PLEDGE AGREEMENT
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THIS PLEDGE AGREEMENT dated as of January, 2001, ("Pledge Agreement") is
made by and between XXXXXX X. XXXXXXX, an adult individual ("Pledgor") who
resides at and PMG CAPITAL CORP. ("Pledgee"), as collateral agent for the
Secured Noteholders (as such term is hereinafter defined).
WHEREAS, commencing in December, 1999, Penn Octane Corporation ("POCC") has
issued promissory notes in the aggregate principal amount of $5,654,000 (as
amended from time to time, the "Notes") to certain holders thereof (the
"Noteholders") which Notes were to mature on a date (the "Maturity Date") that
was the earlier to occur of December 15, 2000 or upon the receipt of proceeds by
POCC from certain future debt or equity financing and, in connection with the
issuance of the Notes, POCC has also issued warrants to the Noteholders
("Warrants") to purchase certain shares of common stock of POCC on the terms and
conditions set forth therein.
WHEREAS, POCC and certain of the Noteholders (the "Consenting Noteholders")
have entered into a certain Second Amendment - Promissory Note (the "Agreement")
pursuant to which, among other things, the Maturity Date of the Consenting
Noteholders' Notes will be extended, their Warrants will be amended and new
warrants will be issued by POCC, and POCC will execute such documents and take
such action as may be necessary or appropriate on or before March 15, 2001, to
grant and perfect a security interest in and lien on all of POCC's right, title
and interest in the American Assets and the Mexican Assets (as such terms are
defined in the Agreement) for the benefit of the Consenting Noteholders; and
WHEREAS, Pledgor owns in excess of 2,000,000 shares of the issued and
outstanding common stock of POCC; and
WHEREAS, in order to induce the Consenting Noteholders to execute the
Agreement, Pledgor had agreed to execute and deliver (a) this Pledge Agreement,
and (b) a limited recourse guaranty (the "Guaranty") of all of POCC's now
existing and hereafter arising payment obligations under the Notes and the
Additional Notes (as such term is defined in the Guaranty), and having
determined that the execution and delivery of this Pledge Agreement and the
Guaranty directly benefit and are in the best interest of Pledgor; and
WHEREAS, Pledgee has agreed to serve as the collateral agent for the
Secured Noteholders (as defined in the Guaranty).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Certain Defined Terms. All terms used in this Pledge Agreement
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which are defined in the Agreement and not otherwise defined herein, shall have
the same meanings as set forth in the Agreement.
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2. Pledge of Stock. Subject to the provisions of Section 12 hereof, to
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secure Pledgor's Obligations (as such term is defined in the Guaranty), Pledgor
pledges and grants to Pledgee, for the benefit of the Secured Noteholders, a
first priority security interest in and lien on Two Million (2,000,000) of the
issued and outstanding shares of common stock of POCC owned by Pledgor, and in
the proceeds thereof, together with any shares hereafter issued to Pledgor by
POCC by way of a stock dividend, split or other distribution or reclassification
of such shares or proceeds thereof (the "Pledged Shares"). Pledgor shall
simultaneously herewith deliver to Pledgee, for the benefit of the Secured
Noteholders, the certificates representing the Pledged Shares accompanied by
stock powers duly executed in blank, with signatures guaranteed.
3. Representations and Warranties. Pledgor hereby represents, warrants
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and covenants as follows:
(a) The Pledged Shares are, and shall be at all times, duly authorized,
validly issued, fully paid and nonassessable shares of common stock of POCC.
(b) The Pledged Shares shall at all times be free and clear of any
security interests, mortgages, pledges, liens, encumbrances and restrictions on
the transfer thereof other than those created by this Pledge Agreement or
restrictions on transfer imposed by applicable laws (including, without
limitation, federal and state securities laws) and, except for those created by
this Pledge Agreement, those for taxes not yet due and payable or restrictions
on transfer imposed by applicable laws (including, without limitation, federal
and state securities laws), the Pledgor will not suffer or permit any security
interests, mortgages, pledges, liens, encumbrances or restrictions to attach to
the Pledged Shares or, other than pursuant to will or the laws of descent and
distribution, transfer or attempt to transfer any interest in the Pledged Shares
without the written consent of Pledgee (provided that any heir or devisee of one
or more of the Pledged Shares shall take title to such Pledged Shares subject to
the terms of, and shall assume Pledgor's obligations under, this Pledge
Agreement and the Guaranty).
4. Rights with Respect to Pledged Shares. Unless an Event of Default
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(as hereinafter defined) shall have occurred, Pledgor shall be entitled to vote
or consent with respect to the Pledged Shares, to receive cash dividends
thereon, and to have and exercise all other rights as holder of the Pledged
Shares in any manner not inconsistent with or in violation of the terms of the
Agreement or this Pledge Agreement.
5. Covenant Not to Sell. At any time that this Pledge Agreement is in
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effect, Pledgor agrees that without the prior approval of Pledgee, he will not
sell or agree to sell any shares of POCC stock which he owns. The preceding
provisions of this Section 5 shall be inapplicable to the approximately One
Million Three Hundred Thousand (1,300,000) shares of POCC stock owned by Pledgor
which currently are pledged to secure certain obligations of Pledgor or to gifts
from this date forward or disposition by will or the laws of descent and
distribution by Pledgor of shares of POCC stock owned by Pledgor provided that
the recipients of any such gifts or dispositions by will or the laws of descent
and distribution shall remain subject to the prohibition on sale of any shares
so received for so long as sales by such recipients are required to be
aggregated with sales by or for the account of the Pledgor pursuant to Rule 144
promulgated by the Commission (as defined in the Purchase Agreements) under the
Securities Act (as defined in the Purchase Agreements)
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6. Event of Default; Remedies. An "Event of Default" shall occur
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hereunder upon: (a) the commencement by POCC of a voluntary case in a bankruptcy
or insolvency proceeding or the entry of a decree or order by a receiver or
trustee of POCC upon the application of any creditor in an insolvency or
bankruptcy proceeding or other creditor's suit, which appointment is not
terminated within sixty (60) days after the date of such appointment); (b) the
filing of a petition for reorganization, liquidation or arrangement against POCC
under the Federal bankruptcy laws and such petition shall not have been
dismissed within sixty (60) days after it was filed; (c) the making of a general
assignment for the benefit of creditors by POCC; (d) the breach of any material
representation, warranty or covenant or agreement contained in this Pledge
Agreement or the Guaranty which has not been cured within fifteen (15) days
following the delivery to the Pledgor of written notice of such breach pursuant
to Section 13 hereof; or (e) an Event of Default has occurred under, and as such
terms is defined in, any Note or any Additional Note (a "Note Default"); or (f)
a Note Default would occur with the giving of notice or the passage of time or
both but such notice or time period is stayed by applicable law. Upon the
occurrence of an Event of Default hereunder, except to the extent prohibited by
applicable law (including, without limitation, federal and state securities
laws) that cannot be waived by Pledgor, the following provisions shall govern
the rights of Pledgee to realize upon the Pledged Shares, in addition to any
rights and remedies available in law or equity, and in addition to the rights
and remedies provided in the Agreement:
(a) Unless Pledgee agrees otherwise in writing, only Pledgee shall be
entitled to vote or consent or take any other action with respect to the Pledged
Shares, and Pledgor hereby irrevocably constitutes and appoints Pledgee his
proxy and attorney in fact, with full power of substitution to do so, and
agrees, if so requested, to execute or cause to be executed appropriate
irrevocable proxies therefor in addition to and separate from this Agreement;
(b) Subject to the condition precedent that the Consenting Noteholders
have received security interests in and liens on the American Assets with the
priority and perfection contemplated by Schedule II of the Agreement, Pledgee,
as collateral agent for the Consenting Noteholders, will attempt to pursue its
rights and remedies first against POCC and the American Assets before proceeding
against the Pledged Shares if doing so will not cause undue delay or expense to
the Consenting Noteholders. Except as provided in the preceding sentence,
Pledgee shall not be required to make any demand upon or pursue or exhaust any
of its rights or remedies against POCC or Pledgor, or to pursue or exhaust any
of its rights or remedies with respect to the Pledged Shares or any other
collateral held in respect of the Notes, the Additional Notes or any direct or
indirect guaranty thereof. Except as provided in the first sentence of this
Section 6(b), Pledgee shall not be required to xxxxxxxx the Pledged Shares or
any other collateral for or guaranty of the Notes or the Additional Notes or to
resort to the Pledged Shares or any such other collateral or guaranty in any
particular order and all of the rights granted to Pledgee hereunder and under
all other agreements relating to the Notes and the Additional Notes shall be
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cumulative. To the extent not prohibited by applicable law (including, without
limitation, federal and state securities laws), Pledgor hereby agrees to waive,
and does hereby absolutely and irrevocably waive and relinquish the benefit and
advantage of, and does hereby covenant not to assert against Pledgee, any
valuation, stay, appraisement, extension, or redemption laws now existing or
which may hereafter exist and which, but for this provision, might be applicable
to any sale made under the judgment, order or decree of any court, or privately
under the power of sale conferred by this Pledge Agreement or in respect of any
Pledged Shares. Without limiting the generality of the foregoing, Pledgor
hereby agrees that he will not invoke or utilize any law which might cause delay
in, or impede, the enforcement of the rights of Pledgee under this Pledge
Agreement, and hereby waives the same.
(c) The Pledged Shares may be sold for cash or other value in any
manner of lots at brokers' board, public auction or private sale without demand,
advertisement or notice. Pledgor hereby acknowledges and agrees that reasonable
notification of a sale of the Pledged Shares need not be provided to Pledgor
under Section 9-504 of the Uniform Commercial Code because the Pledged Shares
constitute collateral of a type customarily sold on a recognized market. At any
sale or sales of the Pledged Shares (except at private sale), Pledgee may bid
for and purchase the whole or any part of the property and rights so sold and
upon compliance with the terms of such sale may hold, exploit and dispose of
such property and rights without further accountability to Pledgor, except with
respect to the proceeds of such sale or sales. Pledgee will effect any sale or
sales of Pledged Shares hereunder in accordance with Rule 144 and any other
applicable rules under the Securities Act of 1933. Pledgor will execute and
deliver, or cause to be executed and to be delivered, such instruments and
documents and shall supply or cause to be supplied such further information and
take such further action as Pledgee shall reasonably require in connection with
such sale.
(d) The proceeds of all sales and any other monies received by Pledgee
with respect to the disposition of Pledged Shares shall be applied as follows:
First, to the payment of the costs and expenses of such sale or
sales, and the reasonable attorneys' fees incurred by Pledgee;
Second, any surplus then remaining, to the payment of the Notes
and the Additional Notes; and
Third, any surplus then remaining shall be paid to Pledgor.
(e) Pledgor shall use his reasonable best efforts to cause the issuer,
transfer agent, or registrar of the Pledged Shares to take all such actions and
execute all such documents as may be necessary or appropriate, upon the request
of Pledgee,
i) To remove any restrictive legends placed on the Pledged Shares
to the extent that such Pledged Shares can be sold without regard to the
restrictions referenced in such legends;
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ii) After an Event of Default, to effect any sale or sales of
Pledged Shares in accordance with Rule 144 and any other applicable rules
under the Securities Act of 1933; and
(f) Subject to the other provisions hereof, after an Event of Default,
Pledgor agrees to cooperate fully in all reasonable respects with Pledgee in any
sale or other disposition of the Pledged Shares in any lawful public or private
sale or other disposition.
7. Additional Rights. Upon the occurrence of any Event of Default,
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Pledgee shall be entitled to receive all cash dividends, and other dividends or
distributions on the Pledged Shares, and Pledgee at its option shall have the
right to transfer into its name or that of its nominee, for the benefit of the
Secured Noteholders, any and all of the Pledged Shares.
8. Further Action. Pledgor shall at any time, and from time to time,
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execute and deliver upon the written request of Pledgee further documents and do
further acts and things as Pledgee may reasonably request to effect the purposes
of this Agreement, including, without limitation, delivering to Pledgee Uniform
Commercial Code financing statements or, upon the occurrence of an Event of
Default, irrevocable proxies with respect to the Pledged Shares in a form
reasonably satisfactory to Pledgee. Until receipt thereof, this Agreement shall
constitute Pledgor's proxy to Pledgee or its nominee to vote all of the Pledged
Shares then registered in Pledgor's name at any and all such times as Pledgee
has the right to vote such shares pursuant to the terms of this Pledge
Agreement. The power of attorney granted hereby is coupled with an interest and
is irrevocable.
9. No Waiver. No delay or omission on the part of Pledgee in
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exercising any right under this Pledge Agreement, Agreement, or any other
documents shall operate as a waiver or relinquishment of such right, and no such
waiver or relinquishment shall be effective except under the conditions set
forth in paragraph 12 of this Pledge Agreement.
10. Pledgee's Duties. Pledgee's sole duty with respect to the custody,
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safekeeping and physical preservation of the Pledged Shares in its possession,
under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to
deal with the Pledged Shares in the same manner as Pledgee deals with similar
securities for its own account. Neither Pledgee nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Pledged Shares or for any delay in doing so nor shall
Pledgee be under any obligation to sell or otherwise dispose of any Pledged
Shares upon the request of Pledgor or otherwise.
11. Successors and Assigns. This Pledge Agreement shall be binding
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upon and inure to the benefit of the parties hereto, and their respective
successors and assigns.
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12. Release of Liens; Termination of Pledge Agreement. Pledgee agrees
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to release the lien on 1,000,000 of the Pledged Shares if and when the
Consenting Noteholders have received security interests in and liens on the
American Assets with the priority and perfection contemplated by Schedule II of
the Agreement. Pledgee further agrees that this Pledge Agreement shall terminate
and it shall release the lien on all of the Pledged Shares if and when the
Consenting Noteholders have received security interests in and liens on all of
the American Assets and Mexican Assets with the priority and perfection
contemplated by Schedule II of the Agreement.
13. Notice. Every notice and communication under this Pledge Agreement
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shall be in writing and shall be given by either (i) hand-delivery, (ii) first
class mail (postage prepaid), (iii) reliable overnight commercial courier
(charges prepaid), or (iv) telecopy or other means of electronic transmission,
if confirmed promptly by any of the methods specified in clauses (i), (ii) and
(iii) of this sentence, to the following addresses:
If to the Pledgor:
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Xxxxxx X. Xxxxxxx
c/o Penn Octane Corporation
00-000 Xxxxxxx Xxxx, Xxxx X
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Telecopy No.: 000-000-0000
With a copy to:
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Richman, Mann, Chizever, Xxxxxxxx & Xxxxxx
9601 Wilshire boulevard, Penthouse
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx Xxxxxxx, Esquire
Telecopy No.: 000-000-0000
If the Pledgee:
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PMG Capital Corp.
Xxxx Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
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With a copy to:
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Duane, Morris & Heckscher LLP
Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx, Esquire
Notice given by telecopy or other means of electronic transmission shall be
deemed to have been given and received when sent. Notice by overnight courier
shall be deemed to have been given and received on the date scheduled for
delivery. Notice by hand delivery shall be deemed to have been given and
received upon delivery. A party may change its address by giving written notice
to the other party.
14. Governing Law. This Pledge Agreement shall be governed by and
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construed in accordance with the internal laws of the Commonwealth of
Pennsylvania without reference to conflict of laws principles. Neither this
Pledge Agreement nor any term hereof may be amended, waived, discharged or
terminated orally but only by an instrument in writing signed by the party
against which enforcement of the amendment, waiver, discharge or termination is
sought.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
XXXXXX X. XXXXXXX
PMG CAPITAL CORPORATION, as collateral agent
By:
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Title:
JOINDER
Penn Octane Corporation, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, acknowledges and agrees for the benefit of Pennsylvania Merchant Group
and the Secured Noteholders (as such term is defined in the foregoing Pledge
Agreement) that an Event of Default under the foregoing Pledge Agreement, after
any applicable notice and cure period if provided in the Pledge Agreement, shall
also be an Event of Default under the Notes and the Additional Notes (as such
term is defined in the Guaranty).
PENN OCTANE CORPORATION
By:
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Title:
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