SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: February 9, 2001
PENN OCTANE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 000-24394 52-1790357
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
77-530 Enfield Lane, Building D
Palm Desert, California 92211
(Address of principal executive offices) (Zip Code)
(760) 772-9080
(Registrant's telephone number, including area code)
Page 1 of 106
Item 2. Acquisition or Disposition of Assets
Reference is hereby made to Item 5 hereof, which is incorporated herein by
this reference, regarding the Registrant's agreement to provide a security
interest in substantially all of the Registrant's assets in connection with
certain promissory notes of the Registrant. The granting and perfection of such
security interest, including the preparation and execution of appropriate
security and intercreditor agreements, has not yet occurred; but is expected to
occur commencing in the near future.
Item 5. Other Events
1. RESTRUCTURING OF PROMISSORY NOTES ORIGINALLY DUE DECEMBER 15, 2000
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Reference is hereby made to Part I - Item 1 and Part II - Item 2 of the
Registrant's Quarterly Reports on 10-Q for the quarterly periods ended January
31, 2000 and April 30, 2000, and to Part II - Items 5, 7 and 8 of the
Registrant's Annual Report on 10-K for the fiscal year ended July 31, 2000,
which are incorporated herein by this reference, in each case concerning the
Registrant's issuance of $5,654,000 in principal amount of promissory notes (the
"Notes") due December 15, 2000. Copies of the forms of Purchase Agreement
("Purchase Agreement"), Promissory Note ("Note"), Registration Rights Agreement
("RR Agreement"), Amendment Agreement ("First Amendment") and Common Stock
Purchase Warrant ("Original Warrant") executed in connection with the issuance
of the Notes are attached hereto as Exhibits 7, 5, 8, 4 and 6, respectively, and
incorporated herein by this reference.
Notes in the principal amount of $245,000 have been paid in full. The
Registrant has also entered into agreements (the "Restructuring Agreements")
with the holders of the remaining $5,409,000 in principal amount of the Notes
providing for the restructuring of such remaining Notes (the "Restructuring").
A copy of the form of Restructuring Agreement is attached hereto as Exhibit 2
and incorporated herein by this reference.
Under the terms of the Restructuring Agreements, the due dates for the
restructured Notes (the "Restructured Notes") were extended to December 15,
2001, subject to earlier repayment upon the occurrence of certain specified
events provided for in the Restructured Notes. Additionally, beginning December
16, 2000, the annual interest rate on the Restructured Notes was increased to
13.5% (subject to the adjustments referred to below). Interest payments are due
quarterly beginning March 15, 2001.
Under the terms of the Restructuring Agreements, the holders of the Restructured
Notes also received warrants to purchase up to 676,125 shares of common stock of
the Registrant at an exercise price of $3.00 per share and exercisable until
December 15, 2003 (the "New Warrants"). A copy of the form of the New Warrants
is attached hereto as Exhibit 3 and incorporated herein by this reference. The
Registrant also agreed to reset the exercise prices of the Original Warrants to
purchase up to 676,137 shares of common stock of the Registrant previously
issued to the holders of the Restructured Notes in connection with their
Page 2 of 106
original issuance from $4.00 per share to $3.00 per share and extend the
exercise dates of the Original Warrants from December 15, 2002 to December 15,
2003. In addition, the Registrant is required to reduce the exercise price of
the Original Warrants and the New Warrants issued to the holders of the
Restructured Notes from $3.00 per share to $2.50 per share in the event that the
Restructured Notes are not fully repaid prior to June 15, 2001.
In connection with the Restructuring Agreements, the Registrant has also agreed
to register the shares of common stock which may be acquired in connection with
the exercise of the New Warrants (the "Exercisable Shares"). In the event that
the Registrant does not have an effective registration statement under the
Securities Act of 1933, as amended, covering the Exercisable Shares by March 31,
2001 (or April 30, 2001, if, at the time, the Registrant is ineligible to
utilize Form S-3 for purposes of such registration), or if any effective
registration statement ceases to be effective during any period in which such
effectiveness is required, the Registrant will be required to pay additional
interest on the Restructured Notes at the rate of 4% per annum for the period in
which the deficiency continues to exist.
Under the terms of the Restructuring Agreements, the Registrant is also required
to provide the holders of the Restructured Notes with collateral to secure the
Registrant's payment obligations under the Restructured Notes consisting of a
senior interest in substantially all of the Registrant's assets which are
located in the United States (the "US Assets") and Mexico (the "Mexican
Assets"), excluding inventory, accounts receivable and sales contracts with
respect to which the Registrant is required to grant a subordinated security
interest (collectively referred as the "Collateral"). The Registrant's
President is also required to pledge 2,000,000 shares of common stock of the
Registrant held by the President (1,000,000 shares to be released when the
required security interests in the US Assets have been granted and perfected and
all of the shares to be released when the required security interests in all of
the Collateral have been granted and perfected). A copy of the pledge agreement
and guaranty relating to such pledge are attached hereto as Exhibits 9 and 10,
respectively, and incorporated herein by this reference. Under the terms of the
restricted Notes, if the required security interests in all of the Collateral
have not been granted and perfected by March 15, 2001, the Registrant will be
required to pay additional interest at a rate of 3% per annum from March 16,
2001 until such time as the required security interests in all of the Collateral
have been granted and perfected. The granting and perfection of such security
interests in the Collateral, including the preparation and execution of
appropriate security and intercreditor agreements, has not yet occurred; but is
expected to occur commencing in the near future. PMG Capital Corp. ("PMG") has
agreed to serve as the collateral agent.
PMG acted as financial advisor for the restructuring of $4,384,000 in principal
amount of the Restructured Notes. PMG received fees consisting of $131,520 in
cash and warrants to purchase 50,000 shares of common stock of the Registrant
with terms similar to the terms of the New Warrants. The Registrant also agreed
to reset and extend the exercise date of warrants to purchase 114,375 shares of
common stock of the Registrant originally issued to PMG in connection with the
original issuance of the Notes with the same terms as those which were modified
in the Original Warrants in connection with the Restructuring Agreements as more
fully described above.
Page 3 of 106
The above transactions were effected without registration under the Securities
Act of 1933, as amended, in reliance upon the exemptions from the registration
provisions thereof contained in Section 4(2) thereof and Rule 506 of Regulation
D promulgated thereunder.
In connection with the Restructuring Agreements, the Registrant will record a
discount related to the fair value of the New Warrants issued, fair value
related to adjustments of the Original Warrants, fees paid to PMG (including
cash, new warrants granted and any adjustments to warrants previously granted to
PMG in connection with the original issuance of the Notes) and other costs
associated with the Restructuring Agreements, to be amortized over the life of
the Restructured Notes.
2. ISSUANCE OF NEW PROMISSORY NOTES
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On January 31, 2001, the Registrant completed the placement of $991,000 in
principal amount of promissory notes (the "New Notes") due December 15, 2001.
The holders of the New Notes will receive warrants to purchase up to 123,875
shares of common stock of the Registrant (the "New Note Warrants"). The terms
of the New Notes and New Note Warrants are substantially the same as those
contained in the Restructured Notes and New Warrants issued in connection with
the Restructuring described above; and the Registrant's payment obligations
under the New Notes will also be secured by the Collateral and the shares of the
Registrant which are being pledged by the Registrant's President as described
above.
Net proceeds from the New Notes are being used for working capital purposes.
In connection with the New Notes, PMG acted as placement agent for the
Registrant and received cash fees totaling $69,370 and reimbursement of
reasonable out of pocket expenses.
The above transactions were effected without registration under the Securities
Act of 1933, as amended, in reliance upon the exemptions from the registration
provisions thereof contained in Section 4(2) thereof and Rule 506 of Regulation
D promulgated thereunder.
The forms of the purchase agreement, promissory note, common stock purchase
warrant and registration rights agreement, which are expected to be executed in
the near future in connection with the issuance of the New Notes and New Note
Warrants are attached as Exhibits 11, 12, 3 and 13, respectively, and
incorporated herein by this reference.
In connection with the issuance of the New Notes and New Note Warrants, the
Registrant will record a discount related to the fair value of the New Note
Warrants issued, fees paid to PMG Capital Corp. and other costs associated with
the private placement, to be amortized over the life of the New Notes.
Page 4 of 106
3. OTHER
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The Registrant's news release dated February 9, 2001 regarding the restructuring
of $5,409,000 of promissory notes, a copy of which is attached as Exhibit 1
hereto, is incorporated herein by reference and made a part hereof.
Page 5 of 106
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PENN OCTANE CORPORATION
Date: February 9, 2001
By: /s/ Ian T. Bothwell
-------------------------------------
Name: Ian T. Bothwell
Title: Vice President, Treasurer,
Assistant Secretary, and Chief
Financial Officer and
Principal Accounting Officer
Page 6 of 106
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
NO. DESCRIPTION NO.
- --- ----------- ---
1 News release dated February 9, 2001 regarding the restructuring of
5,409,000 of notes issued by the Registrant. 8
2 Form Of Second Amendment Promissory Note (Restructuring Agreement)
dated December 21, 2000 between the Registrant and the holders of the
Notes which have participated in the Restructuring 9-19
3 Form Of Common Stock Purchase Warrant (New Warrant) issued by the
Registrant to holders of the Notes which have participated in the
Restructuring and between the Registrant and the holders of the New Notes 20-30
4 Form Of Amendment Agreement (First Amendment) dated April 14, 2000
between the Registrant and the holders of the Notes which have participated
in the Restructuring 31
5 Form Of Promissory Note (Note) issued by the Registrant to holders of the
Notes which have participated in the Restructuring 32-35
6 Form Of Common Stock Purchase Warrant (Original Warrant) issued by the
Registrant to holders of the Notes which have participated in the
Restructuring 36-46
7 Form Of Original Purchase Agreement (Purchase Agreement) between the
Registrant and the holders of the Notes which have participated in the
Restructuring 47-56
8 Form Of Original Registration Rights Agreement (RR Agreement) between
the Registrant and the holders of the Notes which have participated in the
Restructuring 57-67
9 Pledge Agreement dated January 30, 2001 between Jerome Richter and PMG
Capital Corp. 68-74
10 Guaranty With Recourse Limited To Pledged Shares dated January 30, 2001
by Jerome Richter in favor of PMG Capital Corp. 75-80
11 Form Of Purchase Agreement to be executed between the Registrant and the
holders of the New Notes 81-90
12 Form Of Promissory Note to be executed by the Registrant to holders of the
New Notes 91-96
13 Form Of Registration Rights Agreement to be executed between the
Registrant and the holders of the New Notes 97-106
Page 7 of 106