relating to theCompany or any Subsidiary; (ii) conviction of, or plea of guilty or *nolo contendere*to, a felony orany lesser crime having as its predicate element fraud, dishonesty, misappropriation or moralturpitude; (iii) gross negligence or willful misconduct with respect to any significant Companypolicy, which in any such case could reasonably be expected to result in an adverse affect on theCompany or any Subsidiary; or (iv) willful and continued failure to perform substantially theduties reasonably assigned or appropriate to Participant’s position of employment with the Companyor any Subsidiary. The Committee, in good faith, shall determine all matters and questions relatingto whether a Participant has been discharged for Cause.     4. Manner of Exercise.          4.1 Notice. To exercise this Option, in whole or in part, Participant must deliverwritten notice to the Company, which shall specify (a) Participant’s election to exercise theOption, (b) the number of Shares with respect to which the Option is being exercised, and (c) theExercise Date, which may not be less than three (3) or more than thirty (30) days after delivery ofnotice. If someone other than Participant exercises the Option, then such person must submitdocumentation reasonably acceptable to the Company verifying that such person has the legal rightto exercise the Option.          4.2 Payment of Option Price. On or before the Exercise Date, Participant must deliverto the Company full payment of the Option Price for the Shares being purchased in the form of (a)cash or check, bank draft or money order payable to the order of the Company; (b) surrender ofshares of Common Stock previously acquired and held by Participant for at least six months, clearof all liens, claims, encumbrances or security interests, valued at its Fair Market Value on theExercise Date; (c) a “same day sale” commitment from Participant and a broker-dealer that is amember of the National Association of Securities Dealers (an “***NASD Dealer***”) whereby Participantirrevocably elects to exercise the Option and to sell a portion of the Shares so purchasedsufficient to pay for the total Option Price and whereby the NASD Dealer irrevocably commits uponreceipt of such Shares to forward the total Option Price directly to the Company; or (d) through a“margin” commitment from Participant and an NASD Dealer whereby Participant irrevocably elects toexercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account assecurity for a loan from NASD Dealer in the amount of the total Option Price, and whereby the NASDDealer irrevocably commits upon receipt of such Shares to forward the total Option Price directlyto the Company.          4.3 Tax Withholding. Prior to the issuance of Shares upon exercise of the Option,Participant must pay or provide for any applicable federal, state and local withholding obligationsof the Company.          4.4 Issuance of Shares. Except as otherwise provided in the Plan, and subject toapplicable law, as promptly as practical after receipt of written notification pursuant to Section4.1 and full payment of the Option Price and any required income tax withholding, the Company shallissue to Participant a certificate representing the Shares purchased with the appropriate legendsaffixed.     5. Compliance with Laws and Regulations. The exercise of the Option and the issuance ofShares shall be subject to compliance by the Company and Participant with all
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applicable federaland state securities laws and with all applicable rules and regulations of any governmentalauthority or any national securities exchange or inter-dealer quotation system on which shares ofCommon Stock are quoted or traded, as in effect on the date of exercise or issuance. Anydetermination of such matters by the Committee shall be final, binding and conclusive. Participantunderstands that the Company is under no obligation to register or qualify shares of Common Stockwith the Securities and Exchange Commission, any state securities commission or any stock exchangeto effect such compliance.     6. Transferability of Option. The Option may not be transferred, assigned, pledged,hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent anddistribution; *provided, however*, upon notice to the Company, and subject to the terms andconditions of Section 15.7 of the Plan, Participant may transfer the Option, in whole or in part,by gift or a domestic relations order to (i) Immediate Family Members, (ii) trusts for theexclusive benefit of Immediate Family Members, and (iii) entities controlled by Participant orImmediate Family Members. The terms of the Option shall be binding upon the executors,administrators, successors, assigns and transferees of Participant.     7. Privileges of Stock Ownership. Participant shall not have any of the rights of astockholder with respect to any shares of Common Stock until the date that Participant becomes theholder of record of Shares following exercise of the Option. No adjustment shall be made fordividends or other rights for which the record date occurs before the date Participant becomes theholder of record.     8. No Right to Employment. Nothing in this Agreement or the Plan shall confer onParticipant any right to continue in the employ of, or other relationship with, the Company or anySubsidiary, or limit in any way the right of the Company or any Subsidiary to terminateParticipant’s employment or other relationship at any time, with or without Cause.     9. General.          9.1 Interpretation. Any dispute regarding the interpretation of this Agreement shallbe submitted by Participant or the Company to the Committee for review. The resolution of such adispute by the Committee shall be final and binding on the Company and Participant.          9.2 Entire Agreement. The Plan is incorporated herein by reference. This Agreementand the Plan constitute the entire agreement of the parties and supercede all prior undertakingsand agreements with respect to the subject matter hereof. If any inconsistency should exit betweenthe nondiscretionary terms and conditions of this Agreement and the Plan, the Plan shall govern andcontrol.          9.3 Notices. Any notice under this Agreement shall be in writing and shall be deemedto have been given when delivered personally or five (5) days after deposit in the United Statesmail by certified or registered mail, and addressed, in the case of the Company, to the CorporateSecretary at the Company’s principal executive offices, and, in the case of Participant,to his or her last permanent address as shown on the Company’s records, subject to the rightof either party to designate another address in a notice satisfying the requirements of thisSection.
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          9.4 Successors and Assigns. This Agreement shall be binding upon and inure to thebenefit of the successors and assigns of the Company. Subject to the restrictions on transfer setforth herein, this Agreement shall be binding upon Participant and Participant’s heirs, executors,administrators, legal representatives, successors, assigns and transferees.          9.5 Governing Law. This Agreement shall be governed by and construed in accordancewith the laws of the State of Texas without giving effect to its conflict of law principles. Ifany provision of this Agreement is determined by a court of law to be illegal or unenforceable,then such provision will be enforced to the maximum extent possible and the other provisions willremain fully effective and enforceable.     10. Acceptance. Participant hereby acknowledges receipt of a copy of the Plan and thisAgreement. Participant has read and understands the terms and provisions of each, and accepts theOption subject to all the terms and conditions of the Plan and this Agreement. Participantacknowledges that there may be adverse tax consequences upon exercise of the Option or dispositionof the Shares and that Participant should consult a tax advisor prior to such exercise ordisposition.     In witness whereof, the Company has caused this Agreement to be executed by its dulyauthorized representative and Participant has executed this Agreement, effective as of the Date ofGrant.       PANDA ETHANOL, INC.                 By:              Name:              Title:                   **PARTICIPANT**                         (Signature)       Printed Name:
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**Exhibit A**