______________________________________________________________________________
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended July 31, 1996
Commission File Number 33-53740-A
Penn Octane Corporation
(Exact name of Company as specified in charter)
Delaware
(State or other jurisdiction of incorporation or organization)
52-1790357
(I.R.S. Employer Identification No.)
5847 San Felipe, Suite 3420, Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
(713) 952-5703
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on
of Securities Registered which registered
- - ----------------------------- --------------------------
None None
Securities registered pursuant to Section 12 (g) of the Act:
- - ------------------------------------------------------------
Common Stock, Par Value $.01
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No__
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained
in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
The Company's revenue for the most recent fiscal year is $26,270,673.
As of September 30, 1996, the aggregate market value of the
Company's voting stock held by non-affiliates was $9,141,840.
(Excludes 2,093,414 shares of voting stock held by
directors and officers). As of September 30, 1996, there were
5,205,000 shares of the Company's $.01 par value common
stock outstanding.
<PAGE>
Penn Octane Corporation
INDEX
Part I Page
Item 1 Description of Business 3
Item 2 Description of Property 5
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a vote of Security Holders 7
Part II
Item 5 Market for Common Equity and Related Stockholder Matters 7
Item 6 Management's Discussion and Analysis or Plan of Operation 8
Item 7 Financial Statements 13
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
Part III
Item 9 Directors and Executive Officers of the Company 38
Item 10 Executive Compensation 39
Item 11 Security Ownership of Certain Beneficial
Owners and Management 40
Item 12 Certain Relationships and Related Transactions 41
Item 13 Exhibits and Reports on Form 8-K 41
<PAGE>
Part I
Item 1. Description of Business.
a. General.
Penn Octane Corporation, (the "Company"), formerly known
as International Energy Development Corporation (IEDC), which
was incorporated on August 27, 1992, engages primarily in the
transportation, handling and sale of liquid petroleum gas ("LPG").
b. Business Development.
On October 21, 1993, IEDC purchased 100% of the common stock
of Penn Octane Corporation ("POC"), a Texas corporation, and
merged it into IEDC as a division. The Company's primary
asset was an LPG pipeline lease agreement with Seadrift
Pipeline Corporation, a subsidiary of Union Carbide
Corporation. In January 1995, the Board of Directors approved
the change of IEDC's name to Penn Octane Corporation.
The lease agreement is for one hundred twenty-one miles of
six inch pipeline from Exxon USA's King Ranch Gas Plant in
Kleberg County, Texas to the fence line of certain property
owned by the Brownsville Navigation District of Cameron County,
Texas, and for eleven miles of three inch pipeline from
PanEnergy Corporation's LaGloria Gas Plant in Jim Wells County,
Texas to its intersection with the six inch pipeline in
Kleberg County, Texas. The lease term is for a ten year
period and commenced on April 1, 1994. Under certain limited
circumstances, the lessor may terminate the lease by giving twelve
months written notice.
The Company leased approximately 14 acres of land owned by
the Brownsville Navigation District of Cameron County, Texas
for construction of an LPG terminal. The leased property is
located adjacent to the Brownsville Ship Channel which is a
major deep water port serving northeastern Mexico including
the city of Monterrey. The Company's lease includes a
pipeline easement to the Brownsville Navigation District's oil dock.
From January 1994 through June 1994, the Company constructed
an LPG terminal. Total rated storage capacity of the terminal
is approximately 675,000 gallons of LPG. The terminal
facilities include 11 storage and mixing tanks, 4 mixed product
truck loading racks, 1 specification product propane loading
rack, and 2 racks capable of receiving LPG delivered by truck.
The truck loading racks are linked to a computer controlled
loading and remote accounting system. The Company constructed
over 1 mile of pipeline to directly connect its leased pipeline
with the terminal. The cost of refurbishing the existing
pipeline, adding the connecting pipeline and constructing the
terminal facilities totaled approximately $3,700,000 which was
financed through a combination of short-term bank debt and
equity. The Company commenced delivery of LPG on July 1, 1994.
At July 31, 1996, contractors and suppliers were owed
approximately $609,000 for work performed on the Company's
terminal and pipeline.
On November 12, 1993, the Company entered into a joint venture
agreement with National Power Exchange Group, Inc. ("NPEG") in
which the companies proposed to develop independent power
projects in the U.S., Mexico, Canada and other countries.
During the year ended July 31, 1994, the Company advanced
$277,788 to NPEG.
On October 30, 1994, a settlement agreement and mutual release
was signed by the Company and NPEG which, among other things,
settled all prior agreements and allowed NPEG to remain an
independent company in return for payment of $2,000,000 by
January 1, 1996. NPEG paid $300,000 to the Company as
scheduled by January 1, 1995. A second payment of $200,000
plus interest was due on January 31, 1995. In July 1995,
due to the lateness in receiving scheduled payments and the
uncertainty of the timing of NPEG's receipt of funds from
construction financing of its independent power project, the
Company made a provision to reduce the amount due under the
settlement agreement. The accrued interest of $79,957 at
July 31, 1995, remained unpaid. The remaining balance,
$700,000 plus interest of $79,957 as of July 31, 1995, was due no
later than January 1, 1996.
<PAGE>
NPEG and others were in the process of obtaining construction
financing for a proposed independent power production facility.
The source of funds for NPEG to pay the amount due the Company
under the settlement agreement was from the proceeds of the
proposed construction loan.
On August 23, 1995, NPEG paid the Company $200,000 towards
the second payment. At October 31, 1995, the net amount due
was $589,114. On April 5, 1996, NPEG made payment of $600,000
to the Company and NPEG and the Company signed a final
settlement agreement which settled all prior agreements.
c. Principal Products and Markets.
At this time, the Company's principal product is LPG, which
consists of propane and butane mixed at the Company's terminal
for sale to P.M.I. Trading Limited ("PEMEX"), a subsidiary of
Petroleos Mexicanos, the Mexican national oil company. PEMEX
purchases LPG at the Company's terminal and transports it across
the border for distribution throughout northeastern Mexico.
During the year ended July 31, 1996, sales to PEMEX accounted
for 96.5% of total sales.
Commencing in December 1995, the Company began selling propane
to U.S. distributors located in the Rio Grande Valley. During
the year ended July 31, 1996, propane sales to U.S. distributors
accounted for 3.5% of the Company's total sales.
d. Distribution Methods of the Product.
In February 1996, the Company purchased fourteen LPG trailers
which are approved for transport of LPG over U.S. roadways.
These trailers are used to transport LPG from the Company's
terminal to both Mexican and U.S. distributors. In addition,
the Company uses two of these trailers to transport butane to
the Company's terminal where it is mixed with propane to
PEMEX's specifications. The only method of product distribution
is through the truck loading racks for loading into LPG trucks,
the majority of which are owned and operated by others.
e. Competition.
The Company competes both with several major oil and gas
companies and with trucking companies for the export of LPG to
northeastern Mexico. In many cases these companies own or
control their LPG supply and have significantly greater
financial resources than the Company. Therefore, there can be
no assurance that the Company will be able to compete
effectively with these competitors.
However, the Company believes it has three unique advantages
over these competitors: (1) an established pipeline for
transportation of LPG directly from its source to the Company's
terminal; (2) a terminal facility which enables the Company to
strictly regulate and monitor the quality of the LPG mix sold
to PEMEX; and (3) a location which is closer to consumers of
LPG in such major cities as Matamoros, Reynosa and Monterrey
than the historical alternative point of export, Eagle Pass, Texas.
Until the commencement of operations by the Company at its
Brownsville terminal, LPG exports to northeastern Mexico from
the U.S. had been transported by truck and rail, primarily
through Eagle Pass, Texas which is approximately 240 miles
northwest of Brownsville. In most cases, established pipelines
are generally the lowest cost alternative for the transportation
of LPG. However, at certain times of the year, the trucking
companies may reduce their rates to levels which lands LPG at
the border at a lower cost than the Company. The Company believes
these cost advantages to be limited in both duration and volumes
and that on an annualized basis its pipeline provides a transportation
cost advantage over the Company's competitors.
In April 1994, after completing an internal study which
identified the Brownsville/Matamoros border crossing as providing
significant cost savings to consumers of LPG in northeastern
Mexico, PEMEX solicited bids from several other LPG
producers/providers specifying delivery at the frontier, which
was defined as the free trade zone in Brownsville/Matamoros.
The Company submitted the winning bid as it was the only bidder
capable of supplying the LPG mix specified, in the quantities
and to the location desired. The Company received the first
purchase order in June 1994 for LPG to be delivered in July 1994.
The Company believes that no other existing competitor can supply
LPG mixed to specification in Brownsville as efficiently and as
inexpensively.
f. Raw Materials and Supplies.
Throughout the fiscal year ended July 31, 1996, the Company
operated under a sales
<PAGE>
arrangement with PEMEX such that the
Company was no longer responsible for procuring propane and
butane. Under this arrangement, PEMEX assumed the responsibility
for and risk of obtaining propane and butane and for delivering
them to the Company's pipeline and terminal, respectively.
Title passed to the Company and the Company assumed the risk
and cost of transporting the products to its terminal, the
costs of mixing the products to PEMEX's specifications and the
cost of delivering the mixed product to PEMEX. Upon delivery to
trucks supplied by PEMEX, the Company recorded the sale. This
arrangement substantially eliminated the supply and price risks
and the cost of financing LPG purchases for the Company.
Under the terms of the contract renewal negotiated with PEMEX
which was effective October 1, 1996, the sales arrangement will
change such that the Company will purchase LPG under contract
from sources it identifies, move the LPG to its terminal, mix
it to PEMEX's specifications and load it into trucks supplied
by PEMEX. The terms of this contract provide for a minimum
monthly volume of LPG to be purchased by PEMEX. The monthly
minimums will vary on a seasonal basis. The Company has
structured an LPG purchase contract with a primary supplier
which mirrors the minimum volumes, terms and conditions of its
sales contract with PEMEX. The Company believes it has an
adequate supply under contract to satisfy the requirements of
PEMEX.
g. Dependence on One Customer.
During the fiscal year ended July 31, 1996, the Company's
primary customer was PEMEX, accounting for 96.5% of sales
revenue. While the Company has initiated marketing efforts in
the U.S. Rio Grande Valley, the Caribbean Basin and Central
America, for the near future it will continue to be dependent
upon sales to PEMEX.
h. Government regulation.
The Company's terminal and truck loading/unloading racks are
under the jurisdiction of the LP-Gas Division of the Railroad
Commission of Texas. To the best of its knowledge, the Company
is in compliance with all regulations.
i. Environmental Matters.
To the best of its knowledge, the Company is in full compliance
with all applicable environmental laws and regulations and does
not consider the cost of compliance to be material.
j. Employees.
As of July 31, 1996, the Company had 14 full-time employees.
Item. 2. Description of Property.
The Company's operating business is conducted at its terminal
located at the Port of Brownsville, Texas. The terminal, which
is owned by the Company, is located on land leased from the
Brownsville Navigation District. The initial lease term is
five years. At the option of the Company, the lease can be
renewed for an additional 5 year term. There are three
buildings on the leased premises: one of approximately 600
square feet was constructed by the Company; one of
approximately 23,000 square feet was purchased by the Company;
and a third of approximately 5,000 square feet was renovated by
the Company.
The Company has assumed an operating lease entered into by
POC on September 13, 1993, prior to the merger of POC into
the Company. After incurring costs for hydrostatic tests
and pipeline repairs of approximately $480,000, the Company
leased the pipeline for a ten-year period. Annual lease and
maintenance payments approximate $655,000.
The Company has not made all payments required by this lease
agreement. Approximately $110,000 is owed under the pipeline
lease for reimbursement for repairs made by the lessor prior
to the commencement of the lease.
As provided for in the lease agreement, the pipeline lessor
has the right to terminate the lease agreement under certain
limited circumstances at specific times in the future by
giving twelve months written notice. Management believes
the chances of the lessor executing its termination rights
are remote. The Company can also terminate the lease at any
time after the first twelve months by giving thirty days notice
in the event its sales arrangement with its major customer
is terminated. The
<PAGE>
Company can also terminate the lease at any
time after the fifth anniversary date of the lease by giving
twelve months notice. Upon termination by the lessor, the lessor
has the obligation to reimburse the Company the lesser of
(1) the net book value of its LPG terminal at the time of such
termination of (2) $2,000,000.
As of July 31, 1996, two companies: Lauren Constructors, Inc.
("Lauren"); and Thomas G. Janik & Associates, Inc. ("Janik"),
had filed Mechanic's and Materialmen's Liens against the
Company's Brownsville terminal. The Company was in litigation
with Lauren and Janik but the parties reached a settlement
agreement on June 21, 1995 (see Legal Proceedings). Under
terms of the settlement agreement, the parties agreed to stay
the pending legal proceedings provided the Company adhered to
an agreed-upon payment schedule. At July 31, 1996, the principal
amount owed Lauren and Janik was $360,145 and $77,689, respecively.
Under terms of the settlement agreement, the Company was to have
made a balloon payment on August 15, 1996 for the remaining
balance due. Because the Company had complied with all other
terms and conditions of the settlement agreement and had made
combined principal and interest payments to Lauren and Janik of
$984,480, the parties agreed to extend the settlement agreement
to April 14, 1997, under substantially similar terms and conditions
provided the Company execute a promissory note in their favor.
In the opinion of management, the above-mentioned properties
are adequately covered by insurance.
The Company's principal executive and administrative facilities
currently occupy approximately 3,000 square feet of an office
building located at 5847 San Felipe, Suite 3420, Houston,
Texas 77057.
Item 3. Legal Proceedings
On October 5, 1994, Lauren and Janik (see Item 2) filed suit
in Texas seeking principal payments of $1,032,308 and $231,946,
respectively, for work performed at the Company's LPG terminal.
On June 21, 1995, the Company executed a settlement agreement
("Agreement") regarding the pending lawsuit with Lauren and
Janik. Under terms of this Agreement, the contractors agreed
to stay the pending litigation so long as the Company did not
breech the Agreement and to resume work at the terminal to
address certain items needing repair that had been identified by
the Company. The Company agreed that the amount due totalled
$1,308,000 at May 31, 1995, and to make total minimum monthly
payments to Lauren and Janik of $34,445, including interest at
12% per annum and to make additional payments related to the
monthly volume of gallons of LPG sold by the Company through its
Brownsville terminal. Additionally, the Company assigned Lauren
and Janik its interest in any and all funds (up to the total
remaining balance then outstanding) received from the IBC-
Brownsville litigation discussed below and the NPEG sales
proceeds (see Item 1). The Company also agreed that if the Company
received the gross sum of $1,500,000 from the sale of stock or
other capital infusions, the Company would pay the entire amount
then owing to the contractors and to place in escrow shares of
the Company's common stock equal to twice the minimum monthly
payment. The Company further agreed that if the entire amount
was not paid in full by August 15, 1996, the Company would be
considered to be in breach of the Agreement and the interest
rate would increase to 18% per annum, or to the highest rate
allowed by law, whichever was less.
Through July 31, 1996, the Company had complied with all terms
of the Agreement. However, the Company did not make
the balloon payment due on August 15, 1996. Lauren and Janik
agreed to extend the term of the Agreement until
April 14, 1997, under substantially similar terms and conditions.
In exchange for this extension, the Company made an immediate
lump sum payment of approximately $50,000 to Lauren and Janik
and will execute a promissory note for the remaining balance due.
Additional collateral will be provided to Lauren and Janik in
the form of a first lien position on the improvements at the
Brownsville terminal further secured by a mortgagee's title policy
for the full amount of the principal and accrued interest remaining on
the debt.
On August 24, 1994, the Company filed an Original Petition
and Application for Injunctive Relief against the International
Bank of Commerce-Brownsville, a Texas state banking association
("IBC-Brownsville") seeking: (1) either enforcement of a credit
facility between the Company and IBC-Brownsville or a release of
the Company's collateral consisting of significantly all of the
Company's business and assets; (2) declaratory relief with respect
to the credit facility; and (3) an award for damages and attorney's
fees. These claims were to be resolved through arbitration. The
arbitration was conducted through the American Arbitration
Association, Commercial Arbitration No. B 70 148 0133 94 A. The
arbitration hearing, held before a panel of three neutral
arbitrators, commenced on July 19, 1995, and concluded on August 2,
1995. On October 10, 1995, the Company received notification of an
Award of Arbitrators. On February 28, 1996, after denying IBC-
<PAGE>
Brownsville's motion to vacate the arbitration award, the court
ordered the following judgment:
International Energy Development Corporation n/k/a Penn Octane
Corporation shall have a judgment against International Bank of
Commerce-Brownsville in the sum of $2,810,737, plus post-award
interest at a rate of 9.75% compounded annually to begin running
10 days after the date this award was signed by the requisite
number of arbitrators (September 21, 1995) to the entry of this
Judgment and thereafter at the statutory rate (10%).
Upon the entry of this Judgment International Bank of
Commerce-Brownsville shall release all collateral transferred
to it by International Energy Development Corporation n/k/a
Penn Octane Corporation.
The Court further orders that International Energy Development
Corporation n/k/a Penn Octane Corporation shall have and recover
from International Bank of Commerce-Brownsville attorneys' fees
in the sum of $100,000 for services rendered in pursuing the
entry of Judgment in this case, together with interest at the
statutory rate from date of entry of this Judgment until paid
and conditionally $7,500 for any appeal to the Court of Appeals
and $5,000 for any appeal to the Texas Supreme Court and $2,500 in
the event Writ is granted by the Supreme Court.
On June 3, 1996, IBC-Brownsville filed an appeal to the
Court of Appeals with their brief due on November
18, 1996. The Company continues to believe that the
Judgment is final, binding and collectible and that
this will resolve the litigation with IBC-Brownsville.
The financial statements do not include any adjustments to
reflect the gain contingency (the Judgment), net of attorney's
fees, or the offset at July 31, 1996, the offset amounts owed
to IBC-Brownsville totaled $672,552 and $39,853 and are included
in short-term borrowings and accrued liabilities, respectively.
In addition, the Company has accrued $140,657 of interest through
July 31, 1996, and continues to accrue interest monthly. The
Judgment will be accounted for when it is actually realized and
the offset will be accounted for when IBC-Brownsville has
exhausted all appeals.
On April 18, 1996, the Company reached agreement with a bank related
to IBC-Brownsville to accept $400,000
to settle a lawsuit it filed in October 1995. As part of the
settlement agreement, the parties executed mutual releases from future
claims related to the IBC-Brownsville litigation. Additionally,
the defendant provided an indemnity agreement to the Company
against future claims from IBC-Brownsville. The amount is recorded
in the statement of operations for the year ended July 31, 1996.
On June 26, 1996, IBC-Brownsville filed a suit against the Company,
Case No. 96-06-3502 in the 357th Judicial District Court of Cameron
County alleging that the Company, in filing the judgment against
IBC-Brownsville in order to clear title to its assets, slandered
the title of IBC-Brownsville. IBC-Brownsville contends that the
Company's judgment against them prevented them from selling certain
property. IBC-Brownsville has claimed actual damages of $600,000
and requested punitive damages of $2,400,000. On September 23,
1996, the court which entered the judgment on behalf of the
Company indicated in a preliminary ruling that the Company
was privileged in filing the judgment to clear title to its assets.
The Company believes the case to be frivolous and is a breach of the
settlement agreement entered into with a bank related to
IBC-Brownsville. Further, the Company believes this cause of action is
covered by an indemnity agreement from that related bank.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock began trading in the over-the-counter
("OTC") market on the NASDAQ SmallCap Market under the symbol
POCC in December 1995. Prior to that date, the stock prices were
obtained from securities dealers who made a market in the stock.
As of July 31, 1996, there were approximately 360 holders of
record of the Company's securities.
<PAGE>
The Company has not paid and
does not intend to pay any dividends to shareholders in the
foreseeable future. The following table summarizes the prices of
the common stock over the two most
recent fiscal years:
Fiscal Year High Low
1995
First Quarter $5.75 $3.75
Second Quarter 5.00 3.75
Third Quarter 4.75 3.75
Fourth Quarter 4.875 3.50
1996
First Quarter $4.75 $3.50
Second Quarter 4.75 3.125
Third Quarter 6.75 3.625
Fourth Quarter 6.063 3.50
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
In 1993, the Company identified a market for export of liquid
petroleum gas ("LPG") to the rapidly growing northeast region
of Mexico which includes the cities of Matamoros, Reynosa and
Monterrey. Throughout Mexico, LPG, in the form of a mixed
propane/butane product, is used primarily for residential and
commercial heating and cooking. LPG demand has grown
approximately 5% annually over the past several years and is
directly linked with population growth.
PEMEX is responsible for importing LPG to Mexico. Prior to
the commencement of the Company's operations, PEMEX served this
region of Mexico by transporting internally produced LPG from
its major petrochemical production facilities at Pajaritos,
Mexico via ship to Ciudad Madero and truck from Madero to local
distributors in northeastern Mexico. PEMEX also served this
region by importing LPG from the United States through Piedras
Negras, Mexico, which is across the Rio Grande River from Eagle
Pass, Texas, approximately 240 miles northwest of Brownsville.
This product was also transported by truck to the local
distributors. The Company's Brownsville terminal provides
significantly reduced trucking distances from both of these
supply centers previously used by PEMEX; ranging from an
approximate advantage of 331 miles from either Madero or
Piedras Negras to Matamoros to an approximate 57 mile advantage
to Monterrey over Piedras Negras.
Commencing July 1, 1994, PEMEX began purchasing LPG at the
Company's Brownsville terminal. Sales totaled 65,414,587
gallons and 33,526,871 gallons for the years ended July 31, 1996
and 1995, respectively. Sales during the year ended
July 31, 1995, were less than anticipated due to the dispute
with the Company's bank discussed below.
After receipt of the initial purchase order from PEMEX on
June 27, 1994, the Company entered into a loan agreement by
executing notes and other documents with the International
Bank of Commerce of Brownsville, Texas ("IBC-Brownsville")
on June 30, 1994. This credit facility consisted of a standby
letter of credit facility to be used for purchases of propane
and butane; a receivables facility to proved advances against
PEMEX receivables sufficient to pay for LPG and Company
operations; and a term loan to be used to repay the amounts
owed contractors and other short-term Company debt. To secure
its obligations under this credit facility, the Company signed a
Security Agreement assigning and granting to IBC-Brownsville
a security interest in significantly all of the Company's
business and assets, including its pipeline lease agreement,
its leased land at the Port of Brownsville, its terminal
facilities and related equipment, inventories and all contracts
and accounts receivable.
Beginning July 1, 1994, IBC-Brownsville advanced the Company
directly or made payments directly to certain of the Company's
suppliers totaling $1,507,552 against the collateral. On
August 5, 1994, IBC-Brownsville notified the Company that it
would not honor certain of the Company's checks but would
continue to honor its irrevocable letters of credit issued on
behalf of the Company.
Through November 1994, the Company's shipments to PEMEX
increased each month. However, due to the dispute with
IBC-Brownsville (see Item 3), this growth was considerably
less than expected as the Company had been operating without
a bank working capital facility for a period
<PAGE>
of time and was
forced to rely solely on funds generated from operations.
On October 24, 1994, the Company entered into an Accounts
Receivable Factoring and Security Agreement with Allstate
Financial Corporation ("AFC") under which the Company
submitted all invoices to AFC and AFC advanced funds
sufficient to pay for LPG purchases. The balance of the
invoiced amount, less fees, was collected as invoices
were paid by PEMEX. In addition, on December 1, 1994,
AFC provided a guarantee acceptable to the Company's primary
propane supplier which enabled the Company to purchase propane
on a daily basis. On December 30, 1994, this guarantee was
extended to another propane supplier, Exxon Company U.S.A.
("Exxon"), which enabled the Company to enter into a one
year contract with Exxon for the purchase of 2,000 barrels
of propane per calendar day. A further requirement of this
financing agreement was that $1,000,000 be paid to
IBC-Brownsville for the repayment of $800,000 of its outstanding
loan to the Company with the remaining balance paid to
certain contractors. In return, IBC-Brownsville agreed to
release a portion of the collateral tendered to it by the
Company (accounts receivable) and to pay certain of the
unpaid amounts due to contractors and suppliers for the
construciton of the Company's LPG terminal. This credit
facility provided the Company with sufficient working
capital to operate successfully and supply the volumes of
LPG desired by PEMEX.
In June 1995, PEMEX and the Company restructured the sales
arrangement such that PEMEX assumed the responsibility for
and risk of obtaining propane and butane and delivering them
to the Company's pipeline and terminal, respectively. Under
this arrangement, the Company took title to the LPG and assumed
the risk and cost of mixing to PEMEX's specifications and of
delivery into Pemex supplied trucks each month. As a result
of this arrangement, the Company terminated its annual propane
purchase agreement with Exxon. The Company's fixed fee per
gallon was reduced somewhat under this arrangement and the Company
no longer required the Accounts Receivable Factoring credit
facility for its day-to-day operations and so notified AFC.
As there were funds outstanding which AFC had advanced on behalf
of the Company as well as an early termination fee, the Company
and AFC negotiated an acceptable payoff schedule for this balance.
The balance was repaid in full by December 1995.
On September 29, 1994, a shareholder of the Company paid a
promissory note to a bank ($1,450,000) which had been
collateralized by a savings account in the name of the shareholder.
The Company replaced the note to the bank by issuing 300,000
shares of common stock and a promissory note to the shareholder
for $800,000. The new note bore interest at 10% and had a
maturity date of September 29, 1995.
Effective January 31, 1995, the Company and the shareholder
holding the $800,000 promissory note reached agreement to
cancel the note plus the accrued interest in exchange for
300,000 shares of the Company's common stock.
On October 21, 1994, the Company and National Power Exchange
Group Inc. ("NPEG") signed an option agreement to allow NPEG
to remain independent. This option agreement stated that the
Company would sell its purchase option to NPEG for $2,000,000
provided that NPEG made payments to the Company to three
specific dates from November 7, 1994, to January 15, 1995.
On October 30, 1994, a Settlement Agreement and Mutual General
Release was signed by the Company and NPEG which, among other
things, settled all prior agreements and modified the payment
schedule to two specific dates from January 3, 1995 to
January 1, 1996. This payment schedule was again modified
by a letter agreement dated December 29, 1994. This letter
agreement rescheduled a $500,000 payment due January 3, 1995
into two payments. One payment of $300,000, which was due
by January 3, 1995, was paid on time. Another payment of $200,000
plus interest was due on January 31, 1995. The remaining balance,
$1,500,000 plus interest of $79,957, was due no later than
January 1, 1996. NPEG and others were in the process of
obtaining construction financing for a proposed independent
power production facility which was to be the source of funds
for NPEG to pay the amount due the Company under the
Settlement Agreement. Due to the late payments and the
uncertain timing of funding of the proposed construction loan,
the Company made a provision to reduce the amount due under
the Settlement Agreement to $779,957 at July 31, 1995. On August
23, 1995, NPEG paid the Company $200,000 which reduced the amount
outstanding to $589,114. On April 5, 1996, the Company received
payment of $600,000 and settled and discharged the Settlement
Agreement and Mutual General Release with NPEG.
On March 1, 1995, the Company executed an agreement with the
consulting firm that assisted the Company in negotiating
purchase orders with its customer. This agreement provided
that the consulting firm would agree to relinquish its rights
to be paid commissions due under its marketing agreement with
the Company in exchange for 200,000 shares of the Company's
common stock. This
<PAGE>
agreement covered the period from February
1, 1995 through June 30, 1998. The Company recorded the value
of the consulting contract based on a stock price of $2.00 per
share and was amortizing the asset over the remaining term of
the agreement. Because the consulting firm was no longer
providing services to the Company, the unamortized balance
of the asset was charged to operations as of July 31, 1996.
In fiscal year 1995, due to the length and cost of its
litigation with IBC-Brownsville, the Company's management
determined that additional capital was needed in order to meet
its obligations. On April 12, 1995, the board of directors of
the Company approved the sale of 250,000 shares of common stock
of the Company for $500,000 in a private placement. On
July 5, 1995, the board of directors of the Company approved
the sale of an additional 165,000 shares of common stock of
the Company for $330,000 in a private placement.
Due to the restructured sales arrangement with its primary
customer, in December 1995, the Company was able to obtain
a line of credit from a bank which provided sufficient
working capital and standby letters of credit to operate and
expand the Company's business. Standby letters of credit were
issued in favor of propane suppliers of the purchased propane
marketed by the Company to distributors based in the U.S.
Rio Grande Valley. The standby letter of credit issued in
January of 1996 in favor of propane suppliers of the purchased
propane marketed by the Company to distributors based in the
U.S. Rio Grande Valley. The standby letter of credit was obtained
for another supplier, which expired on September 30, 1996.
On February 22, 1996, the Company entered into a contract
to purchase fourteen LPG trailers for cash totaling $295,000.
These trailers are approved for the transport of LPG over
U.S. roadways and were placed in service in the transport of
LPG to both Mexican and U.S. distributors.
On March 1, 1996, the Company entered into an agreement
with a related party to borrow $500,000 in the form of
subordinate debt with warrants to purchase 50,000 shares
of the Company's common stock at $5.00 per share. This
loan is secured by a lien against the Company's terminal
assets, excluding inventory. This loan is interest only
with principal due in full on August 31, 1997 (under certain
conditions, principal repayment may occur sooner than
August 31, 1997).
On April 12, 1996, the Company borrowed an additional $500,000
under substantially similar terms and conditions.
On April 18, 1996, the Company reached an agreement to accept
$400,000 to settle a lawsuit it filed as plaintiff in
October 1995. The proceeds were received on May 28, 1996,
and were used to pay outstanding legal fees of $315,000 and
for working capital.
At July 31, 1996, the Company's arrangement with its primary
customer expired. After two months of negotiation, a new
agreement was reached. The term of the new agreement is for
a one year period commencing October 1, 1996. Under terms
of this agreement, the Company has committed to supply and
the customer has committed to purchase a minimum volume of
LPG each month with seasonal variability. The total committed
annual volume exceeds the volume sold to the customer during
the year ended July 31, 1996.
Under this agreement, the Company is again responsible for
the direct purchase of LPG. As a result, the Company has
negotiated an agreement with Exxon which mirrors the terms
and conditions of the Company's sales agreement with its
primary customer. The agreements provide the Company with a
fixed margin over the cost of gas. The Company has made
arrangements with its bank for a standby letter of credit
for the benefit of Exxon for the one year period of the agreements.
This letter of credit will enable the Company to purchase LPG
on an ongoing basis.
Since the Company agreed to finance the purchase of LPG,
the customer agreed to prepay for approximately 75% of the
gallons committed to be purchased in October 1996, and to make
payments within ten days of invoicing thereafter. Under the
terms of the agreement, invoicing will occur weekly and should
reduce the Company's working capital requirements substantially.
Because the Company had complied with all terms of the
settlement agreement entered into on June 21, 1995 with the
two contractors, Lauren and Janik, who were owed money from
the construction of the Company's terminal, and because the
Company had reduced the amount owed the contractors from
$1,308,000 to $437,834 as of July 1996, in October 1996, the
Company reached an agreement with Lauren and Janik to extend
the repayment schedule to April 14, 1997, under substantially
similar terms and conditions. Based on the minimum volumes
committed to by the Company's primary customer under the agreement
which commenced on October 1, 1996, the Company anticipates being
able to make repayment in full from cash flow generated by operations.
While the Company has neither made commitments nor has
definitive plans for additional capital expenditures during
the next twelve months, it continues to evaluate the cost of
and opportunities created by installing a cooling unit and
upgrading and extending a pipeline to the loading dock on the
Brownsville Navigation Channel in order to commence unloading
from and loading onto ocean-going LPG vessels. If determined
to be advantageous to the Company's operation, these facilities,
which are expected to cost less than $1,000,000, would enable the
Company to receive LPG from its primary customer for storage and
redelivery and to export LPG to Caribbean and other Latin
American markets.
Although IBC-Brownsville has appealed the judgment, the court
which entered the judgment issued an order on September 23,
1996, which provides that the Company has the right to enter
the judgment and free its assets from encumbrance.
Management of the Company believes that receipt of the
proceeds from the judgment against IBC-Brownsville would
enable the Company to substantially eliminate all of its
outstanding obligations including all debt and legal fees
plus provide additional working capital.
Effective October 24, 1996, Thomas P. Muse, Chairman,
Mark D. Casaday, President, and Thomas A. Serleth, Executive
Vice President, Secretary, Treasurer and Chief Financial
Officer resigned as members of the Board of Directors and
Officers of the Company. Mr. Casaday continued as President
until the expiration of his employment contract on
October 31, 1996.
Effective October 29, 1996, Jerome B. Richter was elected
to the positions of Chairman of the Board of Directors,
President and Chief Executive Officer, Ian T. Bothwell was
elected Vice President, Treasurer, Assistant Secretary and
Chief Financial Officer, and Jorge Bracamontes was elected
Executive Vice President and Secretary.
The Company does not expect any significant change in the
number of employees over the next twelve months.
Through a combination of the new agreements with its primary
customer to purchase and its primary LPG supplier to provide
increased sales volumes, and a full year of sales to
U.S. Rio Grande Valley propane distributors, the Company
believes it will have cash flow adequate to meet its obligations
for the next twelve month period.
Results of Operations
Revenue for the years ended July 31, 1996 and 1995 was
$26,270,673 and $14,787,467, respectively. The increase
of $11,483,206 was due to the increased volume commitment
of the Company's primary customer under the renegotiated
sales arrangement. Cost of goods sold was $24,978,265
and $14,615,431, for the years ended July 31, 1996 and 1995,
respectively. The increase was due to increased volume
from 1995 to 1996. Gross profit in 1996 increased to
$1,292,408 from $172,036 primarily due to the more favorable
sales arrangement with the Company's primary customer.
Selling, general and administrative expenses were
$2,234,944 and $1,854,600 for the years ended
July 31, 1996 and 1995, respectively. The increase of
$308,344 resulted primarily from the write-off of certain
other noncurrent assets which were charged to operations.
Interest expense, net, was $255,447 and $1,087,137 for
the years ended July, 31, 1996 and 1995, respectively.
The reduction was due primarily to the restructured sales
arrangement which enabled the Company to discontinue the
factoring of its receivables and to eliminate the need
to provide LPG suppliers a payment guarantee.
Interest payments and accruals were for contractor settlement
agreements, the $1,000,000 in subordinate loans entered
into on March 1 and April 12, 1996, and the principal
borrowed from IBC-Brownsville on which interest continues
to accrue, despite its offset by the entry of the judgment
against IBC-Brownsville. The principal amount will be
carried as short-term borrowing on the Company's balance
sheet and interest will continue to accrue until the judgment
is realized.
Due to the net losses in each of the years ended
July 31, 1996 and 1995, no tax was provided.
Company operations have increased significantly since
July 1994, and the Company has been
<PAGE>
successful in reducing
its need for working capital financing, has sold its option
in NPEG, exchanged debt for equity, raised additional debt
and equity and received a Judgment in its litigation with
IBC-Brownsville, new management has plans to collect its
Judgment, to expand sales to PEMEX and to increase its
customer base.
Effect of Inflation
Management believes that inflation has not had a material
effect on its operations for the period of this report.
<PAGE>
Item 7. Financial Statements.
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
Penn Octane Corporation
We have audited the accompanying balance sheets of Penn Octane Corporation
(Company) as of July 31, 1996 and 1995, and the related statements of
operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
July 31, 1996 and 1995, and the results of its operation and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note O,
conditions exist which raise substantial doubt about the Company's
ability to continue as a going concern including 1) the Company has
not achieved profitable operations, 2) outstanding litigation and
3) a deficit in working capital. Management's plans in regard to
these matters are described in Note O. The financial statements
do not include any adjustments that might result from the outcome
of these uncertainties.
As discussed in notes B and J, respectively, the Company adopted the
provisions of SFAS 107, "Disclosures about Fair Value of Financial
Instruments", and SFAS 123, "Accounting for Stock Based Compensation"
during the year ended July 31, 1996.
Burton McCumber & Prichard, L.L.P.
BURTON MCCUMBER & PRICHARD, L.L.P.
Brownsville, Texas
September 27, 1996, (except
for note P as to which the
date is October 10, 1996)
<PAGE>
Penn Octane Corporation
BALANCE SHEETS
July 31,
ASSETS
1996 1995
Current Assets
Cash $364,525 $56,786
Trade accounts receivable 29,463 -
Notes receivable from stockholder
(note C) - 100,000
Amount due from NPEG under Settlement
Agreement (note M) - 779,957
Interest receivable (note C) 26,233 26,728
Inventory (note B1) 445,051 373,295
Prepaid expenses 47,461 15,543
Other current assets 349 133,589
-------- --------
Total current assets 913,082 1,485,898
Property plant and equipment - net
(notes B2 and D) 3,395,150 3,357,736
Lease rights (net of accumulated
amortization of $317,361 and
$201,957) (note B2) 836,679 952,082
Other noncurrent assets (notes
B2, C and E) 45,421 363,671
--------- ---------
Total assets $5,190,332 $6,159,387
========== ==========
[FN]
The accompanying notes are an integral part of these statements.
<PAGE>
Penn Octane Corporation
BALANCE SHEETS - CONTINUED
July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
Current Liabilities
Bank overdraft $ - $ 133,133
Amount due factor (note N) - 160,000
Short-term borrowings (notes F and L) 672,552 672,552
Current maturities of long-term
debt (note I) 83,871 87,558
Construction payables (note H) 609,107 1,530,445
Accounts payable - trade 284,057 564,026
Advances from related parties (note C) - 67,977
Accrued liabilities 560,912 523,190
-------- ---------
Total current liabilities 2,210,499 3,738,881
Long-term debt, net of current
maturities (note I) 1,060,044 94,609
--------- ---------
Total liabilities 3,270,543 3,833,490
Commitments and contingencies
(notes C and L) - -
Stockholders' Equity (notes J and K)
Preferred stock-$.01 par value,
5,000,000 shares authorized;
270,000 convertible shares issued
and outstanding at July 31, 1996 and
1995 2,700 2,700
Common stock-$.01 par value, 25,000,000
shares authorized; 5,205,000 and
5,065,000 shares issued and
outstanding at July 31, 1996 and 1995,
respectively 52,050 50,650
Additional paid-in capital 5,954,565 5,637,965
Accumulated deficit (4,089,526) (3,365,418)
---------- ---------
Total stockholders' equity 1,919,789 2,325,897
---------- ---------
Total liabilities and
stockholders' equity 5,190,332 6,159,387
========== =========
<PAGE>
Penn Octane Corporation
STATEMENT OF OPERATIONS
Years ended July 31,
1996 1995
Sales (note A) $ 26,270,673 $ 14,787,467
Cost of sales 24,978,265 14,615,431
---------- ----------
Gross profit 1,292,408 172,036
Selling, general and administrative
expenses 2,237,402 1,854,600
---------- ----------
Operating loss ( 944,994) (1,682,564)
Gain on sale of option (note M) 10,886 722,212
Award from litigation (note L) 400,000 -
Other income 65,447 -
Interest expense, net ( 255,447) (1,087,137)
----------- -----------
Net loss $( 724,108) $(2,047,489)
============ ============
Loss per common share (note B4) $( 0.14) $( 0.47)
============ ============
Weighted average common shares
outstanding 5,130,191 4,340,632
============ ============
[FN]
The accompanying notes are an integral part of these statements.
<PAGE>
Penn Octane Corporation
STATEMENT OF STOCKHOLDERS' EQUITY
For the years ended July 31, 1995 and 1996
Preferred Stock Common Stock
Additional Retained Total
paid-in earnings Stock-
holders'
Shares Amount Shares Amount capital (deficit) Equity
------- ------- ------- ------ -------- --------- --------
Balance at
August 1,
1994 300,000 $3,000 3,750,000 $37,500 $3,019,500 $(1,317,929)$1,742,071
Issuance of
common stock
on September 29,
1994 to stock-
holder for
partial payment
on promissory
note 300,000 3,000 671,137 674,137
Issuance of
common stock
on January 31,
1995 to stock-
holder for
payment on
promissory note 300,000 3,000 724,178 727,178
Issuance of
common stock
on March 1,
1995 for
cancellation
of commission
agreement 200,000 2,000 398,000 400,000
Issuance of
common stock
on April 12, 1995
to stockholder in
exchange for note 150,000 1,500 298,500 300,000
Issuance of
common stock
on April 19,
1995 to
stockholder
in exchange
for note 100,000 1,000 199,000 200,000
Conversion of
30,000 shares
of preferred
stock to
100,000
shares of
common
stock on
May 15,
1995 (30,000) (300) 100,000 1,000 ( 700) -
Issuance of
common stock
on July 5,
1995 in
exchange
for note 165,000 1,650 328,350 330,000
Net loss
for the
year (2,047,489) (2,047,489)
-------- -------- ------- -------- --------- ----------- -----------
Balance
at July
31, 1995 270,000 2,700 5,065,000 50,650 5,637,965 (3,365,418) 2,325,897
Issuance of
40,000 shares
of common
stock for
services and
settlement
of an accrued
liability and
grant of 530,000
warrants for
services 40,000 400 192,600 193,000
Issuance of
common stock
upon exercise
of warrants
on February 16,
1996 in
exchange for
future legal
services 100,000 1,000 124,000 125,000
Net loss for
the year (724,108) (724,108)
--------- --------- -------- ------- --------- ----------- ----------
Balance at
July 31,
1996 270,000 $2,700 5,205,000 $52,050 $5,954,565 $(4,089,526) $1,919,789
======== ======= ========= ======= ========== ============ ==========
[FN]
The accompanying notes are an integral part of this statement.
<PAGE>
Penn Octane Corporation
STATEMENT OF CASH FLOWS
Years ended July 31,
1996 1995
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net loss $( 724,108) $( 2,047,489)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 414,412 378,431
Amortization of lease rights and
other non-current assets 656,807 173,940
Gain on sale of option ( 10,886) ( 772,212)
NPEG interest - ( 79,957)
Changes in current asset and liabilities:
Trade accounts receivable ( 29,463) 474,885
Interest receivable 495 7,208
Inventories ( 71,756) 57,208
Prepaid expenses ( 19,918) 169,321
Other current assets 133,240 ( 123,501)
Construction and accounts payable (1,201,307) ( 601,402)
Advances from and to related
party (net) ( 67,977) ( 140,353)
Accrued liabilities 112,722 350,620
----------- ------------
Net cash used in
operating activities $( 807,739) $( 2,103,301)
Cash flows from investing activities:
NPEG note 790,843 300,000
Capital expenditures ( 451,826) ( 78,518)
Note receivable from stockholder 100,000 500,000
Other 7,846 ( 12,874)
----------- ------------
Net cash provided by investing
activities 446,863 708,608
Cash flows from financing activities:
Proceeds from:
Long-term borrowing 1,000,000 ( 8,566)
Issuance of common stock - 2,231,315
Used for:
Short-term borrowing ( 160,000) ( 808,482)
Long-term borrowing ( 38,252) -
Increase (decrease) in bank overdraft ( 133,133) 37,212
----------- ------------
Net cash provided by
financing activities 668,615 1,451,479
Net increase in cash 307,739 56,786
Cash at beginning of period 56,786 -
----------- -----------
Cash at end of period $ 364,525 $ 56,786
=========== ===========
Supplemental disclosures
of cash flow information:
Cash paid during the year for:
Interest $ 308,458 $ 827,400
=========== ===========
Supplemental disclosures of
noncash transactions:
Common stock issued (note J) $ 318,000 $ 400,000
=========== ===========
[FN]
The accompanying notes are an integral part of these financial statements.
<PAGE>
Penn Octane Corporation
NOTES TO FINANCIAL STATEMENTS
July 31, 1996 and 1995
NOTE A - ORGANIZATION AND COMPANY OPERATIONS
Penn Octane Corporation (the Company), was formerly International
Energy Development Corporation (IEDC) and The Russian Fund,
a Delaware corporation which was incorporated on August 27, 1992.
On October 21, 1993, IEDC acquired Penn Octane Corporation, a
Texas corporation, (POC) whose primary asset was a liquid
petroleum gas (LPG) pipeline lease agreement with Seadrift
Pipeline Corporation, a subsidiary of Union Carbide Corporation.
On January 6, 1995, the Board of Directors of the Company approved
the change of IEDC's name to Penn Octane Corporation. The Company
is engaged primarily in the business of purchasing,
transporting and selling LPG. A significant portion of the sales
volume since inception has been to one major customer.
This customer purchases LPG at the Company's terminal in
Brownsville, Texas where the customer transports the LPG across
the border for distribution throughout northeastern Mexico.
The Company was in the "development stage" until the business was
established and planned principal operations commenced during
the year ended July 31, 1995.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying financial
statements follows:
1. Inventory
Inventory is stated at the lower of cost or market. Cost is
determined on a weighted average basis. Inventory consists
of propane gas and butane gas.
2. Property, Plant and Equipment, Lease Rights and Consulting
Services Contracts
Property, plant and equipment are recorded at cost. An
automobile, equipment and trailers are
depreciated using the straight-line method based on their
estimated useful lives and the LPG terminal is being amortized
over the life of the pipeline lease as follows:
LPG terminal, building and
leasehold improvements 10 years
Automobile 3 years
Equipment 3-5 years
Trailers 8 years
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2. Property, Plant and Equipment, Lease Rights and Consulting
Services Contract - Continued
The lease rights are being amortized over 10 years. Consulting
and service contracts are being amortized as follows:
Consulting services (see note C) 41-48 months
Financial advisory services (see note E) 12 months
Legal services 36
months
Maintenance and repair costs are charged to expense as incurred,
and renewals and improvements that extend the useful life of
the assets are added to the property, plant and equipment accounts.
The Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS 121), to be effective for fiscal years
beginning after December 15, 1995. The provisions of SFAS 121
require the Company to review long-lived assets and certain
identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that an
impairment has occurred, the amount of the impairment should be
charged to operations. The application of the new standard
is not expected to have a material effect on the Company's
financial position as of July 31, 1997, or the results of its
operations for the year then ended.
3. Income Taxes
The Company accounts for deferred taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Under the liability
method specified by SFAS 109, deferred tax assets and liabilities
are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured
by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. The principal
types of differences between assets and liabilities for financial
statement and tax return purposes are accumulated depreciation, start up
costs, amortization of professional fees and the installment
method of accounting for sale of certain assets.
4. Loss Per Common Share
Loss per share of common stock is computed based on the weighted
average number of shares outstanding. Warrants and shares
issuable upon conversion of preferred stock have not been
included in the calculation as their effect would be anti-dilutive.
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. Cash Equivalents
For purposes of the cash flow statement, the Company considers
cash in banks and securities purchased with a maturity of
three months or less to be cash equivalents.
6. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company
to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. Actual
results could differ from the estimates and assumptions used.
7. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" (SFAS 107)
requires the disclosure of fair value information about financial
instruments, whether or not recognized on the balance sheet, for
which it is practicable to estimate the value. SFAS 107 excludes
certain financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts are not intended
to represent the underlying value of the Company. The carrying
amount of cash, cash equivalents, current receivables and payables
and long-term debt approximates fair value because of the short
maturity of these instruments.
8. Reclassifications
Certain reclassifications have been made to prior year balances
to conform to the current presentation. All reclassifications
have been applied consistently to the periods presented.
NOTE C - RELATED PARTIES
Directors, Officers and Shareholders
During the year ended July 31, 1996, POC made advances to, and
received advances from, three of the Company's nine directors.
At July 31, 1995, the Company owed $19,762 to the former
Secretary of the Company (see note L). As of July 31, 1996,
the former Secretary owed the Company a balance of $ 26,233
for interest on notes that the Company made to the former
Secretary's related businesses. All previous loans and
receivables from the Secretary have been settled except for
the interest receivable referred to above. The amount of $19,249
owed to two directors as of July 31, 1995, was repaid by March 1996.
In March 1996 and April 1996, the Company received $500,000
loans from two shareholders. The notes bear interest at 10%,
and have accrued interest of $20,833 and $15,000, respectively.
No payments have been made as of July 31, 1996 (see note I).
<PAGE>
NOTE C - RELATED PARTIES - Continued
Directors, Officers and Shareholders - Continued
In addition, the advances of $6,866 and $22,100 owed to two
shareholders as of July 31, 1995, were settled in August 1995;
and the $100,000 receivable from a shareholder for the purchase
of common stock as of July 31, 1995, was collected in August 1995.
Commission Agreement
During the year ended July 31, 1994, the Company entered into
a commission agreement with a consulting firm covering a
forty-one month period. The firm assisted the Company in its
efforts to negotiate purchase orders with its major customer.
The former Chairman is related to a person in the consulting
firm who had a decision making role.
On March 1, 1995, the consulting firm accepted 200,000 shares
of the Company's common stock in lieu of any future commissions
due under the original agreement signed on February 10, 1994.
The stock was valued at $400,000 ($2.00 per share). The
consulting firm remained liable for the services to be
performed; therefore, the $400,000 was being amortized over
the remaining life of the original agreement.
The consulting firm was paid commissions of $0 and $182,667 for
the years ended July 31, 1996 and 1995, respectively.
On July 31, 1996, the Company determined that no future
benefit would be derived from the consulting services contract;
therefore, the remaining balance was charged to operations.
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following as of July 31,:
1996
1995
Building $ 173,500 $ 173,500
LPG terminal 3,426,440
3,357,807
Automobile and equipment 407,020
73,827
Leasehold improvement 220,629
170,629
--------- ----------
4,227,589 3,775,763
Less: accumulated depreciation ( 832,439) ( 418,027)
and amortization
--------- ---------
$ 3,395,150 $ 3,357,736
========= =========
<PAGE>
NOTE E - OTHER ASSETS
On August 25, 1995, the Company entered into a one year contract
with an investment advisory firm for future financial advisory
services in exchange for 20,000 shares of common stock at a
market price of $3.75. In February 1996, an attorney exercised
his 100,000 warrants to purchase 100,000 shares of common stock
for $1.25 per share in exchange for legal services for a three
year period.
At July 31, 1996, the Company determined that the attorney would
not be required to render future services. The Company has
retained another attorney; therefore, the remaining balance was
charged to operations.
Other assets consist of the following at July 31,:
1996
1995
Consulting services $ - $
400,000
Accumulated amortization - (
58,536)
Other noncurrent assets 45,421 22,207
-------- ----------
$ 45,421 $ 363,671
======== ==========
NOTE F - SHORT-TERM BORROWING
The Company had short-term borrowings of $672,552 from
International Bank of Commerce-Brownsville as of July 31, 1996
and 1995, respectively (see note L).
<PAGE>
NOTE G - INCOME TAXES
At July 31, 1996, the approximate amount of net operating loss
carryforwards and expiration dates for U.S. Income tax purposes
were as follows:
Expiration date of Loss Tax Loss
Carryforward Carryforward
----------------------- ------------
2009 $ 930,000
2010 2,370,000
------------
$ 3,300,000
============
Deferred tax assets and liabilities were as follows as of July 31,:
1996
1995
Assets Liabilities Assets
Liabilities
Depreciation of premises
and equipment $ 20,000 $ - $ 14,000 -
Capitalized start-up
costs 5,000 - 7,000
-
Installment sale of
NPEG option - - -
160,000
Bad debt reserve 11,000 - - -
Amortization of
professional fees 112,000 - - -
Net operating loss
carryforward 1,122,000 - 1,220,000 -
--------- ---------- --------- ---------
1,282,000 -
1,241,000 160,000
Less:
valuation allowance 1,282,000 - 1,081,000 -
--------- ---------- --------- --------
$ - $ - $ 160,000 $ 160,000
========= ========== ========= ========
Management believes that the valuation allowance reflected
above is warranted because of the uncertainty that sufficient
taxable income will be generated in future taxable years by the
Company to absorb the entire amount of such net operating losses.
<PAGE>
NOTE H - CONSTRUCTION PAYABLES
As of July 31, 1995, two companies: Lauren Constructors, Inc.
(Lauren) and Thomas G. Janik & Associates, Inc. (Janik), had
filed Mechanic's and Materialmen's Liens against the Company's
Brownsville terminal. The Company was in litigation with Lauren
and Janik but the parties reached a settlement agreement on
June 21, 1995. Under the terms of the settlement agreement,
the parties agreed to stay the pending legal proceedings provided
the Company adhered to an agreed-upon payment schedule.
The minimum monthly payment due according to the payment schedule
was $34,445, which included interest at 12% per annum. In addition,
the agreement provided for additional payments related to the
monthly volume of gallons of LPG sold by the Company through
its Brownsville Terminal. At July 31, 1996, the principal
amount owed Lauren and Janik was $360,145 and $77,689, respectively.
Under terms of the settlement agreement, the Company was to have
made a balloon payment on August 15, 1996 for the remaining balance
due. Because the Company had compied with all other terms and
conditions of the settlement agreement and had made combined
principal and interest payments of $984,480 to Lauren and Janik, the
parties agreed to extend the settlement agreement to April 14, 1997,
under substantially similar terms and conditions. In exchange for
this extension, the Company made an immediate lump sum payment of
approximately $50,000 and executed a promissory note for the
remaining balance due. In addition, the Company will provide
Lauren and Janik a first lien position on the improvements for the
Brownsville terminal and a mortgagee's title policy in favor of
Lauren and Janik for the full amount of the principal and accrued
interest remaining due. If the entire amount due Lauren and Janik
is not paid by April 14, 1997, the Company would be considered to
be in breach of the agreement and the interest rate would escalate
to 18% or the maximum rate allowed by law, whichever is lower.
<PAGE>
NOTE I - LONG-TERM DEBT
Long Term debt consists of the following at July 31,:
1996
1995
Contract for Bill of Sale;
due in semi-annual
payments of $22,469,
including interest at 11.8%;
due in October 1998;
collateralized by a building (a) $ 143,915 $ 173,500
Automobile loan;
due in monthly payments of
$831, including interest at 10.5%;
paid in June 1996 - 8,667
Subordinate note with warrants
to purchase 50,000 shares of
common stock at $5.00 per
share expiring February 28, 2001;
principal due August 31,1997
and interest of 10% due
March 1, 1997 or upon receipt
of proceeds from secondary
equity offering in the minimum
amount of $5,000,000; collateralized
by all tanks, pumps, equipment
and other terminal property, and
proceeds from a judgment or
settlement of litigation. 500,000 -
Subordinate note with warrants
to purchase 50,000 shares
of common stock at $5.00
per share expiring April 11, 2001;
principal due October 11, 1997
and interest of 10% due
April 12, 1997 or upon
receipt of proceeds from
secondary equity offering in the
minimum amount of than $5,000,000;
collateralized by all tanks,
pumps, equipment and other terminal
property, and proceeds from a
judgment or settlement of
litigation 500,000 -
--------- -----------
1,143,915
182,167
Current maturities 83,871
87,558
--------- -----------
$ 1,060,044
$ 94,609
========= ===========
(a) The first scheduled payment of $22,469 towards the purchase of
the building was made in May 1996. Six monthly payments of $3,000
made beginning in February 1996, apply toward the second semi-annual
payment. This payment schedule of $3,000 per month was approved
by Brownsville Navigational District.
Scheduled maturities are as follows:
Year ending July 31,
1997 $ 83,871
1998 1,038,850
1999 21,194
---------
$ 1,143,915
=========
In December 1995, the Company obtained a revolving line of credit
for $140,000 expiring on December 10,1996. Interest is calculated
on this credit line at the prime rate plus 3%. At July 31, 1996,
the Company did not have a balance outstanding.
<PAGE>
NOTE J - STOCKHOLDERS' EQUITY
On September 18, 1993, the Company entered into a private placement
offering for the sale of 150,000 shares of its $.01 per value,
11% convertible non-cumulative, non-voting preferred stock at a
purchase price of $10.00 per share. The preferred stock will pay
semi-annual dividends upon declaration and will be convertible,
at the option of the holder for a period of 5 years, into common
voting shares of the Company at a conversion ratio of one share
of preferred stock for 3.33 shares of common stock. Upon the
expiration of the 5 year conversion period, the remaining
preferred stock will automatically be converted
into common shares under the aforementioned terms. The
preferred stock is not redeemable by the Company.
On September 29, 1994, the Company agreed to issue 300,000 common
shares at approximately $2.25 per share in exchange for partial
payment on an existing promissory note with a shareholder.
On January 31, 1995, the Company agreed to issue 300,000 common shares
at approximately $2.42 per share in exchange for full payment
on an existing promissory note with a shareholder.
Effective March 1, 1995, the Company agreed to issue 200,000
common shares at $2.00 per share to the Company's sales agent
in exchange for canceling the original agreement which will
expire June 30, 1998. The value assigned to the commission
agreement was being amortized over the life of the original
agreement (see note C and E).
On April 12, 1995, and April 19, 1995, the Company issued
150,000 and 100,000 common shares, respectively, at $2.00 per
share to two existing shareholders in exchange for subscription
agreements that were paid in full during May 1995.
On May 15, 1995, one shareholder converted 30,000 preferred shares
to 100,000 common shares.
On July 5, 1995, the Company issued 165,000 common shares at
$2.00 per share to a new shareholder in exchange for promissory
notes that were paid in full as of August 23, 1995.
<PAGE>
On August 25, 1995, the Board of Directors agreed to issue
20,000 shares of common stock, at $3.75 per share, to an
investment advisory firm as compensation for financial advisory
services to be provided for a period of one year. As additional
compensation, the firm will receive a "cash success" fee and
common stock warrants based on capital raised (see note E).
On February 16, 1996, the Board of Directors agreed to allow
the holder of 100,000 of the Company's $1.25 per share warrants
to convert the warrants into common stock in exchange for a
three year retainer contract for future legal fees (see note E).
On February 26, 1996, the Board of Directors granted 330,000
warrants to a director to purchase 330,000 shares of common stock
for $2.50 per share through February 8, 2000, in exchange for
advisory services during that period.
On February 26, 1996, the Board of Directors granted 200,000 warrants
to the new Chairman of the Board to purchase 200,000 shares of
common stock for $2.50 per share through February 29, 2000.
On July 16, 1996, the Board of Directors agreed to issue 20,000
shares of common stock as settlement for consulting services
previously accrued during the year ended July 31, 1995.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), which
establishes financial accounting and reporting standards for
stock-based employee compensation plans and for transactions
in which an entity issues its equity instruments to acquire
goods and services from nonemployees. The Company adopted this
standard during the year ended July 31, 1996.
<PAGE>
NOTE K - STOCK WARRANTS
The following is a summary of common stock warrants outstanding:
Price Per
Expiration
Shares Share
Date
--------- -------
Class A Granted
August 27, 1992 1,000,000 $ 1.25 April 12, 1997
--------- -------
Outstanding at
July 31, 1993 1,000,000 1.25
Class A Granted
October 21, 1993 150,000 1.25
October 21, 1996
Class A Granted
April 14, 1994 340,000 1.25
April 14, 1998
Class A 2 for 1 split
June 10, 1994 1,490,000 1.25
--------- ------
Outstanding at
July 31, 1994 2,980,000 1.25
Class A Granted
July 5, 1994 215,000 2.50 August
31, 1998
Class A Granted
November 14, 1994 255,000 2.50 April 13, 1997
Class B Granted
January 6, 1995 50,000 7.50 October
31, 1997
Class A Granted
May 1, 1995 450,000 2.50 May
1, 1998
--------- ----------
Outstanding at
July 31, 1995 3,950,000 $ 1.25 - 7.50
<PAGE>
NOTE K - STOCK WARRANTS - Continued
Price Per Expiration
Shares Share Date
--------- ---------- ----------
Class A Granted
April 12, 1995; 200,000 2.50 May 31, 1999
Issued
September 14, 1995
Class A exercised
February 16, 1996 (100,000) 1.25
Class A Granted
February 26, 1996 330,000 2.50 February 8, 2000
Class A Granted
February 26, 1996 200,000 2.50 February 29, 2000
Class A Granted
June 6, 1996 50,000 5.00 February 28, 2001
Class A Granted
June 6, 1996 50,000 5.00 April
11, 2001
--------- ------------
Outstanding at
July 31, 1996 4,680,000 $ 1.25 - 7.50
========= ============
<PAGE>
NOTE L - COMMITMENTS AND CONTINGENCIES
Bank Litigation
During 1994, the Company entered into discussions with
International Bank of Commerce-Brownsville, a Texas state
banking association, (IBC) for a proposed letter of credit,
term loan, and working capital financing. In anticipation
of receiving funding, the Company executed various documents
including a Security Agreement dated July 1, 1994, assigning
and granting to IBC a security interest in significantly all
of the Company's business and assets, including its pipeline
lease agreement, its leased land at the Port of Brownsville,
its terminal facilities and related equipment, inventories
and all contracts and accounts receivable.
Beginning July 1, 1994, IBC advanced the Company directly or
made payments directly to certain of the Company's creditors
a total of $1,507,552 against the collateral. On August 5, 1994,
IBC notified the Company that it would not honor certain of the
Company's checks but would continue to honor its irrevocable
letters of credit issued on behalf of the Company.
On August 24, 1994, the Company filed an Original Petition
and Application for injunctive Relief against IBC seeking
1) either enforcement of the credit facility between the
Company and IBC or a release of the Company's collateral
consisting of significantly all of the Company's business
and assets, 2) declaratory relief with respect to the credit
facility and 3) an award for damages and attorney's fees.
In response to the Company's request for injunctive relief,
IBC filed a motion on August 29, 1994, to compel arbitration
and to stay the proceedings. On September 12, 1994, a State
District Court in Cameron County, Texas, signed an order
compelling the Company and IBC to resolve all of the Company's
claims against IBC in final arbitration. The arbitration was
conducted through the American Arbitration Association,
Commercial Arbitration No. B 70 148 0133 94 A.
On November 3, 1994, IBC filed a Responsive Pleading in Arbitration
alleging that there was no loan agreement between the
Company and IBC. In addition, IBC requested that the arbitrators
declare that IBC is not liable to the Company as alleged, and
that IBC be entitled to an award of $25,000,000 for Business
Disparagement/Defamation and $100,000,000 in Punitive Damages
plus reasonable attorney's fees.
On November 7, 1994, the Company and IBC agreed to a partial
release of certain collateral (accounts receivable) after the
Company made cumulative payments through that date to IBC
totaling $800,000. The remaining unpaid balance to IBC at
that date totaled $672,552, excluding interest ($30,448)
and fees ($39,853). The release allowed the Company to obtain
the accounts receivable financing discussed in note N.
On May 5, 1995, IBC filed a First Amended Responsive Pleading
in Arbitration again alleging there was no loan agreement
between the Company and IBC and requesting damages in excess
of $750,000 plus $3,500,000 for Business Disparagement/Defamation
plus an amount of Punitive Damages to be determined by the
trier of fact.
<PAGE>
NOTE L - COMMITMENTS AND CONTINGENCIES - Continued
The arbitration hearing, held before a panel of three neutral
arbitrators, commenced on July 19, 1995 and concluded on
August 2, 1995. On October 10, 1995, the Company received
notification of the Award of Arbitrators (Award) which called
for IBC to pay to the Company the sum of (a) $3,246,754 for
Breach of Contract and (b) attorney's fees of $568,000.
In addition, the Award called for the Company to pay to IBC
the sum of (a) $804,016 and (b) attorney's fees of $200,000
on IBC's counterclaim for Breach of Contract. Both parties'
awards accrue post-award interest at 9.75% compounded annually.
On February 28, 1996, after hearing and denying IBC-Brownsville's
motion to vacate the arbitration award, the following judgment
was ordered:
International Energy Development Corporation n/k/a Penn
Octane Corporation shall have a judgment against
International Bank of Commerce-Brownsville in the sum
of $2,810,737, plus post-award interest at a rate of
9.75% compounded annually to begin running 10 days
after the date the award was signed by the requisite
number of arbitrators (September 21, 1995) to the
entry of this Judgment and thereafter at the
statutory rate (10%).
Upon the entry of this Judgment International Bank of
Commerce-Brownsville shall release all collateral
transferred to it by International Energy Development
Corporation n/k/a Penn Octane Corporation.
The Court further ordered that International Energy
Development Corporation n/k/a Penn Octane Corporation
shall have and recover from International Bank of
Commerce-Brownsville attorney's fees in the sum of
$100,000 for services rendered in pursuing the entry
of Judgment in this case, together with interest at
the statutory rate from date of entry of this
Judgment until paid and conditionally $7,500 for any
appeal to the Court of Appeals and $5,000 for any
appeal to the Texas Supreme Court and $2,500 in the
event Writ is granted by the Supreme Court.
On June 3, 1996, IBC-Brownsville filed an appeal, but the Company
continues to believe that the judgment is final, binding, collectible
and will resolve the litigation with IBC-Brownsville. The financial
statements do not include any adjustments reflecting the gain
contingency (the Award), net of attorneys' fees, or the offset.
Short-term borrowing of $672,552 reflects the principal amount of
the offset. The Award will be accounted for when it is actually
realized and the offset will be accounted for at the time IBC-
Brownsville has exhausted all appeals.
<PAGE>
NOTE L - COMMITMENTS AND CONTINGENCIES - Continued
On April 18, 1996, the Company reached agreement to accept
$400,000 to settle a lawsuit it filed in October 1995 against a
party related to IBC-Brownsville. As part of the settlement
agreement, the parties executed mutual releases from future
claims related to the IBC-Brownsville litigation. Additionally,
the defendant provided an indemnity agreement to the Company
against future claims from IBC-Brownsville. The amount is
recorded in the statement of operations for the year ended July 31, 1996.
On June 26, 1996, IBC-Brownsville filed suit against the Company,
Case No. 96-06-3502 in the 357th Judicial District Court of
Cameron County alleging that the Company, in filing the judgment
against IBC-Brownsville in order to clear title to its assets,
slandered the name of IBC-Brownsville. IBC-Brownsville contends
that the Company's judgment against them prevented them from selling
certain property. IBC-Brownsville has claimed actual damages of
$600,000 and requested punitive damages of $2,400,000. On
September 23, 1996, the court which entered the judgment on behalf
of the Company indicated in a preliminary ruling that the Company
was privileged in filing the judgment to clear title to its assets.
The Company believes the case to be frivolous and is a breach of
the settlement agreement entered into with a sister bank of
IBC-Brownsville. Further, the Company believes this cause of
action is covered by an indemnity agreement from that sister bank.
Purchase Commitment
On September 26, 1996, the Company entered into a Term Sale Agreement
with its main propane supplier. The agreement is for a one year
period beginning on October 1, 1996. The terms of this agreement,
such as pricing and volumes, mirror the terms of the Company's
sales agreement with its main customer, as described in note P.
Letters of Credit
In January of 1996, the Company obtained a standby letter of credit
in favor of a propane supplier. The standby letter of credit is
for $40,000 and expires December 1, 1996. In August of 1996, the
Company obtained a $40,000 standby letter of credit for another
supplier, which expired on September 30, 1996.
In accordance with the purchase commitment discussed above, in
September of 1996 the Company obtained a $625,000 letter of credit
in favor of its main propane supplier. The agreement expires
September 30, 1997. As part of the terms and conditions of this
letter of credit, the Company executed a $625,000 demand promissory
note to the issuing bank. The note accrues interest at the prime
rate (8.25% in September 1996) plus 3% and is guaranteed by the
Company's president.
<PAGE>
NOTE L - COMMITMENTS AND CONTINGENCIES - Continued
Operating Lease Commitments
The Company has lease commitments for its pipeline, land, office
space and office equipment. The pipeline lease requires monthly
fixed payments of $45,834 and monthly service payments of $8,690
through March 2004. The service payments are subject to an annual
adjustment based on a labor cost index and an electric power cost
index. The lessor has the right to terminate the lease agreement
under certain limited circumstances, which management believes
are remote, as provided for in the lease agreement at specific
times in the future by giving twelve months written notice.
The Company can also terminate the lease at any time after the
first twelve months by giving thirty days notice only if its
sales agreement with its main customer is terminated.
The Company can also terminate the lease at any time
after the fifth anniversary date of the lease by giving twelve
months notice. Upon termination by the lessor, the lessor has
the obligation to reimburse the Company the lesser of 1) net book
value of its liquid propane gas terminal at the time of such
termination or 2) $2,000,000.
The operating lease for the land requires semi-annual payments of
$17,712 through October 1998, and gives the Company the option of
one additional five year term.
Rent expense was $688,932 and $730,011 for the years ended
July 31, 1996 and 1995, respectively. As of July 31, 1996, the
minimum lease payments are as follows:
Year ending July 31,
1997 $ 732,96
0
1998
690,
856
1999
661,6
68
2000
654,
288
2001
654,288
Thereafter
1,744,768
---------
$
5,138,828
=========
The Company has not made all payments required by the lease
agreements. Approximately $110,000 is owed under the pipeline
lease for reimbursement for repairs to the pipeline made prior
to the commencement of the lease. The July 1, 1996 monthly
pipeline lease payment was paid in August 1996. In addition,
approximately $3,400 is owed for late fees under the land lease.
Neither lessor has not made demand for payment. The Company has
included the amounts owed in the accompanying balance sheet as
accounts payable-trade.
<PAGE>
NOTE L - COMMITMENTS AND CONTINGENCIES - Continued
Employment Contracts
The Company had employment contracts with two of its executives
and one former executive as of July 31, 1995. The contract with
the former executive was canceled as of July 31, 1996. The
Company's two remaining employment contracts expire October 31, 1996
and January 31, 2001. Aggregate compensation under employment
agreements totaled $327,692 and $196,000 for the years ended
July 31, 1996 and 1995, respectively. Minimum salaries under the
remaining agreement will amount to $332,308 for the year ended
July 31, 1997 and $300,000 per year thereafter.
NOTE M - OPTION TO ACQUIRE NATIONAL POWER EXCHANGE GROUP, INC.
On October 30, 1994, the Company signed an agreement to sell its
option to purchase National Power Exchange Group (NPEG) in exchange
for a promissory note of $2,000,000 to be paid over various periods
no later than January 1, 1996. A gain of $1,222,212 was recorded
during the quarter ended October 31, 1994, which reflected the
settlement agreement discounted by the Company's incremental
borrowing rate less the funds advanced to NPEG during the fiscal
year ended July 31, 1994. NPEG made a payment of $300,000 during
the quarter ended January 31, 1995, and a payment of $200,000
during the quarter ended October 31, 1995. Due to uncertainties
related to the timing of the financing of NPEG's power project, the
Company made a provision to reduce the amount due under the
settlement agreement to $779,957 at July 31, 1995. At October 31, 1995,
the net amount due was $589,114. On April 5, 1996, NPEG made a final
payment of $600,000. In accordance with the settlement agreement
with two of the contractors, most of these funds were used to
reduce construction payables (see note H).
<PAGE>
NOTE N - ACCOUNTS RECEIVABLE FACTORING AND SECURITY AGREEMENT
On October 24, 1994, the Company entered into an Accounts Receivable
Factoring and Security Agreement under which the Company submitted
all invoices and was advanced funds sufficient to pay for LPG
purchases. As of July 31, 1995, the Company and the factor
negotiated an acceptable payoff schedule for the outstanding
balance due under the agreement. The principal balance of $160,000
outstanding at July 31, 1995, was paid in August 1995.
NOTE O - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.
As discussed in Note A, the Company depends heavily on sales to
one major customer and has no significant operating history on
which to base such an assumption.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
as shown in the accompanying balance sheet is dependent upon
the collection of the Award of Arbitrators or the Company's
ability to obtain additional financing and to raise additional
equity capital, and the success of the Company's future operations.
The financial statements do not include any adjustments related
to the recoverability and classification of recorded asset amounts
or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existance.
To provide the Company with the ability it believes necessary to
continue in existence, management is taking steps to 1) collect
the Award of Arbitration, 2) increase sales to its current
customers, and 3) increase its customer base.
NOTE P - SUBSEQUENT EVENT
The Company's arrangement with its major customer had expired at
July 31, 1996. After two months of negotiation, a new agreement
for a one year period commencing October 1, 1996 was reached on
October 10, 1996. Under the terms of this agreement, the
Company has committed to supply and the customer has committed
to purchase a minimum volume of LPG each month with seasonal
variability. The minimum volume to be sold under this agreement
exceeds the minimum volume sold under the previous arrangement.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
Part III
Item 9. Directors and Executive Officers of the Registrant
Set forth below are the names of the executive officers,
their ages, positions, offices and terms held.
Name and Age Positions with the Company
________________________________ __________________________________
Thomas P. Muse (59) Director and Chairman of the Board
Mark D. Casaday (35) Director and President
Thomas A. Serleth (47) Director and Executive Vice
President, Secretary, Treasurer
and Chief Financial Officer
Jerome B. Richter (60) Director and Chairman of the
Board,
President and Chief Executive
Officer
Ian T. Bothwell (36) Vice President,
Treasurer, Assistant Secretary
and Chief Financial Officer
Jorge R. Bracamontes (32) Director and Executive Vice
President and Secretary
Kenneth G. Oberman (34) Director
John Holmes (58) Director
Stewart J. Paperin (48) Director
John H. Robinson (73) Director
Thomas P. Muse was elected as a director in February 1996 and has
served as Chairman since that time. From 1984 to the present,
Mr. Muse has been chairman of Muse, Stancil & Co., an above ground
oil and gas engineering consulting firm. Mr. Muse resigned as
Chairman and a director on October 24, 1996. During the year
ended July 31, 1996, Mr. Muse received $55,385 for services performed
for the Company.
Mark D. Casaday was elected as a director in October 1993 and
has been President since December 1994. From October 1993 to
December 1994, Mr. Casaday served as Executive Vice President
of the Company. Mr. Casaday founded Penn Octane Corporation in
1990 and served as its President until its merger into the
Company in October 1993. Mr. Casaday resigned as a director
on October 24, 1996.
Thomas A. Serleth was elected as a director in December 1994
and has served as Executive Vice President since that time.
On August 1, 1996, Mr. Serleth was elected to the additional
positions of Secretary and Treasurer. Since April 1994,
Mr. Serleth has served as Vice President and Chief Financial
Officer. Prior to joining the Company in February 1994, Mr. Serleth
was a Principal at Babcock & Brown, Inc., an investment banking
firm for the period from March 1992 to January 1994. From
March 1991 to March 1992, Mr. Serleth was a principal at Industrial
Finance Associates, an investment banking firm.
Mr. Serleth resigned his positions as an officer and as a
director on October 24, 1996.
Jerome B. Richter founded the Company and served as Chairman
of the Board and Chief Executive Officer from the date of its
organization in 1992 to December 1994, when he became
Secretary/Treasurer of the Company until his resignation from
those positions on August 1, 1996. Effective October 29, 1996,
Mr. Richter was elected Chairman of the Board, President and
Chief Executive Officer. From 1988 to 1991, Mr. Richter was
Chairman of the Board and Chief Executive Officer of KangaROOS
U.S.A., Inc., an athletic shoe and apparel manufacturer and
operating divisions and subsidiaries worldwide.
Ian T. Bothwell was elected as Vice President, Treasurer,
Assistant Secretary and the Company's Chief Financial Officer
on October 29, 1996. Mr. Bothwell is the founder of
Bothwell & Associates, S.A. de C.V., a management consulting
and financial advising company. During the period February 1992
through November 1993, Mr. Bothwell was a senior manager
with Ruez, Urquiza Y CIA, S.C., the Mexican affiliate of Arthur
Andersen & Co. From 1987 through 1992, Mr. Bothwell was controller
and Director of Financial Analysis for Brooke Management Inc.
Kenneth G. Oberman has been a director of the Company since
its organization in 1992. Mr. Oberman is employed by Fujitsu,
a San Jose, California based computer peripherals company.
Jorge R. Bracamontes was elected as a director of the Company
in February 1996. Effective October 29, 1996, he was elected
Executive Vice President and Secretary of the Company. Prior
to joining the Company, Mr. Bracamontes was a general counsel
of environmental matters for PEMEX.
John Holmes was elected as a director of the Company in
February 1996. Since 1991, Mr. Holmes has served as President
and Chief Executive
Officer of John P. Holmes and Co., and investment company.
Stewart J. Paperin was elected as a director of the Company
in February 1996. Mr. Paperin is managing director of Lionrock
Partners, a management consulting and investments firm. During the period
from 1993 through 1996, Mr. Paperin was the President of Capital
Resources East, a management consulting firm. From 1991 to 1993,
Mr. Paperin served as President at Brooke Group International.
John H. Robinson was elected as a director of the Company in
February 1996. Mr. Robinson currently serves as vice chairman
at Commonwealth Associates, an investment banking firm. Prior
to 1993, Mr. Robinson served as chairman at the Harper Group, an
international transportation and information
management company.
In October, 1996, the Company and J.B. Richter, Chairman and
President, without admitting or denyin the findings contained therein (other
than as to jurisdiction), consented to the issuance of an Order
by the Securities and Exchange Commission (the "Commission") in
which the Commission (i) made findings that the Company and Richter had
violated portions of Section 13 of the Securities Exchange Act relating
to the filing of periodic reports and the maintenance of books and records,
and certain related Rules under said Act, and (ii) ordered respondents to
cease and desist from committing or causing any current or future
violations of such Sections and Rules.
Mr. Richter has been named in a lawsuit by the former chairman
of the Company alleging breech of contract. Mr. Oberman is
Mr. Richter's son. The directors and executives of the Company
are involved in no other legal proceedings.
Item 10. Executive Compensation
In the fiscal year ended July 31, 1996, Mr. Casaday served as
President. For his duties, Mr. Casaday received $111,692.
Additionally, in the fiscal year ended July 31, 1996, Mr. Richter
received $132,923 for his duties as Secretary and Treasurer and
Mr. Serleth received $101,308 for his duties as Executive Vice
President and Chief Financial Officer. No other executives of
the Company earned more than $100,000 in salary and bonus.
The Company has signed three and six year employment agreements
with Mr. Casaday and Mr. Richter, respectively. These agreements
expire October 31, 1996 and January 31, 2001 for Mr. Casaday and
Mr. Richter.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
a) As of July 31, 1996, the following are beneficial owners
of more than five percent of the Company's voting securities:
Name and Address Amount and
of Beneficial Nature of Ben-
Title of Class Owner eficial Owner Percent of
Class
---------------- ----------------- ---------------- ----------------
Common Stock Jerome B. Richter 1,700,000 1 32.66%
900 Veteran's Blvd
Redwood City, CA
b) As of August 31, 1996, the following equity securities
are beneficially owned by the directors and executives of the Company:
Name and Address Amount and
of Beneficial Nature of Ben-
Title of Class Owner eficial Owner Percent
of Class
- - ---------------- ---------------- --------------- ----------------
Common Jerome B. Richter 1,700,000 32.66%
900 Veteran's Blvd
Redwood City, CA
Common Mark Casaday 180,000 2 3.46%
President
5847 San Felipe
Suite 3420
Houston, TX
Common Kenneth G. Oberman 89,000 3 1.71%
Director
Common Thomas A. Serleth 22,700 4 .44%
Executive Vice
President
5847 San Felipe
Suite 3420
Houston, TX
Common Thomas P. Muse 85,714 5 1.65%
100 McKinney Place
3131 McKinney Avenue
Dallas, Texas
Common Stewart J. Paperin 16,000 .31%
14 East 60th Street
New York, NY
As a group, the officers and directors of the Company are
beneficial owners of 2,093,414 (40.22%) of the voting securities of the
Company.6
c) As of October 27, 1996, there are no known arrangements that
could result in a change in control of the Company.
[FN]
1 Mr. Richter is beneficial owner of 2,300,000 $1.25 Class A common
stock purchase warrants.
2 Mr. Casaday is beneficial owner of 200,000 $2.50 Class A common
stock purchase warrants.
3 Mr. Oberman is beneficial owner of 100,000 $1.25 Class A common
stock purchase warrants.
4 Mr. Serleth is beneficial owner of 260,000 $2.50 Class A common
stock purchase warrants.
5 Mr. Muse is beneficial owner of 242,856 $2.50 Class A common
stock purchase warrants.
6 Mr. Holmes is beneficial owner of 330,000 $2.50 Class A common
stock purchase warrants and Mr. Robinson is beneficial owner
of 100,000 $5.00 Class A common stock purchase warrants.
<PAGE>
Item 12. Certain Relationships and Related Transactions
During the year ended July 31, 1996, the Company received advances
from two of the officers. These advances were fully repaid
during the year.
During the year ended July 31, 1996, the Company entered into
long-term debt agreements with a director of the Company and a
company controlled by the director.
During the year ended July 31, 1995, the Company made advances
to, and received advances from, the former chairman and several
companies wholly-owned by him. These advances accrued interest
at an annual rate of 8%. The total owed the Company aggregated
as much as $144,000 during the year. As of July 31, 1995, the
Company owed $19,762 to the former chairman.
During the year ended July 31, 1995, the Company entered into
certain commission arrangements with a consulting firm that
assisted the Company in its efforts to negotiate purchase orders
with its customer. The former chairman, elected by the Board of
Directors at its January 6, 1995 meeting, is related to a person
with a decision making role with the consulting firm.
Item 13. Exhibits and Reports on Form 8-K
a. Exhibits
The following Exhibits are incorporated herein by reference:
3.1 Restated Certificate of Incorporation of the Registrant
dated as of February 1, 1995.
10.1 Lease dated as of May 10, 1993 between Nine-C
Corporation and J.B. Richter, Capital Resources and
J.B. Richter, an individual as amended with respect
to the Company's executive offices.
10.2 Employment Agreement between the Registrant and
Jerome B. Richter dated as of July 12, 1993.
10.3 Lease dated as of September 13, 1993 between
Seadrift Pipeline Corporation and Registrant with
respect to the Registrant's pipeline rights.
10.4 Lease dated as of October 20, 1993 between Brownsville
Navigation District of Cameron County, Texas and Registrant
with respect to the Registrant's land lease rights,
including related amendment to the Lease dated as of
February 11, 1994 and Purchase Agreement.
10.5 Employment Agreement between the Registrant and
Mark D. Casaday dated as of October 22, 1993.
10.6 Security Agreement between International Bank of
Commerce and Registrant dated as of July 1, 1994.
10.7 Employment Agreement between the Registrant and
Jorge V. Duran dated as of August 29, 1994, including
related amendment to the Agreement dated as of
November 13, 1994.
10.8 Factoring and Security Agreement between Allstate
Financial Corporation and Registrant dated as of
October 24, 1994 including related amendment to the
Agreement dated as of December 2, 1994.
<PAGE>
10.9 Propane Sale Agreement between Exxon Company, U.S.A.
and Penn Octane Corporation dated as of December 28, 1994.
The following documents are included herewith:
10.10 Security Agreement between Bay Area Bank and
Registrant dated as of December 06, 1995.
10.11 Purchase Agreement between Eagle Oil Company
and Registrant dated as of February 22, 1996.
10.12 Judgment from litigation with International Bank
of Commerce - Brownsville dated as of February 28, 1996.
10.13 Loan Agreement, Promissory Note, Security Agreement, and
Common Stock Purchase Warrant Agreement
between John H. Robinson and Registrant dated as of March 1, 1995.
10.14 Loan Agreement, Promissory Note, Security Agreement, and
Common Stock Purchase Warrant Agreement between TRAKO
International Company LTD, and Registrant dated as of April 30, 1996.
10.15 Promissory note, letter of credit and Security Agreement
between Bay Area Bank and Registrant dated as of October 3, 1996.
10.16 LPG sales agreement between P.M.I. Trading Ltd. And
Registrant dated as of October 10, 1996.
10.17 LPG purchase agreement between Exxon Company U.S.A.
and Registrant dated October 1, 1996.
10.18 Extension of June 16, 1995 Payout Agreement between
Penn Octane Corporation and Lauren Constructors, Inc. and
Tom Janik and Associates, Inc. dated October 10, 1996
(Including June 16, 1995 Payout Agreement)
27.0 Financial Data Schedule.
b. Reports on Form 8-K
On October 28, 1996, the Registrant filed a Form 8-K
Current Report regarding the resignation of three directors,
incorporated by reference.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PENN OCTANE CORPORATION
By: _______________________
Ian T. Bothwell
Vice President &
Chief Financial Officer
_________________________________
Jorge R. Bracamontes, Executive Officer; Director
_________________________________
John P. Holmes, Director
_________________________________
Kenneth G. Oberman, Director
_________________________________
Stewart J. Paperin, Director
_________________________________
Jerome B. Richter, Executive Officer; Director
COMMERCIAL SECURITY AGREEMENT
Principal Loan Date Maturity Loan No Call Collateral
- - ----------- ----------- ---------- -------- ------ ----------
$140,000.00 12-06-1995
Account Officer Initials
- - ---------- ---------- ----------
103
References in the shaded area are for Lender's use only and
do not limit the applicability of this document to any
particular loan or item.
Borrower: PENN OCTANE CORPORATION Lender: Bay Area Bank
900 VETERANS BLVD SUITE 510 900 Veterans Blvd.
REDWOOD CITY, CA 94064 P.O. Box 2579
Redwood City, CA 94064
THIS COMMERCIAL SECURITY AGREEMENT is entered into between
PENN OCTANE CORPORATION (referred to below " Grantor"); and
Bay Area Bank (Referred to below as "Lender"). For valuable
consideration, Grantor grants to Lender a security interest
in the Collateral to secure the indebtedness and agrees that
Lender shall have the rights stated in this Agreement with
respect to the Collateral, in addition to all other rights
which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings
when used in this Agreement. Terms not otherwise defined in this
Agreement shall have the meanings attributed to such terrns in the
Uniform Commercial Code. All references to dollar amounts shall mean
amounts in lawful money of the United States of America.
Agreement. The word "Agreement" means the Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired,
whether now existng or hereafter arising, and wherever located:
All inventory, chattel paper, accounts, equipment and general intangibles
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, wheather now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described in
this Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a
sale, lease, or other disposition of any of the property described
in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described
in the Collateral section, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and interest in and to all
computer software required to utilize, create, maintain, and
process any such records or data on electronic media.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below
in the section titled "Events of Default."
Grantor. The word "Grantor" means PENN OCTANE CORPORATION, its
successors and assigns.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together
with all other indebtedness and costs and expenses for which
Grantor is responsible under this Agreement or under any of
the Related Documents. In addtion, the word "Indebtedness"
Includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them,
to Lender, as well as all claims by Lender against Grantor,
or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due,
direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually
or jointly with others; whether Grantor may be
obligated as guarantor, surety, accommodation
party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter
may become otherwise unenforceable.
Lender. The word "Lender" means Bay Area Bank, its successors
and assigns.
Note. The word "Note" means the note or credit agreement dated
December 8, 1995, in the principal amount of $140,000.00
from Grantor to Lender, together with all renewals of,
extensions of, modifications of, refinancings of, consolidations
of and substitutions for the note or credit agreement.
Related Documents . The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements,
loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, and all
other instruments, agreements and documents, whether now or
hereafter existing, executed in connection wHh the Indebtedness.
DEPOSIT ACCOUNTS. Grantor hereby grants Lender a contractual
possessory security interest in and hereby assigns, conveys,
delivers, pledges, and transfers all of Grantor's right, title
and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all
accounts held jointly with someone else and all accounts
Grantor may open in the future, exduding however all IRA,
Keogh, and trust accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to
Lender as follows:
Organization. Grantor is a corporation which is duly organized,
validly existing, and in good standing under the laws of
the State of Delaware. Grantor has its chief executive office
at 900 VETERANS BLVD SUITE 510, REDWOOD CITY, CA 94064.
Grantor will notify Lender of any change in the location of
Grantor's chief executive office.
Authorization. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all
necessary action by Grantor and do not conflict with, result
in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon
Grantor or (b) any law, governmental regulation, court
decree, or order applicable to Grantor.
<PAGE>
12-06-1995 COMMERCIAL SECURITY AGREEMENT Page 2
(Continued)
Perfection of Security Interest. Grantor agrees to execute
such financing statements and to take whatever other actions
are requested by Lender to perfect and continue Lender's
security interest in the Collateral. Upon request of Lender,
Grantor will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Grantor will
note Lender's interest upon any and all chattel paper if not
delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization
from Grantor, file a carbon, photographic or other reproduction
of any financing statement or of this Agreement for use as a
financing statement. Grantor will reimburse Lender for all
expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral.
Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business
names of Grantor. This is a continuing Security Agreement and
will continue in effect even though all or any part of the
indebtedness is paid in full and even though for a period
of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will
not violate any law or agreement governing Grantor or to which
Grantor is a party, and its certificate or articles of incorporation
and bylaws do not prohibit any term or condition of the Agreement.
Enforceability of Collateral. To the extent the Collateral
consists of accounts, chattel paper, or general intangibles,
the Collateral is enforceable in accordance with its terms,
is genuine, and compiles with applicable laws concerning form,
content and manner of preparation and execution, and all persons
appearing to be obligated on the Collateral have authority and
capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes
subject to a security interest in favor of Lender, the accounts
shall be a good and valik account representing an undisputed,
bona fide indebtedness incurred by the account
debtor, for merchandise held subject to delivery instructions
or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or
for the account debtor; there shall be no setoffs or counterclaims
against any such account; and no agreement under which any
deductions or discounts may be claimed shall have been made with
the account debtor except those disclosed to Lender in writing.
Location of the Collateral. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of
real properties and Collateral locations relating to Grantor's
operations, including without limitation the following: (a) all
real property owned or being purchased by Grantor; (b) all real
property being rented or leased by Grantor; (c) all storage
facilities owned, rented, leased, or being used by Grantor;
and (d) all other properties where Collateral is or may be
located. Except in the ordinary course of business, Grantor shall
not remove the Collateral from its existing locations without
without the prior consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or
to the extent the Collateral consists of intangible property
such as accounts, the records concerning the Collateral) at
Grantor's address shown above, or at such other locations as
are acceptable to Lender. Except in the ordinary course of
its business, including the sales of inventory, Grantor shall
not remove the Collateral from its existing loctions without
the prior written consent of Lender. To the extent that the
Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside
the State of California, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold
or accounts collected in the ordinary course of Grantor's
business, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. While Grantor is not
in default under this Agreement, Grantor may sell inventory,
but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of
business. A sale in the ordinary course of Grantor's business
does not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge,
other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes
security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and
shall not be commingled with any other funds; provided however,
this requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds
good and marketable title to the Collateral, free and clear
of all liens and encumbrances except for the lien of this
Agreement. No financing statement covering any of the Collateral
is on file in any public office other than those which reflect
the security interest created by this Agreement or to which
Lender has specifically consented. Grantor shall defend
Lender's rights in the Collateral against the claims and demands
of all other persons.
Collateral Schedules and Locations. As often as Lender shall
require, and insofar as the Collateral consists of accounts
and general intangibles, Grantor shall deliver to Lender
schedules of such Collateral, including such information as
Lender may require, including without limitation names and
addresses of account debtors and agings of accounts and
general intangibles. Insofar as the Collateral consists of
inventory and equipment Grantor shall deliver to Lender, as
often as Lender shall require, such lists, descriptions, and
designations of such Collateral as Lender may require to
identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each
of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain
all tangible Collateral in good condition and repair. Grantor
will not commit or permit damage to or destruction of the
Collateral or any pan of the Collateral. Lender and its
designated representatives and agents shall have the right
at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately
notify Lender of all cases involving the return, rejection,
repossession, loss or damage of or to any Collateral; of any
request for credit or adjustment or of any other dispute arising
with respect to the Collateral; and generally of all happenings
and events anecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all
taxes, assessments and liens upon the Collateral, its use or
operation, upon this Agreement, upon any promissory note or
notes evidencing the indebtedness, or upon any of the other
Related Documents. Grantor may withhold any such payment or
may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation
to pay and so long as Lenders interest in the Collateral is
not jeopardized in Lender's sole opinion. If the Collateral
is subjected to a lien which is not discharged within fifteen
(15) days, Grantor shall deposit with Lender cash, a
sufficient corporate surety bond or other security satisfactory
to Lender in an amount adequate to provide for the discharge
of the lien plus any interest, costs, attorneys fees or other
charges that could accrue as a result of forecosure or sale
of the Collateral. In any contest Grantor shall defend itself
and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished
in the contest proceedings.
Compliance With Govemmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable
to the ownership, production, disposition, or use of the
Collateral. Grantor may contest in good faith any such law,
ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's
interest In the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this
Agreement remains a lien on the Collateral, used for the
generation, manufacture, storage, transportation, treatment,
disposal, release or threatened release of any hazardous waste
or substance, as those terms are defined in the Comprehensive
Environmental Response, Compensation, and Liabillty Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986, Pub.
L. No.
<PAGE>
12-06-1995 COMMERCIAL SECURITY AGREEMENT Page 3
(Continued)
99-499 ("SARA"), the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation
and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters
6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state
or Federal laws, rules, or regulations adopted pursuant to any
of the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum
and petroleum by-products or any fraction thereof and asbestos.
The respresentations and warranties contained herein are based
on Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a) releases
and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the
indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and
maintain all risks insurance, including without limitation
fire, theft and liability coverage together with such other
insurance as Lender may require with respect to the Collateral,
in form amounts, coverages and basis reasonably acceptable
to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates
of insurance in form satisfactory to Lender, including stipulations
that coverages will not be cancelled or diminished without at least
ten (10) days' prior written notice to Lender and not including
any disclaimer of the Insurer's liability for failure to give
such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will
not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security
interest, Grantor will provide Lender with such loss payable
or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain
such insurance as Lender deems appropriate, including if it
so chooses "single interest insurance," which will cover only
Lenders interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify
Lender of any loss or damage to the Collateral. Lender may make
proof of loss if Grantor fails to do so within fifteen (15) days
of the casualty. All proceeds of any insurance on the
Collateral, including accrued proceeds thereon, shall be held
by Lender as part of the Collateral. If Lender consents to
repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the indebtedness, and shall pay
the balance to Grantor. Any proceeds which have not been
disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the
Collateral shall be used to prepay the indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with
Lender reserves for payment of insurance premiums, which
reserves shall be created by monthly payments from Grantor of
a sum estimated by Lender to be sufficient to produce, at
least fifteen (15) days before the premium due date, amounts
at least equal to the insurance premiums to be paid. If fifteen
(15) days before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and
shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be
paid by Grantor as they become due. Lender does not hold the
reserve funds in trust for Grantor, and Lender is not the
agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall
furnish to Lender reports on each existing policy of insurance
showing such information as Lender may reasonably request
including the following: (a) the name of the insurer;
(b) the risks insured; (c) the amount of the policy;
(d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner
of determining that value; and (f) the expiration date of
the policy. In addition, Grantor shall upon request by Lender
(however not more often than annually) have an independent
appraiser satisfactory to Lender determin, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS.
Until default and except as otherwise provided below with
respect to accounts, Grantor may have possession of the
tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not
inconsistent with this Agreement or the Related Documents,
provided that Grantor's right to possession and beneficial
use shall not apply to any Collateral where possession of
the Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. Until otherwise notified
by Lender, Grantor may collect any of the Collateral consisting
of accounts. At any time and even though no Event of Default
exists, Lender may exercise its rights to collect the accounts
and to notify account debtors to make payments directly to Lender
for application to the indebtedness. If Lender at any time has
possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral
if Lender takes such action for that purpose as Grantor shall
request or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but
failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps
necessary to preserve any rights in the Collateral
against prior parties, nor to protect, preserve or
maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due,
Lender may (but shall not be obligated to) discharge or pay
any amounts required to be discharged or paid by Grantor
under this Agreement, including without limitation all
taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral.
Lender also may (but shall not be obligated to) pay all
costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged
under the Note from the date incurred or paid by Lender to the
date of repayment by Grantor. All such expenses shall become
a part of the Indebtedness and, at Lender s option, will (a) be
payable on demand, (b) be added to the balance of the Note and
be apportioned among and be payable with any installment payments
to become due during either (i) the term of any applicable insurance
policy or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable
at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other
rights and remedies to which Lender may be entitled upon the
occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
Default on indebtedness. Failure of Grantor to make any payment
when due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to
perform any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related
Documents or in any other agreement between Lender and Grantor.
Insolvency. The dissolution or termination of Grantor's existence
as a going business, the insolvency of Grantor, the appointment
of a receiver for any put of Grantor's property, any assignment
for the benefit of creditors, any type of creditor workout, or
the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure
or forfeiture proceedings, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor
of Grantor or by any governmental agency against the Collateral
or any other collateral securing the Indebtedness. This
includes a garnishment of any of Grantor's deposit accounts
with Lender. However, this Event of Default shall not apply
if there is a good faith dispute by Grantor as to the validity
or reasonableness of the claim which is the basis of the creditor
or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole
discretion, as being an adequate reserve or bond for the dispute.
<PAGE>
12-06-1995 COMMERCIAL SECURITY AGREEMENT Page 4
(Continued)
Events Affecting Guarantor. Any of the preceding events occurs
with respect to any Guarantor of any of the Indebtedness or
such Guarantor dies or becomes incompetent. Lender, at its
option, may, but shall not be required to, permit the
Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's
financial condition, or Lender believes the prospect of payment
or performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs
under this Agreement, at any time thereafter, Lender shall
have at the rights of a secured party under the California
Uniform Commercial Code. In addition and without limitation,
Lender may exercise any one or more of the following rights
and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required
to pay, immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certifcates
of title and other documents relating to the Collateral. Lender
may require Grantor to assemble the Collateral and make it
available to Lender at a place to be designated by Lender. Lender
also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral. If the Collateral
contains other goods not covered by the Agreement at the time of
repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to
Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds
thereof in its own name or that of Grantor. Lender may sell
the Collateral at public auction or private sale. Unless
the Collateral threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Lender
will give Grantor reasonable notice of the time after which
any private sale or any other intended disposition of the
Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days,
or such lesser time as required by state law, before the time
of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation
the expenses of retaking, holding, insuring, preparing for
sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable
on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law,
Lender shall have the following rights and remedies regarding
the appointment of a receiver: (a) Lender may have a receiver
appointed as a matter of right, (b) the receiver may be an
employee of Lender and may serve without bond, and (c) all
fees of the receiver and his or her attorney shall become
part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through
a receiver, may collect the payments, rents, income, and
revenues from the Collateral. Lender may at any time in its
discretion transfer any Collateral into its own name or that
of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar
as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action,
or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the
Collateral as Lender may determine, whether or not Indebtedness
or Collateral is then due. For these purposes, Lender may,
on behalf of and in the name of Grantor, receive, open and
dispose of mail addressed to Grantor; change any address to
which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments
and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly
to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the
rights provided in this Agreement. Grantor shall be liable for
a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights
and remedies of a secured creditor under the provisions of
the Uniform Commercial Code, as may be amended from time to
time. In addtion, Lender shall have and may exercise any or all
other rights and remedies it may have available at law, in
equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any
other writing, shall be cumulative and may be exercised singularly
or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall
not affect Lender's right to declare a default and to exercise
its remedies.
MISCEllANEOUS PROVISIONS. The following miscellaneous
provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the
parties as to the matters set forth in this Agreement. No
alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or
amendment.
Appilcable Law. This Agreement has been delivered to Lender
and accepted by Lender in the State of California. If there
is a lawsuit, Grantor agrees upon Lender's request to submit
to the jurisdicton of the courts of San Mateo County, State
of California. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all
of Lender's costs and expenses, induding attorneys' fees and
Lender's legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may pay someone else
to help enforce this Agreement, and Grantor shall pay the
costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal
expenses or bankruptcy proceedings (and including efforts
to modify or vacate any automatic stay or injunction), appeals,
and any anticipated post-judgment collection services. Grantor
also shall pay all court costs and such additional fees as
may be directed by the court.
Caption Headings. Caption headings in the Agreement are for
convenience purposes only and are not to be used to interpret
or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor
under this Agreement shall be joint and several, and all
references to Grantor shall mean each and every Grantor. This
means that each of the Borrowers signing below is responsible
for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement
shall be given in writing, may be sent by telefacsimile, and shall
be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the
United States mail, first class, postage prepaid, addressed
to the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to
any Grantor will constitute notice to all Grantors.
<PAGE>
12-06-1995 COMMERCIAL SECURITY AGREEMENT Page 5
(Continued)
For notice purposes, Grantor agrees to keep Lender informed
at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its
true and lawful attorney-in-fact, irrevocably, with full
power of substitution to do the following: (a) to demand,
collect, receive, receipt for, sue and recover all sums of
money or other property which may now or hereafter become
due, owing or payable from the Collateral; (b) to execute,
sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the
Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead
of Grantor, to execute and deliver its release and settlement
for the claim; and (d) to file any claim or claims
or to take any action or istitute or take part in any
proceedings, either in its own name or in the name of
Grantor, or otherwise, which in the discretion of Lender
may seem to be necessary or advisable. The power is given as
security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full
force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an
asserted preference claim in Borrower's bankruptcy will become
a part of the Indebtedness and, at Lender's option, shall be
payable by Borrower as provided above in the "EXPENDITURES
BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as
to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending
provision shall be deemed to be modified to be within the limits
of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects
shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above
on transfer of the Collateral, this Agreement shall be binding
upon and inure to the benefit of the parties, their successors
and assigns.
Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender
in exercising any right shall operate as a waiver of such
right or any other right. A waiver by Lender of a provision of
the Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior
waiver by Lender, nor any course of dealing between Lender and
Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement,
the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is
obligated for the Indebtedness, Borrower irrevocably waives,
disclaims and relinquishs all claims against such other person
which Borrower has or would otherwise have by virtue of
payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS
TERMS. THIS AGREEMENT IS DATED DECEMBER 6, 1995.
GRANTOR:
PENN OCTANE CORPORATION
By: Thomas A. Serleth
- - -----------------------
THOMAS SERLETH, EXEC. V.P./CFO
LENDER:
Bay Area Bank
By: signature
- - -------------------
Authorized Officer
PROMISSORY NOTE
Principal Loan Date Maturity Loan No Call Collateral Account
- - --------- --------- -------- ------- ---- ---------- -------
$140,000.00 12-06-1995
Officer Initials
- - ------- --------
103
References in the shaded area are for Lender's use only and
do not limit the applicability of this document to any
particular loan or item.
Borrower: PENN OCTANE CORPORATION Lender: Bay Are Bank
900 VETERANS BLVD SUITE 510 900 Veterans Blvd.
REDWOOD CITY, CA 94064 Redwood, City CA 94064
Principal Amount: $140,000.00 Initial Rate: 11.750%
Date of Note: December 6, 1995
PROMISE TO PAY. PENN OCTANE CORPORATION ("Borrower") promises
to pay to Bay Area Bank ("Lender"), or order, in lawful money
of the United States of America, the principal amount of One
Hundred Forty Thousand & 00/100 Dollars ($140,000.00), together
with interest on the unpaid principal balance from
December 6, 1995, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes
in the index, Borrower will pay this loan in accordance with
the following payment schedule:
Borrower will repay $40,000.00 (or balance due if less) plus
accrued interest on the 10th of each month; repay $100,000.00
(or balance due if less) plus accrued interest on the 25th
of each month. Line to be at a zero balance from the 25th of
each month to the 1st of the following month. Borrower's final
payment due December 10, 1996 will be for all principal and
accrued interest not yet paid.
Interest on this Note is computed on a 365/365 simple interest
basis; that is, by applying the ratio of the annual interest
rate over the number of days in a year multiplied by the
outstanding principal balance, multipiled by the actual number
of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other
place as Lender may designate in writng. Unless otherwise
agreed or required by applicable law, payments will be applied
first to any unpaid collection costs and any late charges, then
to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is
subject to change from time to time based on changes in an
independent index which is the Rate as listed in The Wall
Street Journal "Money Rates" section, referred to as "Prime Rate".
(the "Index"). The Index Is not necessarily the lowest rate
charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell
Borrower the current Index rate upon Borrower's request. Borrowner
understands that Lender may make loans based on other rates as
well. the interest rate change will not occur more often than
each month and is based on the published rate in effect on the
first business day each month. If more than one Prime Rate is
published, the prime rate chosen shall be solely at Banks
option. The Index currently is 8.750% per annum. The interest
rate to be appiled to the unpaid principal balance of this Note
will be at a rate of 3.000 percentage points over the Index,
resulting in a current rate of 11.750% per annum.
NOTICE: Under no circumstances will the interest rate on this
Note be more than the maximum rate allowed by applicable law.
Whenever increases occur in the interest rate, Lender, at its
option, may do one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off
by its original final maturity date, (b) increase Borrower's
payments to cover accruing interest, (c) increase the number
of Borrower's payments, and (d) continue Bonrower's payments
at the same amount and increase Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that
all loan fees and other prepaid finance charges are earned
fully as of the date of the loan and will not be subject
to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by
law. In any event, even upon full prepayment of this Note,
Borrower understands that Lender is entitled to a minimum
interest charge of S250.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower
may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to
by Lender in writing, relieve Borrower of Borrower's
obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance
due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower
will be charged 5.000% of the regularly scheduled payment
or $25.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following
happens: (a) Borrower fails to make any payment when due.
(b) Borrower breaks any promise Borrower has made to Lender,
or Borrower fails to comply with or to perform when due any
other term, obligation, covenant, or condition contained in
this Note or any agreement related to this Note, or in any
other agreement or loan Borrower has with Lender. (c) Any
representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at any time made or furnished.
(d) Borrower becomes insolvent, a receiver is appointed for
any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy
or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any of the events
described in this default section occurs with respect to any
guarantor of this Note. (g) A material adverse change occurs
in Borrower's financial condition, or Lender believes the prospect
of payment or performance of the Indebtedness is impaired. (h) Lender
in good faith deems itself insecure.
If any default, other than a default in payment, is curable
and if Borrower has not been given a notice of a breach of
the same provision of this Note within the preceding twelve
(12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice
from Lender demanding cure of such default: (a) cures the
default within fifteen (15) days; or (b) if the cure requires
more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable
and necessary steps sufficient to produce compilance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid
interest immediately due, without notice, and then Borrower
will pay that amount. Upon Borrower's failure to pay all
amounts declared due pursuant to this section, including
failure to pay upon final maturity, Lender, at its option,
may also, if permitted under applicable law, increase the
variable interest rate on this Note to 8.000 percentage points
over the Index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will
pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys'
gees and legal expenses for banktuptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all
other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of California.
If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of San Mateo County,
the State of California. This Note shall be governed by and
construed in accordance with the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of S12.00
if Borrower makes a payment on Borrower's loan and the check
or preauthorized charge with which Borrower pays is later dishonored.
<PAGE>
12-06-1995 PROMISSORY NOTE Page 2
(Continued)
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA, Keogh, and trust accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit.
Advances under the Note, as well as directions for payment
from Borrower's accounts, may be requested orally or in writing
by Borrower or by an authorized person. Lender may, but need
not, require that all requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced
in accordance with the instructions of an authorized person
or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time
may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower
or any guarantor is in default under the terms of this Note or
any agreement that Borrower or any guarantor has with Lender,
including any agreement made In connection with the signing
of this Note; (b) Borrower or any guarantor ceases doing
business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower
has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems
itself insecure under the Note or any other agreement between
Lender and Borrower.
GENERAL PROVISIONS. The Note is payable on demand. The inclusion
of specific default provisions or rights of Lender shall not
preclude Lender's right to declare payment of the Note on
its demand. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or
endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for
payment, protest and notice of dishonor. Upon any change in the terms
of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation
maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon
or perfect Lender's security interest in the collateral; and
take any other action deemed necessary by Lender without
the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification
is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD
ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE
INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF
THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THE NOTE.
BORROWER:
PENN OCTANE CORPORATION
By: Thomas A. Serleth
- - ---------------------------
THOMAS A. SERLETH, EXEC. V.P./CFO
CONTRACT FOR SALE
This Contract is made and entered into this 22nd day of
February, 1996, by and between MAPCO Natural Gas Liquids Inc.,
a Delaware corporation (hereinafter referred to as "Seller")
and Penn Octane Corporation, a Delaware corporation (hereinafter
referred to as "Buyer").
1. Sale. Seller agrees to sell and Buyer agrees to purchase
the following described trailers ("Trailer"), to-wit:
Trailers:
Unit No. Model Serial No.
1. 00031 1967 Lubbock 56692
2. 00033 1967 Lubbock 56709
3. 00034 1972 Lubbock 58050
4. 00035 1981 Evans 60900
5. 00036 1982 Evans 61060
6. 00037 1982 Evans 61064
7. 00038 1974 Lubbock 58592
8. 00039 1974 Lubbock 58637
9. 00040 1974 Lubbock 58636
10 00041 1972 Trinity 382716
11. 00042 1985 Enderby 445063
12. 00044 1969 Miss 67568
13. 00045 1972 Lubbock 58056
14. 00046 1972 Lubbock 58055
2. Purchase Price. The purchase price for the Trailers is two
hundred ninety-five thousand dollars ($295,000.00). Buyer will
have two weeks from the date of execution of this Contract to
obtain approval of this transaction from its Board of Directors.
Buyer will immediately notify Seller of such approval, and
payment will be made by wire transfer three business days
thereafter. Upon confirmation by Seller of receipt of Buyer's
wired funds, Seller will deliver to Buyer by Federal Express
an executed Bill of Sale and executed titles for the Trailers.
3. Condition of Property. The Trailers are being sold in
their present condition and location, as is, where is, with
all faults, and seller expressly disclaims and negates (i) any
implied or express
<PAGE>
warranty of merchantability, and (ii) any
implied or express warranty of fitness for particular purpose.
Buyer shall not be entitled to recover from the Seller any
consequential damages, damages to property, damages for loss
of use, loss of time, loss of profits, or income, or any other
incidental damages. By acceptance hereof, Buyer agrees that
to the extent required to be operative, the disclaimers of
warranties contained herein are "conspicuous" disclaimers for
purposes of any applicable law, rule or order.
4. Possession. All risk of loss or damage to the Trailers
shall be upon Buyers after delivery of the Bill of Sale.
Buyer will have thirty days thereafter to take possession
of the Trailers.
5. Brokerage Commission. Each party warrants to the other that
they have no knowledge of any person, firm or entity, entitled
to a fee or commission by reason of the sale of the Trailers
and further each party agrees to hold the other harmless for
any and all damages, loss, liability, cost or expense, arising
out of the breach of this warranty by such party.
6. Modification and Binding Effect. This contract of sale
contains the entire agreement between the parties hereto
relative to the purchase and sale of the Trailers. No
variations, modifications or changes herein or hereof shall
be binding upon any of the parties hereto unless set forth
in a written document duly executed by and on behalf of such
parties. This agreement shall insure to the benefit of and
be binding upon the undersigned parties and their respective
heirs, legal representatives, successors and assigns.
<PAGE>
EXECUTED this 22nd day of February, 1996.
SELLER:
MAPCO NATURAL GAS LIQUIDS INC.,
a Delaware corporation
By: Mark H. Morelli
___________________________________
Mark H. Morelli
Vice President
BUYER:
PENN OCTANE CORPORATION
a Delaware corporation
By: Mark D. Casaday
___________________________________
Mark D. Casaday
President
<PAGE>
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, THAT:
THIS BILL OF SALE is executed this 22nd day of February, 1996,
by and between MAPCO Natural Gas Liquids Inc., a Delaware
corporation (hereinafter referred to as "Seller"), and
PENN OCTANE CORPORATION, a Delaware corporation (hereinafter
referred to as "Buyer"), with respect to the following asset(s):
Trailers:
Unit No. Model Serial No.
1. 00031 1967 Lubbock 56692
2. 00033 1967 Lubbock 56709
3. 00034 1972 Lubbock 58050
4. 00035 1981 Evans 60900
5. 00036 1982 Evans 61060
6. 00037 1982 Evans 61064
7. 00038 1974 Lubbock 58592
8. 00039 1974 Lubbock 58637
9. 00040 1974 Lubbock 58636
10 00041 1972 Trinity 382716
11. 00042 1985 Enderby 445063
12. 00044 1969 Miss 67568
13. 00045 1972 Lubbock 58056
14. 00046 1972 Lubbock 58055
Seller desires to sell, assign, transfer, and convey to Buyer
all the respective rights and benefits of Seller in and to
the above described asset(s).
W I T N E S S E T H:
NOW THEREFORE, Seller, for and in consideration of the sum of
Ten Dollars ($10.00) and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged,
does hereby grant, bargain, sell, convey, set over, assign
and transfer unto Buyer all of Seller's rights, titles,
interests, equities and estates in, to and under the above
described asset(s).
THE ASSET(S) BEING TRANSFERRED HEREUNDER IS/ARE BEING
TRANSFERRED IN ITS/THEIR PRESENT CONDITION AND LOCATION,
AS IS, WHERE IS, WITH ALL FAULTS, AND SELLER EXPRESSLY
DISCLAIMS AND NEGATES (I) ANY IMPLIED OR EXPRESS WARRANTY
OF MERCHANTABILITY, AND (II) ANY IMPLIED OR EXPRESS WARRANTY
OF FITNESS FOR PARTICIPATION PURPOSE. BUYER SHALL NOT BE
ENTITLED TO RECOVER FROM THE SELLER ANY CONSEQUENTIAL DAMAGES,
<PAGE>
DAMAGES TO PROPERTY, DAMAGES FOR LOSS OF USE, LOSS OF TIME,
LOSS OF PROFITS, OR INCOME, OR ANY OTHER INCIDENTAL DAMAGES.
By acceptance hereof, Buyer agrees that to the extent required
to be operative, the disclaimers of warranties contained
herein are "conspicuous" disclaimers for purposes of any
applicable law, rule or order.
All of the covenants, terms and conditions set forth herein
shall be binding upon and shall inure to the benefit of the
Buyer and Seller and their respective successors, personal
representatives and assigns.
IT WITNESS WHEREOF, Seller has executed and delivered this
Bill of Sale as of the day and year first above written.
ASSIGNOR:
MAPCO NATURAL GAS LIQUIDS INC.,
a Delaware corporation
By: _____________________________________
ITS: _____________________________________
ASSIGNEE:
PENN OCTANE CORPORATION
a Delaware corporation
By: Mark D. Casaday
Mark D. Casaday
_____________________________________
ITS: President
_____________________________________
CAUSE NO. 94-08-4008-C
INTERNATIONAL ENERGY IN THE 197th DISTRICT COURT
DEVELOPMENT CORP.,
Plaintiff,
v. IN AND FOR
INTERNATIONAL BANK OF
COMMERCE-BROWNSVILLE,
Defendant CAMERON COUNTY, TEXAS
CORRECTED FINAL JUDGMENT
On the 9th day of February, 1996 came Plaintiff
INTERNATIONAL ENERGY DEVELOPMENT CORP. n/k/a PENN OCTANE
CORPORATION'S Motion for Confirmation of Arbitration
Award, Plaintiff's Motion to Vacate Arbitration Award
should be DENIED and that Plaintiff is entitled to judgment
confirming the award. The Court finds as follows:
1. INTERNATIONAL BANK OF COMMERCE-BROWNSVILLE is liable to
INTERNATIONAL ENERGY DEVELOPMENT CORPORATION for (a) the
sum of $3,246,754.00, and (b) attorneys' fees of
$568,000.00 on INTERNATIONAL ENERGY DEVELOPMENT ENERGY
DEVELOPMENT CORPORATION'S claims for Breach of Contract.
EXHIBIT NO. "A"
<PAGE>
2. INTERNATIONAL BANK OF COMMERCE-BROWNSVILLE is entitled
to an offset of (a) the sum of $804,016.28, and (b)
attorneys' fees of $200,000.00 on INTERNATIONAL BANK OF
COMMERCE-BROWNSVILLE'S counterclaim against INTERNATIONAL
ENERGY DEVELOPMENT CORPORATION's for Breach of Contract
at Section 61(9) of INTERNATIONAL BANK OF
COMMERCE-BROWNSVILLE's "Responsive Pleading in Arbitration"
filed on or about November 3, 1994, and Section 73(10) of
its First Amended Pleading in Arbitration filed on or
about May 15, 1995.
It is therefore ORDERED by the Court that the Defendant's
Motion to Vacate Arbitration Award is
DENIED and that Plaintiff INTERNATIONAL ENERGY DEVELOPMENT
CORP. n/k/a PENN
OCTANE CORPORATION have judgment as follows:
1. INTERNATIONAL ENERGY DEVELOPMENT CORPORATION shall have a
judgment against INTERNATIONAL BANK OF COMMERCE-BROWNSVILLE
in the sum of $2,810,737.72, plus post-award interest at a
rate of 9.75% compounded annually to begin running 10 days
after the date this award was signed by the requisite number
of arbitrators September 21, 1995 t the entry of this Judgment
and thereafter at the statutory rate.
2. Upon the entry of this Judgment INTERNATIONAL BANK OF
COMMERCE-BROWNSVILLE shall release all collateral transferred
to it by INTERNATIONAL ENERGY DEVELOPMENT CORPORATION,
JEROME B. RICHTER and MARK D. CASADAY (including but not
limited to the stock pledges of RICHTER and CASADAY and the
CASADAY employment contract) as further described in various
exhibits made a part of the record in the Arbitration.
3. Administrative fees for the American Arbitration
Association (the AAA) shall be borne 50% by Claimant and
Counter-Respondents, and 50% by Respondent and Counter-Claimant.
4. The expenses of witnesses for each party shall by borne
by the party producing such witnesses.
5. The arbitrator's compentation shall be borne 50% by the
Claimant and Counter-Respondents and 50% by the Respondent
and Counter-Claimant.
Page 2 of 3
<PAGE>
The Court further orders that Plaintiff's Motion to Modify
is GRANTED and that Plaintiff further shall have and recover
from Defendant INTERNATIONAL BANK OF COMMERCE-BROWNSVILLE
attorneys' fees in the sum of $100,000.00 for services
rendered in pursuing the entry of Judgment in this case,
together with interest at the statutory rate from date of
entry of this Judgment until paid and conditionally $7,500.00
for any appeal to the Court of Appeals and $5,000.00 for any
appeal to the Texas Supreme Court and $2,500.00 in the event
Writ is granted by the Supreme Court.
All costs of Court are to be paid by the Defendant.
All write and processes for the enforcement and collection
of this Judgment may issue as necessary. All other relief
sought by either Plaintiff INTERNATIONAL ENERGY DEVELOPMENT
CORPORATION or Defendant INTERNATIONAL BANK OF
COMMERCE-BROWNSVILLE from the other not expressly granted
in this Judgment is DENIED.
SO ORDERED this 28th day of February, 1996.
JUDGE PRESIDING
Page 3 of 3
LOAN AGREEMENT
THIS AGREEMENT is dated March 1, 1996, and is entered into by and
between PENN OCTANE CORPORATION, a Delawar corporation (hereinafter
called "Borrower"), whose address is 900 Veterans Blvd., Suite 510,
Redwood City, California 94063, and John H. Robinson, an individual
(hereinafter called "Lender") whose adress is 260 Townsend Street,
Second Floor, San Francisco, California 94107.
In consideration of the mutual agreements herein contained, the
parties hereto agree as follows:
1. Commitment of the Lender.
Subject to the terms and conditions of this agreement, the Lender
agrees to lend to the Borrower the principal sum of Five Hundred
Thousand and No/100 Dollars ($500,000).
2. Promissory Note Evidencing Borrowing.
The borrowing hereunder is evidenced by a promissory note payable
to the order of the Lender (the "Note") of even date herewith,
executed by the Borrower and maturing in eighteen (18) months. The
Note shall bear interest of ten percent per annum (10%) and
otherwise shall be in the form of Exhibit A attached hereto and made
a part hereof for all purposes.
3. Security.
Payment of the Note shall be secured by the following (the "Security"
or "Collateral"):
a. All tanks, pumps, product, inventory, equipment and other personal
property located on the Borrower's location at the Port of Brownsville
in Camercon County, Texas (the "Port Facility").
b. Any proceeds received by Borrower from a judgment or settlement
of Borrower's litigation with the International Bank of Commerce-
Brownsville, subject to prior claims and commitments made by
Borrower as part of settlement agreemetns entered into with
Lauren Constructors, Inc., Thomas G. Janik & Associates, Inc.,
MTS Systems and Louisiana Chemical Co.
c. UCC Financing Statements as applicable.
4. Note Payment; Prepayment Privilege.
a. Payment of accrued and unpaid interest shall be made on
March 1, 1997 and on the Maturity Date (as defined below).
b. Payment of principal shall be made on the earlier of
September 1, 1997 or within five (5) days of the receipt
by Borrower of the proceeds from a secondary offering of
equity in the minimum amount of Five Million Dollars
($5,000,000) (the "Maturity Date").
c. Borrower may prepay the principal balance in full without
premium or penalty, together with andy accrued and unpaid
interest to the date of such prepayment upon thirty (30)
days written notice to Lender.
d. Until otherwise directed by written notice from Lender to
Borrower, all payments on the Note shall be made to the
following:
John H. Robinson
260 Townsend Street, Second Floor
San Francisco, California 94107
(412) 978-0700
5. Warranties and Representations.
The Borrower warrants and represents that:
a. This agreement and the Note are legal, valid and binding upon
the parties thereto and enforceable in accordance with their
terms' and all corporate proceedings of the Borrower prerequisite
to the effectiveness of any instruments described herein have
been duly and properly held.
b. Penn Octance Corporation ("POCC") is a corporation duly organized
and in good standing under the laws of the State of Delaware
and is duly authorized to conduct business in the State of Texas.
POCC has requisite power and authority to own, operate and lease
its poroperties and assets, to carry on its business and to enter
intop and perform under the provisions of this agreement.
c. Neither the making nor performance of this agreement nor the
borrowing hereunder, requires the consent or approval of any
governmental instrumentality or any other person or entity.
d. The financial statements furnished (or to be furnished)
hereunder accurately reflect the financial position of the
Borrower on the dates of said statemetns and no material
changes in financial condition ahve occurred since such
dates as of the date of closing of this loan transaction.
e. Any financial changes or other occurences adverse to the
interests of the Borrower or the Lender will be promptly
brought to the attention of the lender.
6. Borrower's Affirmative Covenants.
Until the Note is paid in full, the Borrower agrees that
(unless the Lender shall otherwise consent in writing)
it will:
a. Furnish to the Lender annual audited financial statements
on the Borrower within ninety (90) days following the end
of each fiscal year, and quarterly financial statements
withing forty-five (45) days after the end of each fiscal
quarter. The Borrower agrees to furnish to the Lender such
additional statements and supportive information, whether
financial or otherwise, as the Lender may reasonably
request from time to time.
b. Comply with all laws, regulations and governmental
requirements applicable to all aspects of the Borrower's operations
and transactions.
c. Keep the Lender fully advised as to any matter or occurrence
materially affecting the value of the Collateral.
7. Borrower's Negative Covenants.
Until the Note is paid in full, the Borrower agrees that
(unless the Lender shall otherwise consent in writing)
it will not:
a. Change the general character of business conducted at the date
hereof, or engage in any type of business not reasonably related
to the Borrower's business as presently conducted.
b. Sell, transfer or otherwise dispose of any of the Collateral,
except for payment of prior claims and settlements entered
into as described in 3.b. above.
8. Events of Default; Remedies.
a. If one or more of the following events (the "Events of
Default") shall occur and be continuiing, then Lender shall
be entitled to pursue such remedies as are provided for in
subparagraph b. hereunder:
i. Default shall be made and continue for ten (10) days in
the payment when due of any installment of principal or
interest on the Note;
ii. A material adverse change occurs in the property or
condition, financial or otherwise of the Borrower; and such
material adverse change remains unremedied for a period
of thirty (30) days;
iii. The dissolution of the Borrower;
iv. The Borrower fails to pay its debts as they become due or
admits its inability to pay its debts as they mature, or
the Borrower is adjudicated bankrupt or insolvent or any
of the property of the Borrower is sequestered by court
order or a petition is filed against the Borrower under
any bankruptcy, reorganization, arrangement, insolvency
or readjustment of debt law of any jurisdiction, whether
now or subsequently in effect, and such condition remains
in existence or effect for a period of sixty (60) days; or
v. The Borrower files a petition in voluntary bankruptcy,
reorganization, arrangement, insolvency or readjustment
of debt law of any jurisdiction, whether now or subsequently
in effect, or consents to the filing of any petition
against Borrower under any such law; or consents to the
filing of any petition against Borrower under any such
law; or consents to the appointment of or taking possession
by a custodian, receiver, trustee or liquidator of any of
the property of Borrower, and such condition remains in
existence or effect for a period of sixty (60) days.
b. Remedies.
Upon the occurrance and during the continuation of any
Event of Default hereunder, Lender shall be entitled to exercise
all rights, powers and remedies Lender may have for the protection
end enforcement of Lender's rights in respect of any Collateral
granted as security for Borrower's obligations hereunder.
9. Miscellaneous.
a. All agreements, representations and warranties made herein and
in any instrument referred to hereing shall survive the making
of the loan hereunder, and shll be binding upon and inure to
the benefit of the successors and assigns of the parties hereto;
provided, however, that notwithstanding the foregoind, the Borrower
shall not have the right to assign its rights or obligations hereunder
without the prior written consent of the Lender.
b. This agreement and the Note shall be governed and construed in
accordance with the laws of the State of California.
EXECUTED on the day and year first above written
JOHN H. ROBINSON
By: John H. Robinson
"Lender"
PENN OCTANE CORPORATION
By: Thomas A. Serleth
Thomas A. Serleth
Its: Executive Vice President
"Borrower"
<PAGE>
PROMISSORY NOTE
Amount $500,000 March 1, 1996
FOR VALUE RECEIVED, the undersigned, PENN OCTANE CORPORATION (the
"Maker"), promises to pay to the order of JOHN H. ROBINSON (the
"Payee"_, the principal sum of FIVE HUNDRED THOUSAND AND 00/100
U.S. DOLLARS (U.S. $500,000.00) plus interest on the unpaid
principal balance thereof (the "Principal Balance") at the rate
and on the terms set forth in this (the "Note").
Section 1. Payment Terms.
(a) Rate of Interest. Beginning on the date hereof, interest
(computed on the basis of the acrual number of days
elapsed over a 360-day year) on the Principal Balance shall
accrue at a rate per annum equal to ten percent (10%).
(b) Payments of Interest. Interest shall be payable annually in
arrears beginning March 1, 1997 and on the Maturity Date
(as defined below).
(c) Payments of Principal. The Maker shall pay the principal of the
Note on the Maturity Date (as defined below).
The Maker may prepay the Principal Balance in full,
together with any accrued interest to the date of such prepayment,
upon thirty (30) days written notice to Payee, without premium
or penalty, provided that the Principal Balance and accrued
but unpaid interst shall be due and payable in full on the
earlier of September 1, 1997, or the receipt by Maker of a
minimum of $5,000,000 in proceeds from a secondary offering of
equity (th "Maturity Date").
(d) Form and Application of Payments. All payments on this Note shall
be (i) paid in lawful money of the United States of America during
regular hours of the Payee at the office of the Payee at 260
Townsend Street, Second Floor, San Francisco, California 94107 or at
such other place or in such other manner as the "Holder" (as
defined below) may at any time or from time to time designate
in writing to the Maker and (ii) applied first to the payment of
accrued but unpaid interest and second to the reduction of the
Principal Balance. The term "Holder" as used herein means the
holder of this Note, including the Payee.
Section 2. Security.
All obligations of the Maker hereunder are secured under the Loan
Agreement gby and between Maker and Payee.
Section 3. Default.
(a) If one or more of the following events (herein called "Events of
Default") shall occur and be continuing, then Payee shall be entitled
to pursue such remedies as are provided for in subparagraph (b) hereunder:
(i) Default shall be made and continue for ten (10) days in the
payment when due of any installment of principal or interest on
this Note;
(ii) A material adverse change occurs in the property or
condition, financial or otherwise of the Maker; and such
material adverse change remains unremedied for a period
of thirty (30) days;
(iii) The dissolution of Maker;
(iv) The Maker fails to pay its debts as they become due or
admits its inability to pay its debts as they mature,
or the Maker is adjudicated bankrupt or insolvent or
any of the property of the Maker is sequestered by court
order or a petition is filed against the Maker under any
bankruptcy, reorganization, arrangement, insolvency or
readjustment of debt law of any jurisdiction, whether
now or subsequently in effect, and such condition remains
in existence or effect for a period of sixty (60) days; or
(v) The Maker files a petition in voluntary bankruptcy,
reorganization, arrangement, insolvency or readjustment of
debt law of any jurisdiction, whether now or subsequently in
effect; or consents to the filing of any petition against
such Maker under any such law; or consents to the
appointment of or taking possession by a custodian, receiver,
trustee or liquidator of any of the property of Maker, and such
condition remains in existence or effect for a period of
sixty (60) days.
(b) Remedies.
Upon the occurrence and during the continuation of any Event
of Default hereunder, Payee shall be entitled to exercise all
of the rights, pwers and remedies Payee may have for the protection
and enforcement of Payee's rights in respect of any collateral
granted as security for Maker's obligations pursuant to the
Loan Agreement.
Section 4. Notices
Any notice and other communications to be given or received hereunder,
shall be given in writing to the following:
Payee: John H. Robinson
260 Townsend Street, Second Floor
San Francisco, California 94107
Maker: Penn Octane Corporation
900 Veterans Blvd., Suite 510
Redwood City, California 94063
Attn: Thomas A. Serleth
Chief Financial Officer
Section 5. Governing Law.
This Note, the Loan Agreement and all other instruments executed pursuant
to this Note shall be governed and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note
on the date first above written
PENN OCTANE CORPORATION
By: Thomas A. Serleth
Name:Thomas A. Serleth
Title: Executive Vice President &
Chief Financial Officer
<PAGE>
SECURITY AGREEMENT
Date: March 1, 1996
Debtor: Penn Octane Corporation
Debtor's Mailing Address: 5847 San Felipe, Suite 3420
Houston, Texas 77057
Secured Party: John H. Robinson
Secured Party's Mailing Address: 260 Townsend Street, Second Floor
San Francisco, California 94107
Classification of Collateral: equipment and general intangibles
Collateral (including all accessions):
1. All tanks, pumps, equipment and other personal property
located on, in or about the following described leased premises:
The property described in a Contract between Brownsville
Navigation District of Cameron County, Texas, and Penn Octane
Corp. dated October 5, 1993 covering 11.29 acres of land and
as amended on February 11, 1994, to increase the leased
premises to 14.51 acres of land.
2. Contract between Brownsville Navigation District of Cameron
County, Texas, and Penn Octane Corp. dated October 5, 1993
covering 11.29 acres and as amended on February 11, 1994,
to increase the leased premises to 14.51 acres of land.
3. Any cash recovery from litigation involving Penn Octane
Corporation or International Energy Development Corp. and
International Bank of Commerce-Brownsville.
Each of the above is given as collateral subject to all prior
liens and/or assignments.
Obligation: Note:
Date: March 1, 1996
Amount: $500,000.00
Maker: Penn Octane Corporation
Payee: John H. Robinson
Final Maturity Date: September 1, 1997
Terms of Payment: (optional): as provided therein
Debtor's Representation Concerning Location of Collateral
(optional): Cameron County, Texas.
Subject to the terms of this agreement, Debtor grants to
Secured Party a security interest in the collateral and
all its proceeds to secure payment and performance of
Debtor's obligation in this security agreement and all
renewals and extensions of any of the obligation.
Debtor's Warranties
1. Financing Statement. The collateral is subject to
assignments and prior financing statements which have been
filed in any public office, if any.
2. Ownership. Debtor owns the collateral and has the
authority to grant this security interest. Ownership may be
subject to prior liens, security interests, or encumbrances.
3. Fixtures and Accessions. None of the collateral is affixed
to real estate, is an accession to any goods, is commingled
with other goods, or will become a fixture, accession, or
part of a product or mass with other goods except as
expressly provided in this agreement.
4. Financial Statements. All information about Debtor's
financial condition provided to Secured Party was accurate
when submitted, as will be any information subsequently provided.
Debtor's Covenants
1. Protection of Collateral. Debtor will defend the collateral
against all claims and demands adverse to secured Party's
interest in it and will keep it free from all liens except
those for taxes not yet due and from all security interests
except this one. The collateral will remain in Debtor's
possession or control at all times, except as otherwise
provided in this agreement. Debtor will maintain the
collateral in good condition and protect it against misuse,
abuse, waste, and deterioration except for
2. Insurance. Debtor will insure the collateral in accord
with Secured Party's reasonable requirements regarding choice
of carrier, casualties insured against, and amount of coverage.
Policies will be written in favor of Debtor and Secured Party
according to their respective interests or according to
Secured Party's other requirements. All policies will provide
that Secured Party will receive at least ten days' notice
before cancellation, and the policies or certificates evidencing
them will be provided to Secured Party when issued. Debtor assumes
all risk of loss and damage to the collateral to the extent
of any deficiency in insurance coverage. Debtor irrevocably
appoints Secured Party as attorney-in-fact to collect any
return, unearned premiums, and proceeds of any insurance on
the collateral and to endorse any draft or check deriving from
the policies and made payable to Debtor.
3. Secured Party's Costs. Debtor will pay all expenses
incurred by Secured Party in obtaining, preserving, perfecting,
defending, and enforcing this security interest or the
collateral and in collecting or enforcing the note. Expenses
for which Debtor is liable include, but are not limited to
taxes, assessments, reasonable attorneys' fees and other
legal expenses. These expenses will bear interest from the
dates of payments at the highest rate stated in notes that are
part of the obligation, and Debtor will pay Secured Party this
interest on demand at a time and place reasonably specified
by Secured Party.
. These expenses and interest will be part of the obligation
and will be recoverable as such in all respects.
4. Additional Documents. Debtor will sign any papers that
Secured Party considers necessary to obtain, maintain, and
perfect this security interest or to comply with any relevant law.
5. Notice of Changes. Debtor will immediately notify Secured
Party of any material change in the collateral; change in
Debtor's name, address, or location; change in any matter
warranted or represented in this agreement; change that may
affect this security interest; and any event of default.
6. Use and Removal of Collateral. Debtor will use the collateral
primarily according to the stated classification unless Secured
Party consents otherwise in writing. Debtor will not permit
the collateral to be affixed to any real estate, to become an
accession to any goods, to be commingled with other goods, or
to become a fixture, accession, or part of a product or mass
with other goods except as expressly provided in this agreement.
7. Sale. Debtor will not sell, transfer, or encumber any of
the collateral without the prior written consent of Secured Party.
Rights and Remedies of Secured Party
1. Generally. Secured Party may exercise the following rights
and remedies either before or after default:
a. take control of any proceeds of the collateral;
b. release any collateral in Secured Party's possession to
any debtor, temporarily or otherwise;
c. take control of any funds generated by the collateral,
such as refunds from and proceeds of insurance, and reduce
any part of the obligation accordingly or permit Debtor to
use such funds to repair or replace damaged or destroyed
collateral covered by insurance; and
d. demand, collect, convert, redeem, settle, compromise,
receipt for, realize on, sue for, and adjust the collateral
either in Secured Party's or Debtor's name, as Secured Party
desires.
2. Insurance. If Debtor fails to maintain insurance as
required by this agreement or otherwise by Secured Party,
then Secured Party may purchase single-interest insurance
coverage that will protect only Secured Party. If Secured
Party purchases this insurance, its premiums will become
part of the obligation.
Events of Default
Each of the following conditions is an event of default:
1. if Debtor defaults in timely payment or performance of
any obligation, covenant, or liability in any written agreement
between Debtor and Secured Party or in any other transaction
secured by this agreement;
2. if any warranty, covenant, or representation made to
Secured Party by or on behalf of Debtor proves to have been
false in any material respect when made;
3. if a receiver is appointed for Debtor or any of the
collateral;
4. if the collateral is assigned for the benefit of creditors
or, to the extent permitted by law, if bankruptcy or
insolvency proceedings commence against or by any of these
parties: Debtor; any partnership of which Debtor is a general
partner; and any maker, drawer, acceptor, endorser, guarantor,
surety, accommodation party, or other person liable on or for
any part of the obligation;
5. if any financing statement regarding the collateral but
not related to this security interest and not favoring Secured
Party is filed;
6. if any lien attaches to any of the collateral;
7. if any of the collateral is lost, stolen, damaged, or
destroyed, unless it is promptly replaced with collateral of
like quality or restored to its former condition.
Remedies of Secured Party on Default
During the existence of any event of default, Secured Party
may declare the unpaid principal and earned interest of the
obligation immediately due in whole or part, enforce the
obligation, and exercise any rights and remedies granted by
chapter 9 of the Texas Business and Commerce Code or by this
agreement, including the following:
1. require Debtor to deliver to Secured Party all books and
records relating to the collateral;
2. require Debtor to assemble the collateral and make it
available to Secured Party at a place reasonably convenient
to both parties;
3. take possession of any of the collateral and for this
purpose enter any premises where it is located if this
can be done without breach of the peace;
4. sell, lease, or otherwise dispose of any of the
collateral in accord with the rights, remedies, and
duties of a secured party under chapters 2 and 9 of
the Texas Business and Commerce Code after giving
notice as required by those chapters; unless the collateral
threatens to decline speedily in value, is perishable, or
would typically be sold on a recognized market, Secured
Party will give Debtor reasonable notice of any public sale
of the collateral or of a time after which it may be
otherwise disposed tage prepaid, to Debtor at the address
specified on this agreement at least ten days before any
public sale or ten days before the time when the collateral
may be otherwise disposed of without further notice to Debtor;
5. surrender any insurance policies covering the collateral
and receive the unearned premiums;
6. apply any proceeds from disposition of the collateral
after default in the manner specified in chapter 9 of the
Texas Business and Commerce Code, including payment of Secured
Party's reasonable attorneys' fees and court expenses; and
7. if disposition of the collateral leaves the obligation
unsatisfied, collect the deficiency from Debtor.
General Provisions
1. Parties Bound. Secured Party's rights under this agreement
shall inure to the benefit of its successors and assigns.
Assignment of any part of the obligation and delivery by
Secured Party of any part of the collateral will fully
discharge Secured Party from responsibility for that part
of the collateral. If Debtor is more than one, all their
representations, warranties, and agreements are joint and
several. Debtor's obligations under this agreement shall
bind Debtor's personal representatives, succe
2. Waiver. Neither delay in exercise nor partial exercise
of any Secured Party's remedies or rights shall waive further
exercise of those remedies or rights. Secured Party's failure
to exercise remedies or rights does not waive subsequent
exercise of those remedies or rights. Secured Party's waiver
of any default does not waive further default. Secured
Party's waiver of any right in this agreement or of any default
is binding only if it is in writing. Secured Party may remedy
any default without waivi
3. Reimbursement. If Debtor fails to perform any of Debtor's
obligations, secured Party may perform those obligations and
be reimbursed by Debtor on demand at the place where the note
is payable for any sums so paid, including attorneys' fees
and other legal expenses, plus interest on those sums from
the dates of payment at the rate stated in the note for matured,
unpaid amounts. The Sum to be reimbursed shall be secured by
the security agreement.
4. Interest Rate. Interest included in the obligation shall
not exceed the maximum amount of nonusurious interest that
may be contracted for, taken, reserved, charged, or received
under law; any interest in excess of that maximum amount shall
be credited to the principal of the obligation or, if that has
been paid, refunded. On any acceleration or required or
permitted prepayment of the obligation, any such excess shall
be canceled automatically as of the acceleration or prepayment
or, if already paid, credited on the principal amount of the obligation
or, if the principal amount has been paid, refunded. This provision
overrides other provisions in this and all other
instruments concerning the obligation.
5. Modifications. No provisions of this agreement shall be
modified or limited except by written agreement.
6. Severability. The unenforceability of any provision of this
agreement will not affect the enforceability or validity of any
other provision.
7. After-Acquired Consumer Goods. This security interest shall
attach to after-acquired consumer goods only to the extent
permitted by law.
8. Applicable Law. This agreement will be construed according
to Texas laws.
9. Place of Performance. This agreement is to be performed in
the county of Secured Party's mailing address.
10. Financing Statement. A carbon, photographic, or other
reproduction of this agreement or any financing statement
covering the collateral is sufficient as a financing statement.
11. Presumption of Truth and Validity. If the collateral is sold
after default, recitals in the bill of sale or transfer will be
prima facie evidence of their truth, and all prerequisites to the
sale specified by this agreement and by chapter 9 of the Texas
Business and Commerce Code will be presumed satisfied.
12. Singular and Plural. When the context requires, singular
nouns and pronouns include the plural.
13. priority of Security Interest. This security interest shall
neither affect nor be affected by any other security for any of
the obligation. Neither extensions of any of the obligation nor
releases of any of the collateral will affect the priority or
validity of this security interest with reference to any third
person.
14. Cumulative Remedies. Foreclosure of this security interest
by suit does not limit Secured Party's remedies, including the
right to sell the collateral under the terms of this agreement.
All remedies of Secured Party may be exercised at the same or
different times, and no remedy shall be a defense to any other.
Secured Party's rights and remedies include all those granted by
law or otherwise, in addition to those specified in this agreement.
15. Agency. Debtor's appointment of Secured Party as Debtor's
agent is coupled with an interest and will survive any
disability of Debtor.
16. Attachments Incorporated. The addendum indicated below
is attached to this agreement and incorporated into it for all purposes:
X Accounts, Inventory, Documents, Chattel Paper, General Intangibles.
PENN OCTANE CORPORATION
BY: _____________________________
ITS: _____________________________
(Acknowledgment)
State of
County of
This instrument was acknowledged before me on the ____ day
of July, 1996, by Thomas A. Serleth, Executive Vice President
and Chief Financial Officer of Penn Octane Corporation, on
behalf of Penn Octane Corporation.
_____________________________
Notary Public, State of
PREPARED BY:
FLEMING, HEWITT & OLVERA
Brownsville, Texas 78521
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE THEREOF
HAS BEEN REGISTERED UNDER THE CEURITIES 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
THEREOF MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR
QUALIFICATION OR AN EXEMPTION THEREFROM UNDER ANY APPLICABLE STATE
SECURITIES LAW.
COMMON STOCK PURCHASE WARRANT
Void after February 28, 2001
No. 001 Warrant to Purchase 50,000
Shares of Common Stock, $.01
par value
PENN OCTANE CORPORATION (POCC)
This is to Certify That, FOR VALUE RECEIVED,
John H. Robinson
or registered assign(s) (herein referred to as the "Holder", whether one
or more), is entitled to purchase, subject to the provisions of this
Warrant, from PENN OCTANE CORPORATION (POCC), ad Delaware Corporation
(the "Company"), but in no event later than 5:00 p.m., San Francisco time,
on February 28, 2001 (or, if such date is a day authorized by law to close,
then on the next succeeding day which shall not be such a day), 50,000
shares of Common Stock (herein so called), $.01 par value, of the
Company at a price of $5.00 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".
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 fromt time to time by presentation and surrender hereof to
the Company with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of shares
specified in such form. If this Warrant should be 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 purchaseable hereunder. Upon receipt
by the Company of this Warrant at the office of the Company, in proper
from 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 orf 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 required to pay any tax which amy 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 tranfer books against the transfer
orf this Warrant or the issuance of any shares of Common Stock issuable
upon the exercis 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 erecise hereof will, upon issuance,
by duly authorized, validly issued, fully paid and non-assessable, with
no personal liability attaching to the ownership thereof.
3. Fractional Shares. This Warrant shall not be exercisable in such manner
as to require the issuance of fractional shares or script representing
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 mutiplied by the Fair Market Value
of such fractional share. The term "Fair Market Value" shall mean, as
of a particular date, the market price on such date.
The market price on such day shall be the last sale price on such day on the
New York Stock Exchange, or, if the Common Stock is not then listed or
admitted to trading on the New York Stock Exchange, 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 it the Common Stock is not then listed or
admitted to trading on any stock exchange, the market price on such day shall
be the average of the reported 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 wstock exchange, the market price
on such day shall be 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 11 below, 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 concelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof the
office or agency of the Company maintained for that purpose, 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 virue hereof, be
entitled to any rights of a stockholder in the Company, either at
law or in equity, and the rights of the Holder arelimited to those
expressed in this Warrant.
6. Adjustment of Exercise Rights. If, and whenever, after the date
hereof and prior to delivery by the Company pursuant to exercies of
this Warrant of all shares of Warrant Stock purchasable upon exercise of
this Warrant:
a. The number of outstanding shares of the Company's stock of the
class at the time purchasable upon exercise of this Warrant is
increased as the result of a subdivision of such outstanding
shares of stock of such class in payment of a dividend declared
upon the outstanding shares of stock of such class, then the
number of shares of Warrant Stock at the time remaining subject
to issuance upon exercise of this Warrant shall thereupon be
increased proportionately, and Exercise Price at the time in
effect shall thereupon be decrease proportionately; or
b. The number of outstanding shares of the Company's stock of the
class at the time purchasable upon exercise of this Warrant is
decreased as the result of a combination of outstanding shares
into a smaller number of shares, then the number of shares of Warrant
Stock at the time remaining subject to issuance upon exercies of
this Warrant shall thereupon be decreased proportionately, and
the Exercise Price at the time in effect shall thereupon be increased
proportionately; or
c. The outstanding shares of the Company's stock of the class at the
time purchasable upon exercise of this Warrant are changed (including
a change in par value) as the result of a reclassification (other than
a reclassificaiton resulting solely in a change to which the
provisions of clause a. or b. are applicable), or the Company merges
with another corporation or corporations in a merger in which the Company
is the resulting corporation (except a merger that does not result
in a reclassification of the outstanding shares of the Company's stock
of the class at the time purchasable upon exercise of this Warrant),
then thereafter, upon any exerecise of this Warrant the registered holder
hereof will, at no additional cost, be entitled to receive (subject to
any additional cost, be entitled to receive (subject tot any required
action by stockholders), in lieu of the number and class of shares
of stock theretofore purchasable upon such exercise, the number
and class of shares of stock and/or other securities and/or property
receivable, as a result of such relassification or merger, by a holder
of that number and class of shares of stock theretofore purchasable upon
such exercise.
d. Reorganizaiton or Reclassification. In the event of any capital
reorganization ro any reclassification of the capital stock of the
Company, this Warrant shall thereafter be exercisable for the number
of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the company issuable
upon exercise of this Warrant would have been entitled upon such
reorganization or reclassification; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the Holder of this Warrant
to the end that the provisions set forth herein (including provisions
with respect to adjustments of the Exercise Price) shall thereafter
be applicable, as nearly as reasonably practicable, in relation to
any shares of stock or other property thereafter deliverable upon
the exercise of this Warrant.
e. Effect of Merger or Consolidation. In the event the Company shall
enter into any consolidation with or merger into any other corporation
wherein the Company is not the surviving corporation, or shall sell
or convey its property as an entirety or substantially as an entirety,
and, in connection with such consolidation, merger, sale or
conveyance, shares of stock or other securities shall be issuable
or deliverable in exchange for the Common Stock of the Company,
the Holder shall thereafter be entitled to purchase (in lieu of the
number of shares of Common Stock which such Holder would have been
entitled to purchase immediately prior to such consolidation, merger,
sale or conveyance) the shares of stock or other securities to which
such number of shares of Common Stock would have been entitled at the
time of such consolidation, merger, sale or conveyance, at an
aggregate Exercise Price equal to that which would have been payable
if such number of shares of Common stock had been purchased immediately
prior thereto. In case of any such consolidation, merger, sale or
conveyance, appropriate provision (as determined by resolution of the
Board of Directors of the Company) shall be made with respect to
the rights and interests thereafter of the Holders of the Warrant, to
the end that all the provisions of this Warrant (including adjustment
provisions) shall thereafter be applicable, as nearly as reasonably
practicable, in relation to such stock or other securities.
f. No adjustments 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 the $.01 per share,
but in such case, any adjustment that would otherwise be required
tehn 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 $.01 per share or
more.
g. 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 make a
certificate signed by its President or a Vice President and its
Trasurer or Assistant Treasurer, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjsutment was calculated
(including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the
Exercise Price and number of shares of Common Stock purcasable
hereunder after giving effect to such adjustment, and shall
promptly cause copies of such certificates to be mailed to the
holder of the Warrant.
7. Notice to Warrant Holders. So long as this Warrant shall be outstanding,
(i) if the Company shall pay any dividend or make any discribution 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 or 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 twenty-one
(21) 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 tights, 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 reclassificaiton, reorgainzaiton, consolidation, merger,
conveyance, dissolution or liquidation. Such mailing shall be a
condition precendent to takin of the action proposed to be taken
by the Company.
8. 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
cuase 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 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
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.
9. 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 registered
holder of this Warrant and in accordance with sound financial practices.
10. 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.
11. 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 an indemnity
bond in such reasonable amount as the Company may determine (or, in the
case of the original holder of this Warrant or his nominee, upon
delivery of an indemnity agreement reasonably satisfactory to the
Company), or, 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.
12. Number and Gender. Whenever herein the singular number is used,
the same shall include the plural where appropriate, and words
of any gender shall include each other gender where appropriate.
13. Applicable Law. This Warrant shall be governed by, and constructed
in accordance with, the laws of the State of Delaware.
<PAGE>
WITNESS the execution hereof under seal this 6th day of June, 1996.
PENN OCTANE CORPORATION
(POCC)
Attest: Thomas A. Serleth By: Mark D. Casaday
Mr. Thomas A. Serleth Mr. Mark D. Casaday
Its: Assistant Secretary Its: President
LOAN AGREEMENT
THIS AGREEMENT is dated March 1, 1996, and is entered into by and
between PENN OCTANE CORPORATION, a Delawar corporation (hereinafter
called "Borrower"), whose address is 900 Veterans Blvd., Suite 510,
Redwood City, California 94063, and TRAKO International Company Limited,
(hereinafter called "Lender") whose adress is Heiligkreuz 6, P.O. Box 129,
FL-9490, VADUZ, FURSTENTUM LIECHTENSTEIN.
In consideration of the mutual agreements herein contained, the
parties hereto agree as follows:
1. Commitment of the Lender.
Subject to the terms and conditions of this agreement, the Lender
agrees to lend to the Borrower the principal sum of Five Hundred
Thousand and No/100 Dollars ($500,000).
2. Promissory Note Evidencing Borrowing.
The borrowing hereunder is evidenced by a promissory note payable
to the order of the Lender (the "Note") of even date herewith,
executed by the Borrower and maturing in eighteen (18) months. The
Note shall bear interest of ten percent per annum (10%) and
otherwise shall be in the form of Exhibit A attached hereto and made
a part hereof for all purposes.
3. Security.
Payment of the Note shall be secured by the following (the "Security"
or "Collateral"):
a. All tanks, pumps, product, inventory, equipment and other personal
property located on the Borrower's location at the Port of Brownsvill
in Camercon County, Texas (the "Port Facility").
b. Any proceeds received by Borrower from a judgment or settlement
of Borrower's litigation with the International Bank of Commerce-
Brownsville, subject to prior claims and commitments made by
Borrower as part of settlement agreemetns entered into with
Lauren Constructors, Inc., Thomas G. Janik & Associates, Inc.,
MTS Systems and Louisiana Chemical Co.
c. UCC Financing Statements as applicable.
4. Note Payment; Prepayment Privilege.
a. Payment of accrued and unpaid interest shall be made on
March 1, 1997 and on the Maturity Date (as defined below).
b. Payment of principal shall be made on the earlier of
September 1, 1997 or within five (5) days of the receipt
by Borrower of the proceeds from a secondary offering of
equity in the minimum amount of Five Million Dollars
($5,000,000) (the "Maturity Date").
c. Borrower may prepay the principal balance in full without
premium or penalty, together with andy accrued and unpaid
interest to the date of such prepayment upon thirty (30)
days written notice to Lender.
d. Until otherwise directed by written notice from Lender to
Borrower, all payments on the Note shall be made to the
following:
TRAKO International Co. Ltd., VADUZ
Account No. 73993.5000 with
UEBERSEEBANK AG, ZURICH, attn. Mr. K. Groebli
(Corresponding bank: Chase Manhattan Bank NA, New York)
5. Warranties and Representations.
The Borrower warrants and represents that:
a. This agreement and the Note are legal, valid and binding upon
the parties thereto and enforceable in accordance with their
terms' and all corporate proceedings of the Borrower prerequisite
to the effectiveness of any instruments described herein have
been duly and properly held.
b. Penn Octance Corporation ("POCC") is a corporation duly organized
and in good standing under the laws of the State of Delaware
and is duly authorized to conduct business in the State of Texas.
POCC has requisite power and authority to own, operate and lease
its poroperties and assets, to carry on its business and to enter
intop and perform under the provisions of this agreement.
c. Neither the making nor performance of this agreement nor the
borrowing hereunder, requires the consent or approval of any
governmental instrumentality or any other person or entity.
d. The financial statements furnished (or to be furnished)
hereunder accurately reflect the financial position of the
Borrower on the dates of said statemetns and no material
changes in financial condition ahve occurred since such
dates as of the date of closing of this loan transaction.
e. Any financial changes or other occurences adverse to the
interests of the Borrower or the Lender will be promptly
brought to the attention of the lender.
6. Borrower's Affirmative Covenants.
Until the Note is paid in full, the Borrower agrees that
(unless the Lender shall otherwise consent in writing)
it will:
a. Furnish to the Lender annual audited financial statements
on the Borrower within ninety (90) days following the end
of each fiscal year, and quarterly financial statements
withing forty-five (45) days after the end of each fiscal
quarter. The Borrower agrees to furnish to the Lender such
additional statements and supportive information, whether
financial or otherwise, as the Lender may reasonably
request from time to time.
b. Comply with all laws, regulations and governmental
requirements applicable to all aspects of the Borrower's operations
and transactions.
c. Keep the Lender fully advised as to any matter or occurrence
materially affecting the value of the Collateral.
7. Borrower's Negative Covenants.
Until the Note is paid in full, the Borrower agrees that
(unless the Lender shall otherwise consent in writing)
it will not:
a. Change the general character of business conducted at the date
hereof, or engage in any type of business not reasonably related
to the Borrower's business as presently conducted.
b. Sell, transfer or otherwise dispose of any of the Collateral,
except for payment of prior claims and settlements entered
into as described in 3.b. above.
8. Events of Default; Remedies.
a. If one or more of the following events (the "Events of
Default") shall occur and be continuiing, then Lender shall
be entitled to pursue such remedies as are provided for in
subparagraph b. hereunder:
i. Default shall be made and continue for ten (10) days in
the payment when due of any installment of principal or
interest on the Note;
ii. A material adverse change occurs in the property or
condition, financial or otherwise of the Borrower; and such
material adverse change remains unremedied for a period
of thirty (30) days;
iii. The dissolution of the Borrower;
iv. The Borrower fails to pay its debts as they become due or
admits its inability to pay its debts as they mature, or
the Borrower is adjudicated bankrupt or insolvent or any
of the property of the Borrower is sequestered by court
order or a petition is filed against the Borrower under
any bankruptcy, reorganization, arrangement, insolvency
or readjustment of debt law of any jurisdiction, whether
now or subsequently in effect, and such condition remains
in existence or effect for a period of sixty (60) days; or
v. The Borrower files a petition in voluntary bankruptcy,
reorganization, arrangement, insolvency or readjustment
of debt law of any jurisdiction, whether now or subsequently
in effect, or consents to the filing of any petition
against Borrower under any such law; or consents to the
filing of any petition against Borrower under any such
law; or consents to the appointment of or taking possession
by a custodian, receiver, trustee or liquidator of any of
the property of Borrower, and such condition remains in
existence or effect for a period of sixty (60) days.
b. Remedies.
Upon the occurrance and during the continuation of any
Event of Default hereunder, Lender shall be entitled to exercise
all rights, powers and remedies Lender may have for the protection
end enforcement of Lender's rights in respect of any Collateral
granted as security for Borrower's obligations hereunder.
9. Withholding Tax Clause
All payments of principal, interest and premium, if any,
shall be effected and clear of any present or future taxes,
imposts or levies of any nature, unless you are required by
law to deduct or withhold such taxes from any payment to be
made hereunder, in which event the amount due in respect of any
such payment shall be increased to the extent necessary to ensure
that, after the making of any such deduction or withholding,
the Lender receives a sum equal to the sum it would have
received if no such deduction or withholding had been required
to be made.
10. Miscellaneous.
a. All agreements, representations and warranties made herein and
in any instrument referred to hereing shall survive the making
of the loan hereunder, and shll be binding upon and inure to
the benefit of the successors and assigns of the parties hereto;
provided, however, that notwithstanding the foregoind, the Borrower
shall not have the right to assign its rights or obligations hereunde
without the prior written consent of the Lender.
b. This agreement and the Note shall be governed and construed in
accordance with the laws of the State of California.
EXECUTED on the day and year first above written
TRAKO International Company Limited
By: Dr. Peter Goop
"Lender"
PENN OCTANE CORPORATION
By: Thomas A. Serleth
Thomas A. Serleth
Its: Executive Vice President
"Borrower"
<PAGE>
PROMISSORY NOTE
Amount $500,000 March 1, 1996
FOR VALUE RECEIVED, the undersigned, PENN OCTANE CORPORATION (the
"Maker"), promises to pay to the order of JOHN H. ROBINSON (the
"Payee"_, the principal sum of FIVE HUNDRED THOUSAND AND 00/100
U.S. DOLLARS (U.S. $500,000.00) plus interest on the unpaid
principal balance thereof (the "Principal Balance") at the rate
and on the terms set forth in this (the "Note").
Section 1. Payment Terms.
(a) Rate of Interest. Beginning on the date hereof, interest
(computed on the basis of the acrual number of days
elapsed over a 360-day year) on the Principal Balance shall
accrue at a rate per annum equal to ten percent (10%).
(b) Payments of Interest. Interest shall be payable annually in
arrears beginning March 1, 1997 and on the Maturity Date
(as defined below).
(c) Payments of Principal. The Maker shall pay the principal of the
Note on the Maturity Date (as defined below).
The Maker may prepay the Principal Balance in full,
together with any accrued interest to the date of such prepayment,
upon thirty (30) days written notice to Payee, without premium
or penalty, provided that the Principal Balance and accrued
but unpaid interst shall be due and payable in full on the
earlier of September 1, 1997, or the receipt by Maker of a
minimum of $5,000,000 in proceeds from a secondary offering of
equity (th "Maturity Date").
(d) Form and Application of Payments. All payments on this Note shall
be (i) paid in lawful money of the United States of America during
regular hours of the Payee at the office of the Payee at 260
Townsend Street, Second Floor, San Francisco, California 94107 or at
such other place or in such other manner as the "Holder" (as
defined below) may at any time or from time to time designate
in writing to the Maker and (ii) applied first to the payment of
accrued but unpaid interest and second to the reduction of the
Principal Balance. The term "Holder" as used herein means the
holder of this Note, including the Payee.
Section 2. Security.
All obligations of the Maker hereunder are secured under the Loan
Agreement gby and between Maker and Payee.
Section 3. Default.
(a) If one or more of the following events (herein called "Events of
Default") shall occur and be continuing, then Payee shall be entitled
to pursue such remedies as are provided for in subparagraph (b) hereunder
(i) Default shall be made and continue for ten (10) days in the
payment when due of any installment of principal or interest on
this Note;
(ii) A material adverse change occurs in the property or
condition, financial or otherwise of the Maker; and such
material adverse change remains unremedied for a period
of thirty (30) days;
(iii) The dissolution of Maker;
(iv) The Maker fails to pay its debts as they become due or
admits its inability to pay its debts as they mature,
or the Maker is adjudicated bankrupt or insolvent or
order or a petition is filed against the Maker under any
bankruptcy, reorganization, arrangement, insolvency or
readjustment of debt law of any jurisdiction, whether
now or subsequently in effect, and such condition remains
in existence or effect for a period of sixty (60) days; or
(v) The Maker files a petition in voluntary bankruptcy,
reorganization, arrangement, insolvency or readjustment of
debt law of any jurisdiction, whether now or subsequently in
effect; or consents to the filing of any petition against
such Maker under any such law; or consents to the
appointment of or taking possession by a custodian, receiver,
trustee or liquidator of any of the property of Maker, and such
condition remains in existence or effect for a period of
sixty (60) days.
(b) Remedies.
Upon the occurrence and during the continuation of any Event
of Default hereunder, Payee shall be entitled to exercise all
of the rights, pwers and remedies Payee may have for the protection
and enforcement of Payee's rights in respect of any collateral
granted as security for Maker's obligations pursuant to the
Loan Agreement.
Section 4. Notices
Any notice and other communications to be given or received hereunder,
shall be given in writing to the following:
Payee: John H. Robinson
260 Townsend Street, Second Floor
San Francisco, California 94107
Maker: Penn Octane Corporation
900 Veterans Blvd., Suite 510
Redwood City, California 94063
Attn: Thomas A. Serleth
Chief Financial Officer
Section 5. Governing Law.
This Note, the Loan Agreement and all other instruments executed pursuant
to this Note shall be governed and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note
on the date first above written
PENN OCTANE CORPORATION
By: Thomas A. Serleth
Name:Thomas A. Serleth
Title: Executive Vice President &
Chief Financial Officer
<PAGE>
SECURITY AGREEMENT
Date: April 12, 1996
Debtor: Penn Octane Corporation
Debtor's Mailing Address: 5847 San Felipe, Suite 3420
Houston, Texas 77057
Secured Party: TRAKO International Company Limited
Secured Party's Mailing Address: Heiligkreuz 6
P.O. Box 129
FL-9490 VADUZ, FURSTENTUM LIECHTENSTEIN
Classification of Collateral: equipment and general intangibles
Collateral (including all accessions):
1. All tanks, pumps, equipment and other personal property
located on, in or about the following described leased premises:
The property described in a Contract between Brownsville
Navigation District of Cameron County, Texas, and Penn Octane
Corp. dated October 5, 1993 covering 11.29 acres of land and
as amended on February 11, 1994, to increase the leased premises
to 14.51 acres of land.
2. Contract between Brownsville Navigation District of Cameron
County, Texas, and Penn Octane Corp. dated October 5, 1993
covering 11.29 acres and as amended on February 11, 1994, to
increase the leased premises to 14.51 acres of land.
3. Any cash recovery from litigation involving Penn Octane
Corporation or International Energy Development Corp. and
International Bank of Commerce-Brownsville.
Each of the above is given as collateral subject to all prior
liens and/or assignments.
Obligation: Note:
Date: April 12, 1996
Amount: $500,000.00
Maker: Penn Octane Corporation
Payee: TRAKO International Company Limited
Final Maturity Date: October 12, 1997
Terms of Payment: (optional): as provided therein
Debtor's Representation Concerning Location of Collateral
(optional): Cameron County, Texas.
Subject to the terms of this agreement, Debtor grants
to Secured Party a security interest in the collateral
and all its proceeds to secure payment and performance
of Debtor's obligation in this security agreement and all
renewals and extensions of any of the obligation.
Debtor's Warranties
1. Financing Statement. The collateral is subject to
assignments and prior financing statements which have
been filed in any public office, if any.
2. Ownership. Debtor owns the collateral and has the
authority to grant this security interest. Ownership
may be subject to prior liens, security interests, or encumbrances.
3. Fixtures and Accessions. None of the collateral is affixed
to real estate, is an accession to any goods, is commingled
with other goods, or will become a fixture, accession, or part
of a product or mass with other goods except as expressly
provided in this agreement.
4. Financial Statements. All information about Debtor's
financial condition provided to Secured Party was accurate
when submitted, as will be any information subsequently provided.
Debtor's Covenants
1. Protection of Collateral. Debtor will defend the
collateral against all claims and demands adverse to secured
Party's interest in it and will keep it free from all liens
except those for taxes not yet due and from all security
interests except this one. The collateral will remain in
Debtor's possession or control at all times, except as otherwise
provided in this agreement. Debtor will maintain the collateral
in good condition and protect it against misuse, abuse, waste,
and deterioration except for
2. Insurance. Debtor will insure the collateral in accord
with Secured Party's reasonable requirements regarding choice
of carrier, casualties insured against, and amount of coverage.
Policies will be written in favor of Debtor and Secured Party
according to their respective interests or according to
Secured Party's other requirements. All policies will provide
that Secured Party will receive at least ten days' notice
before cancellation, and the policies or certificates
evidencing them will be provided to Secured Party when issued.
Debtor assumes all risk of loss and damage to the collateral
to the extent of any deficiency in insurance coverage. Debtor irrevocably
appoints Secured Party as attorney-in-fact to collect any
return, unearned premiums, and proceeds of any insurance on
the collateral and to endorse any draft or check deriving
from the policies and made payable to Debtor.
3. Secured Party's Costs. Debtor will pay all expenses
incurred by Secured Party in obtaining, preserving,
perfecting, defending, and enforcing this security interest
or the collateral and in collecting or enforcing the note.
Expenses for which Debtor is liable include, but are not
limited to, taxes, assessments, reasonable attorneys' fees
and other legal expenses. These expenses will bear interest
from the dates of payments at the highest rate stated in notes
that are part of the obligation, and Debtor will pay Secured Party
this interst on demand at a time and place reasonably specified by
Secured Party. These expenses and interest will be part of the
obligation and will be recoverable as such in all respects.
4. Additional Documents. Debtor will sign any papers that
Secured Party considers necessary to obtain, maintain, and
perfect this security interest or to comply with any
relevant law.
5. Notice of Changes. Debtor will immediately notify
Secured Party of any material change in the collateral;
change in Debtor's name, address, or location; change in
any matter warranted or represented in this agreement;
change that may affect this security interest; and any
event of default.
6. Use and Removal of Collateral. Debtor will use the
collateral primarily according to the stated classification
unless Secured Party consents otherwise in writing.
Debtor will not permit the collateral to be affixed to any
real estate, to become an accession to any goods, to be
commingled with other goods, or to become a fixture, accession,
or part of a product or mass with other goods except as
expressly provided in this agreement.
7. Sale. Debtor will not sell, transfer, or encumber any of
the collateral without the prior written consent of Secured Party.
Rights and Remedies of Secured Party
1. Generally. Secured Party may exercise the following
rights and remedies either before or after default:
a. take control of any proceeds of the collateral;
b. release any collateral in Secured Party's possession to
any debtor, temporarily or otherwise;
c. take control of any funds generated by the collateral,
such as refunds from and proceeds of insurance, and reduce
any part of the obligation accordingly or permit Debtor to
use such funds to repair or replace damaged or destroyed
collateral covered by insurance; and
d. demand, collect, convert, redeem, settle, compromise,
receipt for, realize on, sue for, and adjust the collateral
either in Secured Party's or Debtor's name, as Secured Party
desires.
2. Insurance. If Debtor fails to maintain insurance as
required by this agreement or otherwise by Secured Party,
then Secured Party may purchase single-interest insurance
coverage that will protect only Secured Party. If Secured
Party purchases this insurance, its premiums will become
part of the obligation.
Events of Default
Each of the following conditions is an event of default:
1. if Debtor defaults in timely payment or performance of
any obligation, covenant, or liability in any written
agreement between Debtor and Secured Party or in any other
transaction secured by this agreement;
2. if any warranty, covenant, or representation made to
Secured Party by or on behalf of Debtor proves to have
been false in any material respect when made;
3. if a receiver is appointed for Debtor or any of the
collateral;
4. if the collateral is assigned for the benefit of
creditors or, to the extent permitted by law, if bankruptcy
or insolvency proceedings commence against or by any of
these parties: Debtor; any partnership of which Debtor is a
general partner; and any maker, drawer, acceptor, endorser,
guarantor, surety, accommodation party, or other person
liable on or for any part of the obligation;
5. if any financing statement regarding the collateral but
not related to this security interest and not favoring
Secured Party is filed;
6. if any lien attaches to any of the collateral;
7. if any of the collateral is lost, stolen, damaged, or
destroyed, unless it is promptly replaced with collateral of
like quality or restored to its former condition.
Remedies of Secured Party on Default
During the existence of any event of default, Secured Party
may declare the unpaid principal and earned interest of the
obligation immediately due in whole or part, enforce the
obligation, and exercise any rights and remedies granted by
chapter 9 of the Texas Business and Commerce Code or by this
agreement, including the following:
1. require Debtor to deliver to Secured Party all books and
records relating to the collateral;
2. require Debtor to assemble the collateral and make it
available to Secured Party at a place reasonably convenient
to both parties;
3. take possession of any of the collateral and for this
purpose enter any premises where it is located if this
can be done without breach of the peace;
4. sell, lease, or otherwise dispose of any of the collateral
in accord with the rights, remedies, and duties of a secured
party under chapters 2 and 9 of the Texas Business and
Commerce Code after giving notice as required by those
chapters; unless the collateral threatens to decline speedily
in value, is perishable, or would typically be sold on a
recognized market, Secured Party will give Debtor reasonable
notice of any public sale of the collateral or of a time
after which it may be otherwise disposed of without further
notice to Debtor; in this event, notice will be deemed reasonable
if it is mailed, postage prepaid, to Debtor at the address
specified on this agreement at least ten days before any public sale
or ten days before the time when the collateral may be otherwise
disposed of without further notice to Debtor;
5. surrender any insurance policies covering the collateral
and receive the unearned premiums;
6. apply any proceeds from disposition of the collateral
after default in the manner specified in chapter 9 of the
Texas Business and Commerce Code, including payment of
Secured Party's reasonable attorneys' fees and court
expenses; and
7. if disposition of the collateral leaves the obligation
unsatisfied, collect the deficiency from Debtor.
General Provisions
1. Parties Bound. Secured Party's rights under this agreement
shall inure to the benefit of its successors and assigns.
Assignment of any part of the obligation and delivery by
Secured Party of any part of the collateral will fully
discharge Secured Party from responsibility for that part of
the collateral. If Debtor is more than one, all their
representations, warranties, and agreements are joint and
several. Debtor's obligations under this agreement shall
bind Debtor's personal representatives, successors, and assigns.
2. Waiver. Neither delay in exercise nor partial exercise
of any Secured Party's remedies or rights shall waive further
exercise of those remedies or rights. Secured Party's failure
to exercise remedies or rights does not waive subsequent
exercise of those remedies or rights. Secured Party's waiver
of any default does not waive further default. Secured
Party's waiver of any right in this agreement or of any
default is binding only if it is in writing. Secured Party
may remedy any default without waivi
3. Reimbursement. If Debtor fails to perform any of Debtor's
obligations, secured Party may perform those obligations and
be reimbursed by Debtor on demand at the place where the note
is payable for any sums so paid, including attorneys' fees and
other legal expenses, plus interest on those sums from the
dates of payment at the rate stated in the note for matured,
unpaid amounts. The Sum to be reimbursed shall be secured by
the security agreement.
4. Interest Rate. Interest included in the obligation shall
not exceed the maximum amount of nonusurious interest that
may be contracted for, taken, reserved, charged, or received
under law; any interest in excess of that maximum amount shall
be credited to the principal of the obligation or, if that has
been paid, refunded. On any acceleration or required or
permitted prepayment of the obligation, any such excess shall
be canceled automatically as of the acceleration or prepayment
or, if already paid, credited on the principal amount of the
obligation or, if the principal amount has been paid, refunded.
This provision overrides other provisions in this and all other
instruments concerning the obligation.
5. Modifications. No provisions of this agreement shall be
modified or limited except by written agreement.
6. Severability. The unenforceability of any provision of this
agreement will not affect the enforceability or validity of any
other provision.
7. After-Acquired Consumer Goods. This security interest shall
attach to after-acquired consumer goods only to the extent
permitted by law.
8. Applicable Law. This agreement will be construed according
to Texas laws.
9. Place of Performance. This agreement is to be performed in
the county of Secured Party's mailing address.
10. Financing Statement. A carbon, photographic, or other
reproduction of this agreement or any financing statement
covering the collateral is sufficient as a financing statement.
11. Presumption of Truth and Validity. If the collateral is
sold after default, recitals in the bill of sale or transfer
will be prima facie evidence of their truth, and all
prerequisites to the sale specified by this agreement and by
chapter 9 of the Texas Business and Commerce Code will be
presumed satisfied.
12. Singular and Plural. When the context requires, singular
nouns and pronouns include the plural.
13. priority of Security Interest. This security interest
shall neither affect nor be affected by any other security
for any of the obligation. Neither extensions of any of
the obligation nor releases of any of the collateral will
affect the priority or validity of this security interest
with reference to any third person.
14. Cumulative Remedies. Foreclosure of this security
interest by suit does not limit Secured Party's remedies,
including the right to sell the collateral under the terms
of this agreement. All remedies of Secured Party may be
exercised at the same or different times, and no remedy
shall be a defense to any other. Secured Party's rights
and remedies include all those granted by law or otherwise,
in addition to those specified in this agreement.
15. Agency. Debtor's appointment of Secured Party as
Debtor's agent is coupled with an interest and will survive
any disability of Debtor.
16. Attachments Incorporated. The addendum indicated below
is attached to this agreement and incorporated into it for
all purposes:
X Accounts, Inventory, Documents, Chattel Paper, General Intangibles.
PENN OCTANE CORPORATION
BY: _____________________________
ITS: _____________________________
(Acknowledgment)
State of
County of
This instrument was acknowledged before me on the
____ day of July, 1996, by Thomas A. Serleth, Executive
Vice President and Chief Financial Officer of Penn Octane
Corporation, on behalf of Penn Octane Corporation.
_____________________________
Notary Public, State of
PREPARED BY:
FLEMING, HEWITT & OLVERA
Brownsville, Texas 78521
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE THEREOF
HAS BEEN REGISTERED UNDER THE CEURITIES 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
THEREOF MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR
QUALIFICATION OR AN EXEMPTION THEREFROM UNDER ANY APPLICABLE STATE
SECURITIES LAW.
COMMON STOCK PURCHASE WARRANT
Void after February 28, 2001
No. 001 Warrant to Purchase 50,000
Shares of Common Stock, $.01
par value
PENN OCTANE CORPORATION (POCC)
This is to Certify That, FOR VALUE RECEIVED,
TRAKO International Company Limited
or registered assign(s) (herein referred to as the "Holder", whether one
or more), is entitled to purchase, subject to the provisions of this
Warrant, from PENN OCTANE CORPORATION (POCC), ad Delaware Corporation
(the "Company"), but in no event later than 5:00 p.m., San Francisco time,
on April 11, 2001 (or, if such date is a day authorized by law to close,
then on the next succeeding day which shall not be such a day), 50,000
shares of Common Stock (herein so called), $.01 par value, of the
Company at a price of $5.00 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".
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 fromt time to time by presentation and surrender hereof to
the Company with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of shares
specified in such form. If this Warrant should be 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 purchaseable hereunder. Upon receipt
by the Company of this Warrant at the office of the Company, in proper
from 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 orf 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 required to pay any tax which amy 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 tranfer books against the transfer
orf this Warrant or the issuance of any shares of Common Stock issuable
upon the exercis 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 erecise hereof will, upon issuance,
by duly authorized, validly issued, fully paid and non-assessable, with
no personal liability attaching to the ownership thereof.
3. Fractional Shares. This Warrant shall not be exercisable in such manner
as to require the issuance of fractional shares or script representing
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 mutiplied by the Fair Market Value
of such fractional share. The term "Fair Market Value" shall mean, as
of a particular date, the market price on such date.
The market price on such day shall be the last sale price on such day on the
New York Stock Exchange, or, if the Common Stock is not then listed or
admitted to trading on the New York Stock Exchange, 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 it the Common Stock is not then listed or
admitted to trading on any stock exchange, the market price on such day shall
be the average of the reported 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 wstock exchange, the market price
on such day shall be 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 11 below, 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 concelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof the
office or agency of the Company maintained for that purpose, 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 virue hereof, be
entitled to any rights of a stockholder in the Company, either at
law or in equity, and the rights of the Holder arelimited to those
expressed in this Warrant.
6. Adjustment of Exercise Rights. If, and whenever, after the date
hereof and prior to delivery by the Company pursuant to exercies of
this Warrant of all shares of Warrant Stock purchasable upon exercise of
this Warrant:
a. The number of outstanding shares of the Company's stock of the
class at the time purchasable upon exercise of this Warrant is
increased as the result of a subdivision of such outstanding
shares of stock of such class in payment of a dividend declared
upon the outstanding shares of stock of such class, then the
number of shares of Warrant Stock at the time remaining subject
to issuance upon exercise of this Warrant shall thereupon be
increased proportionately, and Exercise Price at the time in
effect shall thereupon be decrease proportionately; or
b. The number of outstanding shares of the Company's stock of the
class at the time purchasable upon exercise of this Warrant is
decreased as the result of a combination of outstanding shares
into a smaller number of shares, then the number of shares of Warrant
Stock at the time remaining subject to issuance upon exercies of
this Warrant shall thereupon be decreased proportionately, and
the Exercise Price at the time in effect shall thereupon be increased
proportionately; or
c. The outstanding shares of the Company's stock of the class at the
time purchasable upon exercise of this Warrant are changed (including
a change in par value) as the result of a reclassification (other than
a reclassificaiton resulting solely in a change to which the
provisions of clause a. or b. are applicable), or the Company merges
with another corporation or corporations in a merger in which the Compan
is the resulting corporation (except a merger that does not result
in a reclassification of the outstanding shares of the Company's stock
of the class at the time purchasable upon exercise of this Warrant),
then thereafter, upon any exerecise of this Warrant the registered holde
hereof will, at no additional cost, be entitled to receive (subject to
any additional cost, be entitled to receive (subject tot any required
action by stockholders), in lieu of the number and class of shares
of stock theretofore purchasable upon such exercise, the number
and class of shares of stock and/or other securities and/or property
receivable, as a result of such relassification or merger, by a holder
of that number and class of shares of stock theretofore purchasable upon
such exercise.
d. Reorganizaiton or Reclassification. In the event of any capital
reorganization ro any reclassification of the capital stock of the
Company, this Warrant shall thereafter be exercisable for the number
of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the company issuable
upon exercise of this Warrant would have been entitled upon such
reorganization or reclassification; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the Holder of this Warrant
to the end that the provisions set forth herein (including provisions
with respect to adjustments of the Exercise Price) shall thereafter
be applicable, as nearly as reasonably practicable, in relation to
any shares of stock or other property thereafter deliverable upon
the exercise of this Warrant.
e. Effect of Merger or Consolidation. In the event the Company shall
enter into any consolidation with or merger into any other corporation
wherein the Company is not the surviving corporation, or shall sell
or convey its property as an entirety or substantially as an entirety,
and, in connection with such consolidation, merger, sale or
conveyance, shares of stock or other securities shall be issuable
or deliverable in exchange for the Common Stock of the Company,
the Holder shall thereafter be entitled to purchase (in lieu of the
number of shares of Common Stock which such Holder would have been
entitled to purchase immediately prior to such consolidation, merger,
sale or conveyance) the shares of stock or other securities to which
such number of shares of Common Stock would have been entitled at the
time of such consolidation, merger, sale or conveyance, at an
aggregate Exercise Price equal to that which would have been payable
if such number of shares of Common stock had been purchased immediately
prior thereto. In case of any such consolidation, merger, sale or
conveyance, appropriate provision (as determined by resolution of the
Board of Directors of the Company) shall be made with respect to
the rights and interests thereafter of the Holders of the Warrant, to
the end that all the provisions of this Warrant (including adjustment
provisions) shall thereafter be applicable, as nearly as reasonably
practicable, in relation to such stock or other securities.
f. No adjustments 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 the $.01 per share,
but in such case, any adjustment that would otherwise be required
tehn 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 $.01 per share or
more.
g. 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 make a
certificate signed by its President or a Vice President and its
Trasurer or Assistant Treasurer, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjsutment was calculated
(including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the
Exercise Price and number of shares of Common Stock purcasable
hereunder after giving effect to such adjustment, and shall
promptly cause copies of such certificates to be mailed to the
holder of the Warrant.
7. Notice to Warrant Holders. So long as this Warrant shall be outstanding,
(i) if the Company shall pay any dividend or make any discribution 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 or 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 twenty-one
(21) 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 tights, 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 reclassificaiton, reorgainzaiton, consolidation, merger,
conveyance, dissolution or liquidation. Such mailing shall be a
condition precendent to takin of the action proposed to be taken
by the Company.
8. 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
cuase 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 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
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.
9. 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 registered
holder of this Warrant and in accordance with sound financial practices.
10. 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.
11. 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 an indemnity
bond in such reasonable amount as the Company may determine (or, in the
case of the original holder of this Warrant or his nominee, upon
delivery of an indemnity agreement reasonably satisfactory to the
Company), or, 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.
12. Number and Gender. Whenever herein the singular number is used,
the same shall include the plural where appropriate, and words
of any gender shall include each other gender where appropriate.
13. Applicable Law. This Warrant shall be governed by, and constructed
in accordance with, the laws of the State of Delaware.
<PAGE>
WITNESS the execution hereof under seal this 6th day of June, 1996.
PENN OCTANE CORPORATION
(POCC)
Attest: Thomas A. Serleth By: Mark D. Casaday
Mr. Thomas A. Serleth Mr. Mark D. Casaday
Its: Assistant Secretary Its: President
PROMISSORY NOTE
Principal Loan Date Maturity Loan No. Call Collateral Account
$625,000.00 10-02-1996
Officer Initials
104 PB
References in the shaded area are for Lender's use only
and do not limit the applicability of this document to any
particular loan or item.
Borrower: PENN OCTANE CORPORATION Lender: Bay Area Bank
900 VETERANS BLVD. STE 240 900 Veterans Blvd.
REDWOOD CITY, CA 94063 Redwood City, CA 94064
Principal Amount: $625,000.00 Initial Rate: 11.250%
Date of Note: October 2, 1996
PROMISE TO PAY. PENN OCTANE CORPORATION ("Borrower")
promises to pay to Bay Area Bank ("Lender"), or order, in
lawful money of the United States of America, on demand,
the principal amount of Six Hundred Twenty Five
Thousand & 00/100 Dollars ($625,000.00), together with
interest on the unpaid principal balance from
September 30, 1996, until paid in full.
PAYMENT. Borrower will pay this loan immediately upon
Lender's demand. Interest on this Note is computed on a
365/365 simple interest basis; that is, by applying the
ratio of the annual interest rate over the number of days
in a year, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to any unpaid collection
costs and any late charges, then to any unpaid interest, and
any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is
subject to change from time to time based on changes in an
independent index which is the Rate as listed in The Wall
Street Journal "Money Rates: section, referred to as
"Prime Rate", (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may
designate a substitute Index after notice to Borrower. Lender
will tell Borrower the current Index rate upon Borrower's request.
Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more
often than each month and is based on the published rate in effect on the
first business day each month. If more than one Prime Rate is
published, the prime rate chosen shall be solely at Banks
option. The Index currently is 8.250% per annum. The interest
rate to be applied to the unpaid principal balance of this Note
will be at a rate of 3.000 percentage points over the Index,
resulting in an initial rate of 11.250% per annum.
NOTICE: Under no circumstances will the interest rate on this
Note be more than the maximum rate allowed by applicable law.
DEFAULT. Borrower will be in default if any of the following
happens: (a) Borrower fails to make any payment when due.
(b) Borrower breaks any promise Borrower has made to Lender,
or Borrower fails to comply with or to perform when due any
other term, obligation, covenant, or condition contained in
this Note or any agreement related to this Note, or in any
other agreement or loan Borrower has with Lender.
(c) Any representation or statement made or furnished to
Lender by Borrower or on Borrower's behal
false or misleading in any material respect either now or at
the time made or furnished. (d) Borrower becomes insolvent,
a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes
a garnishment of any of Borrower's accounts with Lender.
(f) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of the Note.
(g) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of
payment or performance of the indebtedness is impaired.
(h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable
and if Borrower has not been given a notice of a breach of
the same provision of this Note within the preceding twelve
(12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice
from Lender demanding cure of such default: (a) cures the
default within fifteen (15) days; or (b) if the cure
requires more than fifteen (15) days immediately initiates
steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonable
practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid
interest immediately due, without notice, and then Borrower
will pay that amount. Upon Borrower's failure to pay all
amounts declared due pursuant to this section including
failure to pay upon final maturity, Lender, at its option,
may also, if permitted under applicable law, increase the
variable interest rate on this Note to 8.000 percentage
points over the index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable
law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all
other sums provided by law. This Note has been delivered
to Lender and accepted by Lender in the state of California. If there
is a lawsuit, Borrower agrees upon Lender's request to submit to
the jurisdiction of the courts of San Mateo County, the
State of California. This Note shall be governed by and
construed in accordance with the laws of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $12.00
if Borrower makes a payment on Borrower's loan and the check on
preauthorized charge with which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts
for which the grant o
pplicable law, to charge or setoff all sums owing on this
note against any and all such accounts.
GENERAL PROVISIONS. This Note is payable on demand.
The inclusion of specific default provisions or rights of
Lender shall not preclude Lender's right to declare payment
of this note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note
without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations,
presentment, demand for payment, protest and notice of di
SECURITY AGREEMENT
(CLEAN LETTER OF CREDIT)
In consideration of your opening at our request a letter of
credit, the terms of which appear on the application
attached hereto, we hereby agree with you as follows:
1. We will execute and deliver to you our Promissory Note
payable on demand on your usual and customary form in an
amount equal to the aggregate amount listed on the
application, together with interest, commission, and all
customary charges, and agree to be bound by the additional
terms of said Promissory Note.
2. We will pay you upon demand in lawful money of the
United States of America all moneys paid by you under or
pursuant to said letter of credit, together with interest,
commission and all customary charges; we also authorize
you to change any of our accounts with you for all moneys
so paid or for which you become liable under said letter
of credit and we agree at least one day before the same
is due to provide you with funds to meet all disbursements
or payments off any kind or character, together with com
3. Neither you nor your correspondents shall be in any way
responsible for performance by any beneficiary of its
obligations to us, nor for the form, sufficiency,
correctness, genuineness, authority of persons signing,
falsification or legal effect of any documents called for
under said letter of credit if such documents on their
face appear to be in order.
4. Subject to the law and customs and practices of the trade,
existing in the area where the beneficiary is located,
said letter of credit shall be subject to, and performance
by you, your correspondence and the beneficiary thereunder
shall be governed by the "Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber
of Commerce Brochure No. 500" or by subsequent Uniform
Customs and Practice fixed by subsequent Congresses of the
International Chamber of Commerce.
5. It is agreed that all directions and correspondence
relating to said letter of credit are to be sent at our
risk and that you do not assume any responsibility for any
inaccuracy, interruption, error or delay in transmission or
delivery by post, telegraph or cable, or for any inaccuracy
of translation.
6. If the Application for Commercial Letter of Credit is
signed by one individual, the terms "we", "our", "us",
shall be read throughout as "I", "My", "Me" as the case
may be. If signed by two or more parties, it shall be the
joint and several agreement of such parties.
7. Commitment fee for the Letter of Credit is 2.5% annually
and payable within 10 days of billing by Bank.
THE FOREGOING SECURITY AGREEMENT IS HEREBY ACKNOWLEDGED AND
ACCEPTED THIS DATE: 10/3/96.
BY: Thomas A. Serleth TITLE: Executive Vice President,
Secretary Treasurer
PMI TRADING LIMITED.
OCTOBER 07, 1996.
DTIR 1996-1996.
TO: PENN OCTANE CORPORATION
ATTN: MR. J.B. RICHTER
FAX: (415) 368-1505.
P.M.I. TRADING LIMITED, IS PLEASED TO CONFIRM THE
"LPG MIX" CONTRACT PURCHASE, ACCORDING TO THE FOLLOWING
TERMS AND CONDITIONS:
(1) PMI ORDER No.: WILL BE INFORMED MONTH BY MONTH IN OUR FAX
OPERATION. PLEASE REFER IN ALL DOCUMENTS TO PMI'S
ORDER NUMBER.
(2) BUYER: P.M.I. TRADING LIMITED
ADDRESS: AV. MARINA NACIONAL No. 329
TORRE EJECUTIVA, PISO 20
COL. HUASTECA
11311 MEXICO, D.F.
COMMERCIAL CONTACT
NAME: BERNARDO DE LA GARZA/LEOPOLDO SIMON/TERESA DE LA
GARZA
TELEPHONE No.: (52-5) 227-0121/227-0169/227-0158
TELEX No.: 1773671/1773509
FAX No.: (52-5) 227-0140/(713) 567-0140
OPERATIONS CONTACT
NAME: MIGUEL BUENO / ALBERTO GIRON / RODRIGO ARANDA
TELEPHONE No.: (52-5) 227-0113/ 227-01-16/ 227 0149
TELEX No.: 1773671/1773509
FAX No.: (52-5) 227 0111/(713) 567-0111
FINANCIAL CONTACT
NAME: LUIS GARNICA/JUAN CARLOS CABALLERO/FRANCISCO
CERVANTES
TELEPHONE No.: (52-5) 227-0073
TELEX No.: 1773671/1773509
FAX No.: (52-5) 227-0072/(713) 567-0072
(3) SELLER: PENN OCTANE CORPORATION.
ADDRESS: 5847 SAN FELIPE, SUITE 3420.
HOUSTON, TEXAS 77057
COMMERCIAL CONTACT
NAME: MR. JORGE R. BRACAMONTES.
TELEPHONE No.: (525)687 6513/687 1189.
FAX No.: (525)543 6837.
OPERATIONS CONTACT
NAME: MR. JOE MARTINEZ/LYNN JOHNSON.
TELEPHONE No.: (210)831 9442.
FAX No.: (210)831 9447.
FINANCIAL CONTACT
NAME: MR. TOM SERLETH
TELEPHONE No.: (713)952 5703.
FAX No.: (713)952 1323.
(4) GENERAL AGREEMENT
4.1. SUBJECT TO ALL TERMS AND CONDITIONS OF THIS AGREEMENT,
BUYER SHALL PURCHASE "LPG MIX" (AS HEREIN DEFINED) FROM
SELLER AND SELLER AGREES TO SELL "LPG MIX" TO BUYER UNDER
THE TERMS OF THIS AGREEMENT. AS USED IN THIS AGREEMENT,
"LPG MIX" IS A PROPANE/BUTANE PRODUCT MIXTURE CONSISTING
OF 90 PERCENT PROPANE AND 10 PERCENT BUTANE.
(5) VOLUMES
5.1. BUYER WILL SCHEDULE, PURCHASE AND ACCEPT, OR PAY FOR
IF NOT SCHEDULED, DELIVERED AND ACCEPTED, A MINIMUM MONTHLY
VOLUME OF "LPG MIX" (MINIMUM MONTHLY VOLUME LESS 5%) EQUAL
TO THE FOLLOWING:
OCTOBER 1996, MIN 5,000,000 GALLONS (-5% AT BUYER'S OPTION),
PLUS 2,500,000 GALLONS (-5% AT BUYER'S OPTION), TO BE LIFTED
DURING THE TERM OF THIS AGREEMENT;
(WINTER SEASON) NOVEMBER 1996-MARCH 1997 MIN. 7,500,000
GALLONS PER MONTH (-5% AT BUYER'S OPTION), AND
(SUMMER SEASON) APRIL 1997 - SEPTEMBER 1997 MIN 3,500,000
GALLONS PER MONTH (+/- 5% AT BUYER'S OPTION).
5.2. IN CASE BUYER DOES NOT LIFT THE MINIMUM MONTHLY VOLUME
ALREADY PAID AS PER CLAUSE 5.1. FOR REASONS OTHER THAN FORCE
MAJEURE OR REASONS ATTRIBUTABLE TO SELLER, BUYER WILL HAVE
THE RIGHT TO SCHEDULE AND LIFT, AND SELLER TO DELIVER, THE
DEFICIENCY VOLUME:
DEFICIENCY VOLUME IS DEFINED AS FOLLOWS:
DEFICIENCY VOLUME=MINIMUM MONTHLY VOLUME LESS ACTUAL VOLUME DELIVERED
BUYER SHALL HAVE THE RIGHT TO LIFT THE DEFICIENCY VOLUME
DURING THE TERM OF THIS AGREEMENT. IN CASE THAT BUYER
RESOLVES NOT TO LIFT SUCH DEFICIENCY VOLUME, THEN BUYER
WILL GIVE THE RIGHT OF FIRST REFUSAL TO SELLER TO PURCHASE
THE CORRESPONDING DEFICIENCY VOLUME, AT A PRICE AND UNDER
THE TERMS AND CONDITIONS AGREEABLE TO BOTH PARTIES.
5.3. IN CASE DEFICIENCY VOLUME IS NOT LIFTED BY BUYER DUE
TO REASONS ATTRIBUTABLE TO SELLER (TERMINAL AND/OR PIPELINE
STOPPED DUE TO LEAK, EXPLOSION OR MAINTENANCE OR ANY
GOVERNMENTAL AUTHORIZTION) THEN, BUYER AND SELLER SHALL NOT
BE LIABLE FOR ANY PAYMENT AND/OR LIFTING OF SUCH DEFICIENCY
VOLUME. IN CASE THAT THE PARTIES AGREE THAT SUCH DEFICIENCY
VOLUME CAN BE LIFTED BY BUTER, THEN SUCH DEFICIENCY VOLUME
WILL BE SCHEDULED AND PAID AS ANY ADDITIONAL VOLUME, IN
ACCORDANCE WITH CLAUSE 5.4.
5.4. BUYER WILL SCHEDULE ITS LIFTING OF "LPG MIX" WITH
SELLER FOR EACH DELIVERY MONTH AT LEAST THREE WORKING DAYS
BEFORE THE BEGINNING MONTH OF DELIVERIES. BUYER MAY REQUEST
ADDITIONAL VOLUMES THAN THOSE ALREADY SCHEDULED AS PER
CLAUSE 5.1. ABOVE, IN ANY MONTH. THEREFORE, SELLER SHALL
MAKE ITS BEST EFFORTS TO MAKE ADDITIONAL VOLUMES AVAILABLE
TO BUYER (PRICE AND CONDITIONS AGREEABLE TO BOTH PARTIES),
FOR BUYER TO PURCHASE AND ACCEPT A VOLUME OF "LPG MIX" AT
LEAST EQUAL TO THAT VOLUME SCHEDULED HEREIN ABOVE.
5.5. BUYER WILL ACCEPT DELIVERY OF THE "LPG MIX" VIA TRUCK
AT SELLER'S TERMINAL IN BROWNSVILLE, TEXAS (THE TERMINAL)
AS SCHEDULED BY BUYER, AS LONG AS IT MEETS THE SPECS
DESCRIBED IN ATTACHMENT "A".
(6) MEASUREMENT
6.1. THE QUANTITY OF PRODUCTS DELIVERED SHALL BE DETERMINED
BY NET WEIGHT. FOR PAYMENT PURPOSES, THE WEIGHT OF THE
"PLG MIX" DELIVERED TO BUYER WILL BE CONVERTED TO VOLUME
(CORRECTED TO 60 DEGREES F) VIA ANALYSIS OF SAMPLES USING
A GAS CHROMATOGRAPHY, THE CHROMATOGRAPHY MUST BE CALIBRATED
ACCORDING TO THE ASTM PROCEDURES. BUYER AND SELLER WILL
CAUSE AN INDEPENDENT INSPECTOR, MUTUALLY AGREED BY THE
PARTIES, TO SAMPLE AND ANALYZE EACH LOAD OF THE "LPG MIX".
BUYER AND SELLER WILL SHARE THE COST OF THE INSPECTIONS AT 50%/50%.
6.2. EMPTY TRUCKS WILL BE WEIGHTED AT THE PORT OF BROWNSVILLE
PUBLIC SCALES OR OTHER SCALE MUTUALLY AGREED BY BOTH PARTIES,
BEFORE ENTERING THE TERMINAL, AND LOADED TRUCK WILL BE WEIGHT
AT THE SCALE UPON DEPARTURE. THE SCALE WILL BE TESTED AND
ADJUSTED TO ACCURACY AT LEAST ONCE EVERY 30 DAYS. THE COSTS
OF WEIGHTING THE TRUCKS BEFORE AND AFTER LOADING, AND/OR IF
A THIRD PARTY IS 50%/50% BASIS. SCALE COMPANY WILL INVOICE
BUYER FOR THE TOTAL AMOUNT AND BUYER WILL INVOICE TO SELLER
ONE HALF OF SUCH TOTAL AMOUNT. IF SELLER, AT ANY TIME, INSTALLS
SCALES AT THE TERMINAL, THEY WILL THEREAFTER BE THE SCALES FOR
ALL TRUCKS RECEIVING "LPG MIX" AT THE TERMINAL, AND THEY SHOULD
BE OPERATED AND MAINTAINED IN ACCORDANCE WITH THE ABOVE
PROVISIONS. THE CHARGE FOR SUCH SCALES SHALL BE 100% FOR
SELLERS ACCOUNT.
(7) SCHEDULE OF SERVICE
7.1. SELLER WILL PROVIDE LOADING SERVICES AT THE TERMINAL
SEVEN DAYS A WEEK, TWENTY-FOUR HOURS PER DAY. HOWEVER
HOURS OF SERVICE SHALL BE SUBJECT TO AVAILABILITY OF
BUYER'S AUTHORIZED PERSON(S) TO DISPATCH THE "LPG MIX"
FROM THE TERMINAL.
7.2. SELLER WILL PROVIDE BUTER A DAILY ACTIVITY REPORT
SPECIFYING THE QUANTITY (WEIGHT) AND QUALITY OF THE
"LPG MIX" DELIVERED TO BUYER AT THE TERMINAL, AS PER
INDEPENDENT INSPECTOR REPORTS.
(8) TITLE AND RISK
TITLE AND RISK OF LOSS OF THE "LPG MIX" WILL PASS FROM
SELLER TO BUYER AT OUTLET FLANGE OF THE TRUCK AT THE
LOADING RACKS LOCATED AT THE TERMINAL. AT SUCH POINT,
THE "LPG MIX" SHALL BE DEEMED TO BE DELIVERED.
(9) QUALITY
THE "LPG MIX" SHALL MEET THE SPECIFICATIONS ATTACHED AS EXHIBIT "A"
(10) TERM
THIS AGREEMENT IS EFFECTIVE FROM OCTOBER 1ST, 1996 TO SEPTEMBER 30, 1997.
(11) PRICE
11.1. PRICE FORMULA FOR PROPANE AND BUTANE SHALL BE BASED
ON THE MONTHLY AVERAGE OF THE DELIVERY MONTH, AS PUBLISHED
BY OPIS (OIL PRICE INFORMATION SERVICE) UNDER MT. BELVIEU
NON TET SPOT POSTINGS FOR 90% PROPANE AND 10% BUTANE, PLUS
A SERVICE COST OF 0.0325 USD/GAL.
11.2. THE ESTIMATED PRICE FOR INVOICES PURPOSE WILL BE THE
POSTING PRICE OF THE LAST DAY OF THE PREVIOUS MONTH OF
DELIVERIES PLUS THE SERVICE COST.
(12) PREPAYMENT
IT IS HEREBY AGREED BY THE PARTIES THAT ON OCTOBER 7TH,
AND OCTOBER 15TH, 1996, BUYER WILL MAKE PREPAYMENTS TO
SELLER IN ACCORDANCE WITH THE FOLLOWING:
A) THE AMOUNT OF THE PREPAYEMNT TO BE PAID ON OCTOBER 7, 1996,
SHALL BE THE PRICE FORMULA AS DESCRIBED IN CLAUSE 11.1,
CONSIDERING THE POSTING PRICE PUBLISHED ON
SEPTEMBER 27, 1996 FOR A VOLUME OF 1,923,077 GALLONS.
B) THE AMOUNT OF THE PREPAYMENT TO BE PAID ON
OCTOBER 15, 1996, SHALL BE THE PRICE FORMULA AS DESCRIBED
IN CLAUSE 11.1, CONSIDERING THE POSTING PRICE PUBLISHED
ON OCTOBER 7, 1996 FOR A VOLUME OF 1,923,077 GALLONS.
THIS PREPAYMENTS SHALL APPLY TO THE VOLUME DELIVERED AND
INVOICED DURING THE MONTH OF OCTOBER 1996 UNTIL SUCH
VOLUME AMOUNTS 3,846,154 GALLONS. THE REMAINDER VOLUME
DELIVERED ON OCTOBER SHALL BE PAID FOR AND INVOICED AS PER
THE OTHER PAYMENT AND INVOICING PROVISIONS OF THIS AGREEMENT.
IN ORDER TO ADJUST THE ESTIMATED PRICE TO THE ACTUAL PRICE
INVOICED, THE PRICER PER GALLON SHALL BE EQUAL TO THE
ACTUAL PRICE LESS A DISCOUNT EQUAL TO THE AVERAGE OF THE
TREASURY BILL RATE FOR THREE MONTHS AS PUBLISHED BY REUTERS
ON SEPTEMBER 27, 1996 AND OCTOBER 7, 1996 RESPECTIVELY.
THE INTEREST CALCULATION SHALL BE BASED ON THE ACTUAL NUMBER
OF DAYS THE MONEY IS PREPAID TIMES THE RATE AS DEFINED ABOVE
DIVIDED BY 360 DAYS.
(13) INVOICING
13.1. SELLER WILL INVOICE BUYER EVERY WEEK FOR THE TOTAL
VOLUME LOADED DURING THE IMMEDIATELY PRECEDING WEEK.
13.2. THE PRICE PER GALLON INVOICED WILL BE THE ESTIMATED
PRICE AS DESCRIBED IN CLAUSE (11). THE ADJUSTMENT FOR THE
ACTUAL PRICE SHOULD BE INVOICED THROUGH DEBIT/CREDIT NOTES
TO BUYER IN THE FIRST WEEK OF THE FOLLOWING MONTH TO
DELIVERY MONTH.
13.3. ALL THE INVOICES MUST COMPLY WITH BUYER'S TREASURY
DEPARTMENT INSTRUCTIONS AND SHALL BE SENT TOT THE ATTENTION
OF LUIS GARNICA/JUAN CARLOS CABALLERO.
(14) PAYMENT TERMS
FULL NET CASH IN U.S. DOLLARS PAYABLE WITHIN 10 DAYS AFTER
ORIGINAL INVOICE IN HARD COPY IS RECEIVED BY BUYER IN ITS
OFFICES, TREASURY DEPARTMENT (AV. MARINA NACIONAL 329,
TORRE EJECUTIVA PISO 20).
A FAX TRANSMISSION OF THE CORRESPONDING INVOICE WILL BE
ACCEPTABLE TO BUYER IN ORDER TO REVIEW IT AS SOON AS
POSSIBLE IN ORDER TO ASSURE PROMPT PAYMENT AS OUTLINED
IN THE ABOVE PARAGRAPH TO SELLER, IN ACCORDANCE WITH THE
PAYMENT TERMS HEREIN AGREED.
IN CASE THAT THE PAYMENT DATE FALLS ON A SUNDAY OR HOLIDAY,
THEN THE PAYMENT DATE WILL BE THE NEXT WORKING DATE.
IN CASE THAT THE PAYMENT DATE FALLS ON A SATURDAY, THEN THE
PAYMENT DATE WILL BE THE PRIOR WORKING DATE.
(15) OFFICE EXPENSE
BUYER SHALL PAY TELEPHONE, TELEFAX AND SECRETARIAL EXPENSES
INCURRED BY ITS REPRESENTATIVES SUPERVICSING RECEIPT OF THE
"LPG MIX" DELVIERIES AT THE TERMINAL. BUYER SHALL ARRANGE,
AT ITS COST, FOR TELEPHONE AND COPIER SERVICE, AND SHALL SET
UP ITS OWN CREDIT AND DIRECT PAYMENT FOR THOSE SERVICES. ANY
OF ABOVE EXPENSES OF BUYER THAT ARE PAID BY SELLER SHALL BE
INVOICED BY SELLER AND SHALL BE PAID BY BUYER SEVEN BUSINESS
DAYS AFTER RECEIPT OF THE INVOICE. IF THE SEVENTH BUSINESS
DAY IS A WEEKEND OR HOLIDAY,
(16) LAW AND ARBITRATION
THE AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. ALL DISPUTES ARING OUT
OF OR RELATING TO THE AGREEMENT SHALL BE SETTLED BY FINAL
ARBITRATION IN THE STATE OF NEW YORK, CITY OF N.Y., CONDUCTED
IN ACCORDANCE WITH THE RULES OF CONCILIATION AND ARBITRATION
OF THE INTERNATIONAL CHAMBER OF COMMERCE IN EFFECT AT SUCH TIME.
THE NUMBER OF ARBITRATORS SHALL BE THREE.
(17) SPILL/ENVIRONMENTAL POLLUTION
IN THE EVENT OF ANY "LPG MIX" SPILLS OR OTHER ENVIRONMENTAL
POLLUTING DISCHARGE OCCURS PRIOR TO DELIVERY, AS THE SAME
IS DEFINED IN ARTICLE 8 OF THIS AGREEMENT, ALL CLEAN-UP
OPERATIONS THAT MAY BE REQUIRED BY ANY GOVERNMENTAL
AUTHORITIES, SHALL BE FOR SELLER'S ACCOUNT.
IF SUCH SPILL OR ENVIRONMENTAL POLLUTING DISCHARGE OCCURS
AFTER DELIVERY, AS THE SAME IS DEFINED IN ARTICLE 8 OF
THIS AGREEMENT, ALL CLEAN-UP OPERATIONS THAT MAY BE REQUIRED,
SHALL BE FOR BUYER'S ACCOUNT.
IN THE EVENT THAT SUCH SPILL OR ENVIRONMENTAL POLLUTING DISCHARGE
OCCURS AFTER DELIVERY, AT THE TERMINAL, BUYER AUTHORIZES SELLER
TO COMMENCE CONTAINMENT OR CLEAN-UP OPERATIONS AS DEEMED
APPROPRIATE OR NECESSARY BY SELLER OR AS MAY BE REQUIRED BY ANY
GOVERNMENTAL AUTHORITIES. SERLLER WILL NOTIFY BUYER IMMEDIATELY
OF SUCH OPERATIONS. SELLER SHALL HAVE THE RIGHT TO DIRECT ALL
CONTAINMENT AND CLEAN-UP OPERATION. ALL COSTS OF CONTAINMENT
AND CLEAN-UP FOR SUCH SPILL WILL BE BORNE BY BUYER, AND BUYER
SHALL INDIMNIFY AND HOLD SELLER HARMLESS FROM ANY AND ALL EXPENSES, CLAIMS,
LIABILITIES, DAMAGES, PENALTIES, FINES
AND OTHER COST(INCLUDING, WITHOUT LIMITATION, ATTORNEYS FEES)
RESULTING OR RELATED TOT SUCH INCIDENT. FOLLOWING THE INDEMNITY
OF SELLER BY BUYER, SELLER WILL COOPERATE WITH BUYER FOR THE
PURPOSE OF OBTAINING REIMBURSEMENT IN THE EVENT THAT ANY NON-AGENT
THIRD PARTY IS LEGALLY RESPONSIBLE FOR ANY COSTS OR EXPENSES
BORNE BY BUYER UNDER THIS PARAGRAPH.
IN THE EVENT THAT SUCH SPILL OR ENVIRONMENTAL POLLUTING
DISCHARGE OCCURS AFTER DELIVERY, OUT OF THE TERMINAL, BUYER
MAY AUTHORIZE SELLER TO COMMENCE CONTAINMENT OR CLEAN-UP
OPERATIONS AS DEEMED APPROPRIATE OR NECESSARY BY SELLER OR
AS MAY BE REQUIRED BY ANY GOVERNMENTAL AUTHORITIES. SELLER
WILL NOTIFY BUYER IMMEDIATELY OF SUCH OPERATIONS. SELLER
SHALL HAVE THE RIGHT TO DIRECT ALL CONTAINMENT AND CLEAN-UP
OPERATIONS. ALL COSTS OF CONTAINMENT AND CLEAN-UP FOR SUCH
SPILL WILL BE BORNE BY BUYER, AND BUYER SH
FINES AND OTHER COST(INCLUDING, WITHOUT LIMITATION, ATTORNEYS
FEES) RESULTING OR RELATED TO SUCH INCIDENT. FOLLOWING THE
INDEMNITY OF SELLER BY BUYER, SELLER WILL COOPERATE WITH
BUYER FOR THE PURPOSE OF OBTAINING REIMBURSEMENT IN THE EVENT
THAT ANY NON-AGENT THIRD PARTY IS LEGALLY RESPONSIBLE FOR ANY
COSTS OR EXPENSES BORNE BY BUYER UNDER THIS PARAGRAPH.
(18) SAFETY
BUYER WILL COMPLY, AND WILL CAUSE BUYER'S EMPLYEES, AGENTS AND
OTHERS ENTERING THE TERMINAL ON BEHALF OF BUYER TO COMPLY,
WITH ALL TERMINAL SAFETY AND HEALTH REGULATIONS. BUYER WILL
EXECUTE IN ITS NAME, PAY FOR, AND FURNISH TO SELLER PRIOR TO
ACCEPTING ANY :LPG MIX" AT THE TERMINAL, ALL INFORMATION
(INCLUDING APPLICABLE MATERIAL DATA SHEETS), DOCUMENTS,
LABELS, PLACARDS, CONTAINERS, AND OTHER MATERIALS WHICH MAY
BE REQUIRED TO BE FURNISHED BY BUYER BY STATUTES, ORDINANCES,
RULES OR REGULATIONS OF ANY PUBLI
MIX" AT OR FROM THE TERMINAL.
(19) FORCE MAJEURE
NEITHER PARTY SHALL BE LIABLE FOR FAILURE OR DELAY IN THE
PERFORMANCE OF THIS AGREEMENT DUE TO ACTS OF GOD, EARTHQUAKE,
FLOOD, FIRE, WAR, HOSTILITIES, CIVIL COMMONTIONS, GOVERNMENTAL
ACTS, STRIKES, PIPELINE STOPPED DUE TO LEAK OR EXPLOSION AND
ANY OTHER CAUSE BEYOND THE CONTROL OF EITHER OF THE PARTIES.
ANY PARTY CLAIMING FORCE MAJEURE SHALL PROMPTLY NOTIFY THE
OTHER OF THE OCCURRENCE OF THE EVENT OF FORCE MAJEURE RELIED
UPON.
EVENTS OF FORCE MAJEURE SHALL NOT RELIEVE ANY PARTY FROM
MAIKING ANY PAYMENT FOR PRODUCT DELIVERED AND/OR SERVICE
RENDERED HEREUNDER.
(20) LIMITAITON OF LIABILITY
SELLER SHALL NOT BE LIABLE FOR MORE THAN THE ACTURAL COST TO
REPLACE ANY "LPG MIX" NOT DELIVERED HEREUNDER. SELLER SHALL
NOT BE LIABLE TO BUYER FOR SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES.
(21) MISCELLANEOUS
21.1. AMENDMENTS, WAIVER. THIS AGREEMENT MAY NOT BE CHANGED
OR MODIFIED, EXCEPT IN WRITING BY MUTUAL AGREEMENT OF BOTH
PARTIES. THE FAILURE OF ANY PARTY TO ENFORCE ANY OF THE
PROVISIONS OF THIS AGREEMENT WILL NOT BE CONTRUED TO BE A
WAIVER OF THOSE PROVISIONS, OR A WAIVER OF THE RIGHT OF ANY
PARTY TO ENFORCE THEM.
21.2. SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT IS
DETERMINED TO BE INVALID OR UNENFORCEABLE, THE REMAINDER OF
THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.
21.3. ASSIGNMENT. NEITHER PARTY MAY ASSIGN THIS AGREEMENT
OR ANY PORTION OF IT WITHOUT THE PRIOR WRITTEN CONSENT OF
THE OTHER PARTY.
21.4. OTHER TERMS AND CONDITIONS. WHERE NOT IN CONFLICT
WITH THE ABOVE, INCOTERMS 1990 FOR FCA TRANSACTIONS WITH
LATEST AMENDMENTS SHALL APPLY. A COPY OF THE LAST EDITION
OF SUCH INCOTERM IS ATTACHED HEREIN AS EXHIBIT "B".
THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS SHALL NOT APPLY TO THIS CONTRACT.
21.5. ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUES THE
ENTIRE AGREEMENT AMONG THE PARTIES AND SUPERSEDES ALL
PREVIOUS NEGOTIATIONS, COMMITMENTS AND WRITINGS WITH
RESPECT TO SUCH SUBJECT MATTER OF THIS AGREEMENT.
IF THIS MEETS WITH YOUR UNDERSTANDING AND APPROVAL, PLEASE
SIGN IN THE APPROPRIATE SPACE.
BUYER SELLER
BY: BY: THOMAS A. SERLETH
TITLE: TITLE: EXECUTIVE VICE PRESIDENT
"EXHIBIT "A"
GPM MIX CHARACTERISTICS MAX TEST METHODS
COMPOSITION
PROPANE/BUTANE 90/10 PCT OF VOL
ETHANE 2.0 PCT. VOL. OF PROPANE
BUTYLENE 1.0 PCT. VOL. OF ISOBUTANE
PROPYLENE 5.0 PCT. VOL. OF PROPANE
PENTANES & HEAVIES 2.0 PCT. VOL. OF BUTANE
VAPOR PRESSURE 190 ASTM D-1267-75
CHROMATOGRAPH ANALYSIS ASTM D-2163
SPECIFIC GRAVITY ASTM D-1657
CORROSION COPPER STRIP AT 100% 1B ASTM D-1638-74
F.DEG.
OTHER DELETERIONS SUBSTANCES NONE
"EXHIBIT "B"
INCOTERMS 1990 FOR FREE CARRIER TRANSACTIONS WITH LATEST
AMENDMENTS SHALL APPLY.
PENN OCTANE CORPORATION/EXXON COMPANY, U.S.A.
SALE AGREEMENT
PENN OCTANE NO. ______/EXXON NO. PEB219
This Agreement is entered into effective September 25, 1996,
by and between Exxon Company, U. S. A., a division of Exxon
Corporation ("Seller"), Penn Octane Corporation ("Buyer").
Buyer and Seller agree to a product sale as outlined below:
1. TERM OF AGREEMENT
This Agreement shall begin on October 1, 1996, and shall
continue through September 30, 1997.
2. PRODUCT VOLUMES/PRICES
Seller agrees to deliver to Buyer the approximate product
volumes shown on Exhibit A during the term of this Agreement
at the location and pricing basis outlined in Exhibit A.
3. PRODUCT SPECIFICATIONS
Seller shall deliver to Buyer propane and normal butane that
meets applicable federal, state and local requirements, and
that meet specifications as shown on Exhibit A, which is made
a part hereof.
4. SPECIAL TAKE OR PAY PROVISIONS
Buyer agrees to take and Seller agrees to deliver the volumes
specified in Exhibit A. If the Buyer takes less than the
volume specified in Exhibit A in any month, Buyer will pay
for the actual volume delivered but no less than 95% of the
full contract volume.
5. GENERAL PROVISIONS
Seller's General Provisions dated August 2, 1988, and attached
as Exhibit B are incorporated herein by reference and made a
part hereof.
6. EXPORTS
This is a domestic transaction. Buyer is responsible for
obtaining export licenses and/or export documentation required
for any subsequent exportation that may occur.
7. ACCOUNTING
For all shipping documents, statements, invoices, and demurrage
claims to:
PENN OCTANE CORPORATION
San Felipe Plaza
5847 San Felipe, Suite 3420
Houston, Texas 77047
Send payments by wire transfer to:
CITIBANK, N.A., NEW YORK, N.Y.
ABA 0201-0008-9
Credit to Exxon Company U. S. A.
Regular Account# 00034219
8. INVOICE PAYMENT METHOD/TERMS
Seller will invoice the Buyer on the 15th calendar and the
first business day of the month following the delivery month.
The initial invoice price (interim price) for each product
will be the OPIS non TET price on the first business day of
the delivery month. The final invoice price will be the
price provided for in Exhibit A adjustment will be made to
the total invoice amount to reflect the proper average price
for the delivery month. Buyer will pay by wire within 5
calendar days or receipt of invoice a
9. CREDIT
Buyer will maintain a letter of credit acceptable to Exxon
as to bank, format and term equal to no less than a full
months purchases until all accounts have been settled.
10. EXHIBITS
The following Exhibits are attached and are a part of this
Agreement. All references herein to the Agreement shall
include the applicable Exhibits.
Exhibit A Product Volumes/Locations/Differentials
Exhibit B General Provisions
EXXON COMPANY, U.S.A. PENN OCTANE CORPORATION
a division of Exxon Corporation
BY: _________________________ BY: _________________________
M.W. Schwehr J. B. Richter
Manager, Products and Gas Liquids President
Dated: 10/21/96 Dated: 11/1/96
Exhibit A
Product Volumes/Locations/Differentials
Penn Octane No. ______/Exxon No. PEB219
Sale Agreement
Exxon delivers to Pipeline and Transport truck:
Location: Exxon King Ranch gas plant
Product Description: (1) Unodorized Propane (2) Normal Butane
Method of Delivery: (1) UCC Ella Brownsville 6" line (2)
Measurement: (1) Pipeline meter at King Ranch gas plant
(2) Weight scales
Quantity:
(1) October 4000KG/Month
November-March 7500KG/Month
April-September 3150KG/Month
(2) October-March 700KG/Month
April-September 350KG/Month
Pricing basis: (1) OPIS Mt. Belvieu Non-TET day weighted average
propane price less 1.0c/g
(2) OPIS Mt. Belvieu Non-TET day weighted average
normal butane price less 1.50 c/g
*Twice monthly billing provision based on price at 1st day of
month billed on 15th and final billing after end of month less
amount of first billing
Specifications:
Butane Propane
Composition: Normal Butane, vol % min. 95 2
pentane plus, vol % max. 2 -
propane, vol% 2 95
Vapor pressure at 100F psig max. 70 208
Corrosion, copper strip, max. No.1 No.1
Total sulfur, ppmw max. 140 140
Free water content None None
Odorization None None
Lauren Constructors, Inc.
June 16, 1995
Penn Octane
5100 Westheimer
Suite 200
Houston, TX 77056
Attention: Mr. Mark Cassaday
In accordance with recent negotiation between Penn Octane
and Lauren and Janik, the following settlement agreement
is reached.
1. Lauren and Janik agree to stay its pending lawsuit so
long as Penn Octane does not breach this settlement agreement.
2. Lauren and Janik agrees to resume work at the terminal
to address the items referenced in Barry Green's letter of
May 8, 1995. Both Penn Octane and Lauren and Janik agree
that resumption of work at the terminal will be scheduled
within a reasonable period of time after Penn Octane provides
written notification to Lauren and Janik to resume work on a
time and material basis. Prior to the resumption of any work,
Penn Octane must reach an agreement with all remaining material
suppliers for resumption of Linco, and Penn Octane will
either advance to Lauren and Janik, or place into an
escrow account, $35,000 to be drawn against by Lauren and
Janik as costs are incurred. If Penn Octane elects to place
the necessary funds in an escrow account, Penn Octane agrees
to maintain the account balance at $35,000 until all work is
completed.
Penn Octane further agrees that Lauren and Janik are not responsible
for the costs to replace material components previously purchased
by Penn Octane or the costs to purchase new equipment requested
to enhance the facility.
3. The parties agree that the amount due, exclusive of amount
to be incurred under item 2, to both Lauren and Janik as of
May 31, 1995, including all principal, interest, costs, and
attorney's fees, and including offsets for Penn Octane's claim
for damages for lost income and other damages, shall be
$1,308,000 (hereinafter referred to as the "Amount Due").
The Amount Due shall be allocated between Lauren and Janik
as they deem appropriate.
4. An interest rate of 12% per annum will be used for all
amounts paid over time.
5. Lauren and Janik agree to the use of a four-year monthly
amortization of the amount due with an occuring interest
rate of 12 percent per annum and a one-year balloon payment.
Monthly payments are calculated to be $34,445 --- $28,283
to Lauren and $6162.00 to Janik. The first payment is to
be made on or before July 14, 1995.
6. Penn Octane will make additional monthly payments as follows:
a. for any month that Penn Octane sells 6 million
gallons or more through its terminal, Penn Octane
will pay Lauren and Janik, jointly, $20,000 in
addition to the base monthly payment; or
b. for any month that Penn Octane sells at least
7 million gallons through its terminal, Penn Octane
will pay Lauren and Janik, jointly, $40,000 in
addition to the base monthly payment; or
c. for any month that Penn Octane sells at least
8 million gallons through its terminal, Penn Octane
will pay Lauren and Janik, jointly, $60,000 in
addition to the base monthly payment; or
d. for any month that Penn Octane sells at least
9 million gallons through its terminal, Penn
Octane will pay Lauren and Janik, jointly, $80,000
in addition to the base monthly payment.
e. for any month that Penn Octane sells
10 million gallons or more through its terminal,
Penn Octane will pay Lauren and Janik, jointly,
$100,000 in addition to the base monthly payment.
7. Assignment of Funds: As security for the payout agreement,
Penn Octane will agree to execute and deliver any assignment
conveying and assigning all of Penn Octane's interest
in any and all funds received from the following sources until
the Amount Due is paid in full:
a. IBC Litigation, Arbitration and/or, Settlement,
less attorneys' fees, costs and expenses, and any
amounts due IBC, and
b. National Power Exchange Group sales proceeds
received after the date of settlement of this
matter, less the amount of accrued interest
previously pledged to Allstate.
8. As additional security for the payout arrangement, and as
an additional provision of this agreement, Penn Octane agrees
that if and when it receives the gross sum of $1,500,000 from
any secondary offering, private placement, or any other capital
infusion or investment in Penn Octane from any source, Penn
Octane will then pay the amount due to Lauren and Janik, in
full, within three (3) business days of the receipt of these
funds by Penn Octane. This immediate payment will be made
by Penn Octane to Laur
been paid to Lauren and Janik.
9. Additional Collateral: As additional collateral for this
Payout and Note Agreement, Penn Octane will arrange to place in
ascrow, for the benefit of Lauren and Janik, an amount of its
free-trading common stock equal to the number of shares
necessary to approximate two times the anticipated monthly
payment of $34,445 due Lauren and Janik, plus brokerage costs,
to be used only in the event that Penn Octane's actual monthly
payment is past due in excess of 15 days. If it becomes necessary
for Lauren and J
this agreement.
10. Penn Octane specifically acknowledges that it is in breach
of this agreement if the entire amount due is not paid in full
on or before August 15, 1996 and agrees to pay Lauren and Janik
interest at the rate of 18% per annum, or interest at the highest
rate allowed by law, whichever is less, until the entire amount
due is paid in full.
11. Lauren and Janik maintain that Mechanic's and Materialman's
Liens previously filed by each of them are valid. Penn Octane
has maintained and continues to maintain and assert that these
Mechanic's and Materialman's Liens are invalid and unenforceable.
12. All payments made by Penn Octane to Lauren and Janik under
any payout arrangement would be applied first toward interest,
court costs, and attorney's fees, and then to the reduction of
principal. Lauren and Janik will provide written documentation
of exact amounts for interest, court costs, and attorney's fees
through payment dates. To the extent that any lump sum payments
are made by Penn Octane to Lauren and Janik during the time of a
payout arrangement prior to the one-year balloon, then these lum
sts, and principal in the mannor described in this paragraph but
would not substitute for regular and periodic installment payments.
13. Under this payout arrangement, lauren and Janik would have
the right to audit the sales volumes by examining the original
load tickets and weight tickets evergy thirty days. These sales
volumes would form the basis of the payments per gallon described herein.
If you are in agreement with the above please have an authorized
representative of Penn Octane sign and return this letter.
Sincerely,
LAUREN CONSTRUCTORS, INC. Thomas G. Janik & Associates, Inc.
C. Cleve Whitener Thomas G. Janik
C. Cleve Whitener Thomas G. Janik
President President
Accepted:
Penn Octane Corporation
By: Mark D. Casaday
Date: June 21, 1995
Mr. Tom Serleth
Penn Octane
5847 San Felipe, Suite 3420
Houston, Texas 77057
Re: Agreed Partial Payment Under
June 16, 1995 Payout Agreement
Dear Tom:
As you know, Penn Octane has been making monthly payments to
Lauren Constructors, Inc. and Tom Janik and Associates, Inc.
between June 30, 1995 and July 1, 1996, pursuant to that certain
payout agreement of June 16, 1995 executed by Lauren, Janik and
Penn Octane. All principal and accrued interest under that
payout agreement became fully due and payable on or before
August 14, 1996 by balloon payment. That payment, in full,
was not made by Penn Octane.
Subsequently, Lauren, Janik and Penn Octane have been negotiating
a modification of this payout agreement whereby continuing
installment payemnts will be made by Penn Octane with additional
collateral provided to Lauren and Janik as new consideration for
this arrangement including, without limitation, a first lien
position on the improvements for the plant on the premises leased
from the "port authority" further secured by a mortgagees title
polidy in favor of Lauren and Janik for the full amount of principal
and accrued interest remaining on the indebtedness. In that regard, Penn
Octane fully acknowledges and ratifies that the current remaining balance of
principal and
accrued interest on the amount due to Lauren and Janik is
$449,613.03 through October 10, 1996.
Lauren, Janik and Penn Octane intend to execute all documents
necessary to complete this payout modification involving the
first lien position on the leased premises and the
mortgagee's title policy in the next few days. In
anticipation of the execution of those documents, and as
further consideration for Lauren and Janik's willingness to
renew and extend the installment payout of this indebtedness
rather than requireing the immediate payment of all principal
and accrued interest, all parties agree that Penn Octane
will make an immediate lump sum interim payment in the amount of
$41,555 to Lauren and $8,945 with regular monthly payments
resuming November 14, 1996 and all unpaid amounts coming due
April 14, 1997.
Penn Octane acknowledges that neither Lauren nor Janik are
waiving any of their rights to enforce the provisions of the
June 16, 1995 payout agreement of the terms and provisions of
previously filed mechanic's or materialmen's liens, but instead
this is a good faith expression between the parties to allow
Penn Octane to continue partial paymetns of the overall amount
due while the documentation for the first lien position and
mortgagee's title policy are being completed. Consistent with
the June 16, 1995 p
payout arrangement will be applied first toward interest,
court costs and attorney's fees, and then to the reduction of
principal. Likewise, to the extent that any lump sum payments
are made by Penn Octane to Lauren and Janik during the time of
any payout arrangement, then these lump sum payments would be
applied to the overall outstanding balance of the amount due,
with application being made first to interest, attorney's fees,
court costs, and then to principal, but these lump sums would
not substitute
All parties signing this document are authorized representatives
for their respective organizations. If this agreement meets
with your approval, please execute it and return it to my
office at your earliest convenience.
Sincerely yours,
LAUREN CONSTRUCTORS, INC.
By: C. Cleve Whitener
C. Cleve Whitener, President
THOMAS G. JANIK & ASSOCIATES, INC.
By: Thomas G. Janik
Thomas G. Janik, President
ACCEPTED:
PENN OCTANE CORPORATION
By: Thomas A. Serleth, Executive Vice President
Date: 10/10/96
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 364,525
<SECURITIES> 0
<RECEIVABLES> 29,463
<ALLOWANCES> 0
<INVENTORY> 445,051
<CURRENT-ASSETS> 913,082
<PP&E> 4,227,589
<DEPRECIATION> 832,439
<TOTAL-ASSETS> 5,190,332
<CURRENT-LIABILITIES> 2,210,499
<BONDS> 1,060,044
0
2,700
<COMMON> 52,050
<OTHER-SE> 1,919,789
<TOTAL-LIABILITY-AND-EQUITY> 5,190,332
<SALES> 26,270,673
<TOTAL-REVENUES> 26,747,006
<CGS> 24,978,265
<TOTAL-COSTS> 24,978,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,447
<INCOME-PRETAX> (724,108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (724,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (724,108)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
