<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
Penn Octane Corporation
-----------------------
(Name of Issuer)
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class of Securities)
707573-10-1
-----------
(CUSIP Number)
Richard E. Staedtler
Chief Financial Officer
Castle Energy Corporation
One Radnor Corporate Center, Suite 250
Radnor, PA 19087
610-995-9400
---------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
Copy to:
Thomas G. Spencer, Esq., Duane, Morris & Heckscher, LLP,
4200 One Liberty Place, Philadelphia, PA 19103-7396
- --------------------------------------------------------------------------------
December 1, 1998
----------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of ss. ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
Note: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See ss. 240.13d-7(b) for
other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 8 Pages
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SCHEDULE 13D
__________________________ ________________________
CUSIP No. 707573-10-1 Page 2 of 8 Pages
__________________________ ________________________
_______________________________________________________________________________
1 NAME OF REPORTING PERSON
S.S OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Castle Energy Corporation 76-0035225
______________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [X]
(b) [ ]
______________________________________________________________________________
3 SEC USE ONLY
______________________________________________________________________________
4 SOURCE OF FUNDS (See Instructions)
WC, 00
______________________________________________________________________________
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
______________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_______________________________________________________________________________
| |
NUMBER OF | 7 | SOLE VOTING POWER
SHARES | | 0
BENEFICIALLY |_____|________________________________________________________
OWNED BY | |
EACH | 8 | SHARED VOTING POWER
REPORTING | | 1,459,334
PERSON WITH |_____|________________________________________________________
| |
| 9 | SOLE DISPOSITIVE POWER
| | 0
|_____|________________________________________________________
| |
| 10 | SHARED DISPOSITIVE POWER
| | 1,459,334
_______________|_____|_________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,459,334
______________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES (See Instructions)
______________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.13%
______________________________________________________________________________
14 TYPE OF REPORTING PERSON (See Instructions)
CO
______________________________________________________________________________
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SCHEDULE 13D
__________________________ ________________________
CUSIP No. 707573-10-1 Page 3 of 8 Pages
__________________________ ________________________
_______________________________________________________________________________
1 NAME OF REPORTING PERSON
S.S OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
CEC, Inc. 51-0363154
______________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [X]
(b) [ ]
______________________________________________________________________________
3 SEC USE ONLY
______________________________________________________________________________
4 SOURCE OF FUNDS (See Instructions)
WC,00
______________________________________________________________________________
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
______________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_______________________________________________________________________________
| |
NUMBER OF | 7 | SOLE VOTING POWER
SHARES | | 0
BENEFICIALLY |_____|________________________________________________________
OWNED BY | |
EACH | 8 | SHARED VOTING POWER
REPORTING | | 1,459,334
PERSON WITH |_____|________________________________________________________
| |
| 9 | SOLE DISPOSITIVE POWER
| | 0
|_____|________________________________________________________
| |
| 10 | SHARED DISPOSITIVE POWER
| | 1,459,334
_______________|_____|_________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,459,334
______________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES (See Instructions)
______________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.13%
______________________________________________________________________________
14 TYPE OF REPORTING PERSON (See Instructions)
CO
______________________________________________________________________________
<PAGE>
CUSIP No. 707573-10-1 Page 4 of 8 Pages
SCHEDULE 13D
Item 1. Security and Issuer.
This 13D relates to the $.01 par value common stock (the "Common Stock")
of Penn Octane Corporation ("POC"), a Delaware corporation. The address of POC's
principal office is 900 Veterans Boulevard, Redwood City, California 94603.
Item 2. Identity and Background.
The name of the persons filing this Schedule 13D are Castle Energy
Corporation ("Castle") and its wholly owned subsidiary, CEC, Inc. ("CEC"; Castle
and CEC are sometimes hereinafter referred to individually as a "Reporting
Person" and collectively as the "Reporting Persons"). Each Reporting Person is a
Delaware corporation. Castle's principal office and business address is One
Radnor Corporate Center, Suite 250, Radnor, PA 19087 and its principal business
is oil and gas exploration and production. CEC's principal office and business
address is 3 Beaver Valley Road, Wilmington, Delaware 19803 and its principal
business is serving as a holding company.
Neither Reporting Person has, during the last five years, been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors)
and was not, during the last five years, a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction as a result of which
such Reporting Person was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws.
Item 3. Source and Amount of Funds or Other Consideration.
On October 21, 1997, Castle acquired a warrant (the "1997 Warrant") to
acquire 166,667 shares of POC Common Stock with an exercise price of $6.00 per
share. The 1997 Warrant is exercisable through October 21, 2000 and was issued
by POC as additional consideration for CEC's purchase of POC's 10% promissory
note dated October 21, 1997 in the original principal amount of $1 million (the
"Note") for an aggregate purchase price of $1 million, which was paid using
CEC's cash.
In a series of open market purchases in September 1998, CEC purchased an
aggregate of 301,000 shares of POC Common Stock for an aggregate price of
$382,396, which was also paid using CEC's cash.
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CUSIP No. 707573-10-1 Page 5 of 8 Pages
On December 1, 1998, CEC agreed to extend the original June 30, 1998
maturity of the Note until June 30, 1999, in consideration for which POC
provided certain security for payment of the Note and issued to Castle a warrant
(the "1998 Warrant") to acquire 225,000 shares of POC Common Stock at an
exercise price of $1.75 per share, exercisable until November 30, 2001.
On June 9, 1999, CEC purchased 200,000 shares of POC Common Stock in the
open market for an aggregate price of $260,753, which was paid using CEC's cash.
On July 26, 1999, CEC agreed with POC to convert $100,000 in original
principal amount of the Note into an aggregate of 66,667 shares of POC Common
Stock.
On July 29, 1999, CEC agreed with POC to convert the remaining $900,000
in original principal amount of the Note into 90,000 shares of POC's Series B
Convertible Redeemable Preferred Stock, par value $.01 per share (the "Preferred
Stock"). The Preferred Stock is convertible into shares of POC Common Stock at
any time at the holder's option at the initial rate of five shares of Common
Stock for each share of Preferred Stock, an aggregate of 450,000 shares of POC
Common Stock. The conversion ratio is subject to adjustment upon the occurrence
of certain specified events. As further consideration for the conversion of the
$900,000 principal balance of the Note, POC issued to CEC an additional 50,000
shares of POC Common Stock. If POC does not redeem the Preferred Stock in
accordance with its terms by September 3, 1999, POC will be obligated to issue
to CEC an additional 50,000 shares of POC Common Stock.
Item 4. Purpose of Transaction.
The Reporting Persons acquired the securities described in this Schedule
13D for investment purposes only. Except as described in Item 3 and except that,
subject to compliance with applicable securities laws, the Reporting Persons may
dispose of some or all of such securities in open market transactions from time
to time, the Reporting Persons currently do not have any plans and are currently
not considering any proposals which relate to or which would result in:
(a) the acquisition by any person of additional securities of POC, or
the disposition of securities of POC;
(b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving POC or any of its subsidiaries;
(c) a sale or transfer of a material amount of assets of POC or any of
its subsidiaries;
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CUSIP No. 707573-10-1 Page 6 of 8 Pages
(d) any change in the present board of directors or management of POC,
including any plans or proposals to change the number or term of directors or to
fill any existing vacancies on the board;
(e) any material change in the present capitalization or dividend policy
of POC;
(f) any other material change in POC's business or corporate structure;
(g) changes in POC's Certificate of Incorporation, Bylaws or instruments
corresponding thereto or other actions which may impede the acquisition or
control of POC by any person;
(h) causing a class of securities of POC to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association;
(i) a class of equity securities of POC becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934; or
(j) any action similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer.
(a) The Reporting Persons beneficially own an aggregate of 1,459,334
shares of POC Common Stock, or 12.13% of the outstanding shares of POC Common
Stock, consisting of the following:
(i) 617,667 shares owned directly by the Reporting Persons;
(ii) 391,667 shares that the Reporting Persons have the right to
purchase pursuant to the 1997 Warrant and the 1998 Warrant; and
(iii) 450,000 shares that the Reporting Persons have the right to
acquire upon the conversion of the Preferred Stock.
(b) The Reporting Persons currently share with each other the power to
vote or to direct the vote and the power to dispose or to direct the disposition
of all of the shares described in this Schedule 13D.
(c) See Item 3 of this Schedule 13D.
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CUSIP No. 707573-10-1 Page 7 of 8 Pages
(d) No other person has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, any of the shares
beneficially owned by the Reporting Persons.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
The 1997 Warrant gives Castle the right to purchase up to 166,667 shares
of POC Common Stock at a price of $6.00 per share on or before October 21, 2000.
The 1998 Warrant gives Castle the right to purchase up to 225,000 shares of POC
Common Stock at a price of $1.75 per share on or before November 30, 2001. The
1997 Warrant and the 1998 Warrant (individually a "Warrant" and collectively the
"Warrants") are each exercisable in whole or in part. The number of shares for
which each Warrant is exercisable is subject to adjustment upon the occurrence
of certain specified events. If the average trading price for POC's Common Stock
on the Nasdaq SmallCap Market (or such other exchange on which the Common Stock
is then quoted) exceeds $10.00 per share for a period of twenty consecutive
trading days, POC has the right on 30 days prior written notice (during which
time the Warrant may be exercised) to purchase all or any portion of a Warrant
for a price of $.10 per share that is subject to the Warrant.
Item 7. Material to be Filed as Exhibits.
Exhibit No. Description
----------- -----------
1 Common Stock Purchase Warrant dated October 21, 1997 from
POC to Castle Energy Corporation.
2 Common Stock Purchase Warrant dated December 1, 1998 from
POC to Castle Energy Corporation.
<PAGE>
CUSIP No. 707573-10-1 Page 8 of 8 Pages
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
August 9, 1999
Castle Energy Corporation
By: /s/ Joseph L. Castle, II
-------------------------------------
Joseph L. Castle, II, Chairman
and Chief Executive Officer
CEC, Inc.
By: /s/ Joseph L. Castle, II
-------------------------------------
Joseph L. Castle, II, Chairman
and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1 Common Stock Purchase Warrant dated October 21, 1997 from
POC to Castle Energy Corporation.
2 Common Stock Purchase Warrant dated December 1, 1998 from
POC to Castle Energy Corporation.
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE.
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF MAY BE SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF REGISTRATION OR QUALIFICATION OR AN EXEMPTION
THEREFROM UNDER APPLICABLE LAW.
COMMON STOCK PURCHASE WARRANT
Void after October 21, 2000
Warrant to Purchase 166,667 Shares of
Common Stock, $.01 par value
of Penn Octane Corporation
PENN OCTANE CORPORATION (POCC)
This is to Certify That, FOR VALUE RECEIVED,
Castle Energy Corporation
or registered assign(s) (herein referred to as the "Holder") is entitled to
purchase, subject to the provisions hereof, from PENN OCTANE CORPORATION, a
Delaware corporation (the "Company"), but not later than 5:00 p.m., California
time, on October 21, 2000 (or, if such date is not a Business Day in Redwood
City, California, then on the next succeeding day which shall be a Business
Day), 166,667 shares of Common Stock, $.01 par value, of the Company (the
"Common Stock") at an exercise price of $6.00 per share, subject to adjustment
as to number of shares and purchase price as set forth in Section 6 below. The
exercise price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price".
For purposes of this Warrant, a "Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in New York, New York,
or in Redwood City, California, are authorized by law or regulation to close.
The shares of Common Stock issuable upon exercise of the Warrants are sometimes
herein called the "Warrant Stock."
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time and from time to time by presentation and surrender hereof to
the Company at its principal office with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price in immediately
available funds for the number of shares specified in such form. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder
<PAGE>
to purchase the balance of the shares purchasable hereunder. Upon receipt by the
Company of this Warrant at the office of the Company, in proper form for
exercise, accompanied by payment of the Exercise Price, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. The issuance of
certificates for shares of Common Stock upon the exercise of this Warrant shall
be made without charge to the Holder for any issuance tax in respect thereof
(with the exception of any federal or state income taxes applicable thereto),
all such taxes to be paid by the Company, it being understood however that the
Holder shall be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the Holder. The Company will at no time close its transfer
books against the transfer of this Warrant or the issuance of any shares of
Common Stock issuable upon the exercise of this Warrant in any manner which
interferes with the timely exercise of this Warrant.
2. Reservation of Shares; Stock Fully Paid. The Company agrees that
at all times there shall be authorized and reserved for issuance upon exercise
of this Warrant such number of shares of its Common Stock as shall be required
for issuance or delivery upon exercise of this Warrant. All shares which may be
issued upon exercise hereof will, upon issuance, and receipt of payment
therefor, be duly authorized, validly issued, fully paid and non-assessable.
3. Fractional Shares. This Warrant shall not be exercisable in such
manner as to require the issuance of fractional shares. If, as a result of
adjustment in the Exercise Price or the number of shares of Common Stock to be
received upon exercise of this Warrant, fractional shares would be issuable, no
such fractional shares shall be issued. In lieu thereof, the Company shall pay
the Holder an amount in cash equal to such fraction multiplied by the Fair
Market Value of a share of Common Stock. The term "Fair Market Value" shall
mean, as of a particular date, the market price on such date.
For purposes of this Warrant, the market price on any day shall be the
last sale price on such day on the NASDAQ Stock Market, or, if the Common Stock
is not then listed or admitted to trading on the NASDAQ Stock Market, on such
other principal stock exchange on which such stock is then listed or admitted to
trading, or, if no sale takes place on such day on any such exchange, the
average of the closing bid and asked prices on such day as officially quoted on
any such exchange, or, if the Common Stock is not then listed or admitted to
trading on any stock exchange, the average of the reported closing bid and asked
prices on such day in the over-the-counter market as quoted on the National
Association of Securities Dealers Automated Quotation System or, if not so
quoted, then as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company. If there shall be no
meaningful over-the-counter market, then Fair Market Value shall be such amount,
not less than book value, as may be determined by the Board of Directors of the
Company.
4. Exchange or Assignment of Warrant. This Warrant is exchangeable
without expense (other than applicable transfer taxes) at the option of the
Holder, upon presentation and surrender hereof to the Company for any other
Warrants of different denominations entitling the holder thereof to purchase in
the aggregate the same number of shares of Common Stock purchasable hereunder.
Subject to the provisions of Section 12 below and any restriction on
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transfer applicable hereto pursuant to the securities laws of the United States
or any State, upon surrender of this Warrant to the Company with an assignment
form duly executed, and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment, and this Warrant shall promptly
be cancelled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the principal office of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged, and the term "Holder" as used herein includes any holder
of any Warrant into which this Warrant may be divided or for which this Warrant
may be exchanged.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities purchasable upon the exercise or exchange of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the occurrence of certain events, as follows:
(a) Adjustment for Change in Capital Stock. If at any time after the
date hereof, the Company:
(A) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(C) combines its outstanding shares of Common Stock into a smaller
number of shares;
(D) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(E) issues by reclassification of its Common Stock any shares of its
capital stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive, upon exercise or exchange of this
Warrant and payment of the same aggregate consideration, the number of shares of
capital stock of the Company which the Holder would have owned immediately
following such action if the Holder had exercised or exchanged the Warrant
immediately prior to such action.
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The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
(b) Adjustment for Other Distributions. If at any time after the date
hereof, the Company distributes to all holders of its Common Stock any of its
assets or debt securities, the Exercise Price following the record date shall be
adjusted in accordance with the following formula:
E'= E X M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the adjustment,
M = the current market price (as defined in (e) below) per share
of Common Stock on the record date of the distribution.
F = the aggregate fair market value (as conclusively determined
by the Board of Directors of the Company) on the record date
of the assets or debt securities to be distributed divided by
the number of outstanding shares of Common Stock.
The adjustment shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive the distribution. In the event
that such distribution is not actually made, the Exercise Price shall again be
adjusted to the Exercise Price as determined without giving effect to the
calculation provided hereby. In no event shall the Exercise Price be adjusted to
an amount less than zero.
This subsection does not apply to cash dividends or cash distributions
paid out of consolidated current or retained earnings as shown on the books of
the Company and paid in the ordinary course of business.
(c) Deferral of Issuance or Payment. In any case in which an event
covered by this Section 6 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer making
such adjustment until the occurrence of such event by (i) issuing to the Holder,
if this Warrant is exercised after such record date but before the occurrence of
such event, the shares of Common Stock and other capital stock of the Company,
if any, issuable upon such exercise, had such adjustment been made as of the
record date, over and above the shares of Common Stock or other capital stock
of the Company, if any, issuable upon such exercise on the basis of the Exercise
Price as unadjusted, and (ii) paying to the Holder by check any amount in lieu
of the issuance of fractional shares pursuant to Section 3.
-4-
<PAGE>
(d) When No Adjustment Required. No adjustment need he made for a
change in the par value or no par value of the Common Stock.
(e) Statement of Adjustments. Whenever the Exercise Price and number of
shares of Common Stock purchasable hereunder is required to be adjusted as
provided herein, the Company shall promptly prepare a certificate signed by its
President or any Vice President and its Treasurer or Assistant Treasurer,
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description hereunder), and the Exercise Price and number of shares
of Common Stock purchasable hereunder after giving effect to such adjustment,
and shall promptly cause copies of such certificates to be mailed to the Holder.
(f) No Adjustment Upon Exercise of Warrants. No adjustments shall be
made under any Section herein in connection with the issuance of Warrant Stock
upon exercise or exchange of the Warrants.
(g) No adjustment for Small Amounts. Anything herein to the contrary
notwithstanding, no adjustment of the Exercise Price shall be made if the amount
of such adjustment shall be less than $.05 per share, but in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to $.05 per share or more.
(h) Common Stock Defined. Subject to the provisions of Section 7 hereof,
shares issuable upon exercise or exchange hereof shall include only shares of
the class designated as Common Stock of the Company as of the date hereof or
shares of any class or classes resulting from any reclassification or
reclassifications thereof or as a result of any corporate reorganization as
provided for in Section 7 hereof.
7. Reclassification, Reorganization, Consolidation or Merger. In the
event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock) or in the event of any consolidation or merger of the
Company with or into another corporation (other than a merger in which merger
the Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise or exchange of this Warrant)
or in the event of any sale, lease, transfer or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to purchase the kind and
amount of shares of stock and other securities and property (including cash).
receivable upon such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been received upon exercise or exchange of this
Warrant immediately prior to such reclassification, capital reorganization,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provisions for
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<PAGE>
adjustments in respect of such shares of stock and other securities and property
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section 7 shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in connection with any such capital
reorganization or classification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for, or of, a security of the
Company other than Common Stock, any such issue shall be treated as an issue
of Common Stock covered by the provisions of subsection (a) of Section 6.
8. Notice to Warrant Holders. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon its Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of stock or
securities of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the assets of the
Company, or voluntary or involuntary dissolution or liquidation of the Company
shall be effected, then, in any such case, the Company shall cause to be mailed
to the Holder, at least thirty (30) days prior to the date specified in (x) or
(y) below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, dissolution
or liquidation is to take place and the date, if any is to be fixed, as of which
the holders of Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance, dissolution
or liquidation.
9. Certain Obligations of the Company. The Company agrees that it will
not increase the par value of the shares of Warrant Stock issuable upon exercise
of this Warrant above the prevailing and currently applicable Exercise Price
hereunder, and that before taking any action that would cause an adjustment
reducing the prevailing and current applicable Exercise Price hereunder below
the then par value of the Warrant Stock at the time issuable upon exercise of
this Warrant, the Company will take such corporate action, as in the opinion of
its counsel, may be necessary in order that the Company may validly issue fully
paid, nonassessable shares of such Warrant Stock. The Company will maintain an
office or agency (which shall initially be the Company's principal office in
Redwood City, California) where presentations and demands to or upon the Company
in respect of this Warrant may be made and will give notice in writing to the
registered holders of the then outstanding Warrants, at their addresses as shown
on the books of the Company, of each change of location thereof.
10. Repurchase Right. Notwithstanding any other provisions of this
Warrant, the Company may, in the event that the average trading price of the
Company's Common Stock, as reported on the NASDAQ SmallCap Market or such other
exchange on which the Company's Common Stock may then be quoted, exceeds $10.00
for a period of twenty (20) consecutive trading days, upon not less than thirty
(30) days' notice in writing to the Holder, repurchase all
-6-
<PAGE>
or any portion of this Warrant at a Purchase price equal to $.10 per share of
Common Stock covered hereby, such purchase price to be proportionally adjusted
each time the Exercise Price is adjusted pursuant to Section 6 hereof. During
such thirty (30) day period, the Holder may exercise such Warrants in accordance
with the terms hereof. The closing on such repurchase shall occur on the date
and at the time set forth in such notice at the office of the Company in
Redwood City, California or at such other place as shall be agreed upon by the
Company and the Holder. At the Closing, the Company shall deliver to the Holder
an amount equal to the purchase price in immediately available funds and the
Holder will deliver this Warrant to the Company for cancellation. To the extent
any repurchase hereunder is of less than all of the rights represented by this
Warrant, the Company will deliver to the Holder a new Warrant covering the
rights not so purchased.
11. Determination by Board of Directors. All determinations by the
Board of Directors of the Company under the provisions of this Warrant will be
made in good faith with due regard to the interest of the Holder and in
accordance with sound financial practices.
12. Notice. All notices to the Holder shall be in writing, and all
notices and certificates given to the Holder shall be sent registered or
certified mail, return receipt requested, to such Holder at his address
appearing on the records of the Company.
13. Replacement of Lost, Stolen, Destroyed or Multilated Warrants. Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft. or destruction, upon delivery of any indemnity bond in such reasonable
amount as the Company may determine in the case of any such mutilation, upon the
surrender of such Warrant for cancellation, the Company at its expense, will
execute and deliver, in lieu of such lost, stolen, destroyed or mutilated
Warrant, a new Warrant of like tenor.
14. Number and Gender. Whenever the singular number is used herein, the
same shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.
15. Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to its
conflict of laws principles.
PENN OCTANE CORPORATION
By: /s/ Jerome B. Richter
--------------------------------
Name: Jerome B. Richter
Title: Chairman, President and Chief
Executive Officer
Dated, October 21, 1997
-7-
<PAGE>
PURCHASE FORM
Dated _________, _____
The undersigned hereby irrevocably elects to exercise the within
Warrant to purchase ______________ shares of Common Stock and hereby makes
payment of $_________ in payment of the exercise price thereof.
Signature ________________________
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR THE SECURITES LAWS OF ANY STATE.
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF MAY BE SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF REGISTRATION OR QUALIFICATION OR AN EXEMPTION
THEREFROM UNDER APPLICABLE LAW.
COMMON STOCK PURCHASE WARRANT
Void after November 30, 2001
Warrant to Purchase 225,000 Shares of
Common Stock, $.01 par value
of Penn Octane Corporation
PENN OCTANE CORPORATION (POCC)
This is to Certify That, FOR VALUE RECEIVED,
Castle Energy Corporation
or registered assign(s) (herein referred to as the "Holder") is entitled to
purchase, subject to the provisions hereof, from PENN OCTANE CORPORATION, a
Delaware corporation (the 'Company"), but not later than 5:00 p.m., California
time, on November 30, 2001 (or, if such date is not a Business Day in Redwood
City, California, then on the next succeeding day which shall be a Business
Day), 225,000 shares of Common Stock, $.01 par value, of the Company (the
"Common Stock") at an exercise price of $1.75 per share, subject to adjustment
as to number of shares and purchase price as set forth in Section 6 below. The
exercise price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price".
For purposes of this Warrant, a "Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking instituitions, in New York, New
York, or in Redwood City, California, are authorized by law or regulation to
close.
The shares of Common Stock issuable upon exercise of the Warrants are sometimes
herein called the 'Warrant Stock."
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time and from time to time by presentation and surrender hereof to
the Company at its principal office with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price in immediately
available funds for the number of shares specified in such
<PAGE>
form. If this Warrant is exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant at the office
of the Company, in proper form for exercise, accompanied by payment of the
Exercise Price, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that
certificates representing such shares of Common Stock shall not then be actually
delivered to the Holder. The issuance of certificates for shares of Common Stock
upon the exercise of this Warrant shall be made without charge to the Holder for
any issuance tax in respect thereof (with the exception of any federal or state
income taxes applicable thereto), all such taxes to be paid by the Company, it
being understood however that the Holder shall be required to pay any tax which
way be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than that of the Holder. The Company will at
no time close its transfer books against the transfer of this Warrant or the
issuance of any shares of Common Stock issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this Warrant.
2. Reservation of Shares; Stock Fully Paid. The Company agrees that at
all times there shall be authorized and reserved for issuance upon exercise of
this Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant. All shares which may be
issued upon exercise hereof will, upon issuance, and receipt of payment
therefor, be duly authorized, validly issued, fully paid and non-assessable.
3. Fractional Shares. This Warrant shall not be exercisable in such
manner as to require the issuance of fractional shares. If, as a result of
adjustment in the Exercise Price or the number of shares of Common Stock to be
received upon exercise of this Warrant, fractional shares would be issuable, no
such fractional shares shall be issued. In lieu thereof, the Company shall pay
the Holder an amount in cash equal to such fraction multiplied by the Fair
Market Value of a share of Common Stock. The term "Fair Market Value" shall
mean, as of a particular date, the market price on such date.
For purposes of this Warrant, the market price on any day shall be the
last sale price on such day on the NASDAQ Stock Market, or, if the Common Stock
is not then listed or admitted to trading on the NASDAQ Stock Market, on such
other principal stock exchange on which such stock is then listed or admitted to
trading, or, if no sale takes place on such day on any such exchange, the
average of the closing bid and asked prices on such day as officially quoted on
any such exchange, or, if the Common Stock is not then listed or admitted to
trading on any stock exchange, the average of the reported closing bid and asked
prices on such day in the over-the-counter market as quoted on the National
Association of Securities Dealers Automated Quotation System or, if not so
quoted, then as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company. If there shall be no
meaningful over-the-counter market, then Fair Market Value shall be such amount,
not less than book value, as may be determined by the Board of Directors of the
Company.
4. Exchange or Assignment of Warrant. This Warrant is exchangeable
without expense (other than applicable transfer taxes) at the option of the
Holder, upon presentation and surrender hereof to the Company for any other
Warrants of different denominations entitling the
<PAGE>
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to the provisions of Section 12 below and
any restriction on transfer applicable hereto pursuant to the securities laws
of the United States or any State, upon surrender of this Warrant to the Company
with an assignment form duly executed, and funds sufficient to pay any transfer
tax, the Company shall, without charge, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this Warrant
shall promptly be cancelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof at the principal
office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged, and the term "Holder" as used herein
includes any holder of any Warrant into which this Warrant may be divided or for
which this Warrant may be exchanged.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Adjustment of Exercise Price and Number of Shares. The number and
kind of securities purchasable upon the exercise or exchange of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Adjustment for Change in Capital Stock. If at any time after the
date hereof, the Company:
(A) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(C) combines its outstanding shares of Common Stock into a smaller
number of shares;
(D) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(E) issues by reclassification of its Common Stock any shares of
its capital stock;
then the number and kind of securities purchasable upon exercise or exchange of
this Warrant and the Exercise Price in effect immediately prior to such action
shall each be adjusted so that the Holder may receive upon exercise or exchange
of this Warrant and payment of the same aggregate consideration, the number of
shares of capital stock of the Company which the Holder would have owned
immediately following such action if the Holder had exercised or exchanged the
Warrant immediately prior to such action.
<PAGE>
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
(b) Adjustment for Other Distributions. If at any time after the date
hereof, the Company distributes to all holders of its Common Stock any of its
assets or debt securities, the Exercise Price following the record date shall be
adjusted in accordance with the following formula:
E'= E x M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the adjustment.
M = the current market price (as defined in (e) below) per share
of Common Stock on the record date of the distribution.
F = the aggregate fair market value (as conclusively determined by
the Board of Directors of the Company) on the record date of
the assets or debt securities to be distributed divided by
the number of outstanding shares of Common Stock.
The adjustment shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive the distribution. In the event
that such distribution is not actually made, the Exercise Price shall again be
adjusted to the Exercise Price as determined without giving effect to the
calculation provided hereby. In no event shall the Exercise Price be adjusted to
an amount less than zero.
This subsection does not apply to cash dividends or cash distributions
paid out of consolidated current or retained earnings as shown on the books of
the Company and paid in the ordinary course of business.
(c) Deferral of Issuance or Payment. In any case in which an event
covered by this Section 6 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer making
such adjustment until the occurrence of such event. If the Company so defers
making any such adjustment and if this Warrant is exercised after such record
date but before the occurrence of such event, the shares of Common Stock and
other capital stock of the Company if any, issuable upon such exercise, had
such adjustment been made as of the record date, over and above the shares of
Common Stock or other capital stock of the Company, if any, issuable upon such
exercise on the basis of the Exercise Price as unadjusted, shall be issued
promptly upon the occurrence of such event and the Company shall pay to the
Holder by check any amount in lieu of the issuance of fractional shares pursuant
to Section 3.
<PAGE>
(d) When No Adjustment Required. No adjustment need be made for a change
in the par value or no par value of the Common Stock.
(e) Statement of Adjustments. Whenever the Exercise Price and number of
shares of Common Stock purchasable hereunder is required to be adjusted as
provided herein, the Company shall promptly prepare a certificate signed by its
President or any Vice President and its Treasurer or Assistant Treasurer,
setting forth, in reasonable detail the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description hereunder), and the Exercise Price and number of shares
of Common Stock purchasable hereunder after giving effect to such adjustment,
and shall promptly cause copies of such certificates to be mailed to the Holder.
(f) No Adjustment Upon Exercise of Warrants. No adjustments shall be
made under any Section herein in connection with the issuance of Warrant Stock
upon exercise or exchange of the Warrants.
(g) No Adjustment for Small Amounts. Anything herein to the contrary
notwithstanding, no adjustment of the Exercise Price shall be made if the
amount of such adjustment shall be less than $.05 per share, but in such case,
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to $.05 per share or more.
(h) Common Stock Defined. Subject to the provisions of Section 7 hereof,
shares issuable upon exercise or exchange hereof shall include only shares of
the class designated as Common Stock of the Company as of the date hereof or
shares of any class or classes resulting from any reclassification or
reclassifications thereof or as a result of any corporate reorganization as
provided for in Section 7 hereof.
7. Recassification, Reorganization, Consolidation or Merger. In the
event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock) or in the event of any consolidation or merger of the
Company with or into another corporation (other than a merger in which merger
the Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise or exchange of this Warrant)
or in the event of any sale, lease, transfer or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to purchase the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been received upon exercise or exchange of this
Warrant immediately prior to such reclassification, capital reorganization,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provisions for
<PAGE>
adjustments in respect of such shares of stock and other securities and property
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section 7 shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in connection with any such capital
reorganization or classification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for, or of, a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of subsection (a) of Section 6.
8. Notice to Warrant Holders. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon its Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of stock or
securities of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the assets of the
Company, or voluntary or involuntary dissolution or liquidation of the Company
shall be effected, then, in any such case, the Company shall cause to be mailed
to the Holder, at least thirty (30) days prior to the date specified in (x) or
(y) below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, dissolution
or liquidation is to take place and the date, if any is to be fixed, as of which
the holders of Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance, dissolution
or liquidation.
9. Certain Obligations of the Company. The Company agrees that it will
not increase the par value of the shares of Warrant Stock issuable upon exercise
of this Warrant above the prevailing and currently applicable Exercise Price
hereunder, and that before taking any action that would cause an adjustment
reducing the prevailing and current applicable Exercise Price hereunder below
the then par value of the Warrant Stock at the time issuable upon exercise of
this Warrant, the Company will take such corporate action, as in the opinion of
its counsel, may be necessary in order that the Company may validly issue fully
paid, nonassessable shares of such Warrant Stock. The Company will maintain an
office or agency (which shall initially be the Company's principal office in
Redwood City, California) where presentations and demands to or upon the Company
in respect of this Warrant may be made and will give notice in writing to the
registered holders of the then outstanding Warrants, at their addresses as shown
on the books of the Company, of each change of location thereof.
10. Repurchase Right. Notwithstanding any other provisions of this
Warrant, the Company may, in the event that the average trading price of the
Company's Common Stock, as reported on the NASDAQ SmallCap Market or such other
exchange on which the Company's Common Stock may then be quoted, exceeds $10.00
for a period of twenty (20) consecutive trading days, upon not less than thirty
(30) days' notice in writing to the Holder, repurchase all or any portion of
this Warrant at a purchase price equal to $.10 per share of Common Stock
<PAGE>
covered hereby, such purchase price to be proportionally adjusted each time the
Exercise Price is adjusted pursuant to Section 6 hereof. During such thirty (30)
day period, the Holder may exercise such Warrants or a portion thereof in
accordance with the terms hereof. The closing on such repurchase shall occur on
the date and at the time set forth in such notice at the office of the Company
in Redwood City, California or at such other place as shall be agreed upon by
the Company and the Holder. At the Closing, the Company shall deliver to the
Holder an amount equal to the purchase price in immediately available funds and
the Holder will deliver this Warrant to the Company for cancellation. To the
extent any repurchase hereunder is of less than all of the rights represented by
this Warrant, the Company will deliver to the Holder a new Warrant covering the
rights not so purchased.
11. Determination by Board of Directors. All determinations by the Board
of Directors of the Company under the provisions of this Warrant will be made in
good faith with due regard to the interest of the Holder and in accordance with
sound financial practices.
12. Notice. All notices to the Holder shall be in writing, and all
notices and certificates given to the Holder shall be sent registered or
certified mail, return receipt requested, to such Holder at his address
appearing on the records of the Company.
13. Replacement of Lost, Stolen, Destroyed or Mutilated Warrants. Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon delivery of any indemnity bond in such reasonable
amount as the Company may determine in the case of any such mutilation, upon the
surrender of such Warrant for cancellation, the Company at its expense, will
execute and deliver, in lieu of such lost, stolen, destroyed or mutilated
Warrant, a new Warrant of like tenor.
14. Number and Gender. Whenever the singular number is used herein, the
same shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.
<PAGE>
15. Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to its
conflict of laws principles.
PENN OCTANE CORPORATION
By: /s/ Jerome B. Richter
----------------------------
Name: Jerome B. Richter
Title: Chairman, President and
Chief Executive Officer
Dated: December 1, 1998
<PAGE>
PURCHASE FORM
Dated ________, _____
The undersigned hereby irrevocably elects to exercise the within Warrant
to purchase __________shares of Common Stock and hereby makes payment of
$_____________ in payment of the exercise price thereof.
Signature ________________________
