Directors of the Company

The names of the Company’s directors and certain information about them are set forth below:

All directors hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal.

Richard R. Canney.  Mr. Canney has been employed in the mergers and acquisitions and new ventures division of Shell Oil Company since 1997.  Mr. Canney was a director and managing partner of Corporacion Mercantile Internacional, S.A. de C.V. in Mexico City.  From 1994 to 1996, Mr. Canney was a professor of finance at Instituto Technological Autonomo de Mexico in Mexico City.   In August 2004, Mr. Canney was elected as a member of the board of managers of Rio Vista.  Mr. Canney earned a Masters of Business Admininstration from the University of Chicago in June 1989.

Bruce I. Raben.  Mr. Raben is founding Partner of Hudson Capital Advisors, LLC, a provider of investment banking advisory, placement and capital raising services formed in 2004.  Mr. Raben has been an investment banker, merchant banker and private investor for approximately 25 years.  From 1979 until 1990, Mr. Raben worked at Drexel Burnham Lambert, an investment banking firm.  From 1990 through 1995, he was an executive vice president with Jeffries & Company, an investment banking firm.  From 1995 until 2002, Mr. Raben served as a managing director of CIBC World Markets, an investment banking firm.  He continued to serve as a consultant to CIBC in 2003.  Mr. Raben has previously served on the boards of numerous public and private companies.  Mr. Raben received a bachelor’s degree from Vassar College in 1975 and a master of business administration degree from Columbia University in 1979.  

Eugene A. Viele.  Mr. Viele is the Chairman, Chief Executive Officer and President of Northport Production Company, an oil and gas production company formed in 1991.  Northport Production drills and operates wells in Oklahoma, Texas, New Mexico, Alabama and West Virginia.  Mr. Viele has 27 years of experience in the oil and gas industry, including management, drilling and production.  Mr. Viele is an active member of the American Association of Petroleum Landmen and the Oklahoma City Association of Petroleum Landmen.  Mr. Viele received a bachelor’s degree in business administration from the University of Oklahoma in 1978.

·Information Regarding The Board Of Directors

The business of the Company is managed under the direction of the board of directors of Penn Octane. The board conducts its business through meetings of the board and its committees. During 2006, the board held four meetings and the audit committee held four meetings.  No member of the board attended less than 75% of the meetings of the board and committees of which he was a member.

The board of directors is currently composed of three members, none of whom are members of the management of Penn Octane.  The OTC Bulletin Board does not have rules regarding director independence.  The following directors are considered “independent” as defined under the rules of the NASDAQ Stock Market:  Messrs. Canney, Raben, and Viele.  Accordingly, the entire board is comprised of independent directors under the NASDAQ definition. 

·Communication With The Board Or Non-Management Directors

Stockholders and other interested parties may communicate with the board of directors or the Chairman of the Board by sending written communication in an envelope addressed to “Board of Directors” or “Chairman of the Board of Directors” in care of Company Secretary, Penn Octane Corporation, 77-530 Enfield Lane, Bldg D, Palm Desert, CA  92211.

·Audit Committee

The Company’s audit committee (the “Audit Committee”) consists of Mr. Canney (Chairman), Mr. Raben, and Mr. Viele.  Mr. Canney, Mr. Raben and Mr. Viele are considered “audit committee financial experts” as defined in applicable rules of the Securities and Exchange Commission.  The OTC Bulletin Board does not have rules regarding the independence of audit committee members.  The board has determined that all three members of the audit committee meet the audit committee independence requirements under the rules of the NASDAQ Stock Market. 

The audit committee reviews and reports to the board on various auditing and accounting matters, including the quality, objectivity and performance of the Company’s internal and external accountants and auditors, the adequacy of its financial controls and the reliability of financial information reported to the public.

During the period from January 1, 2006 until October 6, 2006, Stewart J. Paperin, Emmett M. Murphy and Harvey L. Benenson served as the members of Audit Committee.  For the period, October 7, 2006 through December 31, 2006, Messers, Canney, Raben and Viele served as the members of the Audit Committee.

·Compensation Committee

The Company has a compensation committee composed of two directors whom the board has determined to be independent.   During the period from January 1, 2006 until October 6, 2006, Stewart J. Paperin, Emmett M. Murphy and Harvey L. Benenson served as the members of the Compensation Committee.   For the period, October 7, 2006 through December 31, 2006, Bruce I. Raben and Eugene A. Viele served as the members of the Compensation Committee.

·Report of the Audit Committee for Fiscal Year 2006

The primary function of the Audit Committee is oversight of the Company's financial reporting process, public financial reports, internal accounting and financial controls, and the independent audit of the annual consolidated financial statements. The Audit Committee acts under a written charter filed periodically with the Company’s annual proxy statement. The Audit Committee reviews the adequacy of the charter at least annually. All of the committee’s members are independent and two of its members are audit committee financial experts under Securities and Exchange Commission rules. The committee held four meetings in 2006 at which, as discussed in more detail below, the committee had extensive reports and discussions with members of management and Burton, McCumber & Cortez, L.L.P. (BMC), the Company’s independent registered accounting firm.  At each meeting, the committee met with management and BMC, both with and without management present.

In performing its oversight function, the committee reviewed and discussed the consolidated financial statements with management and BMC.  Management and BMC informed the committee that the Company's consolidated financial statements were fairly stated in accordance with generally accepted accounting principles. The committee discussed with BMC matters covered by the Statement on Auditing Standards No. 61 (Communication with Audit Committees), as modified or supplemented. In addition, the committee discussed management's evaluation of internal control over financial reporting.

The committee also discussed with BMC its independence from the Company and management, including the matters in Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and the letter and disclosures from BMC to the committee pursuant to Standard No. 1. The committee considered the non-audit services provided by BMC to the Company and concluded that the auditors' independence has been maintained.

Based on the reviews and discussions referred to above, in reliance on management and BMC, and subject to the limitations of its role described below, the committee recommended to the board, and the board has approved, the inclusion of the audited financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, for filing with the Securities and Exchange Commission.

The committee has also appointed BMC to audit the Company's financial statements for 2007, subject to stockholder ratification of that appointment.

In carrying out its responsibilities, the committee looks to management and the independent auditors. Management is responsible for the preparation and fair presentation of the Company's financial statements and for maintaining effective internal control. Management is also responsible for assessing and maintaining the effectiveness of internal control over the financial reporting process. The independent auditors are responsible for auditing the Company's annual financial statements and expressing an opinion as to whether the statements are fairly stated in conformity with generally accepted accounting principles.  The independent auditors perform their responsibilities in accordance with the standards of the Public Company Accounting Oversight Board.

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