E - ACQUISITION OF REGIONAL ENTERPRIZES INC.

On July 27, 2007, Rio Vista completed the Merger Agreement with New Regional, Old Regional, the shareholders of Old Regional and W. Gary Farrar, Jr. The Merger Agreement provided for Rio Vista to acquire the business of Old Regional by means of a merger of Old Regional into New Regional, a newly-formed, wholly-owned subsidiary of Rio Vista. The transactions contemplated by the Merger Agreement were completed on July 27, 2007. The principal business of Regional is storage, transportation and railcar transloading of bulk liquids, including chemical and petroleum products owned by its customers.  The total consideration pursuant to the Merger Agreement was $9,000,000, of which Rio Vista paid $8,000,000 in cash, less certain working capital and other adjustments and subject to certain amounts held in escrow, with the remaining $1,000,000 to be paid in four equal semiannual installments beginning six months from the date of the Regional Acquisition. Under the terms of the Merger Agreement, Rio Vista is entitled to net working capital of Old Regional of $500,000, subject to adjustments. Under the terms of the Merger Agreement, a total of $1,500,000 was placed into escrow to secure certain indemnification obligations of the former shareholders of Old Regional. Rio Vista funded the Regional Acquisition through a loan of $5,000,000 (RZB Note) from RZB Finance LLC (RZB) and the remaining amounts due at closing were paid from available working capital.
In connection with the Regional Acquisition, Rio Vista entered into a loan agreement (the Loan Agreement) with RZB dated July 26, 2007. The principal amount of the RZB Note is $5,000,000, due on demand, with a one-year maturity. The RZB Note carries a variable annual rate of interest equal to the higher of (a) the rate of interest established from time to time by JPMorgan Chase Bank, N.A. as its “base rate” or its “prime rate,” or (b) the weighted average overnight funds rate of the Federal Reserve System plus 0.50%, in each case plus a margin of 4.75%. In connection with the RZB Note, New Regional granted to RZB a security interest in all of New Regional’s assets, including a deed of trust on real property owned by New Regional, and Rio Vista delivered to RZB a pledge of the outstanding capital stock of New Regional.  On July 26, 2007, as a further condition of the Loan Agreement, Penn Octane also entered into a Guaranty & Agreement (Guaranty) with RZB. Pursuant to the Guaranty, Penn Octane agreed to guaranty all of the indebtedness, liabilities and obligations of Rio Vista to RZB under the Loan Agreement and otherwise.   The RZB Note is also guaranteed by New Regional and RVOP.
In addition, in connection with the above transactions, Regional also entered into a one-year employment contract with an executive of Regional which provides for an annual salary of $210,000 plus commissions based on future revenues of Regional.  The agreement may be terminated by Regional at any time, provided however, that if the agreement is canceled within one year of the commencement date, the employee will be entitled to receive the remaining unpaid portion of his first year’s annual salary.  In connection with the agreement, Rio Vista agreed to grant to the employee options to purchase 25,000 common units of Rio Vista.  The options vest over a two year period.  Total compensation to be recorded under the aforementioned grant of options as they vest totals approximately $169,000.
The accompanying unaudited consolidated financial statements include the operations of Regional since the date of acquisition.  The assets acquired and liabilities assumed have been recorded at their estimated fair values at the date of acquisition.  Rio Vista is in the process of obtaining third party valuations of certain assets and finalizing certain provisions of the Merger Agreement.  Therefore, the amount and allocation of the purchase price is subject to refinement.
The accompanying unaudited consolidated balance sheet includes goodwill in the amount of $4,625,298 resulting from the acquisition.  Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets associated with acquisition transactions.  The Company has adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (FASB 142).  Under FASB 142, goodwill is not amortized.  The Company is required to make at least an annual test of the fair value of the intangible to determine if impairment has occurred.  The Company will perform its annual impairment test for goodwill in the fourth quarter of each calendar year.

The following pro forma information assumes that the acquisition occurred at the beginning of the periods presented:

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