LEASE/INSTALLMENT PURCHASE AGREEMENT
FOR TWO (2) 15-MILE PIPELINES
THIS AGREEMENT ("Agreement") is made and entered into as of _________ ___, 1998
by and between PENN OCTANE CORPORATION, a Delaware corporation ("POC"), and CPSC
INTERNATIONAL, a Texas corporation ("CPSC") (collectively referred to as the
"Parties" and individually referred to as a "Party" where either POC or CPSC
could apply).
WHEREAS, CPSC has agreed to design, construct and own two (2) "Pipelines" (as
hereinafter defined) and to lease the Pipelines to POC, and POC has agreed to
lease the Pipelines from CPSC and to pay the Rental (as hereinafter defined),
all under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
benefits to be derived by each Party hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
1. DEFINITIONS
1.1. Definitions. The following terms as used in this Agreement shall have
the respective meanings assigned to them below:
1.1.1. "Pipelines" means those two (2) Pipelines, approximately fifteen (15)
miles in length and with a nominal 8.625 inch outside diameter (8.625" O.D.), to
be constructed in Cameron County, Texas, as more particularly described in
Exhibit "A" attached hereto and made a part hereof.
1.1.2. "Facilities" means the vents, casings, valves, cathodic protection
devices, and other items of personal property which are constructed on, affixed
to or installed on the Pipelines inlet flange to inlet flange and equipment or
facilities used in the operation or monitoring of the Pipelines.
1.1.3. "Easements" means those Pipelines right-of-way permits, licenses and
easements which are to be physically occupied by the Pipelines and the
Facilities and or necessary to operate the Pipelines and the Facilities as set
out in the final design.
1.1.4. "Operator" means CPSC or its designee.
1.1.5. "Pipeline Assets" means the Pipelines together with the Facilities
and the Easements.
1.1.6. "Operating Requirements" means the general description of the
Pipelines and Facilities to be constructed by CPSC and the expected operating
requirements as determined by POC and as set forth in Exhibit "B" hereto.
1.1.7. "Substantial Completion Date" is defined in Section 3.6.
1.1.8. "Lease Anniversay Date" means twelve (12) months after the first day
of the month during which the "Substantial Completion Date" occurs.
1.1.9. "Month" means a calendar month.
1.1.10."Lease Effective Date" means the first day of the Month in which the
Substantial Completion Date occurs.
1.1.11"Initial Lease Year" means the period commencing on the Lease Effective
Date and ending on the first Lease Anniversary Date thereafter.
1.1.12."Lease Year" means the Initial Lease Year or any subsequent twelve-month
period commencing on a Lease Anniversary Date during the term of this Agreement.
1.1.13."Lease Term" is defined in Section 3.8.
1.2. Other Definitions. Terms defined in other portions of this Agreement
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shall have the respective meanings so assigned to them in this Agreement.
2. DESIGN AND CONSTRUCTION
2.1. Design and Specifications. CPSC shall proceed promptly and with due
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diligence to prepare the engineering design and specifications of the Pipelines
and the Facilities in order to comply with the Operating Requirements. CPSC
shall complete and provide POC with a copy of such design in accordance with
Exhibit "B", which POC shall expeditiously review. CPSC shall receive POC's
written approval of such design of the Pipelines and the Facilities prior to
commencement of construction. Such design, which may be subsequently altered,
will be described in words and mapped and shall become Exhibit "A".
2.2. Construction. Following POC's approval of the design, CPSC will
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proceed promptly and with due diligence to acquire the Easements and to
construct the Pipelines and the Facilities in accordance with Exhibit "B" and
approved design and specifications.
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2.3. Design and Construction Costs. CPSC shall bear and pay the costs
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incurred in connection with the design and construction of the Pipelines and the
Facilities and the acquisition of the Easements.
2.4. Ownership. Except as otherwise provided in Section 5, and unless and
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until the option to purchase provided for in Section 5 is exercised, CPSC shall
be the owner of the Pipelines, the Facilities and the Easements.
2.5. Inspection of Materials and Work.
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2.5.1. The plans and specifications for the Pipelines are referred to in
this Agreement as "the Design and Specifications" which shall be included in
Exhibit "A".
2.5.2. In accordance with the following provisions, prior to the Substantial
Completion Date, POC shall have the right to inspect the Pipelines and the
Facilities and satisfy itself as to their condition and compliance with the
Design and Specifications. In this regard, CPSC shall furnish to POC access at
all reasonable times to all pipe and other materials to be used in the
construction of the Pipelines and Facilities and to the work of construction of
the Pipelines and Facilities whenever work is in progress, in order that POC may
examine and inspect the pipe and other materials and observe the work and may
assure itself that the terms of the Design and Specifications are being met.
POC shall have the right to conduct such inspections of the pipe and other
materials to be used in the construction of the Pipelines and Facilities and of
the work at its sole cost, risk and expense. POC and CPSC contemplate that POC
will be given the opportunity to conduct thorough inspections of all work and
all pipe and other materials in the construction of the Pipelines and
Facilities, and that POC will at its discretion conduct inspections of and will
observe certain pipe and materials and certain work as the work progresses and
segments are being constructed. In this connection,
2.5.2.1. POC shall designate a representative of POC ("POC's
Representative") in order to perform inspections on behalf of POC at POC's
discretion and who shall communicate with CPSC on behalf of POC regarding any
such inspections, notify CPSC of any defective pipe or other equipment and
defects in work or failure to comply with the Design and Specifications
discovered during such inspections, and shall communicate with CPSC regarding
the curing of any discovered defects and repairs to or replacements of any such
defective work and materials.
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2.5.2.2. CPSC shall designate a representative of CPSC ("CPSC's
Representative") who shall be responsible for communicating with POC's
Representative on behalf of CPSC for purposes of this Section 2.5.2.2. and shall
be physically present or available by telephone or telefax during inspections by
POC's Representative;
2.5.2.2.1. POC's Representative shall coordinate such inspections to avoid
unnecessarily delaying the progress of work and shall conduct such inspections
of pipe, coating and welding when pipe and workmanship are available for
inspection (that is, before being lowered into the ditch and covered), and CPSC
shall not be obligated to subsequently uncover pipe for inspection which was not
conducted when POC had the reasonable opportunity to do so when the pipe and
workmanship were available for inspection; and
2.5.2.2.2. If, in the reasonable judgment of POC, work or pipe or other
materials are defective or fail to comply with the Specifications, POC's
Representative shall notify CPSC's Representative at the time of POC's
Representative's discovery of such defect or failure or as soon thereafter as
possible, and CPSC shall repair or replace the defective work or materials in a
manner complying with the Design and Specifications (in this regard, any such
notification by POC's Representative which is not initially made in writing
shall be confirmed in writing by POC's Representative within twenty-four hours
after the applicable inspection). The scope of such inspections shall be limited
to determining whether the inspected pipe and materials and the results of the
work comply with the Design and Specifications.
3. PIPELINE LEASE AND RENTAL
3.1. Pipeline Lease. For and in consideration of POC's payment of the
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rentals herein provided, CPSC hereby agrees to lease and let unto POC, effective
as of the Lease Effective Date, the Pipelines and the Facilities for the Lease
Term (as herein defined), on the terms set forth herein. During the Lease Term,
the Pipelines and the Facilities shall be operated by the Operator in accordance
with the terms of the Operating Agreement attached hereto as Exhibit "C".
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3.2. Rental. For the duration of the Lease Term (as herein defined), POC
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shall pay to CPSC as rental the sum of One Million Twenty Thousand Dollars
($1,020,000.00) per Lease Year (the "Rental"), subject to following provisions
of this Section 3.2. The Rental for each Lease Year is payable in twelve (12)
equal monthly installments of Eighty-Five Thousand Dollars ($85,000.00) each,
due and payable on or before the last day of each Month provided, however, if
the Substantial Completion Date does not occur on the first day of the Month,
then, solely with respect to the installment of rental payable for the initial
Month of the Initial Lease Year. POC shall make an entire monthly installment.
Such payment shall be considered a prepayment for the partial month's rental at
the end of the Lease Term. POC shall require its customer to make all payments
to an escrow account in the name of CPSC. An escrow agent (RZB) will deduct the
lease payment and any other funds due CPSC from the escrow account and remit the
remainder to POC. A sample escrow agreement is attached as Exhibit "F."
3.3. Letter of Credit. POC shall provide, at closing of the Lease
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Installment Agreement, an irrevocable standby letter of credit to guarantee
payments to CPSC in the amount of Five Hundred Ten Thousand Dollars
($510,000.00). If there is a default in payment, CPSC can call on the letter of
credit for payment. The irrevocable letter of credit will be obtained from a
first rated bank acceptable to CPSC.
3.4. Security Agreement. POC will grant CPSC a first priority security
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interest in all of its assets (except for accounts receivable and inventory)
including; the POC contract rights with Seadrift, Exxon, and PMI or other PEMEX
entities as security for the timely payment of the lease payments. POC will
provide U.C.C. and lien documents as necessary to perfect CPSC's priority
interest herein mentioned.
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3.5. Default.
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3.5.1. Each of the following shall be deemed a default by POC and a breach
of this Agreement:
3.5.1.1. Filing of a petition for adjudication as a bankrupt, or for
reorganization, or for an arrangement under any Federal or State statue;
3.5.1.2. Dissolution or liquidation of POC, without the transfer to and
assumption by a financially responsible third party of this Agreement;
3.5.1.3. Appointment of a permanent or temporary receiver or a permanent or
temporary trustee of all or substantially all the property of POC;
3.5.1.4. Taking possession of the property of POC by a governmental officer
or agency pursuant to statutory authority for dissolution, rehabilitation,
reorganization or liquidation; or
3.5.1.5. Making by POC of an assignment for the benefit or creditors.
3.5.1.6. Filing of a voluntary or involuntary lien on the assets of POC that
are security for this lease.
If any event mentioned in this Section 3.5.1. shall occur, CPSC may thereupon or
at any time within ninety (90) days thereafter elect to terminate this Agreement
upon ten (10) days' prior written notice to POC and this Agreement shall
terminate on the day in such notice specified with the same force and effect as
if that date were the date herein fixed for the Term of this Agreement.
3.5.2. Default in the payment of the rental or any other amount herein
reserved or any part thereof for a period of twenty (20) days after written
notice of such default from CPSC.
3.5.3. In the event of any default under Section 3.5.1. and/or 3.5.2., CPSC,
at its option, in addition to all other rights, can present a letter of default
to the __________ bank and draw down on the letter of credit provided by POC,
and can repossess and assume all rights in any assets or agreements that
constitute security for this lease.
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3.5.4. Default in the performance of any other covenant or condition of this
Agreement on the part of either party to be performed for a period of thirty
(30) days after written notice from the non-defaulting party specifying the
nature of such default. For purposes of this Section 3.5.4., no default on the
part of either party in performance of work required to be performed or acts to
be done shall be deemed to exist if after receipt of the aforesaid notice the
party in default diligently takes action to rectify the same and prosecutes such
action towards completion with reasonable diligence, subject, however, to
avoidable delays.
3.5.5. In case of any such default under Section 3.5.2. and/or Section
3.5.4. and at any time within ninety (90) days thereafter following the
expiration of the respective grace periods above-mentioned, the non-defaulting
party may serve a notice upon the defaulting party electing to terminate this
Agreement upon a specified date not less than thirty (30) days after the date of
serving such notice and this Agreement shall expire on the date so specified as
if that date had been originally fixed as the expiration date of the Term herein
granted. However, a default under Section 3.5.2. and/or Section 3.5.4. shall be
deemed waived if such default is remedied before the date specified for
termination in the notice of termination served on the defaulting party pursuant
to this Section 3.5.5.
3.6. Substantial Completion. In the event that CPSC, using its best
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efforts, determines that it will not be able to meet the Substantial Completion
Date, CPSC shall immediately inform POC. When, in CPSC's judgment, CPSC has
completed the Pipelines and Facilities in a condition to be placed in service,
CPSC shall conduct a hydrostatic pressure test in accordance with the Design and
Specifications. If the Pipelines and Facilities fail to satisfy such test, CPSC
shall use all reasonable efforts to repair the Pipelines and Facilities so that
the Pipelines and Facilities satisfy such test. "Substantial Completion Date"
as used herein shall occur when, and shall mean the date on which, the Pipelines
and Facilities have satisfied such hydrostatic pressure test and are clean and
dry internally so as to be ready to be placed in service ("Substantial
Completion"). CPSC shall use its best efforts to obtain all necessary rights of
way and design, engineer, construct, test and obtain permits for the Pipelines
and Facilities so that the Substantial Completion Date is no later than May 1,
1999.
3.7. Certificate. When substantial completion has occurred, the Parties
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shall execute a certificate substantially in the form of Exhibit "D" attached
hereto setting forth such fact, specifying the Substantial Completion Date, and
acknowledging that the lease of the Pipelines and Facilities commences on the
Lease Effective Date.
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3.8. Lease Term. The Pipelines and the Facilities are leased for a term
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commencing on the Lease Effective Date and ending on the last day of the
fifteenth (15th) Lease Year or if prior to such date, at the end of the Lease
Year during which POC exercises its option to purchase under Section 5 (i.e.,
the 10th, or 15th Lease Year, as applicable) (the "Lease Term").
3.9. Insurance. Throughout the Lease Term, CPSC shall, at CPSC's expense,
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provide liability insurance or self insurance.
3.10. Damage or Destruction. If the Pipelines Assets, or any portion
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thereof, shall be damaged or destroyed during the Lease Term due to causes other
than either a) Operator's failure to perform any obligations under the terms
hereof (including Exhibit "B") or b) Operator's negligence then, POC may elect
whether or not to repair or rebuild the Pipeline Assets; provided, however, CPSC
shall not have any duty, liability, or responsibility to perform any repairs,
replacement, or reconstruction not fully funded by POC; and also provided that
if Operator shall proceed as promptly as practicable to complete such repair or
rebuilding with all due diligence and due care and shall make available for
inspection by POC as provided by Section 2.5 all work and materials used to
repair or rebuild. In event of any such damage or destruction, and POC elects
not to repair or rebuild, POC shall have the right to terminate the Lease and
Operating Agreement forthwith and POC and CPSC shall negotiate to determine the
unrecovered capital POC shall pay, with any salvaged or income from reletting
all or a portion of the Pipelines to be subtracted from the unrecovered capital.
3.11. Indemnification of POC. Except as otherwise expressly provided below,
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from and after the effective date hereof, including the period of design,
engineering and construction of the Pipelines and Facilities and while CPSC is
Operator, CPSC shall defend, indemnify, and hold harmless POC, its officers,
agents, representatives and employees from and against any and all claims,
losses, damages, causes of action, suits, and liability of every kind
(including, without limitation, expenses of litigation, court costs and
attorneys' fees) of or by any person or entity (including, without limitation,
CPSC and its employees) for injury to or death of any person or persons, or for
damage to any property, arising out of or in connection with operation, repair,
replacement, or maintenance of the Pipeline Facilities, or the escape or loss of
any gas or other substance therein or transported thereby, including, without
limitation, injuries, death, or damages caused by POC's sole negligence or joint
negligence except only injuries, death, or damages caused by POC's gross
negligence or willful misconduct. THE PARTIES EXPRESSLY INTEND THAT THE
INDEMNITY PROVIDED IN THIS SECTION 3.11 INCLUDES THE OBLIGATION OF CPSC TO
INDEMNIFY AND PROTECT POC FROM THE CONSEQUENCES OF POC's OWN NEGLIGENCE, WHETHER
THAT NEGLIGENCE IS THE SOLE OR A CONCURRING CAUSE OF THE INJURY, DEATH OR
DAMAGE.
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3.12. Indemnification of CPSC. For claims, losses, damages, causes of
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action, suits, and liability of every kind (including, without limitation,
expenses of litigation, court costs and attorneys' fees) arising at any time POC
is, providing that such claim arises when CPSC is not Operator of the pipelines
under any other arrangement, POC shall defend indemnify and hold harmless CPSC
its officers, agents, representatives and employees from and against any and all
claims, losses, damages, causes of action, suits, and liability of every kind
(including, without limitation, expenses of litigation, court costs and
attorneys' fees) of or by any person or entity (including, without limitation,
POC and its employees) for injury to or death of any person or persons, or for
damage to any property, arising out of or in connection with operation, repair,
replacement, or maintenance of the Pipeline Facilities, or the escape or loss of
any product or other substance therein or transported thereby, including,
without limitation, injuries, death, or damages caused by CPSC's sole negligence
or joint negligence except only injuries, death, or damages caused by CPSC's
gross negligence or willful misconduct. THE PARTIES EXPRESSLY INTEND THAT THE
INDEMNITY PROVIDED IN THIS SECTION 3.12 INCLUDES THE OBLIGATION OF POC TO
INDEMNIFY AND PROTECT CPSC FROM THE CONSEQUENCES OF CPSC's OWN NEGLIGENCE,
WHETHER THAT NEGLIGENCE IS THE SOLE OR A CONCURRING CAUSE OF THE INJURY, DEATH
OR DAMAGE.
3.13. Maintenance. The Rental payments set out in Section 3.2 shall include
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all routine maintenance. In the event there is a change in regulations
governing the operation of the Pipeline Assets which results in a substantial
increase in maintenance costs the parties agree to meet to arrive at a mutually
agreeable adjustment to Rental.
3.14. Progress Reports. CPSC shall provide POC progress reports which
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detail the status of the construction and operation of the Pipeline Facilities.
4. OPERATOR
4.1 Initial Operator. CPSC, or its designee, shall be the initial Operator
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of the Pipelines and the Facilities.
4.2 Operating Agreement. The party acting as Operator of the Pipelines and
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the Facilities shall be responsible for and act in accordance with the terms and
provisions of the Contract Operating Agreement attached hereto as Exhibit "C"
(the "Operating Agreement").
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5. OPTION TO PURCHASE
5.1. Option to Purchase. POC shall have the following option to purchase
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the Pipelines, the Facilities and the Easements (the Pipeline Assets) with
closing to occur as set out in Section 7.
5.1.1. POC shall have the option to purchase the Pipeline Assets at the end
of the tenth (10th) Lease Year, upon 180 days prior written notice. At Closing,
POC shall pay to CPSC the sum of two million five hundred thousand dollars
($2,500,000.00) as consideration for the Pipeline Assets.
5.1.2. If POC has not previously exercised its option to purchase, POC shall
have the option to purchase the Pipeline Assets with closing of such purchase
transaction to take place on or before at the end of the fifteenth (15th) Lease
Year, upon 180 days prior written notice At Closing, POC shall pay to CPSC the
sum of Fifty Thousand Dollars ($50,000.00) as consideration for the Pipeline
Assets.
5.2. Option Price. In the event POC exercises its option to purchase, the
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sum set forth in the applicable clause of Section 5.1 as the consideration for
the Pipeline Assets shall be the "Option Price" as used herein.
5.3. Environmental Due Diligence. At any time prior to POC exercising its
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option to purchase, POC shall have access to the Pipeline Assets and all
associated records for the purpose of monitoring and assessing the environmental
condition of the Pipeline Assets. Such monitoring and assessment may include
not only a review of records and documents, but an assessment of the real and
personal property associated with the Pipeline Facilities including but not
limited to taking core samples and other samples for analysis.
6. REPRESENTATIONS AND WARRANTIES; COVENANTS
6.1. Representations and Warranties of CPSC. CPSC represents and warrants
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to POC:
6.1.1. that the execution, delivery and performance of this Agreement and
the transactions contemplated hereby have been duly and validly authorized by
all requisite corporate action on the part of CPSC; and
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6.1.2. that CPSC is a Texas corporation and has all requisite power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby; and
6.1.3. that this Agreement constitutes the valid and legally binding
obligation of CPSC, and the taking by CPSC of the actions contemplated hereby do
not and will not violate or constitute a default under any material agreement,
order, law, statute or regulation or result in the acceleration of any
obligation, deed of trust, or indenture or other encumbrance to which CPSC is a
party; and
6.1.4. that CPSC, or its designee, is duly qualified to own and to operate
the Pipeline Assets.
6.2. Covenants of CPSC. CPSC covenants that CPSC will acquire and maintain
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all permits required by CPSC to own and operate the Pipelines and Facilities.
6.3. Representations and Warranties of POC. POC represents and warrants to
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CPSC:
6.3.1. that the execution, delivery and performance of this Agreement and
the transactions contemplated hereby have been duly and validly authorized by
all requisite corporate action on the part of POC; and
6.3.2. that POC is a Delaware corporation duly organized, validly existing,
and in good standing under the laws of the States of Delaware and Texas, and has
all requisite corporate power and authority to enter into this Agreement and
consummate the transactions contemplated hereby; and
6.3.3. that this Agreement constitutes the valid and legally binding
obligation of POC, and the taking by POC of the actions contemplated hereby do
not and will not violate or constitute a default under any material agreement,
order, law, statute or regulation; and
6.3.4. POC has granted to CPSC that all agreements and assets (except for
accounts receivable and inventory) used as security for this lease, a first and
superior lien to all other creditors and parties. If existing liens are in
place, the current lienholders have subordinated the liens to CPSC.
7. CLOSING UNDER OPTION TO PURCHASE
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7.1. Closing. If POC exercises its option to purchase in a timely and
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proper manner, POC and CPSC agree that the consummation of the sale and purchase
of the Pipeline Assets ("Closing") shall occur at a mutually agreed upon date at
the end of the Lease Year for which POC exercised its option (i.e., the 10th, or
15th Lease Year, as applicable) ("Closing Date"). The Closing shall be held at
the offices of CPSC at Two Allen Center, Suite 2250, Houston, Texas.
7.1.1. Closing Obligations. At the Closing, the following events shall
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occur, each event under the control of one party hereto being a condition
precedent to the events under the control of the other party, and each event
shall be deemed to have occurred simultaneously with the other events:
CPSC shall duly execute, acknowledge and deliver an Assignment and Bill of Sale
("Assignment"), substantially in the form set forth in Exhibit "E" attached
hereto and made a part hereof;
7.1.2. If POC has not previously done so, POC shall pay to CPSC an amount
equal to the total Option Price in immediately available funds by wire transfer
to CPSC's account at Bank One Texas, N.A.-Houston, Texas, ABA Routing No.
111-000-614 Account No. 182-413-6335 for credit to CPSC; and
7.1.3. CPSC shall transfer and deliver or cause to be transferred and
delivered to POC the original (or if an original is not available, then a true
copy) of all relevant written instruments, documents and files, or relevant
portions thereof, pertaining to the Pipeline Assets which are within the
possession or control of CPSC (other than the construction contract and material
dealing with matters between CPSC and the contractor).
8. OBLIGATIONS AFTER CLOSING; DISCLAIMER OF WARRANTIES
8.1. Indemnification of CPSC after Closing. If Closing occurs, POC shall
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indemnify and hold harmless CPSC and its affiliates, and all their contractors,
officers, agents and employees from and against all damages, demands,
liabilities, losses, lawsuits (including, without limitation, court costs and
reasonable attorneys' fees), costs, claims and causes of action (collectively
referred to in this Section 8.1 as "Claims") that arise out of or in connection
with any errors, defects or deficiencies in the engineering, the design or the
construction of the Pipelines and Facilities (including the Specifications) or
the condition of the Pipeline Assets, or that arise out of or in connection with
the ownership, operation, maintenance, repair or replacement of the Pipeline
Assets after the Closing, regardless of whether such Claims are caused by or
contributed to by the negligence of CPSC (but not the gross negligence or
willful misconduct of CPSC). THE PARTIES EXPRESSLY INTEND THAT THE INDEMNITY
PROVIDED IN THIS SECTION 8.1 INCLUDES THE OBLIGATION OF POC TO INDEMNIFY AND
PROTECT CPSC FROM THE CONSEQUENCES OF CPSC's OWN NEGLIGENCE, WHETHER THAT
NEGLIGENCE IS THE SOLE OR A CONCURRING CAUSE OF THE INJURY, DEATH OR DAMAGE.
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8.2. DISCLAIMERS OF WARRANTIES; WAIVERS. THE PARTIES AGREE THAT, TO THE
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EXTENT REQUIRED TO BE OPERATIVE, THE FOLLOWING DISCLAIMERS OF WARRANTIES ARE
"CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF APPLICABLE LAW. THIS AGREEMENT IS
MADE AND ACCEPTED, AND IF POC EXERCISES ITS OPTION TO PURCHASE THE ASSIGNMENT
WILL BE MADE AND ACCEPTED, WITH THE UNDERSTANDING AND AGREEMENT OF THE PARTIES
THAT IF POC EXERCISES ITS OPTION TO PURCHASE, THE PIPELINE ASSETS AND ALL
PERSONAL PROPERTY, MACHINERY, FIXTURES, EQUIPMENT AND MATERIALS COVERED HEREBY
SHALL BE SOLD AND ASSIGNED AND ACCEPTED BY POC IN THEIR CONDITION AT THAT TIME,
"AS IS, WHERE IS, AND WITH ALL FAULTS" AT THAT TIME, WITHOUT ANY WARRANTIES
WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, OF QUALITY, CONDITION,
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE OR USE, OR DESIGN,
PERFORMANCE, CONDITION, OR OF ANY OTHER KIND, ALL OF WHICH ARE EXPRESSLY
DISCLAIMED; PROVIDED, HOWEVER, CPSC WARRANTS THAT THE PIPELINE FACILITIES ARE IN
GOOD OPERATING ORDER AND WHILE CPSC WAS OPERATOR PIPELINE FACILITIES WERE
OPERATED IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS AND THAT THE
FOREGOING DISCLAIMERS DO NOT NEGATE OR DETRACT IN ANY WAY FROM ANY WARRANTIES TO
BE SET FORTH IN THE ASSIGNMENT. POC EXPRESSLY WAIVES THE PROVISIONS OF CHAPTER
XVII, SUBCHAPTER E, SECTIONS 17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION
17.555, WHICH IS NOT WAIVED), TEXAS BUSINESS AND COMMERCE CODE (THE "DECEPTIVE
TRADE PRACTICES-CONSUMER PROTECTION ACT").
9. TAXES
9.1. Sales Taxes. If the option to purchase provided for in Section 5.1
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is exercised, the Option Price provided for in Section 5.2 shall not include
(and POC shall not otherwise pay CPSC for) any sales or use tax or other excise
taxes, fees or levies. However, in the event that a taxing authority(ies) deems
any such tax, fee or levy to arise out of or in connection with the exercise of
the option to purchase under Section 5.1, POC shall be responsible for payment
thereof and shall indemnify and hold CPSC harmless with respect to the payment
of any such taxes, fees or levies. The Parties agree that, under no
circumstance (other than challenge by a taxing authority) shall any sales or use
tax, other excise tax, fees or levies be due prior to exercise of the option to
purchase.
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9.2. Other Taxes and Fees. If the option to purchase provided for in
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Section 5.1 is exercised, proration of ad valorem taxes, water taxes, hazardous
waste taxes, utility and fuel charges, permit and inspection fees, and any other
taxes levied on or with respect to the Pipeline Assets (other than taxes covered
in Section 9.1 above) shall be made as of the Closing Date specified in Section
7, with all such items attributable to the period prior the Closing Date to be
for the sole account of CPSC, and all such items attributable to the period on
or after the Closing Date to be for the sole account of POC.
9.3. Cooperation. Each Party shall provide the other party with
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reasonable access to all relevant documents, data and other information which
may be required by the other Party for the purpose of preparing tax returns and
responding to any audit by any taxing jurisdiction. Each Party shall cooperate
with all reasonable requests of the other Party made in connection with
determining or contesting tax liabilities attributable to the Pipeline Assets.
Notwithstanding anything to the contrary contained in this Agreement, neither
Party to this Agreement shall be required at any time to disclose to the other
Party any tax returns or other confidential tax information.
10. MISCELLANEOUS
10.1. Commissions. Whether or not the Closing occurs, (a) CPSC shall
-----------
indemnify and hold harmless POC from and against any and all liability for any
brokers' of finders' fees arising with respect to any brokers or finders
retained or engaged by CPSC in respect to the transactions contemplated by this
Agreement, and (b) POC shall indemnify and hold harmless CPSC from and against
any and all liability for any brokers' or finders' fees arising with respect to
any brokers or finders retained or engaged by POC in respect to the transactions
contemplated by this Agreement.
10.2. Fees. Each Party hereto shall bear and be responsible for all fees,
----
costs and expenses (including, without limitation, legal, accounting and
engineering expenses) incurred by such party with respect to the negotiation and
execution of this Agreement.
14
10.3. Notices. All notices, requests, demands, instructions and other
-------
communications required or permitted to be given hereunder shall be in writing
and shall be delivered personally, by messenger or mail courier service with
receipt obtained thereby or mailed by registered mail, or certified mail, return
receipt requested, postage prepaid, as follows:
If to POC, addressed to:
PENN OCTANE CORPORATION
900 Veterans Blvd., Suite 240
Redwood City, CA 94063
Attention: Mr. Jerome B. Richter
If to CPSC, addressed to:
CPSC INTERNATIONAL
Two Allen Center, Suite 2250
1200 Smith Street
Houston, Texas 77002
Attention: Mr. A. C. DuBose
or to such other place as either party may designate as to itself by written
notice to the other. All notices will be deemed given on the date of receipt at
the appropriate address.
10.4. Force Majeure. A Party shall be excused from complying with the terms
-------------
of this Agreement, except the payment term, if and for so long as such
compliance is hindered, prevented or made unsafe by strikes or other labor
disturbances, riots, wars (declared or undeclared), insurrection, rebellions,
terrorist acts, civil disturbances, dispositions, acts of God, inability to
obtain equipment, supplies or fuel, epidemics, lightning, earthquakes, fires,
storms, hurricanes, floods, washouts, breakage or accident to machinery,
equipment or lines of pipe, freeze-ups of lines of pipe or equipment, the
necessity to make repairs or tests to lines of pipe or equipment, laws, rules,
regulations, dispositions or orders of governmental entities, agencies, or
authorities, or by other act or cause, whether similar or dissimilar, which is
reasonably beyond the control of such Party, such causes being herein sometimes
called "Force Majeure." If any failure to comply with this Contract is
occasioned by a governmental law, rule, regulation, disposition, or order and
the affected Party is operating in accordance with accepted practice in the area
of operations and is making reasonable effort to comply with such law, rule,
regulation, disposition, or order, the matter shall be deemed beyond the control
of the affected Party. In the event that either Party hereto is rendered
unable, wholly or in part, by any of these causes to carry out its obligations
under this Contract, it is agreed that such Party shall give notice and details
of such occurrence of Force Majeure in writing to the other Party as promptly as
possible after its occurrence. In such cases, such obligations of the Party
giving the notice shall be suspended during the continuance of any inability so
caused.
15
10.5. Governing Law. THIS AGREEMENT IS TO BE CONSTRUED IN ACCORDANCE WITH
--------------
THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICT OF LAWS. IN THE EVENT OF ANY DISPUTE BETWEEN THE PARTIES, THEY SHALL
USE THEIR BEST EFFORTS TO MUTUALLY AGREE UPON AN ALTERNATIVE FORM OF DISPUTE
RESOLUTION ("ADR") BEFORE AN ADR PANEL OR ADR INDIVIDUAL IN HOUSTON, TEXAS; ANY
JUDGMENT ENTERED THEREUPON SHALL BE FILED ONLY IN THE STATE OR FEDERAL COURTS OF
TEXAS. IN THE EVENT OF (a) FAILURE TO AGREE ON ADR METHOD, (b) FAILURE TO
CONSENT TO A NON-BINDING ADR DECISION, OR (c) APPEAL OF, OR CHALLENGE TO, AN ADR
DECISION, THEN ANY LEGAL ACTIONS FILED MAY BE BROUGHT ONLY IN THE STATE OR
FEDERAL COURTS AT HOUSTON, TEXAS.
10.6. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the successors of the Parties, but shall not be assigned by either
Party and if assignment is attempted it shall be null and void without the prior
written consent of the other Party, which consent shall not unreasonably be
withheld, except that assignment to a parent corporation, subsidiary of a parent
corporation, or a successor to substantially all of the business of the Parties
shall not require the other Party's consent to become effective. In any
assignment the Assignor shall guarantee the full performance of the terms and
conditions of this Agreement by the Assignee.
10.7. Entire Agreement; Amendments. This Agreement shall constitute the
------------------------------
entire agreement between the Parties with respect to the subject matter hereof,
superseding any and all prior negotiations, discussions, agreements and
understandings, whether oral or written, relating to such subject matter. This
Agreement may not be amended, and no rights hereunder may be waived, except by a
written document signed by the Party to be charged with such amendment or
waiver.
10.8. Severability. If any one or more of the provisions contained in this
-------------
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement.
10.9. No Consequential or Punitive Damages. In the event of breach or
----------------------------------------
violation of this Agreement, neither Party shall be entitled to recover
consequential or punitive damages from the other Party, and each Party hereby
waives any claim or right to consequential or punitive damages hereunder.
16
10.10. Headings; References. The headings of the articles and sections of
---------------------
this Agreement are for guidance and convenience of reference only and shall not
limit or otherwise affect any of the terms or provisions of this Agreement.
References herein to an "Article" or a "Section" or an "Exhibit" shall be to an
Article or a Section or an Exhibit of this Agreement unless a contrary intent is
clearly stated.
10.11. Counterparts. This Agreement may be executed by POC and CPSC in any
------------
number of counterparts, each of which shall be deemed an original instrument,
but all of which together shall constitute but one and the same instrument.
10.12. Recording Fees. POC shall pay all recording fees relating to the
---------------
filing of instruments transferring title from CPSC to POC.
10.13. Conflict. In the event of any conflict or inconsistency between the
--------
Specifications and the terms and provisions of this Agreement, the terms and
provisions of this Agreement shall prevail and govern.
10.14. Publicity. All notices to third parties and other publicity
---------
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and between POC and CPSC; provided, however, no such
notices or other publicity shall disclose the Option Price of the Pipeline
Assets, except as required by law. No Party shall act unilaterally in this
regard without the prior written approval of the other, unless required by law.
10.15. Waiver. No waiver of any term, provision or condition of this
------
Agreement shall be effective unless in writing signed by the parties hereto, and
no such waiver shall be deemed to be or construed as a further or continuing
waiver of any such term, provision or condition or as a waiver of any other
term, provision or condition of this Agreement, unless specifically so stated in
such written waiver.
10.16. Facsimile. Facsimile copies of all documents required for Closing
---------
hereunder, including signatures thereon, shall constitute original copies
thereof and shall be binding on the parties hereto. POC and CPSC will, within
five (5) working days of the Closing Date, send to the other an original of all
documents executed by the parties hereto for Closing.
10.17. First Right of Refusal. If CPSC desires to sell this lease to a
-------------------------
non-affiliated third party, CPSC shall notify POC of CPSC's offer and give POC
ten (10) days to make a firm and binding offer with proof of financing to
purchase this lease which is equivalent to or better than the offer to purchase
that CPSC has presented to POC. If POC fails to make a binding offer as stated
above within ten (10) days of receipt of CPSC's offer, then in that event, CPSC
shall have the right to proceed with the sale of the lease to a third party.
17
IN WITNESS WHEREOF, each of the parties hereto have executed this Agreement
as of the date first above written. POC is executing this Agreement subject to
POC's Board of Directors' approval. Said approval will be confirmed by letter
from Jerome Richter to CPSC.
CPSC: POC:
CPSC INTERNATIONAL PENN OCTANE CORPORATION
By: By:
----------------------- -----------------------
Name: Eric B. DuBose Name:
----------------------- -----------------------
Title: President Title:
----------------------- -----------------------
18
EXHIBIT "A"
DESIGN AND SPECIFICATIONS
CPSC INTERNATIONAL (CPSC) will construct, own and operate two (2) new (1 -
8.625" & 1 - 6.625") pipelines for PENN OCTANE CORPORATION (POC) from POC's LPG
terminal in Brownsville, Texas to a prescribed location on the Mexican side of
the Rio Grande River west of Matamoros, Tamaulipas, Mexico.
All of the design and construction of the proposed pipelines will be in
accordance with the DOT CFR Title 49 Part 195, "Transportation of LPG Gas by
Pipelines"; ANSI B31.8, "Gas Transportation Piping Systems", AI 1104, "Standard
for Welding Pipelines and Related Facilities", CFR Title 29 Part 1910,
"Occupational Safety and Health Standards (OSHA)", and applicable Pipeline
Standard Specifications and Engineering Standards. All design will be to ANSI
600 and all facilities will be hydrostatically tested to 1800 psig.
A - 1
EXHIBIT "B"
OPERATING REQUIREMENTS
General Description
- --------------------
CPSC INTERNATIONAL (CPSC) will construct, own and operate two (2) new (1 -
8.625" & 1 - 6.625") pipelines for PENN OCTANE CORPORATION (POC) from POC's LPG
terminal in Brownsville, Texas to a prescribed location on the Mexican side of
the Rio Grande River west of Matamoros, Tamaulipas, Mexico.
Scope - General Design Criteria
- -----------------------------------
All of the design and construction of the proposed pipelines will be in
accordance with the DOT CFR Title 49 Part 195, "Transportation of LPG Gas by
Pipelines"; ANSI B31.8, "Gas Transportation Piping Systems", AI 1104, "Standard
for Welding Pipelines and Related Facilities"; CFR Title 29 Part 1910,
"Occupational Safety and Health Standards (OSHA)"; and applicable Pipelines
Standard Specifications and Engineering Standards. All design will be to ANSI
600 and all facilities will be hydrostatically tested to 1800 psig unless
directed otherwise by POC.
Schedule
- --------
CPSC will commence the described activities as outlined in the contract
immediately upon execution of the contract in order to meet the substantial
completion date of May 1, 1999.
Project Services
- -----------------
In accordance and as per the terms of the contract CPSC will provide and be
responsible for the following:
- - Final Route Selection
- - Engineering Design per Function code Specifications for LPG Pipelines
- - Project Management and Material Procurement
- - Construction
- - 100% X-Ray
- - Hydrostatically tested, dried and cleaned to -0 F.
- - Inspection
- - Cathodic protection
B - 1
- - Capital funding (interim/long term)
- - Construction Insurance
- - Operation and maintenance
In accordance and as per the terms of the contract POC will be responsible for:
- - Sales Tax on product sale.
B - 2
EXHIBIT "C"
CONTRACT OPERATING AGREEMENT
THIS CONTRACT OPERATING AGREEMENT ("Operating Agreement") is made and entered
into as of the ___ day of __________, 1998, by and between CPSC INTERNATIONAL
("CPSC" or "Operator"), a Texas corporation, and PENN OCTANE CORP. ("POC"), a
________________ corporation (hereinafter referred to collectively as the
"Parties" and individually as a "Party" where either POC or CPSC could apply).
WHEREAS, CPSC is the owner of the "Pipelines" hereinafter described and
concurrent CPSC and POC shall enter into an Agreement for lease of the Pipelines
to POC under the terms of the Installment Purchase Agreement, hereinafter
described; and pursuant to the Installment Purchase Agreement, CPSC has agreed
to operate the Pipelines on a contract basis in accordance with the terms,
conditions and provisions of this Operating Agreement; and
WHEREAS, POC may take over operatorship of the Pipelines at some time in the
future; and
WHEREAS, throughout this Exhibit the reference to Operator will refer to CPSC;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties agree as follows:
I. SCOPE OF OPERATING AGREEMENT
1.1 General. This Operating Agreement is entered into pursuant to the terms
-------
of the Lease Installment Purchase Agreement for two (2) 18-mile Pipelines
("Installment Purchase Agreement") between POC and CPSC dated ______ ___, 1998.
All capitalized terms used in this Operating Agreement which are defined in the
Installment Purchase Agreement shall have the respective meanings assigned to
such terms in the Installment Purchase Agreement; and, as used herein, the term
"Pipeline Facilities" shall include the Pipelines and the Facilities. The
effective date of this Operating Agreement ("Effective Date") is the same date
as the Lease Effective Date. Under the terms, conditions and provisions of this
Operating Agreement, Operator agrees to furnish all expertise, services,
materials, equipment, supplies and labor for the operation of the Pipeline
Facilities and routine maintenance thereof, as described in Exhibit "A"
("Operations and Routine Maintenance").
1.2 Operator. CPSC shall serve as the operator of the Pipelines and
--------
Facilities ("Operator") pursuant to the terms of this Operating Agreement and
subject to the terms of the Installment Purchase Agreement. In accordance with
this Operating Agreement, Operator shall perform Operations and Routine
Maintenance for and on behalf of POC and in POC's name; and POC hereby
constitutes and appoints Operator the agent and attorney in fact for POC, hereby
authorizing and empowering Operator in the name and on behalf of POC to do and
perform any and all acts that Operator shall, in the exercise of its sole
judgment deem or find necessary, requisite, or proper for the efficient
performance of Operations and Routine Maintenance, subject to the limitations
contained in this Operating Agreement.
C - 1
1.3 Independent Contractor Relationship. The relationship of Operator to
-------------------------------------
POC shall be that of an independent contractor, Operator not being subject to
the control or direction of POC, and POC being interested only in the results to
be obtained. All employees shall be the employees of Operator, and not of POC.
Hours of work, compensation of employees, and similar matters shall be within
the discretion of Operator.
1.4 Performance. Operator shall have full control of the Pipeline
-----------
Facilities and the operation thereof as permitted and required by, and within
-
the limits of, this Operating Agreement. Operator shall conduct all its
activities under this Operating Agreement in accordance with applicable laws and
regulations and industry standards, and in a good and workmanlike manner.
II. RESPONSIBILITIES OF OPERATOR
2.1 General Responsibilities of Operator. Subject to the terms and
---------------------------------------
provisions of this Operating Agreement, Operator shall, at Operator's expense,
operate and perform maintenance of the Pipeline Assets as described in Schedule
A.
2.2 Normal Operations. It is contemplated that normal operations will
------------------
include operating the Pipelines for the transportation of Liquid Petroleum Gas
(LPG) to the Pipelines' terminus at POC's Brownsville Terminal. POC shall
communicate fully with Operator regarding operations. Operator shall use all
reasonable efforts to make and to implement operating decisions that will
minimize any adverse effect on the transmission of LPG through the Pipelines.
If the implementation of an operational decision during a non-emergency
situation could reasonably be anticipated to impair the transmission of LPG
through the Pipelines at the rate such LPG is scheduled to be taken, Operator
shall use all reasonable efforts to give POC twenty-four (24) hours prior notice
of any such decision.
2.3 Emergencies. Notwithstanding any other provision of this Operating
-----------
Agreement, in case of explosion, fire, flood, extreme cold, freezing or other
sudden emergency, or sudden major interruption of the operation of the Pipeline
Facilities, or any part thereof, Operator shall notify POC as soon as possible
and communicate Operator's recommendation for protective, remedial and other
actions, but where the situation does not permit time for obtaining POC's
specific approval, the prior approval of POC shall not be a prerequisite to
Operator's taking such steps and incurring such costs as, in Operator's
judgment, are required to deal with such emergency or interruption or to
safeguard life and/or property in such event; provided, however, that Operator
shall, as promptly as possible, report such emergency or interruption to POC and
endeavor to secure from POC authorization required for any further action or
expenditure. Operator shall also promptly make any required reports of such
emergency or interruption to federal, state or local regulatory authorities
having jurisdiction.
C - 2
2.4 Records and Reports. Operator shall retain all records, books of
---------------------
account, reports and other documents related to the operation and maintenance of
the Pipelines for a period of two (2) years from the date of completion of the
activity to which such records relate, or such longer period as specified by law
in the case of those records which by government regulations must be retained
for a longer period of time.
2.5 Employees, Consultants and Subcontractors.
--------------------------------------------
2.5.1 All personnel engaged or directed by Operator in the performance of
Operator's duties and obligations under this Operating Agreement and all
contractors (and their subcontractors) and consultants retained by Operator
shall be duly qualified and experienced to perform such duties and obligations.
Operator shall use all reasonable efforts to require such Persons to comply with
all relevant laws, statutes, ordinances, safety codes, regulations and rules of
governmental authorities applicable to the Pipelines.
2.5.2 Operator shall maintain and shall require all contractors (and their
subcontractors) performing services in connection with the Pipelines to maintain
in force and effect Worker's Compensation insurance coverage as required by the
laws of Texas.
2.5.3 Operator shall implement and enforce an appropriate safety program and
shall use its best efforts to cause all employees, contractors, subcontractors,
consultants, vendors and suppliers to perform their services in a safe, sound,
workmanlike and prudent manner, in accordance with industry practices and
applicable laws, rules, regulations and safety codes.
III. PAYMENTS AND RELATED MATTERS
3.1 Monthly Statements. For informational purposes only, on a monthly
-------------------
basis, Operator shall prepare and deliver to POC a written itemization of all
expenditures for labor, material, Subcontractors' fees and other costs incurred
by Operator in connection with Repair, Replacement and Maintenance expenses.
C - 3
3.2 Account Books. Operator shall maintain records of costs, expenses and
--------------
expenditures incurred in performing any of its obligations under this Operating
Agreement, so as to provide POC with the information required for accounting,
regulatory, tax (including federal, state and local), insurance, financing, and
other reasonable purposes.
3.3 Review of Records. POC shall have the right at all reasonable times
-------------------
during ordinary business hours to examine and make copies of the books of
account and records maintained by Operator regarding the Pipelines, including
the records maintained pursuant to Sections 2 and 3 of this Operating Agreement.
Such right may be exercised through an agent or employee designated in writing,
or by an independent accountant or attorney so designated. POC shall bear all
expenses incurred in connection with any such inspection, examination or
copying.
3.4 Access. Operator shall permit POC, at POC's risk, full and free access
------
to the Pipeline Facilities at all reasonable times.
VI. TERM
4.1 Term. This Operating Agreement shall become effective as of the
----
Effective Date and shall continue in force and effect for a period of fifteen
(15) years, and from year to year thereafter until terminated in accordance with
the said Installment Purchase Agreement.
4.2 Termination by POC. This Operating Agreement may be terminated at any
--------------------
time by POC (i) in the event Operator violates any safety standard or code and
does not remedy such situation within thirty (30) days after notice, or (ii) in
the event Operator breaches any other provision hereof or fails or refuses to
timely perform any of its duties hereunder and fails or refuses to cure such
deficiency or default within thirty (30) days after receipt of notice of such
default by POC. If Operator becomes insolvent, bankrupt or is placed in
receivership, it shall be deemed to have resigned as Operator, and this
Operating Agreement shall terminate. If a petition for relief under the federal
bankruptcy laws is filed by or against Operator, and the removal of Operator
and/or the termination of this Operating Agreement is prevented by the federal
bankruptcy court, then at POC's option, POC, Operator and a third Party selected
by POC shall comprise an interim operating committee to serve until Operator has
elected to reject or to assume this Operating Agreement, and all actions shall
require the agreement of two (2) members of the operating committee.
C - 4
4.3 Effect. Termination of this Operating Agreement shall not relieve
------
either Party of any obligation or liability on account of obligations accruing
or conduct or events occurring prior to the date of such termination.
EXECUTED as of the date first above written.
CPSC INTERNATIONAL PENN OCTANE CORPORATION
By: _________________________ By: _________________________
Printed Name: Eric B. DuBose Printed Name: ________________
----------------
Title: President Title: ________________________
---------
C - 5
Schedule A
(of Operating Agreement)
_______________________________
SERVICES PROVIDED:
1. Operator will provide the following documentation services:
- - Document maintenance activities and inspections for the activities listed
in items 2 through 4 below as necessary to comply with existing Department of
Transportation (DOT) and Texas Railroad Commission (TRC) requirements and OSHA.
2. Operator will provide the following operating and engineering services:
- - Maintain and update as needed all drawings and alignment maps. (DOT/TRC)
- - Perform 24 hour pipeline surveillance via SCADA or similar monitoring
equipment.
3. Open/shut appropriate valves to start/end all deliveries that require
manual operations and coordinate all such activity with the appropriate POC
personnel.
- - Inspect corrosion coupons and/or test spool pieces, change them when, in
operator's judgement it is necessary, and report findings to POC semiannually or
more frequently if in operator's judgment circumstances warrant. (DOT/TRC)
- - Perform annual cathodic protection surveys. (DOT/TRC)
- - Review operating and maintenance manuals annually. (DOT/TRC)
4. Operator will provide the following measurement services:
- - Prove each meter up to once per three (3) month for the purpose of
assuring accurate measurement or as reasonably requested by POC to ensure
accurate measurement.
- - Identify volume discrepancies in a timely manner.
- - Provide daily and monthly summary of measurement figures into and out of
the pipeline to the appropriate POC personnel.
C - 6
- - Calibrate instrumentation semiannually and inspect relief valves
semiannually. (DOT/TRC)
5. Operator will provide only the following routine maintenance services:
- - Perform ROW patrols as required by existing regulation. (DOT/TRC)
- - Perform ROW maintenance (mowing, clearing, and replacing and painting
markers, vents and fence posts). (DOT/TRC)
- - Inspect fire extinguishers monthly. (OSHA)
- - Provide inspection during foreign construction activities and respond to
"one-calls".
- - Inspect mainline block valves semiannually. (DOT/TRC)
- - Perform annual gas line leak survey. (DOT/TRC)
- - Inspect above ground piping and spans every five (5) years. (TRC)
6. Operator will provide the following Scheduling and Control Room Operating
services:
- - Schedule the pipeline transportation service to meet whenever feasible
POC's operational requirements in a safe and efficient manner.
- - Provide twenty-four (24) hour Control Center coverage including
maintaining the on-line computer system.
C - 7
EXHIBIT "D"
CERTIFICATE OF SUBSTANTIAL COMPLETION
REFERENCE for all purposes is hereby made to that certain Lease/Installment
Purchase Agreement ("Agreement") for two (2) 18-mile Pipelines dated
____________ _____, 1998, between PENN OCTANE CORPORATION ("POC") and CPSC
INTERNATIONAL ("CPSC"). Capitalized terms which are defined in the Agreement
are used in this Certificate with the same meaning.
Pursuant to the terms of Section 3.6. of the Agreement, POC and CPSC agree,
certify, and acknowledge as follows:
(1) Substantial Completion date occurred on, ____, 199.
(2) The Lease Effective Date is, 199__.
(3) The Pipelines and the Facilities are leased to POC under the terms
of the Agreement effective as of the Lease Effective Date.
(4) The Lease Term commenced on the Lease Effective Date and will end
on _________, 20___ , unless and until the option to purchase provided for in
Article V is exercised, in which case the Lease Term shall end at the end of the
Lease Year for which POC exercises its option (i.e., the 10th, or 15th Lease
Year, as applicable).
(5) The Operating Agreement became effective on the Lease Effective Date.
EXECUTED this day of, 199.
PENN OCTANE CORPORATION
By: _______________________________________
CPSC INTERNATIONAL
By: _______________________________________
D - 1
EXHIBIT "E"
ASSIGNMENT AND BILL OF SALE
This ASSIGNMENT AND BILL OF SALE ("Assignment") is made and entered into by
and between CPSC INTERNATIONAL, a Texas corporation, with an office at Two Allen
Center, Suite 2250, 1200 Smith Street, Houston, Texas 77002 ("Assignor"), and
PENN OCTANE CORPORATION, a ____________ corporation, with an office at
________________________ _________________________________________ ("Assignee"),
pursuant to that certain Installment Purchase Agreement ("Purchase and Sale
Agreement") dated ________, 1998, between Assignor and Assignee.
For and in consideration of the premises and the sum of Ten Dollars and
other valuable consideration, the receipt of which is hereby acknowledged,
Assignor hereby SELLS, TRANSFERS AND ASSIGNS to Assignee all of the following
described property;
(a) Those certain pipelines located in Cameron County, Texas, described in
Exhibit "A" attached hereto, together with all vents, casings, valves, cathodic
protection devices and other property and equipment constructed on, affixed to
or installed on said pipelines (collectively, the "Pipeline Facilities"); and
(b) To the extent of Assignor's ability to transfer the same, all of
Assignor's right, title, and interest in and to the pipelines a right-of-way
easements, licenses, and permits (collectively, the "Easements");
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns.
This Assignment is made by Assignor and accepted by Assignee subject to the
following:
1. This Assignment is made subject to the terms and provisions of the
Purchase and Sale Agreement, to the terms and provisions of the right-of way
easements and licenses in which the Pipeline Facilities are located, and to the
following, to the extent the same are valid and subsisting and pertain to the
Pipeline Facilities and the Easements in which they are located: any and all
restrictions, covenants, conditions, easements, licenses, leases and other
matters of record in the public records of Cameron County, Texas, and zoning
laws, regulations and ordinances of municipal and other governmental
authorities.
2. Assignor hereby binds Assignor and its successors to warrant and forever
defend all and singular the title to the Pipeline Facilities, subject as
aforesaid, unto Assignee, its successors and assigns, against the claims of all
persons lawfully claiming or to claim the same or any part thereof by, through
or under Assignor, but not otherwise.
E - 1
3. THE PIPELINE FACILITIES ARE SOLD AND ASSIGNED AND ACCEPTED BY ASSIGNEE
"AS IS, WHERE IS," AND IN THEIR PRESENT CONDITION, AND "WITH ALL FAULTS,"
WITHOUT ANY WARRANTIES WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, OF QUALITY,
CONDITION, MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE OR USE,
DESIGN, PERFORMANCE, CONDITION, OR OF ANY OTHER KIND, ALL OF WHICH ARE EXPRESSLY
DISCLAIMED; PROVIDED, HOWEVER ASSIGNOR WARRANTS THAT THE PIPELINE FACILITIES ARE
IN GOOD OPERATING ORDER AND THAT WHILE ASSIGNEE WAS OPERATOR UNDER THE OPERATING
AGREEMENT THE PIPELINE FACILITIES WERE OPERATED IN ACCORDANCE WITH ALL
APPLICABLE LAWS AND REGULATIONS AND THAT THE FOREGOING DISCLAIMERS DO NOT NEGATE
OR DETRACT IN ANY WAY FROM ANY WARRANTIES SET FORTH IN PARAGRAPH 2 OF THIS
ASSIGNMENT. ASSIGNEE EXPRESSLY WAIVES THE PROVISIONS OF CHAPTER XVII,
SUBCHAPTER E, SECTIONS 17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION
17.555, WHICH IS NOT WAIVED), TEXAS BUSINESS AND COMMERCE CODE (THE "DECEPTIVE
TRADE PRACTICES--CONSUMER PROTECTION ACT").
EXECUTED THIS THE _____ DAY OF ________________.
CPSC INTERNATIONAL
By:
----------------------------
Eric B. DuBose, President
E - 2
EXHIBIT "F"
ESCROW AGRREMENT
AGREEMENT made as of this ________day of _________________, 19__, by and between
__________________________________, a____________________ corporation
("___________") and _________________________________ ________________ Bank as
escrow agent (the "Escrow Agent").
WITNESSETH:
WHEREAS,
NOW, THEREFORE, in consideration of the promises and of the mutual covenants
herein contained, the parties hereto agrees as follows:
1. Acceptance by Escrow Agent
-----------------------------
The Escrow Agent hereby accepts the appointment as escrow agent hereunder and
agrees to act on the terms and conditions hereinafter set forth.
2. Investment of Escrow Fund
----------------------------
The Escrow Agent shall invest the Escrow Fund, upon the express written
direction of _______________________________, in one or more of the following
investments:
3. Rights and Responsibilities of Escrow Agent
------------------------------------------------
The acceptance by the Escrow Agent of its duties hereunder is subject to the
following terms and conditions, which the parties to this Agreement hereby shall
govern and control with respect to the Escrow Agent's rights, duties,
liabilities and immunities.
(a) The Escrow Agent shall act hereunder as a depository only, and it shall
not be responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of any document furnished to the Escrow
agent or any asset deposited with it.
(b) The Escrow Agent shall be protected in acting upon written instructions
from _____________________ if it, in good faith, believes such written
instructions to be genuine and what it purports to be.
__________________shall from time to time file with the Escrow Agent a certified
copy of each resolution of its Board of Directors authorizing the person or
persons to give written instructions. Such resolution shall specify the class of
instructions that may be given by each person to the Escrow Agent, under this
Agreement, together with certified signatures of such persons authorized to
sign. This shall constitute conclusive evidence of the authority of the
signatories designated therein to act. It shall be considered in full force and
effect with the Escrow Agent fully protected in acting in reliance thereon
unless and until it receives written notice to the contrary.
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(c) The Escrow Agent shall not be liable for any error of judgment or for
any action taken or omitted by it in good faith, or for any mistake of fact or
law, or for anything which it may do or refrain from doing in connection
herewith except its own gross negligence or willful misconduct.
(d) ____________________and ___________________agree to indemnify the Escrow
Agent and hold it harmless from and against any loss, liability, expenses
(including reasonable attorneys' fees and expenses), claim or demand arising out
of or in connection with the performance of its obligations in accordance with
the provisions of this Escrow Agreement, except for the gross negligence or
willful misconduct of the Escrow Agent. These indemnities shall survive the
resignation of the Escrow Agent or the termination of this Escrow Agreement.
(e) The Escrow Agent shall have no duties except those specifically set
forth in this Agreement. This Agreement represents the entire understanding of
the parties hereto with respect to the subject matter contained herein and
supersedes any and all other and prior agreements between them.
(f) The Escrow Agent shall have the right at any time it deems appropriate
to seek an adjudication in court of competent jurisdiction as to the respective
rights of the parties hereto and shall not be held liable by any party hereto
for any delay or the consequences of any delay occasioned by such resort to
court.
(g) The fee of the Escrow Agent for its services hereunder shall be paid by
________________ in accordance with the standard schedule of charges in effect
when services are rendered. Such schedule will be furnished upon request.
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4. Statements
----------
During the term of this Agreement, the Escrow Agent shall provide
_________________________with monthly statements containing the beginning
balance in the escrow account as well as all principal and income transactions
for the statement period. ___________________________ shall be responsible for
reconciling such statements. The Escrow Agent shall be forever released and
discharged from all liability with respect to the accuracy of such statements,
except with respect to any such act or transaction as to which
____________________________shall, within 90 days after the furnishing of the
statement, file written objections with the Escrow Agent.
5. Distributions
-------------
The Escrow Agent shall distribute the Escrow Funds from time to time, in
accordance with the instructions contained in written statements provided to the
Escrow Agent by _________________________________________.
6. Income
------
All income, including interest and dividends, earned on the Escrow Fund
deposited hereunder (hereinafter called the "Income") shall be added to and held
in the Escrow Account created hereunder.
7. Tax Identification Number
---------------------------
All interest accrued in the Escrow Fund shall be for the account of
_________________ and shall be reported under applicable federal regulations
using the tax identification number of ___________________________, which is
#_____________________________.
8. Indemnification as to Taxes, Penalties and Interest
---------------------------------------------------------
____________________ shall indemnify and hold harmless the Escrow Agent against
and in respect of any liability for taxes and for any penalties or interest in
respect of taxes attributable to the investment of funds held in escrow by
Escrow Agent pursuant to this Agreement.
9. Amendment
---------
This Agreement may not be amended or supplemented and no provision hereof may be
modified or waived, except by an instrument in writing, signed by all of the
parties hereto.
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10. Termination
-----------
The purpose of this Escrow Agreement and the terms hereof shall terminate on the
earlier of ____________________or _______________________. Upon the termination
of this Agreement and upon the delivery of all or any portion of the Escrow
Funds by the Escrow Agent, in accordance with the terms hereof, the Escrow Agent
shall be relieved of any and all further obligations hereunder.
11. Resignation
-----------
The Escrow Agent may resign at any time by giving thirty (30) days written
notice of such resignation to _____________________________. If no successor
Escrow Agent has been named at the expiration of the thirty (30) day period, the
Escrow Agent shall have no further obligation hereunder except to hold the
Escrow Funds as a depository. Upon notification by __________________ of the
appointment of the successor, the Escrow Agent shall promptly deliver the Escrow
Fund and all materials in its possession relating to the Escrow Fund to such
successor, and the duties of the resigning Escrow Agent shall thereupon in all
respects terminate, and it shall be released and discharged from all further
obligations hereunder. Similarly, the Escrow Agent may be discharged from its
duties as Escrow Agent under this Agreement upon thirty (30) days written notice
from _________________________ and upon payment of any and all fees due to
Escrow Agent. In such event, the Escrow Agent shall be entitled to rely on
instructions from ___________________ as to the disposition and delivery of the
Escrow Fund.
12. Execution
---------
This Agreement may be executed in several counterparts, each of which shall be
deemed an original, but such counterparts together shall constitute one and the
same instrument. The effective date of this Agreement shall be the date it is
executed by the last party to do so.
13. Miscellaneous
-------------
All covenants and agreements contained in this Agreement by or on behalf of the
parties hereto shall bind and inure to the benefit of such parties and their
respective heirs, administrators, legal representatives, successors and assigns,
as the case may be. The headings in this Agreement are for convenience of
reference only and shall neither be considered as part of this Agreement, nor
limit or otherwise affect the meaning hereof. This Agreement shall be construed
and enforced in accordance with the laws of ________________________.
14. Notices
-------
All instructions, notices and other communications hereunder must be in writing
and shall be deemed to have been duly given if delivered by hand or mailed by
first class, registered mail, return receipt requested, postage prepaid, and
addressed as follows:
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(a) If to ________________________________________________
(b) If to ________________________________________________
(c) If to the Escrow Agent:
IN WITNESS THEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
(NAME OF COMPANY)
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
as (ESCROW AGENT)
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
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