Penn Octane, Rio Vista and/or Rio Vista’s subsidiaries were named as defendants in two lawsuits filed in connection with an accident in the town of Lucio Blanco, Mexico on August 11, 2005, involving a tanker truck carrying LPG which was struck by a train resulting in an explosion.  Neither of Penn Octane, Rio Vista nor any of Rio Vista’s subsidiaries owned or operated the tanker truck or employed or controlled the driver of the tanker truck.  Further, none of Penn Octane, Rio Vista or any of Rio Vista’s subsidiaries owned or had custody of the LPG on the tanker truck at the time and location of the accident. 

The tanker truck reportedly took delivery of LPG at the Matamoros Terminal Facility operated under agreement with Rio Vista’s Mexican subsidiaries. According to the lawsuits, after leaving the Matamoros Terminal Facility, the tanker truck was involved in a collision with a train in Lucio Blanco, Mexico, resulting in a tragic explosion that killed and injured several persons and caused significant property damage.  Published reports indicate that the truck used a road not approved for large trucks and failed to stop at an unprotected rail crossing, resulting in the collision and explosion.  The insurance carrier for the owner of the tanker truck has settled certain claims in Mexico with victims of the accident.

Even though the accident took place in Mexico, these lawsuits were filed in Texas.  The first case is captioned Lesly Camacho by Her Mother Dora Adame as Next Friend, et al. vs. Penn Octane International LLC and was filed in the 404th District Court for Cameron County, Texas on September 26, 2005.  The plaintiffs seek unspecified monetary damages and a temporary injunction in order to preserve evidence relevant to the case.    On August 16, 2006 with the consent of the parties, the Court issued an amended order for temporary injunction for the purpose of preserving relevant evidence.  The amended injunction required a subsidiary of Rio Vista to make available for inspection by plaintiffs Rio Vista’s terminal facilities in Brownsville, Texas and Matamoros, Mexico and associated equipment and records.  The order also required Rio Vista to give 30 days advance notice to plaintiffs before conducting any alteration, repair, service, work or changes to the facilities or equipment.  In addition, the order required Rio Vista to make available its employees for deposition by the plaintiffs and to secure and preserve certain physical evidence believed to be located in Mexico.  The amended injunction superseded a previous order for temporary injunction issued on June 13, 2006.  The Brownsville, Texas terminal facility was sold to TransMontaigne Product Services Inc. on August 22, 2006.  On January 17, 2007, this case was removed to the U.S. District Court for the Southern District of Texas, Brownsville Division.  On February 15, 2007, plaintiffs filed a motion to remand the case to the state court in Cameron County, Texas.  Limited discovery has been conducted to date in this proceeding.  The parties anticipate that discovery will be completed during 2007.

The second case is captioned Faustino Izaguirre Gonzalez, et al. vs. Penn Octane Corporation, et al. and was filed in the 107th District Court for Cameron County, Texas, on November 14, 2005.  The plaintiffs sought unspecified monetary damages.  In March 2007, Rio Vista entered into a settlement agreement with the plaintiffs on terms deemed favorable to Rio Vista.  Rio Vista’s legal fees and settlement costs were covered by insurance.

Management believes the remaining lawsuit against Penn Octane, Rio Vista and/or Rio Vista’s subsidiaries relating to the accident in Lucio Blanco is  without merit and, based on the advice of counsel, does not anticipate liability for damages.  Rio Vista’s insurance carrier is expected to bear the legal fees and expenses in connection with defending this case.  If, however, a court found liability on the part of Penn Octane, Rio Vista or their subsidiaries, a judgment or settlement in excess of insurance coverage could have a material adverse effect on Penn Octane’s and Rio Vista’s business, financial condition and results of operations. 

On December 14, 2004, a subsidiary of Rio Vista brought a condemnation action against a landowner in order to obtain a right-of-way in connection with Rio Vista’s existing pipelines that run between Brownsville, Texas and Matamoros, Mexico.  The case is captioned Rio Vista Operating Partnership L.P. vs. Guajardo, Jr. Farms, Inc., and was filed in the County Court No. 3 of Cameron County, Texas.  Subsequently, the landowner filed an inverse condemnation counterclaim against Rio Vista and Penn Octane seeking damages of $1,800,000.  After mediation in February 2007, this matter settled for the amount of $200,000 paid by Rio Vista to the landowner.  On March 21, 2007, the easement agreement from the landowner was recorded in the real property records of Cameron County, Texas.  

Rio Vista and its subsidiaries are involved with other proceedings, lawsuits and claims.  The Company believes that the liabilities, if any, ultimately resulting from such proceedings, lawsuits and claims should not materially affect its consolidated financial results.