Exhibit 10.12


    
      

    

    
      Exhibit
        10.12


    

    ESCROW
      AGREEMENT

    


    


    This
      Escrow Agreement (this “Agreement”) dated as of September 30, 2005, is
      entered into by and between Jerome B. Richter (“Richter”), Penn Octane
      Corporation (“Penn Octane”), and the undersigned holders ("Noteholders") of
      promissory notes of Penn Octane due on December 15, 2005 (“Promissory Notes”),
      on the one hand, and The Law Offices of Kevin W. Finck as collateral agent
      (the
      "Collateral Agent"), on the other hand, with reference to the following facts
      and circumstances.

    


    


    RECITALS:

    


    WHEREAS,
      pursuant to that certain Pledge Agreement (“Pledge Agreement”) between Richter
      and PMG Capital Corp. (“PMG”) dated as of January, 2001, Richter pledged a total
      of 2,000,000 shares of the common stock of Penn Octane and the proceeds thereof
      (together with any shares thereafter issued to Richter by Penn Octane by way
      of
      a stock dividend, split or other distribution or reclassification of such shares
      or proceeds thereof) (the “Pledged Securities”) as collateral to secure the
      obligations of Richter pursuant to that certain Guaranty With Recourse Limited
      to Pledged Shares made by Richter in favor of PMG; and

    


    WHEREAS,
      pursuant to that certain Letter Amendment dated January 13, 2004 and that
      certain Letter Amendment dated September 30, 2005 (collectively, the “Letter
      Amendments”) executed by Noteholders and Penn Octane, Noteholders consented to
      the substitution of The Law Offices of Kevin W. Finck as collateral agent in
      connection with the Promissory Notes, in place of PMG and its successor,
      Investec (US) Incorporated; and

    


    WHEREAS,
      on September 30, 2004, Penn Octane distributed to Richter a total of 250,000
      common units of Rio Vista Energy Partners L.P. (“Rio Vista”) with respect to the
      Pledged Securities in connection with the spin-off of Rio Vista by Penn Octane
      to the stockholders of Penn Octane;

    


    WHEREAS,
      the purpose of this Agreement is to set forth certain additional terms between
      the parties in order to induce the Collateral Agent to accept its appointment
      pursuant to the Letter Amendments.

    


    AGREEMENT:

    


    NOW,
      THEREFORE, in consideration of the promises and of the mutual covenants herein
      contained, the parties hereto agree as follows:

    


    
      	
              1.

            	
              Acceptance
                by Collateral Agent

            


    

    


    The
      Collateral Agent hereby accepts the appointment as collateral agent under the
      terms of this Agreement, the Pledge Agreement and the Letter Amendments and
      agrees to act on the terms and conditions hereinafter set forth. In the event
      of
      any conflict between any prior agreement involving the parties (including
      without limitation the Pledge Agreement and the Letter Amendments) and this
      Agreement, the terms of this Agreement shall control. The Collateral Agent
      shall
      have no obligation with respect to any Pledged Securities that are not delivered
      to him and shall have no obligation to take any action to compel such
      delivery.


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    


    Escrow
      Agreement

    September
      30, 2005

    Page
      2

    


    


    
      	
              2.

            	
              Retention
                of Pledged Securities

            


    

    


    Following
      delivery of the Pledged Securities to the Collateral Agent, the Collateral
      Agent
      shall hold the Pledged Securities consistent with the terms of the Pledge
      Agreement, the Letter Amendments and this Agreement. In fulfilling its
      obligations and responsibilities under this Agreement, the Collateral Agent
      shall not be required to look to any other agreements, understandings, or
      documents between the parties other than the Pledge Agreement, the Letter
      Amendments and this Agreement and shall rely exclusively upon the terms as
      stated therein.

    


    
      	
              3.

            	
              Rights
                and Responsibilities of Collateral
                Agent

            


    

    


    The
      acceptance by the Collateral Agent of its duties hereunder is subject
      exclusively to the terms and conditions of the Pledge Agreement, the Letter
      Amendments, this Agreement and such other written instructions Richter, Penn
      Octane and Noteholders may jointly hereafter issue to the Collateral Agent.
      Without limiting the foregoing:

    


    
      	
              (a)

            	
              The
                Collateral Agent shall act hereunder as a depository only and shall
                not be
                responsible or liable in any manner whatsoever for the sufficiency,
                correctness, genuineness, or validity of any document(s) furnished
                to the
                Collateral Agent or any Pledged Securities deposited with
                it.

            


    

    


    
      	
              (b)

            	
              The
                Collateral Agent shall be protected in acting upon the Pledge Agreement,
                the Letter Amendments and this Agreement as well as any additional
                joint
                written instructions received from Richter, Penn Octane and Noteholders
                if
                Collateral Agent, in good faith, believes such instruments to be
                genuine
                and what they purport to be.

            


    

    


    
      	
              (c)

            	
              The
                Collateral Agent shall not be liable for any error of judgment or
                for any
                action taken or omitted by it in good faith, or for any mistake of
                fact or
                law, or for anything which it may do or refrain from doing in connection
                herewith except its own gross negligence or willful misconduct as
                determined by a final and nonappealable judgment of a court of competent
                jurisdiction.

            


    

    


    
      	
              (d)

            	
              Richter,
                Penn Octane and Noteholders agree to jointly and severally indemnify
                the
                Collateral Agent and hold the Collateral Agent harmless from and
                against
                any loss, liability, expenses (including reasonable attorneys' fees
                and
                expenses), claim, or demand arising out of or in connection with
                the
                performance of the obligations of Collateral Agent under this Agreement,
                the Pledge Agreement, and the Letter Amendments, and any instructions
                received pursuant thereto, except to the extent that any of the foregoing
                arise from the gross negligence or willful misconduct of the Collateral
                Agent as determined by a final and nonappealable judgment of a court
                of
                competent jurisdiction. These indemnities shall survive the resignation
                of
                the Collateral Agent or the termination or amendment of this
                Agreement.

            


    


    
      
        
        

      

      
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    Escrow
      Agreement

    September
      30, 2005

    Page
      3

    


    


    
      	
              (e)

            	
              The
                Collateral Agent shall have no duties except those specifically set
                forth
                in the Pledge Agreement, the Letter Amendments and this Agreement.
                This
                Agreement, the Pledge Agreement and the Letter Amendments represents
                the
                entire understanding of the parties hereto with respect to the subject
                matter contained herein and supersedes any and all other and prior
                agreements between them.

            


    

    


    
      	
              (f)

            	
              The
                Collateral Agent shall have the right at any time it deems appropriate
                to
                deposit the Pledged Securities with and/or seek an adjudication in
                a court
                of competent jurisdiction as to the respective rights of the parties
                hereto and shall not be held liable by any party hereto for any delay
                or
                the consequences of any delay occasioned by such resort to
                adjudication.

            


    

    


    
      	
              (g)

            	
              Subject
                to the provisions of Section
                3(d)
                above, the fees and expenses incurred by the Collateral Agent in
                connection with its services hereunder shall be paid by Penn
                Octane.

            


    

    


    
      	
              (h)

            	
              For
                purposes of this Agreement, the Pledge Agreement and the Letter
                Amendments, the Collateral Agent shall be entitled to rely upon
                notification or instruction from Amir Ecker, as representative of
                Noteholders, as if such notification or instruction was delivered
                by all
                Noteholders. The Collateral Agent shall also be entitled to give
                notice to
                all Noteholders by giving such notice to Amir
                Ecker.

            


    

    


    
      	
              4.

            	
              Release
                of Pledged Securities

            


    

    


    The
      Collateral Agent shall release the Pledged Securities only in accordance with
      (i) the terms of the Pledge Agreement and the Letter Amendments, (ii) joint
      written instructions from the other parties to this Agreement, or (iii) an
      order
      of a court of competent jurisdiction.

    


    
      	
              5.

            	
              Acknowledgement
                and Consent

            


    

    


    The
      parties to this Agreement acknowledge that the Collateral Agent acts as legal
      counsel to Penn Octane, Rio Vista and Richter personally. Nothing in this
      Agreement, the Pledge Agreement or the Letter Amendments shall be deemed to
      create a limitation on such representation, and such representation shall not
      be
      deemed a conflict with Collateral Agent’s obligations under this Agreement, the
      Pledge Agreement or the Letter Amendments. The parties hereto consent to the
      continued representation of Penn Octane, Rio Vista and Richter by the Law
      Offices of Kevin W. Finck. Noteholders hereby acknowledge and agree that nothing
      in this Agreement, the Pledge Agreement or the Letter Amendments shall be deemed
      to create an attorney-client relationship between Noteholders and the Law
      Offices of Kevin W. Finck and no such relationship exists.


    
      
        
        

      

      
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    Escrow
      Agreement

    September
      30, 2005

    Page
      4

     

     

    
      
        	
                6.

              	
                Amendment

              


      

      


      This
        Agreement may not be amended or supplemented and no provision hereof may
        be
        modified or waived, except by an instrument in writing, signed by all of
        the
        parties hereto.

      


      
        	
                7.

              	
                Termination

              


      

      


      The
        purpose of this Agreement and the terms hereof shall terminate upon the earlier
        of: Penn Octane’s full satisfaction of the Promissory Notes; joint written
        instruction from Richter, Penn Octane and Noteholders to terminate this
        Agreement; or the resignation of the Collateral Agent. Upon the termination
        of
        this Agreement, the Collateral Agent shall be relieved of any and all further
        obligations hereunder.

    

     

    
      	
              8.

            	
              Resignation

            


    

    


    The
      Collateral Agent may resign at any time by giving thirty (30) days written
      notice of such resignation to Richter and Penn Octane, with instructions to
      Penn
      Octane to forward such notice to Noteholders within five (5) days. If no
      successor Collateral Agent has been named at the expiration of the thirty (30)
      day period, the Collateral Agent shall have no further obligation hereunder
      but
      shall have the option of continuing to hold the Pledged Securities until receipt
      of joint written instructions from the parties or seeking judicial resolution
      pursuant to Section 3(f)
      above.
      Upon notification by Richter, Penn Octane and Noteholders of the appointment
      of
      a successor, the Collateral Agent shall promptly deliver the Pledged Securities
      to such successor, and the duties of the resigning Collateral Agent shall
      thereupon in all respects terminate and it shall be released and discharged
      from
      all further obligations hereunder. Similarly, the Collateral Agent may be
      discharged from its duties as Collateral Agent under this Agreement upon thirty
      (30) days written notice jointly from Richter, Penn Octane and Noteholders
      and
      upon payment of any and all fees and other amounts that may be due to the
      Collateral Agent under this Agreement. In such event, the Collateral Agent
      shall
      be entitled to rely on instructions from Richter, Penn Octane and Noteholders
      as
      to the disposition and delivery of the Pledged Securities. 


    
      
        
        

      

      
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    Escrow
      Agreement

    September
      30, 2005

    Page
      5

    


    


    
      	
              9.

            	
              Execution

            


    

    


    This
      Agreement may be executed in several counterparts, each of which shall be deemed
      an original, but such counterparts together shall constitute one and the same
      instrument. Facsimile signatures shall have the same legal effect as original
      signatures.

    


    
      	
              10.

            	
              Miscellaneous

            


    

    


    All
      covenants and agreements contained in this Agreement by or on behalf of the
      parties hereto shall bind and inure to the benefit of such parties and their
      respective heirs, administrators, legal representatives, successors and assigns,
      as the case may be. The headings in this Agreement are for convenience of
      reference only and shall neither be considered as part of this Agreement nor
      limit or otherwise affect the meaning hereof. In the event of the bringing
      of
      any action or suit by a party hereto against another party hereunder by reason
      of any breach of any of the covenants, agreements, or provisions of this
      Agreement, the prevailing party shall be entitled to have and recover all costs
      and expenses of that action or suit, at trial or on appeal and in collection
      of
      judgment, including reasonable attorneys' fees, and any other professional
      fees
      resulting therefrom. This Agreement shall be construed and enforced in
      accordance with the internal laws of the State of California. The state and
      federal courts located in San Francisco County, California shall have sole
      jurisdiction in any action or suit arising out of or relating to this Agreement.
      The parties hereby consent to such jurisdiction and to venue in San Francisco
      County, California.

    


    
      	
              11.

            	
              Notices

            


    

    


    All
      instructions, notices and other communications hereunder must be in writing
      and
      shall be deemed to have been duly given if delivered by hand or mailed by first
      class, registered mail, return receipt requested, postage prepaid, and addressed
      as follows:

    


    


    
      	
              (a)

            	
              If
                to Richter:

            	
              Jerome
                B. Richter

            	 
	 	 	
              335
                Tomahawk Drive

            	 
	 	 	
              Palm
                Desert, CA 92211

            	 
	 	 	 	 
	 	 	 	 
	
              (b)

            	
              If
                to Penn Octane:

            	
              Penn
                Octane Corporation

            	 
	 	 	
              Attn:
                Chief Executive Officer

            	 
	 	 	
              77530
                Enfield Lane, Building D

            	 
	 	 	
              Palm
                Desert, CA 92211

            	 


    


    
      
        
        

      

      
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    Escrow
      Agreement

    September
      30, 2005

    Page
      6

    


    


    
      	
              (c)

            	
              If
                to Noteholders:

            	  
	 
	 	 	
              Attn:
                Amir Ecker

            	 
	 	 	  
	 
	 	 	  
	 
	 	 	 	 
	 	 	 	 
	
              (d)

            	
              If
                to Collateral Agent: 

            	
              The
                Law Offices of Kevin W. Finck

            	 
	 	 	
              Attn:
                Kevin W. Finck

            	 
	 	 	
              Two
                Embarcadero Center, Suite 1670

            	 
	 	 	
              San
                Francisco, CA 94111

            	 


    


    
      
        
        

      

      
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    Escrow
      Agreement

    September
      30, 2005

    Page
      7

    


    


    IN
      WITNESS THEREOF, the parties hereto have duly executed this Escrow Agreement
      as
      of the date first indicated above.

    


    


    


    
      	
              JEROME
                B. RICHTER

               

              /s/
                Jerome B. Richter

              Jerome
                B. Richter

            	
              PENN
                OCTANE CORPORATION

               

              By:
                /s/ Ian T. Bothwell

              Name:
                Ian T. Bothwell

              Title:
                Chief Financial Officer

               

            
	 	
              LAW
                OFFICES OF KEVIN W. FINCK

               

              By:
                /s/ Kevin W. Finck

              Name:
                Kevin W. Finck

              Title:
                Principal

               

            


    

     

    
      
        
        

      

      
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    Escrow
      Agreement

    September
      30, 2005

    Page
      8

     

     

    NOTEHOLDERS

     

    


    
      	
              «FirstName» «LastName»

            	 
	
              «Company»

            	 
	
              «Company1»

            	 
	 	 
	 	 
	
              By:

            	  
	 
	 	 
	
              Its:
                

            	  
	 
	 	 
	
              Date:

            	  
	 
	 	 
	
              Promissory
                Note Amount:

            	
              $

            	
              «NoteAmt»

            	 
	 	 
	 	 
	 	 
	
              Name
                and Telephone Number of Noteholder:

            	 
	 	 
	   
	 
	 	 
	   
	 
	 	 
	   
	 


    

     

     

     

    8