INTERIM OPERATING AGREEMENT
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THIS INTERIM OPERATING AGREEMENT (the "Agreement") is made and entered
into on March 7, 1997, by and between ▇▇▇▇▇▇ Technologies Incorporated, a
California corporation ("Company"), a wholly-owned subsidiary of ▇▇▇▇▇▇▇▇▇
Holdings, Inc., a California corporation ("ZHI"), on the one hand, and ▇▇▇▇▇▇
Acquisition Corporation, Delaware corporation ("Buyer"), a wholly-owned
subsidiary of Penn Octane Corporation, a Delaware corporation ("POC"), on the
other hand.
RECITALS
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A. Company is engaged in the business of selling, designing,
manufacturing, installing and servicing compressed natural gas ("CNG")
refueling stations and related products for use in the CNG industry throughout
the world (the "Business"). B. Company and ZHI, on the one hand, and
Buyer and POC, on the other hand, are parties to that certain Purchase
Agreement of even date herewith the ("Purchase Agreement") pursuant to which,
among other things, Company is selling to Buyer certain of its assets and
assigning to Buyer certain of its liabilities and Buyer is purchasing from
Company such assets and assuming from Company such liabilities, on the terms
and conditions set forth therein.
C. Buyer and Company desire to establish terms and conditions for the
operation by Buyer, on an interim basis, of certain of Company's Business from
and after the date hereof, as set forth herein.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the parties agree as follows:
1. INTERIM OPERATION.
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1.01 Contracts. During the Term of this Agreement (as defined in
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Section 3.01), Buyer shall, as provided herein, perform all duties and
obligations under the service agreements and other specified contracts of
Company set forth on Schedule 1.01 hereto (the "Service Contracts"). Except
in the case of the Orange County Contract, as provided in Section 1.08, all of
Company's contracts, whether or not performed by Buyer under the terms of this
Agreement, shall remain Company's contracts, and nothing in this Agreement
shall in any way make Buyer a party to any such contract. Buyer's CNG
Contracts (as defined in Section 1.03) shall remain Buyer's contracts.
1.02 Payments. During the Term of this Agreement, Buyer shall have
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the right to collect all payments made by customers in connection with work
performed under the Service Contracts from and after February 16, 1997 and
during the Term of this Agreement. Buyer and Company shall cooperate to
notify customers of Buyer's performance of the Service Contracts and that
payments for performance of services by Buyer related to the Service Contracts
and any other services performed by Buyer on behalf of Company shall be
directed to Buyer. In the event payments are directed to Company for Buyer's
performance of services related to the Service Contracts and any other
services performed by Buyer on behalf of Company, such payments received by
Company shall be held in trust for Buyer and Company shall promptly forward
such payments to Buyer.
1.03 Employees. Company shall make available to Buyer employees of
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Company, who have historically performed services required under the Service
Contracts (the "Loaned Employees"), for the performance of the Service
Contracts, and to perform such additional services as Buyer may reasonably
request in connection with Buyer's efforts to enter into new agreements and
contracts related to the CNG business ("Buyer's CNG Contracts"); provided,
however, that the Loaned Employees shall be available to Company to perform
all work necessary to complete the sales orders of Company set forth on
Schedule 1.03 (the "Unfinished Sales Orders") in an expeditious manner and to
perform any warranty work that Company may require. Until the earlier of May
30, 1997, or such time as the Unfinished Sales Orders have been completed and
Company has exercised the Cessation Option (as defined in Section 5.01), each
of the Loaned Employees shall be available for use by Company for at least
one-half of each work week for each Loaned Employee. From and after May 30,
1997, and until such time as the Unfinished Sales Orders have been completed
and Company has exercised the Cessation Option, the Loan Employees shall be
available for use by Company for at least a combined total of forty (40) hours
per week; provided, however, that Company shall designate which of its Loaned
Employees shall be utilized by Company for each forty (40) hour period each
week.
1.04 Company Name and Technology. During the Term, Company hereby
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grants to Buyer an exclusive license to use Company's intellectual property
and proprietary and business information including, without limitation, the
name "▇▇▇▇▇▇ Technologies" and any derivative thereof (the "Licensed
Intellectual Property") for use in connection with the performance of the
Service Contracts and Buyer's CNG Contracts (as defined in Section 1.03
above).
1.05 Fixed Assets and Facilities. During the Term, Buyer shall have the
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right to the reasonable use of the fixed assets of Company and of Company's
facilities. Buyer acknowledges receipt of a copy of that certain Standard
Sublease dated December 30, 1996 (the "Sublease") between ▇▇▇▇▇ Pipe Company,
as Sublessor, and Company and ZHI, as Tenant, for Company's premises in Santa
Fe Springs, California (the "Premises"). Buyer further acknowledges that the
term of the Sublease expires on April 30, 1997 and continues month-to-month
thereafter terminable by Sublessor or Sublessee upon not less than thirty (30)
days prior written notice. Company covenants that it shall promptly notify
Buyer in the event that it receives a written notice of termination from
Sublessor and that it shall notify Buyer of its intent to terminate the
Sublease at such time as it notifies Sublessor of its intent to terminate the
Sublease pursuant to its terms.
1.06 Inventory. During the Term of this Agreement, Buyer shall use
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its reasonable best efforts to use Company's inventory first before purchasing
inventory. Buyer shall purchase such inventory notwithstanding the
availability of replacement inventory at a cost lower than book value of
Company's inventory. Buyer shall purchase Company's inventory at a price
equivalent to book value plus ten percent (10%) of such value, unless an
alternate price is agreed to by Buyer and Company. Buyer's right to purchase
such inventory shall be conditioned upon Company's determination, in its sole
discretion and upon a written request by Buyer to purchase particular
inventory, that such inventory is not necessary for the completion of the
Unfinished Sales Orders.
1.07 Division 10 Contract. The following provisions shall apply to
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Company's Los Angeles County Metropolitan Transit Authority Change Order No. 1
to Contract No. 6358 for construction of CNG fueling facilities at Division 8
& 10 (the "Division 10 Contract"), in addition to the other provisions herein:
(a) Company shall use its reasonable best efforts to cause its
affiliate, A and A Associates, Inc., a California corporation ("A&A"), to make
direct labor historically utilized by Company in connection with the assembly
of Company's products (the "A&A Direct Labor") available for use by Buyer to
perform unfinished work under the Division 10 Contract; and
(b) As soon as practicable after the date hereof, Company shall
calculate its actual costs incurred in connection with the Division 10
Contract prior to the date hereof (the "Division 10 Costs"). The Division 10
Costs shall include, without limitation, costs of all materials, inventory and
labor incurred prior to the date hereof and shall exclude sales, general and
administrative ("SG&A") expenses incurred by Company from and after December
16, 1996 and on or before the date hereof. Buyer shall pay to Company the
Division 10 Costs within thirty (30) days after Buyer receives notice, in
writing, of the total amount of Division 10 Costs.
1.08 Orange County Contract. The following provisions shall apply to
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County Sanitation Districts of Orange County Purchase Order No. 80057 and
Change Order, dated November 7, 1996 (the "Orange County Contract"), in
addition to the other provisions herein:
(a) Notwithstanding anything to the contrary contained herein,
Company and Buyer shall use their reasonable best efforts either (i) to obtain
the consent of the County Sanitation Districts of Orange County (the "County
of Orange") to the assignment of all of Company's right, title and interest in
and to the Orange County Contract to Buyer and to obtain a novation of the
Orange County Contract substituting Buyer in place of Company (the "Consent
and Novation"), or (ii) to obtain a new contract from the County of Orange in
the name of Buyer alone (the "New Contract"). To the extent that the County
of Orange either provides the Consent and Novation or the New Contract, then
the Orange County Contract shall be excluded from the definition of "Service
Contracts" for purposes of this Agreement and the Orange County Contract shall
be included in the definition of "Buyer's CNG Contracts" for purposes of this
Agreement.
(b) To the extent that Company and Buyer are unable, despite
their best efforts, to obtain from the County of Orange either the Consent and
Novation or the New Contract, then the following shall occur:
(i) the Orange County Contract shall remain included in the
definition of "Service Agreements" for purposes of this Agreement. In such
event, Company shall use its reasonable best efforts to cause its affiliate,
A&A, to make the A&A Direct Labor available for use by Buyer to perform work
required under the Orange County Contract; and
(ii) Buyer shall obtain, in its own name, any letter of
credit required by the County of Orange to proceed with the Orange County
Contract.
1.09 Open Bids. Company and Buyer shall use their reasonable best
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efforts to transfer from Company to Buyer open bids, if any, upon their
acceptance by the customer, to the extent that Buyer determines that it
desires to enter into a contract with the customer based upon the bid (each,
an "Accepted Bid"). Notwithstanding the foregoing, Company shall have no
obligation hereunder to enter into any contract with any customer in
connection with any such bid accepted by any customer.
1.10 Payments to Company's Creditors. During the Term, Buyer shall
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have the right, but not the obligation, with the written consent of Company
which shall not be unreasonably withheld, to make payments to any of Company's
creditors to the extent necessary to perform the Service Agreements and the
Buyer CNG Contracts, as contemplated herein. To the extent Buyer makes any
such payments, the principal amount of the Royalty Obligation (as defined in
Section 2.02) due on termination of this Agreement, in the case of termination
for any reason other than the consummation of the transactions contemplated by
this Agreement, or the principal amount of the Royalty Note (as defined in
Purchase Agreement), in the case of the consummation of the transactions
contemplated by the Purchase Agreement, shall be reduced by the amount of any
such payments. Notwithstanding the foregoing, Buyer shall continue to make,
when due, any Royalty Payments due hereunder or under the Royalty Note.
2. CONSIDERATION.
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2.01 Monthly Payments. During the Term, Buyer shall pay to Company
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Eighty-Four Thousand Dollars ($84,000.00) per month, payable twice per month
in installments of Forty-Two Thousand Dollars ($42,000.00). Payments shall
commence on the date hereof, and shall continue thereafter on the 5th day of
each month, for the 1st through the 15th of each month, and on the 20th day of
each month, for the 16th through the end of each month, until the earlier to
occur of the Termination Date or the Cessation Date (as defined in Section
5.01). Buyer and Company shall cooperate to make appropriate adjustments, as
the case may be, in the case of a Termination Date or Cessation Date which
results in a final period which is less than a complete month. The parties
hereto agree and acknowledge that concurrently with the execution of this
Agreement Buyer has paid to Company the sum of Eighty-four Thousand Dollars
($84,000.00), the receipt of which is hereby acknowledged, and that the period
for which such initial payment is made commences February 16, 1997 and ends
March 15, 1997. The parties hereto further agree and acknowledge that, for
purposes of Section 3.02(a)(vii), Buyer's gross margin shall be calculated
from February 16, 1996.
2.02 Royalty. Commencing on the date hereof and continuing during the
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Term (the "Royalty Period"), a royalty shall accrue in an amount equal to five
percent (5%) of Net Revenues, as hereinafter defined, of Buyer (the "Royalty
Obligation"). The Royalty Obligation shall be due and payable at the end of
the Initial Term (as defined in Section 3.01(a)) and each Option Term (as
defined in Section 3.01(a); each a "Royalty Payment"). For purposes of this
Agreement, the term "Net Revenues" means the gross amount of revenues received
by Buyer or its affiliates from the sale of products or the performance of
services related to the CNG business anywhere in the world less (a) returns,
----
credits, discounts and allowances, (b) free goods programs, (c) freight,
transportation and insurance charges, and (d) sales, excise and similar taxes
added to the invoice; provided, however, that Net Revenues shall not include
revenues arising from the sale of CNG, the sale of CNG-powered vehicles or the
conversion of vehicles to CNG-powered vehicles. Buyer shall keep accurate
records of all Net Revenues, including sales made by affiliates of Buyer, and
shall deliver to Company with each Royalty Payment a report indicating the Net
Revenues. Company shall have the right, at its own expense, upon reasonable
notice and during normal business hours, to audit and inspect Buyer's records
of Net Revenues.
2.03 A&A Direct Labor. Buyer shall pay to Company on a weekly basis,
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on each Wednesday of each week, an amount equivalent to the actual cost of
making the A&A Direct Labor available to Buyer in connection with the Division
10 Contract, as provided in Section 1.07(a), and the Orange County Contract,
as provided in Section 1.08(b)(i), plus the cost of employee benefits provided
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to such labor plus ten percent (10%) of such actual cost and such employee
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benefits.
2.04 Division 10 Costs. Buyer shall pay to Company the Division 10
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Costs in accordance with Section 1.07(b) hereof.
3. TERM.
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3.01 Termination Events.
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The term of this Agreement (the "Term") shall commence upon the date
hereof and expire upon the earlier to occur of the following (the "Termination
Date"):
(a) ninety (90) days after the date hereof (the "Initial Term");
provided, however, that Buyer shall have eleven (11) consecutive options to
extend the term hereof for an additional ninety (90) day period (each, an
"Option Term"), which, if exercised in writing by notice by Buyer to Company
prior to the expiration of the Initial Term or any Option Term, shall, in each
case, extend the term hereof for an additional ninety (90) day period;
(b) consummation of the transactions contemplated by the
Purchase Agreement;
(c) the failure of Buyer to either consummate the transactions
contemplated by the Purchase Agreement within ninety (90) days after exercise
by Company of the Put Option (as defined in Section 5.02) or to pay to Company
the SG&A Differential (as defined in Section 5.02)) within ninety (90) days of
the exercise by Company of the Put Option;
(d) mutual consent of Buyer and Company;
(e) the occurrence of a material breach of any provision
hereunder upon notice, in writing, by Buyer or Company to the other party
which breach has not been cured within thirty (30) days after receipt of such
notice, unless Buyer or Company, as the case may be, has waived such breach;
or
(f) three (3) years after the date hereof, unless Buyer
exercises the Continuation Option (as defined in Section 4.02), in which case,
the Term of this Agreement shall continue for an additional two (2) year
period.
3.02 Effect of Termination.
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(a) In General. Except in the case of termination of this
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Agreement pursuant to Section 3.01(b) (closing of the transactions
contemplated by the Purchase Agreement) or in the case of continuation of this
Agreement for the Continuation Period (as defined in Section 4.02), the
following shall occur upon termination of this Agreement as of the Termination
Date:
(i) Buyer shall cooperate with Company to notify customers
that Buyer will no longer perform any of Company's Service Contracts and that
all further payments shall be directed to Company. Any such payments received
by Buyer shall be held in trust by Buyer for Company and shall be delivered by
Buyer to Company;
(ii) Buyer shall cease doing business;
(iii) Neither Buyer nor any affiliate of Buyer, for a period of
two (2) years after the Termination Date, shall solicit any employee of
Company for employment by Buyer or any affiliate of Buyer except if Company
has exercised the Cessation Option (as defined in Section 5.01), in which
case, Buyer may retain any employees formerly employed by Company;
(iv) The license for the Licensed Intellectual Property
granted herein shall terminate and Buyer shall have no further right to
utilize the Licensed Intellectual Property for any purpose whatsoever and
Buyer shall change its name as soon as practicable to a name which does not
use the name "▇▇▇▇▇▇" or any derivation thereof;
(v) Buyer shall pay to Company any unpaid Royalty Payments
due and payable hereunder, within thirty (30) days after the Termination Date;
(vi) Buyer shall pay to Company any unpaid amounts owing
for inventory purchased pursuant to the terms of this Agreement and due and
payable hereunder, within thirty (30) days after the Termination Date;
(vii) Company shall pay to Buyer fifty percent (50%) of the
difference, if any, between Buyer's gross margin (less any Royalty Payments
paid by Buyer to Company) in connection with its operations during the
duration of this Agreement and Eighty-Four Thousand Dollars ($84,000.00) per
month from the date hereof and ending on the Cessation Date (as defined in
Section 5.01), within thirty (30) days after the Termination Date; and
(viii) If upon the Termination Date amounts are due and owing
by Buyer to Company under Subpart (v) above and/or Subpart (vi) above, and by
Company to Buyer under Subpart (vii) above, such amounts shall offset each
other, and only the net amount after offset shall be considered due and
payable;
provided, however, that, all other obligations of the parties hereto shall
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terminate except as otherwise set forth herein and Buyer and its affiliates
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shall cease to conduct the Business.
--
(b) Upon Closing of Purchase Agreement Transactions. The
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following shall occur in the case of termination of this Agreement pursuant to
Section 3.01(b) (closing of the transactions contemplated by the Purchase
Agreement):
(i) Book value or any other agreed value paid or credited by
Buyer to Company for the purchase of any of Company's inventory during the
term of this Agreement shall be added to the Inventory Valuation (as provided
in Section 1.06(a) of the Purchase Agreement); and
(ii) Any Royalty Payment paid by Company to Buyer hereunder
shall reduce the principal amount due and payable under the Royalty Note (as
defined in the Purchase Agreement);
provided, however, that, all other obligations of the parties hereto shall
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terminate except as otherwise set forth herein or in the Purchase Agreement.
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4. BUYERS' OPTIONS.
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4.01 Purchase Option. If this Agreement has not been terminated in
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accordance with Section 3 hereof prior to the expiration of three (3) years
after the date hereof, Buyer shall have the option to consummate the
transactions contemplated by the Purchase Agreement (the "Purchase Option") by
providing notice to Company in writing of the exercise of its option granted
by this Section 4.01 during the Option Term immediately preceding termination
of this Agreement pursuant to Section 3.01(f) above. Upon exercise of the
Purchase Option, Buyer and Company hereby waive all conditions to the
consummation of the transactions contemplated by the Purchase Agreement set
forth in Sections 9 and 10 of the Purchase Agreement, respectively, and shall
consummate the transactions contemplated by the Purchase Agreement pursuant to
its terms; provided, however, that, notwithstanding anything to the contrary
contained in the Purchase Agreement, Buyer shall pay to ZHI the sum of Two
Hundred Twenty Thousand Dollars ($220,000) cash at the Closing (as defined in
the Purchase Agreement) in lieu of the Convertible Debenture (as defined in
the Purchase Agreement).
4.02 Continuation Option. If this Agreement has not been terminated
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in accordance with Section 3 hereof prior to the expiration of three (3) years
after the date hereof and Buyer does not exercise the Purchase Option (as
defined in Section 4.01), then Buyer shall have the option to continue the
Term of this Agreement (the "Continuation Option") for an additional two (2)
year period (the "Continuation Period") by providing notice to Company in
writing of the exercise of its option granted by this Section 4.02 during the
Option Term immediately preceding termination of this Agreement pursuant to
Section 3.01(f) above. Buyer's Continuation Option shall be subject to and
shall be conditional upon payment by Buyer to Company of any unpaid Royalty
Payments then due and payable, payment by Buyer to Company of any unpaid
amounts owing for inventory purchased hereunder then due and payable, and
payment of the SG&A Differential (as defined in Section 5.02) in the event
Company has not exercised its Put Option (as defined in Section 5.02). Upon
exercise of the Continuation Option, the following shall occur:
(a) the License for the Licensed Intellectual Property shall
terminate and Buyer shall have no further right to utilize the Licensed
Intellectual Property for any purpose whatsoever and Buyer shall change its
name as soon as practicable to a name which does not use the name ▇▇▇▇▇▇ or
any derivation thereof;
(b) Buyer shall be entitled to solicit any remaining employees
of Company;
(c) Buyer shall continue to pay to Company the Royalty
Obligation (as defined in Section 2.02) for the Continuation Period; provided,
however, that, during the Continuation Period, Buyer shall have no obligation
to pay to Company any Royalty Obligation in excess of a total of Three Million
Dollars ($3,000,000.00);
(d) Buyer shall be entitled to engage in the Business; and
(e) Buyer shall be entitled to seek to transfer all Service
Contracts and any other contracts of Company from Company to Buyer;
provided, however, that all other obligations of the parties hereto shall
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terminate, except as otherwise set forth herein.
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5. COMPANY'S OPTIONS.
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5.01 Cessation Option. Upon completion of the Unfinished Sales
-----------------
Orders, as determined by Company in its sole discretion, Company is hereby
granted the option, upon notice to Buyer, in writing, to cease its business
operations (the "Cessation Option") on a date at least ten (10) days after
delivery of such notice (the "Cessation Date"). In such event, Buyer shall
offer to continue employment of all employees who are listed on Schedule 13.01
of the Purchase Agreement and who are then employed by Company. Each such
person who continues employment shall be employed at the same salary and wages
as were in effect immediately prior to the Cessation Date, subject to Buyer's
rights, except to the extent limited by law or agreement, to revise and modify
any terms, conditions, practices, policies, and benefits. Under such
circumstance, Buyer shall assume Company's liabilities for vacation pay, sales
incentives and other amounts accrued to such employees prior to the Cessation
Date. Upon exercise of the Cessation Option, Buyer acknowledges that Company
shall cease to have any obligation to fund any additional sales, general and
administrative ("SG&A") expenses for Company or to make its facilities
available to Buyer pursuant to Section 1.05. Upon exercise of the Cessation
Option, Buyer shall have no obligation to make any additional payments under
Section 2.01 for periods arising from and after the Cessation Date. From and
after the Cessation Date and prior to the Termination Date, at the request of
Company, in writing, Buyer shall perform warranty work in connection with
products manufactured and sold by Company prior to Closing. To the extent any
warranty work is requested, in writing, by Company in connection with such
products, Company shall reimburse Buyer in the amount of cost of such warranty
work plus ten percent (10%), within thirty (30) days of invoice. Any amounts
unpaid hereunder after sixty (60) days shall, at the option of Buyer, offset
any unpaid Royalty Obligation under Section 2.02 hereof.
5.02 Put Option. Any time after the exercise by Company of the
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Cessation Option (as defined in Section 5.01), Company shall have the option
to notify Buyer, in writing, that Company waives all conditions to the closing
of the transactions set forth in Section 10 of the Purchase Agreement and that
Company is prepared to close the transactions contemplated by the Purchase
Agreement (the "Put Option"). Upon exercise of the Put Option, Buyer shall
either waive the conditions to the closing of the transactions set forth in
Section 9 of the Purchase Agreement and close the transactions contemplated by
the Purchase Agreement within ninety (90) days or pay to Company the SG&A
Differential (as hereinafter defined) within ninety (90) days. For purposes
of this Agreement, the SG&A Differential shall be the sum of $92,700.00 per
month, or portion thereof, accrued between December 16, 1996 and the Cessation
Date less (i) the Realized Sales Margin (as hereinafter defined) for the
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period from December 16, 1996 through February 15, 1997 and (ii) $84,000 per
month, or portion thereof, actually paid by Buyer to Company pursuant to
Section 2.01 hereof, for the period from February 15, 1997 to the Cessation
Date. For purposes of the preceding sentence, the term Realized Sales Margin
shall mean the gross income realized by Company from the sale of products or
the performance of services for customers for the period commencing December
16, 1996 and
ending February 16, 1997, less the cost of goods sold or the cost of providing
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such services.
6. REPRESENTATIONS AND WARRANTIES OF COMPANY.
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Company represents and warrants to Buyer as of the date of this Agreement
and as of the date of the closing of the transactions contemplated by the
Purchase Agreement as follows:
6.01 Corporate Existence. Company is a corporation duly organized,
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validly existing and in good standing under the laws of the State of
California. Company has all requisite corporate power and authority to own,
lease and operate its property and to carry on its business in the manner in
which and in the places such business is now being conducted.
6.02 Authority; Enforceability. Company has the right, power, legal
--------------------------
capacity and authority to enter into, and to perform its obligations under,
this Agreement and the transactions herein contemplated. The execution,
delivery and performance of this Agreement by Company has been duly authorized
by its board of directors. This Agreement has been validly executed and
delivered by Company and, assuming due execution and delivery hereof by the
other parties hereto, constitutes a valid, binding and enforceable obligation
of Company subject to applicable bankruptcy, insolvency, receivership,
moratorium, reorganization or similar state or federal laws or equitable
principles relating to or affecting creditors' rights and to the discretion of
a court to grant equitable remedies.
6.03 No Violation. Neither the execution, delivery or performance of
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this Agreement nor the consummation of the transactions contemplated hereby
nor compliance by Company with any of the provisions hereof will violate or
conflict with any provisions of the Certificate of Incorporation or bylaws of
Company or any judicial or administrative order, judgment or decree to which
Company is a party or is subject.
7. REPRESENTATIONS AND WARRANTIES OF BUYER.
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Buyer represents and warrants to Company as of the date of this Agreement
and as of the date of the closing of the transactions contemplated by the
Purchase Agreement as follows:
7.01 Corporate Existence. Buyer is a corporation duly organized,
--------------------
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business in the manner of and in
the places such business is now being conducted.
7.02 Authority; Enforceability. Buyer has the right, power, legal
--------------------------
capacity and authority to enter into, and to perform its obligations under
this Agreement and the transactions herein contemplated. The execution,
delivery and performance of this Agreement by Buyer has been duly authorized
by the board of directors of Buyer. This Agreement has been validly executed
and delivered by Buyer and, assuming due execution and delivery by the other
parties hereto, constitutes a valid, binding and enforceable obligation Buyer,
subject to applicable bankruptcy, insolvency, receivership, moratorium,
reorganization or similar state or federal laws or equitable principles
relating to or affecting creditors' rights generally and to the discretion of
a court to grant equitable remedies.
7.03 No Violation. Neither the execution, delivery or performance of
------------
this Agreement nor the consummation of the transactions contemplated hereby
nor compliance by Buyer with any of the provisions hereof will violate or
conflict with any provisions of the Certificate of Incorporation or bylaws of
Buyer or any judicial or administrative order, judgment or decree to which
Buyer is a party or is subject.
8. INDEMNIFICATION OBLIGATIONS.
----------------------------
Buyer and POC, jointly and severally, indemnify, defend and hold harmless
Company, its directors, officers, employees, shareholders, agents, successors,
assigns, attorneys and personal representatives from, against and in respect
of any and all actions, suits, proceedings, claims, demands, losses, costs,
expenses, obligations, liabilities, judgments, damages, recoveries and
deficiencies, including, without limitation, interest, penalties and
reasonable attorneys' fees (collectively "Damages") that Company shall incur
or suffer which arise out of, result from or relate to, (i) the Buyer CNG
Contracts; (ii) the Orange County Contract; (iii) the Division 10 Contract;
or, (iv) any Accepted Bid. Notwithstanding anything to the contrary contained
herein, the obligations of Buyer and POC under this Section 8 shall survive
the termination of this Agreement.
9. EXCLUSIVE DEALING.
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During the Term, Company will not, directly or indirectly, through any
representative or otherwise, solicit or entertain offers from, negotiate in
any manner, encourage, discuss, accept, or consider any proposal of any other
person or entity relating to the acquisition of Company, its assets or
business, in whole or in part, whether directly or indirectly, through
purchase, merger, consolidation, or otherwise (other than sales of inventory
in the ordinary course of business).
10. COVENANT NOT TO COMPETE.
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During the Term and except as contemplated hereby, Company agrees that it
shall not engage, it shall not permit any affiliate (including, in each case,
its directors, officers and shareholders) to engage, and it shall use best
efforts to prevent any joint venture of Company or any such affiliate from
engaging, in the Business ("Competitive Activities"); provided, however, that
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the foregoing shall not prohibit:
(a) Company, ZHI and any of their affiliates, any such joint
venture or any of the accounts managed by them, including without limitation
any pension or other benefit plan of Company and ZHI, from owning any
outstanding capital stock or other equity interests of any person engaging in
any Competitive Activities, provided the aggregate beneficial ownership of
Company and ZHI (without reference to pension or other benefit plan assets)
does not exceed more than five percent (5%) of all issued and outstanding
securities of any such person;
(b) Company, ZHI and any of their affiliates or any such joint
venture from engaging in any other businesses other than the Business; and,
(c) Company, ZHI and any of their affiliates or any such joint
venture from acquiring a business that engages in Competitive Activities
provided that (i) such activities do not constitute more than twenty percent
(20%) of the revenues or assets of the business to be acquired (based on the
sales of such business during the preceding four full calendar quarters), and
(ii) Company, ZHI and any affiliate or joint venture, as the case may be,
divests that portion of the business to be acquired that engages in
Competitive Activities within twelve (12) months after the acquisition
thereof;
provided, further, that the prohibitions in this Section 11 shall cease to
-------- -------
apply (effective as of the time of such transfer) to any businesses or
---
operations of Company, ZHI or any of their subsidiaries which are transferred
---
to any third party (other than to a subsidiary or affiliate or any such joint
venture of Company or ZHI) after the date hereof.
11. MISCELLANEOUS. 11.01 Headings. The subject headings of the
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Sections of this Agreement are included for purposes of convenience only and
shall not affect the construction or interpretation of any of its provisions.
11.02 Integration; Waiver. This Agreement and the Purchase Agreement
--------------------
constitutes the entire agreement between the parties pertaining to the subject
matter herein and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties including, without
limitation, the Letter of Commitment dated November 13, 1996 among the
parties. No party hereto is making any representation or warranty whatsoever,
express or implied, oral or written, beyond those expressly given in this
Agreement or the Purchase Agreement. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by all the
parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the waiver. To the
extent of any inconsistency between this Agreement and the Purchase Agreement,
this Agreement shall govern.
11.03 Severability. If any term or provision of this Agreement or the
------------
application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application
of such terms or provisions to persons or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby and each
term and provision of this Agreement shall be valid and enforced to the
fullest extent permitted by law.
11.04 Other Parties. Nothing in this Agreement, whether express or
--------------
implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended
to relieve or discharge the obligation or liability of any third persons to
any party to this Agreement, nor shall any provision give any third persons
any right of subrogation or action over against any party to this Agreement.
11.05 Inurement; Assignment. This Agreement shall be binding on, and
----------------------
shall inure to the benefit of, the parties to it and their respective heirs,
legal representatives, successors, and assigns, but may not be assigned by
either party without the prior written consent of the other party.
11.06 Notices. All notices, requests, demands, and other communications
-------
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice
is to be given, on the date of transmission if sent by telex, telecopier or
telegraph, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by first-class mail, registered or certified\return
receipt requested, postage prepaid, and properly addressed as follows:
To Buyer: ▇▇▇▇▇▇ Acquisition Corporation
c/o Penn Octane Corporation
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to: Coudert Brothers
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Company: ▇▇▇▇▇▇ Technologies Incorporated
c/▇ ▇▇▇▇▇▇▇▇▇ Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to: Rodi, Pollock, Pettker, Galbraith
& ▇▇▇▇▇▇, A Law Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address for purposes of this paragraph by giving
the other party notice of the new address in the manner set forth above.
11.07 Governing Law. This Agreement shall in all respects, including all
-------------
matters of construction, validity and performance, be governed by, and
construed and enforced in accordance with, the laws of the State of California
applicable to contracts entered into in that state between citizens of that
state and to be performed wholly within that state without reference to any
rules governing conflicts of laws. The parties agree that any venue for any
suit, action, proceeding or litigation arising out of or in relation to this
Agreement shall be in any federal or state court in Los Angeles, California
having subject matter jurisdiction. Each of the parties consents to the
jurisdiction of such courts in any such action or proceeding and waives any
objection to venue in such courts in any such action or proceeding.
11.08 Attorneys' Fees. If any legal action or arbitration or other
----------------
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing party shall
be entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to which it may be
entitled.
IN WITNESS WHEREOF, the parties to this Agreement have duly
executed it on the day and year first above written.
BUYER
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▇▇▇▇▇▇ Acquisition Corporation, a Delaware
corporation
By:
Title:
COMPANY
-------
▇▇▇▇▇▇ TECHNOLOGIES INCORPORATED, a California
corporation
By:
Title:
[Signatures continued on next page]
POC hereby unconditionally agrees that to the extent Buyer fails to make
a payment due hereunder, then, upon written demand of Company, POC will
promptly make such payment or cause it to be made. Company shall not be
required to seek any recovery from Buyer prior to enforcing POC's obligations
hereunder. POC further hereby agrees to be bound by and subject to the
Indemnification Obligations set forth in Section 8.
POC
---
PENN OCTANE CORPORATION,
a Delaware corporation
By: Title:
ZHI hereby unconditionally agrees that to the extent Company fails to
make a payment due to Buyer under Section 3.02(a)(vii) hereof, then, upon
written demand of Buyer, ZHI will promptly make such payment or cause it to be
made. Buyer shall not be required to seek any recovery from Company prior to
enforcing ZHI's obligations hereunder.
ZHI
---
▇▇▇▇▇▇▇▇▇ HOLDINGS, INC., a California corporation
By:
Title:
[Signatures continued from previous page]
SCHEDULE 1.01
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SERVICE CONTRACTS
1. Toronto Transit Commission Purchase Order No. PC0020255, dated November
6, 1996, for preventative maintenance and emergency service of CNG plant at
Company complex from January 1996 through October 31, 1997.
2. Coast Engineering and Construction Corp Purchase Order No. MCRN-95-002,
dated May 2, 1995, for five year maintenance contract.
3. Contract between Company and Southern California Gas Co., dated January
5, 1996, for preventative maintenance of refueling stations at U.C.L.A., City
of Irvine, ▇.▇. ▇▇▇▇▇▇, L.A.U.S.D., City of Torrance, and Sunline.
4. Contract between Company and City of Monterey for CNG Fueling Station,
including service contract, executed July 5, 1994.
5. County Sanitation Districts of Orange County Purchase Order No. 80057
and Change Order, dated November 7, 1996.
6. Los Angeles County Metropolitan Transit Authority Change Order No. 1 to
Contract No. 6358 for construction of CNG fueling facilities at Division 8 &
10.
SCHEDULE 1.03
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UNFINISHED SALES ORDERS
1. Metro Regional Transit Authority for the City of Akron, Ohio; Purchase
Order No. 029866 for construction of compressed natural gas fueling facility.
2. Corporation of the City of Kitchener, Ontario, Canada; Purchase Order
No. P080888 for construction of CNG facility.
3. Manhattan Construction Company Job No. 2429; Subcontract for
construction of CNG facility in Fort Worth, Texas.
4. Construction Resource Group, Inc.; Purchase Order for supply of CNG
equipment in Brazos, Texas for Brazos Transportation District.
5. B & H Construction, Inc.; Subcontract No. 288-00001 to furnish
compressed natural gas system and startup at McCarran International Airport,
Project No. 626.
6. Purchase Order No. 10296-VT from San ▇▇▇▇ ▇▇▇▇▇▇▇ Construction, Inc.,
dated January 18, 1996; for project known as "DPW Maintenance Yard-CNG
Station."
7. Purchase Order No. S9602 55814 from San Diego Gas & Electric Company,
dated February 21, 1996; for project known as "Camp ▇▇▇▇▇▇▇▇▇ CNG Station."
8. Purchase Order No. 4 from Sav-On International Fixture Co., dated July
8, 1996; for project known as "Hyundai #2 Order."
9. Omnitrans Purchase Order No. 39023 to A & A Associates, dated July 14,
1995.
10. South Coast Area Transit (SCAT) Purchase Order No. A 2430 to A & A
Associates, dated March 2, 1995.
11. Enterra Compression Company Purchase Order No. 731628M to Company,
dated November 21, 1995.