than fifty percent of the board of directors or others performing
similar functions with respect to such corporation or other
organization, is directly or indirectly owned or controlled by such
Person or by any one or more of its Subsidiaries.
“
Transaction Documents ” shall mean (i) the
Registration Rights Agreement, the Certificate of Designations and
the Warrant and (ii) those other agreements, certificates and
documents entered into or delivered between the Investor and the
Company related to, ancillary to, or in connection with this
Agreement, the Registration Rights Agreement, the Certificate of
Designations or the Warrant.
“
Warrant ” shall mean the Common Stock Purchase
Warrant, attached hereto as Exhibit C .
ARTICLE II
PURCHASE AND SALE; CLOSING
2.1 Sale and
Issuance of Securities . Subject to the terms and conditions of
this Agreement, the Investor agrees to purchase and acquire at the
Closing, and the Company agrees to sell and issue to the Investor
at the Closing, for the aggregate purchase price set forth herein,
25,000 shares of the Company’s Series A Convertible
Preferred Stock (the “ Series A Preferred Stock
”), 6,515,471 shares of the Company’s Common Stock (the
“ Common Stock ”), and the Warrant.
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2.2 Closing
. The purchase and sale of the securities (the “
Closing ”) shall take place at the offices of the
Company at 4100 Spring Valley Road, Suite 1002, Dallas, Texas
75244, or such other place as may be agreed upon by the parties. At
the Closing, upon and subject to the terms and conditions of this
Agreement, the Company shall deliver to the Investor (i) a
certificate representing the Series A Preferred Stock that the
Investor is purchasing and the Warrant against payment of
$2,500,000 by wire transfer to the account specified in writing by
the Company, and (ii) a certificate representing the Common
Stock that the Investor is purchasing upon conversion of the
outstanding principal and accrued interest under that certain
Promissory Note of the Company, dated July 29, 2008, payable
to the order of Panda Energy International, Inc. (the “
Promissory Note ”), against cancellation of the
Promissory Note. The loan agreement pursuant to which the
Promissory Note was issued will also terminate as contemplated in
Section 6.13 of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set
forth on the Company Disclosure Schedule, which when read together
with this Article III shall be deemed to be representations
and warranties by the Company, the Company hereby represents and
warrants to the Investor as follows:
3.1
Organization; Good Standing . The Company is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Nevada. The Company has the corporate power
and authority to conduct its business as now being conducted and is
duly qualified to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of the
business conducted by it, and/or the character of the assets owned
or leased by it, makes such qualification necessary, except for
those jurisdictions in which the failure to be so qualified or to
be in good standing would not, individually or in the aggregate,
limit the Company’s ability to consummate the transactions
hereby contemplated or have a Company Material Adverse
Effect.
3.2
Subsidiaries . Each of the Company’s Subsidiaries is
set forth on Section 3.2 of the Company Disclosure Schedule
and is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of the Company’s Subsidiaries has the
power and authority to conduct its business as now being conducted
and is duly qualified to do business and is in good standing as a
foreign corporation or other legal entity in all jurisdictions in
which the nature of the business conducted by it, and/or the
character of the assets owned or leased by it, makes such
qualification necessary, except for those jurisdictions in which
the failure to be so qualified or to be in good standing would not,
individually or in the aggregate, limit the Company’s ability
to consummate the transactions hereby contemplated or have a
Company Material Adverse Effect. When used in Sections 3.5
through 3.16, the term “Company” shall include the
Company and each of its Subsidiaries
3.3 Authority;
Execution and Delivery; Enforceability . The Company has the
corporate power and authority to execute and deliver this Agreement
and the Transaction Documents and to consummate the transactions
hereby and thereby contemplated. The execution and delivery by the
Company of this Agreement and the Transaction Documents and the
consummation by the Company of the transactions hereby and thereby
contemplated have been authorized by all necessary corporate action
of the Company. The Company has duly executed
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and delivered
this Agreement and the Transaction Documents, and, assuming the due
execution and delivery of this Agreement and the Transaction
Documents by each party thereto (other than the Company), this
Agreement and the Transaction Documents constitute valid and
binding obligations of the Company and are enforceable against the
Company in accordance with its and their respective terms, except
as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar
laws relating to or affecting creditors’ rights generally or
general equitable principles (whether considered in a proceeding at
equity or in law).
3.4
Capitalization . (a) Prior to giving effect to the
transactions contemplated by this Agreement, the Company is
authorized to issue 250,000,000 shares of Common Stock, 31,770,193
of which are issued and outstanding as of the date hereof, and
100,000,000 shares of Preferred Stock, of which 100,000 shares have
been designated Series A Convertible Preferred Stock and none
of which are issued and outstanding as of the date
hereof.
(b) The
outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable. All
outstanding Common Stock, options and other securities of the
Company were issued in accordance with the registration or
qualification provisions of the Securities Act and any relevant
state securities laws (including, without limitation, anti-fraud
provisions) or, subject in part to the truth and accuracy of each
purchaser’s representations to the Company at the time of the
purchase thereof, pursuant to valid exemptions
therefrom.
(c) The
shares of Series A Preferred Stock and Common Stock when
issued to Investor in accordance with the terms of this Agreement
shall be legally and validly issued, fully paid and non-assessable,
free and clear of all Liens. The shares of Common Stock issuable
upon conversion of the Series A Preferred Stock and issuable
upon exercise of the Warrants have been duly and validly reserved
on the books and records of the Company and, when issued upon
conversion of the Series A Preferred Stock in accordance with
the terms of the Certificate of Designations or when issued upon
exercise of the Warrants in accordance with the terms thereof, as
the case may be, and applicable Governmental Rules, shall be
legally and validly issued, fully paid and nonassessable, free and
clear of all Liens.
(d) Except as
set forth on the Company Disclosure Schedule, there are no
outstanding options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock. No holder of
shares of Common Stock or any other security of the Company or any
other person is entitled to any preemptive right, right of first
refusal or similar right as a result of the issuance of the
securities contemplated by this Agreement or otherwise, nor is the
Company a party to or aware of any voting trust, agreement or
arrangement the holders of voting stock of the Company affecting
the exercise of the voting rights of such stock.
3.5
Non-Contravention . Neither the execution and delivery of
this Agreement and the Transaction Documents by the Company, nor
the consummation of the transactions hereby and thereby
contemplated by the Company, will (i) constitute any violation
or breach of the articles of incorporation or the by-laws (or
comparable organizational documents in the case of Subsidiaries) of
the Company; (ii) constitute a default under or a violation or
breach of, or result in the acceleration of any obligation under,
any provision of any contract to which the Company
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is a party or
by which any of the assets of the Company may be affected;
(iii) assuming the consents and approvals described in
Section 3.6 have been received, violate any Governmental Rules
affecting the Company; or (iv) result in the creation of any
Lien on any of the assets of the Company, other than, in the case
of foregoing clauses (ii), (iii), and (iv), those defaults,
violations, breaches, accelerations and Liens which, individually
or in the aggregate, would not have a Company Material Adverse
Effect.
3.6 Consents
and Approvals . Except as set forth in the Company Disclosure
Schedule, no consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Authority or any
other Person is required on behalf of the Company in connection
with the execution, delivery or performance of this Agreement and
the Transaction Documents or the consummation of the transactions
contemplated hereby and thereby, other than such consents,
approvals and authorizations of, and declarations, filings and
registrations the failure of which to obtain, make or otherwise
effect which would not, individually or in the aggregate, result in
a Company Material Adverse Effect.
3.7 SEC Reports
and Financial Statements . (a) The Company has filed all
forms, reports and documents required to be filed by it with the
SEC since November 13, 2006 (collectively, the “ SEC
Reports ”). The SEC Reports (i) were prepared in all
material respects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be; and
(ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under
which they were made, not misleading.
(b) Each of
the financial statements (including, in each case, any notes
thereto) contained in the SEC Reports (the “ Financial
Statements ”) (i) was prepared from the books of
account and other financial records of the Company, (ii) was
prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as may be indicated in the
notes thereto) and (iii) presented fairly in all material
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