REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of
the Closing Date (as defined herein) by and among Penn Octane Corporation, a
Delaware corporation (the "Company"), and Valor Capital Management L.P.
("Purchaser").
This Agreement is entered into pursuant to the Purchase Agreement between
the Company and Purchaser (the "Purchase Agreement"). In order to induce the
Purchaser to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution of
this Agreement by the Company is a condition to the closing under the Purchase
Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
Capitalized terms used herein without definition shall have the respective
meanings set forth in the Purchase Agreement. As used in this Agreement, the
following terms shall have the following meanings:
Closing Date: The date on which the Closing occurs pursuant to the
--------------
Purchase Agreement.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
Losses: The term "Losses" shall have the meaning set forth in Section 6
------
hereof.
Prospectus: The prospectus included in any Registration Statement
-----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Securities Act Rule 430A), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
1
Registrable Securities: The Shares and all shares of Common Stock issuable
-----------------------
upon exercise of the Warrants, plus any Common Stock issued or issuable to the
Purchaser in respect of the Shares or Warrant Shares, pursuant to any stock
split, stock dividend, recapitalization, or similar event. The Warrant is not a
Registrable Security hereunder. As to any Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of pursuant to such effective registration statement, (ii) such securities shall
have been distributed pursuant to Rule 144 or any similar provision then in
force, under the Securities Act, (iii) such securities shall have been otherwise
transferred, new certificates or other evidences of ownership for them not
bearing a legend restricting further transfer and not subject to any stop
transfer order or other restrictions on transfer shall have been delivered by
the Company and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities Act or any
state securities laws then in force or (iv) the sale of such securities by the
holder thereof shall no longer require registration under the Securities Act or
such securities shall cease to be outstanding.
Registration Expenses: All reasonable expenses incurred by the Company in
----------------------
complying with Section 3 hereof, including all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, and blue
sky fees and expenses.
Registration Statement: Any registration statement of the Company which
------------------------
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated reference in
such registration statement.
Restricted Securities: The Shares and the Warrant Shares upon original
-----------------------
issuance thereof, and at all times subsequent thereto, until, in the case of any
such security, it is no longer required to bear the legend set forth on such
security pursuant to the terms of the security, the Purchase Agreement and
applicable law.
Purchase Agreement: The Agreement by and among the Company and the
--------------------
Purchaser pursuant to which the Shares and the Warrant were issued.
Rule 144: Rule 144 under the Securities Act, as such Rule may be amended
----------
from time to time, or any similar rule or regulation hereafter adopted by the
Commission (excluding Rule 144A).
2. Securities Subject to this Agreement
----------------------------------------
The securities entitled to the benefits of this Agreement are the
Registrable Securities.
3. "Piggy-Back" Registrations.
---------------------------
(a) If at any time the Company shall determine to register any of its
Common Stock under the Securities Act, whether in connection with a public
offering by the Company, a public offering by shareholders, or both, including,
without limitation, by means of any shelf registration pursuant to Rule 415
under the Securities Act or any similar rule or regulation, but other than a
registration to implement an employee benefit or dividend reinvestment plan, the
Company shall promptly give written notice thereof to the Purchaser who shall be
a registered holder of Registrable Securities and shall use its reasonable
efforts to effect the registration under the Securities Act of such Registrable
Securities as may be requested in a writing delivered to the Company within 30
days after such notice by the Purchaser as well as to include such Registrable
2
Securities in any notifications, registrations or qualifications under any state
securities laws which shall be made or obtained with respect to the securities
being registered by the Company; provided, however, that (a) any distribution of
-------- -------
Registrable Securities pursu-ant to such registration shall be managed by the
investment banking firm, if any, managing the distribution of the securities
being offered by the Company on the same terms as all other securities to be
registered, and (b) the Company shall not be required under this Section 3 to
include Registrable Securities in any registration of securities if the Company
shall have been advised by the investment banking firm managing the offering of
the securities proposed to be registered by the Company or others that the
inclusion of Registrable Securities in such offering would substantially
interfere with the orderly sale of such securities which the Company or others
propose to register; provided, however, that in making any determination under
this subparagraph (b) as to the inclusion of the Registrable Securities in any
such offering, Registrable Securities shall be registered on a pro-rata basis
with any other securities as to which the Company has granted or may in the
future grant registration rights. All expenses of any registration and offering
of Registrable Securities pursuant to this Section 3 (including, without
limitation, registration fees and fees and disbursements of the Company's
counsel) shall be borne by the Company, except that the Company shall not bear
underwrit-ing discounts or commissions attributable to Registrable Securities,
the fees of any separate counsel for the holders of Registrable Securities or
related transfer taxes.
(b) In the event the Company does not register the Registrable
Securities as provided in 3-(a) above and/or through a Registration Statement
covering the Registrable Securities by December 1, 1999, then the Company agrees
that the holders of the Registrable Securities shall be entitled to receive an
amount equal to 10% of the amount originally paid to acquire the Registrable
Securities in connection with the Purchase Agreement among the parties (the
"Penalty"). The holders of the Registrable Securities shall be entitled to
receive the Penalty on each monthly anniversary thereafter until the Registrable
Securities have been registered. The Penalty may be paid in cash and/or common
stock, at the sole option of the Company. If the Penalty is paid in common
stock, then the price used to determine the amount of shares shall be based on
the average trading price of Penn Octane Corporation common stock on the first
trading day subsequent to the incurrence of the Penalty. In the event that the
Company elects to pay the Penalty through shares of common stock of the Company,
then such shares shall be included as Registrable Securities as provided for
herein.
3
4. Registration Procedures.
------------------------
(a) In connection with any registration pursuant to Section 3 hereof,
the Company will prepare and file with the SEC, a Registration Statement, and
any amendments and supplements thereto, on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate, and use its
reasonable efforts to cause such Registration Statement to become effective;
provided that before filing with the SEC a Registration Statement or prospectus
--------
or any amendments or supplements thereto, the Company will (i) furnish to
counsel selected by the Purchaser copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel, and (ii)
notify the Purchaser of any stop order issued or threatened by the SEC and take
all reasonable actions required to prevent the entry of such stop order or to
remove it if entered. The Company will also (i) promptly notify the Purchaser
of the effectiveness of such Registration Statement, (ii) furnish to the
Purchaser such number of copies of such Registration Statement, and each
amendment and supplement thereto, the Prospectus included in such Registration
Statement and such other documents as the Purchaser may reasonably request;
(iii) use its reasonable efforts to register or qualify such securities to be
registered under such other securities or blue sky laws of such jurisdictions as
the Purchaser reasonably requests; (iv) use its reasonable efforts to cause all
such securities to be registered to be listed on each securities exchange on
which similar securities issued by the Company are then listed, and to provide a
transfer agent and registrar for such securities to be registered no later than
the effective date of such Registration Statement; (v) enter in to such
customary agreements (including an underwriting agreement in customary form) and
take all such other actions as the Lenders or the underwriters retained by the
Purchaser, if any, reasonably request in order to expedite or facilitate the
disposition of such securities to be registered, including customary
indemnification; and (vi) otherwise use its reasonable efforts to comply with
all applicable rules and regulations of the SEC. The terms of this Section 4
shall not require the Company to qualify as a foreign corporation or as a dealer
in securities or to execute or file any general consent to service of process
under the laws of any such jurisdiction where it is not so subject.
(b) In connection with any effective Registration Statement filed
pursuant to this Agreement, the Company will immediately notify the Purchaser
participating in the distribution to which such Registration Statement relates
of the happening of any event as a result of which the prospectus included in
such Registration Statement contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and will promptly prepare and furnish to the Purchaser a supplement or
amendment to such prospectus so that such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing. Notwithstanding the foregoing, if the
Company determines in its reasonable business judgment that an amendment or
supplement to any such prospectus would interfere with any material financing,
acquisition, corporate reorganization, or other material corporate transaction
or development involving the Company, the Company may delay the preparation and
filing of such amendment or supplement for a period of up to 60 days in order to
complete or make a public announcement with respect to such material transaction
or development (it being understood that the Company shall be obligated to
extend the period of time it is required to maintain in effect any such
Registration Statement to take into account the period of time that the
Purchaser is unable to offer or sell Registrable Securities by reason of this
Section 4(c)).
4
5. Holdback Agreements.
--------------------
(a) Restrictions on Public Sale by Holders of Registrable Securities.
------------------------------------------------------------------
Each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by the managing underwriters in an underwritten offering (to the
extent timely notified in writing by the Company or the managing underwriters),
not to effect any public sale or distribution of securities of the Company of
any class included in such Registration Statement, including a sale pursuant to
Rule 144 (except as part of such underwritten offering), during the 10-day
period prior to, and the 90-day period beginning on, the effective date of any
Registration Statement.
(b) The foregoing provisions shall not apply to any holder of
Registrable Securities if such holder is prevented by applicable statute or
regulation from entering into any such agreement; provided, however, that any
-----------------
such holder shall undertake in its request to participate in any such
underwritten offering not to effect any public sale or distribution of the class
of Registrable Securities covered by such Registration Statement (except as part
of such underwritten offering) during such period unless it has provided five
(5) business days prior written notice of such sale or distribution to the
managing underwriter or underwriters.
6. Indemnification
---------------
(a) Indemnification by Company. The Company shall indemnify and hold
----------------------------
harmless, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors, agents and employees, each person who
controls such holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act), and the officers, directors, agents or
employees of any such controlling person, from and against all losses, claims,
damages, liabilities, costs (including, without limitation, all reasonable
attorneys' fees) and expenses (collectively, "Losses"), arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus, or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which they were
made (in the case of any Prospectus) not misleading, except insofar as the same
are based solely upon information furnished to the Company by such holder for
use therein; provided, however, that the Company shall not be liable in any such
-----------------
case to the extent that any such Loss arises out of or is based upon an untrue
statement or omission made in any preliminary prospectus or Prospectus if (i)
such holder failed to send or deliver a copy of the Prospectus or Prospectus
supplement with or prior to the delivery of written confirmation of the sale of
Registrable Securities and (ii) the Prospectus or Prospectus supplement would
have corrected such untrue statement or omission.
5
(b) Indemnification by Holder of Registrable Securities. In connection
---------------------------------------------------
with any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information as the Company may reasonably request for
use in connection with any Registration Statement or Prospectus. Each holder of
Registrable Securities shall indemnify and hold harmless, to the full extent
permitted by law, the Company, and its officers, directors, agents and
employees, each person who controls the Company (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents or employees of any such controlling person, from and against
all Losses arising out of or based upon any untrue statement of a material fact
contained in any Registration Statement, Prospectus or preliminary prospectus,
or arising out of or based upon any omission of a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made (in the case of any Prospectus) not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such holder
to the Company for use in such Registration Statement, Prospectus or preliminary
prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company or any holder and any of
their respective directors, officers, agents, employees or controlling persons
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and shall survive the transfer of such securities by such holder.
(c) Conduct of Indemnification Proceedings. If any action or
------------------------------------------
proceeding (including any governmental investigation or inquiry) shall be
brought or any claim shall be asserted against any person entitled to indemnity
hereunder (an "indemnified party"), such indemnified party shall promptly notify
the party from which such indemnity is sought (the "indemnifying party") in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses incurred in connection with the defense
thereof. All such fees and expenses (including any fees and expenses incurred
in connection with investigating or preparing to defend such action or
proceeding) incurred by the indemnified party, shall be paid to the indemnified
party, as incurred, within 20 days of written notice thereof to the indemnifying
party; provided, however, that if, in accordance with this Section 6, the
------------------
indemnifying party is not liable to the indemnified party, such fees and
expenses shall be returned promptly to the indemnifying party. Any such
indemnified party shall have the right to employ separate counsel in any such
action, claim or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be the expense of such indemnified party
unless (a) the indemnifying party has agreed to pay such fees and expenses, (b)
the indemnifying party shall have failed promptly to assume the defense of such
action, claim or proceeding and to employ counsel reasonably satisfactory to the
indemnified party in any such action, claim or proceeding, or (c) the named
parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or additional to
6
those available to the indemnifying party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action, claim or
proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action,
claim or proceeding or separate but substantially similar or related actions,
claims or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties, unless in the opinion of
counsel for such indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
action, claim or proceeding, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels).
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the release
of such indemnified party from all liability in respect to such claim or
litigation without the written consent (which consent will not be unreasonably
withheld) of the indemnified party. No indemnified party shall consent to entry
of any judgment or enter into any set-tlement without the written consent (which
consent will not be unreasonably withheld) of the indemnifying party from which
indemnity or contribution is sought.
(d) Contribution. If the indemnification provided for in this Section
------------
6 from the indemnifying party is unavailable to an in-demnified party in respect
of any Losses, then each applicable indemnifying party in lieu of indemnifying
such indemnified party hereunder shall contribute to the amount paid or payable
by such indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions, statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue statement of a material fact or omission of a material
fact, has been taken or made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 6(c), any legal or other fees or expenses reasonably incurred
by such party in connection with any action, suit, claim, investigation or
proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
7
7. Rule 144
---------
The Company shall file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
Commission thereunder, and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemption
provided by Rule 144 or Rule 144A. Upon the request of any holder of
Registrable Securities, the Company shall deliver to such holder a written
statement as to whether the Company has complied with such information and
requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be
deemed to require the Company to register any of its securities under any
section of the Exchange Act.
8. Underwritten Registrations
---------------------------
If any of the Registrable Securities covered by any registration are to be
sold in an underwritten offering, the investment banker or investment bankers
and manager or managers that will administer the offering will be selected by
the Company. No holder of Registrable Securities may participate in any
underwritten registration hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in the underwriting
arrangements approved by the Company, and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
9. Miscellaneous
-------------
(a) Amendments and Waivers. The provisions of this Agreement,
------------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company obtains the written consent of holders of at
least a majority of the then outstanding Registrable Securities affected by such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter which
relates exclusively to the rights of holders of Registrable Securities whose
securi-ties are being sold pursuant to a Registration Statement and which does
not directly or indirectly affect the rights of holders of Registrable
Securities whose securities are not being sold pursuant to such Registration
Statement may be given by holders of a majority of the Registrable Securities
being sold by such holders.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next day air courier, telex, or telecopy: (i) if to a holder
of Registrable Securities, at the most current address given by such holder to
the Company in accordance with the provisions of this Section 9(b), which
address initially is, with respect to the Purchaser, the address set forth in
Section 13 of the Purchase Agreement; and (ii) if to the Company, at 000
Xxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxx Xxxx Xxxxxxxxxx 00000, attention:
Secretary, and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 8(b).
8
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; two business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being sent by next day air courier; when answered back, if telexed; and when
receipt acknowledged, if telecopied.
(c) Transfer of Registration Rights. The rights granted to the holders
-------------------------------
pursuant to this Agreement to cause the Company to register securities may not
be assigned or otherwise transferred in any way other than to an Affiliate of
the holder to whom the holder has transferred all or any part of the Warrant.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed
---------------
in accordance with the laws of the State of New York without regard to
principles of conflict of laws.
(g) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(h) Entire Agreement. This Agreement is intended by the parties to be
-----------------
a final expression of their agreement and a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties nor
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the securities
sold pursuant to the Purchase Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(i) Attorneys' Fees. If any action or proceeding is brought to enforce
----------------
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to its costs and expenses and any other
available remedy.
9
IN WITNESS WHEREOF, the parties have executed this agreement as of July 30,
1999.
PENN OCTANE CORPORATION
By:
Xxx X. Xxxxxxxx
Vice President and Chief Financial Officer
VALOR CAPITAL MANAGEMENT L.P.
By: ____________________________________
Name:
Title:
10
