CONTROL #:
PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT (the "Agreement") is made and entered into as of
the day of , , 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 10, 1999, the Company, acting through Pennsylvania
Merchant Group 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 $5,000,000, of (i) 9%
Promissory Notes in the aggregate principal amount of up to $5,000,000, 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, 2000, substantially in the form of Exhibit 1
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hereto (the "Notes"), and (ii) warrants (the "Warrants") to purchase up to
625,000 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, 2002 (unless earlier called as provided
therein) at a purchase price of $4.00 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 Notes and the Warrants being
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herein collectively referred to as the "Securities").
B. Under the terms of the Offering, Investors who submit the appropriate
subscription form (the "Subscription Form") for their investment in the
Securities on or before December 17, 1999, and whose funds are received by
Summit Bank as escrow agent (the "Escrow Agent") on or before the close of
business on December 20, 1999, will receive Warrants (as aforesaid) at the rate
of Warrants covering 125 Warrant Shares for each $1,000 face amount of Notes
purchased (and each of the other Investors will receive Warrants (as aforesaid)
at the rate of Warrants covering 62.5 Warrant Shares for each $1,000 face amount
of Notes purchased by such Investor, plus Warrants at the rate of an additional
62.5 Warrant Shares per $1,000 of face amount of Notes purchased by such
Investor if the principal amount of the Note purchased by such Investor and all
accrued and unpaid interest thereon is not paid in full on or before the 90th
day following the date of such Investor's Note).
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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
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(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.
E. This Agreement is the document pursuant to which the Purchaser is
acquiring his Securities from the Company.
F. THE PURCHASER IS AWARE AND ACKNOWLEDGES AND AGREES THAT THE PROVISIONS
OF THIS AGREEMENT AND OF THE NOTE AND WARRANTS HE IS ACQUIRING AND OF THE
REGISTRATION RIGHTS AGREEMENT HE IS ENTERING INTO WITH THE COMPANY DIFFER IN
CERTAIN RESPECTS FROM, AND SUPERSEDE AND REPLACE IN THEIR ENTIRETY, ANY AND ALL
PRIOR AGREEMENTS OR UNDERSTANDINGS PERTAINING TO THE SUBJECT MATTER HEREOF AND
THEREOF (ORAL OR WRITTEN), INCLUDING, WITHOUT LIMITATION, THE PROVISIONS OF THAT
CERTAIN TERM SHEET FOR A BRIDGE LOAN PENN OCTANE CORPORATION SERIES A
SUBORDINATED NOTES DATED DECEMBER 10, 1999 AND AMENDMENT NO. 1 THERETO, DATED
DECEMBER 17, 1999, COPIES OF WHICH ARE ATTACHED HERETO AS EXHIBIT 4); AND
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APPROVES OF AND CONSENTS AND AGREES TO THE FOREGOING.
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 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 the Subscription Form to
PMG and deliver to the Company the full Purchase Price for the Purchaser
Securities in immediately available funds, the Company shall deliver to the
Purchaser the Note and the Warrants included in the Purchaser Securities, and
the Purchaser and the Company shall execute and deliver the Registration Rights
Agreement.
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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.
(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 acquire an Ownership
Interest in Assets (as such terms are defined in Section 2.3 of the Note
included in the Purchaser Securities) 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:
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(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.
(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.
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(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 Note or the Warrants
included in the Purchaser Securities and that resale of such 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
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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.
(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 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.
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(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 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 Notes sold in the Offering, and be entitled to
reimbursement by the Company for PMG's out-of-pocket expenses (including
reasonable attorneys fees) associated with the Offering and the Other Services
in an amount not to exceed a total of $15,000. In addition, PMG shall be
entitled to receive warrants to purchase shares of Common Stock of the Company
at the rate of warrants for 25,000 shares of Common Stock of the Company for
every $1,000,000 principal amount of Notes issued by the Company through PMG in
the Offering. Such warrants will be exercisable until December 15, 2002, at an
exercise price of $4.00 per share, and contain other rights and restrictions
largely comparable to those contained in the Warrants; and the warrant shares
covered by such warrants will have registration rights comparable to those
provided for in the Registration Rights Agreement. The Company's 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.
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10. Definition of Financing. For purposes of this Agreement and the
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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 17, 1999, transactions
entered into in furtherance thereof and amendments to the foregoing; (d) the
Offering, the 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) up to $1,075,000 which has been or may be received by the
Company in connection with the issuance by the Company of notes and warrants to
third parties (the "New Noteholders") pursuant to terms and conditions similar
to those contained in this Agreement, the Notes, the Warrants and the
Registration Rights Agreement (which New Noteholders, the Purchaser agrees,
shall, with respect to repayment of the obligations owing to them under their
notes, be entitled to participate with the Purchaser and the other Investors, on
a pari-passu basis with the Purchaser and such other Investors, in the security
interest contemplated by Section 2.3 of the Note to secure repayment of the
obligations owing to such New Noteholders under their notes, and in order and
priority of payment) and the proceeds received upon exercise of such warrants;
(g) any other future financing transaction(s) hereafter entered into by the
Company with third parties (the "Additional Fund Providers"), on any terms,
which results in aggregate net proceeds to the Company of up to $2,000,000
(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
and the other Investors, in the security interest contemplated by Section 2.3 of
the Note to secure repayment of any obligations owing to such Additional Fund
Providers, and in 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); and (g) 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 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.
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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
(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.
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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.
16. INTEGRATION. THE PURCHASER IS AWARE AND ACKNOWLEDGES AND AGREES
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THAT THE PROVISIONS OF THIS AGREEMENT AND OF THE NOTE AND WARRANTS INCLUDED IN
THE PURCHASER SECURITIES HE IS ACQUIRING AND OF THE REGISTRATION RIGHTS
AGREEMENT DIFFER IN CERTAIN RESPECTS FROM, AND SUPERSEDE AND REPLACE IN THEIR
ENTIRETY, ANY AND ALL PRIOR AGREEMENTS OR UNDERSTANDINGS PERTAINING TO THE
SUBJECT MATTER HEREOF AND THEREOF (ORAL OR WRITTEN, AND INCLUDING, WITHOUT
LIMITATION, THE PROVISIONS OF THAT CERTAIN TERM SHEET FOR A BRIDGE LOAN PENN
OCTANE CORPORATION DATED DECEMBER 10, 1999, AND AMENDMENT NO. 1 THERETO, DATED
DECEMBER 17, 1999, COPIES OF WHICH ARE ATTACHED HERETO AS EXHIBIT 4); AND
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APPROVES OF AND CONSENTS TO THE FOREGOING.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PURCHASER:
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By:
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Name:
Title:
PENN OCTANE CORPORATION
By:
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Name: Ian T. Bothwell
Title: Vice President and Chief Financial
Officer
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