exv10w5






Exhibit 10.5



NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) PURSUANT
TO REGISTRATION UNDER THE ACT OR (II) IN COMPLIANCE WITH AN EXEMPTION THEREFROM AND ACCOMPANIED, IF
REQUESTED BY THE COMPANY, WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH TRANSFER IS IN COMPLIANCE WITH AN EXEMPTION THEREFROM (UNLESS SUCH TRANSFER IS TO AN AFFILIATE
OF THE REGISTERED HOLDER).




THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS

EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON

TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT




			
	 	 	 
	Warrant No. 02
	 	Date of Issuance: October 7, 2008






PANDA ETHANOL, INC.

COMMON STOCK PURCHASE WARRANT




     Panda Ethanol, Inc., a Nevada corporation (the “Company”), for value received, hereby
certifies that PLC II, LLC, a Delaware limited liability company, or its registered assigns (the
“Registered Holder”), is entitled, subject to the terms and conditions set forth below, to purchase
from the Company, in whole or in part, at any time and from time to time during the period
commencing on the date of issuance and ending on October 7, 2013 and shall be void thereafter (the
“Exercise Period”), 5,967,262 shares of Common Stock, $0.001 par value per share, of the Company,
at an exercise price of $0.25 per share. The shares purchasable upon exercise of this warrant
(“Warrant”) and the exercise price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the “Warrant Shares” and the “Exercise
Price,” respectively.



     The Warrant Shares are intended to represent a ten percent (10%) ownership interest in the
Company (the “Desired Percentage Ownership”), calculated as of the date of original issuance of
this Warrant on a fully diluted basis, as if all Convertible Securities had been fully converted
into shares of Common Stock and any outstanding Options had been fully exercised (and the resulting
securities fully converted into shares of Common Stock, if so convertible), and taking into
consideration the Company’s issuance of the other Company Warrants and its Series A Convertible
Preferred Stock issued as of the date hereof, such number of Warrant Shares subject to adjustment
from time to time as provided in this Warrant. In the event the number of Warrant Shares
represented by this Warrant do not result in a 10% ownership interest in the Company, as of the
date of original issuance of this Warrant, then the number of Warrant Shares purchaseable upon
exercise of this Warrant shall be increased to achieve the Desired Percentage Ownership.



     1.
Exercise.



          (a) This Warrant may be exercised by the Registered Holder by surrendering this Warrant, along
with the purchase form appended hereto as Exhibit A duly executed and completed by the
Registered Holder or by the Registered Holder’s duly authorized attorney, at





 









 







the principal office of the Company, or at such other office or agency as the Company may
designate by notice in writing to the Registered Holder, accompanied by either (i) cash or
certified cashier’s check payable to the Company (or wire transfer of immediately available funds),
in lawful money of the United States, of the Exercise Price payable in respect of the number of
Warrant Shares purchased upon such exercise (the “Aggregate Exercise Price”), or (ii) a written
notice to the Company that the Registered Holder is exercising this Warrant on a “cashless”
exercise basis by authorizing the Company to withhold from issuance a number of shares of Common
Stock issuable upon such exercise of the Warrant which when multiplied by the Fair Market Value (as
defined in Article 3 hereof) of the Common Stock is equal to the Aggregate Exercise Price
(and such withheld shares shall no longer be issuable under this Warrant).




          (b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to
the close of business on the day on which this Warrant and the completed purchase form shall have
been surrendered to the Company as provided in subsection 1(a) above (the “Exercise Date”). At
such time, the person or persons in whose name or names any certificates for Warrant Shares shall
be issuable upon such exercise as provided in subsection 1(c) below shall be deemed to have become
the holder or holders of record of the Warrant Shares represented by such certificates.




          (c) Within ten (10) days after the date of exercise of this Warrant, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as
such Holder (upon payment by such Holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of full Warrant Shares to which the Registered Holder
shall be entitled upon such exercise plus, in lieu of any fractional share to which the Registered
Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; provided, however, that the Company shall not be required to pay any tax
that may be payable in respect of any transfer involving the issuance and delivery of any such
certificate upon exercise in a name other than that of the Registered Holder and the Company shall
not be required to issue or deliver certificates until the person or person requesting the issuance
thereof shall have paid the Company the amount of tax or shall have established to the Company that
such tax has been paid. Notwithstanding the foregoing, the Registered Holder shall be solely
responsible for any income taxes payable and arising from the issuance or exercise of this Warrant,
or any ad valorem property or intangible tax assessed against the Registered Holder.




          (d) The Company shall assist and cooperate with any Registered Holder required to make any
governmental filings or obtain any governmental approvals prior to or in connection with any
exercise of this Warrant (including, without limitation, making any filings required to be made by
the Company).




          (e) Notwithstanding any other provision of this Warrant, if the exercise of all or any portion
of this Warrant is to be made in connection with a registered public offering, a sale of the
Company or any other transaction or event, such exercise may, at the election of the Registered
Holder, be conditioned upon consummation of such transaction or event in which case such exercise
shall not be deemed effective until the consummation of such transaction or event.




2









 








     2. Adjustments. In order to prevent dilution of the rights granted under this Warrant and to grant
the Registered Holder certain additional rights, the Exercise Price shall be subject to adjustment
from time to time as provided in this Section 2 and the number of Warrant Shares shall be
subject to adjustment from time to time as provided in this Section 2.



          (a) Adjustment for Stock Splits and Combinations. If the Company shall at any time
after the date on which this Warrant was first issued (the “Original Issue Date”), while this
Warrant remains outstanding and unexpired in whole or in part, effect a subdivision (by any stock
split or otherwise) of the outstanding Common Stock into a greater number of shares, the Exercise
Price in effect immediately before that subdivision shall be proportionately decreased and the
number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately
increased. Conversely, if the Company shall at any time after the Original Issue Date combine (by
reverse stock split or otherwise) the outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately before the combination shall be proportionately
increased and the number of shares of Common Stock obtainable upon exercise of this Warrant shall
be proportionately decreased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective




          (b) Adjustment for Certain Dividends and Distributions. In the event the Company at
any time after the Original Issue Date, while this Warrant remains outstanding and unexpired in
whole or in part, shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the Exercise Price then in effect immediately before such
event shall be decreased as of the time of such issuance or, in the event such a record date shall
have been fixed, as of the close of business on such record date, by multiplying the Exercise Price
then in effect by a fraction:




               (i) the numerator of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of business on such record
date; and



               (ii) the denominator of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment of such dividend or
distribution;


and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be
proportionately increased by multiplying the number of Warrant Shares then purchasable by the
inverse of the fraction set forth above (i.e., the numerator shall be subparagraph (ii) above and
the denominator shall be subparagraph (i) above); provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Exercise Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Exercise Price shall be adjusted
pursuant to this paragraph as of the time of actual payment of such dividends or distributions.




3









 








          (c) Adjustment for Reclassification, Exchange and Substitution. If at any time after
the Original Issue Date, while this Warrant remains outstanding and unexpired in whole or in part,
the Common Stock issuable upon exercise of this Warrant is changed into the same or a different
number of shares of any class or classes of stock, this Warrant will thereafter represent the right
to acquire such number and kind of securities as would have been issuable as a result of exercise
of this Warrant and the Exercise Price therefor shall be appropriately adjusted, all subject to
further adjustment in this Section 2.




          (d) Adjustments for Other Dividends and Distributions. In the event the Company at
any time after the Original Issue Date, while this Warrant remains outstanding and unexpired in
whole or in part, shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in securities of the
Company (other than shares of Common Stock) or in cash or other property (other than cash out of
earnings or earned surplus, determined in accordance with generally accepted accounting
principles), then and in each such event provision shall be made so that the Registered Holder
shall receive upon exercise hereof, in addition to the number of shares of Common Stock issuable
hereunder, the kind and amount of securities of the Company and/or cash and other property which
the Registered Holder would have been entitled to receive had this Warrant been exercised into
Common Stock on the date of such event and had the Registered Holder thereafter, during the period
from the date of such event to and including the Exercise Date, retained any such securities
receivable, giving application to all adjustments called for during such period under this
Section 2 with respect to the rights of the Registered Holder.




          (e) Adjustment for Mergers or Reorganizations, etc. Any reorganization,
recapitalization, reclassification, consolidation, merger, sale of all or substantially all of the
Company’s assets or other transaction involving the Company in which the Common Stock is converted
into or exchanged for securities, cash or other property while this Warrant remains outstanding and
unexpired in whole or in part (other than a transaction covered by subsections 2(a),
2(b) or 2(d)) is referred to herein as an “Organic Change”. Prior to the
consummation of any such Organic Change, the Company shall make appropriate provision (in form and
substance reasonably satisfactory to the Registered Holders of a majority of the Warrants then
remaining outstanding and unexpired) to ensure that the Registered Holder shall have the right to
receive, in lieu of or in addition to (as the case may be) such shares of Common Stock immediately
acquirable and receivable upon exercise of this Warrant, the kind and amount of securities, cash or
other property as may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately acquirable and receivable upon exercise of this Warrant had such
Organic Change not taken place. In such case, appropriate adjustment (in form and substance
reasonably satisfactory to the Registered Holders of a majority of the Warrants then remaining
outstanding and unexpired) shall be made with respect to the Registered Holder’s rights and
interests to ensure that the provisions of this Section 2 shall thereafter be applicable to
the Warrants (including, in the case of any Organic Change where the successor entity or purchasing
entity is other than the Company, an immediate reduction to the Exercise Price to the value of the
Common Stock reflected by the terms of the Organic Change and a corresponding increase in the
number of shares of Common Stock acquirable and receivable upon exercise of this Warrant, if the
value so reflected is less than the Exercise Price then in effect immediately prior to such Organic
Change). The Company shall not effect any reorganization, recapitalization, consolidation or
merger unless, prior to the consummation





4









 







thereof, the successor
entity (if other than the Company) resulting from the consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance reasonably satisfactory
to the Registered Holders of a majority of the Warrants then remaining outstanding and unexpired)
the obligation to deliver to each Registered Holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be entitled to acquire; provided, that
any assumption shall not relieve the Company of its obligations hereunder.




          (f) Adjustments to the Conversion Prices for Certain Dilutive Issuances.




               (i) Special Definitions. For purposes of this Section 2(f), the following
definitions apply:



                    (A) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or,
pursuant to Section 2(f)(iii), deemed to be issued) by the Company after the Original Issue
Date other than shares of Common Stock issued or issuable:




(1) upon conversion of shares of Series A Convertible
Preferred Stock;




(2) in connection with the Company’s agreements in effect
prior to the Original Issue Date to pay for administrative
services and director fees in shares of Common Stock;




(3) as a dividend or distribution on Series A Convertible
Preferred Stock; or




(4) for which adjustment of the Exercise Price is made
pursuant to Section 2(f)(iv).



                    (B) “Convertible Securities” shall mean any evidences of indebtedness, shares (other than
Common Stock and Series A Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.



                    (C) “Options” shall mean rights, options or warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities.



               (ii) No Adjustment of Exercise Price. Any provision herein to the contrary
notwithstanding, no adjustment to the Exercise Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share (determined pursuant to
Section 2(f)(v) hereof) for an Additional Share of Common Stock issued or deemed to be
issued by the Company is less than the Exercise Price in effect on the date of, and immediately
prior to, such issue.



               (iii) Deemed Issuance of Additional Shares of Common Stock. In the event the Company
at any time or from time to time after the Original Issue Date while this Warrant remains
outstanding and unexpired in whole or in part shall issue any Options or




5












 




Convertible Securities or shall fix a record date for the determination of holders of any class of
securities then entitled to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issuance or, in case such a record date shall have been fixed, as of
the close of business on such record date, provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:




                    (A) no further adjustments to the Exercise Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;



                    (B) if such Options or Convertible Securities by their terms provide, with the passage of time
or otherwise, for any increase in the consideration payable to the Company, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Exercise Price computed upon the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase
or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such Convertible Securities
(provided, however, that no such adjustment of the Exercise Price shall effect Common Stock
previously issued upon conversion of the Company’s preferred stock); and



                    (C) no readjustment pursuant to clause (A) or (B) above shall have the effect of increasing
the Exercise Price to an amount which exceeds the lower of (a) the Exercise Price on the original
adjustment date or (b) the Exercise Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such readjustment date.



               (iv) Adjustment of Exercise Price Upon Issuance of Additional Shares of Common Stock.
In the event the Company at any time after the Original Issue Date while this Warrant remains
outstanding and unexpired in whole or in part shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 2(f)(iii)) without consideration or for consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such issue, then the Exercise
Price shall be reduced, concurrently with such issue, to the lowest price per share for which any
Additional Share of Common Stock has been issued; provided, that if the Additional Shares of Common
Stock are issued without consideration, the Exercise Price shall be reduced to $0.001.



               (v) Determination of Consideration. For purposes of this Section 2(f), the
consideration received by the Company in connection with the issuance of any Additional Shares of
Common Stock shall be computed as follows:



                    (A) Cash and Property. Such consideration shall:



6









 






(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Company, excluding
amounts paid or payable for accrued interest or accrued
dividends;




(2) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issuance, as determined by an independent financial expert
selected by the Company who is reasonably acceptable to the
Registered Holder; and




(3) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of
the Company for consideration which covers both cash and
property, be the proportion of such consideration so
received, computed as provided in clauses (1) and (2) above,
as determined by an independent financial expert selected by
the Company who is reasonably acceptable to the Registered
Holder.



                    (B) Options and Convertible Securities. The consideration per share received by the
Company for Additional Shares of Common Stock deemed to have been issued pursuant to
Section 2(f)(iii) relating to Options and Convertible Securities shall be determined by
dividing:




(1) the total amount, if any, received or receivable by the
Company as consideration for the issuance of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein designed to protect against dilution) payable to the
Company upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by




(2) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to
any provision contained therein designed to protect against
the dilution) issuable upon the exercise of such Options or
conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise
of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities.



7









 





          (g) Certificate as to Adjustments. Upon the occurrence of each adjustment or
readjustment of the Exercise Price pursuant to this Section 2, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with the terms hereof and
furnish to the Registered Holder a certificate setting forth such adjustment or readjustment
(including the kind and amount of securities, cash or other property for which this Warrant shall
be exercisable and the Exercise Price) and showing in detail the facts upon which such adjustment
or readjustment is based. The Company shall, upon the written request at any time of the
Registered Holder, promptly furnish or cause to be furnished to the Registered Holder a certificate
setting forth (i) the Exercise Price then in effect and (ii) the number of shares of Common Stock
and the amount, if any, of other securities, cash or property which then would be received upon the
exercise of this Warrant, and shall cause a copy of such certificate to be delivered personally or
transmitted by facsimile to the Registered Holder.




          (h) Participation Rights. Except as provided in this Section 2(h), if the
Company proposes to issue Additional Shares of Common Stock at a per share consideration less than
Fair Market Value, the Company shall first offer (the “Participation Offer”) to the Registered
Holder the opportunity to purchase in connection with such proposed issuance a number of such
Additional Shares of Common Stock as may be designated by the Registered Holder, not to exceed the
number of shares equal to the product of (y) the aggregate number of Additional Shares of Common
Stock to be issued by the Company in the proposed transaction and (z) a fraction, the numerator of
which shall be the number of shares of fully diluted Common Stock held by the Registered Holder
(assuming conversion of all Convertible Securities and exercise of all Options held by the
Registered Holder) and the denominator of which shall be the number of shares of fully diluted
Common Stock then outstanding (assuming conversion of all outstanding Convertible Securities and
exercise of all outstanding Options). The Company shall give written notice to the Registered
Holder of the Participation Offer (the “Participating Offer Notice”) at least 20 days prior to the
proposed issuance date. The Participation Offer Notice shall specify the proposed transaction
pursuant to which the Additional Shares of Common Stock are to be issued, the number of Additional
Shares of Common Stock to be issued, the amount and type of consideration to be received therefor,
and the date on which the proposed transaction is to be consummated. The Registered Holder shall
notify the Company in writing within 10 days after the date of receipt of the Participation Offer
Notice if the Registered Holder wishes to exercise the participation rights hereof and the number
of shares the Registered Holder wishes to acquire in the Participation Offer in accordance
herewith. The Participation Offer shall be conditioned upon the Company’s sale or other transfer
of Additional Shares of Common Stock pursuant to the transactions contemplated in the Participation
Offer Notice. This Section 2(h) shall not apply to any sale pursuant to a public offering
registered under the Act.




     3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue
any fractional shares, but shall make an adjustment therefor in cash on the basis of the fair
market value (“Fair Market Value”) per share of Common Stock, such Fair Market Value to be
determined as follows:



          (a) If traded on a securities exchange, the Fair Market Value shall be deemed to be the
average of the per share closing prices of the Common Stock on such exchange over the thirty (30)
day period ending three (3) days prior to the date of determination. If traded over the counter,
the Fair Market Value shall be deemed to be the average of the per share closing bid or



8









 






sales
prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the
date of determination; or




          (b) If at any time the Common Stock is not listed on any securities exchange or quoted in the
over-the-counter market, the Fair Market Value shall be the fair value thereof, as determined in
good faith jointly by the Board of Directors of the Company and the Registered Holder; provided,
however, that if such parties are unable to reach agreement within a reasonable period of time, the
Fair Market Value shall be determined in good faith by an independent reputable appraiser,
nationally recognized accounting firm or investment banking firm selected jointly by the Company
and the Registered Holder or, if that selection cannot be made within ten (10) days of either party
notifying the other of the inability to reach agreement, by an independent reputable appraiser,
nationally recognized accounting firm or investment banking firm selected by the American
Arbitration Association in accordance with its rules; and provided further, that the independent
appraiser or firm is instructed only to determine whether or not the Fair Market Value is greater
than the amount determined by the Company, taking into account discounts and valuation methods
customary in the industry, and if it greater than the amount determined by the Company, then the
determination of the Fair Market Value; and provided further, the Registered Holder and not the
Company shall pay the fees and expenses of such independent appraiser or firm incurred in
connection with determining the Fair Market Value if such independent appraiser or firm determines
that the Fair Market Value is no greater than the amount determined by the Company, otherwise the
Company shall pay all such fees and expenses.




     4. Requirements for Transfer.



          (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i)
they first shall have been registered under the Act or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the Act.




          (b) Notwithstanding the foregoing, no registration or opinion of counsel shall be required for
(i) a transfer by a Registered Holder which is a corporation to a wholly-owned subsidiary of such
corporation or to a corporation owned by the same parent entity of such corporation, a transfer by
a Registered Holder which is a partnership to a partner of such partnership or a retired partner of
such partnership or to the estate of any such partner or retired partner, or a transfer by a
Registered Holder which is a limited liability company to a member of such limited liability
company or a retired member or to the estate of any such member or retired member, provided that,
as a condition to the Company effecting such transfer, the transferee in each case agrees in
writing to be subject to the terms of this Section 4, or (ii) a transfer made in accordance
with Rule 144 under the Act.




          (c) Each certificate representing Warrant Shares shall bear a legend substantially in the
following form:




“THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS



9









 






AMENDED, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SECURITIES ARE REGISTERED
UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO AN
EXEMPTION THEREFROM OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.”



     The foregoing legend shall be removed from the certificates representing any Warrant Shares,
at the request of the holder thereof, at such time as they become eligible for resale without
limitations pursuant to Rule 144 under the Act.



     5. No Impairment. The Company will not, by amendment of its charter or through reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any shares of Common Stock obtainable upon the
exercise of this Warrant and (b) take all such actions as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.



     6. Notices of Record Date, etc. In the event:



          (a) the Company shall take a record of the holders of its Common Stock (or other stock or
securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling
or enabling them to receive any dividend or other distribution, or to receive any right to
subscribe for or purchase any shares of stock of any class or any other securities, or to receive
any other right; or




          (b) of any Organic Change; or




          (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company,



then, and in each such case, the Company will deliver or cause to be delivered to the Registered
Holders at least twenty (20) days prior to the record date specified therein (or such shorter
period approved by the Registered Holder) and at least twenty (20) days prior to the effective date
of such event specified in clause (b) or (c) hereof a notice specifying, as the case may be, (i)
the record date for such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, or (ii) the effective date on which such Organic Change,
dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such other stock or securities at the time


10









 






deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common
Stock (or such other stock or securities) for securities or other property deliverable upon such
Organic Change, dissolution, liquidation or winding-up; provided, however, that the failure to
deliver such notice or any defect therein or in the delivering thereof shall not affect the
validity of the corporate action required to be specified in such notice. Nothing herein shall
prohibit the Registered Holder from exercising this Warrant during the twenty (20) day period
commencing on the date of such notice.




     7. Reservation of Stock. The Company covenants that for the duration of the Exercise Period, the
Company will at all times reserve and keep available, from its authorized and unissued Common Stock
solely for issuance and delivery upon the exercise of this Warrant and free of preemptive rights,
such number of Warrant Shares and other securities, cash and/or property, as from time to time
shall be issuable upon the exercise of this Warrant. The Company further covenants that it shall,
from time to time, take all steps necessary to increase the authorized number of shares of its
Common Stock if at any time the authorized number of shares of Common Stock remaining unissued is
insufficient to permit the exercise of this Warrant.



     8. Issuance Upon Exercise. All shares of Common Stock issuable upon exercise of this Warrant will be
duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer,
other than restrictions on transfer under any agreement between the Registered Holder and the
Company and under applicable state and federal securities laws, and will be free from all taxes,
liens and charges in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein). The Company shall take all such
actions as may be necessary to ensure that all such shares of Common Stock may be so issued without
violation of any applicable law or governmental regulation or any requirements of any domestic
stock exchange upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such issuance).



     9. Exchange of Warrants. Upon the surrender by the Registered Holder, properly endorsed, to the
Company at the principal office of the Company, the Company will, subject to the provisions of
Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company’s
expense, a new Warrant or Warrants of like tenor, in the name of the Registered Holder or as the
Registered Holder may direct, calling in the aggregate on the face or faces thereof for the number
of shares of Common Stock (or other securities, cash and/or property) then issuable upon exercise
of this Warrant.



     10. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company (an
affidavit of a Registered Holder shall be satisfactory) of the ownership and loss, theft,
destruction or mutilation of any certificate evidencing this Warrant and in the case of loss, theft
or destruction, upon delivery of an indemnity agreement of the Registered Holder in form reasonably
satisfactory to the Company, or in the case of mutilation, upon surrender and cancellation of such
certificate, the Company shall, at its expense, execute and deliver in lieu of such certificate, a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed
or mutilated certificate.




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     11. Transfers, etc.



          (a) The Company shall maintain a register at its principal executive office containing the
name and address of the Registered Holder of this Warrant. The Registered Holder may change its or
his address as shown on the warrant register by written notice to the Company requesting such
change.




          (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights
hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly
executed assignment (in the form of Exhibit B hereto) at the principal executive office of
the Company.




          (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat
the Registered Holder as the absolute owner hereof for all purposes; provided,
however, that if and when this Warrant is properly assigned in blank, the Company may (but
shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.




          (d) The Company shall not close its books against the transfer of this Warrant or any share of
Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes
with the timely exercise of this Warrant. The Company shall from time to time take all such action
as may be necessary to ensure that the par value per share of the unissued Common Stock acquirable
upon exercisable of this Warrant is at all times equal to or less than the Exercise Price then in
effect.




     12. Delivering of Notices, etc. Any notice, request, demand or other communication required or
permitted to be given to a party pursuant to the provisions of this Agreement will be in writing
and will be effective and deemed given under this Agreement on the earliest of: (a) the date of
personal delivery, (b) the date of transmission by facsimile, with confirmed transmission and
receipt, (c) two (2) days after deposit with a nationally-recognized courier or overnight service,
or (d) five (5) days after mailing via certified mail, return receipt requested. All notices not
delivered personally or by facsimile will be sent with postage and other charges prepaid and
properly addressed to the party to be notified at the address set forth for such party:


If to the Registered Holder:



PLC II, LLC

4100 Spring Valley Road, Suite 1001

Dallas, Texas 75244

Fax: 972-980-6815

Attn: Chief Executive Officer



With a copy to the Chief Legal Officer at the same address.



If to the Company:



Panda Ethanol, Inc.

4100 Spring Valley Road, Suite 1002




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Dallas, Texas 75244

Phone: 972-361-1000

Fax: 972-361-1001

Attn: General Counsel




     Any party hereto (and such party’s permitted assigns) may change such party’s address for
receipt of future notices hereunder by giving written notice to the Company and the other parties
hereto.



     13. No Rights or Liabilities as Stockholder. Subject to the provisions of Sections 2 and
6 hereof, until the exercise of this Warrant, the Registered Holder shall not have or
exercise any rights by virtue hereof as a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions or to receive notice
of, or attend meetings of stockholders or any other proceedings of the Company. Notwithstanding
the foregoing, in the event (a) the Company effects a split of the Common Stock by means of a stock
dividend and the Exercise Price of and the number of Warrant Shares are adjusted as of the date of
the distribution of the dividend (rather than as of the record date for such dividend), and (b) the
Registered Holder exercises this Warrant between the record date and the distribution date for such
stock dividend, the Registered Holder shall be entitled to receive, on the distribution date, the
stock dividend with respect to the shares of Common Stock acquired upon such exercise,
notwithstanding the fact that such shares were not outstanding as of the close of business on the
record date for such stock dividend.



     14. Amendment or Waiver. This Warrant is one of a series of Warrants issued by the Company, all of
like tenor, except as to the number of shares of Common Stock subject thereto (collectively, the
“Company Warrants”). Any term of this Warrant may be amended or waived upon the written consent of
the Company and the holders of Company Warrants representing at least a majority of the number of
shares of Common Stock then subject to outstanding Company Warrants; provided that any such
amendment or waiver must apply to all Company Warrants then outstanding; and provided
further that the number of Warrant Shares subject to this Warrant, the Exercise Price of
this Warrant, the number of shares or class of stock obtainable upon exercise of this Warrant, the
provisions of Section 2 and the provisions of Section 3 may not be amended, and the right to
exercise this Warrant may not be waived, without the written consent of the holder of this Warrant.
The Company shall promptly give notice to all holders of the Company Warrants of any amendments
effected in accordance with this Section 14. No special consideration may be given to any
holder as inducement to waive or amend this Warrant unless such consideration is given equally and
ratably to all holders.



     15. Successors and Assigns. This Warrant shall be binding upon and inure to the benefit of the
Registered Owner and its assigns, and shall be binding upon any entity succeeding to the Company by
consolidation, merger or acquisition of all or substantially all of the Company’s assets. The
Company may not assign this Warrant or any rights or obligations hereunder without the prior
written consent of the Registered Holder. The Registered Holder may assign this Warrant without
the Company’s prior written consent.



     16. Remedies. In the event of a breach by the Company of any of their obligations under this Warrant,
the Registered Holder, in addition to being entitled to exercise all rights



13









 







granted by law, including recovery of damages, will be entitled to specific performance of its
rights under this Warrant. The Company agrees that monetary damages would not provide adequate
compensation for any losses incurred by reason of its breach of any of the provisions of this
Warrant and hereby further agrees that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would be adequate.



     17. Section Headings. The section headings in this Warrant are for the convenience of the parties and
in no way alter, modify, amend, limit or restrict the contractual obligations of the parties.



     18. Registration Rights. The Company agrees to grant to the Registered Holder all the rights
of a “Holder” under the Company’s Registration Rights Agreement dated as of November 9, 2007 (the
“Rights Agreement”), including, without limitation, the registration rights contained therein, and
agrees to amend the Rights Agreement to allow the Registered Holder to be made party thereto so
that (i) the Warrant Shares upon exercise of this Warrant shall be “Registrable Securities”
thereunder and (ii) the Registered Holder shall be a “Holder” for all purposes of such Rights
Agreement, and the Registered Holder agrees to deliver a counterpart signature page to the Rights
Agreement, as amended, thereby becoming a party thereto.



     19. Counterparts. This Warrant may be executed in two or more counterparts, each of which will be
deemed an original but all of which together will constitute one and the same instrument.



     20. Severability. The provisions of this Warrant will be deemed severable and the invalidity or
unenforceability of any provision hereof will not affect the validity or enforceability of the
other provisions hereof; provided that if any provision of this Warrant, as applied to any party or
to any circumstance, is adjudged by a court or governmental body not to be enforceable in
accordance with its terms, the parties agree that the court or governmental body making such
determination will have the power to modify the provision in a manner consistent with its
objectives such that it is enforceable, and/or to delete specific words or phrases, and in its
reduced form, such provision will then be enforceable and will be enforced.



     21. Titles and Subtitles. The article and section headings contained in this Warrant are inserted for
convenience only and will not affect in any way the meaning or interpretation of this Warrant.



     22. Third Parties. Nothing in this Warrant, express or implied, is intended to confer upon any person
other than the parties hereto and their successors and assigns, any rights or remedies under or by
reason of this Warrant.



     23. Governing Law. This Warrant and the performance of the transactions and the obligations of the
parties hereunder will be governed by and construed and enforced in accordance with the laws of the
State of Texas, without giving effect to any choice of law principles.



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     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly
authorized officers under its corporate seal and to be dated the Date of Issuance hereof.



	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Darol Lindloff	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	Darol Lindloff	 	 
	 

	 	Title:	 	President and CEO	 	 






[Corporate Seal]




ATTEST:




Jonathan
Quenzer




15









 





EXHIBIT A




PURCHASE FORM




			
	 	 	 
	To:                     
	 	Dated:                     






     The undersigned, pursuant to the provisions set forth in the attached Warrant (No.      ),
hereby irrevocably elects to purchase
                     shares of the Common Stock covered by such
Warrant.



     The undersigned herewith makes payment of the full exercise price for such shares at the price
per share provided for in such Warrant, which is $                      in lawful money of the United States.



	 	 	 	 	 	 	 
	 	 	[                                                                                                            ]
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 





16









 








EXHIBIT B



ASSIGNMENT FORM




     FOR VALUE RECEIVED,                                                             hereby sells, assigns
and
transfers all of the rights of the undersigned under the attached Warrant (No.     ) with respect
to the number of shares of Common Stock covered thereby set forth below, unto:



	 	 	 	 	 
	Name of Assignee	 	Address	 	No. of Shares
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 





Dated:                                        




[                                                                                 ]




    
                                                                            

Name:

Title:




Signature Guaranteed:




By:                                         



The signature should be guaranteed by an eligible guarantor institution (banks, stockbrokers,
savings and loan associations and credit unions with membership in an approved signature guarantee
medallion program) pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934.





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