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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 0-24394
PENN OCTANE CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 52-1790357
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
900 VETERANS BLVD., SUITE 240, REDWOOD CITY, CA 94063
(Address of principal executive offices) (Zip Code)
(415) 368-1501
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
------- -------
As of June 6, 1997, 8,159,286 shares of the Registrant's common stock
were outstanding.
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<PAGE>
PENN OCTANE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of April 30, 1997 3
Consolidated Statements of Operations for the three
and nine months ended April 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the three
and nine months ended April 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis or Plan
of Operation 14-18
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19-20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20-21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22-23
<PAGE>
<TABLE>
<CAPTION>
PENN OCTANE CORPORATION
PART I - ITEM 1
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS April 30, 1997
------------------
<S> <C>
Cash $ 422,943
Trade accounts receivable 332,952
Inventories 594,352
Prepaid expenses 362,371
------------------
Total current assets 1,712,618
Property, plant and equipment (net of accumulated depreciation of $1,141,902) 3,158,560
Lease rights (net of accumulated amortization of $403,914) 750,125
Other noncurrent assets 50,757
------------------
Total assets $ 5,672,060
==================
LIABILITIES & STOCKHOLDERS' EQUITY
Current maturities of long-term debt 1,028,934
Construction accounts payable 184,498
Trade accounts payable 306,952
Deferred Revenue 461,704
Borrowings from IBC-Brownsville 672,552
Accrued liabilities 643,949
------------------
Total current liabilities 3,298,589
Long-term debt 60,043
Stockholders' equity
Preferred stock-$.01 par value, 5,000,000 shares authorized;
270,000 convertible shares issued and outstanding at
April 30, 1997 2,700
Common stock-$.01 par value, 25,000,000 shares authorized;
8,159,286 shares issued and outstanding at April 30, 1997 81,593
Additional paid-in capital 9,584,282
Note receivable from President for exercise of warrants ( 2,728,000)
Accumulated deficit ( 4,627,147)
------------------
Total stockholders' equity 2,313,428
------------------
Total liabilities and stockholders' equity $ 5,672,060
==================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PENN OCTANE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
-------------------- -------------------
April 30, April 30, April 30, April 30,
1997 1996 1997 1996
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 8,021,235 $ 7,831,986 $ 24,080,892 $ 20,105,493
Cost of goods sold 7,634,879 7,456,119 23,116,092 19,049,025
-------------- -------------- ----------------- -----------------
Gross profit 386,356 375,867 964,800 1,056,468
Selling, general and administrative expenses 425,911 607,478 1,319,111 1,336,402
-------------- -------------- ----------------- -----------------
Operating (loss) ( 39,555) ( 231,611) ( 354,311) ( 279,934)
Other income (expense)
Interest (expense), net ( 48,840) ( 66,159) ( 172,346) ( 184,021)
Royalty expense ( 10,963) ( 10,963)
Gain on sale of option 10,886 10,886
Award from litigation 400,000 400,000
-------------- -------------- ----------------- -----------------
Net income (loss) before taxes ( 99,358) 113,116 ( 537,620) ( 53,069)
Provision for income taxes 0 0 0 0
-------------- -------------- ----------------- -----------------
Net income (loss) $( 99,358) $ 113,116 $( 537,620) $( 53,069)
============== ============== ================= =================
Earnings (loss)
per common share $ (.02) $ .02 $ (.10) $ (.01)
============== ============== ================= =================
Weighted average common
shares outstanding 5,936,108 5,141,333 5,443,346 5,110,547
============== ============== ================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PENN OCTANE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
-------------------- -------------------
April 30, April 30, April 30, April 30,
1997 1996 1997 1996
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) $( 99,358) $ 113,116 $( 537,620) $( 53,069)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 140,095 194,838 424,058 536,658
Changes in current assets and liabilities
Restricted cash 4,685 0 0 0
Trade accounts receivable 129,071 ( 123,577) ( 303,489) ( 219,768)
Interest receivable 0 109 26,233 382
Note receivable ( 37,500) ( 400,000) ( 37,500) ( 300,000)
NPEG note 0 589,114 0 779,957
Inventories 151,625 ( 94,448) ( 149,301) ( 189,109)
Prepaids and other current assets ( 273,545) ( 110,905) ( 284,561) ( 58,338)
Construction and accounts payable ( 80,351) ( 276,314) ( 300,929) ( 332,684)
Advances from and to related party (net) 0 ( 15,011) 0 ( 62,371)
Accrued liabilities ( 72,501) 46,745 ( 7,747) ( 2,561)
Deferred revenue 139,704 0 451,703 0
Other assets and liabilities, net 0 0 2,163 0
--------------- -------------- --------------- ----------------
Net cash provided by (used in)
operating activities 1,925 ( 76,333) ( 716,990) 99,097
Cash flows from investing activities
Capital expenditures ( 87,242) ( 373,263) ( 100,914) ( 444,096)
Other 0 0 0 7,259
--------------- -------------- --------------- ----------------
Net cash used in
investing activities ( 87,242) ( 373,263) ( 100,914) ( 436,837)
Cash flows from financing activities:
Short-term borrowing ( 100,000) 0 0 ( 160,000)
Long-term debt borrowing 0 996,804 325,000 992,962
Issuance of common stock 931,260 0 931,260 0
Reduction in long-term debt ( 372,469) 0 ( 379,938) 0
Decrease in bank overdraft 0 ( 136,075) 0 ( 133,133)
--------------- -------------- --------------- ----------------
Net cash provided by
financing activities 458,791 860,729 876,322 699,829
--------------- -------------- --------------- ----------------
Net increase in cash 373,474 411,133 58,418 362,089
Cash at beginning of period 49,469 7,742 364,525 56,786
--------------- -------------- --------------- ----------------
Cash at end of period $ 422,943 $ 418,875 $ 422,943 $ 418,875
=============== ============== =============== ================
</TABLE>
See Notes to Financial Statements
<PAGE>
PENN OCTANE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet as of April 30, 1997, the consolidated
statements of operations, and consolidated statements of cash flows for the
three and nine months ended April 30, 1997 and 1996 have been prepared by Penn
Octane Corporation (the "Company") without audit, and include the accounts of
the Company's wholly-owned subsidiary, Wilson Acquisition Corporation. In
the opinion of management, the consolidated financial statements include all
adjustments (which include only normal recurring adjustments) and eliminations
necessary to present fairly the consolidated financial position as of April
30, 1997 and the consolidated results of operations and cash flows for the
three and nine months ended April 30, 1997 and 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended July 31, 1996, and
Form 10-QSB for the quarters ended October 31, 1996 and January 31, 1997.
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.
2. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share of common stock is computed based on the weighted
average number of shares outstanding after giving effect to common stock
equivalents. Fully diluted earnings (loss) per share of common stock assumes
the conversion of preferred stock and is only presented in periods where such
computation results in dilution greater than 3% of primary earnings (loss) per
share of common stock.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 128 (FASB 128) "Earnings Per Share", which supercedes APB
Opinion 15 (APB 15), "Earnings Per Share". The statement is effective for
financial statements issued for periods ending after December 1, 1997,
including interim periods. Early adoption is prohibited. The Company does
not expect a material change in earnings per share data in any of the periods
presented in the accompanying Consolidated Statements of Operations, except
for the quarter ended April 30, 1996, as a result of adopting FASB 128. For
the quarter ended April 30, 1996, "fully diluted EPS", as defined in APB 15,
was $.02 per share and "diluted EPS", as defined in FASB 128, would have been
$.01 per share.
3. COMMITMENTS AND CONTINGENCIES
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 substantially
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 to 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 a 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 attorneys' 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 was not liable to the
Company as alleged, and that IBC was 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).
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.
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) attorneys' fees of $568,000. In addition, the
Award stated that IBC was entitled to an offset of (a) the sum of $804,016 and
(b) attorneys' fees of $200,000 on IBC's counterclaim against the Company 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 (the "Judgement") 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 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, but the Company continues to
believe that the Judgment is final, binding, and 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 (principal and interest). 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 such time as IBC-Brownsville has exhausted all appeals.
On April 18, 1996, the Company reached agreement to accept $400,000 to settle
a lawsuit it filed in October 1995 against a bank related to IBC-Brownsville
(related Bank). 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 the related Bank. Further, the Company believes this cause of action is
covered by an indemnity agreement from that related Bank.
In connection with the IBC-Brownsville suit, IBC-Brownsville filed an appeal
with the Texas Court Of Appeals on January 21, 1997. The Company responded on
February 14, 1997.
4. PURCHASE COMMITMENT
On September 26, 1996, the Company entered into a Term Sale Agreement with its
main propane supplier (the "Term Sale Agreement"). The Term Sale Agreement is
for a one-year period beginning on October 1, 1996. The terms of the Term
Sale Agreement, such as pricing and volumes, are substantially identical to
the terms of the Company's sales agreement with its major customer.
5. LETTERS OF CREDIT AND OTHER FINANCINGS
In January of 1996, the Company obtained a standby letter of credit in favor
of a propane supplier. The standby letter of credit was for $40,000 and
expired December 1, 1996. In August of 1996, the Company obtained a $40,000
standby letter of credit for another supplier. The letter of credit expired
on September 30, 1996.
In connection with the Term Sale Agreement, in September of 1996 the Company
obtained a $625,000 letter of credit in favor of its main propane supplier.
As part of the terms and conditions of this letter of credit, which was due to
expire September 30, 1997, the Company executed a $625,000 demand promissory
note to the issuing bank. The note was initially collateralized by a $500,000
deposit, accrued interest at the prime rate (8.25% as of October 31, 1996)
plus 3%, and was guaranteed by the Company's president.
On November 5, 1996, the Company's main propane supplier presented for payment
$495,315, which was paid through the initial $500,000 collateral deposit.
After such payment, the balance available under the letter of credit remained
$625,000, and $4,685 represented the remaining balance of the collateral
deposit. In March 1997, the letter of credit, collateral and guaranty were
released.
In December 1995, the Company obtained a revolving line of credit for $140,000
which was renewed in December 1996 through September 30, 1997. Interest is
calculated on this credit line at the prime rate (8.25% - 8.50% during the
nine months ended April 30, 1997) plus 3%. At April 30, 1997, there were no
balances outstanding under the revolving line of credit.
During March 1997, the Company obtained a letter of credit (the "WAC Letter of
Credit") in the amount of $251,000 in connection with the obligation of WAC to
complete certain work under contract to be performed by WAC, a newly formed,
wholly-owned subsidiary of the Company engaged in the compressed natural gas
("CNG") business. The WAC Letter of Credit is guaranteed by the Company's
President. See Note 8 for description of WAC's business.
During March 1997, the Company received advances from its President in the
amount of $85,000. This amount was repaid during April 1997.
6. OPERATING LEASE COMMITMENTS
In May 1997, the Company reached an agreement to amend (the "Amendment") its
lease agreement (the "Seadrift Lease") with Seadrift Pipeline Corporation
("Seadrift"), a subsidiary of Union Carbide Corporation, pursuant to which the
Company leases 126 miles of 6 inch pipeline running from Exxon USA's King
Ranch Gas Plant in Kleberg County, Texas (the "Pipeline") to the fence line of
certain property owned by the Brownsville Navigation District of Cameron
County, Texas. On the effective date of the Amendment, the term of the
Seadrift Lease will be extended until March 31, 2013, and may provide, among
other things, for additional storage access, and inter-connection with another
pipeline controlled by Seadrift thereby providing greater access to and from
the Pipeline. Pursuant to the Amendment, the Company's fixed annual fee
associated with use of the Pipeline will increase by $350,000. Under certain
conditions described below, $250,000 and $125,000 of the annual fee will be
waived for the first two years, respectively, from the effective date of the
Amendment. The Amendment will become effective on the earlier of April 1998
or the date that Seadrift notifies the Company of the completion by the
Company, at its own option, of certain Pipeline enhancements, which, if
undertaken, are anticipated to cost no more than $5,000,000. The Amendment
may also require the Company to make available to Seadrift, under certain
conditions, access to the Pipeline based on specified amounts at specified
rates.
In May 1997, the Company amended its lease with the Brownsville
Navigation District to include rental of additional space adjacent to the
existing terminal location. The lease amount will be increased to $74,784
annually, effective May 15, 1997. The additional space will allow the Company
to develop additional storage, add railroad access to its storage facility and
facilitate port activities.
In May 1997, the Company renewed the lease for its executive offices located
in Redwood City, California, through June 1998. The monthly rental is $3,508.
7. LONG-TERM DEBT
During October 1996, the Company issued 6.5 units in a private placement for
proceeds totaling $325,000 (the "Units"). Each Unit consists of (i) a
promissory note in the amount of $50,000 (collectively, the "Notes") and (ii)
50,000 common stock purchase warrants (the "Warrants") to purchase Fifty
thousand (50,000) shares of common stock of the Company at an exercise price
of $3.00 per share.
The Notes accrue interest at the rate of 10% annually and are payable on
November 7, 1997 (the "Payment Date"). In the event the Company receives in
excess of two hundred fifty thousand ($250,000) dollars in connection with any
offering of its securities prior to the Payment Date, the Company shall
utilize up to one-half of the proceeds from such sale to satisfy the Notes.
In the event such payment does not fully satisfy the Notes, the Company shall
pay the balance due on the Payment Date.
During April 1997, 250,000 of the Warrants issued in connection with the
placement of the Units, were exercised at prices below the original stated
exercise price ($1.75-$2.00), in exchange for the cancellation of $250,000
principal amount of the Notes, plus accrued interest thereon, and a cash
payment received by the Company of $188,438.
In connection with the receipt of proceeds from the exercise of additional
warrants of the Company during April 1997, the Company prepaid $50,000 of
long-term debt obligations.
During May 1997, the Company issued a promissory note to Bay Area Bank in
connection with additional borrowings of $33,000. The promissory note is due
May 29, 1998.
8. COMPRESSED NATURAL GAS
WILSON ACQUISITION CORPORATION
In connection with the Company's plans to enter the CNG refueling business, on
March 7, 1997, WAC, a newly formed wholly-owned subsidiary of the Company, and
Wilson Technologies Incorporated ("Wilson"), a leading supplier of CNG
refueling stations which is engaged in the business of selling, designing,
manufacturing, installing and servicing CNG refueling stations and related
products for use in the CNG industry throughout the world, entered into an
Interim Operating Agreement (the "Arrangement"). Under the terms of the
Arrangement, effective as of February 17, 1997, WAC was granted the right to
use the Wilson name, technology and employees, subject to certain
restrictions, as well as rights to perform contracts which Wilson had not
begun to perform, in exchange for monthly payments of $84,000, and royalty
payments not to exceed $3,000,000 cumulatively, less certain adjustments, if
any. of 5% on net revenues. WAC is entitled to all revenues earned by WAC and
by certain businesses of Wilson commencing as of February 17, 1997. In
addition, Zimmerman Holdings Inc. ("ZHI"), the parent of Wilson, has agreed to
reimburse the Company for 50% of the net operating cash deficit of WAC, if
any. WAC is also entitled to use the Wilson premises as well as available
inventory of Wilson in carrying out the business at a price of cost plus 10%
or any other amount mutually agreed upon by WAC and Wilson. The Arrangement
was to have terminated on the earlier to occur of 90 days from the date of the
Arrangement or the closing of the Acquisition described below. If the
Acquisition was not completed within 90 days, the Arrangement could be
extended by WAC for up to three years.
Simultaneously with the Arrangement, the Company, WAC, Wilson and ZHI entered
into a purchase agreement (the "Acquisition"), whereby WAC will acquire
certain assets, including trademarks and licenses, and certain ongoing
businesses of Wilson, including Wilson's Canadian and Mexican subsidiaries, in
exchange for the assumption of certain liabilities, a $3 million contingent
royalty note of WAC, a note based upon certain operating expenses issued by
WAC and a $220,000 convertible debenture issued by the Company. The
Acquisition is subject to several conditions, including obtaining satisfactory
restructuring of all of Wilson's creditor obligations including the consent of
such creditors to the proposed Acquisition.
Effective as of March 21, 1997, the Arrangement was amended (the "Amendment"),
so that WAC agreed to acquire $394,000 of Wilson's inventory and/or other
assets to be paid for through the application of $294,000 previously paid
under the Arrangement, plus other adjustments, with the difference to be paid
to Wilson through a five year promissory note payable in equal annual
installments. Furthermore, the cumulative royalty to be paid to Wilson was
reduced from $3 million to $2 million, less certain adjustments. Also under
the Amendment, effective June 1, 1997, the Company ceased making the monthly
payment and assumed direct responsibility for expenses relating to the
operation of Wilson's facilities, including the lease of the premises and the
hiring of certain employees formerly employed by Wilson. These expenses are
not anticipated to exceed $84,000 per month. Pursuant to the Amendment, and
except as provided for therein, the Arrangement and Acquisition were
terminated effective as March 21, 1997. Upon such termination, WAC is not
restricted in continuing its CNG business. The parties to the Amendment have
agreed to exchange mutual releases with respect to the Arrangement and the
Acquisition.
DINA DEALERSHIP
In November 1996, the Company acquired the right to a Dina dealership in
Mexico (the "Dealership"), which was conditionally granted to Mr. Roberto
Keoseyan ("Keoseyan") by Grupo Dina, S.A. de C.V. ("Dina"), one of the largest
bus and truck manufacturers in Mexico. The Dealership will be granted upon
construction of a dealership facility in accordance with Dina standards, at a
cost which is estimated to be $1,000,000. In connection with the acquisition,
the Company makes certain monthly payments to Keoseyan and has agreed to issue
Keoseyan 100,000 warrants to purchase 100,000 shares of the common stock of
the Company at $3.00 per share, once the Dealership has been officially
granted to the Company. The Company may, at its sole discretion, at any time,
decline to construct the Dealership, give up the rights to the Dealership, and
cease making monthly payments and with no obligation to issue warrants.
9. WARRANTS
During February 1997, the Company and certain prior officers (the "Officers")
of the Company agreed to an exchange offer whereby the Officers, on a weighted
average basis, received 164,286 shares of the Company's common stock in
exchange for 702,856 outstanding warrants to purchase 702,856 shares of common
stock of the Company which were cancelled.
During April 1997, Thomas G. Janik Associates, Inc. ("Janik") agreed to
exercise 25,000 warrants to purchase 25,000 shares of common stock of the
Company at an exercise price below the stated exercise price of $2.50 per
share, and the Company agreed to accept in lieu of cash payment on the
exercise of the warrants, full cancellation of $42,000 principal amount of
indebtedness due Janik, plus interest thereon.
During April 1997, the Company's President exercised 2,200,000 warrants to
purchase 2,200,000 shares of common stock of the Company at an exercise price
of $1.25 per share. The consideration for the exercise of the warrants
included $22,000 in cash and a $2,728,000 promissory note issued to the
Company, which accrues interest at the rate of 8.25% per annum. The
promissory note is secured by 1,000,000 shares of common stock of the Company
owned by the President and has been recorded in stockholders' equity.
During April 1997, an additional 315,000 warrants to purchase 315,000 shares
of common stock of the Company at exercise prices of $1.25 -$2.50 per share,
were exercised by a director of the Company and other third parties.
During March 1997, the Company's Board of Directors agreed to reduce the
exercise price of 100,000 warrants to purchase 100,000 shares of common stock
of the Company held or controlled by a director of the Company from $5.00 per
share to $2.50 per share.
During March 1997, the Company approved the issuance of 200,000 warrants to
purchase 200,000 shares of common stock of the Company to a director and
officer of the Company, at an exercise price of $3.625 per share of common
stock, exercisable on or prior to March 24, 2000.
10. ELECTION TO BOARD OF DIRECTORS
On March 25, 1997, the Company's Board of Directors elected Mr. Ian T.
Bothwell, Vice President, Treasurer and Chief Financial Officer, to the Board
of Directors of the Company. In May 1997, during the Company's 1997 Annual
Meeting of Stockholders, all seven of the Company's directors were reelected.
11. CONTRACTOR LOANS PAYABLE
In connection with the remaining obligation owed to Lauren Constructors, Inc.
("Lauren") of approximately $212,000, due to mature during April 1997, the
Company and Lauren reached an agreement whereby the Company paid Lauren
$100,000 in April 1997, with the remaining balance to be paid down in four
equal monthly installments commencing May 15, 1997.
12. CHARTER AMENDMENT
On May 29, 1997, at the 1997 Annual Meeting of Stockholders of the Company,
the stockholders authorized the amendment of the Company's Restated
Certificate of Incorporation to authorize 5,000,000 shares, $.01 par value per
share, of a new class of senior preferred stock for possible future issuance
in connection with acquisitions and general corporate purposes, including
public or private offerings of shares for cash and stock dividends. The Board
of Directors has made no determination with respect to the issuance of any
shares of the new preferred stock and has no present commitment, arrangement
or plan which would require the issuance of such additional shares of new
preferred stock in connection with any equity offering, merger, acquisition or
otherwise.
13. BY-LAWS
On May 29, 1997, at the 1997 Annual Meeting of Stockholders of the Company,
the stockholders approved an amendment and restatement of the Company's
by-laws to, among other things, allow the Board of Directors of the Company to
amend the by-laws and to take certain other actions and to effect certain
other matters without the further approval of the stockholders.
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULT OF OPERATIONS
The results of WAC, which commenced operations in March 1997, did not have a
material impact on the results of the Company for the three and nine months
ended April 30, 1997, and therefore are not included in the discussion below.
Revenue for the three months ended April 30, 1997 was $8,021,235 as compared
to $7,831,986 for the three months ended April 30, 1996, an increase of 2%.
The increase for the three months ended April 30, 1997, was due to the
Company's new sales arrangement with its major customer, which commenced
during October 1996, and resulted in higher volumes of product sold to such
customer during the three months ended April 30, 1997, partially offset by
lower volumes of product sold locally. Volumes of product sold were
approximately 19.1 million gallons sold for the three months ended April 30,
1997 compared with approximately 18.1 million gallons sold for the three
months ended April 30, 1996. In addition, the prices charged for product sold
were generally lower during the three months ended April 30, 1997 as compared
to the three months ended April 30, 1996. For the nine months ended April 30,
1997 as compared to the nine months ended April 30, 1996, revenues increased
to $24,080,892 from $20,105,493, an increase of 20%. This increase was
primarily due to generally higher prices charged for product sold during the
nine months ended April 30, 1997 as compared to the nine months ended April
30, 1996, partially offset by lower volumes sold.
Cost of goods sold for the three months ended April 30, 1997 was $7,634,879 as
compared to $7,456,119 in the same quarter during the prior year, an increase
of 2%. As described earlier, this increase is primarily due to additional
volumes sold as well as higher costs for product sold during the three months
ended April 30, 1997. Cost of goods sold for the nine months ended April 30,
1997 was $23,116,092 as compared to $19,049,025 for the nine months ended
April 30, 1996, an increase of 21%. As described earlier, this increase is
primarily due to higher costs for product sold during the nine months ended
April 30, 1997, partially offset by lower volumes sold.
Gross profit for the three months ended April 30, 1997 was $386,356 as
compared to $375,867 for the three months ended April 30, 1996. The increase
was due primarily to the higher volume of liquid propane gas ("LPG") gas sold
during the three months ended April 30, 1997, as a result of the new sales
arrangement with its major customer described above. Gross profit for the
nine months ended April 30, 1997 was $964,800 as compared to $1,056,468 for
the nine months ended April 30, 1996. The decrease was due primarily to the
continuation of certain fixed costs which were not affected by the significant
reduction in volumes sold during August 1996 and September 1996 until the new
sales arrangement with its major customer commenced during October 1996.
Selling, general and administrative (SG&A) expenses for the three months ended
April 30, 1997 were $425,911 as compared to $607,478 for the same quarter in
the prior year, a decrease of 30%. This decrease was due primarily to
decreases in legal and professional costs associated with lawsuits brought by
and against the Company. SG&A expenses for the nine months ended April 30,
1997 were $1,319,111 as compared to $1,336,402 for the nine months ended April
30, 1996, a decrease of 1%. This decrease was due to decreases in legal and
professional costs associated with lawsuits brought by and against the
Company, partially offset by increases in administrative costs.
Interest expense was $48,840 and $66,159 for the three months ended April 30,
1997, and April 30, 1996, respectively. The decrease was due primarily to
lower average loan balances during the three months ended April 30, 1997,
including payments of contractor loan obligations. Interest expense was
$172,346 and $184,021 for the nine months ended April 30, 1997, and April 30,
1996, respectively. The decrease was due primarily to lower average loan
balances during the nine months ended April 30, 1997, including payments of
contractor loan obligations.
During the three and nine months ended April 30, 1996, the Company reached
agreement to accept $400,000 in settlement of a lawsuit it filed as plaintiff
in October 1995.
Due to the net losses for the nine months ended April 30, 1997, no income tax
expense was provided.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 128 (FASB 128) "Earnings Per Share", which supercedes APB
Opinion 15 (APB 15), "Earnings Per Share". The statement is effective for
financial statements issued for periods ending after December 1, 1997,
including interim periods. Early adoption is prohibited. The Company does
not expect a material change in earnings per share data in any of the periods
presented in the accompanying Consolidated Statements of Operations, except
for the quarter ended April 30, 1996, as a result of adopting FASB 128. For
the quarter ended April 30, 1996, "fully diluted EPS", as defined in APB 15,
was $.02 per share and "diluted EPS", as defined in FASB 128, would have been
$.01 per share.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1996, the Company's arrangement with its major customer expired.
After two months of negotiation, a new agreement (the "Sales Agreement") was
reached. The term of the Sales Agreement is for a one-year period commencing
October 1, 1996. Under the terms of the Sales 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 the Sales Agreement, the Company is again responsible for the direct
purchase of LPG. As a result, the Company has negotiated an agreement with a
major supplier, with terms and conditions substantially identical to the terms
and conditions of the Company's Sales Agreement. The agreements provide the
Company with a fixed margin over the cost of LPG.
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 Sales Agreement, invoicing is to occur weekly.
Beginning November 1996, the Company made arrangements with its major customer
under which the customer will guarantee credit with the Company's main
supplier. As a result of this arrangement, invoicing occurs on a monthly
basis. The arrangement is on a month to month basis. The Company is
currently exploring other arrangements or other options in connection with
being able to provide a letter of credit directly to the Company's main
supplier.
In May 1997, the Company reached an agreement to amend the lease arrangements
for use of the Pipeline. See Note 6 to the Consolidated Financial Statements.
Under the new lease arrangement, once effective, the Company will have greater
access to gas processors and petrochemical companies and the effective length
of the Pipeline will increase to approximately 360 miles. The Company
believes that this new arrangement will enable the Company to enter into
longer-term contracts under more favorable terms.
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, on October 10, 1996, the Company reached a tentative
agreement with Lauren and Janik to extend the repayment schedule to April 14,
1997, under substantially similar terms and conditions. During April 1997,
Janik agreed to exercise 25,000 warrants to purchase 25,000 shares of common
stock of the Company at an exercise price below the stated exercise price of
$2.50 per share, and the Company agreed to accept in lieu of cash payment on
the exercise of the warrants, full cancellation of the remaining $42,000
principal amount of indebtedness due Janik, plus interest thereon. In
connection with the remaining obligation owed to Lauren of approximately
$212,000, due to mature during April 1997, the Company and Lauren reached an
agreement whereby the Company paid Lauren $100,000 in April 1997, with the
remaining balance to be paid down in four equal monthly installments
commencing May 15, 1997. The Company anticipates being able to make repayment
in full on its obligations to Lauren from cash flow generated by operations.
While the Company has not made commitments for additional capital expenditures
during the next twelve months, it continues to evaluate the cost of and
opportunities created by (i) 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
and (ii) the construction and operation of an additional LPG terminal with
storage facilities within Mexico and/or closer to U.S.- Mexico border
crossings and an extension of the pipeline to this terminal, which is subject
to regulatory approval. If determined to be advantageous to the Company's
operations, the projects would enable the Company to receive LPG for its major
customer for storage and redelivery, export LPG to Caribbean and other Latin
American markets and allow for additional sales volumes of LPG into Mexico at
substantially higher margins. The total cost of these projects is expected to
be no more than $5,000,000.
In connection with the Company's plans to enter the CNG refueling business, on
March 7, 1997, WAC, a newly formed wholly-owned subsidiary of the Company, and
Wilson Technologies Incorporated ("Wilson"), a leading supplier of CNG
refueling stations which is engaged in the business of selling, designing,
manufacturing, installing and servicing CNG refueling stations and related
products for use in the CNG industry throughout the world, entered into an
Interim Operating Agreement (the "Arrangement"). Under the terms of the
Arrangement, effective as of February 17, 1997, WAC was granted the right to
use the Wilson name, technology and employees, subject to certain
restrictions, as well as rights to perform contracts which Wilson had not
begun to perform, in exchange for monthly payments of $84,000, and royalty
payments not to exceed $3,000,000 cumulatively, less certain adjustments, if
any. of 5% on net revenues. WAC is entitled to all revenues earned by WAC and
by certain businesses of Wilson commencing as of February 17, 1997. In
addition, Zimmerman Holdings Inc. ("ZHI"), the parent of Wilson, has agreed to
reimburse the Company for 50% of the net operating cash deficit of WAC, if
any. WAC is also entitled to use the Wilson premises as well as available
inventory of Wilson in carrying out the business at a price of cost plus 10%
or any other amount mutually agreed upon by WAC and Wilson. The Arrangement
was to have terminated on the earlier to occur of 90 days from the date of the
Arrangement or the closing of the Acquisition described below. If the
Acquisition was not completed within 90 days, the Arrangement could be
extended by WAC for up to three years.
Simultaneously with the Arrangement, the Company, WAC, Wilson and ZHI entered
into a purchase agreement (the "Acquisition"), whereby WAC will acquire
certain assets, including trademarks and licenses, and certain ongoing
businesses of Wilson, including Wilson's Canadian and Mexican subsidiaries, in
exchange for the assumption of certain liabilities, a $3 million contingent
royalty note of WAC, a note based upon certain operating expenses issued by
WAC and a $220,000 convertible debenture issued by the Company. The
Acquisition is subject to several conditions, including obtaining satisfactory
restructuring of all of Wilson's creditor obligations including the consent of
such creditors to the proposed Acquisition.
Effective as of March 21, 1997, the Arrangement was amended (the "Amendment"),
so that WAC agreed to acquire $394,000 of Wilson's inventory and/or other
assets to be paid for through the application of $294,000 previously paid
under the Arrangement, plus other adjustments, with the difference to be paid
to Wilson through a five year promissory note payable in equal annual
installments. Furthermore, the cumulative royalty to be paid to Wilson was
reduced from $3 million to $2 million, less certain adjustments. Also under
the Amendment, effective June 1, 1997, the Company ceased making the monthly
payment and assumed direct responsibility for expenses relating to the
operation of Wilson's facilities, including the lease of the premises and the
hiring of certain employees formerly employed by Wilson. These expenses are
not anticipated to exceed $84,000 per month. Pursuant to the Amendment, and
except as provided for therein, the Arrangement and Acquisition were
terminated effective as March 21, 1997. Upon such termination, WAC is not
restricted in continuing its CNG business. The parties to the Amendment have
agreed to exchange mutual releases with respect to the Arrangement and the
Acquisition.
WAC has recently been awarded contracts for the supply of CNG refueling
station equipment totaling more than $2,000,000. Under the terms and
conditions of these contracts, WAC anticipates that there will be adequate
cash flow to fund the equipment as prescribed under the contracts. WAC
intends to pursue additional service and maintenance business and other
station development opportunities in the U.S., Mexico and other countries.
During October 1996, the Company completed a private placement of units
including warrants and promissory notes due November 1997. See Note 7 to the
Consolidated Financial Statements. Total proceeds raised from the private
placement were $325,000 of which the Company used the net proceeds for working
capital requirements. During April 1997, 250,000 warrants to purchase 250,000
shares of the common stock of the Company issued in connection with the
private placement were exercised at prices below the original stated exercise
price ($1.75-$2.00) in exchange for cancellation of $250,000 of indebtedness
from the private placement, plus accrued interest thereon and a cash payment
received by the Company of $188,438.
During April 1997, the Company's President exercised 2,200,000 warrants to
purchase 2,200,000 shares of common stock of the Company at an exercise price
of $1.25 per share. The consideration for the exercise of the warrants
included $22,000 in cash and a $2,728,000 promissory note issued to the
Company, which accrues interest at the rate of 8.25% per annum. The
promissory note is secured by 1,000,000 shares of common stock of the Company
owned by the President and has been recorded in stockholders' equity.
During April 1997, an additional 315,000 warrants to purchase 315,000 shares
of common stock of the Company were exercised by certain directors of the
Company and other third parties at exercise prices ranging from $1.25 - $2.50
per share.
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 R. Bracamontes was elected Executive Vice
President and Secretary. During March 1997, Ian T. Bothwell was elected to
the Board of Directors.
Management of the Company believes that the Company will ultimately realize on
the Judgement. 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 obligations and legal fees plus
provide additional working capital. At April 30, 1997, the Judgment including
accrued interest and legal fees approximated $3,376,213, less contingent legal
fees. See Note 3 to the Consolidated Financial Statements.
Through a combination of the agreements with its major customer to purchase a
minimum monthly volume of LPG and its primary LPG supplier to provide
increased volumes of LPG, 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. In addition, the
Company intends to expand sales to its major customer, including related
products and/or additional services, and intends to generate new business with
other customers which benefit from the Company's pipeline, terminal and other
strategic advantages.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 3 to the Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES.
On May 29, 1997, at the 1997 Annual Meeting of Stockholders of the Company,
the stockholders authorized the amendment of the Company's Restated
Certificate of Incorporation to authorize 5,000,000 shares, $.01 par value per
share, of a new class of senior preferred stock for possible future issuance
in connection with acquisitions and general corporate purposes, including
public or private offerings of shares for cash and stock dividends. The Board
of Directors has made no determination with respect to the issuance of any
shares of the new preferred stock and has no present commitment, arrangement
or plan which would require the issuance of such additional shares of new
preferred stock in connection with any equity offering, merger, acquisition or
otherwise.
On March 25, 1997, the Company granted 200,000 warrants to purchase shares of
common stock of the Company with an exercise price of $3.625 per share
exercisable on or prior to March 24, 2000, to Jorge R. Bracamontes, Executive
Vice President, Secretary and a director of the Company.
On March 26, 1997, M.I. Garcia Cuesta exercised 15,000 warrants to purchase
15,000 shares of common stock of the Company at an exercise price of $2.50 per
share through payment of $150 in cash and issuance of a promissory note due
March 26, 2000 to the Company in the principal amount of $37,350 which accrues
interest at the rate of 8.25% per annum and is secured by the pledge of 15,000
shares of common stock of the Company.
On April 11, 1997, Jerome B. Richter exercised 2,200,000 warrants to purchase
2,200,000 shares of common stock of the Company at an exercise price of $1.25
per share through payment of $22,000 in cash and issuance of a promissory note
due April 11, 2000 to the Company in the principal amount of $2,728,000 at the
of 8.25% per annum and secured by the pledge of 1,000,000 shares of common
stock of the Company.
On March 25, 1997, the Company approved the exercise by Thomas G. Janik
Associates, Inc. ("Janick") of 25,000 warrants to purchase 25,000 shares of
common stock of the Company at an exercise price below the stated exercise
price of $2.50 per share and accepted, in lieu of cash payment for such
exercise, the cancellation of $42,000 principal amount of indebtedness due
Janik, plus interest thereon.
On March 25, 1997, the Company agreed to adjust the exercise price of 50,000
warrants to purchase 50,000 shares of common stock of the Company held by
TRAKO International Company Limited, a company controlled by John H. Robinson,
a director of the Company, and 50,000 warrants to purchase 50,000 shares of
common stock of the Company held by John H. Robinson to $2.50 from $5.00 per
share.
On March 25, 1997, the Company ratified the execution and delivery of Exchange
Agreements between the Company and Thomas P. Muse, Mark D. Casaday and Thomas
A. Serleth, former officers and directors of the Company, providing for the
exchange (i) by Muse of 242,856 warrants to purchase common stock of the
Company for 55,195 shares of common stock; (ii) by Casaday of 200,000 warrants
to purchase 200,000 shares of common stock of the Company for 50,000 shares of
common stock; and (iii) by Serleth of 260,000 warrants to purchase 260,000
share of common stock of the Company for 59,091 shares of common stock.
On April 13, 1997, 300,000 warrants to purchase 300,000 shares of common stock
of the Company at an exercise price of $1.25 per share, were exercised by a
director of the Company and other third parties.
During October 1996, the Company issued 6.5 units in a private placement
totaling $325,000 (the "Units"). Each Unit consists of (i) a promissory note
in the amount of $50,000 (collectively, the "Notes") and (ii) common stock
purchase warrants (the "Warrants") to purchase Fifty thousand (50,000) shares
of common stock of the Company at an exercise price of $3.00 per share.
The Notes accrue interest at the rate of 10% annually and are payable on
November 7, 1997 (the "Payment Date"). In the event the Company receives in
excess of two hundred fifty thousand ($250,000) dollars in connection with any
offering of its securities prior to the Payment Date, the Company shall
utilize up to one-half of the proceeds from such sale to satisfy the Notes.
In the event such payment does not fully satisfy the Notes, the Company shall
pay the balance due on the Payment Date.
During April 1997, 200,000 of the Warrants issued in connection with the
placement of the Units, were exercised at $1.75 per share and 50,000 of the
Warrants issued in connection with the placement of the Units, were exercised
at $2.00 per share, in exchange for cancellation of $250,000 of the Notes,
plus accrued interest thereon, and a cash payment received by the Company of
$188,438.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
The 1997 Annual Meeting of Stockholders of the Company (the "Meeting") was
held on May 29, 1997 at the Company's executive offices. The record date for
the Meeting was April 18, 1997. Proxies for the meeting were solicited
pursuant to Regulation 14A under the Exchange Act. There was no solicitation
in opposition to the management's nominees for directors as listed in Proposal
No. 1 in the proxy statement, and all of such nominees were elected.
The results of the voting by the stockholders for directors is presented
below.
Proposal #1 Election of Directors
Name of Director Elected Votes For Votes Withheld
------------------------ --------- --------------
Jerome B. Richter 6,672,950 18,150
Ian T. Bothwell 6,672,950 18,150
Jorge R. Bracamontes 6,672,850 18,250
John P. Holmes 6,672,950 18,150
Kenneth G. Oberman 6,672,950 18,150
Stewart J. Paperin 6,672,850 18,250
John H. Robinson 6,672,950 18,150
Four proposals (designated Proposals No. 2, 3, 4 and 5) were submitted by the
Board of Directors to a vote of stockholders of the Company at the Meeting.
Each proposal was approved by the stockholders of the Company by the votes set
forth below each of the listed proposals.
Proposal #2 Proposal to amend the Company's Restated Certificate of
Incorporation to
authorize 5,000,000 shares, $.01 par value per share, of a new class of senior
preferred stock for possible future issuance in connection with acquisitions
and general corporate purposes, including public or private offerings of
shares for cash and stock dividends. The Board of Directors has made no
determination with respect to the issuance of any shares of the new preferred
stock and has no present commitment, arrangement or plan which would require
the issuance of such additional shares of new preferred stock in connection
with any equity offering, merger, acquisition or otherwise.
For Against Abstain Broker Non Votes
5,053,429 153,850 15,050 1,468,771
Proposal #3 Proposal to approve the amendment and restatement of the
Company's Amended
and Restated By-Laws to allow, among other things, the Board of Directors of
the Company to amend the by-laws and to take certain other actions and to
effect certain other matters by an affirmative vote of a majority of the Board
of Directors.
For Against Abstain Broker Non Votes
4,950,749 255,730 15,850 1,468,771
Proposal #4 Proposal to approve and ratify certain private
transactions entered into by the
Company involving the issuance of shares of common stock of the Company and
warrants to purchase shares of common stock of the Company or the incurrence
of indebtedness in excess of $100,000.
For Against Abstain
6,643,571 39,980 7,549
Proposal #5 Proposal to ratify the appointment of Burton McCumber &
Prichard, L.L.P. as
the independent auditors of the Company.
For Against Abstain
6,673,701 15,450 1,949
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
--------
The following Exhibits are incorporated herein by reference:
10.23 Interim Operating Agreement between the Wilson Acquisition
Corporation and Wilson Technologies Incorporated dated March 7, 1997 -
incorporated herein by reference to Exhibit 10.23 of the Registrant's 10-QSB
Quarterly Report for the quarter ended January 31, 1997.
10.24 Purchase Agreement between the Registrant, Wilson Acquisition
Corporation, Wilson Technologies Incorporated and Zimmerman Holdings Inc.
dated March 7, 1997 - incorporated herein by reference to Exhibit 10.24 of the
Registrant's 10-QSB Quarterly Report for the quarter ended January 31, 1997.
10.25 Agreement for Exchange of Warrants for Common Stock dated February 5,
1997 between the Registrant and Mark D. Casaday - incorporated herein by
reference to Exhibit 10.25 of the Registrant's 10-QSB Quarterly Report for the
quarter ended January 31, 1997.
10.26 Agreement for Exchange of Warrants for Common Stock dated February 5,
1997 between the Registrant Thomas P. Muse - incorporated herein by reference
to Exhibit 10.26 of the Registrant's 10-QSB Quarterly Report for the quarter
ended January 31, 1997.
10.27 Agreement for Exchange of Warrants for Common Stock dated February
19, 1997 between the Registrant and Thomas A. Serleth - incorporated herein by
reference to Exhibit 10.27 of the Registrant's 10-QSB Quarterly Report for the
quarter ended January 31, 1997.
10.28 Agreement between Roberto Keoseyan and the Registrant dated November
12, 1996 - incorporated herein by reference to Exhibit 10.28 of the
Registrant's 10-QSB Quarterly Report for the quarter ended January 31, 1997.
10.29 Promissory Note between Bay Area Bank and the Registrant dated
December 20, 1996 - incorporated herein by reference to Exhibit 10.29 of the
Registrant's 10-QSB Quarterly Report for the quarter ended January 31, 1997.
The following Exhibits are included herewith:
3.1 Restated Certificate of Incorporation, as amended.
3.2 Amended and Restated By-Laws
10.30 Promissory Note and Pledge and Security Agreement between M.I.
Garcia Cuesta and the Registrant dated March 26, 1997.
10.31 Real Estate Lien Note, Deed of Trust and Security Agreement between
Lauren Constructors, Inc. and the Registrant dated April 9, 1997.
10.32 Promissory Note and Pledge and Security Agreement between Jerome B.
Richter and the Registrant dated April 11, 1997.
10.33 Lease Amendment between Registrant and Brownsville Navigation
District Of Cameron County, Texas dated May 7, 1997.
10.34 Lease Amendment between Seadrift Pipeline Corporation and the
Registrant dated May 29, 1997.
10.35 Lease dated as of May 22, 1997 between Nine-C Corporation and J.B.
Richter, Capital resources and J.B. Richter and J.B. Richter, an individual,
as amended with respect to the Company's executive offices.
10.36 Promissory Note between Bay Area Bank and the Registrant dated May
28, 1997.
10.37 Amendment of the Interim Operating Agreement between the Registrant,
Wilson Acquisition Corporation, Wilson Technologies Incorporated and Zimmerman
Holdings Inc. dated March 21, 1997.
27.0 Financial Data Schedule.
The following report on Form 8-K is incorporated herein by reference:
b. Reports on Form 8-K
----------------------
On February 7, 1997, the Registrant filed a Form 8-K Current Report including
a press release issued by the Company on February 4, 1997 in connection with
an agreement to supply CNG buses and refueling stations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENN OCTANE CORPORATION
Date: June 13, 1997 By: /s/ IAN T. BOTHWELL
--------------------------
Ian T. Bothwell
Vice President and
Chief Financial Officer
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL ENERGY DEVELOPMENT CORPORATION
INTERNATIONAL ENERGY DEVELOPMENT CORPORATION (formerly, "The Kaliningrad
Fund"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, the original Certificate of
Incorporation of which was filed on August 27, 1992, with the Secretary of
State of Delaware, acting pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the directors of said corporation, by written consent, filed
with the minutes of the corporation, adopted resolutions proposing and
declaring advisable the following amendment and restatement in its entirety of
said corporation's Certificate of Incorporation as follows:
FIRST: The name of the corporation is:
PENN OCTANE CORPORATION
SECOND: The location of the Registered Office of Penn Octane Corporation
(the "Corporation") in the State of Delaware is at 1209 Orange Street, City of
Wilmington, County of New Castle. The name and address of the Corporation's
Registered Agent in the State of Delaware is the Corporation Trust Company,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be incorporated and organized under the
General Corporation Law of the State of Delaware.
FOURTH: (a) Capital Stock. The total number of shares of capital stock
-------------
which the Corporation shall have authority to issue is 30,000,000 shares of
which 25,000,000 shall be Common Stock, having a par value of $.01 per share,
and 5,000,000 shares shall be Preferred Stock having a par value of $.01 per
share. The capital stock of the Corporation may be issued for such
consideration and for such corporate purposes as the directors of the
Corporation may from time to time determine by resolution.
(b) Preferred Stock. The relative rights, preferences,
----------------
privileges, and restrictions relating to the Preferred Stock are set forth
below:
(i) Conversion. The Preferred Stock shall be subject to
----------
the following provisions regarding conversion:
(A) Holder's Right to Convert. Each share of
----------------------------
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof at
the office of the Corporation or any transfer agent for the Corporation, into
3.333 fully paid and nonassessable shares of Common Stock.
(B) Term of Conversion Period. Each share of
----------------------------
Preferred Stock shall be convertible at the option of the holder of such stock
for a period of five-years beginning on September 28, 1993 and concluding on
September 18, 1998.
(C) Mechanics of Right to Convert. Before any holder
-----------------------------
of Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of its transfer agent, and shall
give written notice to the Corporation at such office that he elects to
convert the same and shall state therein his name or the name or names of his
nominees in which he wishes the certificate or certificates for the shares of
Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred
Stock, or to his nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Preferred
Stock to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date.
(D) Common Stock Reserved. The Corporation shall
---------------------
reserve and keep available out of its authorized but unissued Common Stock
such number of shares of Common Stock as shall from time to time be sufficient
to effect conversion of the Preferred Stock.
(E) Adjustment of Conversion Ratio. The 1-to-3.333
------------------------------
conversion ratio specified above shall be subject to an equitable adjustment
upon the occurrence of a stock split or stock dividend, reclassification or
other similar event relating to the Common Stock.
(ii) Voting Rights. The holders of the Preferred Stock
-------------
shall hold no voting rights, except as may be provided by law.
(iii) Dividend Rights. The holders of the Preferred Stock
---------------
shall be entitled to receive, when and as declared by the board of directors,
yearly dividends from the surplus of net profits of the Corporation at the
rate of eleven percent per annum, beginning on the date the particular shares
of Class I Preferred Stock are issued by the Corporation and payable twice
annually on the 30th day of June and the 31st day of December in each year,
with proper adjustment for any dividend period that is less than a full
half-year. Such dividends shall be payable before any dividends shall be paid
upon, or set apart for, the Common Stock of the Corporation, and shall be
cumulative from the date of issuance so that if such dividends shall not have
been paid upon or set apart for the Preferred Stock, the deficiency (but
without interest) shall be fully paid or set apart for payment, before any
dividends shall be paid upon, or set apart for, the Common Stock.
FIFTH: The corporation is to have perpetual existence.
SIXTH: Unless otherwise provided in the Bylaws of the Corporation,
elections of directors need not be by written ballot.
SEVENTH: The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatsoever, and said
stockholders shall not be personally liable for the payment of the
Corporation's debts except as they may be liable by reason of their own
conduct or acts.
EIGHTH: The following provisions are inserted for the management of the
business and conduct of affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders.
1) The number of directors comprising the Board of Directors of
the Corporation shall be such as from time to time shall be fixed by or in the
manner provided in the By-Laws, but shall not be less than one.
2) The Board of Directors shall have the power, subject to the
power of the stockholders as expressly granted in the Bylaws of the
Corporation, and unless and to the extent that the Board may from time to time
by resolution relinquish or modify such power of the Board of Directors, (i)
to make, alter, amend, change, add to or repeal the Bylaws of the Corporation,
subject to the reserve power of the stockholders to do the same; (ii) to fix
and vary the amount of capital of the Corporation to be reserved for any
proper purpose; (iii) to authorize and cause to be executed mortgages and
liens upon all or any part of the property of the Corporation; (iv) to
determine the use and disposition of any surplus or net profits; and (v) to
fix the times for the declaration and payment of dividends.
(3) The Board of Directors in its discretion may submit any
contract or act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the purpose of
considering any act or contract. Any contract or act that shall be approved
or ratified by the vote of the holders of a majority of the stock represented
in person or by proxy at such meeting and entitled to vote (provided that a
lawful quorum of stockholders be there represented in person or by proxy)
shall be as valid and as binding upon the Corporation and its stockholders as
though it had been approved or ratified by every stockholder of the
Corporation, whether or not the contract or act would otherwise be open to
legal attack because of a director's interest or for any other reason.
(4) No contract or transaction between this Corporation and one
or more of its directors or officers or between this Corporation and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are directors or officers or have a
financial interest shall be void or voidable solely for this reason or solely
because the director or officer is present at or participates in the meeting
of the board or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such
purpose, if the contract or transaction is fair as to the Corporation or if
the material facts relating thereto are disclosed to or are known by the
directors or shareholders, and are approved thereby pursuant to Section 144 of
the General Corporation of the State of Delaware.
(5) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them the Board of Directors is hereby
empowered to exercise all such powers and to do all such acts and things as
may be exercised or done by the Corporation, subject to the provisions of the
statutes of Delaware, of this certificate, and to any Bylaws, from time to
time made by the stockholders or directors and provided that no Bylaws so made
shall invalidate any prior act of the board which would have been valid if
such Bylaw had not be made.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that the foregoing provisions shall not
eliminate the liability of a director: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the director derived an improper personal benefit.
If the General Corporation Law of Delaware hereafter is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended General Corporation Law of the State of Delaware.
TENTH: Each person who at any time or shall have been a director or
officer of the Corporation, and who is threatened to be or is made a party to
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he is, or was, a director or officer of the Corporation or served at the
request of the Corporation as a director, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified by the Corporation against, and may be advanced, the
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any such
action, suit or proceeding to the fullest extent provided under Section 145 of
the General Corporation Law of the State of Delaware, as the same shall be
amended or supplemented from time to time, or any successor statute. The
foregoing right of advancement and indemnification shall in no way be
exclusive of any rights of advancement or indemnification, or any other
rights, to which such director, officer, employee or agent may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer, and shall inure to the benefit of
the heirs, executors and administrators of such a person. Any repeal or
modification of this Article Ten or Article Nine above shall be prospective
only, and shall not adversely affect any limitation on the personal liability
of a director or the right of any director or officer to indemnification
existing at the time of such repeal or modification.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them, any court of equitable
jurisdiction within the State of Delaware may, in response to an application
of any receiver or receivers appointed for this Corporation under the
provisions of Section 279 of the General Corporation Law of the State of
Delaware, order a meeting of the creditors or class of creditors or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors or of the stockholders or class of stockholders, as the case may be,
agree to any compromise, arrangement, or reorganization, such compromise
arrangement or reorganization shall, if made, be binding on all the creditors
or class of creditors or on all the stockholders or class of stockholders, as
the case may be, and also on this Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
SECOND: That the stockholders have given their written consent to said
amendment in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 243 and 245 of the General Corporation
Law of the State of Delaware.
FOURTH: That the capital of said Corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, said International Energy Development Corporation has
caused this certificate to be signed by Thomas A. Serleth, its Executive Vice
President, and attested by Jerome B. Richter, its Secretary as of the first
day of February, 1995.
INTERNATIONAL ENERGY
DEVELOPMENT CORPORATION
By:/s/Thomas A. Serleth
----------------------
Thomas A. Serleth
Executive Vice President
ATTEST:
By:/s/Jerome B. Richter
----------------------
Jerome B. Richter
Secretary
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PENN OCTANE CORPORATION
PENN OCTANE CORPORATION, a corporation duly organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The name of the corporation is Penn Octane Corporation
(hereinafter called the "Corporation") .
2. The Corporation's Restated Certificate of Incorporation is hereby
amended to delete in its entirety the present Article FOURTH and to replace it
with the following:
"FOURTH: (a) Capital Stock. The total number of shares of capital stock
-------------
which the Corporation shall have authority to issue is 35,000,000 shares of
which 25,000,000 shall be Common Stock, having a par value of $.01 per share,
5,000,000 shares shall be Senior Preferred Stock, having a par value of $.01
per share, and 5,000,000 shares shall be Preferred Stock, having a par value
of $.01 per share. The capital stock of the Corporation may be issued for
such consideration and for such corporate purposes as the directors of the
Corporation may from time to time determine by resolution.
(b) Senior Preferred Stock. The relative rights, privileges, and
----------------------
restrictions relating to the Senior Preferred Stock are set forth below:
(1) Shares of Senior Preferred Stock may be issued in one
or more series at such time or times and for such consideration as the Board
of Directors may determine. Each such series shall be given a distinguishing
designation. All shares of any one series shall have preferences, limitations
and relative rights identical with those of other shares of the same series
and, except to the extent otherwise provided in the description of such
series, with those of other shares of Senior Preferred Stock.
(2) Authority is hereby expressly granted to the Board of
Directors to fix from time to time by resolution or resolutions providing for
the establishment and/or issuance of any series of Senior Preferred Stock, the
designation of such series and the preferences, limitations and relative
rights of the shares of such series, including the following:
(A) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise provided by
the Board of Directors in creating such series) be increased or decreased (but
not below the number of shares then outstanding) from time to time by action
of the Board of Directors;
(B) The voting rights, if any, which shares of that series
shall have, which may be special, conditional, limited or otherwise;
(C) The rate of dividends, if any, on the shares of that
series, whether dividends shall be non-cumulative to the extent earned,
partially cumulative or cumulative (and, if cumulative, from which date or
dates), whether dividends shall be payable in cash, property or rights, or in
shares of the corporation's capital stock, and the relative rights of
priority, if any, of payment of dividends on shares of that series over shares
of any other series, shares of Preferred Stock or shares of Common Stock;
(D) Whether the shares of that series shall be redeemable
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, the event or events upon
or after which they shall be redeemable, whether they shall be redeemable at
the option of the corporation, the shareholder or another person, the amount
per share payable in case of redemption (which amount may vary under different
conditions and at different redemption dates), whether such amount shall be a
designated amount or an amount determined in accordance with a designated
formula or by reference to extrinsic data or events and whether such amount
shall be paid in cash, indebtedness, securities or other property or rights,
including securities of any other corporation;
(E) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms of and
amounts payable into such sinking fund;
(F) The rights to which the holders of the shares of that
series shall be entitled in the event of voluntary or involuntary dissolution
or liquidation of the Corporation, and the relative rights of priority, if
any, of payment of shares of that series over shares of any other series,
shares of Preferred Stock or shares of Common Stock in any such event;
(G) Whether the shares of that series shall be convertible
into or exchangeable for cash, shares of stock or any other class or any other
series, indebtedness, or other property or rights, including securities of
another corporation, and, if so, the terms and conditions of such conversion
or exchange, including the rate or rates of conversion or exchange, and
whether such rates shall be a designated amount or an amount determined in
accordance with a designated formula or by reference to extrinsic data or
events, the date or dates upon or after which they shall be convertible or
exchangeable, the duration for which they shall be convertible or
exchangeable, the event or events upon or after which they shall be
convertible or exchangeable, and whether they shall be convertible or
exchangeable at the option of the Corporation, the shareholder or another
person, and the method (if any) of adjusting the rate of conversion or
exchange in the event of a stock split, stock dividend, combination of shares,
or similar event;
(H) Whether the issuance of any additional shares of such
series, or of any shares of any other series, shall be subject to restrictions
as to issuance, or as to the powers, preferences or rights of any such other
series; and
(I) Any other preferences, privileges and powers and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions of this Article
FOURTH and to the full extent now or hereafter permitted by the laws of the
State of Delaware.
(c) Preferred Stock. The relative rights, preferences,
----------------
privileges, and restrictions relating to the Preferred Stock are set forth
below:
(1) Conversion. The Preferred Stock shall be subject to
----------
the following provisions regarding conversions:
(A) Holder's Rights to Convert. Each share of
-----------------------------
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof at
the office of the Corporation or any transfer agent for the Corporation, into
3.333 fully paid and nonassessable shares of Common Stock.
(B) Terms of Conversion Period. Each share of
-----------------------------
Preferred Stock shall be convertible at the option of the holder of such stock
for a period of five-years beginning on September 18, 1993 and concluding on
September 18, 1998.
(C) Mechanics of Right to Convert. Before any holder
-----------------------------
of Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of its transfer agent, and shall
give written notice to the Corporation at such office that he elects to
convert the same and shall state therein his name or the name or names of his
nominees in which he wishes the certificate or certificates for the shares of
Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred
Stock, or to his nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of the Preferred
Stock to be converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder of such shares of Common Stock on such date.
(D) Common Stock Reserved. The Corporation shall
---------------------
reserve and keep available out of its authorized but unissued Common Stock
such number of shares of Common Stock as shall from time to time be sufficient
to effect conversion of the Preferred Stock.
(E) Adjustment of Conversion Ratio. The 1-to-3.333
------------------------------
conversion ratio specified above shall be subject to an equitable adjustment
upon the occurrence of a stock split or stock dividend, reclassification or
other similar event relating to the Common Stock.
(2) Voting Rights. The holders of the Preferred Stock
-------------
shall hold no voting rights, except as may be provided by law.
(3) Dividend Rights. The holders of the Preferred Stock
---------------
shall be entitled to receive, when and as declared by the board of directors,
yearly dividends from the surplus of net profits of the Corporation at the
rate of eleven percent per annum, beginning on the date the particular shares
of Class I Preferred Stock are issued by the Corporation and payable twice
annually on the 30th day of June and the 31st day of December in each year,
with proper adjustment for any dividend period that is less than a full
half-year. Such dividends shall be payable before any dividends shall be paid
upon, or set apart for, the Common Stock of the Corporation, and shall be
cumulative from the date of issuance so that if such dividends shall not have
been paid upon or set apart for the Preferred Stock, the deficiency (but
without interest) shall be fully paid or set apart for payment, before any
dividends shall be paid upon, or set apart for, the Common Stock.
(c) Common Stock
-------------
(1) Dividend Rights. Out of any assets of the Corporation
---------------
available for dividends remaining after full satisfaction of any preference
with respect to dividends on the Senior Preferred Stock and the Preferred
Stock then outstanding, and after full satisfaction of any obligations then or
theretofore matured in respect of any sinking fund provided for the Senior
Preferred Stock or any series thereof and for the Preferred Stock then
outstanding, then, subject to the restrictions set forth in this Article
FOURTH and in any resolution of the Board of Directors of this Corporation
establishing a particular series of shares, dividends may be paid upon the
Common Stock.
(2) Liquidation Rights. In the event of any liquidation,
------------------
dissolution or winding up of this Corporation, after there shall have been
paid or set aside in cash for the holders of the Senior Preferred Stock and
the Preferred Stock the full preferential amounts to which they are entitled
under the provisions of this Article FOURTH or any resolution of the Board of
Directors establishing a particular series of shares, the holders of the
Common Stock shall be entitled to receive pro rata all of the remaining assets
of this Corporation available for distribution to its shareholders.
(3) Voting Rights. The holders of the Common Stock shall
-------------
be entitled to vote for the election of directors and for all other purposes
and shall be entitled to one vote for each share held."
3. The amendment was duly adopted in accordance with the applicable
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Penn Octane Corporation has caused this Certificate
to be signed by an authorized officer, this 29th day of May, 1997.
By /s/ Jerome B. Richter
------------------------
Name: Jerome B. Richter
Title: Chairman, President and
Chief Executive Officer
AMENDED AND RESTATED BYLAWS
OF
PENN OCTANE CORPORATION
(a Delaware corporation)
ARTICLE I
Offices
-------
Section 1. Registered Office. The registered office of the
corporation shall be at 1209 Orange Street, Wilmington, Delaware. The
Corporation Trust Company shall be the registered agent of this corporation in
charge thereof.
Section 2. Other Offices. The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Annual Meetings. Annual meetings of the stockholders for
the election of directors and for such other business as may be stated in the
notice of the meeting shall be held at such time and place, either within or
without the State of Delaware, and at such time and date, as the Board of
Directors shall determine and set forth in the notice of the meeting.
Section 2. Other Meetings. Meetings of the stockholders for any
purpose other than the election of directors may be held at such time and
place, within or without the State of Delaware, as shall be determined by the
Board of Directors and stated in the notice of the meeting.
Section 3. Voting. Unless otherwise provided in the Certificate of
Incorporation or applicable By-law, each stockholder entitled to vote in
accordance with the terms of the Restated Certificate of Incorporation and in
accordance with the provisions of these By-Laws shall be entitled to one vote,
in person or by proxy, for each share of stock entitled to vote held by such
stockholder, but no proxy shall be voted after three years from its date
unless such proxy provides for a longer period. Upon the demand of any
stockholder, the vote for directors and the vote upon any question before the
meeting shall be by ballot. All elections for directors shall be decided by a
plurality of the votes of the shares present in person or by proxy at the
meeting and entitled to vote on the election of directors; all other questions
shall be decided by the affirmative vote of the majority of shares present in
person or by proxy and entitled to vote except as otherwise provided in these
By-Laws or by the Certificate of Incorporation or by the laws of the State of
Delaware.
A complete list of the stockholders entitled to vote in the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be opened to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
Section 4. Quorum. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the
stockholders. In case a quorum shall not be present at any meeting, a
majority in interest of the stockholders entitled to vote thereat, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At such
adjourned meeting at which the requisite amount of stock entitled to vote
shall be represented, any business may be transacted which might have been
transacted at the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to
vote at any adjournment or adjournments thereof. If any adjournment is for
more than thirty days or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat.
Section 5. Special Meetings. Special meetings of the stockholders
for any purpose or purposes may be called by the President of the Corporation
and shall be called by the President or Secretary at the request in writing of
a majority of the Board of Directors, or at the request in writing of the
registered holder or holders of 10% or more of the capital stock outstanding
and entitled to vote. Any such request shall state the purpose or purposes of
the proposed meeting.
Section 6. Notice of Meetings. Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting.
Section 7. Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required to or which may be taken at
any annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
Directors
---------
Section 1. Number and Term. The number of directors shall be such
number as shall, from time to time, be determined by resolution of the Board
of Directors or by the affirmative vote of a majority in interest of the
stockholders, at the annual meeting or at a special meeting called for that
purpose. The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until such director's
successor shall be elected and qualified. Directors need not be stockholders.
If the numbers of directors is determined by the stockholders, such number
shall not be changed except by further vote of the stockholders.
Section 2. Removal. Except as otherwise required by law, any
director or directors may be removed either for or without cause at any time
by the affirmative vote of the holders of a majority of all of the shares of
stock outstanding and entitled to vote, and the vacancies thus crated may but
need not be filled by the affirmative vote of a majority in interest of the
stockholders entitled to vote, but if not so filled, such vacancies shall be
filled as provided in Section 2 of Article V hereof.
Section 3. Powers. The business and affairs of the corporation shall
be managed by or under the direction of the Board of Directors, which shall
exercise all of the powers of the corporation except such as are by law or by
the Certificate of Incorporation of the corporation or by these By-Laws or
otherwise conferred upon or reserved to the stockholders.
Section 4. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of such committee or committees. The member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member of members thereof constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
such absent or dis-qualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall
have the power or authority in reference to amending the Certificate of
Incorporation (except as provided by law with respect to the issuance of
certain shares of sock of the Corporation), adopting an agree-ment of merger
or consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the By-Laws of the corporation; and,
unless the resolution, these By-Laws or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend, authorize the issuance of stock or adopt a certificate of
ownership and merger.
Section 5. Meetings. The newly elected Board of Directors shall hold
their first meeting for the purpose of organization and the transaction of
business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent in
writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the Board may be called by the President and shall be
called by the Secretary on the written request of any two directors on at
least two days' notice to each director and shall be held at such place or
places as may be determined by the directors, or as shall be stated in the
notice of the meeting.
Section 6. Quorum. A majority of the directors at the time in office
shall constitute a quorum for the transaction of business and, except as
otherwise required by law, the Certificate of Incorporation or these By-Laws,
the act of a majority of the directors present at a meeting shall constitute
the act of the Board of Directors. If at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time until a quorum is obtained,
and no further notice thereof need be given other than by announcement at the
meeting which shall be so adjourned.
Section 7. Compensation. Directors shall not receive any stated
salary for their services as directors or members of committees, but by
resolution of the Board of Directors a fixed fee and expenses of attendance
may be allowed for attendance at each meeting. Nothing herein contained shall
be construed to preclude any director from serving the corporation in any
other capacity as an officer, agent or otherwise, and receiving compensation
therefor.
Section 8. Action Without Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is
signed by all members of the Board of Directors, or of such committee as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or committee.
Section 9. Participation by Conference Telephone. Members of the
Board of Directors of the corporation, or any committee designated by such
Board, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting shall constitute presence in person at such meeting.
ARTICLE IV
Officers
--------
Section 1. Officers. The officers of the corporation shall be a
President, a Treasurer and a Secretary, each of whom shall be elected by the
Board of Directors and shall hold office at the pleasure of the Board until
their successor is elected and qualified. In addition, the Board of Directors
may elect a Chairman, one or more Vice Presidents and such Assistant
Secretaries and Assistant Treasur-ers as they may deem proper. None of the
officers of the corporation need be directors. The officers shall be elected
at the first meeting of the Board of Directors after each annual meeting.
More than two offices may be held by the same person.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of
Directors.
Section 3. Chairman. The Chairman of the Board of Directors, if one
is elected, shall preside at all meetings of the Board or Directors and shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 4. President. The President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of president of a
corporation. The President shall preside at all meetings of the stockholders
if present thereat and, in the absence or non-election of the Chairman of the
Board of Directors, at all meetings of the Board of Directors, and shall have
general supervision, direction and control of the business of the
corporation. Except as the Board of Directors shall authorize the execution
thereof in some other manner, he shall execute bonds, mortgages and other
contracts on behalf of the corporation, and shall cause the seal to be affixed
to any instrument requiring it and when so affixed the seal shall be attested
by the signature of the Secretary or the Treasurer or an Assistant Secretary
or an Assistant Treasurer.
Section 5. Vice President. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him by the
directors.
Section 6. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. The
Treasurer shall deposit all moneys and other valuables in the name and to the
credit of the corporation in such depositories as may be designated by the
Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers
for such disbursements. The Treasurer shall render to the President and Board
of Directors at the regular meetings of the Board of Directors, or whenever
they may request it, an account of all transactions as Treasurer and of the
financial condition of the corporation. If required by the Board of
Directors, the Treasurer shall give the corporation a bond for the faithful
discharge of such amount and with such surety as the Board of Directors shall
prescribe.
Section 7. Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and direc-tors, and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders,
upon whose requisition the meeting is called as provided in these By-Laws.
The Secretary shall record all the proceedings of the meetings of the
corpora-tion and of the directors in a book to be kept for that purpose, and
shall perform such other duties as may be assigned by the directors or the
President. The Secretary shall have the custody of the seal of the
corporation and shall affix the same to all instru-ments requiring it, when
authorized by the directors or the President, and attest the same.
Section 8. Assistant Treasurers and Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
Miscellaneous
-------------
Section 1. Resignations. Any director, member of a committee or
corporate officer may, provided the same would not result in a breach of any
contract to which said person is a party, resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
Section 2. Vacancies. If the office of any director, member of a
committee or corporate officer becomes vacant, by reason of death, disability
or otherwise, the remaining directors in office, though less than a quorum, by
a majority vote may appoint any qualified person to fill such vacancy, who
shall hold office for the unexpired term and until his successor shall be duly
chosen.
Section 3. Certificates of Stock. Certificates of stock, signed by
the Chairman of the Board of Directors, or the President or any Vice
President, and the Treasurer or an Assistant Treasurer, or Secretary or an
Assistant Secretary, shall be issued to each stockholder certifying the number
of shares owned by him in the corporation, unless otherwise required by the
Board of Directors. When such certificates are counter-signed (1) by a
transfer agent other than the corporation or its employee, or (2) by a
registrar other than the corporation or its employee, the signatures of such
officers of the corporation may be facsimiles.
Section 4. Lost Certificates. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his
legal representatives, to give the corporation a bond, in such sum as they may
direct, not exceeding double the value of the stock represented by such
certificate, to indemnify the corporation against any claim that may be made
against it on account of the alleged loss of any such certificate, or the
issuance of any such new certificate.
Section 5. Transfer of Shares. The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof
or by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificates shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be canceled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
Section 6. Stockholders Record Date. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to
any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 7. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corpora-tion available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
Section 8. Seal. The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or otherwise reproduced.
Section 9. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors. In the absence of such
determination, the fiscal year shall be the calendar year.
Section 10. Checks. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers, agent or
agents of the corporation, and in such manner as shall be determined from time
to time by resolu-tion of the Board of Directors.
Section 11. Notice and Waiver of Notice. Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail, postage
prepaid, addressed to the person entitled thereto at his address as it appears
on the records of the corporation, and such notice shall be deemed to have
been given on the day of such mailing. Stockholders not entitled to vote shall
not be entitled to receive notice of any meetings except as otherwise provided
by statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
Indemnification
---------------
To the full extent permitted by law, the corporation shall indemnify any
person or such person's heirs, distributees, next of kin, successors,
appointees, executors, administrators, legal representatives and assigns who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, domestic or foreign, against expenses, attorneys' fees, court
costs, judgments, fines, amounts paid in settlement and other losses actually
and reasonably incurred by such person in connection with such action, suit or
proceeding.
ARTICLE VII
Amendments
----------
These By-laws may be altered or repealed and new By-laws may be adopted
at any annual or special meeting of the stockholders by the affirmative vote
of a majority of the stock issued and outstanding and entitled to vote
thereat, or by the affirmative vote of a majority of the Board of Directors,
at any regular or special meeting of the Board of Directors.
PROMISSORY NOTE
---------------
$37,350.00 New York, New York
March 26, 1997
FOR VALUE RECEIVED, M.I. Garcia Cuesta, an individual residing at Jesus
del Monte #56, Apt. 6D, Huixquilucan, Estados de Mexico, Mexico (the
"Borrower"), hereby promises to pay to the order of Penn Octane Corporation, a
Delaware corporation (the "Lender"), at its offices located at 900 Veterans
Boulevard, Redwood City, California 94063, or at such other place as the
Lender shall designate, the principal amount of Thirty Seven Thousand Three
Hundred and Fifty Dollars ($37,350.00) on March 26, 2000. The Borrower shall
pay interest on the unpaid principal amount hereof from the date hereof until
paid, at a rate of eight and one quarter percent (8.25%) per annum, to be paid
annually in arrears on each March 26 commencing March 26, 1998 and ending on
March 26, 2000.
Should the indebtedness represented by this Promissory Note or any part
thereof be collected at law or in equity or in bankruptcy, receivership or
other similar court proceedings or this Promissory Note be placed in the hands
of attorneys for collection before or after maturity, the Borrower, its
successors and assigns, agree to pay, in addition to the principal and
interest due and payable hereon, reasonable attorneys' and collection fees.
If the Borrower shall fail to make payment of any installment of interest
on this Promissory Note when due, and if such default is not cured within ten
(10) days thereafter, or if the Borrower shall become insolvent or a voluntary
or uncontroverted petition shall be filed under the Federal Bankruptcy Code or
other similar Federal or state law dealing with arrangements for the relief of
creditors with respect to the Borrower (in each case, an "Event of Default"),
and in any such event, the holder shall have the right without notice to the
Borrower to declare this Promissory Note with accrued interest hereon to be
immediately due and payable (whether or not then due by the stated terms
hereof), whereupon the same shall become and be immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrower.
This Note is secured by and entitled to the benefits of a Pledge and
Security Agreement dated the date hereof pursuant to which Borrower's
obligations hereunder are secured by fifteen thousand (15,000) shares of
Common Stock, $0.01 par value, of the Lender owned by Borrower.
No waiver by the holder of any breach of any covenant of the Borrower
herein contained or any term or condition hereof shall be construed as a
waiver of any subsequent breach of the same or of any other covenant, term or
condition herein.
This Promissory Note shall be deemed to have been made under, and in all
respects shall be governed by and construed in accordance with, the laws of
the State of New York.
/s/M.I. Garcia Cuesta
-----------------------
M.I. Garcia Cuesta
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of March 26, 1997, made by M.I.
Garcia Cuesta ("Borrower") in favor of Penn Octane Corporation, a Delaware
corporation (the "Corporation"), for the benefit of the Corporation.
W I T N E S S E T H:
-------------------
WHEREAS, in connection with the exercise by Borrower of warrants to
purchase 15,000 shares of Common Stock, $0.01 par value, of the Corporation
(the "Common Stock") for $2.50 per share, the Corporation has agreed to accept
$150 in cash and a three-year promissory note dated the date hereof (the
"Promissory Note") from Borrower in the amount of $37,350 bearing interest at
the rate of 8.25% per annum, payable annually, and subject to the terms and
conditions set forth in the Promissory Note; and
WHEREAS, Borrower has agreed to grant a security interest in certain
shares of Common Stock owned by Borrower to secure, equally and ratably, the
prompt and complete payment when due of all Borrower's payment obligations
under the Promissory Note (the "Secured Obligations") and the performance and
observance by Borrower of the covenants, obligations and conditions to be
performed and observed by Borrower pursuant to the Promissory Note;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. Definitions.
-----------
(a) The words "hereof," "herein" and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any par-ticular provision of this Agreement, and section references
are to this Agreement, unless otherwise specified.
(b) Unless otherwise defined herein, all terms defined in Article 8
and 9 of the Uniform Commercial Code in effect as of the date hereof in the
State of New York (the "Uniform Commercial Code") are used herein as therein
defined.
2. Grant of Security Interest.
-----------------------------
(a) To secure the prompt and complete payment when due of all Secured
Obligations, now existing or hereafter arising, and the performance and
observance by Borrower of the covenants, obligations and conditions to be
performed and observed by Borrower pursuant to the Promissory Note, Borrower
hereby assigns and pledges to the Corporation and grants to the Corporation a
con-tinuing security interest in all of its right, title and interest in and
to fifteen thousand (15,000) shares of Common Stock of the Corporation owned
by Borrower (the "Pledged Stock") and the certificates representing such
Pledged Stock, and all dividends, cash, rights, instruments and other property
and all proceeds of every kind thereof (whether the same are now owned or
exist or arise or are acquired before or after the date hereof) from time to
time received, receivable or otherwise distributed in respect of or in
exchange for, any or all of the Pledged Stock (whether the same are now owned
or exist or arise before or after the date hereof) (the Pledged Stock
to-gether with all such certificates, dividends, cash, rights, instruments,
property and proceeds, being here-inafter referred to as the "Pledged Stock
Collateral").
(b) Borrower hereby delivers to the Corporation, duly endorsed in
blank or accompanied by appropriate undated stock powers duly executed in
blank, all certifi-cates or instruments representing or evidencing the Pledged
Stock.
3. Stock Dividends, Distributions, Etc. If, while this Agreement is
-----------------------------------
in effect, Borrower shall become entitled to receive or shall receive any
stock, any stock certificate representing same, options, rights or other
Property (in-cluding, without limitation, any certificate representing a stock
dividend or any distribution in connection with any recapitalization,
reclassification, increase or reduction of capital, or issued in connection
with any reorganization), whether as an addition to, in substitution of, or in
exchange for, any shares of any Pledged Stock Collateral, or otherwise, or any
payment or distribution of capital on account of any Pledged Stock Collateral,
Borrower agrees to accept the same as the Corporation's agent and to hold the
same in trust on behalf of and for the bene-fit of the Corporation and to
deliver the same to the Corporation on or before the close of business on the
second Business Day following the receipt thereof by Borrower, in the exact
form received, with the endorsement of Borrower when necessary or appropriate
undated stock powers duly executed in blank, to be held by the Corporation,
subject to the terms of this Agreement, as ad-ditional Pledged Stock
Collateral and any cash distribution in connection therewith or cash proceeds
therefrom shall be deposited by the Corporation in a segregated account for
Borrower (the "Borrower Collateral Account"), and thereafter disposed of in
accordance with this Agreement.
4. Cash Dividends; Voting Rights. Unless Borrower is in default of his
-----------------------------
payment obligations under the Promissory Note for a period of ten (10) days
after written notice from the Corporation of such default, Borrower shall be
entitled, except as otherwise provided in Section 3, to re-ceive all cash
distributions and cash dividends in respect of the Pledged Stock and to
exercise all voting and other consensual rights pertaining to the Pledged
Stock. Borrower agrees to exercise all such voting and other consensual
rights for a purpose not inconsistent with or violative of the terms of this
Agreement. The Corporation shall not have the right at any time to exercise
any voting rights with respect to the Pledged Stock; provided, however, that
upon the sale or other disposition of the Corporation's interest in the
Pledged Stock or any part thereof, any third party purchaser or other
transferee shall have the full and unrestricted right to vote the Pledged
Stock, in any manner per-mitted by applicable law.
5. Proxies, Etc. The Corporation shall exe-cute and deliver (or cause to
-------------
be executed and delivered) to Borrower all such proxies and other instruments
as Borrower may rea-sonably request for the purpose of enabling Borrower to
exercise the voting or other rights which Borrower is entitled to exercise
pursuant to Section 4 hereof and to receive all distribu-tions and dividends
he is authorized to receive and retain pursuant to Section 4 hereof.
6. Financing Statements. Borrower hereby agrees to execute such financing
--------------------
statements as the Corporation may request, from time to time, with respect to
the Pledged Stock Collateral, and take such action as may be required to
perfect and keep perfected the security interest in the Pledged Stock
Collateral created hereby, and Borrower hereby authorizes the Corporation to
execute as its attorney in fact and file any such financing statements on
Borrower's be-half.
7. Rights of the Corporation. If Borrower is in default of his payment
-------------------------
obligations under the Promissory Note and such default is not cured within a
period of ten (10) days thereafter, or if Borrower shall become insolvent or a
voluntary or uncontroverted involuntary petition shall be filed under the
Federal Bankruptcy Code or other similar Federal or state law dealing with
arrangements for the relief of creditors with respect to Borrower (in each
case, an "Event of Default"), Borrower shall no longer be entitled to receive
any cash divi-dends or distributions in respect of the Pledged Stock or to
exercise any voting rights, rights of conversion, exchange or subscription or
any other rights, privileges or options pertaining to any shares of the
Pledged Stock; and, upon the sale or other disposition of the Corporation's
interest in the Pledged Stock or any part thereof, any third party purchaser
or other transferee shall have the full and unrestricted right to exercise any
and all such rights, privileges or options.
8. Remedies.
--------
(a) If there shall have occurred an Event of Default, the Corporation
may at any time or from time to time exercise in respect of the Pledged Stock
Collat-eral, in addition to all other rights, powers and remedies provided for
in Section 7, at law, in equity or otherwise available to it, all the rights
and remedies of a secured party under the Uniform Commercial Code and under
any other applicable law as in effect in any relevant jurisdiction and, in
connection therewith but not in limita-tion thereof, the Corporation may,
without demand for performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale or other disposition) to Borrower or any other Person (all and each of
which demands, advertisements and notices are hereby expressly waived), sell,
assign, grant an option or options to purchase or otherwise dispose of the
Pledged Stock Collateral or any part thereof in one or more parcels at public
or private sale or sales, at any exchange, bro-ker's board or at any of the
Corporation's offices or elsewhere and at such prices as the Corporation may
deem best, for cash, on credit or for future delivery, with-out assumption of
any credit risk, free of any claim or right of whatsoever kind (including any
right or equity of redemption) of Borrower, which claim, right and equity are
hereby expressly waived and released, and upon such other terms and conditions
as the Corporation may deem commercially reasonable, provided, however, that
-----------------
Borrower shall not be credit-ed with the net proceeds of any such credit sale
or future delivery until the cash proceeds thereof are actually re-ceived by
the Corporation and are applied to the Secured Obligations until satisfied.
(b) Borrower agrees that, to the extent notice of sale or other
disposition shall be required by applicable law, at least ten (10) days'
notice to Borrower of the time and place of any public sale or other
disposition or the time after which any private sale or other intended
disposition may be made. Notice shall constitute reasonable notification
thereof. Notification need not be given to Borrower if it has signed, after
an Event of Default has occurred, a statement renouncing any right to
notification of sale or other intended disposition. The Corporation shall not
be obligated to make any sale or other disposition of Pledged Stock regardless
of notice having been given.
(c) The Corporation may adjourn any public or private sale or other
disposition from time to time by an-nouncement at the time and place fixed
therefor, and such sale or other disposition may, without further notice, be
made at the time and place to which it was so adjourned. The Corporation
shall have the right upon any such public sale or other disposition, to the
extent permitted by applicable law, to purchase the whole or any part of the
Pledged Stock Collateral so sold or disposed of. Any and all proceeds
received by the Corporation in respect of any sale or disposition of,
collection from, or other recovery or reali-zation upon all or any part of the
Pledged Stock, whether con-sisting of moneys, checks, notes, drafts, bills of
exchange, money orders or commercial paper of any kind whatsoever, shall be
deposited by the Corporation in the Borrower Col-lateral Account and shall be
held by the Corporation, to be withdrawn and distributed by the Corporation as
provided herein.
(d) The rights and remedies provided under this Agreement are
cumulative and may be exercised singly or concurrently, and are not exclusive
of any rights and remedies provided by law or equity.
(e) Borrower recognizes that the Corporation may be unable to effect
a public sale of all or a part of the Pledged Stock Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended, or
other federal securities laws, as now or hereafter in ef-fect, or in
applicable Blue Sky or other state securities laws, as now or hereafter in
effect, but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Stock Collateral for their own ac-count, for
investment and not with a view to the distribu-tion or resale thereof.
Borrower agrees that private sales so made may be at prices and on other terms
less favorable to the Corporation than if such Pledged Stock Collateral were
sold at public sale, and that the Corporation has no obliga-tion to delay sale
of any such Pledged Stock Collateral for the period of time necessary to
permit the registration of such Pledged Stock Collateral for public sale under
such applicable secu-rities laws. Borrower agrees that private sales made
under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner.
(f) If the Corporation determines to exercise its right to sell all
or any of the Collateral, upon written request, Borrower shall from time to
time furnish to the Corporation all such information as the Corporation may
request in order to determine the Collateral which may be sold by Borrower as
exempt transactions under the federal securi-ties laws.
(g) The proceeds of the sale of any of the Pledged Stock Collateral
sold pursuant to this Section 8 and cash constituting Pledged Stock Collateral
received under Section 2(a) shall be applied by the Corporation as follows:
FIRST: to the payment of the costs and expenses of such sale,
-----
including the out-of-pocket expenses of the Corporation and the fees and
out-of pocket expenses of legal advisers employed by the Corporation in
connection therewith, and to the payment of all advances made by the
Corporation hereunder and payment of all costs and expenses incurred by the
Corporation in connection with the administration and enforcement of this
Agreement;
SECOND: to the payment in full of the Promissory Note; and
------
THIRD: the balance (if any) of such proceeds to Borrower, the
-----
successors or assigns of Borrower, or as a court of competent jurisdiction may
direct.
9. Representations; No Disposition, Etc. Borrower hereby represents and
-------------------------------------
warrants that it now owns good and marketable title to the Pledged Stock, free
and clear of any liens, charges, encumbrances or security interests of any
kind whatsoever, and that the Pledged Stock is not subject to any restriction
on alienation or transfer, in each case, other than this Agreement. Borrower
covenants to defend the right, title and special property of Borrower in and
to the Pledged Stock against the claims and demands of all persons whatsoever.
Borrower hereby represents, warrants and covenants that Borrower is currently,
or shall be, the only owner of the Pledged Stock and that Borrower does not,
and will not have, outstanding rights, options, warrants, conversion rights or
other commitments or agreements for the purchase or acquisition of the Pledged
Stock. Borrower agrees that he will not sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option or right with respect to, the
Pledged Stock Col-lateral, nor will it create, incur or permit to exist any
lien, security interest therein, charge or encumbrance with respect to any of
the Pledged Stock Collateral, any interest, or any pro-ceeds thereof except as
permitted by this Agreement.
10. Possession of the Collateral. The Corporation shall hold in its
-----------------------------
possession in the State of California all the Pledged Stock and all other
certificates, documents or instruments constituting Pledged Stock Collateral
pledged, assigned or transferred hereunder except as from time to time any
such certificate, document or instrument may be required for re-cordation or
for the purpose of enforcing or realizing upon any right or value thereby
represented; provided, however, that Borrower, in his capacity as an officer
of the Corporation or otherwise, shall have no ability to assign, release,
transfer or otherwise deal with the Pledged Stock Collateral. The Corporation
may, from time to time, in its sole discretion appoint one or more agents or
trustees (which in no case shall be Borrower or any of his affiliates) to hold
physical custody, for the account of the Corporation, of any or all such
certificates, documents or in-struments.
11. Collateral Agreement. Each of Borrower and the Corporation agrees that
--------------------
the parties hereto may supplement, amend or supersede this Agreement with a
collateral agreement among the Corporation, Borrower and a third party bank,
as trustee, pursuant to which such third party bank shall accept and maintain
possession of the Pledged Stock Collateral until such time as the Secured
Obligations shall have been satisfied.
12. Further Assurance. Borrower agrees that at any time and from time
-----------------
upon the written request of the Corporation, Borrower will execute and deliver
such further documents, including a collateral agreement appointing a trustee
other than the Corporation and any necessary financing statements, and do or
cause to be done such further acts and things as the Corporation may
reasonably request in order to effect the purposes of this Agreement.
13. Release of Security Interest. Upon termination of this Agreement
----------------------------
pursuant to Section 17 hereof, the security interest granted hereby shall
terminate. Upon any such termination, the Corporation will, at Borrower's
expense, execute and deliver to Borrower such documents as Borrower shall
reasonably request to evidence such termination including, without limitation,
duly executed Uniform Commercial Code termination statements.
14. Limitation by Law; Severability.
----------------------------------
(a) All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Agreement are
intend-ed to be subject to all applicable mandatory provisions of law which
may be controlling and to be limited to the extent necessary so that they will
not render this Agreement ille-gal, invalid, unenforceable, in whole or in
part, or not entitled to be recorded, registered, or filed under the
pro-visions of any applicable law.
(b) Any provision of this Agreement which is pro-hibited or
unenforceable in any jurisdiction shall not in-validate the remaining
provisions hereof, and any such pro-hibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
15. Waivers, Amendments. None of the terms or provisions of this
--------------------
Agreement may be waived, altered, modified or amended by any act, delay,
omission or otherwise, except by an instrument in writing which is duly
executed by Borrower and the Corporation. Any such waiver, alteration,
modification or amendment shall be valid only to the extent therein set forth.
A waiver by the Corporation of any right or remedy under this Agreement on any
one occasion shall not be construed as a bar to any right, remedy or power
which the Corporation would otherwise have on any future occasion. No failure
to exercise nor any delay in exercis-ing on the part of the Corporation, any
right, remedy or power under this Agreement, shall operate as a waiver
thereof; further, no single or partial exercise of any right, remedy or power
under this Agreement shall preclude any other or further exercise thereof or
the exercise of any other right, remedy or power.
16. Binding Effect; Successors and Assigns. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of the parties hereto and shall inure to
the benefit of the Corporation its successors and assigns and nothing herein
is intended or shall be construed to give any other Person any right, remedy
or claim under, to or in respect of this Agreement or any Pledged Stock
Collateral.
17. Termination of This Agreement. This Agreement shall terminate
--------------------------------
simultaneously with the payment in full of all principal and interest due
under the Promissory Note and, upon such termination, any Pledged Stock
Collateral held hereunder shall be released and delivered to Borrower or at
his direction.
18. Notices. All notices or other communications hereunder shall be given
-------
in the following manner.
If to the Corporation:
Penn Octane Corporation
900 Veterans Boulevard
Redwood City, California 94063
Attention: Chief Financial Officer
If to Borrower:
Jerome B. Richter
Penn Octane Corporation
900 Veterans Boulevard
Redwood City, California 94063
Any of the addresses set forth above may be changed from time to time by
written notice from the party requesting the change.
19. Applicable Law. This Agreement shall be gov-erned by, and be
---------------
construed and interpreted in accordance with, the internal laws of the State
of New York without reference to principles of conflict of laws, except as
re-quired by mandatory provisions of law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have execut-ed this Agreement or
caused this Agreement to be duly exe-cuted and delivered by their duly
authorized officers as of the date first above written.
BORROWER
/s/M.I. Garcia Cuesta
-----------------------
M.I. Garcia Cuesta
PENN OCTANE CORPORATION
By /s/J.B. Richter
----------------
Name: J.B. Richter
Title: President
REAL ESTATE LIEN NOTE
Date: April 9, 1997
Maker: Penn Octane Corporation
Maker's Mailing Address (including County):
5847 San Felipe Suite 3420
Houston, Texas 77057
Harris County, Texas
Payee: Lauren Constructors, Inc.
Place for Payment: (including county):
P.O. Box 1761
Abilene, Texas 79604-1761
Taylor County, Texas
Principal Amount: One Hundred Eighteen Thousand Two Hundred Forty-six and
84/100ths Dollars ($118,246.84)
Annual Interest Rate on Unpaid Principal from Date: Twelve Percent (12%)
Annual Interest Rate on Matured, Unpaid Amounts: Eighteen Percent (18%) or the
maximum rate allowed by state and federal law, whichever is lower.
Terms of Payment (principal and interest): Principal and interest shall be
due and payable in monthly installments of Thirty Thousand Three Hundred
Seventy-five and no/100ths Dollars ($30,375.00) or more each, payable on the
fifteenth (15th) calendar day of each and every calendar month, beginning on
May 15, 1997, and continuing regularly thereafter until August 15, 1997 on
which last mentioned date the entire unpaid balance of principal and interest
then owing shall become immediately due and payable. Each installment will be
applied first to payment of accrued interest payable on the unpaid principal,
and the remainder will be applied to reduction of principal.
Interest shall be calculated on the unpaid principal to the date of each
installment. Each payment will be credited first to the accrued interest and
then to reduction of principal.
Security for payment: A Deed of Trust of even date herewith from Maker to
Kelly Gill, Trustee, which covers the following described property to-wit:
Maker's leasehold interest in two tracts of land in Cameron County, Texas more
particularly described on Exhibit A attached hereto.
This note is additionally secured by a security interest created in a security
agreement that covers personal property and that is of even date herewith and
executed by Maker, Penn Octane Corporation as the Debtor in favor of the Payee
as the Secured Party.
Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
If Maker defaults in the payment of this note or in the performance of any
obligation in any instrument securing or collateral to it, and the default
continues after Payee gives Maker notice of the default and the time within
which it must be cured, as may be required by law or by written agreement,
then Payee may declare the unpaid principal balance and earned interest on
this note immediately due. Maker and each surety, endorser, and guarantor
waive all demands for payment, presentations for payment, notices of intention
to accelerate maturity, notices of acceleration of maturity, protests, and
notices of protest, to the extent permitted by law.
If this note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection
or enforcement, or if it is collected or enforced through probate, bankruptcy,
or other judicial proceeding, then Maker shall pay Payee all costs of
collection and enforcement, including reasonable attorney's fees and court
costs, in addition to other amounts due. Reasonable attorney's fees shall be
10% of all amounts due unless either party pleads otherwise.
Interest on the debt evidenced by this note 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 on the principal of the debt or, if that has been paid,
refunded. On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or prepayment
or, if already paid, credited on the principal of the debt or, if the
principal of the debt has been paid, refunded. This provision overrides other
provisions in this and all other instruments concerning the debt.
Each Maker is responsible for all obligations represented by this note.
When the context requires, singular nouns and pronouns include the plural.
BALLOON WARNING
This loan is payable in full at maturity. You must repay the entire principal
balance of the loan and unpaid interest then due. The lender is under no
obligation to refinance the loan at that time. You will, therefore, be
required to make payment out of other assets that you may own, or you will
have to find another lender, which may be the lender you have this loan with,
willing to lend you the money. If you refinance this loan at maturity, you may
have to pay some or all of the closing costs normally associated with a new
loan even if you obtain refinancing from the same lender.
THIS NOTE AND THE INSTRUMENTS BEING EXECUTED ALONG WITH IT REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Penn Octane Corporation
BY: /S/ JEROME B. RICHTER
---------------------
JEROME B. RICHTER
ITS: PRESIDENT
---------------------
Prepared by:
FLEMING, HEWITT & OLVERA
1175 F. M. 802
Brownsville, Texas 78521
File No: 961159
DEED OF TRUST
Date: April 9, 1997
Grantor: Penn Octane Corporation
Grantor's Mailing Address (including county):
5847 San Felipe Suite 3420
Houston, Texas 77057
Harris County, Texas
Trustee: Kelly Gill
Trustee's Mailing Address (including county):
P.O. Box 1761
Abilene, Texas 79604-1761
Taylor County, Texas
Beneficiary: Lauren Constructors, Inc.
Beneficiary's Mailing Address (including county):
P.O. Box 1761
Abilene, Texas 79604-1761
Taylor County, Texas
Note(s)
Date: April 9, 1997
Amount: One Hundred Eighteen Thousand Two Hundred Forty-six and
84/100ths Dollars ($118,246.84)
Maker: Penn Octane Corporation
Payee: Lauren Constructors, Inc.
Final Maturity Date: August 15, 1997
Terms of Payment: As provided in the Note(s).
Property (including any improvements): Grantor's leasehold interest in two
tracts of land in Cameron County, Texas described on Exhibit A.
Prior Lien(s) (including recording information): None
Other Exceptions to Conveyance and Warranty: Easements and restrictions of
record.
For value received and to secure payment of the note, Grantor conveys the
property to Trustee in trust. Grantor warrants and agrees to defend title to
the property. If Grantor performs all the covenants and pays the note
according to its terms, this deed of trust shall have no further effect, and
Beneficiary shall release it at Grantor's expense.
GRANTOR'S OBLIGATIONS
Grantor agrees to:
1. keep the property in good repair and condition;
2. pay all taxes and assessments on the property when due;
3. preserve the lien's priority as it is established in this deed of
trust;
4. maintain, in a form acceptable to Beneficiary, an insurance
policy that:
a. covers all improvements for their full insurable value as
determined when the policy is issued and renewed, unless
Beneficiary approves a smaller amount in writing;
b. contains an 80% coinsurance clause;
c. provides fire and extended coverage, including windstorm
coverage;
d. protects Beneficiary with a standard mortgage clause;
e. provides flood insurance at any time the property is in a
flood hazard area; and
f. contains such other coverage as Beneficiary may reasonably
require;
5. comply at all times with the requirements of the 80% coinsurance
clause;
6. deliver the insurance policy to Beneficiary and deliver renewals
to Beneficiary at least ten days before expiration;
7. keep any building occupied as required by the insurance policy;
and
8. if this is not a first lien, pay all prior lien notes that
Grantor is personally liable to pay and abide by all prior lien
instruments.
9. Furnish to noteholder by February 1st of each year, the paid tax
receipts for the preceding year. Failure to furnish paid tax
receipts shall constitute default hereunder.
BENEFICIARY'S RIGHTS
1. Beneficiary may appoint in writing a substitute or successor trustee,
succeeding to all rights and responsibilities of Trustee.
2. If the proceeds of the note are used to pay any debt secured by prior
liens, Beneficiary is subrogated to all of the rights and liens of the holders
of any debt so paid.
3. Beneficiary may apply any proceeds received under the insurance policy
either to reduce the note or to repair or replace damaged or destroyed
improvements covered by the policy.
4. If Grantor fails to perform any of Grantor's obligations, Beneficiary
may perform those obligations and be reimbursed by Grantor on demand at the
place where the note is payable for any sums so paid, including attorney's
fees, 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 this deed of trust.
5. If Grantor defaults on the note or fails to perform any of Grantor's
obligations or if default occurs on a prior lien note or other instrument, and
the default continues after Beneficiary gives Grantor notice of default and
the time within which it must be cured, as may be required by law or by
written agreement, then Beneficiary may:
a. declare the unpaid principal balance and earned interest on the
note immediately due;
b. request Trustee to foreclose this lien, in which case Beneficiary
or Beneficiary's agent shall give notice of the foreclosure sale as provided
by the Texas Property Code, as then amended; and
c. purchase the property at any foreclosure sale by offering the
highest bid and then have the bid credited on the note.
TRUSTEE'S DUTIES
If requested by Beneficiary to foreclose this lien, Trustee shall:
1. either personally or by agent give notice of the foreclosure sale
as required by the Texas Property Code, as then amended;
2. sell and convey all or part of the property to the highest bidder
for cash with a general warranty deed binding Grantor, subject to prior liens
and to other exceptions to conveyance and warranty;
3. from the proceeds of the sale, pay in this order:
a. expenses of foreclosure, including a commission to Trustee
of 5% of the bid;
b. to Beneficiary, the full amount of principal, interest,
attorney's fees, and other charges due and unpaid;
c. any amounts required by law to be paid before payment to
Grantor; and
d. to Grantor, any balance.
GENERAL PROVISIONS
1. If any of the property is sold under this deed of trust, Grantor shall
immediately surrender possession to the purchaser. If Grantor fails to do so,
Grantor shall become a tenant at sufferance of the purchaser, subject to an
action for forcible detainer.
2. Recitals in any Trustee's deed conveying the property will be presumed
to be true.
3. Proceeding under this deed of trust, filing suit for foreclosure, or
pursuing any other remedy will not constitute an election of remedies.
4. This lien shall remain superior to liens later created even if the
time of payment of all or part of the note is extended or part of the property
is released.
5. If any portion of the note cannot be lawfully secured by this deed of
trust, payments shall be applied first to discharge that portion.
6. Grantor assigns to Beneficiary all sums payable to or received by
Grantor from condemnation of all or part of the property, from private sale in
lieu of condemnation, and from damages caused by public works or construction
on or near the property. After deducting any expenses incurred, including
attorney's fees, Beneficiary may release any remaining sums to Grantor or
apply such sums to reduce the note. Beneficiary shall not be liable for
failure to collect or to exercise diligence in collecting any such sums.
7. Grantor assigns to Beneficiary absolutely, not only as collateral, all
present and future rent and other income and receipts from the property.
Leases are not assigned. Grantor warrants the validity and enforceability of
the assignment. Grantor may as Beneficiary's licensee collect rent and other
income and receipts as long as Grantor is not in default under the note or
this deed of trust. Grantor will apply all rent and other income and receipt
to payment of the note and performance of this deed of trust, but if the rent
and other income and receipts exceed the amount due under the note and deed of
trust, Grantor may retain the excess. If Grantor defaults in payment of the
note or performance of this deed of trust, Beneficiary may terminate Grantor's
license to collect and then as Grantor's agent may rent the property if it is
vacant and collect all rent and other income and receipts. Beneficiary neither
has nor assumes any other obligations as lessor or landlord with respect to
any occupant of the property. Beneficiary may exercise Beneficiary's rights
and remedies under this paragraph without taking possession of the property.
Beneficiary shall apply all rent and other income and receipts collected under
this paragraph first to expenses incurred in exercising Beneficiary's rights
and remedies and then to Grantor's obligations under the note and this deed of
trust in the order determined by Beneficiary. Beneficiary is not required to
act under this paragraph, and acting under this paragraph does not waive any
of Beneficiary's other rights or remedies. If Grantor becomes a voluntary or
involuntary bankrupt, Beneficiary's filing a proof of claim in bankruptcy will
be tantamount to the appointment of a receiver under Texas law.
8. Interest on the debt secured by this deed of trust 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 on the principal of the debt, or if that has
been paid, refunded. On any acceleration or required or permitted prepayment,
any such excess shall be canceled automatically as of the acceleration or
prepayment or, if already paid, credited on the principal of the debt or, if
the principal of the debt has been paid, refunded. This provision overrides
other provisions in this and all other instruments concerning the debt.
9. When the context requires, singular nouns and pronouns include the
plural.
10. The term "note" includes all sums secured by this deed of trust.
11. This deed of trust shall bind, inure to the benefit of, and be
exercised by successors in interest of all parties.
12. If Grantor and Maker are not the same person, the term "Grantor"
shall include Maker.
13. Grantor represents that this deed of trust and the note are given for
the following purposes:
The note is given in full satisfaction of any amounts that Grantor owes to
Thomas G. Janik & Associates, Inc. as evidenced by an Affidavit for Mechanic's
and Materialman's Lien dated May 9, 1994 and recorded in Volume 2894, Page
142, of the Official Records of Cameron County, Texas.
The note is given in full satisfaction of any amounts Grantor owes to Lauren
Constructors, Inc. as evidenced by an Affidavit of Mechanic's and
Materialman's Lien dated May 19, 1994 and recorded in Volume 2912, Page 112,
of the Official Records of Cameron County, Texas.
Penn Octane Corporation
BY: /S/ JEROME B. RICHTER ITS: PRESIDENT
--------------------- ----------------------
JEROME B. RICHTER
(ACKNOWLEDGMENT)
State of California
County of San Mateo
This instrument was acknowledged before me on the 9th day of
April, 1997, by, Jerome B. Richter, President of Penn Octane Corporation on
behalf of Penn Octane Corporation.
/S/ R. SMITH
---------------------------------
R. SMITH
Notary Public, State of California
[NOTARY SEAL]
AFTER RECORDING RETURN TO: PREPARED BY:
FLEMING, HEWITT & OLVERA FLEMING, HEWITT & OLVERA
1175 F. M. 802 1175 F. M. 802
Brownsville, Texas 78521 Brownsville, Texas 78521
File Number: 961159
SECURITY AGREEMENT
Date: April 9, 1997
Debtor: Penn Octane Corporation
Debtor's Mailing Address:
5847 San Felipe Suite 3420
Houston, Texas 77057
Secured Party: Lauren Constructors, Inc.
Secured Party's Mailing Address:
P.O. Box 1761
Abilene, Texas 79604-1761
Taylor County, Texas
Classification of Collateral: general intangibles
Collateral (including all accessions):
all of the interest of Debtors in any and all funds received from litigation,
arbitration, and/or settlement regarding claims against International Bank of
Commerce, less attorney's fees, costs and expenses and any amounts due to
International Bank of Commerce.
Obligation:
Note:
Date: April 9, 1997
Amount: One Hundred Eighteen Thousand Two Hundred Forty-six and
84/100ths Dollars ($118,246.84)
Maker: Penn Octane Corporation
Payee: Lauren Constructors, Inc.
Final Maturity Date: August 15, 1997
Terms of Payment: (optional):
Other Obligation:
Debtor's Representation Concerning Location of Collateral (optional):
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. Except for that in favor of Secured Party, no
financing statement covering the collateral is filed in any public office.
2. Ownership. Debtor owns the collateral and has the authority to
grant this security interest. Ownership is free from any setoff, claim,
restrictions, lien, security interest, or encumbrance except this security
interest and liens for taxes not yet due.
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 other wise provided in this
agreement. Debtor will maintain the collateral in good condition and protect
it against misuse, abuse, waste, and deterioration except for ordinary wear
and tear resulting from its intended use.
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 attorney's 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 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 premium;
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 attorney's 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 waiving it.
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 attorney's 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 this 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:
Addendum relating to instruments
Penn Octane Corporation
BY: /S/ JEROME B. RICHTER ITS: PRESIDENT
--------------------- ----------------------
JEROME B. RICHTER
(ACKNOWLEDGMENT)
State of California
County of San Mateo
This instrument was acknowledged before me on the 9th day of
April, 1997, by, Jerome B. Richter, President of Penn Octane Corporation on
behalf of Penn Octane Corporation.
/S/ R. SMITH
---------------------------------
R. SMITH
Notary Public, State of California
[NOTARY SEAL]
PREPARED BY:
FLEMING, HEWITT & OLVERA
File Number: 961159
PROMISSORY NOTE
---------------
$2,728,000.00 New York, New York
April 11, 1997
FOR VALUE RECEIVED, Jerome B. Richter, an individual residing at 26280
Dori Lane, Los Altos Hills, California 94022 (the "Borrower"), hereby promises
to pay to the order of Penn Octane Corporation, a Delaware corporation (the
"Lender"), at its offices located at 900 Veterans Boulevard, Redwood City,
California 94063, or at such other place as the Lender shall designate, the
principal amount of Two Million Seven Hundred and Twenty Eight Thousand
Dollars ($2,728,000.00) on April 11, 2000. The Borrower shall pay interest on
the unpaid principal amount hereof from the date hereof until paid, at a rate
of eight and one quarter percent (8.25%) per annum, to be paid annually in
arrears on each April 11 commencing April 11, 1998 and ending on April 11,
2000.
Should the indebtedness represented by this Promissory Note or any part
thereof be collected at law or in equity or in bankruptcy, receivership or
other similar court proceedings or this Promissory Note be placed in the hands
of attorneys for collection before or after maturity, the Borrower, its
successors and assigns, agree to pay, in addition to the principal and
interest due and payable hereon, reasonable attorneys' and collection fees.
If the Borrower shall fail to make payment of any installment of interest
on this Promissory Note when due, and if such default is not cured within ten
(10) days thereafter, or if the Borrower shall become insolvent or a voluntary
or uncontroverted petition shall be filed under the Federal Bankruptcy Code or
other similar Federal or state law dealing with arrangements for the relief of
creditors with respect to the Borrower (in each case, an "Event of Default"),
and in any such event, the holder shall have the right without notice to the
Borrower to declare this Promissory Note with accrued interest hereon to be
immediately due and payable (whether or not then due by the stated terms
hereof), whereupon the same shall become and be immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrower.
This Note is secured by and entitled to the benefits of a Pledge and
Security Agreement dated the date hereof pursuant to which Borrower's
obligations hereunder are secured by one million (1,000,000) shares of Common
Stock, $0.01 par value, of the Lender owned by Borrower.
No waiver by the holder of any breach of any covenant of the Borrower
herein contained or any term or condition hereof shall be construed as a
waiver of any subsequent breach of the same or of any other covenant, term or
condition herein.
This Promissory Note shall be deemed to have been made under, and in all
respects shall be governed by and construed in accordance with, the laws of
the State of New York.
/s/J.B. Richter
----------------
Jerome B. Richter
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of April 11, 1997, made by Jerome
B. Richter ("Borrower") in favor of Penn Octane Corporation, a Delaware
corporation (the "Corporation"), for the benefit of the Corporation.
W I T N E S S E T H:
-------------------
WHEREAS, in connection with the exercise by Borrower of warrants to
purchase 2,200,000 shares of Common Stock, $0.01 par value, of the Corporation
(the "Common Stock") for $1.25 per share, the Corporation has agreed to accept
$22,000 in cash and a three-year promissory note dated the date hereof (the
"Promissory Note") from Borrower in the amount of $2,728,000 bearing interest
at the rate of 8.25% per annum, payable annually, and subject to the terms and
conditions set forth in the Promissory Note; and
WHEREAS, Borrower has agreed to grant a security interest in certain
shares of Common Stock owned by Borrower to secure, equally and ratably, the
prompt and complete payment when due of all Borrower's payment obligations
under the Promissory Note (the "Secured Obligations") and the performance and
observance by Borrower of the covenants, obligations and conditions to be
performed and observed by Borrower pursuant to the Promissory Note;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. Definitions.
-----------
(a) The words "hereof," "herein" and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any par-ticular provision of this Agreement, and section references
are to this Agreement, unless otherwise specified.
(b) Unless otherwise defined herein, all terms defined in Article 8
and 9 of the Uniform Commercial Code in effect as of the date hereof in the
State of New York (the "Uniform Commercial Code") are used herein as therein
defined.
2. Grant of Security Interest.
-----------------------------
(a) To secure the prompt and complete payment when due of all Secured
Obligations, now existing or hereafter arising, and the performance and
observance by Borrower of the covenants, obligations and conditions to be
performed and observed by Borrower pursuant to the Promissory Note, Borrower
hereby assigns and pledges to the Corporation and grants to the Corporation a
con-tinuing security interest in all of its right, title and interest in and
to one million (1,000,000) shares of Common Stock of the Corporation owned by
Borrower (the "Pledged Stock") and the certificates representing such Pledged
Stock, and all dividends, cash, rights, instruments and other property and all
proceeds of every kind thereof (whether the same are now owned or exist or
arise or are acquired before or after the date hereof) from time to time
received, receivable or otherwise distributed in respect of or in exchange
for, any or all of the Pledged Stock (whether the same are now owned or exist
or arise before or after the date hereof) (the Pledged Stock to-gether with
all such certificates, dividends, cash, rights, instruments, property and
proceeds, being here-inafter referred to as the "Pledged Stock Collateral").
(b) Borrower hereby delivers to the Corporation, duly endorsed in
blank or accompanied by appropriate undated stock powers duly executed in
blank, all certifi-cates or instruments representing or evidencing the Pledged
Stock.
3. Stock Dividends, Distributions, Etc. If, while this Agreement is
-----------------------------------
in effect, Borrower shall become entitled to receive or shall receive any
stock, any stock certificate representing same, options, rights or other
Property (in-cluding, without limitation, any certificate representing a stock
dividend or any distribution in connection with any recapitalization,
reclassification, increase or reduction of capital, or issued in connection
with any reorganization), whether as an addition to, in substitution of, or in
exchange for, any shares of any Pledged Stock Collateral, or otherwise, or any
payment or distribution of capital on account of any Pledged Stock Collateral,
Borrower agrees to accept the same as the Corporation's agent and to hold the
same in trust on behalf of and for the bene-fit of the Corporation and to
deliver the same to the Corporation on or before the close of business on the
second Business Day following the receipt thereof by Borrower, in the exact
form received, with the endorsement of Borrower when necessary or appropriate
undated stock powers duly executed in blank, to be held by the Corporation,
subject to the terms of this Agreement, as ad-ditional Pledged Stock
Collateral and any cash distribution in connection therewith or cash proceeds
therefrom shall be deposited by the Corporation in a segregated account for
Borrower (the "Borrower Collateral Account"), and thereafter disposed of in
accordance with this Agreement.
4. Cash Dividends; Voting Rights. Unless Borrower is in default of his
-----------------------------
payment obligations under the Promissory Note for a period of ten (10) days
after written notice from the Corporation of such default, Borrower shall be
entitled, except as otherwise provided in Section 3, to re-ceive all cash
distributions and cash dividends in respect of the Pledged Stock and to
exercise all voting and other consensual rights pertaining to the Pledged
Stock. Borrower agrees to exercise all such voting and other consensual
rights for a purpose not inconsistent with or violative of the terms of this
Agreement. The Corporation shall not have the right at any time to exercise
any voting rights with respect to the Pledged Stock; provided, however, that
upon the sale or other disposition of the Corporation's interest in the
Pledged Stock or any part thereof, any third party purchaser or other
transferee shall have the full and unrestricted right to vote the Pledged
Stock, in any manner per-mitted by applicable law.
5. Proxies, Etc. The Corporation shall exe-cute and deliver (or cause to
-------------
be executed and delivered) to Borrower all such proxies and other instruments
as Borrower may rea-sonably request for the purpose of enabling Borrower to
exercise the voting or other rights which Borrower is entitled to exercise
pursuant to Section 4 hereof and to receive all distribu-tions and dividends
he is authorized to receive and retain pursuant to Section 4 hereof.
6. Financing Statements. Borrower hereby agrees to execute such financing
--------------------
statements as the Corporation may request, from time to time, with respect to
the Pledged Stock Collateral, and take such action as may be required to
perfect and keep perfected the security interest in the Pledged Stock
Collateral created hereby, and Borrower hereby authorizes the Corporation to
execute as its attorney in fact and file any such financing statements on
Borrower's be-half.
7. Rights of the Corporation. If Borrower is in default of his payment
-------------------------
obligations under the Promissory Note and such default is not cured within a
period of ten (10) days thereafter, or if Borrower shall become insolvent or a
voluntary or uncontroverted involuntary petition shall be filed under the
Federal Bankruptcy Code or other similar Federal or state law dealing with
arrangements for the relief of creditors with respect to Borrower (in each
case, an "Event of Default"), Borrower shall no longer be entitled to receive
any cash divi-dends or distributions in respect of the Pledged Stock or to
exercise any voting rights, rights of conversion, exchange or subscription or
any other rights, privileges or options pertaining to any shares of the
Pledged Stock; and, upon the sale or other disposition of the Corporation's
interest in the Pledged Stock or any part thereof, any third party purchaser
or other transferee shall have the full and unrestricted right to exercise any
and all such rights, privileges or options.
8. Remedies.
--------
(a) If there shall have occurred an Event of Default, the Corporation
may at any time or from time to time exercise in respect of the Pledged Stock
Collat-eral, in addition to all other rights, powers and remedies provided for
in Section 7, at law, in equity or otherwise available to it, all the rights
and remedies of a secured party under the Uniform Commercial Code and under
any other applicable law as in effect in any relevant jurisdiction and, in
connection therewith but not in limita-tion thereof, the Corporation may,
without demand for performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale or other disposition) to Borrower or any other Person (all and each of
which demands, advertisements and notices are hereby expressly waived), sell,
assign, grant an option or options to purchase or otherwise dispose of the
Pledged Stock Collateral or any part thereof in one or more parcels at public
or private sale or sales, at any exchange, bro-ker's board or at any of the
Corporation's offices or elsewhere and at such prices as the Corporation may
deem best, for cash, on credit or for future delivery, with-out assumption of
any credit risk, free of any claim or right of whatsoever kind (including any
right or equity of redemption) of Borrower, which claim, right and equity are
hereby expressly waived and released, and upon such other terms and conditions
as the Corporation may deem commercially reasonable, provided, however, that
-----------------
Borrower shall not be credit-ed with the net proceeds of any such credit sale
or future delivery until the cash proceeds thereof are actually re-ceived by
the Corporation and are applied to the Secured Obligations until satisfied.
(b) Borrower agrees that, to the extent notice of sale or other
disposition shall be required by applicable law, at least ten (10) days'
notice to Borrower of the time and place of any public sale or other
disposition or the time after which any private sale or other intended
disposition may be made. Notice shall constitute reasonable notification
thereof. Notification need not be given to Borrower if it has signed, after
an Event of Default has occurred, a statement renouncing any right to
notification of sale or other intended disposition. The Corporation shall not
be obligated to make any sale or other disposition of Pledged Stock regardless
of notice having been given.
(c) The Corporation may adjourn any public or private sale or other
disposition from time to time by an-nouncement at the time and place fixed
therefor, and such sale or other disposition may, without further notice, be
made at the time and place to which it was so adjourned. The Corporation
shall have the right upon any such public sale or other disposition, to the
extent permitted by applicable law, to purchase the whole or any part of the
Pledged Stock Collateral so sold or disposed of. Any and all proceeds
received by the Corporation in respect of any sale or disposition of,
collection from, or other recovery or reali-zation upon all or any part of the
Pledged Stock, whether con-sisting of moneys, checks, notes, drafts, bills of
exchange, money orders or commercial paper of any kind whatsoever, shall be
deposited by the Corporation in the Borrower Col-lateral Account and shall be
held by the Corporation, to be withdrawn and distributed by the Corporation as
provided herein.
(d) The rights and remedies provided under this Agreement are
cumulative and may be exercised singly or concurrently, and are not exclusive
of any rights and remedies provided by law or equity.
(e) Borrower recognizes that the Corporation may be unable to effect
a public sale of all or a part of the Pledged Stock Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended, or
other federal securities laws, as now or hereafter in ef-fect, or in
applicable Blue Sky or other state securities laws, as now or hereafter in
effect, but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Stock Collateral for their own ac-count, for
investment and not with a view to the distribu-tion or resale thereof.
Borrower agrees that private sales so made may be at prices and on other terms
less favorable to the Corporation than if such Pledged Stock Collateral were
sold at public sale, and that the Corporation has no obliga-tion to delay sale
of any such Pledged Stock Collateral for the period of time necessary to
permit the registration of such Pledged Stock Collateral for public sale under
such applicable secu-rities laws. Borrower agrees that private sales made
under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner.
(f) If the Corporation determines to exercise its right to sell all
or any of the Collateral, upon written request, Borrower shall from time to
time furnish to the Corporation all such information as the Corporation may
request in order to determine the Collateral which may be sold by Borrower as
exempt transactions under the federal securi-ties laws.
(g) The proceeds of the sale of any of the Pledged Stock Collateral
sold pursuant to this Section 8 and cash constituting Pledged Stock Collateral
received under Section 2(a) shall be applied by the Corporation as follows:
FIRST: to the payment of the costs and expenses of such sale,
-----
including the out-of-pocket expenses of the Corporation and the fees and
out-of pocket expenses of legal advisers employed by the Corporation in
connection therewith, and to the payment of all advances made by the
Corporation hereunder and payment of all costs and expenses incurred by the
Corporation in connection with the administration and enforcement of this
Agreement;
SECOND: to the payment in full of the Promissory Note; and
------
THIRD: the balance (if any) of such proceeds to Borrower, the
-----
successors or assigns of Borrower, or as a court of competent jurisdiction may
direct.
9. Representations; No Disposition, Etc. Borrower hereby represents and
-------------------------------------
warrants that it now owns good and marketable title to the Pledged Stock, free
and clear of any liens, charges, encumbrances or security interests of any
kind whatsoever, and that the Pledged Stock is not subject to any restriction
on alienation or transfer, in each case, other than this Agreement. Borrower
covenants to defend the right, title and special property of Borrower in and
to the Pledged Stock against the claims and demands of all persons whatsoever.
Borrower hereby represents, warrants and covenants that Borrower is currently,
or shall be, the only owner of the Pledged Stock and that Borrower does not,
and will not have, outstanding rights, options, warrants, conversion rights or
other commitments or agreements for the purchase or acquisition of the Pledged
Stock. Borrower agrees that he will not sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option or right with respect to, the
Pledged Stock Col-lateral, nor will it create, incur or permit to exist any
lien, security interest therein, charge or encumbrance with respect to any of
the Pledged Stock Collateral, any interest, or any pro-ceeds thereof except as
permitted by this Agreement.
10. Possession of the Collateral. The Corporation shall hold in its
-----------------------------
possession in the State of California all the Pledged Stock and all other
certificates, documents or instruments constituting Pledged Stock Collateral
pledged, assigned or transferred hereunder except as from time to time any
such certificate, document or instrument may be required for re-cordation or
for the purpose of enforcing or realizing upon any right or value thereby
represented; provided, however, that Borrower, in his capacity as an officer
of the Corporation or otherwise, shall have no ability to assign, release,
transfer or otherwise deal with the Pledged Stock Collateral. The Corporation
may, from time to time, in its sole discretion appoint one or more agents or
trustees (which in no case shall be Borrower or any of his affiliates) to hold
physical custody, for the account of the Corporation, of any or all such
certificates, documents or in-struments.
11. Collateral Agreement. Each of Borrower and the Corporation agrees that
--------------------
the parties hereto may supplement, amend or supersede this Agreement with a
collateral agreement among the Corporation, Borrower and a third party bank,
as trustee, pursuant to which such third party bank shall accept and maintain
possession of the Pledged Stock Collateral until such time as the Secured
Obligations shall have been satisfied.
12. Further Assurance. Borrower agrees that at any time and from time
-----------------
upon the written request of the Corporation, Borrower will execute and deliver
such further documents, including a collateral agreement appointing a trustee
other than the Corporation and any necessary financing statements, and do or
cause to be done such further acts and things as the Corporation may
reasonably request in order to effect the purposes of this Agreement.
13. Release of Security Interest. Upon termination of this Agreement
----------------------------
pursuant to Section 17 hereof, the security interest granted hereby shall
terminate. Upon any such termination, the Corporation will, at Borrower's
expense, execute and deliver to Borrower such documents as Borrower shall
reasonably request to evidence such termination including, without limitation,
duly executed Uniform Commercial Code termination statements.
14. Limitation by Law; Severability.
----------------------------------
(a) All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Agreement are
intend-ed to be subject to all applicable mandatory provisions of law which
may be controlling and to be limited to the extent necessary so that they will
not render this Agreement ille-gal, invalid, unenforceable, in whole or in
part, or not entitled to be recorded, registered, or filed under the
pro-visions of any applicable law.
(b) Any provision of this Agreement which is pro-hibited or
unenforceable in any jurisdiction shall not in-validate the remaining
provisions hereof, and any such pro-hibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
15. Waivers, Amendments. None of the terms or provisions of this
--------------------
Agreement may be waived, altered, modified or amended by any act, delay,
omission or otherwise, except by an instrument in writing which is duly
executed by Borrower and the Corporation. Any such waiver, alteration,
modification or amendment shall be valid only to the extent therein set forth.
A waiver by the Corporation of any right or remedy under this Agreement on any
one occasion shall not be construed as a bar to any right, remedy or power
which the Corporation would otherwise have on any future occasion. No failure
to exercise nor any delay in exercis-ing on the part of the Corporation, any
right, remedy or power under this Agreement, shall operate as a waiver
thereof; further, no single or partial exercise of any right, remedy or power
under this Agreement shall preclude any other or further exercise thereof or
the exercise of any other right, remedy or power.
16. Binding Effect; Successors and Assigns. This Agreement shall be
---------------------------------------
binding upon and inure to the benefit of the parties hereto and shall inure to
the benefit of the Corporation its successors and assigns and nothing herein
is intended or shall be construed to give any other Person any right, remedy
or claim under, to or in respect of this Agreement or any Pledged Stock
Collateral.
17. Termination of This Agreement. This Agreement shall terminate
--------------------------------
simultaneously with the payment in full of all principal and interest due
under the Promissory Note and, upon such termination, any Pledged Stock
Collateral held hereunder shall be released and delivered to Borrower or at
his direction.
18. Notices. All notices or other communications hereunder shall be given
-------
in the following manner.
If to the Corporation:
Penn Octane Corporation
900 Veterans Boulevard
Redwood City, California 94063
Attention: Chief Financial Officer
If to Borrower:
Jerome B. Richter
Penn Octane Corporation
900 Veterans Boulevard
Redwood City, California 94063
Any of the addresses set forth above may be changed from time to time by
written notice from the party requesting the change.
19. Applicable Law. This Agreement shall be gov-erned by, and be
---------------
construed and interpreted in accordance with, the internal laws of the State
of New York without reference to principles of conflict of laws, except as
re-quired by mandatory provisions of law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have execut-ed this Agreement or
caused this Agreement to be duly exe-cuted and delivered by their duly
authorized officers as of the date first above written.
BORROWER
/s/Jerome B. Richter
----------------------
Jerome B. Richter
PENN OCTANE CORPORATION
By /s/Jorge R. Bracamontes
-------------------------
Name: Jorge R. Bracamontes
Title: Executive Vice President
BROWNSVILLE NAVIGATION DISTRICT
CONTRACT NO. 2823 "H"
THE STATE OF TEXAS )(
COUNTY OF CAMERON )(
LEASE AMENDMENT
---------------
WHERAS, by Lease Agreement, the BROWNSVILLE NAVIGATION DISTRICT OF
CAMERON COUNTY, TEXAS, leased and let to PENN OCTANE CORPORATION, 14.76
acres of land in Cameron County, Texas; and
WHEREAS, the said Lessee desires to increase the size and said leased
premises; NOW THEREFORE,
THIS CONTRACT between the BROWNSVILLE NAVIGATION DISTRICT OF CAMERON
COUNTY, TEXAS, herein styled "District" and PENN OCTANE CORPORATION, a Texas
corporation, hereinafter styled "Lessee"
W I T N E S S E T H:
--------------------
1.
The aforesaid lease is amended so as to be increase the leased premises
by adding 16.40 acres which are described in Exhibit "A" attached hereto and
made a part hereof for all purposes.
2.
The annual rental shall be increased to Seventy Four Seven Hundred Eighty Four
and 00/100 Dollars ($74,784.00) effective April 15, 1997, payable
semi-annually installments of $37,392.00 on the 15th of April and October.
3.
All other terms and provisions of said lease are continued in force.
IN TESTIMONY WHEREOF, said BROWNSVILLE NAVIGATION DISTRICT OF CAMERON
COUNTY, TEXAS, has caused these presents to be executed by its proper officers
thereunto duly authorized, and PENN OCTANE CORPORATION, has executed these
presents, this 7th day of May, 1997.
BROWNSVILLE NAVIGATION DISTRICT OF
CAMERON COUNTY, TEXAS
ATTEST: By: /S/ MARIO VILLARREAL
---------------------------------------
Mario Villarreal, Sr., Chairman of the
Board of Navigation and Canal Commissioners
___________________________ of the Brownsville Navigation District of
Secretary Cameron County, Texas
LEASE AMENDMENT
PAGE 1
PENN OCTANE CORPORATION
ATTEST: By: /S/ JEROME B. RICHTER
---------------------
JEROME B. RICHTER
/S/ IAN T. BOTHWELL
- - -------------------
IAN T. BOTHWELL
Secretary
THE STATE OF TEXAS )(
COUNTY OF CAMERON )(
This instrument was acknowledged before me on the ______ day of
___________, 1997, by MARIO VILLARREAL, SR., in his capacity as Chairman of
the Board of Navigation and Canal Commissioners of the Brownsville Navigation
District of Cameron County, Texas.
__________________________________________
Notary Public in and for the State of Texas
My Commission Expires: _____________________
THE STATE OF TEXAS )(
COUNTY OF CAMERON )(
This instrument as acknowledged before me on the _____ day of
_____________, 1997, by ________________________,
_________________________________ of PENN OCTANE CORPORATION, a _________
corporation, in behalf of said corporation.
__________________________________________
Notary Public in and for the State of Texas
My Commission Expires: _____________________
LEASE AMENDMENT
PAGE 2
<PAGE>
[UNION CARBIDE LOGO] INTERNAL CORRESPONDENCE [LOGO]
UCAR PIPELINE INCORPORATED
UCAR LOUISIANA PIPELINE COMPANY
820 GESSNER SUITE 600 HOUSTON, TEXAS 77024
=============================================================================
May 21, 1997
Mr. Jerry Richter
Penn Octane Corporation
900 Veterans Boulevard; Suite 240
Redwood City, CA 94063
Subject: Amendment to the Ella-Brownsville Pipeline Lease
------------------------------------------------
Dear Jerry,
In accordance with our recent discussions, we propose that the Pipeline Lease
agreement between Seadrift Pipeline Corporation ("Seadrift") and Penn Octane
Corporation ("POC") dated September 1, 1993, covering the lease of the
Ella-Brownsville Pipeline, be amended as follows, effective as of the day that
Seadrift notifies POC in writing of the completion of the pipeline
enhancements referred to in Section 5.2 below, or April 1, 1998, whichever is
earlier.
1. Section II. - "TERM OF AGREEMENT":
--------------------------------------
Add two (2) new sentences to Paragraph 2.1 as follows:
"The Term of this Agreement shall be extended through March 31, 2013. In the
event that Seadrift has not exercised its option to transport ethane prior to
the end of the Term as specified in Section 4.3, then Seadrift and POC will
negotiate in good faith for a period not to exceed ninety (90) days in an
effort to seek an extension of this Agreement under mutually agreeable terms
and conditions."
2. Section III - "TERMINATION":
------------------------------
Section III shall be deleted in its entirety.
3. Section IV - "USE":
---------------------
a.) Paragraph 4.1: The words "refined petroleum products" shall be
--------------
inserted in the second line of the paragraph immediately preceding first use
of the word "propane".
b.) Paragraph 4.1: At the end of the first paragraph of Paragraph 4.1,
-------------
add the following sentence: "For the purposes of this Agreement, "refined
petroleum products" are defined as gasoline, kerosene, jet fuel, diesel fuel,
and home heating oil."
c.) Paragraph 4.1: Add the following new paragraphs to Paragraph 4.1:
--------------
"POC shall take all necessary precautions and install all necessary
equipment to ensure that there will be no comingling of refined petroleum
products with the HD-5 Propane contained in Seadrift's Ella-Seadrift Pipeline
or its Markham propane storage facility. POC shall release, indemnify, and
hold harmless Seadrift for any costs, damages, liability, claims, and expenses
(including attorneys' fees) in the event of any such occurrence.
Prior to the commencement of POC transporting any refined petroleum
products in the pipeline facilities, POC shall ensure that the facilities and
products are in compliance with all of Seadrift's health, safety, and
environmental policies, procedures and regulations including any necessary
risk reviews. If such review indicates that the pipeline requires additional
facilities and equipment to achieve such compliance, then POC shall be
responsible for funding and installing such facilities and equipment costs
prior to the transport of any refined petroleum products. If POC fails to
fund and install such facilities and equipment, then Seadrift shall have the
option to terminate this Agreement upon giving notice thereof to POC."
d.) Paragraphs 4.3 & 4.4:
-----------------------
Paragraphs 4.3 and 4.4 as originally written shall be deleted in
their entirety.
d.) Paragraph 4.3:
--------------
Replace Paragraph 4.3 with the following:
"4.3 Ethane Transportation Option: Seadrift shall have the right to
------------------------------
require POC, upon eighteen (18) months prior written notice by Seadrift to
POC, to transport ethane in the Ella-Brownsville Pipeline from the terminus of
such Pipeline in the vicinity of Brownsville, Texas, to its interconnection
with Seadrift's LaGloria Ethane Pipeline in the vicinity of the Exxon King
Ranch Gas Plant, Kingsville, Texas. The commencement of such ethane
transportation may be required to begin at any time after the last day of the
seventh (7th) contract year from the effective date of this Amendment, and
such Seadrift option shall remain in effect for the remainder of the Term.
Upon Seadrift exercising its option as above,POC shall transport ethane at
Seadrift's request in quantities up to 4,000 barrels per calendar day in the
eighth (8th)contract year from the effective date of this Amendmentthrough the
tenth (10th) contract year from the effective date of this Amendment and in
quantities up to 10,000 barrels per calendar day in the eleventh (11th)
contract year from the effective date of this Amendment through the
fifteenth (15th) contract year from the effective date of this Amendment. The
transportation of such ethane volumes shall take precedence over all other
uses by POCincluding, but not limited to, other products potentially
transported by POC in batch operating the pipeline. In no instance shall
Seadrift be required to receive transported ethane from POC at the LaGloria
Pipeline connection point at delivery rates in excess of 10,000 barrels per
calendar day.
If Seadrift exercises its option to require POC to transport ethane for
Seadrift as specified in this paragraph, and the subsequent ethane
transportation reduces POC's ability to transport propane to Brownsville to a
volume less than 6,000 BBLS per day, then the Fixed Annual Fee paid by POC to
Seadrift as specified in Paragraph 7.1 shall be reduced in direct proportion
to such difference in volume transported for each such period.
Seadrift shall pay to POC 1.5 /gal. for all ethane volumes transported by POC
for Seadrift. Both parties acknowledge that it is expected that in no event
shall the total of all ethane transportation fees paid by Seadrift to POC for
any contract year exceed the total of all fees as specified in Section VII
paid by POC to Seadrift for the same contract year. However, if at any time
it is anticipated that the total of Seadrift's payments is likely to exceed
POC's total payments, then both parties shall negotiate in good faith to
achieve a mutually agreeable resolution."
e.) Paragraph 4.4: Replace paragraph 4.4 with the following:
--------------
"4.4 PROPANE SUPPLIES FROM THE ELLA-SEADRIFT PIPELINE: Subject to
------------------------------------------------
the satisfactory completion of the Pipeline System enhancements and
integrations specified in Section V below, Seadrift shall accept quantities of
propane from POC injected into the Ella-Seadrift Pipeline and exchange such
product to POC at the terminus of the Ella-Brownsville Pipeline in the
vicinity of Brownsville, Texas."
4. Section V - "FACILITIES":
---------------------------
a.) The sole existing paragraph in the Agreement shall remain
unchanged except it shall be numbered "5.1".
b.) The following paragraphs shall be added to this section V:
"5.2 - PIPELINE SYSTEM ENHANCEMENTS: In order for POC to have
----------------------------
access to potential propane pipeline exchange supplies north of the Exxon King
Ranch Gas Plant, and to have access to Seadrift's Markham propane storage
facility and to make the pipeline by-directional, enhancement modifications to
and integration of the Ella-Brownsville and Ella Seadrift Pipelines are
required.
Such system enhancements and integration (including but not necessarily
limited to piping, meters, valves, analyzers, and pumps) shall be funded by
POC, but in no event shall the collective cost of such enhancements exceed
$5,000,000. Seadrift shall provide to POC a description of the necessary
enhancements and a projection of the associated costs of such enhancements.
POC shall have the right to review such enhancements to ensure they are
appropriate for the purposes intended. Seadrift, or a contractor approved
by Seadrift, shall perform all facility enhancement work in accordance with
Seadrift standards as per paragraph 5.1. If Seadrift reasonably believes that
the projected costs of such enhancements will exceed $5,000,000, then Seadrift
and POC shall attempt to agree upon the allocation of such excess costs. If
no agreement can be reached within 60 days, then POC shall have the right to
fund the excess costs or any combination of enhancements which do not exceed
$5,000,000. In no event shall Seadrift be required, absent its agreement, to
fund any amount whatsoever. In no event does Seadrift warrant the fitness or
workmanship of the enhancements, but Seadrift will pass on to POC the benefit
of such warranties, if any, obtained from contractors up to the amount funded
by POC.
5.3 - OPTIONAL PUMP ADDITIONS: In addition to the enhancements
-----------------------
specified in Paragraph 5.2 above, either party shall have an on-going option,
for the remainder of the Term, to fund additional pumping and related
facilities at any point along the Ella-Brownsville Pipeline to increase the
effective capacity of such pipeline.
If Seadrift with ninety (90) days prior written notice to POC exercises
its option to increase the Pipeline capacity to transport ethane by adding
pumps and provides the funds for such additions, then Seadrift shall retain
the sole access to the resultant increase in pipeline capacity. If POC with
ninety (90) days prior written notice to Seadrift exercises its option to
increase pipeline capacity by adding pumps and provides the funds for such
additions, then POC shall retain the sole access to the resultant increase in
pipeline capacity, except to the extent that Seadrift may choose to fund up to
50% of such costs and retain access to a proportional share of the resultant
increase in pipeline capacity. Seadrift or a contractor as approved by
Seadrift, shall perform all pump addition work in accordance with Seadrift
standards as per Paragraph 5.1., and on the same "no warranty" basis as per
Paragraph 5.2.
5.4 - PROPANE STORAGE: As a result of the system enhancements,
---------------
POC shall, subject to this paragraph, have access to the use of Seadrift's
propane storage well located in the vicinity of Markham, Texas. POC shall
have the right to nominate up to 500,000 barrels of such storage space subject
to, in Seadrift's sole discretion: (1) space being available and (2) the
hydraulic and logistics capabilities and limitations of the system which are
in effect at the time of POC's desire to utilize such storage space. Within
thirty 30 days of the beginning of each contract year, POC shall nominate such
storage space desired for the subsequent contract year. Seadrift shall
respond within thirty (30) days and inform POC of the amount of space that
Seadrift can allocate to POC as above. Seadrift shall have no obligation to
terminate other users to accommodate POC's request for storage space. During
the first contract year from the effective date of this Amendment, the minimum
nominated Storage Space shall be 0, and for each contract year thereafter, the
minimum nominated Storage Space shall be 200,000 Barrels.
The normal, random errors associated with the metering of propane to and
from POC and other users will accumulate over time in the storage well. If,
upon emptying the storage well for maintenance, or as a result of its use by
POC and others, there is a difference between the calculated inventory and the
actual inventory, then Seadrift shall determine the share that POC shall bear
of such gain or loss in relation to POC's actual use of the well and pipeline
facilities proportionately to that of others."
5. SECTION VII - "FEES":
-----------------------
(a) In Paragraph 7.1 strike out "$550,000" and replace with "$900,000".
(b) Add to Paragraph 7.1 the additional Paragraphs as follows:
"In recognition of the requirement for POC to provide funds for pipeline
system enhancements, Seadrift shall waive a portion of the fixed annual fee
for a period of two years, as follows:
<TABLE>
<CAPTION>
Fee Waived
-----------
<S> <C>
1st Contract Year from the effective date of this Amendment $ 250,000
2nd Contract Year from the effective date of this Amendment $ 125,000
</TABLE>
If, at the end of either of the first two (2) contract years from the
effective date of this Amendment, Seadrift determines that the
Ella-Brownsville Pipeline has been operated at or above 12,000 barrels per
Calendar Day for the year, then POC shall pay to Seadrift the portion of the
fixed fee that had been waived by Seadrift for such period, as above."
(c) Strike Paragraph 7.2 and replace with new paragraphs as follows:
"7.2 - VARIABLE FEES - Propane Thruput and Exchanges - POC
------------------------------------------------
agrees to pay to Seadrift the following fees in addition to the Fixed Annual
Fee specified above:
<TABLE>
<CAPTION>
Variable Fee Structure
----------------------
PRODUCT MOVEMENT -LOCATIONS FEES - /GAL.
----------------------------- ----------------
FROM TO
- - --------------------- --------------------
<S> <C> <C>
(1) Exxon King Ranch Brownsville Terminal 1.0 /Gal.
Gas Plant (for all quantities in excess of 6,000
Connection Bbls/Day)
</TABLE>
The thruput rates in excess of 6,000 Bbls./Day to be used to calculate
the fees to be paid by POC to Seadrift in item (1) above, shall be determined
by averaging the daily rates each calendar quarter during the Term. For
billing purposes, the monthly invoice shall reflect the average daily rate for
such month; however, at the end of each quarter, billing adjustments will be
made to reflect the quarterly average if different than the respective monthly
averages.
(2) Supply Points Brownsville Terminal 1.5 /Gal.
North of Exxon (from 1st Barrel)
King Ranch Gas
Plant Connection
[Propane movements are subject to (1) space available and (2) the hydraulic
and logistic capabilities of the system.]
(3) Brownsville Markham Storage 0.5 /Gal.
Terminal (from 1st Barrel)
(4) Brownsville Partner Locations 1.5 /Gal.
Terminal Along Ella-Seadrift P/L (from 1st Barrel)
[Propane movements are subject to (1) space available and (2) the hydraulic
and logistic capabilities of the system.]
(5) Markham Storage Partner Locations 1.5 /Gal.
Along Ella Seadrift P/L (from 1st Barrel)
(6) Markham Storage Brownsville Terminal 2.0 /Gal.
(from 1st Barrel)
7.3 VARIABLE FEES - Refined Petroleum Products Transportation
---------------------------------------------------------
- - - In addition to the Fixed Annual Fee specified above, POC shall pay to
Seadrift for all refined petroleum products transported through the
Ella-Brownsville Pipeline a fee of 0.5 /Gal. for thruput rates in excess of
6,000 Bbls./Day. The thruput rates to be used to calculate the fees to be
paid by POC to Seadrift shall be determined by averaging the daily rates for
the sum of refined petroleum products and propane originating at or south of
the Exxon King Ranch Gas Plant connection each calendar quarter during the
Term. For billing purposes, the monthly invoice shall reflect the average
daily rate for such month; however, at the end of each quarter, billing
adjustments will be made to reflect the quarterly average if different than
the respective monthly averages.
<PAGE>
7.4 STORAGE FEES
-------------
(1) Annual Storage Fee - In addition to the Fixed
--------------------
Annual Fee specified above, POC shall pay to Seadrift an annual storage fee as
follows, based on the quantity of space nominated by POC and agreed to by
Seadrift in Paragraph 5.4 below, or the actual volume used, whichever is
greater:
Storage Volume Storage Fee
- - ------------------------- ------------------
$/Year
------------------
0 - 350,000 Barrels $ 1.50/Bbl.
(From 1st Barrel)
350,001 - 500,000 Barrels $ 1.25/Bbl.
(From 1st Barrel)
(2) Excess Thruput Fee - POC shall pay to Seadrift a
thruput fee of $0.25 per barrel for each barrel of propane redelivered to POC
from storage in excess of the agreed to storage quantity for each contract
year.
7.5 INVOICING AND PAYMENT - On or before the fifth (5th) day
---------------------
of each month, Seadrift shall bill POC for the monthly portion of the Fixed
Annual Fee, the storage fee and the variable fees, if any. All fees are due
and payable to Seadrift within ten (10) days from receipt of invoice. POC
shall make no deduction, offset, or witholding from the amount billed. If
payment is not received within ten (10) days from the date of invoice, the
amount billed shall, from the date of the invoice until paid, bear interest
calculated at an annual rate equal to the "prime rate" of interest as
published in the Wall Street Journal plus two (2) percent, provided that, if
such interest rate exceeds the highest lawful rate, then interest hereunder
shall be calculated at the highest lawful rate.
6. SECTION VIII - OPERATING PRESSURE - Amend this Section VIII. By
striking "1200" in line 2 and replacing it with "1800 in lieu thereof.
7. SECTION XIX - "NOTICES": - Replace the notification information for POC
-----------------------
with the following:
"Penn Octane Corporation
900 Veterans Boulevard; Suite 240
Redwood City, CA 94063
Attn: Jerry Richter
Fax: (415)368-1505"
<PAGE>
Except as specifically changed by this Amendment, the Ella Brownsville
Pipeline Lease agreement dated September 1, 1993 shall remain unchanged, and
in full force and effect.
To make this amendment a matter of record, please indicate your acceptance of
the foregoing by signing the enclosed duplicate copy of this letter in the
space provided below and returning that copy to us. The other copy is for
your files.
ACCEPTED AND AGREED THIS
29TH DAY OF MAY, 1997
PENN OCTANE CORPORATION SEADRIFT PIPELINE CORPORATION
By /S/ JEROME B. RICHTER By /S/ D.J. GRIFFITHS
--------------------- ---------------------------
(Signature) (Signature)
JEROME B. RICHTER D. J. Griffiths
--------------------- ------------------------------
(Print Name) (Print Name)
Title President Title Director
--------------------- ------------------------------
COMMERCIAL LEASE
This lease, dated for reference purposes only this 22 day of May, 1997,
is made between NINE-C CORPORATION (the "Landlord") and J. B. Richter DBA
Capital Resources and J. B. Richter, an individual,(the "Tenant").
1. PREMISES.
1.01 Description. Landlord hereby leases to Tenant and Tenant hires
from Landlord on the terms, covenants and conditions set forth herein, those
premises specifically known as Suite 240 designated and identified by
crosshatching on Exhibit "A" attached hereto, (the "Leased Premises"), and
incorporated by reference herein. The Leased Premises, approximately 1325
square feet of usable space, and approximately 1559 square feet of rentable
space (by BOMA Modified Standards), is located at 900 Veterans Boulevard,
Redwood City, California (the "Building"). The Building is a part of a
commercial project which includes the Building, an adjacent parking lot and
parking structure and the underlying real property (the "Project").
1.02 Confirmation of Terms. Within thirty (30) days after Landlord
delivers a fully executed copy of this Lease to Tenant, Tenant's architect
may, at Tenant's expense, verify the rentable area contained in the Leased
Premises. The term "rentable area" as used in this Lease means the rentable
area as determined by the most recent version of the BOMA (Building Owners and
Managers Association International) American National Standard. If tenant's
verification of the rentable area differs from the rentable area specified in
Paragraph 1.01, then the parties shall immediately execute "Confirmation of
Lease Terms" to confirm the rentable area, the Base Rent, Tenant's Pro Rata
Share and other changes that are based on the rentable area of the Premises.
2. BASE RENT.
2.01 Tenant agrees to pay Landlord as base rent (Base Rent), without
notice, demand, deduction, or offset, the monthly sum of $3507.75 for the
first 12 months, in advance on or before the first day of each and every
successive calendar month during the term hereof, except that last month's
deposit shall be paid upon execution hereof. Credit will be given for
Tenant's current deposit. The rent shall commence on the First day of July,
1997 (the "Commencement Date"). All payments to Landlord under this Lease
shall be paid to Landlord at the address for notice set forth in paragraph
32.15, or at such other address provided to Tenant by Landlord in writing from
time to time.
2.02 Rent for any period which is for less than one month shall be a
prorated portion of the monthly rental based upon a thirty (30) day month.
Tenant acknowledges that late payment by Tenant to Landlord of rent or other
sums due hereunder will cause Landlord to incur certain costs not contemplated
by this Lease, the exact amount of which would be extremely difficult and
impractical to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any trust deed covering the Leased Premises.
Therefore, in the event Tenant shall fail to pay any installments of rent or
any sum due hereunder within five (5) days after receiving notice of such
delinquency, Tenant shall pay to Landlord as additional rent a late charge
equal to TEN percent (10%) of each such installment or other sum. A $15.00
charge will be paid by the Tenant to the Landlord for each returned check, in
addition to the late charge.
2.03
INTENTIONALLY OMITTED
3. PROJECT OPERATING COSTS.
3.01(a) In order that the Rent payable during the Term reflect any
increase in Project Operating Costs (described below), Tenant agrees to pay to
Landlord as Rent, Tenant's Proportionate Share (defined in Paragraph 3.02) of
all increases in costs, expenses and obligations attributable to the Project
and its operation, all as provided below.
(b) If, during any Calendar year during the Term, Project Operating
Costs exceed the Project Operating Costs for the calandar year of the
Occupancy, Tenant shall pay to Landlord, in
addition to the Base Rent and all of the payments due under this Lease, an
amount equal to Tenant's Proportionate Share of such excess Project Operating
Costs in accordance with the provisions of this Paragraph 3.01(b).
(c) The term "Project Operating Costs" shall include all those
items described in the following subparagraphs (1) and (2).
(1) All taxes, assessments, water and sewer charges and other
similar governmental charges levied on or attributable to the Building or
Project as a whole or their operation, including without limitation, (i) real
property taxes or assessments levied or assessed against the Building or
Project as a whole, and (ii) assessments or charges levied or assessed against
the Building or Project as a whole by any redevelopment agency; but excluding
any tax measured by gross rentals received from the leasing of the Premises,
Building or Project.
(2) Operating costs incurred by Landlord in maintaining and
operating the Building and Project, including without limitation the
following: costs of (i) utilities; (ii) supplies; (iii) insurance (including
public liability, property damage, earthquake, and fire and extended coverage
insurance for the full replacement costs of the Building and Project as
required by Landlord or its lenders for the Project; (iv) services of
independent contractors; (v) compensation (including employment taxes and
fringe benefits) of all persons who perform duties connected with the
operation, maintenance, repair or overhaul of the Building or Project, and the
HVAC system, equipment, improve ments and facilities located within the
Project, including without limitation engineers, janitors, painters, floor
waxers, window washers, security and parking personnel, landscapers and
gardeners (but excluding persons performing services not uniformly available
to or performed for substantially all Building or Project tenants); (vi)
operation and maintenance of a room for delivery and distribu tion of mail to
tenants of the Building or Project as required by the U.S. Postal Service
(including, without limitation, an amount equal to the fair market rental
value of the mail room premises); (vii) management of the Building or Project,
whether managed by Landlord or an independent contractor (including, without
limita tion, an amount equal to the fair market value of any on-site manager's
office, but excluding any commission or fee for leasing or collecting rents);
(viii) rental expenses for (or a reasonable depreciation allowance on)
personal property used in the main tenance, operation or repair of the
Building or Project: (ix) costs, expenditures or charges (whether capitalized
or not) required by any governmental or quasi-governmental authority; (x)
amortization of capital expenses (including financing costs) (1) required for
the Building as a whole by a governmental entity for energy conservation or
life safety purposes, or (2) made by Landlord to reduce Project Operating
Costs; and (xi) any other costs or expenses incurred by Landlord under this
Lease and not otherwise reimbursed by tenants of the Project.
(3) Project Operating Costs shall not include costs or
expenses only for the benefit of other tenants.
(d) Tenant's Proportionate Share of Project Operating Costs
shall be payable by Tenant to Landlord as follows:
(1) Beginning with the second year of the term and for each
year thereafter ("Comparison Year"), Tenant shall pay Landlord an amount equal
to Tenant's Proportionate Share of the Project Operating Costs incurred by
Landlord in the Comparison Year which exceeds the total amount of Project
Operating Costs payable by Landlord for the first year of the term. This
excess is referred to as the "Excess Expenses."
(2) To provide for current payments of Excess Expenses,
Tenant shall, at landlord's request, pay as additional rent during each
Comparison Year, an amount equal to Tenant's Proportionate Share of the Excess
Expenses payable during such Comparison Year, as estimated by Landlord from
time to time. Such payments shall be made in monthly installments, commencing
on the first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first day
of the month following the month in which Landlord gives Tenant a new notice
of estimated Excess Expenses. It is the intention hereunder to estimate from
time to time the amount of the Excess Expenses for each Comparison Year and
Tenant's Proportionate Share thereof, and then to make an adjustment in the
following year based on the actual Excess Expenses incurred for that
Comparison Year.
(e) On or before the 90th day of each Comparison Year after the
first Comparison Year (or as soon thereafter as is practical), Landlord shall
deliver to Tenant a statement setting forth Tenant's Proportionate Share of
the Excess Expenses for the preceding Comparison Year. If Tenant's
Proportionate Share of the actual Excess Expenses for the previous Comparison
Year exceeds the total of the estimated monthly payments made by Tenant for
such year, Tenant shall pay Landlord the amount of the deficiency within ten
(10) days of the receipt of the statement. If such total exceeds Tenant's
Proportionate Share of the actual Excess Expenses for such Comparison Year,
then Landlord shall credit against Tenant's next ensuing monthly
installment(s) of additional rent an amount equal to the difference until the
credit is exhausted. If a credit is due from Landlord on the Expiration Date,
Landlord shall pay Tenant the amount of the credit. The obligations of Tenant
and Landlord to make payments required under this Paragraph 3.01 shall survive
the Expiration Date.
(f) Tenant's Proportionate Share of Excess Expenses in any
Comparison Year having less than 365 days shall be appropriate ly prorated.
(g) If any dispute arises as to the amount of any additional rent
due hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, Landlord and Tenant shall refer the dispute to
an independent certified public accountant selected by them for certification
of the proper amount. Such accountant's certification of the amount and
direction as to the allocation between Landlord and Tenant of the cost of
certification shall be final and conclusive.
3.02 Tenant's Proportionate share shall be 2.78%, the usable
area of the Leased Premises divided by the useable area of the Building, times
100, computed as follows:
Premises Usable Area: _1325___ = .0 x 100 = 2.78%
Building Usable Area: 47,692 sq. ft.
3.03 All costs and expenses which Tenant assumes or agrees to
pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent, is sometimes referred to as the "Rent"). The
Rent shall be paid to the Building manager (or other person) and at such
place, as Landlord may from time to time designate in writing, without any
prior demand therefor and without deduction or offset, in lawful money of the
United States of America.
3.04 In addition to the Rent and any other charges to be paid by
Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all
taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or
within the contemplation of the parties, where such taxes are upon, measured
by or reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or
the cost or value of any leasehold improvements made in or to the Premises by
or for Tenant, other than standard tenant improvements made by Landlord,
regardless of whether title to such improvements is held by Tenant or
Landlord; (b) the gross or net Rent payable under this Lease, including,
without limitation, any rental or gross receipts tax levied by any taxing
authority with respect to the receipt of the Rent hereunder; (c) the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Premises or any portion thereof; or (d) this
transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises. If it becomes unlawful
for Tenant to reimburse Landlord for any costs as required under this Lease,
the Base Rent shall be revised to net Landlord the same net Rent after
imposition of any tax or other charge upon Landlord as would have been payable
to Landlord but for the reimbursement being unlawful.
3.05 Landlord agrees to operate the Project in a prudent manner
with a view to controlling costs in a manner consistent with the sound
operation of the Project.
4. CONDITION OF THE PREMISES. Tenant's taking possession of the
Premises shall be deemed conclusive evidence that as of the date of taking
possession the Premises are in good order and satisfactory condition, except
for such matters as to which Tenant gave Landlord written notice on or before
the Commencement Date. No promise of Landlord to alter, remodel, repair or
improve the Premises or the Building and no representation, express or
implied, respecting any matter or thing relating to the Premises or Building
or this Lease (including, without limitation, the condition of the Premises or
the Building) have been made to Tenant by Landlord or its Broker or Sales
Agent, other than as may be contained herein or in a separate exhibit or
addendum signed by Landlord and Tenant.
5. TERM.
5.01 The lease term shall commence on the Commencement Date and
shall be for a period of 12 months (one year) ending June 30, 1998.
6. USE OF PREMISES. The Leased Premises may be used and occupied
only for offices and for no other purpose without Landlord's prior written
consent. Landlord does not represent nor warrant that the premises can be
used for such purpose, as it is incumbent upon Tenant to ascertain from the
proper governmental authorities whether or not the premises can be used for
Tenant's intended use. Tenant shall promptly comply with all laws,
ordinances, orders and regulations affecting the Leased Premises and their
cleanliness, safety, occupation and use. Tenant shall not commit, or suffer
to be committed, any waste on the Premises, nor shall Tenant maintain, commit,
or permit the maintenance or commission of any nuisance, as defined in
California Civil Code Section 3479, on the Premises. This provision shall
specifically preclude the storage in or on the Premises, or release in or
about the Premises, of hazardous materials as that term is defined in Federal
and California laws, statutes, rules and regulations.
7. UTILITIES INTERRUPTION. Landlord shall not be liable in damages
or otherwise for any failure or interruption of any utility service, and no
such failure or interruption shall entitle Tenant to terminate this Lease or
abate the rent and other charges.
8. ALTERATIONS, MECHANICS LIENS.
8.01 Alterations may not be made to the Leased Premises without
the prior written consent of Landlord and any alterations of the Leased
Premises except movable furniture and trade fixtures shall at Landlord's
option become part of the realty and belong to the Landlord.
9. FIRE INSURANCE HAZARDS.
9.01 No use shall be made or permitted to be made of the Leased
Premises, nor acts done, which will increase the existing rate of insurance
upon the Building or cause the cancellation of any insurance policy covering
the Building, or any part thereof, nor shall Tenant sell, or permit to be
kept, used or sold, in or about the Leased Premises, any article which may be
prohibited by the standard form of fire insurance policies. Tenant shall, at
its sole cost and expense, comply with any and all requirements pertaining to
the Leased Premises of any insurance organization or company, necessary for
the maintenance of reasonable fire and public liability insurance, covering
the Leased Premises, or the Building of which it is a part. Tenant agrees to
pay to Landlord as additional rent, any increase in premiums on policies which
may be carried by Landlord on the Leased Premises covering damages to the
Building and loss of rent caused by fire and the perils normally included in
extended coverage above the rates for the least hazardous type of occupancy
for industrial, warehousing, office and distribution operations.
9.02 Tenant shall maintain in full force and effect on all of
its fixtures and equipment in the Leased Premises a policy or policies of fire
and extended coverage insurance with malicious mischief and theft endorsements
to the extent of at least eighty percent (80%) of their insurable value.
During the term of this Lease the proceeds from any such policy or policies of
insurance shall be used for the repair or replacement of the fixtures and
equipment so insured. Landlord shall have no interest in the insurance upon
Tenant's equipment ad fixtures and will sign all documents necessary or proper
in connection with the settlement of any claim or loss by Tenant. Landlord
will not carry insurance on Tenant's possessions, nor on any leasehold
improvements made by Tenant. Tenant shall furnish Landlord with a certificate
of such policy within thirty (30) days of the commencement of this Lease and
whenever required shall satisfy Landlord that such policy is in full force and
effect.
10. LIABILITY INSURANCE. Tenant, commencing upon Tenant's initial
entry into the premises, at its own expense, shall provide and keep in force
with companies acceptable to Landlord public liability insurance for the
benefit of Landlord and Tenant jointly against liability for bodily injury and
property damage in the amount of not less than One Million Dollars
($1,000,000) in respect to injuries to or death of one person and in an amount
of not less than Two Million Dollars ($2,000,000) in respect to injuries to or
death of more than one person in any one occurrence, and in the amount of not
less than Four Hundred Ninety-Five Thousand Dollars ($495,000) per occurrence
in respect to damage to property, such limits to be in any greater amounts as
may be reasonably indicated by circumstances from time to time existing.
Tenant shall upon occupancy furnish Landlord with a certificate of such policy
and whenever required shall satisfy Landlord that such policy is in full force
and effect. Such policy shall name Landlord as an additional insured and
shall be primary and non-contributing with any insurance carried by Landlord.
The policy shall further provide that it shall not be canceled or altered
without twenty (20) days' prior written notice to Landlord. Insurance
required hereunder shall be in companies rated A+, AAA or better in "Best's
Insurance Guide."
11. INDEMNIFICATION BY TENANT.
11.01 This Lease is made on the express condition that Landlord shall
not be liable for or suffer loss by reason of injury to person or property
from any cause (excluding Landlord's negligent act or omission and excluding
any environmental matters not caused by Tenant) in any way connected with the
condition or use of the Leased Premises or the installation or construction of
improvements or personal property therein, including without limitation any
liability for injury to the person or property of Tenant, its agents,
officers, employees or invitees. Tenant agrees to indemnify Landlord and hold
it harmless from any and all liability, loss, cost, or obligation on account
of, or arising out of, any such injury or loss.
11.02 In case any action, suit or proceeding is brought against
Landlord by reason of any such occurrence, under the paragraph above, Tenant,
upon Landlord's request, will at Tenant's expense, resist and defend such
action, suit or proceeding, or cause the same to be resisted and defended by
counsel designated by the insurer whose policy covers the occurrence or by
counsel designated by Tenant and approved by Landlord. The obligations of
Tenant under this section arising by reason of any occurrence taking place
during the Lease Term shall survive any termination of this Lease.
12. REPAIRS.
12.01 Tenant shall, at Tenant's sole cost and expense, keep the
Premises and every part thereof in good condition and repair (except as
hereinafter provided with respect to Landlord's obligations) including without
limitation, the maintenance, replacement and repair of any storefront, doors,
window casements and glazing. Tenant shall, upon the expiration or sooner
termina tion of this Lease hereof, surrender the Leased Premises to the
Landlord in good condition, broom clean, ordinary wear and tear and damage
from causes beyond the reasonable control of Tenant excepted. Any damage to
adjacent premises caused by Tenant's use of the Premises shall be repaired at
the sole cost and expense of Tenant.
12.02 Notwithstanding the Provisions of Paragraph 12.01 hereinabove,
Landlord shall repair and maintain the structural portions of the Leased
Premises, including the exterior walls and roof, plumbing, pipes, electrical
wiring and conduits, unless such maintenance and repairs are caused in part or
in whole by the act, neglect, fault or omission of any duty by the Tenant, its
agents, servants, employees, invitees, or any damage caused by breaking and
entering, in which case Tenant shall pay to Landlord the reasonable cost of
such maintenance and repairs. All costs and expenses of Landlord under this
Paragraph 12.02 shall be Project Operating Costs under Paragraph 3.01.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given
to Landlord by Tenant. Except as provided in Article 16 hereof, there shall
be no abatement of rent and no liability of Landlord by reason of any injury
to or interference with Tenant's business arising from the making of any
repairs, alterations or improvements in or to any portion of the Leased
Premises or building of which the Leased Premises are a part, or in or to
fixtures, appurtenances and equipment therein. Tenant waives the right to
make repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect.
13. PARKING AND COMMON AREAS. Tenant, for the use and benefit of
Tenant, its agents, employees, customers, licensees and subtenants, shall have
the non-exclusive right in common with Landlord, and other present and future
owners, tenants and their agents, employees, customers, licensees and
subtenants, to use the Common areas and parking garage adjacent to the
building during the entire term of this Lease, for ingress and egress, and
automobile parking.
14. SIGNS. The Tenant shall obtain Landlord's approval before signs
are placed on the exterior and/or interior of the Building.
15. ENTRY BY LANDLORD. Tenant shall permit Landlord and Landlord's
agents to enter the Leased Premises after business hours on weekdays, and on
weekends, for the purpose of inspecting the same or for the purpose of
maintaining the Leased Premises or adjacent premises or for the purpose of
making repairs, altera tions, or additions to any portion of same including
the erection and maintenance of such scaffolding, canopies, fences, and props
as may be required, or for the purpose of posting notices of non-
responsibility for alterations, additions, or repairs without any rebate of
rent and without any liability to Tenant for any loss of occupation or quiet
enjoyment of the Leased Premises thereby occasioned. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with
which to unlock all of the doors in, upon and about the Leased Premises,
excluding Tenant's vaults and safes. The tenant shall not alter any lock or
install a new or additional lock or any bolt on any door of the Leased
Premises without prior written consent of the Landlord. If Landlord shall
give its consent, the Tenant shall in each case furnish the Landlord with a
key for any such lock.
16. DESTRUCTION OR DAMAGE.
16.01 If the Premises or the portion of the Building necessary for
Tenant's occupancy is damaged by fire, earthquake, act of God, the elements or
other casualty, Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion, be
completed within (90) ninety days. If Landlord determines that repairs can be
completed within ninety (90) days, this Lease shall remain in full force and
effect, except that if such damage is not the result of the negligence or
willful misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Base Rent shall be abated to the extent Tenant's
use of the Premises is impaired, commencing with the date of damage and
continuing until completion of the repairs required of Landlord under
Paragraph 16.04.
16.02. If in Landlord's opinion, such repairs to the Premises or
portion of the Building necessary for Tenant's occupancy cannot be completed
within ninety (90) days, Landlord shall notify Tenant of that opinion in
writing within thirty (30) days after the date of such fire or other casualty.
In such event, Landlord and Tenant may each terminate this Lease unilaterally
by giving the other party written notice of such termination within 15 days of
the effective date of the notice described above, and this Lease shall
terminate as of the date of such fire or casualty. If neither party notifies
the other of such termination, this Lease shall continue in full force and
effect, but the Base Rent shall be partially abated as provided in Paragraph
16.01.
16.03(a) If any other portion of the Building or Project is totally
destroyed or damaged to the extent that in Landlord's opinion repair thereof
cannot be completed within ninety (90) days, Landlord may elect upon notice to
Tenant given within thirty (30) days after the date of such fire or other
casualty, to repair such damage, in which event this Lease shall continue in
full force and effect, but the Base Rent shall be partially abated as provided
in Paragraph 16.01. If Landlord does not elect to make such repairs, this
Lease shall terminate as of the date of such fire or other casualty.
16.03(b) If any other such portion of the Building or Project is
totally destroyed or damaged to the extent that in Landlord's opinion repair
thereof cannot be completed within ninety (90) days, and Tenant's business
operations are substantially and adversely impacted by such damage, and
Landlord elects to repair such damage, then, nevertheless, Tenant shall have
the right to terminate this Lease if the substantial adverse impact is not
cured by Landlord within one hundred fifty (150) days of the date of such fire
or casualty. Tenant shall exercise this right by giving written notice to
Landlord no later than one hundred fifty-five (155) days after the date of
such fire or casualty.
16.04 If the Premises are to be repaired under this Article, Landlord
shall repair at its cost any injury or damage to the Building and standard
tenant improvements in the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any other
Leasehold improvements and Tenant's Property. Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any repair
or restoration of any portion of the Premises or Building as a result of any
damage from fire or other casualty.
16.05 This Lease shall be considered an express agreement governing
any case of damage to or destruction of the Premises or Building by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of express
agreement, shall have no application. The opinions and determinations of
Landlord under this Section 16 shall be reasonable.
17. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily,
or by operation of law, assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, and shall not sublet the Leased
Premises or any part thereof, or any right or privilege appurtenant thereto,
or allow any other person (the employees, agents, servants and invitees or
Tenant excepted) to occupy or use the Leased Premises, or any portion thereof,
without the written consent of Landlord first had and obtained, which consent
shall not be unreasonably withheld. A consent to one assignment, subletting,
occupation or use by any other person shall not be deemed to be a consent to
any subsequent assignment, subletting, occupation or use by another persona.
Consent to any such assignment or subletting shall not relieve Tenant of any
liability under this Lease. Any such assignment or subletting without such
consent shall be void, and shall, at the option of the Landlord, constitute a
default under the terms of this Lease.
In the event that Landlord shall consent to a sublease or assignment
hereunder, Tenant shall pay Landlord reasonable fees, not to exceed One
Thousand Dollars ($1,000.00), incurred in connection with the processing of
documents necessary to giving of such consent and assumption by the assignee.
18. TENANT'S DEFAULT. The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by
Tenant:
A. The vacating or abandonment of the Premises by Tenant.
B. The failure by Tenant to make any payment or rent or any
other payment required to be made by Tenant hereunder, as and when due.
C. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by the Tenant, other than described in B, above, where such failure shall
continue for a period of fifteen (15) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default
is such that more than fifteen (15) days are reasonably required for its cure,
then Tenant shall not be deemed to be in default if Tenant commences such cure
within said fifteen (15) days period and thereafter diligently prosecutes such
cure to completion.
D. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant
of a petition to have Tenant adjudged a bankrupt, or a petition or
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed within
sixty (60) days); or the appointment of a trustee or a receiver to take
possession of substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Leased Premises
or of Tenant's interest in this Lease, where such seizure is not discharged in
thirty (30) days.
19. REMEDIES ON DEFAULT. In the event of any such default or breach
by Tenant, Landlord may at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of a right or remedy
which Landlord may have by reason of such default or breach:
A. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default including, but not limited to: the
cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises; reasonable
attorney's fees; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent and other charges
and adjustments called for herein for the balance of the term after the time
of such award exceeds the amount of such loss for the same period that Tenant
proves could be reasonably avoided; and that portion of any leasing commission
paid by Landlord and applicable to the unexpired term of this Lease. Unpaid
installments of rent or other sums shall bear interest from the date due at
the rate of ten percent (10%) per annum. "Worth" as used in this provision,
is computed by discounting the total at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the judgment, or award, plus one
percent (1%).
B. Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to
recover the rent and any other charges and adjustments as may become due
hereunder; or
C. Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the State in which the
Premises are located.
20. LANDLORD'S RIGHT TO CURE DEFAULTS. Landlord may, but shall not
be obligated to, cure, any anytime, without notice, any default by Tenant
under this Lease; and whenever Landlord so elects, all costs and expenses
incurred by Landlord including without limitation reasonable attorney's fees
and expenses, together with interest on the amount of costs and expenses so
incurred at the maximum legal rate then in effect in the State of California
shall be paid by Tenant to Landlord on demand.
21. DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord or the beneficiary under any deed of trust fails to perform
obligations required of Landlord within a reasonable time, but in no event
later than thirty (30) days after written notice by Tenant to Landlord and to
the beneficiary of any deed of trust covering the Premises whose name and
address shall have theretofore been furnished to Tenant in writing, specifying
wherein Landlord has failed to perform such obligation; provided, however,
that if the nature of Landlord's obligation is such that more than thirty (30)
days are required for performance, then Landlord shall not be in default if
Landlord or said beneficiary commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion. In no
event shall Tenant have the right to terminate this Lease as a result of
Landlord's default and Tenant's remedies shall be limited to damages and/or an
injunction.
22. ATTORNEY'S FEES/COLLECTION CHARGES. In the event of any legal
action or proceeding between the parties hereto, reasonable attorney's fees
and expenses of the prevailing party in any such action or proceeding may be
added to the judgment therein, including attorney's fees on appeal. In
addition to the charges provided for above, Tenant shall pay a charge of
$25.00 to Landlord for preparation of each demand for delinquent rent.
23. SURRENDER OF LEASE NOT MERGER. The voluntary or other surrender
of this Lease by Tenant, or a mutual cancellation thereof, shall not work a
merger, and shall, at the option of Landlord terminate all or any existing
subleases, and/or subtenan cies, or may, at the option of Landlord, operate as
an assignment to it of any or all of such subleases or subtenancies.
24. CONDEMNATION. If any part of the Leased Premises or the
building of which it is a part, or the Center or parking or common areas
therein, shall be taken or condemned for a public or quasi- public use, and a
part thereof remains which is reasonably suitable for Tenant's purposes
hereunder, this Lease shall, as to the part so taken, terminate as of the date
title shall vest in the condemnor, and the rent payable hereunder shall be
equitably adjusted. If all the Leased Premises, or such part thereof be taken
or condemned so that there does not remain a portion reasonably suitable for
Tenant's purposes hereunder, this Lease shall thereupon terminate.
25. WAIVER. The waiver by Landlord of any breach of any term,
covenant, or condition herein contained shall not be deemed to be a waiver of
such term, covenant, or condition or any subsequent breach of the same or any
other term, covenant, or condition herein contained. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant, or condition of this
Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
26. EFFECT OF HOLDING OVER. If Tenant should remain in possession
of the Leased Premises after the expiration of the Lease Term and without
executing a new Lease, then such holding over shall be construed as a tenancy
from month-to-month, subject to all the conditions, provisions, and
obligations of this Lease insofar as the same are applicable to a
month-to-month tenancy; provided, however, that Base Rent during any such
holding over shall be 150% of the Base Rent in effect immediately prior to the
expiration of the Lease term.
27. TENANT'S STATEMENT. Tenant shall at any time and from time to
time upon not less than five (5) days prior written notice from Landlord
execute, acknowledge and deliver to Landlord a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease as so modified is in full force and effect), and the date to which the
rental and +other charges are paid in advance, if any, and (b) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part of
the Landlord hereunder, or specifying such defaults if any are claimed, and
(c) setting forth the date of commencement of rents and expiration of the term
hereof. Any such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the real property of which the Premises
are a part.
28. TENANT'S FINANCIAL INFORMATION. Tenant shall promptly furnish
to Landlord, from time to time, financial statements and annual reports,
reflecting Tenant's current financial condition, whenever requested by
Landlord.
29. RELATIONSHIP OF THE PARTIES. Nothing contained herein shall
be deemed or construed by the parties hereto nor by any third party, as
creating the relationship of principal and agent or of partnership or of joint
venture between the parties hereto, it being understood and agreed that
neither the method of computation of rent nor any other provision contained
herein, nor any acts of the parties hereto, shall be deemed to create any
relationship other than Landlord and Tenant.
30. RULES AND REGULATIONS. Tenant shall faithfully observe and
comply with all reasonable rules and regulations that Landlord shall from time
to time promulgate and/or modify (see Exhibit "C" attached hereto). The rules
and regulations shall be binding upon the Tenant upon delivery of a copy of
them to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance of any said rules and regulations by any other tenants or
occupants. Said rules may include (1) the restricting of employee parking,
and (2) regulation of waste removal.
31. GENERAL PROVISIONS.
31.01 Plats and Riders. Clauses, plats, riders and addendums, if
any, affixed to this Lease are a part hereof.
31.02 Venue. Landlord will execute this Lease and will receive the
rent and other payments at Landlord's office. Therefore the county in which
Landlord's office is located is hereby deemed to be a proper place of venue
for transitory actions.
31.03 Marginal Headings. The marginal headings and article titles to
the articles of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpreta tion of any part hereof.
31.04 Time. Time is of the essence of this Lease and each and all of
its provisions in which performance is a factor.
31.05. Successors and Assigns. The covenants and condi tions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties
hereto.
31.06. Recordation. Neither Landlord nor Tenant shall record this
Lease, but a short form memorandum hereof may be recorded at the request of
the Landlord.
31.07. Quiet Possession. Upon Tenant paying the rent reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant
shall have quiet posses sion of the Premises for the entire term hereof,
subject to all the provisions of this Lease.
31.08. Prior Agreements. This Lease contains all of the agreements
of the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understand ing pertaining to any such matter
shall be effective for any purpose. No provision of this Lease may be amended
or added to except by an agreement in writing signed by the parties hereto or
their respective successors in interest. This Lease shall not be effective or
binding on any party until fully executed by both parties hereto.
31.09. Inability to Perform. This lease and the obliga tions of the
Tenant hereunder shall not be affected or impaired because the Landlord is
unable to fulfill any of its obligations hereunder or is delayed in doing so,
if such inability or delay is caused by reason of strike, labor troubles, acts
of God, or any other cause beyond the reasonable control of the Landlord.
31.10. Partial Invalidity. Any provision of this Lease which shall
prove to be invalid, void, or illegal shall in no way affect,impair or
invalidate any other provisions hereof and such other provision shall remain
in full force and effect.
31.11. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
31.12. Choice of Law. This Lease shall be governed by the laws of
the State of California.
31.13. Sale of Premises by Landlord. In the event of any sale of the
Premises by Landlord, Landlord shall be and is hereby entirely freed and
relieved of all liability under any and all of its covenants and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission occurring after the consummation of such sale; but only if the
purchaser at such sale or any subsequent sale of the Premises shall have
assumed and agreed to carry out any and all of the covenants and obliga tions
of the Landlord under this Lease.
31.14. Subordination, Attornment. Upon request of the Landlord,
Tenant will in writing subordinate its rights hereunder to the lien of any
mortgage, or deed of trust, to any bank, insurance company or other lender
(including the Building owner and its successors and assigns) now or hereafter
in force against the premises, and to all advances made or hereafter to be
made upon the security thereof, provided that such company or institution
agrees to honor this Lease for the full term hereof so long as Tenant is not
in default hereunder.
In the event any proceedings are brought for foreclosure, or in the event
of the exercise of the power of sale under any mortgage or deed of trust made
by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as
the Landlord under this Lease.
31.15. Notices. All notices and demands which may be or are required
or permitted to be given by either party on the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent
by United States Mail, postage prepaid, addressed to the Tenant at the
Premises, and to the address hereinbelow, or to such other place as Tenant may
from time to time designate in a notice to the Landlord. All notices and
demands by the Tenant to the Landlord shall be sent by United States Mail,
postage prepaid, addressed to the Landlord at the address set forth herein,
and to such other person or place as the Landlord may from time to time
designate in a notice to the Tenant.
To Landlord at: NINE C CORPORATION
P.O. Box 5764
Redwood City, CA 94063
To Tenant at: J.B.Richter DBA Capital Resources
900 Veterans Blvd. #240
Redwood City, CA 94063
32. SERVICES TO PREMISES. Notwithstanding anything herein to the
contrary, the Landlord shall provide water, power, heating, air conditioning,
janitorial and other services, including but not limited to floor waxing,
trash removal, window washing and all facilities regarding maintenance of the
exterior of the building, including gardening, subject to payment or
reimbursement by Tenant as provided herein.
Exhibit "B" hereto more completely sets forth the types and
frequency of service and the minimum acceptable service standard levels.
33. VALIDITY OF LEASE. The Lease shall be effective only after
Tenant has received a fully executed copy of this Lease from Landlord.
34. TOXIC/HAZARDOUS MATERIALS CONSIDERATION. Upon request Lessor will
make available a Toxic Report that shows Benzene under the garage area. This
is being monitored by the County Health Department at this time. Lessor
believes it does not present a hazard.
THE PARTIES HAVE EXECUTED THIS LEASE THE DATE AND YEAR SET BELOW THEIR
SIGNATURE:
LANDLORD TENANT
NINE-C CORPORATION J. B. Richter
Capital Resources
By:/S/ JAMES E. BURNEY By:/S/ JEROME B. RICHTER
---------------------------- ----------------------------
James E. Burney Jerome B. Richter
Title: President Title: Principal
Date: 5/22/97 Date: 5/22/97
---------------------------- ----------------------------
By:/S/ J.B. RICHTER
----------------------------
J.B.Richter, an individual
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
33,000.00 05-28-1997 05-29-1998 103
- - ---------- ---------- ---------- -------- ---- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
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 VENTERANS BLVD, STE 240 900 VETERANS BLVD.
REDWOOD CITY, CA 94063 P.O. BOX 2579
REDWOOD CITY, CA 94064
==============================================================================
PRINCIPAL AMOUNT: $33,000.00 INTEREST RATE: 0.000% DATE OF NOTE: MAY 29, 1997
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 THIRTY THREE THOUSAND & 00/100 DOLLARS
($33,000.00), TOGETHER WITH INTEREST AT THE RATE OF 0.000% PER ANNUM ON THE
UNPAID PRINCIPAL BALANCE FROM MAY 28, 1997, UNTIL PAID IN FULL.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN
ONE PRINCIPAL PAYMENT OF $33,000.00 PLUS INTEREST ON MAY 29, 1998. THIS
PAYMENT DUE MAY 29, 1998, 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,
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.
PREPAYMENT. 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.
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 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 of 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 in impaired.
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 interest rate on this Note 5.000 percentage
points. 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 proceeding (including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgement 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 or pre-authorized charge with
which borrower pays is later dishonored.
GENERAL PROVISION. 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 dishonor. Upon any
change in the terms of this Note, any unless otherwise expressly stated in
writing, no party who signs this Note, whether as make, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extent (repeatedly and for any length
or 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.
<PAGE>
05-28-97 PROMISSORY NOTE PAGE 2
(CONTINUED)
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT
OF A COMPLETED COPY OF THE NOTE.
BORROWER:
PENN OCTANE CORPORATION
BY: /S/ JEROME B. RICHTER
-----------------------------------------
JEROME B. RICHTER, PRESIDENT/SECRETARY
==============================================================================
AMENDMENT OF THE
INTERIM OPERATING AGREEMENT
DATED: As of March 21, 1997
The parties agree that they will amend the Interim Operating Agreement between
Wilson Technologies Incorporated and Wilson Acquisition Corporation dated
March 7, 1997 in the following manner:
1. Wilson Acquisition Corporation ("WAC") will purchase inventory and
other assets (excluding accounts receivable) of Wilson Technologies
Incorporated ("WTI") at an agreed price of $394,000.00 to be paid to WTI in
cash in 7 equal $42,000.00 payments to be made per the following schedule:
Two payments at closing of the unamended agreement, and one payment on
each of the following dates:
March 20, 1997
April 5, 1997
April 20, 1997
May 5, 1997, and
May 20, 1997
The balance of $100,000.00 will be payable in the form of a note payable
20% per year with interest at the prime rate, with the first payment due June
5, 1998.
2. The Cessation Notice shall be effective without any further notice and
allow assumption of all S,G&A expenses by WAC on June 1, 1997 (including
selection of which WTI employees will be retained by WAC).
WAC will allow a single individual (SAFECO job manager, currently
anticipated to be Rick Remington) to be selected by WTI to be used for the
purpose of completing all field related activity of SAFECO bonded jobs (WORK
to be directed by WTI). Salary and expenses of this individual will be
reimbursed to WAC by WTI. It is anticipated this SAFECO job manager will be
required on a full-time basis for 30 to 60 days after the Cessation Notice,
with a reduced activity period extending beyond this full-time period. Notice
will be given to WAC by WTI when the SAFECO job manager's full-time activity
is completed, and a sharing of his related expenses on a go forward basis will
be agreed to by the parties at this time.
Note there are no changes anticipated in the original agreement relating
to the 40 man hours per week to be made available to WTI on a cost free basis
(to be directed by the SAFECO job manager) except that it will continue for as
long as the SAFECO job manager is on his full-time basis. In addition, at the
conclusion of the SAFECO job manager's full-time basis, it is agreed this
ratio of time by the SAFECO job manager to free man-hours will continue during
the SAFECO job manager's reduced activity period, i.e., if the SAFECO job
manager is working 20 hours paid by WTI, WAC will furnish 20 hours of
additional man-hours before charging cost plus 10%.
WAC will have the right to hire any WTI employees effective June 1, 1997.
The parties are aware that WAC will assume 1 years vacation liability as of
May 31, 1997. The remaining amounts as of May 31, 1997, when paid to the
employees will be reimbursed by WTI or offset against the note or any
inventory or other assets purchased by WAC. In addition, Mr. Rick Remington
will be the expense of WTI as the SAFECO job manager as set forth above.
WTI will be responsible for reimbursing WAC for any allocable employee
and material expenses (not including the free employee hours set forth above)
at a rate of cost plus 10% to finish warranty, SAFECO or other tasks which are
not related to Penn Wilson-CNG.
3. WAC will have the right to use the name Penn Wilson-CNG, or any name
which may include Wilson, or any derivation thereof.
4. WAC shall have the right to carry on its CNG business.
5. WAC will have the right to assume, and have assigned, if desired, the
Service Contracts.
6. WTI will be entitled to receive royalties for a cumulative amount of $2
million, less any mutually agreed upon offsets. Thus far, the parties are
aware of several items, such as payments for the benefit of WTI to Rob Adams
and other "old Wilson" payments which have been agreed upon to date. The
royalty will be calculated at 5% of Net Revenue as defined in and payable on
the terms set forth on Exhibit A to the Purchase Agreement.
7. All signatories (WTI, ZHI, WAC and POC) will exchange mutual general
releases as soon as practicable following the date hereof.
8. Except to the extent set forth herein and in Paragraph 15 of the
Purchase Agreement, the Interim Operating Agreement and the Purchase Agreement
referred to herein are hereby terminated.
Agreed to as of the date set forth above by:
BUYER COMPANY
Wilson Acquisition Corporation Wilson Technologies Incorporated
By: By: /s/ IAN T. BOTHWELL /S/ LARRY DODSON
---------------------------------------- ----------------------------
IAN T. BOTHWELL LARRY DODSON
Title: SECRETARY AND TREASURER Title: SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Penn Octane Corporation Zimmerman Holdings, Inc.
By: /s/ IAN T. BOTHWELL By: /S/ LARRY DODSON
---------------------------------------- ----------------------------
IAN T. BOTHWELL LARRY DODSON
Title: VICE PRESIDENT AND CHIEF FINANCIAL Title: SENIOR VICE PRESIDENT AND
OFFICER CHIEF FINANCIAL OFFICER
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Penn Octane
Corporation form 10-Q quarterly report for the period ended April 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 422,943
<SECURITIES> 0
<RECEIVABLES> 332,952
<ALLOWANCES> 0
<INVENTORY> 594,352
<CURRENT-ASSETS> 1,712,612
<PP&E> 4,300,462
<DEPRECIATION> 1,141,902
<TOTAL-ASSETS> 5,672,060
<CURRENT-LIABILITIES> 3,298,589
<BONDS> 0
0
2,700
<COMMON> 81,593
<OTHER-SE> 2,229,135
<TOTAL-LIABILITY-AND-EQUITY> 5,672,060
<SALES> 24,080,892
<TOTAL-REVENUES> 24,080,892
<CGS> 23,116,092
<TOTAL-COSTS> 23,116,092
<OTHER-EXPENSES> 1,319,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184,021
<INCOME-PRETAX> (537,620)
<INCOME-TAX> 0
<INCOME-CONTINUING> (537,620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (537,620)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
