UNITED STATES
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 (Date of earliest event reported): September 16, 2004
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 Land, Bldg D
Palm Desert, California 92211
(Address of principal executive offices) (Zip Code)
(760) 772-9080
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01. Entry into a Material Definitive Agreement
On September 16, 2004, Penn Octane Corporation (the "Company") entered into
a series of agreements in connection with its proposed distribution to its
common stockholders of the common units of Rio Vista Energy Partners L.P. ("Rio
Vista"), currently a wholly-owned subsidiary of the Company, as follows:
DISTRIBUTION AGREEMENT
Penn Octane entered into a distribution agreement ("Distribution
Agreement") with Rio Vista and its subsidiaries in connection with the
distribution. This agreement, as discussed in greater detail below:
- provides for the principal corporate transactions to be effected in
connection with the distribution; and
- provides for other matters relating to Penn Octane's relationship with
Rio Vista and its subsidiaries, and the rights and obligations of Penn
Octane and the rights and obligations of Rio Vista, following the
distribution.
The principal terms of the Distribution Agreement include:
Corporate Restructuring Transactions and Assignments
On or before the distribution date, Penn Octane and Rio Vista will, and will
cause their respective subsidiaries to, take such actions as are necessary to
cause, effect and consummate the corporate restructuring transactions identified
in the Distribution Agreement and any other agreement relating to the
distribution.
In addition, on or before the distribution date or as soon as reasonably
practicable after that date, subject to obtaining any required third party
consent:
- Penn Octane will transfer or cause to be transferred to Rio Vista or a
subsidiary of Rio Vista all transferable licenses and permits that
relate to Rio Vista's business and are held in the name of Penn Octane
or any of its subsidiaries or their respective employees, officers,
directors, stockholders or agents;
- Penn Octane will assign, transfer and convey or cause to be assigned,
transferred and conveyed to Rio Vista or a subsidiary of Rio Vista all
of its right, title and interest in and to any and all agreements that
relate exclusively to Rio Vista's business, Rio Vista or any of Rio
Vista's subsidiaries; and
- any agreement that inures to the benefit of Penn Octane or a
subsidiary of Penn Octane and to the benefit of Rio Vista or a
subsidiary of Rio Vista, will be assigned so that each party will be
entitled to the rights and benefits inuring to its business under that
agreement.
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Conditions to the Distribution
The Distribution Agreement provides that the following conditions must be
satisfied or waived before or as of the date of the distribution in order for
the distribution to occur:
- the Form 10 filed by Rio Vista with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 must have
become effective and not be subject to a stop order or a proceeding
for that purpose;
- the common units of Rio Vista to be delivered in the distribution must
have been approved for trading on the National Market System of the
Nasdaq Stock Market or other public market acceptable to the Board of
Directors of Penn Octane, subject to official notice of issuance;
- the Board of Directors of Penn Octane and the independent committee of
the Board of Directors of Penn Octane must be satisfied that the
distribution will be made out of its surplus within the meaning of
Section 170 of the General Corporation Law of the State of Delaware
and Penn Octane will not be insolvent or have unreasonably small
capital with which to engage in its businesses following the
distribution;
- the Board of Directors of Penn Octane and the independent committee of
the Board of Directors of Penn Octane must have approved the
distribution and not have abandoned, deferred or modified the
distribution or terms thereof;
- Penn Octane and the operating subsidiary of Rio Vista shall have duly
executed and delivered the purchase contract for the sale of liquefied
petroleum gas by Penn Octane to the operating subsidiary of Rio Vista;
- the Distribution Agreement, the Omnibus Agreement (described below),
the Contribution, Conveyance and Assumption Agreement (described
below) and each of the other agreements reasonably necessary or
appropriate to consummate the corporate restructuring transactions and
the distribution must have been duly executed and delivered by the
parties;
- no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition
preventing the distribution or any of the other transactions
contemplated by the Distribution Agreement and the other agreements
relating to the distribution may be in effect;
- the Board of Directors of Penn Octane and the independent committee of
the Board of Directors of Penn Octane shall have received a copy of
the independent appraisal of the assets to be transferred by Penn
Octane to Rio Vista conducted by Baker & O'Brien, Inc. as of January
1, 2004, and each of the Board of Directors of Penn Octane and the
independent committee of the Board of Directors of Penn Octane shall
have determined in their sole discretion that, based on such
independent appraisal, the estimated tax liabilities to be incurred by
Penn Octane as a result of the distribution are acceptable; and
- any material governmental and third party approvals and consents
necessary to consummate the distribution and related transactions must
have been obtained and must be in full force and effect.
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Transaction Expenses
Penn Octane will be responsible for all transaction expenses relating to the
distribution incurred by Penn Octane, its subsidiaries, Rio Vista and Rio
Vista's subsidiaries.
Termination
The Board of Directors of Penn Octane and the independent committee of the Board
of Directors of Penn Octane may abandon the distribution and terminate the
distribution agreement at any time before the distribution.
OMNIBUS AGREEMENT
Penn Octane entered into an omnibus agreement ("Omnibus Agreement") with
Rio Vista and its subsidiaries that governs, among other things, indemnification
obligations among the parties to the agreement, related party transactions, the
provision of general administration and support services by Penn Octane. In
this agreement, as discussed in greater detail below:
- Penn Octane agrees to indemnify Rio Vista for environmental losses
arising prior to the distribution, preexisting litigation and tax
liabilities.
- Rio Vista agrees to indemnify Penn Octane for environmental losses
arising after the distribution and for federal income tax liabilities
resulting from the distribution in excess of $2.5 million.
- Rio Vista agrees to reimburse Penn Octane for the provision of general
and administrative services and other expenses incurred on Rio Vista's
behalf.
- Rio Vista is prohibited from entering into certain material agreements
between Rio Vista and Penn Octane without the approval of the
conflicts committee of Rio Vista's general partner's board of
managers.
Indemnification Provisions
Under the Omnibus Agreement, Penn Octane will indemnify Rio Vista after the
completion of the distribution against:
- certain potential environmental liabilities associated with the
operation of the assets contributed to Rio Vista, and assets retained,
by Penn Octane that relate to events or conditions occurring or
existing before the completion of the distribution.
Penn Octane will also indemnify Rio Vista for liabilities relating to:
- legal actions against Penn Octane;
- events and conditions associated with any assets retained by Penn
Octane;
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- certain defects in the title to the assets contributed to Rio Vista by
Penn Octane that arise within three years after the completion of the
distribution to the extent such defects materially and adversely
affect Rio Vista's ownership and operation of such assets;
- Rio Vista's failure to obtain certain consents and permits necessary
to conduct Rio Vista's business to the extent such liabilities arise
within three years after the completion of the distribution; and
- certain income tax liabilities attributable to the operation of the
assets contributed to Rio Vista prior to the time that they were
contributed.
Rio Vista will indemnify Penn Octane for certain potential environmental
liabilities associated with the operation of the assets contributed to Rio Vista
that relate to events or conditions occurring or existing after the completion
of the distribution and for federal income tax liabilities in excess of $2.5
million incurred by Penn Octane as a result of the distribution.
Services
Under the Omnibus Agreement, Penn Octane will provide Rio Vista with corporate
staff and support services that are substantially identical in nature and
quality to the services previously provided by Penn Octane in connection with
its management and operation of the assets of Rio Vista during the one-year
period prior to the completion of the distribution. These services will include
centralized corporate functions, such as accounting, treasury, engineering,
information technology, insurance, administration of employee benefit and
incentive compensation plans and other corporate services. Penn Octane will be
reimbursed for the costs and expenses it incurs in rendering these services,
including an overhead allocation to Rio Vista of Penn Octane's indirect general
and administrative expenses from its corporate allocation pool. The general
partner of Rio Vista will determine the general and administrative expenses that
will be allocated to Rio Vista. Administrative and general expenses directly
associated with providing services to Rio Vista (such as legal and accounting
services) are not included in the overhead allocation pool.
Related Party Transactions
The Omnibus Agreement prohibits Rio Vista from entering into any material
agreement with Penn Octane without the prior approval of the conflicts committee
of the board of managers of the general partner of Rio Vista. For purposes of
the Omnibus Agreement, the term material agreements means any agreement between
Rio Vista and Penn Octane that requires aggregate annual payments in excess of
$100,000.
Amendment and Termination
The Omnibus Agreement may be amended by written agreement of the parties;
provided, however that it may not be amended without the approval of the
conflicts committee of the general partner of Rio Vista if such amendment would
adversely affect the unitholders of Rio Vista. The Omnibus Agreement has an
initial term of five years that automatically renews for successive five-year
terms and, other than the indemnification provisions, will terminate if Rio
Vista is no longer an affiliate of Penn Octane.
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CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
Penn Octane entered into a contribution, conveyance and assumption
agreement ("Contribution, Conveyance and Assumption Agreement") with Rio Vista,
the operating subsidiary of Rio Vista and the general partner of the operating
subsidiary of Rio Vista and provides for the contribution and conveyance by Penn
Octane of the assets comprising Rio Vista's business, including the capital
stock of Penn Octane's Mexican subsidiaries and the contracts, permits and
leases material to Rio Vista's business, to the operating subsidiary of Rio
Vista, the contribution of Penn Octane's 99.9% limited partner interest in the
operating subsidiary of Rio Vista to Rio Vista and the assumption by Rio Vista
and the operating subsidiary of Rio Vista of all obligations and liabilities
associated with such assets, that arise from and after the consummation of the
transaction under this agreement, to the full extent that Penn Octane or the
Mexican subsidiaries would have been obligated to pay, perform and discharge
such obligations and liabilities in the future but for the execution of this
agreement.
CONVEYANCE AGREEMENT
Pursuant to the Contribution, Conveyance and Assumption Agreement, Penn
Octane executed a conveyance agreement ("Conveyance Agreement") with the
operating subsidiary of Rio Vista that conveys the following assets of Penn
Octane to the operating subsidiary of Rio Vista effective as of 4:58 p.m. on
September 30, 2004:
Brownsville Terminal Facilities:
Building
LPG Terminal facilities
Tank Farm
Leasehold improvements
Capital construction in progress
Equipment
US Pipelines and Rights Of Way:
6" and 8" (Brownsville terminal to US Border)
Various rights of way obtained in connection with operation of US Pipelines
between Brownsville Terminal and US Border
Other:
Land acquired in Brownsville in vicinity of the US Pipelines between
Brownsville Terminal and US border
Inventory located in storage tanks and pipelines located in Brownsville
(and extending to storage and pipelines located in assets held by the
Mexican subsidiaries)
Investment in Subsidiaries:
Penn Octane de Mexico, S. de R.L. de C.V.
Termatsal, S. de R.L. de C.V.
Penn Octane International LLC
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Contracts and Leases (assumed and/or assigned):
Lease Agreements
Port of Brownsville
LPG Terminal Facility
Tank Farm Lease
US State Department Permit
Other licenses and permits in connection with ownership and operation of
the US pipelines between Brownsville and US border
PURCHASE AGREEMENT FOR LPG
Penn Octane entered into a purchase agreement ("Purchase Agreement") with
the operating subsidiary of Rio Vista pursuant to which the operating subsidiary
of Rio Vista agrees to purchase all of its LPG requirements for sales which
utilize the assets transferred to the operating subsidiary of Rio Vista by Penn
Octane to the extent Penn Octane is able to supply such LPG requirements. This
agreement further provides that the operating subsidiary of Rio Vista will have
no obligation to purchase LPG from Penn Octane to the extent the distribution of
such LPG to Rio Vista's customers would not require the use of any of the assets
Penn Octane contributes to the operating subsidiary of Rio Vista under the
Contribution, Conveyance and Assumption Agreement. The Purchase Agreement
terminates on the earlier to occur of:
- Penn Octane ceases to have the right to access the Seadrift pipeline
that connects to Rio Vista's Brownsville terminal facilities; and
- the operating subsidiary of Rio Vista ceases to sell LPG using any of
the assets contributed by Penn Octane to the operating subsidiary of
Rio Vista pursuant to the contribution, conveyance and assumption
agreement.
The price Rio Vista will pay for LPG under this contract is indexed to the price
quoted by the Oil Price Information Service for Mt. Belvieu non-tet propane and
non-tet normal butane, plus other costs and amounts based on a formula that
takes into consideration operating costs to both Penn Octane and to Rio Vista.
LIMITED PARTNERSHIP AGREEMENTS AND LIMITED LIABILITY COMPANY AGREEMENT
In addition to the agreements described above, Penn Octane executed the
following agreements in the capacity indicated:
- First Amended and Restated Agreement of Limited Partnership of Rio
Vista Energy Partners L.P., in Penn Octane's capacity as
organizational limited partner;
- First Amended and Restated Agreement of Limited Partnership of Rio
Vista Operating Partnership L.P., the operating subsidiary of Rio
Vista, in Penn Octane's capacity as limited partner; and
- Amended and Restated Limited Liability Company Agreement of Rio Vista
GP LLC, the general partner of Rio Vista, in Penn Octane's capacity as
member.
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Each of the foregoing agreements is described in the registration statement on
Form 10 filed by Rio Vista with the SEC on August 26, 2004, as amended by
Amendment No. 1 thereto filed with the SEC on September 16, 2004 (SEC File No.
000-50394).
Page 8 of 9
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
By: /s/ Ian T. Bothwell
---------------------------------
Name: Ian T. Bothwell
Title: Vice President, Treasurer,
Assistant Secretary, Chief
Financial Officer and Principal
Accounting Officer
Date: September 22, 2004
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