[DRAFT 11/12/98]

                               PURCHASE AGREEMENT
                               ------------------


     THIS  PURCHASE  AGREEMENT made and entered into as of November __, 1998, by
and  between  Van  Moer  Santerre  and  Company,  a  Luxembourg  company  (the
"Purchaser")  and  Penn  Octane  Corporation,  a  Delaware  corporation  (the
"Company").

     WHEREAS,  the  Company  wishes to sell and the Purchaser wishes to purchase
(i)  250,000 shares (the "Shares") of common stock, par value $.01 per share, of
the Company ("Common Stock"), and (ii) a warrant, exercisable until November 13,
2000  at  $1.25  per  share of Common Stock (subject to adjustment), to purchase
125,000  shares (the "Warrant Shares") of Common Stock substantially in the form
of  Exhibit  1  hereto  (the  "Warrant"; the Shares and the Warrant being herein
collectively  referred  to  as  the  "Securities");  and

     WHEREAS,  the Company and the Purchaser desire to enter into a Registration
Rights  Agreement  with  respect  to  the  Shares  and  the  Warrant  Shares,
substantially  in the form annexed as Exhibit 2 hereto (the "Registration Rights
Agreement"),  all  on  the  terms  and  conditions  set  forth  herein;

     NOW,  THEREFORE,  in consideration of the agreements and obligations herein
contained,  the  Purchaser  and  the  Company  hereby  agree  as  follows:

     1. Purchase and Sale of the Securities. Subject to the terms and conditions
        -----------------------------------
set forth in this  Agreement,  the Company agrees to sell to the Purchaser,  and
the Purchaser agrees to purchase from the Company, the Securities for a purchase
price equal to Two Hundred Fifty Thousand ($250,000.00) Dollars.

<PAGE>
     2. The Closing. The closing (the "Closing") of the purchase and sale of the
        -----------
Securities shall take place on November 13, 1998 at 10:00 A.M. local time at the
offices of the Company in Redwood  City,  California,  or at such other time and
place  as the  Company  and the  Purchaser  shall  agree.  At the  Closing,  the
Purchaser  shall  deliver  to the  Company  payment  for  the  Securities  being
purchased  in  immediately  available  funds and the Company  shall  deliver the
Shares and the Warrant to the Purchaser.

     3. Registration  Rights. The Purchaser shall have such registration  rights
        --------------------
with  respect  to the  Share  and the  Warrant  Shares  as are set  forth in the
Registration Rights Agreement.

     4.  Representations and Warranties of the Company,  As of the Closing,  the
         ---------------------------------------------
Company represents and warrants that:

          (a) the Company is a corporation duly organized,  validly existing and
     in good  standing  under  the laws of the  State of  Delaware,  and has the
     requisite  corporate  power and  authority  to  execute  and  deliver  this
     Agreement and to perform its obligations hereunder;

          (b) the execution, delivery and performance of this Agreement, and the
     sale and  delivery  of the  Securities  have  been duly  authorized  by all
     necessary  corporate  action on the part of the  Company and do not violate
     any covenant  contained  in any  agreement to which the Company is a party;
     and

          (c) the Warrant  Shares,  when issued upon exercise of the Warrant and
     payment  therefor,  will be  legally  and  validly  issued,  fully paid and
     nonassessable.

     5.   Representations  and  Warranties  of  the  Purchaser.   The  Purchaser
          ----------------------------------------------------
represents and warrants as follows:

                                       2
<PAGE>
          (a) General:
              -------

               (i) The Purchaser has all requisite  authority to enter into this
          Agreement  and  to  perform  all  of the  obligations  required  to be
          performed by it hereunder.

               (ii)  Neither the Company nor any person  acting on behalf of the
          Company has offered or sold the  Securities  to the Purchaser by means
          of any  form of  general  solicitation  or  general  advertising.  The
          Purchaser has not received, paid or given, directly or indirectly, any
          commission  or  remuneration  for or on  account  of any sale,  or the
          solicitation of any sale, of the Securities.

          (b) Information Concerning the Company:
              ----------------------------------

               (i) The  Purchaser is familiar  with the  business and  financial
          condition, properties, operations and prospects of the Company.

               (ii) The  Purchaser  has been given full  access to all  material
          information  concerning  the  condition,  properties,  operations  and
          prospects of the Company. The Purchaser and his advisors (if any) have
          had an  opportunity  to ask questions  of, and to receive  information
          from,  the  Company and persons  acting on its behalf  concerning  the
          terms and conditions of the Purchaser's  investment in the Securities,
          and to obtain  any  additional  information  necessary  to verify  the
          accuracy of the  information  and data received by the Purchaser.  The
          Purchaser  is  satisfied   that  there  is  no  material   information
          concerning the condition, properties,  operations and prospects of the
          Company of which Purchaser is unaware.

               (iii) The Purchaser  has made,  either alone or together with his
          advisors (if any), such independent  investigation of the Company, its
          management,  and related  matters as the Purchaser deems to be, or the
          Purchaser's  advisors  (if  any)  have  advised  to be,  necessary  or
          advisable in connection  with this  investment;  and the Purchaser and
          his advisors (if any) have received all information and data which the
          Purchaser  and his  advisors (if any) believe to be necessary in order
          to reach an informed  decision as to the  advisability of investing in
          the Securities.

                                       3
<PAGE>
               (iv)  The  Purchaser   understands   that  all  the   Purchaser's
          representations  and  warranties  contained in this  Agreement will be
          deemed to have been reaffirmed and confirmed as of the Closing.

               (v) The Purchaser understands that the purchase of the Securities
          involves  various  risks,  including the risk that it is unlikely that
          any market will exist for any resale of the Warrant and that resale of
          the Shares,  the Warrant and the Warrant  Shares will be restricted as
          herein provided.

          (c) Status of Purchaser:
              -------------------

               (i) The Purchaser either alone or with  Purchaser's  advisors (if
          any) has such knowledge,  skill and experience in business,  financial
          and  investment  matters as to be capable of evaluating the merits and
          risks of an  investment  in the  Securities.  To the  extent  that the
          Purchaser  has  deemed it  appropriate  to do so,  the  Purchaser  has
          retained at  Purchaser's  own expense,  and relied  upon,  appropriate
          professional advice regarding the investment, tax and legal merits and
          consequences of this Agreement and owning the Shares,  the Warrant and
          Warrant Shares, as the case may be.

          (d) Restrictions on Transfer or Sale
              --------------------------------

               (i) The Purchaser is acquiring the  Securities  and any shares of
          Common Stock purchased upon exercise of the Warrant solely for its own
          account,  for  investment  purposes,  and not with a view  to,  or for
          resale in connection with, any distribution of the Shares, the Warrant
          or such shares of Common Stock. The Purchaser understands that neither
          the Shares,  the Warrant nor such  underlying  Common  Stock have been
          registered   under  the  Securities  Act  of  1933,  as  amended  (the
          "Securities  Act"), or the securities laws of any state  (collectively
          referred  to  as  "State  Securities  Laws")  by  reason  of  specific
          exemptions under the provisions  thereof which depend in part upon the
          investment  intent of the Purchaser  and of the other  representations
          made by the Purchaser in this  Agreement.  The  Purchaser  understands
          that the Company is relying upon the  representations  and  agreements
          contained in this Agreement (and any supplemental information) for the
          purpose of determining whether this transaction meets the requirements
          for such exemptions.

                                       4
<PAGE>
               (ii) The Purchaser  understands that the Shares,  the Warrant and
          such  underlying  Common  Stock  are  "restricted   securities"  under
          applicable federal securities laws and that the Securities Act and the
          rules of the Securities  and Exchange  Commission  (the  "Commission")
          provide in substance that the Purchaser may dispose of such securities
          or any of them only  pursuant to an effective  registration  statement
          under the Securities Act or an exemption  therefrom,  and  understands
          that the Company has no  obligations  or intentions to register any of
          such  securities  thereunder,  or to take any  other  action  so as to
          permit sales  pursuant to the Securities  Act,  except as set forth in
          the  Registration   Rights  Agreement.   Accordingly,   the  Purchaser
          understands  that under the  Commission's  rules,  unless  disposed of
          pursuant to an effective  registration  statement under the Securities
          Act, the  Purchaser may dispose of the Note,  Warrants and  underlying
          Common Stock only in accordance  with the provisions of Rule 144 under
          the  Securities  Act,  to  the  extent   available,   or  in  "private
          placements"  which are exempt from  registration  under the Securities
          Act,  in  which  event  the   transferee   will  acquire   "restricted
          securities"  subject  to the same  limitations  as in the hands of the
          Purchaser.  As a  consequence,  absent such an effective  registration
          statement under the Securities Act, the Purchaser  understands that it
          may be required to bear the economic  risks of the  investment  in the
          Securities (and the underlying  Common Stock) for an indefinite period
          of time.

               (iii) The  Purchaser  agrees  that (a) it will not sell,  assign,
          pledge,  give,  transfer,  of  otherwise  dispose of the  Shares,  the
          Warrant or such underlying Common Stock or any interest in any thereof
          or therein,  or make any offer or attempt to do any of the  foregoing,
          except  pursuant  to   registration  of  such  securities   under  the
          Securities  Act  and  any  applicable  State  Securities  Laws or in a
          transaction  which,  in the  opinion  of  counsel  for  the  Purchaser
          satisfactory  to the Company (which  requirement  may be waived by the
          Company  upon  advice of  counsel),  is exempt  from the  registration
          provisions of the Securities Act and any applicable  State  Securities
          Laws; (b) the Shares, the Warrant and any certificate(s)  representing
          shares of Common Stock issued upon  exercise of the Warrant may bear a
          legend  making  reference to the foregoing  restrictions;  and (c) the
          Company and any transfer agent for shares of its

                                       5
<PAGE>
          Common  Stock shall not be  required  to give effect to any  purported
          transfer of any of such  securities  except upon  compliance  with the
          foregoing restrictions.

               (iv) In no event shall any sale,  assignment,  pledge or transfer
          of the Shares,  the  Warrant or such  underlying  Common  Stock by the
          Purchaser to a transferee  give rise to rights of any such  transferee
          under the Registration Rights Agreement.

     6. Conditions to Obligations of Purchaser and the Company.  The obligations
        ------------------------------------------------------
of the Purchaser to purchase and pay for the Securities  specified herein and of
the Company to sell and deliver such Securities are subject to the  satisfaction
at or prior to the Closing of the following conditions precedent:

          (a) The  representations  and  warranties of the Company  contained in
     Section 4 hereof and of the  Purchaser  contained in Section 5 hereof shall
     be true and correct on and as of the Closing in all respects  with the same
     effect as though  representations and warranties had been made on and as of
     the Closing.

          (b)  The  Company  and  the  Purchaser  shall  each  have  received  a
     certificate from an executive officer of the other party to the effect that
     its representations and warranties are still valid.

          (c) The  Company  and the  Purchaser  shall  each  have  executed  and
     delivered the Registration Rights Agreement.

     7. Fee. In  connection  with the purchase and sale of the  Securities,  Win
        ---
Securities,  as placement agent for the Company,  shall receive at the Closing a
fee from the Company  equal to $25,000 plus  reimbursement  of expenses,  not to
exceed $7,500.

                                       6
<PAGE>
     8. Waiver,  Amendment.  Neither this  Agreement nor any  provisions  hereof
        ------------------
shall be modified,  changed, discharged or terminated except by an instrument in
writing  signed by the party  against  whom any  waiver,  change,  discharge  or
termination is sought.

     9. Assignability.  Neither this Agreement nor any right, remedy, obligation
        -------------
or liability arising hereunder or by reason hereof shall be assignable by either
the  Company or the  Purchaser  without the prior  written  consent of the other
party, which consent shall not be unreasonably withheld.

     10.  Applicable  Law. This Agreement  shall be governed by and construed in
          ---------------
accordance  with the law of the  State of New York,  regardless  of the law that
might be applied under principles of conflicts of law.

     11. Section and Other Headings. The section and other headings contained in
         --------------------------
this Agreement are for reference  purposes only and shall not affect the meaning
or interpretation of this Agreement.

     12.  Counterparts.  This  Agreement  may  be  executed  in  any  number  of
          ------------
counterparts, each of which when so executed and delivered shall be deemed to be
an  original  and all of which  together  shall be deemed to be one and the same
agreement.

     13. Notices. All notices and other communications provided for herein shall
         -------
be in  writing  and  shall be  deemed  to have  been  duly  given  if  delivered
personally  or by  facsimile  (with proof of receipt) or sent by  registered  or
certified mail, return receipt requested, postage prepaid:

                                       7
<PAGE>
          (a)  If  to  the  Company,  to  it  at  the  following  address:
               Penn  Octane  Corporation
               900  Veterans  Boulevard,  Suite  540
               Redwood  City,  California  94603

               Attn:     Jerome  B.  Richter,
                         President

               with  a  copy  to:

               Coudert  Brothers
               1114  Avenue  of  the  Americas
               New  York,  New  York  10036

               Attn:  John  F.  Watkins,  Esq.

          (b)  If  to  the  Purchaser,  at  the  following  address:
               Van  Moer,  Santerre  &  Company
               Blvd.  Anspach  111
               1000  Brussels
               Belgium
               Attn:     Phillippe  de  Cock

               with  a  copy  to:

               ______________________
               ______________________
               ______________________
               ______________________

or  at  such  other  address  as  either party shall have specified by notice in
writing  to  the  other.

     14. Binding Effect.  The provisions of this Agreement shall be binding upon
         --------------
and accrue to the  benefit of the  parties  hereto and their  respective  heirs,
legal representatives, successors and permitted assigns.

                                       8
<PAGE>
     IN  WITNESS  WHEREOF,  the  Company  and the undersigned have executed this
Agreement  as  of  this  ___  day  of  November,  1998.

                                   VAN  MOER  SANTERRE  &  COMPANY


                                   By:
                                        ----------------------------------------
                                   Name:  Charles  Santerre
                                   Title:


                                   PENN  OCTANE  CORPORATION


                                   By:
                                        ----------------------------------------
                                   Name:  Jerome  B.  Richter
                                   Title:  President and Chief Executive Officer



                                       9
<PAGE>
                                                                      EXHIBIT  1
                                                                      ----------


           NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
          HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
          AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE.
          NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE
          UPON EXERCISE HEREOF MAY BE SOLD OR OTHERWISE TRANSFERRED IN
          THE ABSENCE OF REGISTRATION OR QUALIFICATION OR AN EXEMPTION
                         THEREFROM UNDER APPLICABLE LAW.

                          COMMON STOCK PURCHASE WARRANT
                          Void after November 13, 2000

                                              Warrant to Purchase 125,000 Shares
                                                 of Common Stock, $.01 par value
                                                      of Penn Octane Corporation

                         PENN OCTANE CORPORATION (POCC)

This  is  to  Certify  That,  FOR  VALUE  RECEIVED,

                           Van Moer Santerre & Company

or  registered  assign(s)  (herein  referred  to as the "Holder") is entitled to
purchase,  subject  to  the  provisions  hereof, from PENN OCTANE CORPORATION, a
Delaware  corporation  (the "Company"), but not later than 5:00 p.m., California
time,  on  November  __, 2000 (or, if such date is not a Business Day in Redwood
City,  California,  then  on  the  next succeeding day which shall be a Business
Day),  125,000  shares  of  Common  Stock,  $.01  par value, of the Company (the
"Common  Stock")  at an exercise price of $1.25 per share, subject to adjustment
as  to number of shares and purchase price as set forth in Section 6 below.  The
exercise  price of a share of Common Stock in effect at any time and as adjusted
from  time to time is hereinafter sometimes referred to as the "Exercise Price".
For  purposes  of this Warrant, a "Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in New York, New York,
or  in  Redwood  City, California, are authorized by law or regulation to close.

The  shares of Common Stock issuable upon exercise of the Warrants are sometimes
herein  called  the  "Warrant  Stock."

     15. Exercise of Warrant.  This Warrant may be exercised in whole or in part
         -------------------
at any time and from time to time by  presentation  and surrender  hereof to the
Company at its  principal  office with the  Purchase  Form  annexed  hereto duly
executed  and  accompanied  by  payment  of the  Exercise  Price in  immediately
available funds for the number of shares specified in such form. If this Warrant
is exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation,  execute  and deliver a new  Warrant  evidencing  the right of the
Holder to purchase the balance of the shares purchasable hereunder. Upon receipt
by the Company of this Warrant at the office of the Company,  in proper form for
exercise,  accompanied  by payment of the  Exercise  Price,  the Holder shall be
deemed to be the holder of record of the shares of Common  Stock  issuable  upon
such exercise,  notwithstanding  that  certificates  representing such shares of
Common Stock shall not then be actually delivered to the Holder. The issuance of
certificates for shares of Common Stock upon the exercise of this

<PAGE>
Warrant  shall  be  made  without  charge  to the Holder for any issuance tax in
respect  thereof  (with  the  exception  of  any  federal  or state income taxes
applicable  thereto),  all  such  taxes  to  be  paid  by  the Company, it being
understood however that the Holder shall be required to pay any tax which may be
payable  in respect of any transfer involved in the issuance and delivery of any
certificate  in  a  name  other than that of the Holder.  The Company will at no
time  close  its  transfer  books  against  the  transfer of this Warrant or the
issuance  of  any  shares  of  Common  Stock  issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this Warrant.

     16. Reservation of Shares; Stock Fully Paid. The Company agrees that at all
         ---------------------------------------
times there shall be authorized  and reserved for issuance upon exercise of this
Warrant  such  number of shares of its  Common  Stock as shall be  required  for
issuance or delivery  upon  exercise of this  Warrant.  All shares  which may be
issued  upon  exercise  hereof  will,  upon  issuance,  and  receipt  of payment
therefor, be duly authorized, validly issued, fully paid and non-assessable.

     17. Fractional Shares. This Warrant shall not be exercisable in such manner
         -----------------
as to require the issuance of fractional  shares.  If, as a result of adjustment
in the  Exercise  Price or the number of shares of Common  Stock to be  received
upon  exercise of this  Warrant,  fractional  shares would be issuable,  no such
fractional  shares shall be issued.  In lieu thereof,  the Company shall pay the
Holder an amount in cash equal to such  fraction  multiplied  by the Fair Market
Value of a share of Common Stock. The term "Fair Market Value" shall mean, as of
a particular date, the market price on such date.

          For purposes of this Warrant, the market price on any day shall be the
last  sale price on such day on the NASDAQ Stock Market, or, if the Common Stock
is  not  then  listed or admitted to trading on the NASDAQ Stock Market, on such
other  principal  stock exchange  on which such stock is then listed or admitted
to  trading,  or,  if  no sale takes place on such day on any such exchange, the
average  of the closing bid and asked prices on such day as officially quoted on
any  such  exchange,  or,  if the Common Stock is not then listed or admitted to
trading on any stock exchange, the average of the reported closing bid and asked
prices  on  such  day  in  the over-the-counter market as quoted on the National
Association  of  Securities  Dealers  Automated  Quotation  System or, if not so
quoted,  then  as  furnished  by  any  member  of  the  National  Association of
Securities  Dealers,  Inc.  selected  by  the  Company.  If  there  shall  be no
meaningful over-the-counter market, then Fair Market Value shall be such amount,
not  less than book value, as may be determined by the Board of Directors of the
Company.

     18. Exchange or Assignment of Warrant. This Warrant is exchangeable without
         ---------------------------------
expense (other than applicable transfer taxes) at the option of the Holder, upon
presentation  and  surrender  hereof to the  Company  for any other  Warrants of
different  denominations  entitling  the  holder  thereof  to  purchase  in  the
aggregate  the same  number of shares of  Common  Stock  purchasable  hereunder.
Subject to the  provisions of Section 11 below and any  restriction  on transfer
applicable  hereto  pursuant to the securities  laws of the United States or any
State,  upon  surrender of this Warrant to the Company with an  assignment  form
duly executed,  and funds sufficient to pay any transfer tax, the Company shall,
without  charge,  execute and deliver a new Warrant in the name of the  assignee
named in such  instrument  of  assignment,  and this Warrant  shall  promptly be
cancelled.  This Warrant may be divided or combined  with other  Warrants  which
carry the same rights upon  presentation  hereof at the principal  office of the
Company,  together with a written notice  specifying the names and denominations
in which new Warrants  are to be issued  signed by the Holder  hereof.  The term
"Warrant" as used herein  includes  any Warrants  into which this Warrant may be
divided or exchanged,  and the term "Holder" as used herein  includes any holder
of any Warrant  into which this Warrant may be divided or for which this Warrant
may be exchanged.

                                       2
<PAGE>
     19.  Rights of the  Holder.  The Holder  shall not,  by virtue  hereof,  be
          ---------------------
entitled  to any rights of a  stockholder  in the  Company,  either at law or in
equity,  and the  rights of the Holder are  limited to those  expressed  in this
Warrant.

     20. Adjustment of Exercise Price and Number of Shares.  The number and kind
         -------------------------------------------------
of securities  purchasable upon the exercise or exchange of this Warrant and the
Exercise  Price  shall be  subject  to  adjustment  from  time to time  upon the
occurrence of certain events, as follows:

     A.  Adjustment for Change in Capital  Stock.  If at any time after the date
         ---------------------------------------
hereof, the Company:

          1. pays a dividend  or makes a  distribution  on its  Common  Stock in
          shares of its Common Stock;

          2.  subdivides its  outstanding  shares of Common Stock into a greater
          number of shares;

          3.  combines  its  outstanding  shares of Common  Stock into a smaller
          number of shares;

          4. makes a  distribution  on its Common Stock in shares of its capital
          stock other than Common Stock; or

          5. issues by  reclassification  of its Common  Stock any shares of its
          capital stock;

then  the  Exercise  Price  in  effect immediately prior to such action shall be
adjusted  so  that  the  Holder  may  receive, upon exercise or exchange of this
Warrant and payment of the same aggregate consideration, the number of shares of
capital  stock  of  the  Company  which  the Holder would have owned immediately
following  such  action  if  the  Holder  had exercised or exchanged the Warrant
immediately  prior  to  such  action.

     The  adjustment shall become effective immediately after the record date in
the  case of a dividend or distribution and immediately after the effective date
in  the  case  of  a  subdivision,  combination  or  reclassification.

     B.  Adjustment  for  Other  Distributions.  If at any time  after  the date
         -------------------------------------
hereof,  the Company  distributes  to all holders of its Common Stock any of its
assets or debt securities, the Exercise Price following the record date shall be
adjusted in accordance with the following formula:

                    E' = E  x  M-F
                               ---
                                M

where:     E'  =  the  adjusted  Exercise  Price.

               E  =  the  Exercise  Price  immediately prior to the adjustment.

               M  =  the  current  market  price  (as defined in (e) below) per
                     share  of  Common  Stock  on  the  record  date  of  the
                     distribution.

                                       3
<PAGE>
               F  =  the aggregate fair market value (as conclusively determined
                     by  the Board  of  Directors  of the Company) on the record
                     date of the  assets  or  debt  securities to be distributed
                     divided  by  the  number  of outstanding shares  of  Common
                     Stock.

     The adjustment shall be made successively whenever any such distribution is
made  and  shall  become  effective  immediately  after  the record date for the
determination  of  shareholders  entitled  to  receive the distribution.  In the
event  that  such  distribution  is  not actually made, the Exercise Price shall
again  be  adjusted to the Exercise Price as determined without giving effect to
the  calculation  provided  hereby.  In  no  event  shall  the Exercise Price be
adjusted  to  an  amount  less  than  zero.

     This subsection does not apply to cash dividends or cash distributions paid
out  of  consolidated  current or retained earnings as shown on the books of the
Company  and  paid  in  the  ordinary  course  of  business.

     C.  Deferral of Issuance or Payment.  In any case in which an event covered
         -------------------------------
by this Section 6 shall require that an adjustment in the Exercise Price be made
effective  as of a record  date,  the  Company  may  elect to  defer  until  the
occurrence  of such  event by (i)  issuing  to the  Holder,  if this  Warrant is
exercised  after such record date,  the shares of Common Stock and other capital
stock of the Company,  if any,  issuable  upon such  exercise over and above the
shares of Common Stock or other capital stock of the Company,  if any,  issuable
upon such  exercise on the basis of the  Exercise  Price in effect prior to such
adjustment,  and (ii)  paying to the  Holder by check any  amount in lieu of the
issuance of fractional shares pursuant to Section 3.

     D. When No Adjustment Required.  No adjustment need be made for a change in
        ---------------------------
the par value or no par value of the Common Stock.

     E.  Statement of  Adjustments.  Whenever  the Exercise  Price and number of
         -------------------------
shares of Common  Stock  purchasable  hereunder  is  required  to be adjusted as
provided herein,  the Company shall promptly prepare a certificate signed by its
President  or any Vice  President  and its  Treasurer  or  Assistant  Treasurer,
setting forth, in reasonable  detail,  the event  requiring the adjustment,  the
amount of the  adjustment,  the method by which such  adjustment  was calculated
(including a description hereunder), and the Exercise Price and number of shares
of Common Stock  purchasable  hereunder after giving effect to such  adjustment,
and shall promptly cause copies of such certificates to be mailed to the Holder.

     F. No Adjustment  Upon Exercise of Warrants.  No adjustments  shall be made
        ----------------------------------------
under any Section  herein in connection  with the issuance of Warrant Stock upon
exercise or exchange of the Warrants.

     G. No  adjustment  for  Small  Amounts.  Anything  herein  to the  contrary
        -----------------------------------
notwithstanding, no adjustment of the Exercise Price shall be made if the amount
of such  adjustment  shall be less than $.05 per share,  but in such  case,  any
adjustment  that would  otherwise  be required  then to be made shall be carried
forward  and  shall be made at the time and  together  with the next  subsequent
adjustment which, together with any adjustment so carried forward,  shall amount
to $.05 per share or more.

     H. Common Stock Defined.  Whenever reference is made in Section 6(a) to the
        --------------------
issue of shares of Common  Stock,  the term  "Common  Stock"  shall  include any
equity securities of any class of the Company hereinafter authorized which shall
not be  limited  to a fixed sum or  percentage  in  respect  of the right of the
holders thereof to participate in dividends or  distributions of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.

                                       4
<PAGE>
Subject  to  the  provisions  of Section 7 hereof, however, shares issuable upon
exercise or exchange hereof shall include only shares of the class designated as
Common  Stock  of  the  Company  as of the date hereof or shares of any class or
classes resulting from any reclassification or reclassifications thereof or as a
result  of  any  corporate  reorganization  as provided for in Section 7 hereof.

     7. Notice to Warrant Holders. So long as this Warrant shall be outstanding,
        -------------------------
(i) if the  Company  shall pay any  dividend or make any  distribution  upon its
Common Stock,  or (ii) if the Company shall offer to the holders of Common Stock
for  subscription  or purchase by them any shares of stock or  securities of any
class  or any  other  rights,  or  (iii) if any  capital  reorganization  of the
Company,  reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially  all of the assets of the Company,  or voluntary or involuntary
dissolution or  liquidation of the Company shall be effected,  then, in any such
case,  the Company shall cause to be mailed to the Holder,  at least thirty (30)
days  prior to the date  specified  in (x) or (y)  below,  as the case may be, a
notice  containing a brief  description  of the proposed  action and stating the
date on which  (x) a record  is to be taken for the  purpose  of such  dividend,
distribution   or  rights,   or  (y)  such   reclassification,   reorganization,
consolidation,  merger, conveyance,  dissolution or liquidation is to take place
and the date, if any is to be fixed,  as of which the holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for securities
or  other  property  deliverable  upon  such  reclassification,  reorganization,
consolidation, merger, conveyance, dissolution or liquidation.

     8. Certain Obligations of the Company.  The Company agrees that it will not
        ----------------------------------
increase the par value of the shares of Warrant Stock  issuable upon exercise of
this Warrant  above the  prevailing  and  currently  applicable  Exercise  Price
hereunder,  and that before  taking any action  that would  cause an  adjustment
reducing the prevailing and current  applicable  Exercise Price  hereunder below
the then par value of the Warrant  Stock at the time  issuable  upon exercise of
this Warrant,  the Company will take such corporate action, as in the opinion of
its counsel,  may be necessary in order that the Company may validly issue fully
paid,  nonassessable  shares of such Warrant Stock. The Company will maintain an
office or agency  (which shall  initially be the Company's  principal  office in
Redwood City, California) where presentations and demands to or upon the Company
in respect of this  Warrant  may be made and will give  notice in writing to the
registered holders of the then outstanding Warrants, at their addresses as shown
on the books of the Company, of each change of location thereof.

     9. Repurchase Right.  Notwithstanding any other provisions of this Warrant,
        ----------------
the Company  may, in the event  that,  after the date six months  after the date
hereof, the closing bid price, as reported on the NASDAQ SmallCap Market or such
other  exchange on which the Company's  Common Stock may then be quoted,  of the
Company's  Common Stock is greater  than or equal to 150% of the Exercise  Price
for five  consecutive  trading days, upon not less than five (5) days' notice in
writing  to the  Holder,  repurchase  all or any  portion  of this  Warrant at a
purchase  price equal to $.10 per share of Common  Stock  covered  hereby,  such
purchase  price to be  proportionally  adjusted each time the Exercise  Price is
adjusted  pursuant to Section 6 hereof.  During  such five (5) day  period,  the
Holder may  exercise  such  Warrant in  accordance  with the terms  hereof.  The
closing on such repurchase  shall occur on the date and at the time set forth in
such notice at the office of the Company in Redwood City,  California or at such
other  place as shall be  agreed  upon by the  Company  and the  Holder.  At the
Closing, the Company shall deliver to the Holder an amount equal to the purchase
price in immediately available funds and the Holder will deliver this Warrant to
the Company for cancellation.  To the extent any repurchase hereunder is of less
than all of the rights represented by this Warrant,  the Company will deliver to
the Holder a new Warrant covering the rights not so purchased.

                                       5
<PAGE>
     10. Determination by Board of Directors. All determinations by the Board of
         -----------------------------------
Directors of the Company  under the  provisions  of this Warrant will be made in
good faith with due regard to the interest of the Holder and in accordance  with
sound financial practices.

     11. Notice. All notices to the Holder shall be in writing,  and all notices
         ------
and certificates given to the Holder shall be sent registered or certified mail,
return receipt requested, to such Holder at his address appearing on the records
of the Company.

     12.  Replacement of Lost,  Stolen,  Destroyed or Mutilated  Warrants.  Upon
          ---------------------------------------------------------------
receipt of evidence  reasonably  satisfactory to the Company of the loss, theft,
destruction  or  mutilation  of this  Warrant and, in the case of any such loss,
theft or  destruction,  upon delivery of any indemnity  bond in such  reasonable
amount as the Company may determine in the case of any such mutilation, upon the
surrender of such  Warrant for  cancellation,  the Company at its expense,  will
execute  and  deliver,  in lieu of such lost,  stolen,  destroyed  or  mutilated
Warrant, a new Warrant of like tenor.

     13.  Number and Gender.  Whenever the singular  number is used herein,  the
          -----------------
same shall include the plural where  appropriate,  and words of any gender shall
include each other gender where appropriate.

     14.  Applicable  Law.  This Warrant  shall be governed by, and construed in
          ---------------
accordance  with,  the laws of the  State of New  York,  without  regard  to its
conflict of laws principles.


                                   PENN  OCTANE  CORPORATION


                                   By:
                                        ----------------------------------------
                                   Name:  Jerome  B.  Richter
                                   Title:  President and Chief Executive Officer
Dated:  November  ___,  1998




                                       6
<PAGE>
                                  PURCHASE FORM
                                  -------------


                                                         Dated __________ , ____


          The  undersigned  hereby  irrevocably  elects  to  exercise the within
Warrant  to purchase ___________ shares of Common Stock and hereby makes payment
of  in  payment  of  the  exercise  price  thereof.



          Signature______________________________




                                       7
<PAGE>