SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: April 6, 2001
PENN OCTANE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 000-24394 52-1790357
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
77-530 Enfield Lane, Building D
Palm Desert, California 92211
(Address of principal executive offices) (Zip Code)
(760) 772-9080
(Registrant's telephone number, including area code)
Page 1 of 210
Item 2. Acquisition or Disposition of Assets
Reference is hereby made to Part I - Items 1 and 2 and Part II - Items 1 and 6
of the Registrant's Quarterly Reports on 10-Q for the quarterly periods ended
January 31, 2001 and October 31, 2000, and to Part II - Items 7 and 8 and Part
IV - Item 14 of the Registrant's Annual Report on 10-K for the fiscal year ended
July 31, 2000, which are incorporated herein by this reference, in each case
concerning the Registrant's previous transactions involving CPSC International,
Inc. ("CPSC") and Cowboy Pipeline Service Company ("Cowboy"), including certain
lease agreements, as amended (the "Lease Agreements"), between CPSC and the
Registrant, and the acquisition of a 50% interest in the Lease Agreements by the
Registrant from CPSC, and the Registrant's right to acquire 100% of the common
stock of Termatsal, S.A. de C.V. ("Termatsal"), a Mexican company and an
affiliate of the Registrant.
On March 30, 2001, the Registrant completed a settlement (the "Settlement") with
CPSC and Cowboy, which provides the Registrant with the remaining 50% interest
(100% in total as a result of the Registrant's prior acquisition of a 50%
interest in the Lease Agreements and the assets underlying such Lease
Agreements) in the portion of the pipelines, terminal facility and related land,
permits or easements (the "Acquired Assets") previously constructed and/or owned
by CPSC and leased to the Registrant under the Lease Agreements between CPSC and
the Registrant. The United States Bankruptcy Court where CPSC filed for
protection under Chapter 11 of the United States Bankruptcy Code during March
2000, has entered an order approving the Settlement. The Acquired Assets
generally consist of a LPG terminal facility in Matamoros, Mexico and pipelines
which connect the Registrant's Brownsville, Texas terminal facility to the
Matamoros terminal facility. In addition, as part of the Settlement, the
Registrant conveyed to CPSC all of its rights to certain property (the "Sold
Assets"). The foregoing is more fully discussed below.
In connection with the Settlement, for the Acquired Assets the Registrant agreed
to pay CPSC $5,800,000, less agreed upon credits and offsets in favor of the
Registrant totaling $3,237,500. The remaining $2,562,500 was paid at the
closing of the Settlement through the payment of $200,000 to CPSC and the
issuance to or for the benefit of CPSC of two promissory notes in the amounts of
$1,462,500 (the "CPSC Note") (payable in thirty five monthly installments of
$46,507 and a final balloon payment in the thirty sixth month representing all
remaining principal and interest due) and $900,000 (the "Other Note") (payable
in 36 equal monthly installments of principal and interest). The $200,000
payment was provided from the Registrant's working capital and the Registrant
expects to pay the CPSC Note and Other Note from the Registrant's working
capital. The Other Note is secured by a first priority security interest in the
United States portion of the pipelines comprising the Acquired Assets. The CPSC
Note is secured by a security interest in the United States portion of the
pipelines comprising the Acquired Assets, which security interest is
subordinated to the security interest which secures the Other Note. In
addition, the security interest granted under the CPSC Note is shared on a pari
passu basis with certain other creditors of the Registrant. Under the terms of
the CPSC Note, the Registrant is entitled to certain offsets related to future
Page 2 of 210
costs which may be incurred by the Registrant in connection with the Acquired
Assets. In addition to the payments described above, the Registrant agreed to
assume certain liabilities of approximately $845,000 which were previously owed
by CPSC in connection with construction of the Acquired Assets. CPSC also
transferred to the Registrant any right that it held to any amounts owing from
Termatsal for cash and/or equipment provided by CPSC to Termatsal, including
approximately $2.6 million of cash payments made by CPSC to Termatsal, in
connection with construction of the Mexican portion of the Acquired Assets.
The Sold Assets transferred to CPSC in connection with the Settlement consisted
of certain property of the Registrant with an original cost to the Registrant of
$3.8 million and with a remaining book value totaling approximately $1.9 million
(after giving effect to credits provided to the Registrant included in the
financial terms described above). CPSC agreed to be responsible for payments
required in connection with a mortgage obligation (the "Mortgage") related to
the original purchase by the Registrant of the aforementioned property totaling
approximately $1.9 million. CPSC's obligations under the Mortgage are to be paid
by the Registrant to the extent that there are amounts owed by the Registrant
under the CPSC Note, through direct offsets by the Registrant against the CPSC
Note. After the CPSC Note is fully paid, the Registrant will no longer have any
payment obligation to CPSC in connection with the Mortgage and CPSC will then be
fully responsible to the Registrant for any remaining obligations in connection
with the Mortgage (the "Remaining Obligations"). CPSC's obligations to the
Registrant in respect of the Remaining Obligations are secured by a deed of
trust lien granted by CPSC in favor of the Registrant against the aforementioned
property. CPSC also granted the Registrant a pipeline related easement on the
aforementioned property. In connection with the Sold Assets, the Registrant also
issued CPSC warrants to purchase 175,000 shares of common stock of the
Registrant at an exercise price of $4.00 per share exercisable until March 30,
2004.
The Registrant had previously paid CPSC $3,000,000 in connection with the
acquisition of a 50% interest in the Lease Agreements in December 1999.
In the Registrant's quarterly report on Form 10-Q for the quarter ended January
31, 2001, as filed with Securities and Exchange Commission on March 20, 2001,
the Registrant reflected its interests in the Acquired Assets and the Sold
Assets as if the Settlement had been completed based on the terms of a
preliminary settlement agreement between the parties. The terms of the
Settlement did not deviate in any material respect from the terms previously
reported.
Under the terms of the Settlement, the parties also provided mutual general
releases with respect to previous disputes and claims among the parties.
Page 3 of 210
That portion of the Acquired Assets which is located in Mexico, is owned by the
Registrant's affiliate Termatsal and was purchased by Termatsal with funds or
equipment provided by CPSC. All amounts owing to CPSC from Termatsal in
connection with the purchase were transferred to the Registrant. The Registrant
currently has an option to acquire 100% of the common stock of Termatsal for a
nominal amount. The Registrant expects to complete the acquisition of Termatsal
in the near future. Until such time, the Registrant will account for its
investment in the Acquired Assets owned by Termatsal as an investment in
Termatsal.
A copy of the form of the Settlement agreement (with exhibits) is attached
hereto as Exhibit 1 and incorporated herein by this reference. The foregoing
discussion is qualified in its entirety by reference to such exhibit.
Page 4 of 210
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PENN OCTANE CORPORATION
Date: April 6, 2001
By: /s/ Ian T. Bothwell
-------------------------------------
Name: Ian T. Bothwell
Title: Vice President, Treasurer,
Assistant Secretary, and Chief
Financial Officer and
Principal Accounting Officer
Page 5 of 210
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
NO. DESCRIPTION NO.
--- ----------- ---
1 Form of the Settlement Agreement by and between CPSC 7--210
International, Inc., Cowboy Pipeline Service Company and the
Registrant dated March 30, 2001
Page 6 of 210