PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT made and entered into as of December14, 1998, by
and between KFP Grand LTD., a Texas limited partnership (the "Purchaser") and
Penn Octane Corporation, a Delaware corporation (the "Company").
WHEREAS, the Company wishes to sell and the Purchaser wishes to purchase
(i) 500,000 shares (the "Shares") of common stock, par value $.01 per share, of
the Company ("Common Stock"), and (ii) a warrant, exercisable until December 13,
2003 at $1.75 per share of Common Stock (subject to adjustment), to purchase
300,000 shares (the "Warrant Shares") of Common Stock substantially in the form
of Exhibit 1 hereto (the "Warrant"; the Shares and the Warrant being herein
collectively referred to as the "Securities"); and
WHEREAS, the Company and the Purchaser desire to enter into a Registration
Rights Agreement with respect to the Shares and the Warrant Shares,
substantially in the form annexed as Exhibit 2 hereto (the "Registration Rights
Agreement"), all on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements and obligations herein
contained, the Purchaser and the Company hereby agree as follows:
1. Purchase and Sale of the Securities. Subject to the terms and
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conditions set forth in this Agreement, the Company agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, the Securities
for a purchase price equal to Five Hundred Thousand ($500,000.00) Dollars.
2. The Closing. The closing (the "Closing") of the purchase and sale
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of the Securities shall take place on December 14, 1998 at 10:00 A.M. local time
at the offices of the Company in Redwood City, California, or at such other time
and place as the Company shall specify. At the Closing, the Purchaser shall
deliver to the Company payment for the Securities being purchased in immediately
available funds and the Company shall deliver the Warrant to the Purchaser and
within seven business days thereafter, the Company shall deliver a stock
certificate representing the Shares to the Purchaser.
3. Registration Rights. The Purchaser shall have such registration
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rights with respect to the Share and the Warrant Shares as are set forth in the
Registration Rights Agreement.
4. Representations and Warranties of the Company. As of the Closing,
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the Company represents and warrants that:
(a) the Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder;
(b) the execution, delivery and performance of this Agreement, the
sale and delivery of the Securities and the sale and delivery of the Warrant
Shares pursuant to the Warrant have been duly authorized by all necessary
corporate action on the part of the Company and do not violate the Certificate
of Incorporation and by-laws of the Company, as amended and/or restated to date,
any law applicable to the Company, or any covenant contained in any agreement,
indenture, mortgage, promissory note, or other instrument to which the Company
is a party or to which the Company or its assets are subject.
(c) the Shares, when issued and paid for in accordance with the terms
of this Agreement, will be legally and validly issued, fully paid and
nonassessable, free of preemptive rights and any other rights of others;
(d) the Company has reserved for issuance upon the exercise of the
Warrant the number of shares of Common Stock equal to the number of Warrant
Shares;
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(e) the Warrant Shares, when issued upon exercise of the Warrant and
payment therefore in accordance with the terms of the Warrant, will be legally
and validly issued, fully paid and nonassessable, free of preemptive rights and
any other rights of others; and
(f) The Company's annual report on Form 10-K for the year ended July
31, 1998 and all documents incorporated therein by reference are true, complete,
and correct in all material respects, do not contain any misstatement of a
material fact or omit to state any material fact necessary in order to make the
facts stated therein, in light of the circumstances in which such statements
were made, not misleading.
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5. Representations and Warranties of the Purchaser. The Purchaser
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represents and warrants as follows:
(a) General:
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(i) The Purchaser has all requisite authority to enter into this
Agreement and to perform all of the obligations required to be performed by it
hereunder.
(ii) Neither the Company nor any person acting on behalf of the
Company has offered or sold the Securities to the Purchaser by means of any form
of general solicitation or general advertising. The Purchaser has not received,
paid or given, directly or indirectly, any commission or remuneration for or on
account of any sale, or the solicitation of any sale, of the Securities.
(b) Information Concerning the Company:
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(i) The Purchaser is familiar with the business and financial
condition, properties, operations and prospects of the Company.
(ii) The Purchaser has been given full access to all material
information concerning the condition, properties, operations and prospects of
the Company. The Purchaser and its advisors (if any) have had an opportunity to
ask questions of, and to receive information from, the Company and persons
acting on its behalf concerning the terms and conditions of the Purchaser's
investment in the Securities, and to obtain any additional information necessary
to verify the accuracy of the information and data received by the Purchaser.
The Purchaser is satisfied that there is no material information concerning the
condition, properties, operations and prospects of the Company of which
Purchaser is unaware.
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(iii) The Purchaser has made, either alone or together with his
advisors (if any), such independent investigation of the Company, its
management, and related matters as the Purchaser deems to be, or the Purchaser's
advisors (if any) have advised to be, necessary or advisable in connection with
this investment; and the Purchaser and its advisors (if any) have received all
information and data which the Purchaser and its advisors (if any) believe to be
necessary in order to reach an informed decision as to the advisability of
investing in the Securities.
(iv) The Purchaser understands that all the Purchaser's
representations and warranties contained in this Agreement will be deemed to
have been reaffirmed and confirmed as of the Closing.
(v) The Purchaser understands that the purchase of the
Securities involves various risks, including the risk that it is unlikely that
any market will exist for any resale of the Warrant and that resale of the
Shares, the Warrant and the Warrant Shares will be restricted as herein
provided.
(c) Status of Purchaser:
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(i) The Purchaser either alone or with Purchaser's advisors
(if any) has such knowledge, skill and experience in business, financial and
investment matters as to be capable of evaluating the merits and risks of an
investment in the Securities. To the extent that the Purchaser has deemed it
appropriate to do so, the Purchaser has retained at Purchaser's own expense, and
relied upon, appropriate professional advice regarding the investment, tax and
legal merits and consequences of this Agreement and owning the Shares, the
Warrant and Warrant Shares, as the case may be.
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(d) Restrictions on Transfer or Sale
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(i) The Purchaser is acquiring the Securities and any shares
of Common Stock purchased upon exercise of the Warrant solely for its own
account, for investment purposes, and not with a view to, or for resale in
connection with, any distribution of the Shares, the Warrant or such shares of
Common Stock. The Purchaser understands that neither the Shares, the Warrant
nor such underlying shares of Common Stock have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or the securities
laws of any state (collectively referred to as "State Securities Laws") by
reason of specific exemptions under the provisions thereof which depend in part
upon the investment intent of the Purchaser and of the other representations
made by the Purchaser in this Agreement. The Purchaser understands that the
Company is relying upon the representations and agreements contained in this
Agreement (and any supplemental information) for the purpose of determining
whether this transaction meets the requirements for such exemptions.
(ii) The Purchaser understands that the Shares, the Warrant
and such underlying shares of Common Stock are or will be upon issurance
"restricted securities" under applicable federal securities laws and that the
Securities Act and the rules of the Securities and Exchange Commission (the
"Commission") provide in substance that the Purchaser may dispose of such
securities or any of them only pursuant to an effective registration statement
under the Securities Act or an exemption therefrom, and understands that the
Company has no obligations or intentions to register any of such securities
thereunder, or to take any other action so as to permit sales pursuant to the
Securities Act, except as set forth in the Registration Rights Agreement.
Accordingly, the Purchaser understands that under the Commission's rules, unless
disposed of pursuant to an effective registration statement under the Securities
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Act, the Purchaser may dispose of the Shares, Warrant and underlying shares of
Common Stock only in accordance with the provisions of Rule 144 under the
Securities Act, to the extent available, or in other transactions which are
exempt from registration under the Securities Act, in which the transferee may
acquire "restricted securities" subject to the same limitations as in the hands
of the Purchaser. As a consequence, absent such an effective registration
statement under the Securities Act, the Purchaser understands that it may be
required to bear the economic risks of the investment in the Securities (and the
underlying Common Stock) for an indefinite period of time.
(iii) The Purchaser agrees that (a) it will not sell, assign,
pledge, give, transfer, of otherwise dispose of the Shares, the Warrant or such
underlying Common Stock or any interest in any thereof or therein, or make any
offer or attempt to do any of the foregoing, except pursuant to registration of
such securities under the Securities Act and any applicable State Securities
Laws or in a transaction which, in the opinion of counsel for the Purchaser
satisfactory to the Company (which requirement may be waived by the Company upon
advice of counsel), is exempt from the registration provisions of the Securities
Act and any applicable State Securities Laws; (b) the Shares, the Warrant and
any certificate(s) representing shares of Common Stock issued upon exercise of
the Warrant may bear a legend making reference to the foregoing restrictions;
and (c) the Company and any transfer agent for shares of its Common Stock shall
not be required to give effect to any purported transfer of any of such
securities except upon compliance with the foregoing restrictions.
(iv) In no event shall any sale, assignment, pledge or
transfer of the Shares, the Warrant or such underlying Common Stock by the
Purchaser to a transferee give rise to rights of any such transferee under the
Registration Rights Agreement.
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6. Conditions to Obligations of Purchaser and the Company. The
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obligations of the Purchaser to purchase and pay for the Securities specified
herein and of the Company to sell and deliver such Securities are subject to the
satisfaction at or prior to the Closing of the following conditions precedent:
(a) The representations and warranties of the Company contained in
Section 4 hereof and of the Purchaser contained in Section 5 hereof shall be
true and correct on and as of the Closing in all respects with the same effect
as though representations and warranties had been made on and as of the Closing.
(b) The Company and the Purchaser shall each have received a
certificate from the General Partner of the Purchaser and an executive officer
of the Company, respectively, to the effect that its representations and
warranties are still valid.
(c) The Company and the Purchaser shall each have executed and
delivered the Registration Rights Agreement.
7. Board of Directors. The Company agrees that the Purchaser shall
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have one (1) seat on the Board of Directors. The Company will cause the Board
of Directors to elect the Purchaser's nominee to the Board of Directors as soon
as practicable after the purchase and sale of the Securities is consummated
hereunder. At each annual stockholders meeting of the Company after the
purchase and sale of the Securities is consummated hereunder, the Company will
cause the Purchaser's designee to be nominated as a part of management's slate
of nominees for election as directors. The Company shall use its best efforts
to ensure the election of the Purchaser's nominee as a director of the Company
at each such annual meeting of the stockholders of the Company.
8. Waiver, Amendment. Neither this Agreement nor any provisions hereof
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shall be modified, changed, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
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9. Assignability. Neither this Agreement nor any right, remedy,
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obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company or the Purchaser without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
10. Applicable Law. This Agreement shall be governed by and construed
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in accordance with the law of the State of New York, regardless of the law that
might be applied under principles of conflicts of law.
11. Section and Other Headings. The section and other headings
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contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
12. Counterparts. This Agreement may be executed in any number of
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counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
13. Notices. All notices and other communications provided for herein
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shall be in writing and shall be deemed to have been duly given if delivered
personally or by facsimile (with proof of receipt) or sent by registered or
certified mail, return receipt requested, postage prepaid:
(a) If to the Company, to it at the following address:
Penn Octane Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
President
with a copy to:
Coudert Brothers
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
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(b) If to the Purchaser, at the following address:
KFP Grand Ltd.
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
With a copy to:
▇▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
or at such other address as either party shall have specified by notice in
writing to the other.
14. Binding Effect. The provisions of this Agreement shall be binding
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upon and accrue to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, the Company and the undersigned have executed this
Agreement as of this 14th day of December, 1998.
KFP GRAND LTD.
By:
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
PENN OCTANE CORPORATION
By:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
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