PROMISSORY NOTE
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$2,728,000.00 New York, New York
April 11, 1997
FOR VALUE RECEIVED, Xxxxxx X. Xxxxxxx, an individual residing at 00000
Xxxx Xxxx, Xxx Xxxxx Xxxxx, Xxxxxxxxxx 00000 (the "Borrower"), hereby promises
to pay to the order of Penn Octane Corporation, a Delaware corporation (the
"Lender"), at its offices located at 000 Xxxxxxxx Xxxxxxxxx, Xxxxxxx Xxxx,
Xxxxxxxxxx 00000, or at such other place as the Lender shall designate, the
principal amount of Two Million Seven Hundred and Twenty Eight Thousand
Dollars ($2,728,000.00) on April 11, 2000. The Borrower shall pay interest on
the unpaid principal amount hereof from the date hereof until paid, at a rate
of eight and one quarter percent (8.25%) per annum, to be paid annually in
arrears on each April 11 commencing April 11, 1998 and ending on April 11,
2000.
Should the indebtedness represented by this Promissory Note or any part
thereof be collected at law or in equity or in bankruptcy, receivership or
other similar court proceedings or this Promissory Note be placed in the hands
of attorneys for collection before or after maturity, the Borrower, its
successors and assigns, agree to pay, in addition to the principal and
interest due and payable hereon, reasonable attorneys' and collection fees.
If the Borrower shall fail to make payment of any installment of interest
on this Promissory Note when due, and if such default is not cured within ten
(10) days thereafter, or if the Borrower shall become insolvent or a voluntary
or uncontroverted petition shall be filed under the Federal Bankruptcy Code or
other similar Federal or state law dealing with arrangements for the relief of
creditors with respect to the Borrower (in each case, an "Event of Default"),
and in any such event, the holder shall have the right without notice to the
Borrower to declare this Promissory Note with accrued interest hereon to be
immediately due and payable (whether or not then due by the stated terms
hereof), whereupon the same shall become and be immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrower.
This Note is secured by and entitled to the benefits of a Pledge and
Security Agreement dated the date hereof pursuant to which Xxxxxxxx's
obligations hereunder are secured by one million (1,000,000) shares of Common
Stock, $0.01 par value, of the Lender owned by Xxxxxxxx.
No waiver by the holder of any breach of any covenant of the Borrower
herein contained or any term or condition hereof shall be construed as a
waiver of any subsequent breach of the same or of any other covenant, term or
condition herein.
This Promissory Note shall be deemed to have been made under, and in all
respects shall be governed by and construed in accordance with, the laws of
the State of New York.
/s/X.X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of April 11, 1997, made by Xxxxxx
X. Xxxxxxx ("Borrower") in favor of Penn Octane Corporation, a Delaware
corporation (the "Corporation"), for the benefit of the Corporation.
W I T N E S S E T H:
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WHEREAS, in connection with the exercise by Borrower of warrants to
purchase 2,200,000 shares of Common Stock, $0.01 par value, of the Corporation
(the "Common Stock") for $1.25 per share, the Corporation has agreed to accept
$22,000 in cash and a three-year promissory note dated the date hereof (the
"Promissory Note") from Borrower in the amount of $2,728,000 bearing interest
at the rate of 8.25% per annum, payable annually, and subject to the terms and
conditions set forth in the Promissory Note; and
WHEREAS, Xxxxxxxx has agreed to grant a security interest in certain
shares of Common Stock owned by Borrower to secure, equally and ratably, the
prompt and complete payment when due of all Borrower's payment obligations
under the Promissory Note (the "Secured Obligations") and the performance and
observance by Borrower of the covenants, obligations and conditions to be
performed and observed by Borrower pursuant to the Promissory Note;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. Definitions.
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(a) The words "hereof," "herein" and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any par-ticular provision of this Agreement, and section references
are to this Agreement, unless otherwise specified.
(b) Unless otherwise defined herein, all terms defined in Article 8
and 9 of the Uniform Commercial Code in effect as of the date hereof in the
State of New York (the "Uniform Commercial Code") are used herein as therein
defined.
2. Grant of Security Interest.
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(a) To secure the prompt and complete payment when due of all Secured
Obligations, now existing or hereafter arising, and the performance and
observance by Borrower of the covenants, obligations and conditions to be
performed and observed by Borrower pursuant to the Promissory Note, Borrower
hereby assigns and pledges to the Corporation and grants to the Corporation a
con-tinuing security interest in all of its right, title and interest in and
to one million (1,000,000) shares of Common Stock of the Corporation owned by
Borrower (the "Pledged Stock") and the certificates representing such Pledged
Stock, and all dividends, cash, rights, instruments and other property and all
proceeds of every kind thereof (whether the same are now owned or exist or
arise or are acquired before or after the date hereof) from time to time
received, receivable or otherwise distributed in respect of or in exchange
for, any or all of the Pledged Stock (whether the same are now owned or exist
or arise before or after the date hereof) (the Pledged Stock to-gether with
all such certificates, dividends, cash, rights, instruments, property and
proceeds, being here-inafter referred to as the "Pledged Stock Collateral").
(b) Borrower hereby delivers to the Corporation, duly endorsed in
blank or accompanied by appropriate undated stock powers duly executed in
blank, all certifi-xxxxx or instruments representing or evidencing the Pledged
Stock.
3. Stock Dividends, Distributions, Etc. If, while this Agreement is
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in effect, Borrower shall become entitled to receive or shall receive any
stock, any stock certificate representing same, options, rights or other
Property (in-cluding, without limitation, any certificate representing a stock
dividend or any distribution in connection with any recapitalization,
reclassification, increase or reduction of capital, or issued in connection
with any reorganization), whether as an addition to, in substitution of, or in
exchange for, any shares of any Pledged Stock Collateral, or otherwise, or any
payment or distribution of capital on account of any Pledged Stock Collateral,
Borrower agrees to accept the same as the Corporation's agent and to hold the
same in trust on behalf of and for the bene-fit of the Corporation and to
deliver the same to the Corporation on or before the close of business on the
second Business Day following the receipt thereof by Borrower, in the exact
form received, with the endorsement of Borrower when necessary or appropriate
undated stock powers duly executed in blank, to be held by the Corporation,
subject to the terms of this Agreement, as ad-ditional Pledged Stock
Collateral and any cash distribution in connection therewith or cash proceeds
therefrom shall be deposited by the Corporation in a segregated account for
Borrower (the "Borrower Collateral Account"), and thereafter disposed of in
accordance with this Agreement.
4. Cash Dividends; Voting Rights. Unless Borrower is in default of his
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payment obligations under the Promissory Note for a period of ten (10) days
after written notice from the Corporation of such default, Borrower shall be
entitled, except as otherwise provided in Section 3, to re-ceive all cash
distributions and cash dividends in respect of the Pledged Stock and to
exercise all voting and other consensual rights pertaining to the Pledged
Stock. Xxxxxxxx agrees to exercise all such voting and other consensual
rights for a purpose not inconsistent with or violative of the terms of this
Agreement. The Corporation shall not have the right at any time to exercise
any voting rights with respect to the Pledged Stock; provided, however, that
upon the sale or other disposition of the Corporation's interest in the
Pledged Stock or any part thereof, any third party purchaser or other
transferee shall have the full and unrestricted right to vote the Pledged
Stock, in any manner per-mitted by applicable law.
5. Proxies, Etc. The Corporation shall exe-cute and deliver (or cause to
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be executed and delivered) to Borrower all such proxies and other instruments
as Borrower may rea-sonably request for the purpose of enabling Borrower to
exercise the voting or other rights which Borrower is entitled to exercise
pursuant to Section 4 hereof and to receive all distribu-tions and dividends
he is authorized to receive and retain pursuant to Section 4 hereof.
6. Financing Statements. Borrower hereby agrees to execute such financing
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statements as the Corporation may request, from time to time, with respect to
the Pledged Stock Collateral, and take such action as may be required to
perfect and keep perfected the security interest in the Pledged Stock
Collateral created hereby, and Borrower hereby authorizes the Corporation to
execute as its attorney in fact and file any such financing statements on
Borrower's be-half.
7. Rights of the Corporation. If Borrower is in default of his payment
-------------------------
obligations under the Promissory Note and such default is not cured within a
period of ten (10) days thereafter, or if Borrower shall become insolvent or a
voluntary or uncontroverted involuntary petition shall be filed under the
Federal Bankruptcy Code or other similar Federal or state law dealing with
arrangements for the relief of creditors with respect to Borrower (in each
case, an "Event of Default"), Borrower shall no longer be entitled to receive
any cash divi-dends or distributions in respect of the Pledged Stock or to
exercise any voting rights, rights of conversion, exchange or subscription or
any other rights, privileges or options pertaining to any shares of the
Pledged Stock; and, upon the sale or other disposition of the Corporation's
interest in the Pledged Stock or any part thereof, any third party purchaser
or other transferee shall have the full and unrestricted right to exercise any
and all such rights, privileges or options.
8. Remedies.
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(a) If there shall have occurred an Event of Default, the Corporation
may at any time or from time to time exercise in respect of the Pledged Stock
Collat-eral, in addition to all other rights, powers and remedies provided for
in Section 7, at law, in equity or otherwise available to it, all the rights
and remedies of a secured party under the Uniform Commercial Code and under
any other applicable law as in effect in any relevant jurisdiction and, in
connection therewith but not in limita-tion thereof, the Corporation may,
without demand for performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale or other disposition) to Borrower or any other Person (all and each of
which demands, advertisements and notices are hereby expressly waived), sell,
assign, grant an option or options to purchase or otherwise dispose of the
Pledged Stock Collateral or any part thereof in one or more parcels at public
or private sale or sales, at any exchange, bro-ker's board or at any of the
Corporation's offices or elsewhere and at such prices as the Corporation may
deem best, for cash, on credit or for future delivery, with-out assumption of
any credit risk, free of any claim or right of whatsoever kind (including any
right or equity of redemption) of Borrower, which claim, right and equity are
hereby expressly waived and released, and upon such other terms and conditions
as the Corporation may deem commercially reasonable, provided, however, that
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Borrower shall not be credit-ed with the net proceeds of any such credit sale
or future delivery until the cash proceeds thereof are actually re-ceived by
the Corporation and are applied to the Secured Obligations until satisfied.
(b) Xxxxxxxx agrees that, to the extent notice of sale or other
disposition shall be required by applicable law, at least ten (10) days'
notice to Borrower of the time and place of any public sale or other
disposition or the time after which any private sale or other intended
disposition may be made. Notice shall constitute reasonable notification
thereof. Notification need not be given to Borrower if it has signed, after
an Event of Default has occurred, a statement renouncing any right to
notification of sale or other intended disposition. The Corporation shall not
be obligated to make any sale or other disposition of Pledged Stock regardless
of notice having been given.
(c) The Corporation may adjourn any public or private sale or other
disposition from time to time by an-nouncement at the time and place fixed
therefor, and such sale or other disposition may, without further notice, be
made at the time and place to which it was so adjourned. The Corporation
shall have the right upon any such public sale or other disposition, to the
extent permitted by applicable law, to purchase the whole or any part of the
Pledged Stock Collateral so sold or disposed of. Any and all proceeds
received by the Corporation in respect of any sale or disposition of,
collection from, or other recovery or reali-zation upon all or any part of the
Pledged Stock, whether con-sisting of moneys, checks, notes, drafts, bills of
exchange, money orders or commercial paper of any kind whatsoever, shall be
deposited by the Corporation in the Borrower Col-lateral Account and shall be
held by the Corporation, to be withdrawn and distributed by the Corporation as
provided herein.
(d) The rights and remedies provided under this Agreement are
cumulative and may be exercised singly or concurrently, and are not exclusive
of any rights and remedies provided by law or equity.
(e) Borrower recognizes that the Corporation may be unable to effect
a public sale of all or a part of the Pledged Stock Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended, or
other federal securities laws, as now or hereafter in ef-fect, or in
applicable Blue Sky or other state securities laws, as now or hereafter in
effect, but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Stock Collateral for their own ac-count, for
investment and not with a view to the distribu-tion or resale thereof.
Borrower agrees that private sales so made may be at prices and on other terms
less favorable to the Corporation than if such Pledged Stock Collateral were
sold at public sale, and that the Corporation has no obliga-tion to delay sale
of any such Pledged Stock Collateral for the period of time necessary to
permit the registration of such Pledged Stock Collateral for public sale under
such applicable secu-rities laws. Borrower agrees that private sales made
under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner.
(f) If the Corporation determines to exercise its right to sell all
or any of the Collateral, upon written request, Borrower shall from time to
time furnish to the Corporation all such information as the Corporation may
request in order to determine the Collateral which may be sold by Borrower as
exempt transactions under the federal securi-ties laws.
(g) The proceeds of the sale of any of the Pledged Stock Collateral
sold pursuant to this Section 8 and cash constituting Pledged Stock Collateral
received under Section 2(a) shall be applied by the Corporation as follows:
FIRST: to the payment of the costs and expenses of such sale,
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including the out-of-pocket expenses of the Corporation and the fees and
out-of pocket expenses of legal advisers employed by the Corporation in
connection therewith, and to the payment of all advances made by the
Corporation hereunder and payment of all costs and expenses incurred by the
Corporation in connection with the administration and enforcement of this
Agreement;
SECOND: to the payment in full of the Promissory Note; and
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THIRD: the balance (if any) of such proceeds to Borrower, the
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successors or assigns of Borrower, or as a court of competent jurisdiction may
direct.
9. Representations; No Disposition, Etc. Borrower hereby represents and
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warrants that it now owns good and marketable title to the Pledged Stock, free
and clear of any liens, charges, encumbrances or security interests of any
kind whatsoever, and that the Pledged Stock is not subject to any restriction
on alienation or transfer, in each case, other than this Agreement. Borrower
covenants to defend the right, title and special property of Xxxxxxxx in and
to the Pledged Stock against the claims and demands of all persons whatsoever.
Borrower hereby represents, warrants and covenants that Borrower is currently,
or shall be, the only owner of the Pledged Stock and that Borrower does not,
and will not have, outstanding rights, options, warrants, conversion rights or
other commitments or agreements for the purchase or acquisition of the Pledged
Stock. Xxxxxxxx agrees that he will not sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option or right with respect to, the
Pledged Stock Col-lateral, nor will it create, incur or permit to exist any
lien, security interest therein, charge or encumbrance with respect to any of
the Pledged Stock Collateral, any interest, or any pro-ceeds thereof except as
permitted by this Agreement.
10. Possession of the Collateral. The Corporation shall hold in its
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possession in the State of California all the Pledged Stock and all other
certificates, documents or instruments constituting Pledged Stock Collateral
pledged, assigned or transferred hereunder except as from time to time any
such certificate, document or instrument may be required for re-cordation or
for the purpose of enforcing or realizing upon any right or value thereby
represented; provided, however, that Xxxxxxxx, in his capacity as an officer
of the Corporation or otherwise, shall have no ability to assign, release,
transfer or otherwise deal with the Pledged Stock Collateral. The Corporation
may, from time to time, in its sole discretion appoint one or more agents or
trustees (which in no case shall be Borrower or any of his affiliates) to hold
physical custody, for the account of the Corporation, of any or all such
certificates, documents or in-struments.
11. Collateral Agreement. Each of Borrower and the Corporation agrees that
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the parties hereto may supplement, amend or supersede this Agreement with a
collateral agreement among the Corporation, Borrower and a third party bank,
as trustee, pursuant to which such third party bank shall accept and maintain
possession of the Pledged Stock Collateral until such time as the Secured
Obligations shall have been satisfied.
12. Further Assurance. Xxxxxxxx agrees that at any time and from time
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upon the written request of the Corporation, Xxxxxxxx will execute and deliver
such further documents, including a collateral agreement appointing a trustee
other than the Corporation and any necessary financing statements, and do or
cause to be done such further acts and things as the Corporation may
reasonably request in order to effect the purposes of this Agreement.
13. Release of Security Interest. Upon termination of this Agreement
----------------------------
pursuant to Section 17 hereof, the security interest granted hereby shall
terminate. Upon any such termination, the Corporation will, at Borrower's
expense, execute and deliver to Borrower such documents as Borrower shall
reasonably request to evidence such termination including, without limitation,
duly executed Uniform Commercial Code termination statements.
14. Limitation by Law; Severability.
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(a) All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Agreement are
intend-ed to be subject to all applicable mandatory provisions of law which
may be controlling and to be limited to the extent necessary so that they will
not render this Agreement ille-gal, invalid, unenforceable, in whole or in
part, or not entitled to be recorded, registered, or filed under the
pro-visions of any applicable law.
(b) Any provision of this Agreement which is pro-hibited or
unenforceable in any jurisdiction shall not in-validate the remaining
provisions hereof, and any such pro-hibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
15. Waivers, Amendments. None of the terms or provisions of this
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Agreement may be waived, altered, modified or amended by any act, delay,
omission or otherwise, except by an instrument in writing which is duly
executed by Borrower and the Corporation. Any such waiver, alteration,
modification or amendment shall be valid only to the extent therein set forth.
A waiver by the Corporation of any right or remedy under this Agreement on any
one occasion shall not be construed as a bar to any right, remedy or power
which the Corporation would otherwise have on any future occasion. No failure
to exercise nor any delay in exercis-ing on the part of the Corporation, any
right, remedy or power under this Agreement, shall operate as a waiver
thereof; further, no single or partial exercise of any right, remedy or power
under this Agreement shall preclude any other or further exercise thereof or
the exercise of any other right, remedy or power.
16. Binding Effect; Successors and Assigns. This Agreement shall be
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binding upon and inure to the benefit of the parties hereto and shall inure to
the benefit of the Corporation its successors and assigns and nothing herein
is intended or shall be construed to give any other Person any right, remedy
or claim under, to or in respect of this Agreement or any Pledged Stock
Collateral.
17. Termination of This Agreement. This Agreement shall terminate
--------------------------------
simultaneously with the payment in full of all principal and interest due
under the Promissory Note and, upon such termination, any Pledged Stock
Collateral held hereunder shall be released and delivered to Borrower or at
his direction.
18. Notices. All notices or other communications hereunder shall be given
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in the following manner.
If to the Corporation:
Penn Octane Corporation
000 Xxxxxxxx Xxxxxxxxx
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
If to Borrower:
Xxxxxx X. Xxxxxxx
Penn Octane Corporation
000 Xxxxxxxx Xxxxxxxxx
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Any of the addresses set forth above may be changed from time to time by
written notice from the party requesting the change.
19. Applicable Law. This Agreement shall be gov-erned by, and be
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construed and interpreted in accordance with, the internal laws of the State
of New York without reference to principles of conflict of laws, except as
re-quired by mandatory provisions of law.
IN WITNESS WHEREOF, the parties hereto have execut-ed this Agreement or
caused this Agreement to be duly exe-cuted and delivered by their duly
authorized officers as of the date first above written.
BORROWER
/s/Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
PENN OCTANE CORPORATION
By /s/Xxxxx X. Xxxxxxxxxxx
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Name: Xxxxx X. Xxxxxxxxxxx
Title: Executive Vice President
