Exhibit 10.127
Agreement To Exchange $0.9 Million Secured Notes Into
Senior Preferred Stock of Penn Octane Corporation (the "Exchange")
Issuer: Penn Octane Corporation ("POCC")
Purchaser: Castle Energy Corporation (CEC), currently a holder of
$1.0 Million Secured Notes of POCC (the "Notes") pursuant
to a Rollover and Assignment Agreement dated December 1,
1998.
The Transaction: POCC will issue CEC 90,000 shares of its Senior Preferred
Stock (the "Preferred Stock") at a price of $10.00 per
share (total value $0.9 million) in exchange for
cancellation of $0.9 Million of the Notes held by CEC.
After the transaction, CEC will still hold $.10 million of
the Notes, including any accrued and unpaid interest
thereon.
In addition to the issuance of the Preferred Stock, CEC
will also receive 50,000 shares of common stock of POCC.
In the event that POCC does not exercise its right to call
the Preferred Stock on or before September 3, 1999, then
CEC will be entitled to receive additional 50,000 shares
of common stock of POCC.
Dividend rate: The holders of the Preferred Stock will receive a 12.0%
annual cash or pay-in-kind dividend, payable
semi-annually.
Conversion Rate: The holders of the Preferred Stock will be entitled at any
time to convert the Preferred Stock, all or in part,
including any accrued and unpaid dividends, into shares of
POCC Common Stock, at a conversion ratio of one share of
Preferred Stock for 4.0 shares of common stock of POCC.
Call Feature: POCC may repurchases the Preferred Stock, all or in part,
at any time, after providing 5 days written notice to CEC.
If during the 5 day period, CEC does not elect to convert
the Preferred Stock which is being called by POCC, all or
in part, then POCC may repurchase the requested amount of
Preferred Stock, for an amount equal to all principal and
accrued and unpaid dividends, less any portion which may
have been elected to be converted by CEC pursuant to
POCC's notice. POCC will be required to pay the amounts
required within 5 days from the expiration of the original
5 days written notice period provided to CEC. POCC is not
required to purchase any amount originally offered for
repurchase which subsequently is reduced due to CEC's
conversion of any portion of the Preferred Stock held by
CEC. In the event that POCC does not provide the funds as
prescribed herein, then POCC will be required to issue CEC
50,000 additional shares of common stock of POCC for each
month the payment is delayed.
Term Sheet - Exchange Of Notes
Page 2 of 2
March 1, 1999
Collateral: $0.9 Million of the Notes which are being exchanged shall
be released from any security and escrow agreements
previously entered into in connection with the Rollover
and Assignment Agreement.
Anti-Dilution: Standard anti-dilution provision, including protection
from stock splits, stock dividends and distribution of
assets.
Voting: The Preferred Stock is non-voting.
Closing Date: The exchange is effective as of March 3, 1999. Both
parties agree to expedite the necessary paperwork related
to the issuance of the Preferred Stock and cancellation of
$0.9 million of the Notes.
Governing Law: Should any portion of this agreement be deemed to be
invalid, then the parties agree that the terms shall be
modified so that the intention of the parties is
maintained.
AGREED TO BY:
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PENN OCTANE CORPORATION
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Jerome B. Richter
Chairman of the Board,
President and Chief Executive Officer
CASTLE ENERGY CORP.
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Joseph Castle
Chairman of the Board,
President and Chief Executive Officer