PROMISSORY NOTE
PROMISSORY NOTE (the "Note") of the Borrower named below delivered to RZB
Finance LLC ("RZB") dated October 14, 1997.
1. SPECIAL TERMS
The following terms and provisions shall apply to this Note; definitions
of terms in this or other sections of this Note expressed in the singular
shall include the plural and vice versa.
Borrower: Penn Octane Corporation
a Delaware Corporation
(jurisdiction of incorporation)
Principal Amount of this Note:
Six Million Dollars
($6,000,000)
Margin: 1% p.a.
Loan Documents: Line Letter dated October 14, 1997, between the Borrower
and RZB, General Security Agreement dated October 14, 1997, between the
Borrower and RZB, Continuing Agreement for Letters of Credit dated October 14,
1997, between the Borrower and RZB, Guaranty and Agreement dated October 14,
1997 between Jerome Richter (the "Guarantor") and RZB, and all other
agreements from time to time executed by the Borrower or the Guarantor for the
benefit of RZB, in each case as amended, modified or supplemented from time to
time.
Minimum Repayment Amount: $100,000
2. PRINCIPAL AND INTEREST
FOR VALUE RECEIVED, the Borrower promises to pay to the order of RZB, ON
DEMAND, the Principal Amount of this Note specified in Section 1 or, if less,
the then-outstanding principal amount of all loans (each a "Loan" and
collectively, the "Loans") made to the Borrower by RZB pursuant to the Loan
Documents. In no event shall the maturity date of any Loan be more than 30
days after the date such Loan is made.
The Borrower promises also to pay interest on the unpaid principal amount
of each Loan (after as well as before judgment) from the date thereof until
maturity (whether on demand, by acceleration or otherwise) at a rate per annum
equal to the Margin specified in Section 1 plus the Base Lending Rate from
time to time in effect, such interest to be payable on the last Business Day
of each calendar month and at such maturity.
Notwithstanding the preceding sentence, the Borrower shall also pay
interest at a rate per annum equal to 2% plus the Margin plus the Base Lending
Rate from time to time in effect, on any principal of the Loan and, to the
extent permitted by law, on any interest or other amount payable by the
Borrower hereunder which shall not be paid in full when due (whether on
demand, by acceleration or otherwise) from such due date until paid in full
(after as well as before judgment), such interest to be payable on demand.
All interest shall be computed on the basis of the number of days
actually elapsed in a 360-day year.
Definitions
The term "Business Day" means any day other than a Saturday, Sunday, or
any day which shall be in New York City a legal holiday or a day on which
banking institutions are authorized by law to close.
The term "Base Lending Rate" means, for any day, the higher of (i) the
rate announced by The Chase Manhattan Bank (the "Bank") from time to time at
its principal office in New York, New York as its prime rate for domestic
(United States) commercial loans in effect on such day and (ii) the Federal
Funds Rate in effect on such day plus 1/2%. (Such Base Lending Rate is not
necessarily intended to be the lowest rate of interest charged by the Bank in
connection with extensions of credit.) Each change in the Base Lending Rate
shall result in a corresponding change in the interest rate and such change
shall be effective on the effective date of such change in the Base Lending
Rate.
The term "Federal Funds Rate" means, for any day, the overnight federal
funds rate in New York City, as published for such day (or, if such day is not
a Business Day, for the next preceding Business Day) in the Federal Reserve
Statistical Release H.15 (519) or any successor publication, or if such rate
is not so published for any day which is a Business Day, the average of the
quotations for such day on overnight federal funds transactions in New York
City received by the Bank from three federal funds brokers of recognized
standing selected by the Bank.
3. ALL PAYMENTS
Each payment by the Borrower pursuant to this Note shall be made prior to
1:00 P.M. (New York time) on the date due and shall be made without set-off or
counterclaim to RZB at such account as RZB shall designate, or in the absence
of such designation, to RZB at its office, presently located at 1133 Avenue of
the Americas, New York, NY 10036, or as RZB may otherwise direct and in such
amounts as may be necessary in order that all such payments (after withholding
for or on account of any present or future taxes, levies, imposts, duties or
other similar charges of whatsoever nature imposed by any government or any
political subdivision or taxing authority thereof, other than any tax on or
measured by the net income of RZB pursuant to the income tax laws of the
jurisdiction where RZB's principal or lending office is located) shall not be
less than the amounts otherwise specified to be paid under this Note. Each
such payment shall be made in lawful currency of the United States of America
and in immediately available funds. If the stated due date of any payment
required hereunder is other than a Business Day, such payment shall be made on
the next succeeding Business Day and interest at the applicable rate shall
accrue thereon during such extension.
The Borrower will have the right to repay all or any portion of a Loan
prior to demand only if RZB has been notified prior to 10:00 a.m. (New York
time) on the day of any repayment, provided that each partial repayment shall
not be less than the Minimum Repayment Amount. All repayments pursuant to
this paragraph shall be accompanied by the payment of all accrued interest on
the principal amount so paid.
4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that all acts, filings, conditions
and things required to be done and performed and to have happened (including,
without limitation, the obtaining of necessary governmental approvals)
precedent to the issuance of this Note to constitute this Note the duly
authorized, legal, valid and binding obligation of the Borrower, enforceable
in accordance with its terms, have been done, performed and have happened in
due and strict compliance with all applicable laws.
5. DEFAULT
Without limiting the right of RZB to demand payment of the Loans
evidenced hereby at any time in its sole discretion, if any of the following
events shall occur: default in payment of any amount due hereunder to the
holder hereof, whether on demand or otherwise; suspension or liquidation by
the Borrower of its usual business or suspension or expulsion of the Borrower
from any exchange; calling of a meeting of creditors; assignment by the
Borrower for the benefit of creditors; dissolution, bulk sale or notice
thereof effected or given by the Borrower; creation of a security interest in
any assets of the Borrower which are or shall be subject to liens granted to
the holder hereof by the Borrower without consent of the holder hereof;
insolvency of any kind, attachment, distraint, garnishment, levy, execution,
judgment, application for or appointment of a receiver or custodian, filing of
a voluntary or involuntary petition under any provision of the U.S. Bankruptcy
Code or amendments thereto, of, by or against the Borrower or any property or
rights of the Borrower; filing of a petition or institution of any proceeding
by or against the Borrower for any relief under any bankruptcy or insolvency
laws or any laws relating to the relief of debtors, readjustment of
indebtedness, reorganizations, compositions or extensions; any governmental
authority or any court at the instance of any governmental authority shall
take possession of any substantial part of the property of the Borrower or
shall assume control over the affairs or operations of the Borrower; any
statement, representation or warranty made by the Borrower in any document,
agreement or financial statement delivered to RZB shall prove to be false in
any material respect when made; failure of the Borrower or any other party
thereto to comply with any term of any of the Loan Documents; failure of the
Borrower, on request, to furnish to RZB any financial information, or to
permit inspection by RZB of any books or records; any change in, or discovery
with regard to, the condition or affairs of the Borrower which, in RZB's
opinion, increases its credit risk; or if RZB for any other reason deems
itself insecure; then, the indebtedness evidenced by this Note, and all
accrued interest thereon shall become absolute, due and payable without demand
or notice to the Borrower. Upon default in the due payment of this Note, or
whenever the same or any installment of principal or interest hereof shall
become due in accordance with any of the provisions hereof (whether on demand
or otherwise), RZB may, but shall not be required to, exercise any or all of
its rights and remedies, whether existing by contract, law or otherwise, with
respect to any collateral security delivered in respect of the indebtedness
evidenced hereby.
6. MISCELLANEOUS
This Note is delivered pursuant to, and entitled to the benefits of, the
Loan Documents.
The Loans and principal repayments thereof may be recorded on the records
of RZB and, prior to any transfer of, or any action to collect, this Note, the
outstanding principal amount of each Loan shall be endorsed on this Note,
together with the date of such endorsement. Any such recordation or
endorsement shall constitute prima facie evidence of the accuracy of the
information so recorded or endorsed (provided, however, that the failure of
RZB to record any of the foregoing shall not limit or otherwise affect the
obligation of the Borrower to repay all the Loans (including interest thereon)
and its other obligations hereunder and under the Loan Documents). The Bank
may charge any account of the Borrower with the Bank for amounts payable under
this Note.
Each payment of principal of, or interest on, the Loans shall constitute
an acknowledgment of the indebtedness of the Borrower under the Loan Documents
and this Note. The Borrower:
a. waives presentment, demand, protest and other notice of any kind
in connection with this Note, and
b. agrees to pay to the holder hereof, on demand, all costs and
expenses (including reasonable legal fees) incurred in connection with the
enforcement and collection of this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW),
BUT THIS SHALL NOT LIMIT THE RATE OF INTEREST WHICH MAY BE CHARGED BY RZB
UNDER OTHER APPLICABLE LAW.
The Borrower hereby agrees that ANY LEGAL ACTION OR PROCEEDING AGAINST
THE BORROWER WITH RESPECT TO THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK IN THE CITY OF NEW YORK OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF NEW YORK as RZB may elect, and, by execution and
delivery hereof, the Borrower accepts and consents to, for itself and in
respect to its property, generally and unconditionally, the jurisdiction of
the aforesaid courts and agrees that such jurisdiction shall be exclusive,
unless waived by RZB in writing, with respect to any action or proceeding
brought by it against RZB and any questions relating to usury. Nothing herein
shall limit the right of RZB to bring proceedings against the Borrower in the
courts of any other jurisdiction. Service of process out of any such courts
may be made by mailing copies thereof by registered or certified mail, postage
prepaid, to the Borrower at its address for notices as specified herein and
will become effective 30 days after such mailing. The Borrower agrees that
Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New
York shall apply to this Note and, to the maximum extent permitted by law,
waives any right to stay or to dismiss any action or proceeding brought before
said courts on the basis of forum non conveniens.
AFTER REVIEWING THIS PROVISION SPECIFICALLY WITH ITS RESPECTIVE COUNSEL,
EACH OF THE BORROWER AND RZB HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN), OR ACTIONS OF THE BORROWER OR RZB. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR RZB MAKING THE LOANS TO THE BORROWER.
Nothing contained in this Note shall be deemed to establish or require
the payment of a rate of interest in excess of the maximum rate permitted by
applicable law (the "Maximum Rate"). If the amount of interest payable for
any interest payment period ending on any interest payment date calculated in
accordance with the provisions of this Note (said amount, the "Calculated
Interest") exceeds the amount of interest that would be payable for such
interest payment period had interest for such interest payment period been
calculated at the Maximum Rate, there shall be paid on such interest payment
date an amount of interest calculated on the basis of the Maximum Rate for
such interest payment period. If on any subsequent interest payment date, (i)
the Calculated Interest for the interest payment period ending on such
subsequent interest payment date (the "Current Interest Period") is less than
the amount of interest that would be payable for such Current Interest Period
had interest for such Current Interest Period been calculated on the basis of
the Maximum Rate and (ii) any portion of the excess (if any) of Calculated
Interest for any prior interest payment period over interest calculated at the
Maximum Rate for such prior interest payment period (the "Outstanding Interest
Amount") remains unpaid, then on such subsequent interest payment date there
shall be paid, as provided herein, additional interest for such Current
Interest Period in an amount equal to the lesser of (i) the theretofore unpaid
Outstanding Interest Amounts for all prior interest payment periods or (ii) an
amount that, when added to the amount of Calculated Interest
payable for such Current Interest Period, results in the payment of interest
for such Current Interest Period at the Maximum Rate.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed and delivered by its duly authorized officer(s).
PENN OCTANE CORPORATION.
By: /s/ Jerome B. Richter
----------------------
Name: Jerome B. Richter
Title: President
Address of Borrower for Notices:
900 Veterans Blvd, Suite 240
Redwood City, CA 94063