Exhibit 10.5
PLEDGE, ASSIGNMENT, AND SECURITY AGREEMENT
     THIS PLEDGE, ASSIGNMENT, AND SECURITY AGREEMENT (this “Security Agreement”)
is executed as of November 9, 2007, by Panda Ethanol Holdings, LLC, a Delaware
limited liability company (“Debtor”), whose address is 4100 Spring Valley,
Suite 1002, Dallas, Texas 75244, and Panda Energy International, Inc., a Texas
corporation (hereafter referred to as “Secured Party,”) whose address is 4100
Spring Valley, Suite 1001, Dallas, Texas 75244.
RECITALS
     A. Panda Ethanol, Inc. and Secured Party have entered into a Loan Agreement
dated as of the date hereof (as amended, modified, supplemented, or restated
from time to time, the “Credit Agreement”).
     B. This Security Agreement is integral to the transactions contemplated by
the Loan Documents, and the execution and delivery thereof, is a condition
precedent to Secured Party’s obligations to extend credit under the Loan
Documents.
     ACCORDINGLY, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Debtor and Secured Party hereby agree as follows:
     1. REFERENCE TO CREDIT AGREEMENT. The terms, conditions, and provisions of
the Credit Agreement are incorporated herein by reference, the same as if set
forth herein verbatim, which terms, conditions, and provisions shall continue to
be in full force and effect hereunder so long as Secured Party is obligated to
lend under the Credit Agreement and thereafter until the Obligation is paid and
performed in full.
     2. CERTAIN DEFINITIONS. Unless otherwise defined herein, or the context
hereof otherwise requires, each term defined in either of the Credit Agreement
or in the UCC is used in this Security Agreement with the same meaning; provided
that, if the definition given to such term in the Credit Agreement conflicts
with the definition given to such term in the UCC, the Credit Agreement
definition shall control to the extent legally allowable; and if any definition
given to such term in Chapter 9 of the UCC conflicts with the definition given
to such term in any other chapter of the UCC, the Chapter 9 definition shall
prevail. As used herein, the following terms have the meanings indicated:
     Collateral has the meaning set forth in Paragraph 4 hereof; provided
however that, the Collateral shall expressly exclude each account of Debtor at
UBS Financial Services Inc. or UBS International Inc., (collectively “UBS”) as
applicable, that is identified as a Collateral Account by Debtor in writing,
together with all successors to those identified accounts, as set forth in that
certain Credit Line Agreement by and between Debtor and UBS Bank USA for only so
long and only to the extent that as any such accounts or cash or assets in such
accounts are security for Debtor’s obligations to UBS pursuant to that certain
credit agreement by and between the Borrower UBS Financial Services, Inc. dated
as of October 3, 2007; and, otherwise such assets of Debtor shall by Collateral.

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     Control Agreement means, with respect to any Collateral consisting of
investment property, an agreement evidencing that Secured Party has “control”
(as defined in the UCC) of such Collateral.
     Obligation means, collectively, (a) the “Obligations” as defined in the
Credit Agreement, and (b) all indebtedness, liabilities, and obligations of
Debtor arising under this Security Agreement or any Guaranty assuring payment of
the Obligation; it being the intention and contemplation of Debtor and Secured
Party that future advances will be made by Secured Party to Debtor for a variety
of purposes, that Debtor may guarantee (or otherwise become directly or
contingently obligated with respect to) the obligations of others to Secured
Party, and that Secured Party may from time to time acquire from others
obligations of Debtor to such others, and that payment and repayment of all of
the foregoing are intended to and shall be part of the Obligation secured
hereby. The Obligation shall include, without limitation, future, as well as
existing, advances, indebtedness, liabilities, and obligations owed by Debtor to
Secured Party arising under the Loan Documents or otherwise.
     Obligor means any Person obligated with respect to any of the Collateral,
whether as an account debtor, obligor on an instrument, issuer of securities, or
otherwise.
     Partnerships shall mean (a) those partnerships and limited liability
companies listed on Annex B-1 attached hereto and incorporated herein by
reference, as such partnerships or limited liability companies exist or may
hereinafter be restated, amended, or restructured, (b) any partnership, joint
venture, or limited liability company in which Debtor shall, at any time, become
a limited or general partner, venturer, or member, or (c) any partnership, joint
venture, or corporation formed as a result of the restructure, reorganization,
or amendment of the Partnerships.
     Partnership Agreements shall mean (a) those agreements listed on Annex B-1
attached hereto and incorporated herein by reference (together with any
modifications, amendments, or restatements thereof), and (b) partnership
agreements, joint venture agreements, or organizational agreements for any of
the partnerships, joint ventures, or limited liability companies described in
clause (b) of the definition of “Partnerships” above (together with any
modifications, amendments or restatements thereof), and “Partnership Agreement”
means any one of the Partnership Agreements.
     Partnership Interests shall mean all of Debtor’s right, title and interest
now or hereafter accruing under the Partnership Agreements with respect to all
distributions, allocations, proceeds, fees, preferences, payments, or other
benefits, which Debtor now is or may hereafter become entitled to receive with
respect to such interests in the Partnerships and with respect to the repayment
of all loans now or hereafter made by Debtor to the Partnerships.
     Pledged Securities means, collectively, the Pledged Shares and any other
Collateral constituting securities.
     Pledged Shares has the meaning set forth in Paragraph 4 hereof.
     Security Interest means the security interest granted and the pledge and
assignment made under Paragraph 3 hereof.

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     UCC means the Uniform Commercial Code, including each such provision as it
may subsequently be renumbered, as enacted in the State of Texas or other
applicable jurisdiction, as amended at the time in question.
     3. SECURITY INTEREST. In order to secure the full and complete payment and
performance of the Obligation when due, Debtor hereby grants to Secured Party a
Security Interest in all of Debtor’s rights, titles, and interests in and to the
Collateral and pledges, collaterally transfers, and assigns the Collateral to
Secured Party, all upon and subject to the terms and conditions of this Security
Agreement. Such Security Interest is granted and pledge and assignment are made
as security only and shall not subject Secured Party to, or transfer or in any
way affect or modify, any obligation of Debtor with respect to any of the
Collateral or any transaction involving or giving rise thereto. If the grant,
pledge, or collateral transfer or assignment of any specific item of the
Collateral is expressly prohibited by any contract, then the Security Interest
created hereby nonetheless remains effective to the extent allowed by the UCC or
other applicable law, but is otherwise limited by that prohibition.
     4. COLLATERAL. As used herein, the term “Collateral” means the following
items and types of property, wherever located, now owned or in the future
existing or acquired by Debtor, and all proceeds and products thereof, and any
substitutes or replacements therefor:
     (a) All rights, titles, and interests of Debtor in and to all outstanding
stock, equity, or other investment securities owned by Debtor, including,
without limitation, all capital stock of any Subsidiary of the Debtor set forth
on Annex B-1 (the “Pledged Shares”);
     (b) The Partnership Interests and all rights of Debtor with respect
thereto, including, without limitation, all Partnership Interests set forth on
Annex B-1 and all of Debtor’s distribution rights, income rights, liquidation
interest, accounts, contract rights, general intangibles, notes, instruments,
drafts, and documents relating to the Partnership Interests;
     (c) All present and future distributions, income, increases, profits,
combinations, reclassifications, improvements, and products of, accessions,
attachments, and other additions to, and substitutes and replacements for, all
or part of the Collateral described above;
     (d) All present and future accounts, contract rights, general intangibles,
chattel paper, documents, instruments, cash and noncash proceeds, and other
rights arising from or by virtue of, or from the voluntary or involuntary sale
or other disposition of, or collections with respect to, or claims against any
other Person with respect to, all or any part of the Collateral heretofore
described in this clause or otherwise; and
     (e) All present and future security for the payment to Debtor of any of the
Collateral described above and goods which gave or will give rise to any such
Collateral or are evidenced, identified, or represented therein or thereby.
The description of the Collateral contained in this Paragraph 4 shall not be
deemed to permit any action prohibited by this Security Agreement or by the
terms incorporated in this Security Agreement.
     5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that:

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     (a) Binding Obligation/ Perfection. This Security Agreement creates a
legal, valid, and binding lien in and to the Collateral in favor of Secured
Party and enforceable against Debtor. For Collateral in which the Security
Interest may be perfected by the filing of financing statements, once those
financing statements have been properly filed in the jurisdictions described on
Annex A hereto, the Security Interest in that Collateral will be fully perfected
and the Security Interest will constitute a first-priority Lien on such
Collateral, subject only to the liens permitted under Section 7(c) of the Credit
Agreement (“Permitted Liens”). With respect to Collateral consisting of
investment property (other than Pledged Securities covered by Paragraph 5(i))
and instruments, upon the delivery of such Collateral to Secured Party or
delivery of an executed Control Agreement with respect to such Collateral, the
Security Interest in that Collateral will be fully perfected and the Security
Interest will constitute a first-priority lien on such Collateral, subject only
to Permitted Liens. None of the Collateral has been delivered nor control with
respect thereto given to any other Person. Other than the financing statements
and Control Agreements with respect to this Security Agreement, there are no
other financing statements or control agreements covering any Collateral, other
than those evidencing Permitted Liens. The creation of the Security Interest
does not require the consent of any Person that has not been obtained.
     (b) Debtor Information. Debtor’s exact legal name, mailing address,
jurisdiction of organization, type of entity, and state issued organizational
identification number are as set forth on Annex A hereto.
     (c) Location. Debtor’s place of business and chief executive office is
where Debtor is entitled to receive notices hereunder; the present and
foreseeable location of Debtor’s books and records concerning any of the
Collateral that is accounts is as set forth on Annex A hereto, and the location
of all other Collateral is as set forth on Annex A hereto; and, except as noted
on Annex A hereto, all such books, records, and Collateral are in Debtor’s
possession.
     (d) Governmental Authority. No Authorization, approval, or other action by,
and no notice to or filing with, any governmental authority is required either
(i) for the pledge by Debtor of the Collateral pursuant to this Security
Agreement or for the execution, delivery, or performance of this Security
Agreement by Debtor, or (ii) for the exercise by Secured Party of the voting or
other rights provided for in this Security Agreement or the remedies in respect
of the Collateral pursuant to this Security Agreement (except as may be required
in connection with the disposition of the Pledged Securities by laws affecting
the offering and sale of securities generally).
     (e) Liens. Debtor owns all presently existing Collateral, and will acquire
all hereafter-acquired Collateral, free and clear of all liens, except the
security interest permitted hereby.
     (f) Collateral. Annex B-1 accurately lists all Pledged Shares and
Partnership Interests, in which Debtor has any rights, titles, or interest (but
such failure of such description to be accurate or complete shall not impair the
Security Interest in such Collateral).
     (g) Pledged Securities; Pledged Shares. All Collateral that is Pledged
Shares is duly authorized, validly issued, fully paid, and non-assessable, and
the transfer thereof is not subject to any restrictions, other than restrictions
imposed by applicable securities and corporate laws. Debtor has good title to
the Pledged Securities, free and clear of all liens and encumbrances

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thereon (except for the Security Interest created hereby), and has delivered to
Secured Party (i) all stock certificates, or other instruments or documents
representing or evidencing the Pledged Securities, together with corresponding
assignment or transfer powers duly executed in blank by Debtor, and such powers
have been duly and validly executed and are binding and enforceable against
Debtor in accordance with their terms or (ii) to the extent such Pledged
Securities are uncertificated, an executed Control Agreement with respect to
such Pledged Securities. The pledge of the Pledged Securities in accordance with
the terms hereof creates a valid and perfected first priority security interest
in the Pledged Securities securing payment of the Obligation.
     (h) Partnership Interests. Each Partnership issuing a Partnership Interest,
is duly organized, currently existing, and in good standing under all applicable
laws; there have been no amendments, modifications, or supplements to any
agreement or certificate creating any Partnership or any material contract
relating to the Partnerships, of which Secured Party has not been advised in
writing; no default or breach or potential default or breach has occurred and is
continuing under any Partnership Agreement, except as disclosed on Annex C
hereto; and no approval or consent of the partners of any Partnership is
required as a condition to the validity and enforceability of the Security
Interest created hereby or the consummation of the transactions contemplated
hereby which has not been duly obtained by Debtor. Debtor has good title to the
Partnership Interests free and clear of all liens and encumbrances (except for
the Security Interest granted hereby). The Partnership Interests are validly
issued, fully paid, and nonassessable and are not subject to statutory,
contractual, or other restrictions governing their transfer, ownership, or
control, except as set forth in the applicable Partnership Agreements or
applicable securities laws. All capital contributions required to be made by the
terms of the Partnership Agreements for each Partnership have been made.
The foregoing representations and warranties will be true and correct in all
respects with respect to any additional Collateral or additional specific
descriptions of certain Collateral delivered to Secured Party in the future by
Debtor. The failure of any of these representations or warranties or any
description of Collateral therein to be accurate or complete shall not impair
the Security Interest in any such Collateral.
     6. COVENANTS. So long as Secured Party is committed to extend credit to
Debtor under the Credit Agreement and thereafter until the Obligation is paid
and performed in full, Debtor covenants and agrees with Secured Party that
Debtor will:
     (a) Information/Record of Collateral. Maintain, at the place where Debtor
is entitled to receive notices under the Loan Documents, a current record of
where all Collateral is located, permit representatives of Secured Party at any
time during normal business hours to inspect and make abstracts from such
records, and furnish to Secured Party, at such intervals as Secured Party may
request, such documents, lists, descriptions, certificates, and other
information as may be necessary or proper to keep Secured Party informed with
respect to the identity, location, status, condition, and value of the
Collateral. In addition, from time to time at the request of Secured Party
deliver to Secured Party such information regarding Debtor as Secured Party may
reasonably request.
     (b) Annexes. Immediately update all annexes hereto if any information
therein shall become inaccurate or incomplete. Notwithstanding any other
provision herein, Debtor’s failure to describe any Collateral required to be
listed on any annex hereto shall not impair Secured Party’s Security Interest in
the Collateral.

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     (c) Perform Obligations. Fully perform all of Debtor’s duties under and in
connection with each transaction to which the Collateral, or any part thereof,
relates, so that the amounts thereof shall actually become payable in their
entirety to Secured Party. Furthermore, notwithstanding anything to the contrary
contained herein, (i) Debtor shall remain liable under the contracts,
agreements, documents, and instruments included in the Collateral to the extent
set forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Security Agreement had not been executed, (ii) the
exercise by Secured Party of any of its rights or remedies hereunder shall not
release Debtor from any of its duties or obligations under the contracts,
agreements, documents, and instruments included in the Collateral, and
(iii) Secured Party shall not have any indebtedness, liability, or obligation
under any of the contracts, agreements, documents, and instruments included in
the Collateral by reason of this Security Agreement, and Secured Party shall not
be obligated to perform any of the obligations or duties of Debtor thereunder or
to take any action to collect or enforce any claim for payment assigned
hereunder.
     (d) Notices. (i) Except as may be otherwise expressly permitted under the
terms of the Credit Agreement, promptly notify Secured Party of (A) any change
in any fact or circumstances represented or warranted by Debtor with respect to
any of the Collateral or Obligation, (B) any claim, action, or proceeding
affecting title to all or any of the Collateral or the Security Interest and, at
the request of Secured Party, appear in and defend, at Debtor’s expense, any
such action or proceeding, (C) any material change in the nature of the
Collateral, (D) any material damage to or loss of Collateral, and (E) the
occurrence of any other event or condition (including, without limitation,
matters as to lien priority) that could have a material adverse effect on the
Collateral (taken as a whole) or the Security Interest created hereunder; and
(ii) give Secured Party thirty (30) days written notice before any proposed
(A) relocation of its principal place of business or chief executive office,
(B) change of its name, identity, or corporate structure, (C) relocation of the
place where its books and records concerning its accounts are kept, (D)
relocation of any Collateral to a location not described on the attached Annex
A, and (E) change of its jurisdiction of organization or organizational
identification number, as applicable. Prior to making any of the changes
contemplated in clause (ii) preceding, Debtor shall execute and deliver all such
additional documents and perform all additional acts as Secured Party, in its
sole discretion, may request in order to continue or maintain the existence and
priority of the Security Interests in all of the Collateral.
     (e) Collateral in Trust. Hold in trust (and not commingle with other assets
of Debtor) for Secured Party all Collateral that Pledged Securities or documents
at any time received by Debtor, and promptly deliver same to Secured Party,
unless Secured Party at its option (which may be evidenced only by a writing
signed by Secured Party stating that Secured Party elects to permit Debtor to so
retain) permits Debtor to retain the same, but any Pledged Securities or
documents so retained shall be marked to state that they are assigned to Secured
Party; each such instrument shall be endorsed to the order of Secured Party (but
the failure of same to be so marked or endorsed shall not impair the Security
Interest thereon).
     (f) Control. Execute all documents and take any action required by Secured
Party in order for Secured Party to obtain “control” (as defined in the UCC)
with respect to Collateral consisting of investment property and Pledged
Securities.
     (g) Further Assurances. At Debtor’s expense and Secured Party’s request,
before or after an Event of Default or event or condition that, with the passage
of time or giving of notice

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would become an Event of Default, (i) file or cause to be filed such
applications and take such other actions as Secured Party may request to obtain
the consent or approval of any Governmental authority to Secured Party’s rights
hereunder, including, without limitation, the right to sell all the Collateral
upon an Event of Default or event or condition that, with the passage of time or
giving of notice would become an Event of Default, without additional consent or
approval from such governmental authority (and, because Debtor agrees that
Secured Party’s remedies at law for failure of Debtor to comply with this
provision would be inadequate and that such failure would not be adequately
compensable in damages, Debtor agrees that its covenants in this provision may
be specifically enforced); (ii) from time to time promptly execute and deliver
to Secured Party all such other assignments, certificates, supplemental
documents, and financing statements, and do all other acts or things as Secured
Party may reasonably request in order to more fully create, evidence, perfect,
continue, and preserve the priority of the Security Interest and to carry out
the provisions of this Security Agreement; and (iii) pay all filing fees in
connection with any financing, continuation, or termination statement or other
instrument with respect to the Security Interests.
     (h) Encumbrances. Not create, permit, or suffer to exist, and shall defend
the Collateral against, any lien or other encumbrance on the Collateral, and
shall defend Debtor’s rights in the Collateral and Secured Party’s Security
Interest in, the Collateral against the claims and demands of all Persons.
Debtor shall do nothing to impair the rights of Secured Party in the Collateral.
     (i) Securities. Except as permitted by the Credit Agreement, not sell,
exchange, or otherwise dispose of, or grant any option, warrant, or other right
with respect to, any of the Pledged Securities; to the extent any issuer of any
Pledged Securities is controlled by Debtor and/or its Affiliates, not permit
such issuer to issue any additional shares of stock or other securities in
addition to or in substitution for the Pledged Securities, except issuances to
Debtor on terms acceptable to Secured Party; pledge hereunder, immediately upon
Debtor’s acquisition (directly or indirectly) thereof, any and all additional
shares of stock or other securities of each Subsidiary of Debtor; and take any
action necessary, required, or requested by Secured Party to allow Secured Party
to fully enforce its Security Interest in the Pledged Securities, including,
without limitation, the filing of any claims with any court, liquidator,
trustee, custodian, receiver, or other like person or party.
     (j) Partnerships and Partnership Interests. (i) Promptly perform, observe,
and otherwise comply with each and every covenant, agreement, requirement, and
condition set forth in the contracts and agreements creating or relating to any
Partnership; (ii) do or cause to be done all things necessary or appropriate to
keep the Partnerships in full force and effect and the rights of Debtor and
Secured Party thereunder unimpaired; (iii) except as expressly permitted by the
Credit Agreement, not consent to any Partnership selling, leasing, or disposing
of substantially all of its assets in a single transaction or a series of
transactions; (iv) notify Secured Party of the occurrence of any default or
breach or potential default or breach under any contract or agreement creating
or relating to the Partnerships; (v) not consent to the amendment, modification,
surrender, impairment, forfeiture, cancellation, dissolution, or termination of
any Partnership, or material agreement relating thereto; (vi) except as
permitted by the Credit Agreement, not transfer, sell, or assign any of the
Partnership Interests or any part thereof; (vii) to the extent any Partnership
is controlled by Debtor and/or its Affiliates, cause such Partnership to refrain
from granting any Partnership Interests in addition to or in substitution for
the Partnership Interests granted by the Partnerships, except to Debtor;
(viii) pledge hereunder, immediately upon Debtor’s

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acquisition (directly or indirectly) thereof, any and all additional Partnership
Interests of any Partnership granted to Debtor; (ix) deliver to Secured Party a
fully-executed Acknowledgment of Pledge, substantially in the form of Annex D,
for each Partnership Interest; and (x) take any action necessary, required, or
requested by Secured Party to allow Secured Party to fully enforce its Security
Interest in the Partnership Interests, including, without limitation, the filing
of any claims with any court, liquidator, trustee, custodian, receiver, or other
like person or party.
     7. DEFAULT; REMEDIES. If an Event of Default exists, Secured Party may, at
its election (but subject to the terms and conditions of the Credit Agreement),
exercise any and all rights available to a secured party under the UCC, in
addition to any and all other rights afforded by the Loan Documents, at law, in
equity, or otherwise, including, without limitation, (a) requiring Debtor to
assemble all or part of the Collateral and make it available to Secured Party at
a place to be designated by Secured Party which is reasonably convenient to
Debtor and Secured Party, and (b) applying by appropriate judicial proceedings
for appointment of a receiver for all or part of the Collateral (and Debtor
hereby consents to any such appointment).
     (a) Notice. Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be sent to Debtor and to any other Person entitled to notice under the
UCC; provided that, if any of the Collateral threatens to decline speedily in
value or is of the type customarily sold on a recognized market, Secured Party
may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than five Business Days prior to the taking of the action to
which the notice relates is reasonable notification and notice for the purposes
of this subparagraph.
     (b) Condition of Collateral; Warranties. Secured Party has no obligation to
clean-up or otherwise prepare the Collateral for sale. Secured Party may sell
the Collateral without giving any warranties as to the Collateral. Secured Party
may specifically disclaim any warranties of title or the like. This procedure
will not be considered adversely to affect the commercial reasonableness of any
sale of the Collateral.
     (c) Compliance with Other Laws. Secured Party may comply with any
applicable state or federal law requirements in connection with a disposition of
the Collateral and compliance will not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral.
     (d) Sales of Pledged Securities.
     (i) Debtor agrees that, because of the Securities Act of 1933, as amended,
or the rules and regulations promulgated thereunder (collectively, the
“Securities Act”), or any other laws or regulations, and for other reasons,
there may be legal or practical restrictions or limitations affecting Secured
Party in any attempts to dispose of certain portions of the Pledged Securities
and for the enforcement of its rights. For these reasons, Secured Party is
hereby authorized by Debtor, but not obligated, upon the occurrence and during
the continuation of an Event of Default, to sell all or any part of the Pledged
Securities at private sale, subject to investment letter or in any other manner
which will not require the Pledged Securities, or any part thereof, to be
registered in accordance with the Securities Act or any other laws or
regulations, at a reasonable price

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at such private sale or other distribution in the manner mentioned above. Debtor
understands that Secured Party may in its discretion approach a limited number
of potential purchasers and that a sale under such circumstances may yield a
lower price for the Pledged Securities, or any part thereof, than would
otherwise be obtainable if such Collateral were either afforded to a larger
number or potential purchasers, registered under the Securities Act, or sold in
the open market. Debtor agrees that any such private sale made under this
Paragraph 7(d) shall be deemed to have been made in a commercially reasonable
manner, and that Secured Party has no obligation to delay the sale of any
Pledged Securities to permit the issuer thereof to register it for public sale
under any applicable federal or state securities laws.
     (ii) Secured Party is authorized, in connection with any such sale, (A) to
restrict the prospective bidders on or purchasers of any of the Pledged
Securities to a limited number of sophisticated investors who will represent and
agree that they are purchasing for their own account for investment and not with
a view to the distribution or sale of any of such Pledged Securities, and (B) to
impose such other limitations or conditions in connection with any such sale as
Secured Party reasonably deems necessary in order to comply with applicable law.
Debtor covenants and agrees that it will execute and deliver such documents and
take such other action as Secured Party reasonably deems necessary in order that
any such sale may be made in compliance with applicable law. Upon any such sale
Secured Party shall have the right to deliver, assign, and transfer to the
purchaser thereof the Pledged Securities so sold. Each purchaser at any such
sale shall hold the Pledged Securities so sold absolutely free from any claim or
right of Debtor of whatsoever kind, including any equity or right of redemption
of Debtor. Debtor, to the extent permitted by applicable law, hereby
specifically waives all rights of redemption, stay, or appraisal which it has or
may have under any law now existing or hereafter enacted.
     (iii) Debtor agrees that five days’ written notice from Secured Party to
Debtor of Secured Party’s intention to make any such public or private sale or
sale at a broker’s board or on a securities exchange shall constitute reasonable
notice under the UCC. Such notice shall (A) in case of a public sale, state the
time and place fixed for such sale, (B) in case of sale at a broker’s board or
on a securities exchange, state the board or exchange at which such a sale is to
be made and the day on which the Pledged Securities, or the portion thereof so
being sold, will first be offered to sale at such board or exchange, and (C) in
the case of a private sale, state the day after which such sale may be
consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix in
the notice of such sale. At any such sale, the Pledged Securities may be sold in
one lot as an entirety or in separate parcels, as Secured Party may reasonably
determine. Secured Party shall not be obligated to make any such sale pursuant
to any such notice. Secured Party may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for the sale, and such sale may be
made at any time or place to which the same may be so adjourned.
     (iv) In case of any sale of all or any part of the Pledged Securities on
credit or for future delivery, the Pledged Securities so sold may be retained by
Secured Party until the selling price is paid by the purchaser thereof, but
Secured Party shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Pledged

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Securities so sold and in case of any such failure, such Pledged Securities may
again be sold upon like notice. Secured Party, instead of exercising the power
of sale herein conferred upon it, may proceed by a suit or suits at law or in
equity to foreclose the Security Interests and sell the Pledged Securities, or
any portion thereof, under a judgment or decree of a court or courts of
competent jurisdiction.
     (v) Without limiting the foregoing, or imposing upon Secured Party any
obligations or duties not required by applicable law, Debtor acknowledges and
agrees that, in foreclosing upon any of the Pledged Securities, or exercising
any other rights or remedies provided Secured Party hereunder or under
applicable law, Secured Party may, but shall not be required to, (A) qualify or
restrict prospective purchasers of the Pledged Securities by requiring evidence
of sophistication or creditworthiness, and requiring the execution and delivery
of confidentiality agreements or other documents and agreements as a condition
to such prospective purchasers’ receipt of information regarding the Pledged
Securities or participation in any public or private foreclosure sale process,
(B) provide to prospective purchasers business and financial information
regarding Debtor or the Companies available in the files of Secured Party at the
time of commencing the foreclosure process, without the requirement that Secured
Party obtain, or seek to obtain, any updated business or financial information
or verify, or certify to prospective purchasers, the accuracy of any such
business or financial information, or (C) offer for sale and sell the Pledged
Securities with, or without, first employing an appraiser, investment banker, or
broker with respect to the evaluation of the Pledged Securities, the
solicitation of purchasers for Pledged Securities, or the manner of sale of
Pledged Securities.
     (e) Application of Proceeds. Secured Party shall apply the proceeds of any
sale or other disposition of the Collateral under this Paragraph 7 in the
following order: first, to the payment of all expenses incurred in retaking,
holding, and preparing any of the Collateral for sale(s) or other disposition,
in arranging for such sale(s) or other disposition, and in actually selling or
disposing of the same (all of which are part of the Obligation); second, toward
repayment of amounts expended by Secured Party under Paragraph 8; and third,
toward payment of the balance of the Obligation in the order and manner
specified in the Credit Agreement. Any surplus remaining shall be delivered to
Debtor or as a court of competent jurisdiction may direct. If the proceeds are
insufficient to pay the Obligation in full, Debtor shall remain liable for any
deficiency.
     (f) Sales on Credit. If Secured Party sells any of the Collateral upon
credit, Debtor will be credited only with payments actually made by the
purchaser, received by the Secured Party, and applied to the indebtedness of the
purchaser. In the event the purchaser fails to pay for the Collateral, Secured
Party may resell the Collateral and Debtor shall be credited with the proceeds
of the sale.
     8. OTHER RIGHTS OF SECURED PARTY.
     (a) Collection. If an Event of Default exists and upon notice from Secured
Party, each Obligor with respect to any payments on any of the Collateral
(including, without limitation, dividends and other Distributions with respect
to the Pledged Securities and Partnership Interests) is hereby authorized and
directed by Debtor to make payment directly to Secured Party, regardless of
whether Debtor was previously making collections thereon. Subject to

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Paragraph 8(d) hereof, until such notice is given, Debtor is authorized to
retain and expend all payments made on Collateral. If an Event of Default
exists, Secured Party shall have the right in its own name or in the name of
Debtor to compromise or extend time of payment with respect to all or any
portion of the Collateral for such amounts and upon such terms as Secured Party
may determine; to demand, collect, receive, receipt for, sue for, compound, and
give acquittances for any and all amounts due or to become due with respect to
Collateral; to take control of cash and other proceeds of any Collateral; to
endorse the name of Debtor on any notes, acceptances, checks, drafts, money
orders, or other evidences of payment on Collateral that may come into the
possession of Secured Party; to sign the name of Debtor on any invoice or bill
of lading relating to any Collateral, on any drafts against Obligors or other
Persons making payment with respect to Collateral, on assignments and
verifications of accounts or other Collateral and on notices to Obligors making
payment with respect to Collateral; to send requests for verification of
obligations to any Obligor; and to do all other acts and things necessary to
carry out the intent of this Security Agreement. If an Event of Default exists
and any Obligor fails or refuses to make payment on any Collateral when due,
Secured Party is authorized, in its sole discretion, either in its own name or
in the name of Debtor, to take such action as Secured Party shall deem
appropriate for the collection of any amounts owed with respect to Collateral or
upon which a delinquency exists. Regardless of any other provision hereof,
however, Secured Party shall never be liable for its failure to collect, or for
its failure to exercise diligence in the collection of, any amounts owed with
respect to Collateral, nor shall it be under any duty whatsoever to anyone
except Debtor to account for funds that it shall actually receive hereunder.
Without limiting the generality of the foregoing, Secured Party shall have no
responsibility for ascertaining any maturities, calls, conversions, exchanges,
offers, tenders, or similar matters relating to any Collateral, or for informing
Debtor with respect to any of such matters (irrespective of whether Secured
Party actually has, or may be deemed to have, knowledge thereof). The receipt of
Secured Party to any Obligor shall be a full and complete release, discharge,
and acquittance to such Obligor, to the extent of any amount so paid to Secured
Party.
     (b) Record Ownership of Securities. If an Event of Default or event or
condition that, with the passage of time or giving of notice would become an
Event of Default exists, Secured Party at any time may have any Collateral that
is Pledged Securities and that is in the possession of Secured Party, or its
nominee or nominees, registered in its name, or in the name of its nominee or
nominees, as Secured Party; and, as to any Collateral that is Pledged Securities
so registered, Secured Party shall execute and deliver (or cause to be executed
and delivered) to Debtor all such proxies, powers of attorney, dividend coupons
or orders, and other documents as Debtor may reasonably request for the purpose
of enabling Debtor to exercise the voting rights and powers which it is entitled
to exercise under this Security Agreement or to receive the dividends and other
Distributions and payments in respect of such Collateral that is Pledged
Securities or proceeds thereof which it is authorized to receive and retain
under this Security Agreement.
     (c) Voting of Securities. As long as no Event of Default exists, Debtor is
entitled to exercise all voting rights pertaining to any Pledged Securities and
Partnership Interests; provided, however, that no vote shall be cast or consent,
waiver, or ratification given or action taken without the prior written consent
of Secured Party which would (x) be inconsistent with or violate any provision
of this Security Agreement or any other Loan Document or (y) amend, modify, or
waive any term, provision or condition of the certificate of incorporation,
bylaws, certificate of formation, or other charter document, or other agreement
relating to, evidencing, providing for the issuance of, or securing any
Collateral; and provided further that Debtor shall

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give Secured Party at least five (5) Business Days’ prior written notice in the
form of an officers’ certificate of the manner in which it intends to exercise,
or the reasons for refraining from exercising, any voting or other consensual
rights pertaining to the Collateral or any part thereof which might have a
material adverse effect on the value of the Collateral or any part thereof. If
an Event of Default exists and if Secured Party elects to exercise such right,
the right to vote any Pledged Securities shall be vested exclusively in Secured
Party. To this end, Debtor hereby irrevocably constitutes and appoints Secured
Party the proxy and attorney-in-fact of Debtor, with full power of substitution,
to vote, and to act with respect to, any and all Collateral that is Pledged
Securities standing in the name of Debtor or with respect to which Debtor is
entitled to vote and act, subject to the understanding that such proxy may not
be exercised unless an Event of Default exists. The proxy herein granted is
coupled with an interest, is irrevocable, and shall continue until the
Obligation has been paid and performed in full.
(d) Certain Proceeds. Notwithstanding any contrary provision herein, any and all
     (i) dividends, interest, or other Distributions paid or payable other than
in cash in respect of, and instruments and other property received, receivable,
or otherwise distributed in respect of, or in exchange for, any Collateral;
     (ii) dividends, interest, or other Distributions paid or payable in
violation of the Loan Documents,
shall be part of the Collateral hereunder, and shall, if received by Debtor, be
held in trust for the benefit of Secured Party, and shall forthwith be delivered
to Secured Party (accompanied by proper instruments of assignment and/or stock
and/or bond powers executed by Debtor in accordance with Secured Party’s
instructions) to be held subject to the terms of this Security Agreement. Any
cash proceeds of Collateral on and after the occurrence and during the
continuance of an Event of Default shall be held in trust for the benefit of
Secured Party, and shall forthwith be delivered to Secured Party, to be, at
Secured Party’s option, applied in whole or in part to the Obligation (to the
extent then due), be released in whole or in part to or on the written
instructions of Debtor for any general or specific purpose, or be retained in
whole or in part by Secured Party as additional Collateral. Any cash Collateral
in the possession of Secured Party may be invested by Secured Party in
certificates of deposit issued by Secured Party (if Secured Party issues such
certificates) or by any state or national bank having combined capital and
surplus greater than $100,000,000 with a rating from Moody’s and S&P of P-1 and
A-1+, respectively, or in securities issued or guaranteed by the United States
of America or any agency thereof. Secured Party shall never be obligated to make
any such investment and shall never have any liability to Debtor for any loss
which may result therefrom. All interest and other amounts earned from any
investment of Collateral may be dealt with by Secured Party in the same manner
as other cash Collateral. The provisions of this subparagraph are applicable
whether or not an Event of Default or event or condition that, with the passage
of time or giving of notice would become an Event of Default, exists.
     (e) Power of Attorney. Debtor hereby irrevocably constitutes and appoints
Secured Party and any officer or agent thereof, with full power of substitution,
as its true and lawful attorney-in-fact with full irrevocable power and
authority in the name of Debtor or in its own name, to take after the occurrence
and during the continuance of an Event of Default and from time to time
thereafter, any and all action and to execute any and all documents and
instruments which Secured Party at any time and from time to time deems
necessary or desirable to

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accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, Debtor hereby gives Secured Party the power and
right on behalf of Debtor and in its own name to do any of the following after
the occurrence and during the continuance of an Event of Default and from time
to time thereafter, without notice to or the consent of Debtor:
     (i) to receive, endorse, and collect any drafts or other instruments or
documents in connection with clause (a) above and this
clause (e);
     (ii) to demand, sue for, collect, or receive, in the name of Debtor or in
its own name, any money or property at any time payable or receivable on account
of or in exchange for any of the Collateral and, in connection therewith,
endorse checks, notes, drafts, acceptances, money orders, documents of title or
any other instruments for the payment of money under the Collateral;
     (iii) to pay or discharge taxes, liens, or other encumbrances levied or
placed on or threatened against the Collateral;
     (iv) to notify post office authorities to change the address for delivery
of Debtor to an address designated by Secured Party and to receive, open, and
dispose of mail addressed to Debtor; and
     (v) (A) to direct account debtors and any other parties liable for any
payment under any of the Collateral to make payment of any and all monies due
and to become due thereunder directly to Secured Party or as Secured Party shall
direct; (B) to receive payment of and receipt for any and all monies, claims,
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (C) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, proxies, stock powers, verifications, and notices in connection
with accounts and other documents relating to the Collateral; (D) to commence
and prosecute any suit, action, or proceeding at law or in equity in any court
of competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (E) to defend any suit,
action, or proceeding brought against Debtor with respect to any Collateral;
(F) to settle, compromise, or adjust any suit, action, or proceeding described
above and, in connection therewith, to give such discharges or releases as
Secured Party may deem appropriate; (G) to exchange any of the Collateral for
other property upon any merger, consolidation, reorganization, recapitalization,
or other readjustment of the issuer thereof and, in connection therewith,
deposit any of the Collateral with any committee, depositary, transfer agent,
registrar, or other designated agency upon such terms as Secured Party may
determine; (H) to add or release any guarantor, indorser, surety, or other party
to any of the Collateral; (I) to renew, extend, or otherwise change the terms
and conditions of any of the Collateral; (J) to make, settle, compromise or
adjust any claims under or pertaining to any of the Collateral; (K) to execute
on behalf of Debtor any financing statements or continuation statements with
respect to the Security Interests created hereby, and to do any and all acts and
things to protect and preserve the Collateral, including, without limitation,
the protection and prosecution of all rights included in the Collateral; and
(L) to sell, transfer, pledge, convey, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all purposes, and to do, at
Secured Party’s option and Debtor’s expense, at any

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time, or from time to time, all acts and things which Secured Party deems
necessary to protect, preserve, maintain, or realize upon the Collateral and
Secured Party’s security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Secured Party shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Security Agreement, and shall not be
liable for any failure to do so or any delay in doing so. Neither Secured Party
nor any Person designated by Secured Party shall be liable for any act or
omission or for any error of judgment or any mistake of fact or law. This power
of attorney is conferred on Secured Party solely to protect, preserve, maintain,
and realize upon its Security Interest in the Collateral. Secured Party shall
not be responsible for any decline in the value of the Collateral and shall not
be required to take any steps to preserve rights against prior parties or to
protect, preserve, or maintain any lien given to secure the Collateral.
     (f) Subrogation. If any of the Obligation is given in renewal or extension
or applied toward the payment of indebtedness secured by any lien, Secured Party
shall be, and is hereby, subrogated to all of the rights, titles, interests, and
liens securing the indebtedness so renewed, extended, or paid.
     (g) Indemnification. Debtor hereby assumes all liability for the
Collateral, for the Security Interest, and for any use, possession, maintenance,
and management of, all or any of the Collateral, including, without limitation,
any Taxes arising as a result of, or in connection with, the transactions
contemplated herein, and agrees to assume liability for, and to indemnify and
hold Secured Party harmless from and against, any and all claims, causes of
action, or liability, for injuries to or deaths of Persons and damage to
property, howsoever arising from or incident to such use, possession,
maintenance, and management, whether such Persons be agents or employees of
Debtor or of third parties, or such damage be to property of Debtor or of
others. Debtor agrees to indemnify, save, and hold Secured Party harmless from
and against, and covenants to defend Secured Party against, any and all losses,
damages, claims, costs, penalties, liabilities, and expenses (collectively,
“Claims”), including, without limitation, court costs and attorneys’ fees, and
any of the foregoing arising from the negligence of Secured Party or any of its
officers, employees, agents, advisors, employees, or representatives, howsoever
arising or incurred because of, incident to, or with respect to Collateral or
any use, possession, maintenance, or management thereof; provided, however, that
the indemnity set forth in this Paragraph 8(g) will not apply to Claims caused
by the gross negligence or willful misconduct of Secured Party.
     9. MISCELLANEOUS.
     (a) Continuing Security Interest. This Security Agreement creates a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the termination of the obligations of Secured Party to
advance Advances under the Loan Documents, the payment in full of the
Obligation; and (ii) inure to the benefit of and be enforceable by Secured Party
and its successors, transferees, and assigns. Without limiting the generality of
the foregoing clause (ii), Secured Party may assign or otherwise transfer any of
their respective rights under this Security Agreement to any other Person in
accordance with the terms and provisions of Section 10.06 of the Credit
Agreement, and to the extent of such assignment or transfer such Person shall
thereupon become vested with all the rights and benefits in respect thereof
granted

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herein or otherwise to Secured Party. Upon payment in full of the Obligation,
the termination of the commitment of Secured Party to extend credit under the
Loan Documents, Debtor shall be entitled to the return, upon its request and at
its expense, of such of the Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof.
     (b) Reference to Miscellaneous Provisions. This Security Agreement is one
of the “Loan Documents” referred to in the Credit Agreement, and all provisions
relating to Loan Documents set forth in Section 10 of the Credit Agreement are
incorporated herein by reference, the same as if set forth herein verbatim.
     (c) Term. Upon the later of (i) the termination of Secured Party’s
commitments to fund Advances under the Credit Agreement and (ii) the full and
final payment and performance of the Obligation, this Security Agreement shall
thereafter terminate upon receipt by Secured Party of Debtor’s written notice of
such termination; provided that no Obligor, if any, on any of the Collateral
shall ever be obligated to make inquiry as to the termination of this Security
Agreement, but shall be fully protected in making payment directly to Secured
Party until actual notice of such total payment of the Obligation is received by
such Obligor.
     (d) Actions Not Releases. The Security Interest and Debtor’s obligations
and Secured Party’s rights hereunder shall not be released, diminished,
impaired, or adversely affected by the occurrence of any one or more of the
following events: (i) the taking or accepting of any other security or assurance
for any or all of the Obligation; (ii) any release, surrender, exchange,
subordination, or loss of any security or assurance at any time existing in
connection with any or all of the Obligation; (iii) the modification of,
amendment to, or waiver of compliance with any terms of any of the other Loan
Documents without the notification or consent of Debtor, except as required
therein (the right to such notification or consent being herein specifically
waived by Debtor); (iv) the insolvency, bankruptcy, or lack of corporate or
trust power of any party at any time liable for the payment of any or all of the
Obligation, whether now existing or hereafter occurring; (v) any renewal,
extension, or rearrangement of the payment of any or all of the Obligation,
either with or without notice to or consent of Debtor, or any adjustment,
indulgence, forbearance, or compromise that may be granted or given by Secured
Party to Debtor; (vi) any neglect, delay, omission, failure, or refusal of
Secured Party to take or prosecute any action in connection with any other
agreement, document, guaranty, or instrument evidencing, securing, or assuring
the payment of all or any of the Obligation; (vii) any failure of Secured Party
to notify Debtor of any renewal, extension, or assignment of the Obligation or
any part thereof, or the release of any Collateral or other security, or of any
other action taken or refrained from being taken by Secured Party against Debtor
or any new agreement between or among Secured Party and Debtor, it being
understood that except as expressly provided herein, neither Secured Party shall
be required to give Debtor any notice of any kind under any circumstances
whatsoever with respect to or in connection with the Obligation, including,
without limitation, notice of acceptance of this Security Agreement or any
Collateral ever delivered to or for the account of Secured Party hereunder;
(viii) the illegality, invalidity, or unenforceability of all or any part of the
Obligation against any party obligated with respect thereto by reason of the
fact that the Obligation, or the interest paid or payable with respect thereto,
exceeds the amount permitted by law, the act of creating the Obligation, or any
part thereof, is ultra vires, or the officers, partners, or trustees creating
same acted in excess of their authority, or for any other reason; or (ix) if any
payment by any party obligated with respect thereto is held to constitute a
preference under applicable laws or for any other reason Secured Party is
required to refund such payment or pay the amount thereof to someone else.

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     (e) Waivers. Except to the extent expressly otherwise provided herein or in
other Loan Documents and to the fullest extent permitted by applicable law,
Debtor waives (i) any right to require Secured Party to proceed against any
other Person, to exhaust its rights in Collateral, or to pursue any other right
which Secured Party may have; (ii) with respect to the Obligation, presentment
and demand for payment, protest, notice of protest and nonpayment, and notice of
the intention to accelerate; and (iii) all rights of marshaling in respect of
any and all of the Collateral.
     (f) Financing Statement; Authorization. Secured Party shall be entitled at
any time to file this Security Agreement or a carbon, photographic, or other
reproduction of this Security Agreement, as a financing statement, but the
failure of Secured Party to do so shall not impair the validity or
enforceability of this Security Agreement. Debtor hereby irrevocably authorizes
Secured Party at any time and from time to time to file in any UCC jurisdiction
any initial financing statements and amendments thereto (without the requirement
for Debtor’s signature thereon) that (i) indicate the Collateral, and (ii)
contain any other information required by Article 9 of the UCC of the state or
such jurisdiction for the sufficiency or filing office acceptance of any
financing statement or amendment, including whether the Debtor is an
organization, the type of organization, and any organization identification
number issued to Debtor. Debtor agrees to furnish any such information to
Secured Party promptly upon request.
     (g) Amendments. This Security Agreement may be amended only by an
instrument in writing executed jointly by Debtor and Secured Party, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof.
     (h) Multiple Counterparts. This Security Agreement has been executed in a
number of identical counterparts, each of which shall be deemed an original for
all purposes and all of which constitute, collectively, one agreement; but, in
making proof of this Security Agreement, it shall not be necessary to produce or
account for more than one such counterpart.
     (i) Parties Bound; Assignment. This Security Agreement shall be binding on
Debtor and Debtor’s heirs, legal representatives, successors, and assigns and
shall inure to the benefit of Secured Party and Secured Party’s successors and
assigns. Debtor may not, without the prior written consent of Secured Party,
assign any rights, duties, or obligations hereunder
     (j) Governing Law. the substantive laws of the State of New York applicable
to agreements made and to be performed entirely within such state, except to the
extent the laws of another jurisdiction govern the creation, perfection,
validity, or enforcement of liens under this Security Agreement, and the
applicable federal laws of the United States of America, shall govern the
validity, construction, enforcement and interpretation of this Security
Agreement and all of the other Loan Documents.
Remainder of Page Intentionally Blank.
Signature Page to Follow.

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     EXECUTED as of the date first stated in this Pledge, Assignment, and
Security Agreement.
DEBTOR:
PANDA ETHANOL HOLDINGS, LLC, a Delaware limited liability company

         
By:
  /s/ Darol Lindloff    
 
       
 
  Name: Darol Lindloff
 
   
 
  Title: CEO    
 
       

 

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ANNEX B-1 TO SECURITY AGREEMENT
COLLATERAL DESCRIPTIONS
(TO BE PROVIDED BY BORROWER)
A. Pledged Shares
B. Partnership Interests
C. Entities:
1. PGS Ethanol Holdings, LLC

2. Panda Hereford Holdings, LLC

3. Panda Yuma Holdings, LLC