PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT made and entered into as of October 21, 1997, by
and between the Purchasers set forth on Schedule I hereto (each a "Purchaser",
collectively, the "Purchasers") and Penn Octane Corporation, a Delaware
corporation (the "Company").
WHEREAS, the Company wishes to sell and each Purchaser wishes to purchase
(i) a 10% Promissory Note in such principal amount as is set forth opposite
such Purchaser's name on Schedule I hereto, due on the earlier of (A) the
closing of a public offering of debt or equity securities of the Company
resulting in net proceeds to the Company in excess of $5 million (a
"Financing") and (B) June 30, 1998, substantially in the form annexed as
Exhibit 1 hereto (the "Note"), and (ii) warrants to purchase Common Stock,
$.01 par value (the "Common Stock") of the Company, exercisable until October
21, 2000 at $6.00 per share of Common Stock (subject to adjustment), in such
number as is set forth opposite such Purchaser's name on Schedule I hereto
(the "Warrant Shares"), substantially in the form of Exhibit 2 hereto (the
"Warrants"; the Note and the Warrants being herein collectively referred to as
the "Securities"); and
WHEREAS, the Company and each of the Purchasers desire to enter into a
Registration Rights Agreement with respect to the Warrant Shares,
substantially in the form annexed as Exhibit 3 hereto (the "Registration
Rights Agreement"), all on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements and obligations herein
contained, the Purchasers and the Company hereby agree as follows:
1. Purchase and Sale of the Securities. Subject to the terms and
-----------------------------------
conditions set forth in this Agreement, the Company agrees to sell to each
Purchaser, and each Purchaser agrees, severally and not jointly, to purchase
from the Company, such Securities set forth opposite such Purchaser's name on
Schedule I hereto for a purchase price equal to the amount set forth opposite
such Purchaser's name on Schedule I hereto.
2. The Closing. The closing (the "Closing") of the purchase and sale
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of the Securities shall take place on October 21, 1997 at 10:00 A.M. local
time at the offices of the Company in Redwood City, California, or at such
other time and place as the Company and the Purchasers shall agree. At the
Closing, each Purchaser shall deliver to the Company payment for the
Securities being purchased by such Purchaser in immediately available funds
and the Company shall deliver a Note and Warrants to each Purchaser in the
amount and number set forth opposite each Purchaser's name on Schedule I
hereto.
3. Registration Rights. The Purchasers shall have such registration
-------------------
rights with respect to the Warrant Shares as are set forth in the Registration
Rights Agreement.
4. Representations and Warranties of the Company, As of the Closing,
---------------------------------------------
the Company represents and warrants that:
(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 Securities have been duly authorized by all
necessary corporate action on the part of the Company and do not violate any
covenant contained in any agreement to which the Company is a party; and
(c) the Warrant Shares, when issued upon exercise of the
Warrants and payment therefor, will be legally and validly issued, fully paid
and nonassessable.
5. Representations and Warranties of the Purchasers. Each of the
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Purchasers, severally and not jointly, represents and warrants to the Company,
as to itself, 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 it hereunder.
(ii) Neither the Company nor any person acting on behalf of
the Company has offered or sold the 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 Securities.
(b) Information Concerning the Company:
-------------------------------------
(i) The Purchaser is familiar with the business and
financial condition, properties, operations and prospects of the Company.
(ii) The Purchaser has been given full access to all
material information concerning the 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 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 condition, properties, operations and
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 this investment; 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 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
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 and that
resale of the Note, the Warrants and the Warrant Shares will be restricted as
herein provided.
(c) Status of Purchaser:
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(i) The Purchaser either alone or with 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 Securities. To the extent that the Purchaser has deemed it
appropriate to do so, the Purchaser has retained at Purchaser's own expense,
and relied upon, appropriate professional advice regarding the investment, tax
and legal merits and consequences of this Agreement and owning the Note,
Warrants and Warrant Shares, as the case may be.
(d) Restrictions on Transfer or Sale
------------------------------------
(i) The Purchaser is acquiring the Securities and any
shares of Common Stock purchased upon exercise of the Warrants solely for its
own account, for investment purposes, and not with a view to, or for resale in
connection with, any distribution of the Note, the Warrants or such shares of
Common Stock. The Purchaser understands that neither the Note, the Warrants
nor such underlying Common Stock have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or the securities laws of any
state (collectively referred to as "State Securities Laws") by reason of
specific exemptions under the provisions thereof which depend in part upon the
investment intent of the Purchaser and of the other representations made by
the Purchaser in this Agreement. The Purchaser understands that the Company
is relying upon the representations and agreements contained in this Agreement
(and any supplemental information) for the purpose of determining whether this
transaction meets the requirements for such exemptions.
(ii) The Purchaser understands that the Note, the Warrants
and such underlying Common Stock are "restricted securities" under applicable
federal securities laws and that the Securities Act and the rules of the
Securities and Exchange Commission (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 or an
exemption therefrom, and understands that the Company has no obligations or
intentions to register any of such securities thereunder, or to take any other
action so as to permit sales pursuant to the Securities Act, except as set
forth in the Registration Rights Agreement. Accordingly, the Purchaser
understands that under the Commission's rules, unless disposed of pursuant to
an effective registration statement under the Securities Act, the Purchaser
may dispose of the Note, Warrants and underlying Common Stock only in
accordance with the provisions of Rule 144 under the Securities Act, to the
extent available, or in "private placements" which are exempt from
registration under the Securities Act, 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 statement under the Securities Act, the Purchaser understands
that it may be required to bear the economic risks of the investment in the
Securities (and the underlying Common Stock) for an indefinite period of time.
(iii) The Purchaser agrees that (a) it will not sell,
assign, pledge, give, transfer, of otherwise dispose of the Note, the Warrants
or such underlying Common Stock or any interest in any thereof or therein, or
make any offer or attempt to do any of the foregoing, except pursuant to
registration of such securities under the Securities Act and any applicable
State Securities Laws or in a transaction which, in the opinion of counsel for
the Purchaser satisfactory to the Company (which requirement may be waived by
the Company upon advice of counsel), is exempt from the registration
provisions of the Securities Act and any applicable State Securities Laws; (b)
the Note and the Warrants and any certificate(s) representing shares of Common
Stock issued upon exercise of the Warrants may bear a legend making reference
to the foregoing restrictions; and (c) the Company and any transfer agent for
shares of its Common Stock 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 or Common Stock issuable upon conversion of
the Warrants by the Purchaser to a transferee give rise to any rights under
the Registration Rights Agreement.
6. Conditions to Obligations of Purchaser and the Company. The
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obligations of each of the Purchasers under this Agreement to purchase any
Securities specified herein and of the Company to sell and deliver such
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 shall have received from the Purchaser and the
Purchaser shall have received from the Company a certificate from the other
party (and, in the event such party is a corporate entity, an executive
officer of such party) to the effect that its representations and warranties
are still valid.
(c) The Company and the Purchaser shall each have executed and
delivered the Registration Rights Agreement.
7. Mandatory Prepayment. If at any time prior to the maturity of the
--------------------
Note, there shall have occurred a closing of a Financing, the Company shall,
within ten (10) business days of the receipt of such proceeds, prepay (without
penalty) all of the Note, including any accrued and unpaid interest thereon,
at the office of the Company in Redwood City, California or such other place
as the Purchasers and the Company may agree.
8. Fee. In connection with the purchase and sale of the Securities,
---
Pennsylvania Merchant Group Ltd, as placement agent for the Company ("PMG"),
shall receive at the Closing a fee from the Company equal to $120,000 plus
reimbursement of expenses, not to exceed $25,000.
9. Waiver, Amendment. Neither this Agreement nor any provisions
-----------------
hereof 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.
10. Assignability. Neither this Agreement nor any right, remedy,
-------------
obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company or any Purchaser hereunder without the prior
written consent of the other party, which consent shall not be unreasonably
withheld.
11. Applicable Law. This Agreement shall be governed by and
---------------
construed in accordance with the law of the State of New York, regardless of
the law that might be applied under principles of conflicts of law.
12. Section and Other Headings. The section and other headings
---------------------------
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
13. Counterparts. This Agreement may be executed in any number of
------------
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 shall be in writing and shall be deemed to have been duly given if
delivered personally or by facsimile (with proof of receipt) or sent by
registered or certified mail, return receipt requested, postage prepaid:
(a) If to the Company, to it at the following address:
Penn Octane Corporation
900 Veterans Boulevard, Suite 240
Redwood City, California 94603
Attn: Jerome B. Richter,
President
with a copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Attn: Arnold H. Tracy, Esq.
(b) If to a Purchaser, at the address set forth beneath such
Purchaser's name on Schedule I hereto; or at such other address as any party
shall have specified by notice in writing to the other parties.
15. Binding Effect. The provisions of this Agreement shall be
---------------
binding upon and accrue to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, the Company and the undersigned have executed this
Agreement as of this 21st day of October, 1997.
PENN OCTANE CORPORATION
By: /s/ Jerome B. Richter
------------------------
Name: Jerome B. Richter
Title: Chairman, President and Chief
Executive Officer
IN WITNESS WHEREOF, the Company and the undersigned have executed this
Agreement as of this 21st day of October, 1997.
CASTLE ENERGY CORPORATION
By: /s/ Joeseph L. Castle
---------------------
Name: Joeseph L. Castle
Title: Chairman and CEO
IN WITNESS WHEREOF, the Company and the undersigned have executed this
Agreement as of this 21st day of October, 1997.
/s/ Clint Norton
--------------------------------------
Clint Norton
SOUTHWEST CONCEPT INC.
By: /s/ Clint Norton
-----------------
Name: Clint Norton
Title:
IN WITNESS WHEREOF, the Company and the undersigned have executed this
Agreement as of this 21st day of October, 1997.
/s/ James F. Meara
--------------------------------------
James F. Meara, Jr.
SEP FBO JAMES F. MEARA IRA
By: Donaldson, Lufkin & Jenrette as
Securities Corporation Custodian
By: /s/ James F. Meara
-------------------------------
Name: James F. Meara, Jr.
Title:
IN WITNESS WHEREOF, the Company and the undersigned have executed this
Agreement as of this 21st day of October, 1997.
LINCOLN TRUST COMPANY FBO PERRY D. SNAVELY IRA
By: /s/ Perry D. Snavely
-------------------------------
Name: Perry D. Snavely
Title:
SCHEDULE I
Purchasers and Addresses Securities Purchased
- -------------------------------------- --------------------------------------------------
Castle Energy Corporation Principal amount of promissory note: $1,000,000
c/o CEC, Inc. Warrant to purchase 166,667 shares of Common Stock
One Radnor Corporate Center Purchase Price: $1,000,000
100 Matsonford Road, Suite 250
Radnor, Pennsylvania 19087
(610) 995-9400
Attention: Mr. Joseph Castle
with a copy to:
Tom Spencer, Esq.
Duane Morris & Hecksher
One Liberty Place, 42nd floor
Philadelphia, Pennsylvania 19103-7396
SCHEDULE I
Purchasers and Addresses Securities Purchased
- ------------------------------- -------------------------------------------------
Clint Norton Principal amount of promissory note: $90,000
17110 Dallas Parkway, Suite 120 Warrant to purchase 15,000 shares of Common Stock
Dallas, Texas 75248 Purchase Price: $90,000
(972) 931-8509
Southwest Concept Inc. Principal amount of promissory note: $60,000
17110 Dallas Parkway, Suite 120 Warrant to purchase 10,000 shares of Common Stock
Dallas, Texas 75248 Purchase Price: $60,000
Attn: Clint Norton
(972) 931-8509
SCHEDULE I
Purchasers and Addresses Securities Purchased
- --------------------------------------- -------------------------------------------------
James F. Meara, Jr. Principal amount of promissory note: $75,000
8150 N. Central Expressway, #795 Warrant to purchase 12,500 shares of Common Stock
Dallas, Texas 75206 Purchase Price: $75,000
(214) 692-7066
Donaldson Lufkin Jenrette Principal amount of promissory note: $75,000
Securities Corporation Custodian Warrant to purchase 12,500 shares of Common Stock
SEP FBO James F. Meara IRA Purchase Price: $75,000
Pershing Division of Donaldson Lufkin &
Jenrette Securities Corporation
P.O. Box 2050
Jersey City, New Jersey 07399
(214) 692-7006
SCHEDULE I
Purchasers and Addresses Securities Purchased
- ------------------------ -------------------------------------------------
Lincoln Trust Company Principal amount of promissory note: $200,000
FBO Perry D. Snavely IRA Warrant to purchase 33,333 shares of Common Stock
P.O. Box 5831 Purchase Price: $200,000
Denver, Colorado 80217
Attn: Monique Rice
(610) 260-6388
DATE: OCTOBER ___, 1997 EXHIBIT 1
PROMISSORY NOTE
---------------
Redwood City, California
FOR VALUE RECEIVED, PENN OCTANE CORPORATION, a Delaware corporation
("Company"), promises to pay to __________________________, a
__________________, or registered assigns ("Holder"), at the office of the
Company in Redwood City, California or such other place as Holder may
designate in writing at least three business days prior to the date fixed for
such payment, the entire principal sum of _____________________($_________),
together with interest thereon, on the earlier of (i) a date determined by the
Company within ten (10) business days of the closing date of any public
offering of debt or equity securities of the Company, resulting in net
proceeds to the Company in excess of $5,000,000, and (ii) June 30, 1998, (the
"Payment Date"), at which time all principal and any accrued and unpaid
interest thereon shall be due and owing. This Note shall accrue interest from
the date hereof at the rate of ten (10%) per annum, payable quarterly on March
31, June 30, September 30 and December 31 in each year. This Note may be
prepaid at any time prior to maturity without penalty in an amount equal to
the principal amount hereof plus interest thereon to the date fixed for
prepayment.
All payments of principal and interest hereunder shall be payable in
lawful money of the United States.
The Company shall be in default hereunder upon the occurrence of any of
the following events: (i) the failure by the Company to make any payment of
principal or interest when due hereunder and such failure shall have continued
for a period of ten (10) days; (ii) the commencement by the Company of a
voluntary case in a bankruptcy or insolvency proceeding or the entry of a
decree or order by a court of competent jurisdiction adjudicating the Company
a bankrupt or the appointment of a receiver or trustee of the Company upon the
application of any creditor in an insolvency or bankruptcy proceeding or other
creditor's suit; (iii) the entry of an order for relief approving a petition
for reorganization or arrangement filed against the Company under the Federal
bankruptcy laws and such order remains in force and unvacated thirty (30)
days; (iv) an assignment for the benefit of creditors by the Company; (v) the
occurrence of any event of default under the terms of any indebtedness of the
Company for borrowed money in excess of $50,000, provided that such
indebtedness has been accelerated because of such default; or (vi) the
existence of any judgment in excess of $50,000 against, or any attachment of
material property, of the Company.
At any time when an event of default hereunder shall have occurred and
shall be continuing, Holder at its option may accelerate the maturity of this
Note and declare all of the indebtedness thereof to be immediately due and
payable, together with accrued interest thereon, and payment thereof may be
enforced by suit or other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, the Company agrees to pay all reasonable costs of collection and
such costs shall include without limitation all costs, attorneys' fees and
expenses incurred by Holder hereof in connection with any insolvency,
bankruptcy, reorganization, arrangement or similar proceedings involving
Holder, or involving any endorser or guarantor hereof, which in any way
affects the exercise by Holder hereof of its rights and remedies under this
Note.
Presentment, demand, protest, notice of protest, dishonor and non-payment
of this Note and all notices of every kind are hereby waived.
The terms "Company" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
permitted assigns.
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to such state's conflicts
of law provisions. Each of the parties hereto irrevocably consents to the
jurisdiction and venue of the federal and state courts located in the State of
New York, County of New York.
PENN OCTANE CORPORATION
By: /s/ Jerome B. Richter
------------------------
Jerome B. Richter
Chairman, President and
Chief Executive Officer
EXHIBIT 2
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NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE.
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF MAY BE SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF REGISTRATION OR QUALIFICATION OR AN EXEMPTION
THEREFROM UNDER APPLICABLE LAW.
COMMON STOCK PURCHASE WARRANT
Void after October __, 2000
Warrant to Purchase ______ Shares
of Common Stock, $.01 par value
of Penn Octane Corporation
PENN OCTANE CORPORATION (POCC)
This is to Certify That, FOR VALUE RECEIVED,
[Name of Purchaser]
or registered assign(s) (herein referred to as the "Holder") is entitled to
purchase, subject to the provisions hereof, from PENN OCTANE CORPORATION, a
Delaware corporation (the "Company"), but not later than 5:00 p.m., California
time, on October __, 2000 (or, if such date is not a Business Day in Redwood
City, California, then on the next succeeding day which shall be a Business
Day), _______ shares of Common Stock, $.01 par value, of the Company (the
"Common Stock") at an exercise price of $6.00 per share, subject to adjustment
as to number of shares and purchase price as set forth in Section 6 below.
The exercise price of a share of Common Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price". For purposes of this Warrant, a "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking institutions
in New York, New York, or in Redwood City, California, are authorized by law
or regulation to close.
The shares of Common Stock issuable upon exercise of the Warrants are
sometimes herein called the "Warrant Stock."
1. Exercise of Warrant. This Warrant may be exercised in whole or in
-------------------
part at any time and from time to time by presentation and surrender hereof to
the Company at its principal office with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price in immediately
available funds for the number of shares specified in such form. If this
Warrant is exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company, in proper form for exercise, accompanied by payment of the Exercise
Price, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock shall not then be actually delivered
to the Holder. The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the Holder for
any issuance tax in respect thereof (with the exception of any federal or
state income taxes applicable thereto), all such taxes to be paid by the
Company, it being understood however that the Holder shall be required to pay
any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the
Holder. The Company will at no time close its transfer books against the
transfer of this Warrant or the issuance of any shares of Common Stock
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
2. Reservation of Shares; Stock Fully Paid. The Company agrees that
---------------------------------------
at all times there shall be authorized and reserved for issuance upon exercise
of this Warrant such number of shares of its Common Stock as shall be required
for issuance or delivery upon exercise of this Warrant. All shares which may
be issued upon exercise hereof will, upon issuance, and receipt of payment
therefor, be duly authorized, validly issued, fully paid and non-assessable.
3. Fractional Shares. This Warrant shall not be exercisable in such
-----------------
manner as to require the issuance of fractional shares. If, as a result of
adjustment in the Exercise Price or the number of shares of Common Stock to be
received upon exercise of this Warrant, fractional shares would be issuable,
no such fractional shares shall be issued. In lieu thereof, the Company shall
pay the Holder an amount in cash equal to such fraction multiplied by the Fair
Market Value of a share of Common Stock. The term "Fair Market Value" shall
mean, as of a particular date, the market price on such date.
For purposes of this Warrant, the market price on any day shall be
the last sale price on such day on the NASDAQ Stock Market, or, if the Common
Stock is not then listed or admitted to trading on the NASDAQ Stock Market, on
such other principal stock exchange on which such stock is then listed or
admitted to trading, or, if no sale takes place on such day on any such
exchange, the average of the closing bid and asked prices on such day as
officially quoted on any such exchange, or, if the Common Stock is not then
listed or admitted to trading on any stock exchange, the average of the
reported closing bid and asked prices on such day in the over-the-counter
market as quoted on the National Association of Securities Dealers Automated
Quotation System or, if not so quoted, then as furnished by any member of the
National Association of Securities Dealers, Inc. selected by the Company. If
there shall be no meaningful over-the-counter market, then Fair Market Value
shall be such amount, not less than book value, as may be determined by the
Board of Directors of the Company.
4. Exchange or Assignment of Warrant. This Warrant is exchangeable
---------------------------------
without expense (other than applicable transfer taxes) at the option of the
Holder, upon presentation and surrender hereof to the Company for any other
Warrants of different denominations entitling the holder thereof to purchase
in the aggregate the same number of shares of Common Stock purchasable
hereunder. Subject to the provisions of Section 12 below and any restriction
on transfer applicable hereto pursuant to the securities laws of the United
States or any State, upon surrender of this Warrant to the Company with an
assignment form duly executed, and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this Warrant
shall promptly be cancelled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
principal office of the Company, together with a written notice specifying the
names and denominations in which new Warrants are to be issued signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged, and the term "Holder" as used
herein includes any holder of any Warrant into which this Warrant may be
divided or for which this Warrant may be exchanged.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Adjustment of Exercise Price and Number of Shares. The number and
-------------------------------------------------
kind of securities purchasable upon the exercise or exchange of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the occurrence of certain events, as follows:
(a) Adjustment for Change in Capital Stock. If at any time after the
--------------------------------------
date hereof, the Company:
(A) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(C) combines its outstanding shares of Common Stock into a
smaller number of shares;
(D) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(E) issues by reclassification of its Common Stock any shares of
its capital stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive, upon exercise or exchange of this
Warrant and payment of the same aggregate consideration, the number of shares
of capital stock of the Company which the Holder would have owned immediately
following such action if the Holder had exercised or exchanged the Warrant
immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
(b) Adjustment for Other Distributions. If at any time after the
----------------------------------
date hereof, the Company distributes to all holders of its Common Stock any of
its assets or debt securities, the Exercise Price following the record date
shall be adjusted in accordance with the following formula:
E'= E x M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the adjustment.
M = the current market price (as defined in (e) below) per
share of Common Stock on the record date of the
distribution.
F = the aggregate fair market value (as conclusively
determined by the Board of Directors of the Company) on
the record date of the assets or debt securities to be
distributed divided by the number of outstanding shares
of Common Stock.
The adjustment shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive the distribution. In the
event that such distribution is not actually made, the Exercise Price shall
again be adjusted to the Exercise Price as determined without giving effect to
the calculation provided hereby. In no event shall the Exercise Price be
adjusted to an amount less than zero.
This subsection does not apply to cash dividends or cash distributions
paid out of consolidated current or retained earnings as shown on the books of
the Company and paid in the ordinary course of business.
(c) Deferral of Issuance or Payment. In any case in which an event
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covered by this Section 6 shall require that an adjustment in the Exercise
Price be made effective as of a record date, the Company may elect to defer
making such adjustment until the occurrence of such event by (i) issuing to
the Holder, if this Warrant is exercised after such record date but before the
occurrence of such event, the shares of Common Stock and other capital stock
of the Company, if any, issuable upon such exercise, had such adjustment been
made as of the record date, over and above the shares of Common Stock or other
capital stock of the Company, if any, issuable upon such exercise on the basis
of the Exercise Price as unadjusted, and (ii) paying to the Holder by check
any amount in lieu of the issuance of fractional shares pursuant to Section 3.
(d) When No Adjustment Required. No adjustment need be made for a
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change in the par value or no par value of the Common Stock.
(e) Statement of Adjustments. Whenever the Exercise Price and number
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of shares of Common Stock purchasable hereunder is required to be adjusted as
provided herein, the Company shall promptly prepare a certificate signed by
its President or any Vice President and its Treasurer or Assistant Treasurer,
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description hereunder), and the Exercise Price and number of
shares of Common Stock purchasable hereunder after giving effect to such
adjustment, and shall promptly cause copies of such certificates to be mailed
to the Holder.
(f) No Adjustment Upon Exercise of Warrants. No adjustments shall be
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made under any Section herein in connection with the issuance of Warrant Stock
upon exercise or exchange of the Warrants.
(g) No adjustment for Small Amounts. Anything herein to the contrary
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notwithstanding, no adjustment of the Exercise Price shall be made if the
amount of such adjustment shall be less than $.05 per share, but in such case,
any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to $.05 per share or more.
(h) Common Stock Defined. Subject to the provisions of Section 7
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hereof, shares issuable upon exercise or exchange hereof shall include only
shares of the class designated as Common Stock of the Company as of the date
hereof or shares of any class or classes resulting from any reclassification
or reclassifications thereof or as a result of any corporate reorganization as
provided for in Section 7 hereof.
7. Reclassification, Reorganization, Consolidation or Merger. In the
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event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock) or in the event of any consolidation or merger of
the Company with or into another corporation (other than a merger in which
merger the Company is the continuing corporation and that does not result in
any reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the class issuable upon exercise or exchange of this
Warrant) or in the event of any sale, lease, transfer or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the Holder
shall have the right thereafter, by exercising this Warrant, to purchase the
kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reclassification, capital reorganization
and other change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock that might have been received upon exercise
or exchange of this Warrant immediately prior to such reclassification,
capital reorganization, change, consolidation, merger, sale or conveyance.
Any such provision shall include provisions for adjustments in respect of such
shares of stock and other securities and property that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section 7 shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such capital reorganization or
classification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of subsection (a) of Section 6.
8. Notice to Warrant Holders. So long as this Warrant shall be
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outstanding, (i) if the Company shall pay any dividend or make any
distribution upon its Common Stock, or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any shares of
stock or securities of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the assets of
the Company, or voluntary or involuntary dissolution or liquidation of the
Company shall be effected, then, in any such case, the Company shall cause to
be mailed to the Holder, at least thirty (30) days prior to the date specified
in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record
is to be taken for the purpose of such dividend, distribution or rights, or
(y) such reclassification, reorganization, consolidation, merger, conveyance,
dissolution or liquidation is to take place and the date, if any is to be
fixed, as of which the holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution or liquidation.
9. Certain Obligations of the Company. The Company agrees that it
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will not increase the par value of the shares of Warrant Stock issuable upon
exercise of this Warrant above the prevailing and currently applicable
Exercise Price hereunder, and that before taking any action that would cause
an adjustment reducing the prevailing and current applicable Exercise Price
hereunder below the then par value of the Warrant Stock at the time issuable
upon exercise of this Warrant, the Company will take such corporate action, as
in the opinion of its counsel, may be necessary in order that the Company may
validly issue fully paid, nonassessable shares of such Warrant Stock. The
Company will maintain an office or agency (which shall initially be the
Company's principal office in Redwood City, California) where presentations
and demands to or upon the Company in respect of this Warrant may be made and
will give notice in writing to the registered holders of the then outstanding
Warrants, at their addresses as shown on the books of the Company, of each
change of location thereof.
10. Repurchase Right. Notwithstanding any other provisions of this
----------------
Warrant, the Company may, in the event that the average trading price of the
Company's Common Stock, as reported on the NASDAQ SmallCap Market or such
other exchange on which the Company's Common Stock may then be quoted, exceeds
$10.00 for a period of twenty (20) consecutive trading days, upon not less
than thirty (30) days' notice in writing to the Holder, repurchase all or any
portion of this Warrant at a purchase price equal to $.10 per share of Common
Stock covered hereby, such purchase price to be proportionally adjusted each
time the Exercise Price is adjusted pursuant to Section 6 hereof. During such
thirty (30) day period, the Holder may exercise such Warrants in accordance
with the terms hereof. The closing on such repurchase shall occur on the date
and at the time set forth in such notice at the office of the Company in
Redwood City, California or at such other place as shall be agreed upon by the
Company and the Holder. At the Closing, the Company shall deliver to the
Holder an amount equal to the purchase price in immediately available funds
and the Holder will deliver this Warrant to the Company for cancellation. To
the extent any repurchase hereunder is of less than all of the rights
represented by this Warrant, the Company will deliver to the Holder a new
Warrant covering the rights not so purchased.
11. Determination by Board of Directors. All determinations by the
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Board of Directors of the Company under the provisions of this Warrant will be
made in good faith with due regard to the interest of the Holder and in
accordance with sound financial practices.
12. Notice. All notices to the Holder shall be in writing, and all
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notices and certificates given to the Holder shall be sent registered or
certified mail, return receipt requested, to such Holder at his address
appearing on the records of the Company.
13. Replacement of Lost, Stolen, Destroyed or Mutilated Warrants.
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Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction, upon delivery of any indemnity bond in such
reasonable amount as the Company may determine in the case of any such
mutilation, upon the surrender of such Warrant for cancellation, the Company
at its expense, will execute and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor.
14. Number and Gender. Whenever the singular number is used herein,
-----------------
the same shall include the plural where appropriate, and words of any gender
shall include each other gender where appropriate.
15. Applicable Law. This Warrant shall be governed by, and construed
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in accordance with, the laws of the State of New York, without regard to its
conflict of laws principles.
PENN OCTANE CORPORATION
By: /s/Jerome B. Richter
----------------------
Name: Jerome B. Richter
Title: Chairman, President and Chief
Executive Officer
Dated: October 21, 1997
PURCHASE FORM
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Dated __________ , ____
The undersigned hereby irrevocably elects to exercise the within
Warrant to purchase ___________ shares of Common Stock and hereby makes
payment of $____________ in payment of the exercise price thereof.
Signature______________________________