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Exhibit 10.1
PRODUCT SALES AGREEMENT
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This Product Sales Agreement ("Agreement") is made and entered
into this
9th day of December, 2003, ?ay and between Penn Octane
Corporation, a Delaware
corporation ("Penn Octane"), and Koch Hydrocarbon, LP, a
Delaware limited
partnership ("KHLP").
WHEREAS, KHLP purchases from its affiliate the entire Propane
production
from the Flint Hills Resources, LP Refinery; and
WHEREAS, Penn Octane desires to purchase from KHLP all of the
Propane KHLP
purchases from its affiliate from the Flint Hills Resources, LP
Refinery; and
WHEREAS, KHLP and Penn Octane desire to enter into an agreement
for the
sale of such Propane on the terms and conditions set forth
below.
NOW THEREFORE, in consideration of the mutual covenants and
premises
contained herein, and for other good and valuable consideration,
the sufficiency
and receipt of which is hereby acknowledged, KHLP and Penn
Octane agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, the following
definitions
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shall apply:
(a) "Barrel" shall mean forty-two (42) U.S. Gallons.
(b) "Gulf Terra Delivery Point" shall mean the interconnection
at the
Flint Hills Resources, LP Refinery between Gulf Terra's Corpus
Christi
pipeline and the pipeline owned by KHLP's affiliate.
(c) "Contract Year" shall mean such periods specified in Section
3
("Term").
(d) "Delivery Point(s)" shall mean, as specified in Section 4
below, (i)
the ExxonMobil Delivery Point, or (ii) the Gulf Terra Delivery
Point,
(e) "Delivery Point Meter(s)" shall mean the meters maintained
for custody
transfer purposes at or near the Delivery Point(s) specified
above.
(f) "ExxonMobil Delivery Point" shall mean the interconnection
between the
12 inch ExxonMobil pipeline at the Viola valve station and the
propane
pipeline owned by KHLP's pipeline affiliate.
(g) "Gallon" shall mean a U.S. Gallon of 231 cubic inches or
0.133681
cubic feet of liquid at sixty (60 ) degrees Fahrenheit and at
the
equilibrium vapor pressure of the liquid.
(h) "Month" shall mean a period commencing at 12:01 a.m. CST on
the first
day of a calendar month and ending at 12:01 a.m. CST on the
first day
of the next succeeding calendar month.
(i) "Party" or "Parties" shall mean KHLP and/or Penn Octane
individually
or collectively as the context requires.
(j) "Propane" shall mean the GPA specifications for HD5
propane.
(k) "Flint Hills Resources, LP Refinery" shall mean both the
east and west
facilities of the refinery owned by Flint Hills Resources, LP
located
near Corpus Christi, Texas.
2. (a) COMMITMENT. Subject to the provisions herein, KHLP shall
sell and
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deliver, and Penn Octane shall purchase and receive, a volume of
Propane equal
to the Propane purchased by KHLP from its affiliate produced
from the west
facility of the Flint Hills Resources, LP Refinery. The
estimated amount of such
Propane is 5000 Barrels per day. Notwithstanding the foregoing,
the maximum
average monthly volume delivered from the west facility shall
not exceed 5,500
Barrels per day unless otherwise agreed by the Parties. In
<PAGE>
the event Flint Hills Resources should, in its sole discretion,
decide to move
Propane from its east facility to its west facility, such volume
(estimated to
be 500 - 1000 Barrels per day) not to exceed 1000 Barrels per
day shall be
purchased and received in addition to the west facilities
volumes by Penn Octane
hereunder. The Parties understand and expressly agree that KHLP
is under an
obligation to sell or deliver the daily production of HD5
propane produced at
the Flint Hills Resources, LP Refinery to Penn Octane pursuant
to this Agreement
however, KHLP is under no obligation to cause its affiliate to
operate the Flint
Hills Resources, LP Refinery or otherwise produce Propane.
(b) PLANNED MAINTENANCE. Each party or its affiliates may
periodically
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require the partial, or full shutdown, of certain of their
facilities for the
purpose of planned maintenance and which requirements may
materially affect the
parties respective abilities to purchase and/or deliver the
product commitment
specified in article 2.0 (a) above during such periods. In
recognition of these
maintenance needs, each party shall have the right to declare to
the other party
such periods of maintenance as they arise, and be relieved of
part, or all of,
the obligations, to purchase or deliver during such periods.
Such maintenance
periods shall not exceed 30 days in the aggregate in any
contractual year. The
parties will make reasonable efforts to give advance notice to
the other party
of the planned initiation and expected extend of such periods.
In addition the
parties will use reasonable efforts to minimize the length and
frequency of such
periods and to maintain as much of the commitment as
practical.
3. TERM. This Agreement shall be effective, regardless of when
executed,
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as of December 1, 2003 and shall continue until October 30, 2006
("Primary
Term") and thereafter from year-to-year unless and until (i)
either Party
terminates the Agreement by providing written notice to the
other at least
ninety (90) days prior to the expiration of the Primary Term or
any anniversary
of the expiration of the Primary Term or (ii) this Agreement is
terminated
pursuant to Section 5 (b).
4. DELIVERY POINTS. KHLP shall deliver the Propane sold
hereunder to the
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ExxonMobil Delivery Point. If the ExxonMobil Delivery Point is
unable or
unwilling to accept all or a portion of the Propane for any
reason, KHLP shall
deliver the Propane not accepted to the Gulf Terra Delivery
Point. KHLP shall
use reasonable efforts to make deliveries to the Exxon Delivery
Point, prior to
initiating deliveries to Gulf Terra.
5. (a) PRICE. Subject to the following, for each Gallon of
Propane
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delivered hereunder, Penn Octane shall pay KHLP an amount equal
to the following
("Sale Price"):
<TABLE>
<CAPTION>
PERIOD PRICE
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<S> <C>
(i) December 1, 2003 through March 31, 2004 Mt. Belvieu OPIS
Average (non-TET)
plus 1/4 c /gal
(ii) April 1, 2004 through September 30, 2004 Mt. Belvieu OPIS
Average (non-TET)
(iii) October 1, 2004 through September 30, 2005 Mt. Belvieu
OPIS Average (non-TET)
minus 1/2 c /gal
(iv) October 1, 2005 through September 30, 2006 Mt. Belvieu OPIS
Average (non-TET)
minus 1/2 c /gal
</TABLE>
(b) PRICE REOPENER. Either party shall have the right to open
the
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pricing provisions of the contract for the period October 1,
2005 through
September 30, 2006 by giving the other party at least 90 days
prior written
notice. The parties shall negotiate in good faith for the 90
days proceeding
October 1, 2005 to
<PAGE>
come to a mutually agreeable price. If after opening the pricing
provisions of
the contract, no Agreement can be reached by October 1, 2005,
then this
Agreement shall expire.
6. TITLE: RISK OF LOSS. Title to and risk of loss of the Propane
shall
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pass from KHLP to Penn Octane as the Propane passes the flange
connections
between the delivery and receiving pipeline at the Delivery
Point(s). Penn
Octane shall own and have control, custody, and possession of
the Propane, shall
bear all costs and risks of transporting same, and shall be
responsible for any
damage, loss or injury caused thereby after KHLP delivers the
Propane at the
Delivery Point(s). Penn Octane shall have the right to inspect
the Propane
immediately after delivery. Penn Octane's failure to give
written notice to KHLP
of any claim, including off-spec Propane within fifteen (15)
days from date of
delivery shall constitute an unqualified acceptance of such
Propane and a waiver
by Penn Octane of all claims with respect thereto.
7. MEASUREMENT. The quantities of Propane delivered to Penn
Octane shall
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be determined by the Delivery Point Meter(s). All quantities
shall he corrected
to standard conditions of sixty (60 ) degrees Fahrenheit and
equilibrium vapor
pressure in accordance with the API Manual of Petroleum
Measurement Standards,
8. WARRANTIES. KHLP warrants that: (a) at the time the Propane
is
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delivered to the Delivery Point(s), the Propane will meet the
specifications
required herein; and (b) KHLP has good title to the Propane at
delivery
hereunder. KHLP EXTENDS NO IMPLIED WARRANTY OF MERCHANTABILITY,
WHOLESOMENESS,
OR FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITATION OF THE
FOREGOING
SENTENCE, ALL OTHER WARRANTIES OF KHLP, EXPRESSED OR IMPLIED,
ARE EXCLUDED.
9. UPFRONT LETTER OF CREDIT. Each Month, Penn Octane shall
deliver
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eligible collateral in an amount equal to the Expected Aggregate
Exposure
calculated by KHLP, at least three business days prior to the
first calendar day
of the Month. Eligible collateral shall mean US dollars or an
irrevocable
standby letter of credit, issued in a format and by a bank
acceptable to KHLP in
its sole discretion. All banking charges, fees and expenses
shall be borne by
Penn Octane. Expected Aggregate Exposure as of any calculation
date shall mean
an amount equal to the sum of the actual volume delivered each
day of the Month
in question multiplied by the Sale Price, estimated by KHLP,
plus the sum of the
expected daily volumes yet to be delivered in the same Month
multiplied by the
Sale Price, estimated by KHLP. The Expected Aggregate Exposure
calculated prior
to the first day of the Month in order to determine the upfront
collateral
requirement will, by definition, not include any actual volumes
delivered, in
which case, KHLP will estimate the expected daily volume for the
entire month as
well as the expected Sales Price for the Month. KHLP may on any
business day
recalculate the Expected Aggregate Exposure for the entire
month, and require
additional collateral from Penn Octane. If at any time Penn
Octane's Expected
Aggregate Exposure exceeds eighty percent (80%) of the Eligible
Collateral, KHLP
may require additional Eligible Collateral until the Expected
Aggregate Exposure
is less than eighty percent (80%) of the eligible collateral,
Penn Octane shall
deliver additional Eligible Collateral to KHLP within two
business day of
request from KHLP to the following address:
Koch Hydrocarbon, LP
4111 East 37th Street, North
Wichita. KS 67220 USA
Phone: (316) 828-6907
Fax: (316) 828-4967
Telex: 417376
Attn: Kevin Shelton
<PAGE>
10. PAYMENT Penn Octane shall remit all sums due KHLP pursuant
to any
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invoice within ten (10) business days after the date of the
invoice. Should Penn
Octane fail to pay all or any part of any invoice when due,
interest on the
outstanding balance shall accrue from the date due until the
date payment is
received by KHLP at the lesser of (i) the Chase Manhattan prime
lending rate,
plus two percent (2%) per annum, or (ii) the maximum interest
rate allowed by
law. Any invoice shall be final as to the Parties unless
questioned in writing
within 2 years after payment has been made thereon. If Penn
Octane fails to pay
all or any part of any invoice, it shall not be in breach of
this provision
until five (5) days after receiving notice from KHLP of such
non-payment.
11. Default
A. Notwithstanding any other provision herein, the following
shall each
constitute an event of default: a pa
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