Control #:__________
PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT (the "Agreement") is made and entered into as of the
day of January, 2001, by and between Penn Octane Corporation, a Delaware
corporation (the "Company"), and the investor whose name and address appears on
the signature page hereto (the "Purchaser"), with reference to the following
facts:
RECITALS:
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A. On or about December 26, 2000, the Company, acting through PMG Capital
Corp. as placement agent for the Company ("PMG"), commenced a private offering
(the "Offering"), solely to qualified investors (including the Purchaser, the
"Investors") who are "accredited investors" within the meaning of Rule 501(a) of
Regulation D promulgated by the Commission (hereinafter defined) under the
Securities Act (hereinafter defined), for up to $2,200,000, of (i) 13.5% Series
B Notes in the aggregate principal amount of up to $2,200,000, due the earlier
of (a) the closing after the date hereof of any single financing transaction by
the Company involving the issuance by the Company of debt or equity securities
of the Company resulting in net proceeds to the Company in excess of $250,000
(subject to the provisions of Section 10 hereof, a "Financing"), or (b)
December 15, 2001, substantially in the form of Exhibit 1 hereto (the "Series B
Notes"), and (ii) warrants (the "Warrants") to purchase up to 275,000 shares
(subject to adjustment as provided therein) (the "Warrant Shares") of the Common
Stock, $.01 par value (the "Common Stock"), of the Company, exercisable until
December 15, 2003 (unless earlier called as provided therein) at a purchase
price of $3.00 per Warrant Share (subject to adjustment as provided for
therein), pursuant to a Common Stock Purchase Warrant substantially in the form
of Exhibit 2 hereto (the Series B Notes and the Warrants being herein
collectively referred to as the "Securities").
B. Under the terms of the Offering, Investors will receive Warrants (as
aforesaid) at the rate of Warrants covering 125 Warrant Shares for each $1,000
face amount of Series B Notes purchased.
C. If the Offering is consummated, the Company and each of the Investors
will also enter into a Registration Rights Agreement with respect to the Warrant
Shares covered by his Warrants, substantially in the form of Exhibit 3 hereto
(the "Registration Rights Agreement").
D. It is contemplated that the Company and each of the Investors will
enter into a Purchase Agreement similar to this Agreement.
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E. This Agreement is the document pursuant to which the Purchaser is
acquiring his Securities from the Company.
NOW, THEREFORE, in consideration of the agreements and obligations herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Purchaser and the Company
hereby agree as follows:
1. Purchase and Sale of the Purchaser Securities. Subject to the terms
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and conditions set forth in this Agreement, the Company agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, Securities
comprised of a Series B Note in the principal amount of $ and Warrants
exercisable for the purchase of up to Warrant Shares (collectively,
the "Purchaser Securities"), for a purchase price of $ (the "Purchase
Price").
2. The Closing. The closing (the "Closing") of the purchase and sale
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of the Purchaser Securities shall take place at such time(s) and place(s), and
in such manner(s), as the Company and PMG (hereinafter defined) shall agree. At
or prior to the Closing, the Purchaser shall deliver to the Company the full
Purchase Price for the Purchaser Securities in immediately available funds, the
Company shall deliver to the Purchaser the Series B Note and the Warrants
included in the Purchaser Securities, and the Purchaser and the Company shall
execute and deliver the Registration Rights Agreement.
3. Registration Rights. The Purchaser shall have such registration
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rights with respect to the Warrant Shares covered by the Warrants included in
the Purchaser Securities as are set forth in the Registration Rights Agreement.
4. Representations and Warranties of the Company. As of the Closing,
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the Company represents and warrants as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder.
(b) The execution, delivery and performance of this Agreement, and
the sale and delivery of the Purchaser Securities to the Purchaser have been
duly authorized by all necessary corporate action on the part of the Company
and, subject to the qualification that certain consents are required of existing
secured lenders of the Company before the Company can grant the security
interest contemplated by Section 2.3 of the Note included in the Purchaser
Securities, which consents the Company believes, but can provide no absolute
assurance, that it will be able to obtain, do not violate any material covenant
contained in any agreement to which the Company is a party.
(c) The Warrant Shares covered by the Warrants included in the
Purchaser Securities, when issued upon exercise of such Warrants and receipt by
the Company of full payment therefor, will be duly and validly issued, fully
paid and nonassessable.
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(d) Subject to the truth and accuracy of the Purchaser's
representations set forth in Section 5 of this Agreement and the truth and
accuracy of the representations of PMG contemplated by Section 7 of this
Agreement, the offer, sale and issuance of the Purchaser Securities as
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act").
(e) The net proceeds received by the Company from the sale of the
Purchaser Securities shall be used by the Company to retire certain existing
indebtedness, complete the acquisition of the remaining interest as lessor
(including all amendments, modifications, extensions and renewals thereof) in
those certain leases (the "Leases") obtained in connection with the acquisition
of a co-ownership interest with CPSC International, Inc., a Texas corporation,
in two 15-mile pipelines in the County of Cameron, State of Texas, and two
7-mile pipelines and a transfer terminal in Tamaulipos, Mexico, and/or for
working capital purposes.
(f) All reports, registrations, documents, statements and other
filings required to be made by the Company with the Securities and Exchange
Commission (the "Commission") within the past twelve months have been timely
filed, and none of such materials contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
5. Representations and Warranties of the Purchaser. The Purchaser
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represents and warrants as follows:
(a) General:
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(i) The Purchaser has all requisite authority to enter into
this Agreement and to perform all of the obligations required to be performed by
the Purchaser hereunder.
(ii) Neither the Company nor any person acting on behalf of
the Company has offered or sold the Purchaser Securities to the Purchaser by
means of any form of general solicitation or general advertising. The Purchaser
has not received, paid or given, directly or indirectly, any commission or
remuneration for or on account of any sale, or the solicitation of any sale, of
the Purchaser Securities.
(b) Information Concerning the Company:
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(i) The Purchaser has had full access to all reports,
registrations, documents, statements and other filings heretofore made by the
Company with the Commission under the Securities Act, the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the
Commission thereunder. The Purchaser is thoroughly familiar with the business
and financial condition, properties, operations and prospects of the Company.
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(ii) The Purchaser has been given full access to all
information requested by the Purchaser concerning the business and financial
condition, properties, operations and prospects of the Company. The Purchaser
and his advisors (if any) have had an opportunity to ask questions of, and to
receive information from, the Company and persons acting on its behalf
concerning the terms and conditions of the Purchaser's investment in the
Purchaser Securities, and to obtain any additional information necessary to
verify the accuracy of the information and data received by the Purchaser. The
Purchaser is satisfied that there is no material information concerning the
business and financial condition, properties, operations or prospects of the
Company of which Purchaser is unaware.
(iii) The Purchaser has made, either alone or together with
his advisors (if any), such independent investigation of the Company, its
management, and related matters as the Purchaser deems to be, or the Purchaser's
advisors (if any) have advised to be, necessary or advisable in connection with
the Purchaser's investment in the Purchaser Securities; and the Purchaser and
his advisors (if any) have received all information and data which the Purchaser
and his advisors (if any) believe to be necessary in order to reach an informed
decision as to the advisability of investing in the Purchaser Securities.
(iv) The Purchaser understands that all the Purchaser's
representations and warranties contained in this Agreement will be deemed to
have been reaffirmed and confirmed as of the Closing.
(v) The Purchaser understands that the purchase of the
Purchaser Securities involves various risks, including the risk that it is
unlikely that any market will exist for any resale of the Series B Note or the
Warrants included in the Purchaser Securities and that resale of such Series B
Note, such Warrants and the Warrant Shares issuable upon exercise of such
Warrants will be restricted as herein provided.
(c) Status of Purchaser:
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(i) The Purchaser is an "accredited investor" within the meaning
of Rule 501 of Regulation D promulgated by the Commission under the Securities
Act; and the Purchaser either alone or with the Purchaser's advisors (if any)
has such knowledge, skill and experience in business, financial and investment
matters as to be capable of evaluating the merits and risks of an investment in
the Purchaser Securities. To the extent that the Purchaser has deemed it
appropriate to do so, the Purchaser has retained at the Purchaser's own expense,
and relied upon, appropriate professional advice regarding the investment, tax
and legal merits and consequences of this Agreement and his investment in the
Purchaser Securities.
(d) Restrictions on Transfer or Sale:
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(i) The Purchaser is acquiring the Purchaser Securities and
any Warrant Shares purchased upon exercise of the Warrants included in the
Purchaser Securities solely for his own account, for investment purposes, and
not with a view to, or for resale in connection with, any distribution of the
Purchaser Securities or such Warrant Shares. The Purchaser understands that
neither such Purchaser Securities nor such Warrant Shares have been registered
or qualified under the Securities Act, or the securities laws of any state
(collectively, the "State Securities Laws"), by reason of specific exemptions
under the provisions thereof which depend in part upon the investment intent of
the Purchaser and upon the accuracy of all of the representations and warranties
made by the Purchaser in this Agreement. The Purchaser understands that the
Company is relying upon the representations and agreements of the Purchaser
contained in this Agreement for the purpose of determining whether this
transaction meets the requirements for such exemptions.
(ii) The Purchaser understands that the Purchaser Securities
and any Warrant Shares acquired upon exercise of the Warrants included therein
are "restricted securities" under applicable federal securities laws and that
the Securities Act and the rules and regulations of the Commission provide in
substance that the Purchaser may dispose of such securities or any of them only
pursuant to an effective registration statement under the Securities Act and
applicable State Securities Laws or an exemption therefrom, and understands that
the Company has no obligations or intentions to register or qualify any of such
securities thereunder, or to take any other action so as to permit sales
pursuant to the Securities Act and applicable State Securities Laws, except as
set forth in the Registration Rights Agreement. Accordingly, the Purchaser
understands that under the Commission's rules and regulations and applicable
State Securities Laws, unless disposed of pursuant to an effective registration
statement under the Securities Act and an effective registration or
qualification under applicable State Securities Laws, the Purchaser may dispose
of the Purchaser Securities and any Warrant Shares acquired upon exercise of the
Warrants included therein only in accordance with the provisions of Rule 144
promulgated by the Commission under the Securities Act, to the extent available,
or in "private placements" which are exempt from registration or qualification
under the Securities Act and applicable State Securities Laws, in which event
the transferee will acquire "restricted securities" subject to the same
limitations as in the hands of the Purchaser. As a consequence, absent such an
effective registration or qualification under the Securities Act and applicable
State Securities Laws, the Purchaser understands that it may be required to bear
the economic risks of the investment in the Purchaser Securities (and such
Warrant Shares) for an indefinite period of time.
(iii) The Purchaser agrees that (a) the Purchaser will not
sell, transfer, encumber or otherwise dispose of the Purchaser Securities or any
Warrant Shares acquired upon exercise of the Warrants included therein or any
interest in any thereof or therein, or make any offer or attempt to do any of
the foregoing, except pursuant to an effective registration and qualification
under the Securities Act and applicable State Securities Laws or in a
transaction which, in the opinion of counsel satisfactory to the Company (which
requirement may be waived by the Company upon advice of counsel), is exempt from
the registration and qualification requirements of the Securities Act and
applicable State Securities Laws; (b) the Purchaser Securities and any
certificate(s) representing Warrant Shares issued upon exercise of the Warrants
included therein will bear a legend making reference to the foregoing
restrictions; and (c) the Company and any transfer agent for the Company shall
not be required to give effect to any purported transfer of any of such
securities except upon compliance with the foregoing restrictions.
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(iv) The registration rights granted to the Purchaser in the
Registration Rights Agreement are not assignable or otherwise transferrable by
the Purchaser. In no event shall any sale, assignment, pledge or transfer of
the Warrants included in the Purchaser Securities or Warrant Shares issuable
upon exercise of the Warrants included therein by the Purchaser to a transferee
give rise to rights of any such transferee under the Registration Rights
Agreement.
(e) Documents. The Purchaser has carefully read, and understands
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and agrees to be bound by, all of the provisions of this Agreement, the Series B
Note and the Warrants included in the Purchaser Securities and the Registration
Rights Agreement.
6. Conditions to Obligations of Purchaser and the Company. The
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obligations of the Purchaser to purchase and pay for the Purchaser Securities
and of the Company to sell and deliver such Purchaser Securities are subject to
the satisfaction at or prior to the Closing of the following conditions
precedent:
(a) The representations and warranties of the Company contained in
Section 4 hereof and of the Purchaser contained in Section 5 hereof shall be
true and correct on and as of
the Closing in all respects with the same effect as though representations and
warranties had been made on and as of the Closing.
(b) The Company and the Purchaser shall each have executed and
delivered the Registration Rights Agreement, and the Company shall have executed
and delivered to the Purchaser the Series B Note and the Warrants included in
the Purchaser Securities.
(c) The Company and the Purchaser shall each have executed and
delivered this Agreement, and the Purchaser shall have delivered to the Company
(as contemplated hereby) the full Purchase Price for the Purchaser Securities.
7. Fee. In connection with the purchase and sale of the Securities
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(including the Purchaser Securities), PMG, in consideration of acting as
placement agent for the Company in connection with the Offering and of certain
other services (the "Other Services") rendered or to be by PMG to the Company in
connection therewith, shall receive a fee from the Company equal to 7% of the
Purchase Price of all of the Series B Notes sold in the Offering, and be
entitled to reimbursement by the Company for PMG's reasonable out-of-pocket
expenses (including reasonable attorneys fees) associated with the Offering and
the Other Services. In addition, PMG shall be entitled to receive warrants to
purchase 50,000 shares of Common Stock of the Company. Such warrants will be
exercisable until December 15, 2003 at an exercise price of $3.00 per share, and
contain other rights and restrictions, including exercise price adjustment
provisions, largely comparable to those contained in the Warrants; and the
warrant shares covered by such warrants will have registration rights comparable
to those provided in the Registration Rights Agreement. The Company's
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obligation to pay the foregoing to PMG shall be contingent upon the Company's
prior receipt from PMG of a representation letter, reasonably satisfactory to
the Company, in which, among other things, PMG (i) provides representations
comparable to those set forth in Section 5 hereof, (ii) represents that the
Offering, and all of PMG's activities in connection therewith, and the
consideration to be received by PMG as contemplated by this Section 7, in each
case comply with all applicable federal and state securities laws and National
Association of Securities Dealers, Inc. rules in connection with the Offering,
and (iii) represents and covenants that it has, on behalf of the Company, timely
made (and will continue to timely make) all filings required to be made by the
Company in order to make the Offering exempt from the registration and
qualification requirements of all applicable federal and state securities laws,
and that such filings comply (and will comply) with the applicable requirements
of all such laws.
8. Waiver, Amendment. Neither this Agreement nor any provisions hereof
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shall be modified, changed, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
9. Assignability. The Purchaser shall not assign or otherwise transfer
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this Agreement, any of the Purchaser Securities (or any of the Warrant Shares
issuable upon exercise of the Warrants included therein), or the Registration
Rights Agreement, any interest in the foregoing, or any of his rights or
obligations thereunder, without the prior written consent of the Company.
10. Definition of Financing. For purposes of this Agreement and the
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Series B Note included in the Purchaser Securities, the term "Financing" shall
have the meaning stated in clause (i)(a) of Recital A to this Agreement, except
that all of the following (and all of the proceeds thereof) are hereby expressly
excluded from such definition: (a) transactions in the ordinary course of the
Company's and its subsidiaries' business; (b) purchase money and lease
transactions entered into by the Company or its subsidiaries; (c) transactions
entered into by the Company or its subsidiaries on or before December 21, 2000,
transactions entered into in furtherance thereof and amendments to the
foregoing; (d) the Offering, the Series B Notes and Warrants issued in
connection with the Offering, the warrants issued to PMG as contemplated by
Section 7 hereof and the proceeds received upon exercise of such Warrants and
warrants; (e) options or warrants heretofore or hereafter issued to employees or
independent contractors of or advisors to the Company or its subsidiaries and
the proceeds received upon exercise thereof; (f) any other financing
transaction(s) entered into by the Company or its subsidiaries with third
parties (the "Additional Fund Providers") after December 21, 2000, on any terms,
which result(s) in aggregate net proceeds to the Company of up to $5,000,000
(the "Additional Debt") (which Additional Fund Providers, the Purchaser agrees,
shall also, with respect to repayment of the obligations owing to them, be
entitled to participate with the Purchaser and the other Investors, on a
pari-passu basis with the Purchaser, the other Investors and the holders (the
"Series A Noteholders") of the Company's Promissory Notes issued commencing in
December 1999 in the aggregate original principal amount of $5,654,000 and with
an original due date of December 15, 2000 (the "Series A Notes"), in the
security interest contemplated by Section 2.3 of the Series B Note to secure
repayment of any obligations owing to such Additional Fund Providers, and in
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order and priority of payment) and the proceeds received upon the exercise or
conversion of any options, warrants or convertible securities included in such
transaction(s); (g) any future transactions engaged in by the Company or its
subsidiaries the net proceeds of which are used to acquire the remaining 50%
interest in the Leases not presently owned by the Company or its subsidiaries
and to pay expenses incurred in connection therewith; (h) the restructuring of
up to $5,654,000 in principal amount of the Company's Series A Notes (and any
borrowings or other financings the proceeds of which are used to repay such
Series A Notes); and (i) any other transaction(s) approved either by PMG or by a
majority in interest (determined by reference to the then unpaid principal
amounts of their then respective Series B Notes) of the Purchaser and the other
Investors as being excluded from the definition of "Financing". The answer to
the question of whether any transaction is excluded from the definition of a
"Financing" pursuant to the preceding provisions of this Section 10 shall be
determined solely by the Company, acting in good faith.
11. Applicable Law. This Agreement shall be governed by and construed
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in accordance with the law of the State of Delaware, regardless of the law that
might be applied under principles of conflicts of law.
12. Section and Other Headings; Gender. The section and other headings
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contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement. For purposes of this
Agreement, all references to the singular shall also be deemed to refer to the
plural, all references to the masculine shall be deemed to refer to the feminine
and neuter, and, in each case, vice versa.
13. Counterparts. This Agreement may be executed in two or more
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counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
14. Notices. All notices and other communications provided for herein
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or permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or by Federal Express or similar means or by
facsimile (with proof of receipt) or sent by registered or certified mail,
return receipt requested, postage prepaid (provided, however, that notices shall
not be deemed delivered until actually received at the address to which they
were properly sent):
(a) If to the Company, at the following address:
Penn Octane Corporation
77-530 Enfield Lane, Bldg. D
Palm Desert, California 92211
Fax No. (760) 772-8588
Attn: Jerome B. Richter, President
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(b) If to the Purchaser, at the following address:
__________________________
__________________________
__________________________
Phone: (___) ____________ Fax: (___) ____________
Attn: ____________________
or at such other address as either party shall have specified by notice in
writing to the other.
15. Binding Effect. The provisions of this Agreement shall be binding
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upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PURCHASER:
__________________________________________
By:_______________________________________
Name:
Title:
PENN OCTANE CORPORATION
By:_______________________________________
Name: Ian T. Bothwell
Title: Vice President and Chief Financial
Officer
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