EXHIBIT B
CONVERTIBLE DEBENTURE
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$ 220,000.00 Los Angeles, California
, 199
FOR VALUE RECEIVED, the undersigned, PENN OCTANE CORPORATION, a Delaware
corporation, its successors and assigns ("POC"), promises to pay to XXXXXXXXX
HOLDINGS INCORPORATED, a California corporation, its successors and assigns
("ZHI"), the principal sum of Two Hundred Twenty Thousand Dollars
($220,000.00), together with interest from and after the date hereof on said
principal balance as shall from time to time remain unpaid at the rate of
eight and one quarter percent (8.25%) per annum, in the manner hereinafter set
forth. The principal sum shall be due and payable on the business day which
is twelve months from the date hereof (the "Maturity Date"), or, in the event
the Maturity Date shall fall on a Saturday, Sunday or holiday, on the last
business day immediately preceding the Maturity Date, at which time all
principal and interest outstanding shall be due and payable. Interest on this
Convertible Debenture shall be calculated on the basis of a 365-day year for
the actual number of days elapsed in any portion of a month for which interest
may be due.
This Convertible Debenture is the "Convertible Debenture" referred to in
that certain Purchase Agreement, of even date herewith, among Xxxxxx
Technologies Incorporated, a California corporation ("Xxxxxx"), a wholly-owned
subsidiary of ZHI, and ZHI, on the one hand, and Xxxxxx Acquisition
Corporation, a Delaware corporation, a wholly-owned subsidiary of POC, and
POC, on the other hand (the "Purchase Agreement"). Capitalized terms used
herein and not otherwise defined herein which are defined in the Purchase
Agreement shall have the same meaning herein as set forth in the Purchase
Agreement.
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ARTICLE I
CONVERSION RIGHT
1.01 Conversion Right. Subject to and upon compliance with the
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provisions of this Article I, ZHI shall have the right, at its option, upon
written notice to POC not later than two (2) business days prior to the
Maturity Date, to convert, at the Maturity Date, the principal amount of this
Convertible Debenture into restricted Common Stock (as defined in Section 1.04
below) of POC, at a conversion price per share equal to eighty percent (80%)
of the average market price per share quoted by NASDAQ for the twenty (20)
trading days immediately preceding the date of conversion, upon surrender of
this Convertible Debenture. For purposes of this paragraph, market price per
share of POC Common Stock for any day shall mean the average of the bid and
asked prices for such day.
1.02 Issuance of Common Stock. As soon as practicable after surrender
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of this Convertible Debenture for conversion, as provided herein, POC shall
deliver to ZHI certificates representing the restricted Common Stock of POC
into which this Convertible Debenture has been converted. Such conversion
shall be deemed to have been made at the close of business on the Maturity
Date, so that all rights of ZHI under the Convertible Debenture shall cease at
such time, and ZHI shall be treated for all purposes as having become the
record holder of such Common Stock at such time.
1.03 Reserves. POC covenants that it will at all times reserve and keep
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available, free from preemptive rights, out of its authorized but unissued
Common Stock, shares sufficient to satisfy the conversion obligations
hereunder. POC covenants that all shares of Common Stock which shall be so
issuable shall, upon issuance, be duly and validly issued, fully paid and
non-assessable. POC shall from time-to-time, in accordance with applicable
law, increase the authorized amount of Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion hereunder.
1.04 Common Stock. Whenever reference is made herein to the issue of
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Common Stock, the term "Common Stock" shall include only shares of the class
designated Common Stock, $.01 par value, of POC as of the date hereof, which
shall have registration rights, but which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of POC and which are not subject to
redemption by POC.
1.05 Registration Rights. Any Common Stock of POC acquired by ZHI
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pursuant to this Convertible Debenture shall be subject to the registration
rights set forth below:
(a) If POC shall determine to register any of its securities
(other than a Form S-8 or other form suitable for employee benefit plans)
either for its own account or the account of any investor who holds
registrable securities or to whom registration rights have been conferred by
POC (hereinafter "Holders"), POC shall:
(i) promptly give ZHI written notice thereof; and,
(ii) include in such registration (and in any related
qualification under blue sky laws, the securities laws of any state where the
securities are to be issued, or any other compliance), and in any underwriting
involved therein, all of the securities specified in a written request made by
ZHI to POC within twenty (20) days after the written notice from POC described
in clause (i) above (the "Registerable Securities").
(b) If the registration of which POC gives notice is for a
registered public offering involving an underwriter, POC shall so advise ZHI
as part of the written notice given pursuant to Section 1.05(a)(i) above.
(c) All registration expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 1.05 shall
be borne by POC; provided, however, that ZHI shall bear its own legal and
accounting fees and costs and any underwriting discounts or commissions
incurred in connection with the sale of its shares of POC.
(d) In the case of registration effected by POC pursuant to this
Section 1.05, POC shall keep ZHI advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense, POC shall
use its best efforts to:
(i) Keep registration effective for a period of one hundred
twenty (120) days or until ZHI has completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
however, that such 120-day period shall be extended for a period of time equal
to the period ZHI refrains from selling any securities included in such
registration at the request of an underwriter of POC;
(ii) Prepare and file with the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act of 1933 (the "Commission") such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act of 1933, as amended, or any similar successor federal
statute and the rules and regulations thereunder (the "Securities Act"), with
respect to the disposition of all securities covered by such registration
statement;
(iii) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus,
as ZHI may from time to time request;
(iv) Notify ZHI at any time when a prospectus relating to
the Registerable Securities is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
incomplete in light of the circumstances then existing, and at the request of
any such seller, prepare and furnish such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in light of the circumstances
then existing;
(v) Cause such Registerable Securities registered pursuant
to this Section 1.05 to be listed on each securities exchange on which similar
securities issued by POC are then listed;
(vi) Provide a transfer agent and registrar for all
Registerable Securities registered pursuant hereto not later than the
effective date of such registration; and
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than 18 months,
beginning with the first month after the effective date of a registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act.
(e) POC will indemnify ZHI, each of its officers, directors and
partners, legal counsel and accountants and each person controlling ZHI within
the meaning of Section 15 of the Securities Act and Section 13 of the Exchange
Act, with respect to which registration, qualification or compliance has been
effected pursuant hereunder, and each underwriter, if any, and each person who
controls, within the meaning of Section 15 of the Securities Act and Section
13 of the Exchange Act, any underwriter, against all expenses, claims, losses,
damages and liabilities (or actions, proceedings or settlements in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular
or other document (including any related registration statement, notification
or the like) incident to any such registration, qualification or compliance,
or based on any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation by POC of the Securities Act or any rule or
regulation thereunder applicable to POC and relating to action or inaction
required by POC in connection with any such registration, qualification or
compliance, and will reimburse ZHI, each of its officers, directors, partners,
legal counsel and accountants and each person controlling ZHI, each such
underwriter and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating
and defending or settling any such claim, loss, damage, liability or action.
ZHI shall give notice to POC, under this section, promptly after ZHI
has actual knowledge of any claim as to which indemnity might be sought, and
shall permit POC to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for POC, who shall conduct the
defense of such claim or any litigation resulting therefrom, shall be approved
by ZHI (whose approval shall not be unreasonably withheld), and ZHI may
participate in such defense at ZHI's expense, and provided further that the
failure of ZHI to give notice as provided herein shall not relieve POC of its
obligations under this Section 1.05(e), to the extent such failure is not
prejudicial. POC shall not, in the defense of any such claim or litigation,
except with the consent of ZHI, consent to the entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to ZHI of a release from all liability
in respect to such claim or litigation. ZHI shall furnish such information
regarding itself or the claim in question as POC may reasonably request in
writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
If the indemnification provided for in this Section 1.05(e) is held
by a court of competent jurisdiction to be unavailable to ZHI with respect to
any loss, liability, claim, damage or expense referred to therein, then POC,
in lieu of indemnifying ZHI hereunder, shall contribute to the amount paid or
payable by ZHI as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of POC on
the one hand and of ZHI on the other in connection with the statements or
omissions which resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations. The relative fault of
POC and ZHI shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by POC or by XXX and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement
entered into in connection with any
underwritten public offering are in conflict with the foregoing, the
provisions in the underwriting agreement shall control.
(f) With a view to making available the benefits of certain
rules and regulations of the Commission which may permit the sale of
restricted securities to the public without registration, POC, so long as
Xxxxxx, XXX, Xxxxxxx X. Xxxxxxxxx ("Xxxxxxxxx") or any affiliate thereof owns
any POC Common Stock acquired pursuant to this Convertible Debenture, agrees
to use its reasonable best efforts to:
(i) make and keep public information, as those terms are
understood and defined in Rule 144 as promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission ("Rule 144"), at all
times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by POC for an offering of
its securities to the general public;
(ii) file with the Commission in a timely manner all
reports and other documents required of POC under the Securities Act and the
Securities Exchange Act of 1934, as amended, or any similar successor federal
statute and the rules and regulations thereunder (the "Exchange Act"), at any
time after it has become subject to such reporting requirements; and,
(iii) so long as ZHI owns any Common Stock of POC acquired
pursuant to this Agreement, furnish to ZHI forthwith upon written request a
written statement by POC as to its compliance with the reporting requirements
of Rule 144 (at any time from ninety (90) days following the effective date of
the first registration statement filed by POC for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements),
a copy of the most recent annual or quarterly report of POC, and such other
reports and documents so filed as ZHI may reasonably request in availing
itself of any rule or regulation of the Commission allowing ZHI to sell any
such securities without registration.
(g) POC shall not limit the number of Registerable Securities to
be included in a registration pursuant to this Section 1.05 in order to
include in the offering any of the following:
(i) shares held by stockholders with no registration
rights;
(ii) founder's stock or any other shares of stock issued to
employees, officers, directors or consultants pursuant to any POC employee
stock option plan; or,
(iii)securities registered for POC=s own account unless POC
determines in good faith based upon the advice of its underwriter that an
offering of Registerable Securities in conjunction with securities registered
for POC's own account is not feasible or impracticable and will not be
successful in the marketplace.
(h) ZHI's rights under this Section 1.05 shall expire upon the
earlier to occur of the following:
(i) expiration of the applicable holding periods
restricting the resale of POC Common Stock set forth in Rule 144; and
(ii) the occurrence of two (2) registrations effected by
POC after the last issuance of POC Common Stock hereunder.
(i) Any share certificates delivered pursuant hereto shall bear
appropriate legends.
ARTICLE II
PREPAYMENT RIGHT
2.01 Prepayment Right. POC shall have the right, without premium
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or penalty, to prepay any or all of this Convertible Debenture on any date
prior to the Maturity Date upon five (5) business days written notice to ZHI
and upon payment of any or all of the principal amount and accrued interest,
if any, then outstanding on this Convertible Debenture, in either shares or
cash, at the option of ZHI. If a partial prepayment is made, such payment
shall be allocated first to interest accrued but unpaid, and thereafter to
principal either in direct order of maturity or inverse order of maturity as
POC may elect at the time such prepayment is made.
2.02 Conversion Option on Prepayment. In the event that POC elects
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to prepay any or all of this Convertible Debenture prior to the Maturity Date,
POC shall provide ZHI with no less than five (5) business days written notice
prior to prepayment of this Convertible Debenture which notice shall state
POC's intention prepay the full principal amount of this Convertible
Debenture, or any portion thereof, and the date on which such prepayment shall
be made (the "Prepayment Date"). ZHI shall have the option to notify POC
prior to the Prepayment Date of ZHI's election to receive fully paid and
non-assessable shares of Common Stock of POC, in an amount equal to the
product of the amount of principal POC elects to prepay multiplied by eighty
percent (80%) of the market price per share quoted by NASDAQ on the Prepayment
Date, as payment of the unpaid principal amount, in lieu of cash on prepayment
of this Convertible Debenture.
ARTICLE III
COVENANTS OF POC
3.01 Manner of Payment. Except as set forth herein, all payments made
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on account of the indebtedness evidenced by this Convertible Debenture shall
be made in currency and coin of the United States of America which shall be
legal tender for the public and private debts at the time of payment.
3.02 Place of Payment. Payments are to be made at such place as ZHI may
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from time to time in writing designate.
ARTICLE IV
REMEDIES IN EVENT OF DEFAULT
4.01 Event of Default. The following shall constitute an event of
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default under this Convertible Debenture (an "Event of Default"):
(a) Non-payment of interest or principal on this Convertible
Debenture within five (5) business days after the due date thereof in
accordance with the terms hereof; or,
(b) In the event that: (i) POC shall file a voluntary petition
in bankruptcy or for arrangement, reorganization or other relief under the
Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), or any similar
law, state or federal, now or hereafter in effect; (ii) POC shall file an
answer or other pleading in any proceeding admitting insolvency, bankruptcy,
or inability to pay its debts as they mature or shall make an assignment for
the benefit of creditors; (iii) within sixty (60) days after the filing
against POC of any involuntary proceeding under the Bankruptcy Code or similar
law, state or federal, now or hereafter in effect, such proceedings shall not
have been dismissed or stayed; (iv) any order appointing a custodian,
receiver, trustee or liquidator of POC with respect to all or a major part of
its property is not stayed or vacated within sixty (60) days following the
entry thereof.
4.02 Acceleration. At any time after the occurrence of an Event of
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Default, at the election of ZHI and upon written notice to POC, the principal
balance remaining unpaid hereon, together with accrued interest thereon, shall
become at once due and payable.
ARTICLE V
MISCELLANEOUS
5.01 Voting. ZHI, as a holder of this Convertible Debenture, shall
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not be entitled to vote or receive dividends or be considered a shareholder of
POC for any purposes, nor shall anything in this Convertible Debenture be
construed to confer on ZHI, as holder of this Convertible Debenture, any
rights of a shareholder of POC or any right to vote, to give or withhold
consent to any corporate action, to receive notice of meetings of
shareholders, to receive dividends or subscription rights or otherwise.
5.02 Investment Representations.
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(a) ZHI is familiar with the business and financial condition,
properties, operations and prospects of POC;
(b) ZHI has been given full access to all material information
concerning the condition, properties, operations and prospects of POC. XXX
and its advisors have had an opportunity to ask questions of, and to receive
information from, POC and persons acting on its behalf concerning the terms
and conditions of ZHI's receipt of POC Common Stock, and to obtain any
additional information necessary to verify the accuracy of the information and
data received by XXX. XXX is satisfied that there is no material information
concerning the condition, properties, operations and prospects of POC of which
ZHI is unaware; and,
(c) ZHI has made, either alone or together with its advisors,
such independent investigation of POC, its management and related matters as
XXX xxxxx to be, or XXX's advisors have advised to be, necessary or advisable
in connection with its receipt of POC Common Stock; and ZHI and its advisors
have received all information and data which ZHI and its advisors believe to
be necessary in order to reach in informed decision as to the advisability of
receiving POC Common Stock; and
(d) ZHI is acquiring this Convertible Debenture for investment
purposes for its own account and not with a view towards distribution, and
shall not dispose of any POC Common Stock except in compliance with applicable
securities laws.
5.03 Transfer. Title to this Convertible Debenture shall be
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transferrable by XXX, at the sole and absolute discretion of ZHI, upon five
(5) business days written notice to POC of such intent to transfer; provided,
however, that in the event ZHI assigns this Convertible Debenture to an
individual or entity other than an affiliate of ZHI, such entity or individual
shall have no conversion right under Article I hereof or any right to receive
POC Common Stock upon prepayment under Section 2.01 hereof. Under such
circumstances, POC shall have the option to convert the principal and any
interest outstanding into its common stock pursuant to Article I hereof or
Section 2.01 hereof, as the case may be.
5.04 Attorneys' Fees. If any legal action or arbitration or other
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proceeding is brought for enforcement of this Convertible Debenture, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any provisions of this Convertible Debenture, the successful
or prevailing party shall be entitled to recover reasonable attorneys' fees
and other costs incurred in that action or proceeding in addition to any other
relief to which it may be entitled.
5.05 Interpretation. Wherever possible, each provision of this
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Convertible Debenture shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this Convertible
Debenture shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Convertible Debenture. No delay or failure on the part of ZHI in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial
exercise by ZHI of any right or remedy preclude any other right or remedy.
5.06 Amendment. This Convertible Debenture may not be changed
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orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
5.07 Governing Law. POC agrees that this Convertible Debenture and the
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rights and obligations of all parties hereunder shall be governed by and
construed under the substantive laws of the State of California.
5.08 Late Charge. Any payment hereunder which is not paid on the due
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date thereof and which shall remain unpaid after ten (10) business days
written notice by ZHI to POC shall bear a late charge equal to five percent
(5%) of the amount of the payment which is not paid when due. POC
acknowledges that this late charge represents fair compensation for any loss
which would be sustained by XXX for administrative expenses and cost of money
wrongfully withheld by POC. Such late charge shall be paid with the payment
with respect to which it is accrued. In the event that the late charge is
deemed to constitute interest and to exceed the maximum rate of interest
allowable under applicable law, then the obligation to be fulfilled shall be
reduced automatically to the extent necessary to prevent the effective rate of
interest from exceeding the maximum legal rate.
IN WITNESS WHEREOF, the undersigned has caused this Convertible Debenture
to be executed as of the day and year first above written.
"POC"
PENN OCTANE CORPORATION, a Delaware corporation
By:
Title:
