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 21, 2000
Warrant to Purchase 166,667 Shares
of Common Stock, $.01 par value
of Penn Octane Corporation
PENN OCTANE CORPORATION (POCC)
This is to Certify That, FOR VALUE RECEIVED,
Castle Energy Corporation
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 21, 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), 166,667 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
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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
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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
-------------------------------
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
---------------------------
change in the par value or no par value of the Common Stock.
(e) Statement of Adjustments. Whenever the Exercise Price and number
------------------------
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
---------------------------------------
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
-------------------------------
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
--------------------
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
---------------------------------------------------------
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
--------------------------
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
----------------------------------
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
-----------------------------------
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
------
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.
------------------------------------------------------------
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
--------------
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