Control #: 0012-N
NEITHER THIS PROMISSORY NOTE NOR ANY OF THE RIGHTS OR
OBLIGATIONS EVIDENCED HEREBY HAVE BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE (THE "STATE LAWS"). NEITHER
THIS PROMISSORY NOTE NOR ANY OF THE RIGHTS OR OBLIGATIONS
EVIDENCED HEREBY MAY BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, IN
THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION OR THE
AVAILABILITY OF AN APPLICABLE EXEMPTION FROM THE REGISTRATION
AND QUALIFICATION REQUIREMENTS OF SUCH ACT AND STATE LAWS
EVIDENCED BY AN OPINION OF LEGAL COUNSEL, WHICH OPINION AND
LEGAL COUNSEL ARE SATISFACTORY TO THE BORROWER.
January 5, 2000
PROMISSORY NOTE
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Palm Desert, California
1. General
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FOR VALUE RECEIVED, PENN OCTANE CORPORATION, a Delaware corporation
(the "Borrower"), promises to pay to CEC, Inc., a __________________________
(the "Holder"), at the Holder's address set forth in Section 14 of the Purchase
Agreement, dated as of even date herewith (the "Agreement"), between the
Borrower and the Holder, pursuant to which this Promissory Note (the "Note") is
first being issued, or at such other address as the Holder may designate to the
Borrower in writing for such purpose pursuant to Section 14 of the Agreement at
least three Business Days (hereinafter defined) prior to the date fixed for such
payment, the entire principal sum of Five Hundred Thousand Dollars
($500,000.00), together with interest thereon, on the earlier of (i) December
15, 2000, (ii) a date determined by the Borrower within ten (10) Business Days
after the closing of any Financing (as defined in Clause (i)(a) of Recital A to
and Section 10 of the Agreement) in which the net proceeds to the Borrower equal
or exceed the aggregate (the "Aggregate Amount") of the then unpaid principal of
and the then accrued and unpaid interest on the (A) Notes (as defined in the
Agreement) held by the Investors (as defined in the Agreement), (B) notes held
by the New Noteholders (as defined in the Agreement), and (C) Borrower's
obligations to the Additional Fund Providers (as defined in the Agreement), or
(iii) the occurrence of an Event of Default (hereinafter defined) (collectively,
the "Maturity Date"), at which time all principal and any accrued and unpaid
interest thereon shall be due and owing.
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In the event of the closing of a Financing in which the net proceeds to
the Company do not equal or exceed the Aggregate Amount, on a date determined by
the Borrower within ten (10) Business Days after such closing, the Borrower
shall apply such net proceeds to prepay the then unpaid principal of and the
then accrued and unpaid interest on the (i) Notes held by the Investors, (ii)
notes held by the New Noteholders, and (iii) Borrower's obligations to the
Additional Fund Providers, pro rata in accordance with the respective then
unpaid principal amounts owed to each.
This Note shall accrue interest on unpaid principal from the date
hereof at the rate of nine percent (9%) per annum, payable on June 15, 2000 and
December 15, 2000 (or the Maturity Date, if earlier). Payment of this Note may
be enforced by suit or other process of law. This Note may be prepaid in whole
or in part at any time prior to maturity without premium or penalty.
All payments hereunder shall be payable in lawful money of the United
States and shall be applied first against accrued and unpaid interest and then
against unpaid principal. Any payments hereunder which otherwise would be due on
a day which is not a Business Day shall instead be made on the next succeeding
day which is a Business Day. For purposes of this Note, the term "Business Day"
shall mean any day other than a Saturday, a Sunday or a day on which banking
institutions in New York, New York, or in Palm Desert, California, are
authorized by law or regulation to close.
2. Remedies
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2.1 Events of Default Defined. The Borrower shall be in default
hereunder upon the occurrence of any of the following events of default ("Events
of Default"): (i) the failure by the Borrower to make any payment when due
hereunder and such failure shall have continued for a period of five (5) days
after delivery by the Holder to the Borrower of written notice of such failure
pursuant to Section 14 of the Agreement; (ii) the commencement by the Borrower
of a voluntary case in a bankruptcy or insolvency proceeding or the entry of a
decree or order by a court of competent jurisdiction adjudicating the Borrower a
bankrupt (or the appointment of a receiver or trustee of the Borrower upon the
application of any creditor in an insolvency or bankruptcy proceeding or other
creditor's suit, which appointment is not terminated within sixty (60) days
after the date of such appointment); (iii) the filing of a petition for
reorganization, liquidation or arrangement against the Borrower under the
Federal bankruptcy laws and such petition shall not have been dismissed within
sixty (60) days after it was filed; (iv) the making of a general assignment for
the benefit of its creditors by the Borrower; (v) the existence of any final,
non-appealable judgment on any of the Notes held by the Investors on account of
the nonpayment thereof by the Borrower; or (vi) the breach of any material
representation, warranty or covenant (other than as described in the preceding
clauses (i) through (v)) of the Borrower in the security agreement contemplated
by Section 2.3 below if the Borrower fails to cure such breach within a period
of fifteen (15) days following the delivery by the Holder to the Borrower of
written notice of such breach pursuant to Section 14 of the Agreement.
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2.2 Enforcement Costs. If any payment owing under this Note is not paid
when due, whether at maturity or by acceleration or otherwise, the Borrower
agrees to pay all reasonable costs of collection and such costs shall include,
without limitation, all reasonable costs, attorneys' fees and expenses incurred
by the Holder in connection with any insolvency, bankruptcy, reorganization,
arrangement or similar proceedings involving the Borrower, which in any way
affects the exercise by the Holder of the Holder's rights and remedies under
this Note.
2.3 Future Security. As soon as is reasonably practicable following
Borrower obtaining an ownership interest ("Ownership Interest") in those certain
lease documents identified below (the "Assets"), but subject to the Borrower
first obtaining such Ownership Interest in such Assets, and further subject to
the Borrower first obtaining the related consents contemplated by Section 4(b)
of the Agreement, the Borrower agrees to grant to the Holder (and to the other
Investors in respect of their Notes) a security interest in such Assets to the
extent of such Ownership Interest to secure payment of the obligations evidenced
hereby (and thereby). Such security interests shall be shared on a pari-passu
basis with the security interests which have been or may be granted to all of
the (i) Investors in respect of their Notes, (ii) New Noteholders in respect of
the notes which have been or may be issued to them, and (iii) Additional Fund
Providers in respect of the obligations the Borrower has incurred or may incur
to them, all as contemplated by Section 10 of the Agreement.
The Assets consist of all of the Borrower's interest as lessor
(including all amendments, modifications, extensions and renewals thereof) in
those certain leases obtained in connection with the acquisition of a
co-ownership interest with CPSC International, Inc., a Texas corporation
("CPSC") in two 15-mile pipelines in the County of Cameron, State of Texas, and
two 7-mile pipelines and a transfer terminal in Tamaulipas, Mexico, in each case
constructed or being constructed by CPSC.
2.4 Remedies not Waived. No delay on the part of the Holder in the
exercise of any right or remedy shall operate as a waiver thereto, and no single
or partial exercise by Holder of any right or remedy shall preclude the further
exercise thereof or the exercise of any other right or remedy.
2.5 Other. Except to the extent otherwise contemplated hereby, the
Borrower hereby waives presentment, demand, protest, notice of protest, dishonor
and non-payment of this Note and all notices of every kind and agrees that its
liability hereunder shall be unconditional.
3. Assignability; Binding Effect. The provisions of Section 9 and 15 of
the Agreement are incorporated herein by this reference and made applicable to
this Note.
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4. Severability. Any provision in this Note that is held to be
inoperative, unenforceable, voidable or invalid in any jurisdiction shall, as to
that jurisdiction, be ineffective, unenforceable, void or invalid without
affecting the remaining provisions in any other jurisdiction, and to this end
the provisions of this Note are declared to be severable.
5. Replacement of Note. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Note and (in case of loss, theft or destruction) of an indemnity bond
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Note, if mutilated, the Company will make and deliver to the Holder a new
Note of like tenor in lieu of this Note.
6. Certain Restrictive Covenants. For so long as this Note is
outstanding, the Borrower covenants and agrees that the Borrower will not pay
(i) cash management fees or cash bonuses to its officers or directors other than
cash management fees or cash bonuses which are paid in accordance with past
practices of the Borrower or are provided for in existing employment or other
agreements or are customary for other companies in the Borrower's industry or
are customary for persons having responsibilities similar to those in respect of
which such cash management fees or cash bonuses are paid; or (ii) cash dividends
on its issued and outstanding common stock. The answer to the question of
whether a cash management fee or cash bonus is covered by the restrictions
contained in Section 6(i) of this Note shall be determined solely by the
Borrower, acting in good faith.
7. Captions. The descriptive headings of the various Sections or parts
of this Note are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
8. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to such
state's conflicts of law provisions. Each of the parties hereto irrevocably
consents to the jurisdiction and venue of the federal and state courts located
in the State of Delaware.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Borrower has caused this Note to be executed by its duly authorized officer as
of the date first above written.
PENN OCTANE CORPORATION
By:___________________________________
Ian T. Bothwell, Vice President and
Chief Financial Officer
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