Document:

STOCK PURCHASE AND SEPARATION AGREEMENT
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     This Stock and Separation Agreement is made and executed this 22 day of
                                                                   --
July, 2003 (hereafter the "Effective Date") by and between Jorge Bracamontes
(hereafter "Employee") and Penn-Octane Corporation (hereafter "Penn-Octane");
and

     WHEREAS, Penn-Octane is engaged in the sale and transportation of LPG and
other petroleum products.

     WHEREAS, Penn-Octane owns  and operates its Mexican related assets through
various affiliates and subsidiaries, including Penn-Octane de Mexico S.A. de
C.V., Tergas, S.A. de C.V., and Termatsal, S.A. de C.V. (hereafter referred to
as "Affiliates"); and

     WHEREAS, Bracamontes has been employed by Penn-Octane as Director,
Executive Vice President and Secretary and as Director, Director General,
general manager or administrator of the Affiliates pertaining to their
operations in Mexico; and

     WHEREAS, Bracamontes and Penn-Octane have agreed to the sale and transfer
by Bracamontes of all of Bracamontes's stock ownership in Tergas, S.A. DE C.V.
IN ADDITION, S.A. DE C.V. Bracamontes and Penn-Octane had previously agreed to
the sale and transfer of all of Bracamontes's stock ownership in Penn Octane de
Mexico, S.A. de C.V. and Termatsal, S.A. de C.V., which such sale and transfer
of shares may still be subject to completion; and

     WHEREAS, Bracamontes and Penn-Octane have agreed to the ultimate separation
and termination of his employment relationship with Penn-Octane and the
Affiliates.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby mutually agree as follows:

     1.     Sale of Stock in Tergas, S.A. de C.V.     On the Closing Date (as
            -------------------------------------
hereafter defined). Bracamontes shall transfer, assign and convey, free and
clear of all liens, claims and encumbrances, all of the stock which he owns in
Tergas, S.A. de C.V. (being 90% of the outstanding shares of stock in such
Company) to the person designated by Penn-Octane (hereafter the "Designated
Person"). Bracamontes covenants to immediately deliver copies of all of the
legal and corporate documents pertaining to Tergas, S.A. de C.V. (including all
stock transfer ledgers, minutes of all shareholder and/or directors meetings and
all documents whatsoever pertaining to Tergas, S.A., de C. V. ). On the Closing
date, Bracamontes shall execute all documents necessary to absolutely and
legally

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transfer all legal and equitable ownership of his stock in Tergas, S.A. de C.V.
to the Designated Person. The documents of transfer shall be in form and
substance acceptable to the attorneys appointed by Penn-Octane.

     2.     SALE OF STOCK IN TERMATSAL, S.A. DE C.V. AND PENN-OCTANE DE MEXICO,
            -------------------------------------------------------------------
S.A. DE C.V.     On the Closing Date, Bracamontes shall take all necessary steps
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required to immediately and effectively complete the transfer and sale of all of
his stock in Termatsal and Penn-Octane de Mexico, to the Designated Person,
Bracamontes agrees that such transfers will be free and clear of all liens,
claims and encumbrances. Bracamontes covenants to immediately deliver copies of
all of the legal and corporate documents pertaining to Termatsal, S.A. de C.V.
and Penn-Octane de Mexico (including all stock transfer ledgers, minutes of all
shareholder and/or directors meetings and all documents whatsoever pertaining to
Termatsal, S.A. de C.V. and Penn-Octane de Mexico) and to execute any documents
necessary to absolutely and legally transfer all legal and equitable ownership
of his stock in Termatsal and Penn-Octane de Mexico to Penn-Octane or its
designee. The documents of transfer shall be in form and substance acceptable to
the attorneys appointed by Penn-Octane.

     3.     Terms of Employment. As of the Effective Date, Bracamontes agrees to
            --------------------
resign from all positions he currently holds with the Affiliates. The parties
agree that Bracamontes shall be hereafter employed as an employee of Penn-Octane
Corporation to provide services from date hereof to (i) assist in the business
development of Penn-Octane and (ii) to provide the information, documents and
assistance required of him to fully comply with the terms of this Agreement. The
term of such employment shall be from the date of this Agreement until March 31,
2004, whereupon Bracamontes shall cease to be employed by Penn-Octane. In
connection with these services, Bracamontes will receive a monthly salary as
provided for herein.

     4.     WINDING DOWN OF EMPLOYMENT. As of the Effective Date (but prior to
            ---------------------------
the Closing Date) (as hereafter defined), and as a condition precedent to the
Closing and to the payment of any consideration or salary by Penn-Octane to
Bracamontes, Bracamontes shall undertake to provide or perform the following:

     a.     Perform all actions necessary to execute and register a transfer of
all shares owned by Bracamontes in (i) Penn-Octane de Mexico, S.A de C.V. and
Termatsal, S.A. de C.V. to Penn-Octane, and (ii) Tergas, S.A. de C.V. to the
Designated Person. Immediately subsequent to his execution of this Agreement,
Bracamontes shall deliver his resignation as an officer, employee, agent,
director, administrator (or any other

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position whatsoever of Penn-Octane de Mexico, S.A. de C.V., Tergas, S.A. de C.V.
and Termatsal, S.A. de C.V. and shall thereafter cease to have any involvement
with any of the Affiliates. Such resignations shall occur at a time and date as
designated by Penn-Octant and the documents of resignation shall be in form and
substance acceptable to the attorneys appointed by Penn-Octane.

     b.     Provide and deliver to such persons, attorneys or accountants as may
be appointed or designated by Penn-Octane to receive such documents the
following: (i) all original documents, including but not limited to, all
original corporate documents of and relating to Penn-Octane de Mexico, S.A. de
C.V., Tergas, S.A de C.V., and Termatsal, S.A. de C.V. (including all original
corporate books, original stock registers and transfer ledgers, all corporate
minutes, all articles or incorporation, all powers of attorney granted by any of
the Affiliates, agreements, contracts, manuals and any all other governmental
filings made by the Affiliates) and (ii) all accounting records and documents of
and relating to Penn-Octane de Mexico, S.A. de C.V., Tergas, S.A. de C.V., and
Termatsal, S.A. de C.V. (including all tax returns and other governmental
reports filed by each Affiliate). In addition, Bracamontes will perform any and
all actions required of him in order to properly dissolve or transfer ownership
in any other Mexican company created in connection with Penn-Octane's pervious
compressed natural gas business ("CNG") or any other subsidiary of any of the
Affiliates. Bracamontes will also cease to have any responsibilities related to
CNG companies as described above.

     c.     Execute an assignment of any all permits and authorizat5ions held in
the name of Bracamontes, which permits and authorizations pertain to (i) the
operation of all pipelines and facilities utilized by Penn-Octane de Mexico,
S.A. de C.V., Tergas, S.A. de C.V., or Termatsal, S.A. de C.V. or (ii) the
distribution of any petroleum products distributed or sold by Penn-Octane de
Mexico, S.A. de C.V., Tergas, S.A. de C.V., or Termatsal, S.A. de C.V.

     d.     Provide all necessary assistance and all financial information and
documentation pertaining to the Affiliates and deliver all documents pertaining
to the Affiliates to allow the persons designated by Penn-Octane to (i) review
and audit all financial records (including contracts, previous transactions and
tax returns), (ii) manage the ongoing day to day affairs of the Affiliates,
(iii) make all required filings or reports, certifications, statements, tax
declarations required of the Affiliates in connection wit5h the ongoing business
operations of the Affiliates, (iv)

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provide a complete understanding of the internal controls and systems employed
by the Affiliates (policies, employee salaries and obligations).

     e.     Provide all necessary assistance and information and deliver all
documents to allow the persons designated by Penn-Octane to finalize all
agreements related to Transfer Pricing Agreements to be executed by and between
Penn-Octane and any of the Affiliates.

     f.     Execute and deliver such documents necessary to allow Penn-Octane
and its Affiliates to immediately transfer all corporate records to a new office
to be established by the Affiliates in Mexico City, which initial office shall
be the office of the attorneys (to be designated by Penn-Octane) for the
Affiliates.

     g.     Assist the accountants of the Affiliates (to be designated by
Penn-octane) in undertaking and performing an audit of all of the Affiliates.

     h.     Provide a listing of and copies of all contracts, notes, or other
agreements which reflect any outstanding liability or contingent liability of
Penn-Octane or any Affiliates as of the date of this Agreement.

     i.     Assist in the smooth transition of the tax accounting and payroll
functions for the Affiliates to accountants designated by Penn-Octane, including
movement of all corporate accounting records currently maintained by the
Affiliates current tax accountant.

     j.     Assist Penn-Octane management in determining all current and future
responsibilities of the Affiliates in connection with existing operations (CRE,
llacienda and other agencies).

     k.     Execute all non-executed corporate documents which related to events
that occurred prior to the date of this agreement including audit representation
letter for the April 30, 2003 10Q, Board minutes for any board meeting prior to
the date of this agreement and written consent to allow the Designated Person to
take actions necessary for the resolution of Mexican lawsuits.

     5.     Compensation. Upon his complete fulfillment of all of the terms of
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this Agreement and for his agreement to fulfill his prospective duties as an
employee of Penn-Octane, Bracamontes shall receive the following compensation:

     a.     As an employee of Penn-Octane, Bracamontes will receive a salary of
$15,000.00 per month, which amount shall be paid through March 31, 2004, at
which time Bracamontes shall cease to have any further

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association with Penn-Octane.

     b.     As consideration for the purchase price of his stock in Tergas, S.A.
de C.V. (and to the extent of any previous or concurrent transfer of stock
related to Penn-Octane de Mexico and Termatsal), a loan extended by Penn-Octane
to Bracamontes in the principal amount of $498,000 and a loan extended to the
wife of Bracamontes in the principal amount of approximately $46,600, which
loans were utilized by them to purchase 215,000 common shares of Penn-Octane
stock (of which they still own 215,000 shares) shall be forgiven on the Closing
Date.

     C.     All existing warrants (340,000) to purchase shares in Penn-Octane
currently owned by Bracamontes shall be honored, except that the warrants (like
all other warrants issued by Penn-Octane) may be modified to comply with the
terms and conditions of the conversion of Penn-Octane to a publicly traded
partnership.

     d.     If Penn-Octane of its Affiliates extend the current existing
pipelines to Monterrey, Mexico, and the net revenue generated by the extension
of such pipelines results in a (i) 20% net revenue generated return (the return
being projected on the earnings measured before the imposition of taxes,
depreciation and amortization, EBITDA, as computed under generally accepted
accounting principles), and (ii) provided that a minimum seven year agreement is
                        ---
executed by Penn-Octane with Pemex Gas and Petrochemical in calendar year 2003
for the utilization of such pipelines at a rate that will generate a 20% capital
cost return, the Bracamontes shall be paid (a) a bonus of $250,000.00 on the
first day after the pipeline agreement has been executed by and between Pemex
Gas and Petrochemical and Penn-Octane Corporation and (b) an additional $250,000
bonus will be paid on the first day after full time commercial operation of the
extended pipelines begins. In order to guarantee the payment of the compensation
described in this sub-paragraph (d) Penn-Octane shall cause to be pledged
100,000 shares of its common shares to be pledged, as collateral, for the
payment of such consideration.

     6.     WARRANTIES, REPRESENTATIONS AND COVENANTS OF BRACAMONTES.
            ---------------------------------------------------------
Bracamontes hereby represents and warrants that the following warranties and
representation contained in this Agreement are true and correct as of the
Effective Date of this Agreement, and shall be true and correct on and as of the
Closing Date, as hereafter defined. In addition to the other representations and
warranties contained elsewhere in this Agreement, Bracamontes represents,
warrants and covenants to Penn-Octant and its Affiliates as follows:

     (a)     Bracamontes is the legal and lawful owner of the following
ownership interests in the Companies:

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          (i)     a ninety percent (90%) interest in Penn-Octane de Mexico, S.A.
de C.V.;

          (ii)    a ninety percent (90%) interest in Tergas, S.A. de C.V.; and

          (iii)   a ninety percent (90%) interest in Termatsal, S.A. de C.V.

     (b)     Bracamontes has full legal right, power and authority to enter into
this Agreement;

     (c)     Bracamontes has full legal right, power and authority to exchange,
assign and transfer to the persons designated by Penn-Octane, all of
Bracamontes's ownership interests in the Affiliates, free and clear of all
liens, encumbrances, options and claims of ever kind. The delivery by
Bracamontes of his ownership interests in the Affiliates to person(s) designated
by Penn-Octane pursuant to the provisions of this Agreement will transfer title
thereto, free and clear of all liens, encumbrances, options and claims of any
kind.

     (d)     The ownership interest owned by Bracamontes in the Affiliates are
duly and validly authorized and issued, fully paid and non-assessable, and were
not issued in violation of the preemptive rights of any shareholder. Other than
as identified herein, Bracamontes owns no option, warrant, call or commitment of
any kind obligating the Affiliates or Penn-Octane to issue shares in the
Affiliates or Penn-Octane to him or any other third party.

     (e)     This Agreement will be duly executed and delivered by the
Bracamontes and is a valid, legally binding and enforceable obligation of
Bracamontes, subject to the effects of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to creditor's rights generally and to
general equitable principals.

     (f)     Neither the execution, delivery or the consummation of all of the
transactions contemplated hereby (taken as a whole) will violate (with or
without the giving of notice or the passage of time), be in conflict with,
result in a breach or termination of any provision of, cause acceleration of the
maturity of any debt or obligation pursuant to, constitute a default under, or
result in the creation of any security interest, lien, charge or encumbrance
upon Bracamontes's ownership interests in any of the Affiliates, or any
indenture, mortgage, deed of trust or other agreement or understanding or any
other restriction of any kind or character, to which any such Bracamontes's
ownership interests in the Affiliates, or the Companies, are subject or bound.

     (g)     Bracamontes has not entered into any agreements on behalf of any of
the Affiliates, wherein any of the permits, licenses, franchises, certificates,
easements, real property leases, terminals, assets, trade names, or

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parents, owned or held by any of the Affiliates or Penn-Octane, have been sold,
licensed, leased, made part of any joint use or venture or subjected to any
alienations whatsoever which would not provide the Affiliates with sole and
exclusive use.

     (h)     As of the Effective Date, all agreements and contracts between
Bracamontes and any of the Affiliates, other than as provided in this Agreement,
or by which the Affiliates or Penn-Octane, are obligated with respect to any of
the Affiliates' or Penn-Octane's assets, including but not limited to, joint
venture or partnership agreements, consulting contracts, employment contracts,
loan agreements, bonds, mortgages, liens, pledges or other security agreements,
are terminated.

     (i)     No approval of any governmental authority or administrative agency
or any third party is necessary to authorize the execution of this Agreement by
Bracamontes or the consummation of the transactions contemplated hereby.

     (j)     As of the Effective Date, all contracts and agreements between
Bracamontes and any Affiliate or Penn-Octane, other than this Agreement, are
terminated.

     (k)     As of the Effective Date, there are no receivables due from
Bracamontes or any entity falling within the SEC meaning of "affiliate."
Bracamontes has not used any of the assets of the Affiliates to acquire any
assets for his personal use other than previously disclosed to Penn-Octane.

     (l)     Other than the payments which he will receive pursuant to this
Agreement, Bracamontes warrants that he is not owed any additional amounts on
monies or benefits of any kind whatsoever (including any severance pay
obligations or other obligations arising under Mexican law) related to his
involvement with the Affiliates.

     (m)     Bracamontes has complied with all provisions of the Foreign Corrupt
Practices Act and no affiliate is in violation of any provision of the Foreign
Corrupt Practices Act.

     (n)     Bracamontes is aware of no obligation, default or risk associated
with the Affiliates which has not been disclosed in the Financial Statements of
the Affiliates or been disclosed in writing either in such Financial Statements
or to Penn-Octane.

     (o)     Bracamontes is not aware of any activity, agreement or action
performed through the effective Date which has been done inaccurately or with
the risk that such activity would lead to nullification or voidance of

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any document or agreement.

     (p)     Bracamontes is voluntarily resigning from his positions with the
Affiliates. Such resignation is not the result of any disagreement regarding any
operation, legal matter, accounting principal or any other issue brought forward
by Bracamontes for which the Company is unwilling to address satisfactorily.

     (s)     There is no pending or threatened litigation in Mexico against
Penn-Octane Corporation or any of the Affiliates.

     (t)     Each Affiliate is in full compliance with any and all requirements
related to its business operations (including the operation of the terminals);
all necessary permits have been obtained by each Affiliate and such permits are
in full force and effect; all lands and real property on which any terminal or
other improvement is owned free and clear of all liens, claims and encumbrances
by one of the Affiliates; and all Affiliates are in full compliance with all
Mexican environmental laws rules and regulations.

     (u)     The Financial Statements of each Affiliate are current and fairly
present the financial position of such Affiliate as of the dates thereof and the
results or operations and changes in financial position for the periods then
ended, in conformity with generally accepted accounting principles and the
accounting records underlying the Financial Statements accurately and fairly
reflect the transactions of such Affiliates. The Affiliates do not have any
liabilities or obligations of a type which would be included in or reflected on
a balance sheet, and notes and schedules thereto, prepared in accordance with
generally accepted accounting principles, whether related to tax or non-tax
matters, accrued or contingent, due or not yet due, liquidated or unliquidated,
or otherwise, including, without limitation, any debt or liability on account of
taxes of any kind or any governmental charges or penalty, interest or fines,
excepted or reflected in the consolidated unaudited balance sheet of each
Affiliate as of the balance sheet date or liabilities incurred each Affiliate in
the ordinary course of business since the balance sheet date (none of which
have, individually or in the aggregate, materially or adversely affect the
business assets, liabilities, results or operations, condition (financial or
otherwise) or prospects of the Affiliates).

     (v)     All liabilities which they have incurred on behalf of each
Affiliate of any kind, character and

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description, whether accrued, absolute, contingent or otherwise, together with,
in the case of those liabilities as to which the liabilities are not fixed, an
estimate of the maximum amount which may be payable are fully reflected in the
Financial Statements of the Affiliates.

     (w)     All permits, licenses, franchises, certificates, trademarks, trade
names, patents, patent applications and copyrights, owned or held by any of the
Affiliates, are now valid and in good standing are fully reflected in the
Financial Statements of the Affiliates.

     (x)     All the fixed assets of the Companies, including true and correct
copies of leases and easements on properties on which are situated buildings,
terminals, pipelines, pumps, and other structures used in the operation of the
business have been fully accounted for in the preparation of the Financial
Statements.

     7.     COVENANTS PRIOR TO CLOSING. As of the Effective Date of this
            --------------------------
Agreement, or at any time subsequent thereto, Bracamontes shall not have voted
for or participated in any actions on behalf of any of the Affiliates which have
resulted or may result in:

     (i)       any declaration or payment of any dividend or distribution in
               respect to the Affiliates or any direct or indirect redemption,
               purchase or other acquisition or any of the ownership interest of
               the Affiliates;

     (ii)      any increase in the compensation payable by the Affiliates to
               Bracamontes or any bonus payment or arrangement made to or with
               Bracamontes or any Affiliate;

     (iii)     any transaction by the Affiliates outside the ordinary course of
               their respective business;

     (iv)      any amendment to the Affiliates' articles or organization,
               bylaws, regulations and operating agreements of the Companies;

     (v)       any change in the number of shares of any of the Affiliates or
               the issuance, reservation of issuance, the grant, sale or
               authorization for the issuance of any shares in any of the
               Affiliates or subscriptions, options, warrants, calls, rights or
               commitments of any kind relating to the issuance or sale of or
               conversion into shares in any of the Affiliates;

     (vi)      the creating of any obligation or liability on behalf of any of
               the Affiliates (absolute, accrued, contingent or otherwise) other
               than in the normal course of business which is reflected on the

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               books and records of the Affiliates;

     (vii)     the creation of any mortgage, pledge, lien, security interest or
               encumbrances, restrictions, or charge of any kind on behalf of
               any of the Affiliates and/or the Affiliates' assets other than in
               the normal course of business which is reflected on the books and
               records of the Affiliates;

     (viii)    the cancellation of any debts owing to any of the Affiliates
               other than in the normal course of business which is reflected on
               the books and records of the Affiliates, waiver of any claims or
               rights of value of any of the Affiliates other than in the normal
               course of business which is reflected on the books and records of
               the Affiliates, or the sale, transfer or other disposition of any
               of the properties or assets of any of the Affiliates other than
               in the normal course of business which is reflected on the books
               and records of the Affiliates;

     (ix)      disposition or the lapse of any rights to the use of any
               trademark, service mark, trade name or copyright, or disposed of
               or disclosed to any person other than its Bracamontes any
               material trade secret not theretofore a matter of public
               knowledge;

     (x)       any increase in compensation or payment or agreement to pay or
               accrue any bonus or like benefit to or for the credit of any
               manager, shareholder, director, officer, Bracamontes or other
               person (other than usual cost of living increases,) or the entry
               into any employment or consulting agreement or other agreement
               for personal services with any director, officer or Bracamontes;
               or

     (xi)      the modification or amendment of any contract or commitment other
               than in the ordinary course of business, consistent with prudent
               business practices, which is reflected on the books and records
               of the Affiliates.

     (xii)     Bracamontes waives any and all applicable preemptive rights,
               options and restrictions on transfer of the shares in the
               Affiliates.

     (xiii)    No related party transaction between the Affiliates and
               Bracamontes and/or any of his affiliates (affiliates as defined
               by the SEC), including loans, advances, purchase, or entering of
               contracts.

     (xiv)     Cease to make any binding obligation on the part Penn-Octane or
               the Affiliates from the date of the agreement.

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     8.     SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
            -------------------------------------------
warranties of the Parties contained in the Agreement shall survive the
consummation of the transactions contemplated hereby for a period of two years
following the Closing Date.

     9.     CLOSING DATE AND CLOSING OBLIGATIONS.
            -------------------------------------

     (a)     If all of the conditions required to be performed have been
accomplished by such date, the Closing shall occur at 10:00 a.m., on July 30,
2003, at the offices of Sanchez, Whittington, Janis & Zaharte, 100 North
Expressway 83, Brownsville, Texas.

     (b)       Prior to the Closing Date, Bracamontes shall have:
               (i) executed and delivered to Penn-Octane all documents necessary
               to convey, transfer and assign to the Designated Person(s), by
               endorsement, assignment, bill of sale and other instruments of
               transfer as may be reasonably requested by Penn-Octane.
               Bracamontes' entire ownership interest sin the Affiliates, free
               and clear of all third party claims, including third party lien
               claims (the foregoing hereinafter referred to as "Bracamontes'
               Closing Obligations"). The transfer by Bracamontes shall
               therefore be subject to and contingent upon the Affiliates
               receiving such documents.

               (ii) performed all of the matters outlined in Paragraph 5 above
               and be in full compliance with all of the warranties,
               representations and covenants outlined in Paragraph 6 above and
               not be in violation of any covenant outlined in Paragraph 7
               above.

     (c)       provided that Bracamontes has fully complied with all of the
terms and conditions of this Agreement, on the Closing Date, the Affiliates and
Penn-Octane shall execute and deliver to Bracamontes all documents necessary to
release Bracamontes from the indebtedness identified in Paragraph 5 (b) above
(the foregoing execution and delivery of documents hereinafter referred to as
the "Companies' Closing Obligations").

     10.     TEXAS LAW TO APPLY.     This Agreement shall be construed under and
             ------------------
in accordance with the laws of the State of Texas, and all obligations of the
Parties created hereunder are performable in Cameron County, Texas.

     11.     PARTIES HEIRS.     This Agreement is binding upon and inures to the
             --------------
benefit of the Parties and their

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respective heirs, executors, administrators, legal representatives, successors,
assigns, (if permitted by this Agreement), shareholders, members, directors,
managers, officers, Bracamontes and agents.

     12.     LEGAL CONSTRUCTION.     In case any one or more of the provisions
             -------------------
contained in this Agreement shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, this invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if the invalid, illegal, or unenforceable provision had
never been contained herein.

     13.     PRIOR AGREEMENTS SUPERCEDED.     This Agreement constitutes the
             ----------------------------
     sole and only agreement of the Parties with respect to all matters
     mentioned in this Agreement and with respect to all matters and issues
     relating or pending by and between the parties and supersedes any prior
     understandings or written or oral agreements between or among the Parties
     respecting the within subject matter.

     14.     A. RELEASE OF PENN-OCTANE.     At the Closing Date, except for the
             --------------------------
     obligations of the Parties as provided in this Agreement, in consideration
     of the mutual covenants and agreements contained herein, and other good and
     valuable consideration, the receipt and sufficiency of which is hereby
     acknowledged and confessed by the Bracamontes, his heirs, assigns and legal
     representatives shall RELEASE, ACQUIT and FOREVER DISCHARGE Penn-Octane and
     each of the Affiliates, their assigns, legal representatives, shareholders,
     members, directors, managers, officers, employees and agents, from and
     against any and all claims, demands, controversies, actions and causes of
     action of any and every character, whether known or unknown, past, present,
     or future, accruing, or which has or may hereafter accrue, in favor of
     Bracamontes, or anyone claiming by, through or under him, for any and all
     liabilities, claims, damages, personal injury or death, losses, liens,
     fines, penalties, costs, causes of action, suits, judgments, settlements
     and expenses, of any and every kind and nature, arising out of, involving,
     or in any way relating to any business dealings, past employment and
     affiliation, in whatever capacity whatsoever, by Bracamontes with
     Penn-Octane Corporation, Penn-Octane de Mexico, S.A. de C.V., Tergas, S.A.
     de C.V., or Termatsal, S.A. de C.V.

          B. RELEASE OF BRACAMONTES.     At the Closing Date, except for the
             ----------------------
     obligations of the Parties as provided in this Agreement, in consideration
     of the mutual covenants and agreements contained herein, and other good and
     valuable consideration, the receipt and sufficiency of which is hereby
     acknowledged and

                                                         Page 12 of NUM 15 PAGES
<PAGE>
     confessed by the Penn-Octane, its successors and assigns shall RELEASE,
     ACQUIT and FOREVER DISCHARGE Bracamontes, from any against any and all
     claims, demands, controversies, actions, and causes of action of any and
     every character, whether known or unknown, past, present or future,
     accruing, or which has or may hereafter accrue, in favor of Penn-Octane, or
     anyone claiming by, through or under it, for any and all liabilities,
     claims, damages, personal injury or death, losses, liens, fines, penalties,
     costs, causes of action, suits, judgments, settlements and expenses, of any
     and every kind and nature, arising out of, involving, or in any way
     relating to any business dealings, past employment and affiliation, in
     whatever capacity whatsoever, by Bracamontes with Penn-Octane Corporation,
     Penn-Octane de Mexico, S.A. de C.V., Tergas, S.A. de C.V., or Termatsal,
     S.A. de C.V. This release of Bracamontes shall not apply to any action
     based upon any claims for fraud which may exceed $200,000 in the aggregate.

     15.     A. INDEMNIFICATION OF PENN-OCTANE AND AFFILIATES. Bracamontes
             -------------------------------------------------
covenants and agrees that he will indemnify, defend and hold Penn-Octane and the
Affiliates harmless, from and after the Closing Date, from and against any Loss
(as hereinafter defined) asserted against, resulting to, imposed upon or
incurred or suffered by Penn-Octane or any Affiliate, directly or indirectly, as
a result of, or arising from any of the following:

     (a)       any inaccuracy in any of the representations and warranties made
               herein or in any Schedule attached hereto or any facts or
               circumstances constituting such inaccuracy;

     (b)       any breach or nonfulfillment by the Bracamontes of the covenants
               or agreements set forth in this Agreement or any facts or
               circumstances constituting such breach or nonfulfillment;

     (c)       any liability related to a default on or prior to the Closing
               Date by Bracamontes in performance of any of his agreements.

     All of the foregoing matters set forth in subsections (a) through (g) are
each an "Indemnified Claim" and, collectively, the "Indemnified Claims."

     As used herein, "Loss" or "Losses" shall mean any damage, liability or loss
(including, without limitation, reasonable attorneys' fees and court costs and
reasonable costs and expenses incident to, and amounts paid by Penn-Octane or
any of the Affiliates in settlement of, any claim, suit, action or proceeding)
sustained, incurred, paid or required to be paid by Penn-Octane or any
Affiliate, plus interest thereon at an annual rate of interest equal to the

                                                         Page 13 of NUM 15 PAGES
<PAGE>
maximum  permissible rate of interest chargeable in the State of Texas from the
date of a notice of claim to the date such claim is paid. The amount of any Loss
shall be reduced by the amount off all payments to or for the account of any of
the Purchasers from insurance companies in respect of such Loss.

          B. INDEMNIFICATION OF BRACAMONTES.     Penn-Octane covenants and
          ----------------------------------
agrees that it will indemnify, defend and hold Bracamontes Penn-Octane harmless,
from and after the Closing Date, from and against and Loss (as hereinafter
defined) asserted against, resulting to, imposed upon or incurred or suffered by
Bracamontes, directly or indirectly, as a result of, or arising from any of the
following:

     (a)       any inaccuracy in any of the representations and warranties made
               herein or in any Schedule;

     (b)       any breach or nonfulfillment by the Penn-Octane of the covenants
               or agreements set forth in this Agreement or any facts or
               circumstances constituting such breach or nonfulfillment;

     (c)       any liability related to a default on or prior to the Closing
               Date by Penn-Octane in performance of any of his agreements;

     (d)       any tax liability attributable to Penn-Octane or any of the
               Affiliates. The parties agree however that Penn-Octane shall not
               be responsible for the payment of any personal income tax
               liability or indebtedness which may be incurred by Bracamontes
               which may be related to the sale and transfer of the shares.

     All of the foregoing matters set forth in subsections (a) through (g) are
each an "Indemnified Claim" and collectively, the "Indemnified Claims."

     As used herein, "Loss" or "Losses" shall mean any damage, liability or loss
(including, without limitation, reasonable attorneys' fees and court costs and
reasonable costs and expenses incident to, and amounts paid by Bracamontes in
settlement of, any claim, suit, action or proceeding) sustained, incurred, paid
or required to be paid by Bracamontes, plus interest thereon at an annual rate
of interest equal to the maximum permissible rate of interest chargeable in the
State of Texas from the date of a notice of claim to the date such claim is
paid. The amount of any Loss shall be reduced by the amount of all payments to
or for the account of any of the Purchasers from insurance companies in respect
of such Loss.

     16.     TERMINATION AND REMEDIES.  This Agreement shall be terminated by
             -------------------------
Penn Octane, if at any time

                                                         Page 14 of NUM 15 PAGES
<PAGE>
prior to the closing by:

          (a)       The mutual consent of Penn Octane and Bracamontes prior to
                    the Closing Date;

          (b)       Penn Octane, if the warranties and covenants of Bracamontes
                    have not been met by the Closing Date;

          (c)       Bracamontes if the warranties and covenants of Bracamontes
                    have not been met by the Closing Date.

     17.     TIME OF ESSENCE. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
             ----------------

     18.     NON-COMPETE AGREEMENT.  To induce Penn Octane to enter into this
             ----------------------
Agreement, Bracamontes covenants and agrees that for a period of one year after
the Closing Date, he will not, as principal, agent, employee, consultant,
trustee or through the agency of any corporation, partnership, association or
agent or agency, engage in any lf any LPG pipeline business or any other
business currently conducted by the Affiliates and shall not be the owner of
more than 1% of the outstanding capital stock of any corporation or more than 1%
ownership interest in any limited liability company, partnership, or limited
partnership which operates LPG gas pipelines and terminals or conducts LPG
distribution activities or similar business or any other business in competition
with the Affiliates.

     IN WLTNESS WHEREOF, THE PARTIES SET THEIR HANDS IN AGREEMENT this JULY,
2003.

PENN OCTANE CORPORATION

BY: ___________________________                     ___________________________
          JEROME RICHTER                                 JORGE BRACAMONTES

    ___________________________                     ___________________________
              WITNESS                                         WITNESS
                                                          ALEJANDRO GOMEZ

                                                         Page 15 of NUM 15 PAGES
<PAGE>SUPPLEMENT AND AMENDMENT TO
                           ---------------------------
                     STOCK PURCHASE AND SEPARATION AGREEMENT
                     ---------------------------------------

     This Supplement is executed this 12 day of September, 2003, and is intended
to  supplement  that  certain Stock Purchase and Separation Agreement (hereafter
"Stock  Purchase Agreement"), dated July 22, 2003, executed by and between Jorge
Bracamontes  (hereafter  "Employee")  and  Penn-Octane  Corporation  (hereafter
"Penn-Octane");  and

     WHEREAS,  pursuant  to  the Stock Purchase Agreement the parties had agreed
that  Penn-Octane and its representatives be allowed to review certain documents
of  the  "Affiliates"  in  preparation  for a Closing, wherein all of the formal
documents  of  transfer,  or  ratification  of  previous transfer, of Employee's
ownership  interest  in  the  Affiliates  are  executed  and  concluded;  and

     WHEREAS,  subsequent  to  the execution of the Stock Purchase Agreement the
parties  have  agreed  to  certain clarifications and modifications of the Stock
Purchase  Agreement;  and

     WHEREAS,  the  Closing  of  the  transaction is scheduled for September 11,
2003,  in  Mexico  City,  Mexico,  and  the  parties  desire  to  formalize  the
modifications  and  details  pertaining  to  the  Closing.

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

     1.     The  parties  intend  by this modification to clarify that the Stock
Purchase  and  Separation  Agreement  constituted a compromise and settlement of
disputes  as  to true ownership of common shares in the Affiliates.  The parties
hereby  stipulate  that  Penn-Octane  Corporation

<PAGE>
had  previously  acquired  from  Employee  all  legal and equitable ownership of
shares  which  he  held in Penn-Octane de Mexico, S.A. de C.V. and all shares in
Termatsal,  S.A.  de  C.V.,  and  that the Stock Purchase Agreement represents a
ratification  of  the  previous  transfer and sale of shares and an agreement to
finalize  the  transfer  of  such  shares  in  such corporations by Employee. In
regards  to Tergas, S.A. de C.V., the parties stipulate that there was a dispute
as  to  the  true legal and equitable ownership of such shares held by Employee,
and that the Stock Purchase Agreement constitutes an agreement to compromise and
settle  the  issues  of ownership by providing for a ratification of transfer of
legal  and  equitable  ownership  by Employee and a conclusion of such transfer.

     2.     The parties hereby agree to amend Section 5(d) of the Stock Purchase
Agreement  to  hereby  read  as  follows:

     If  Penn-Octane  or its Affiliates extend the current existing pipelines to
Monterrey,  Mexico,  and  the  net  revenue  generated  by the extension of such
pipelines  results  in  a (i) 17% net revenue generated return (the return being
projected  on the earnings measured before the imposition of taxes, depreciation
and  amortization,  EBITDA,  as  computed  under  generally  accepted accounting
principles; and (ii) provided that a minimum seven-year agreement is executed by
Penn-Octane  with  Pemex  Gas and Petrochemical on or before March 31, 2004, for
the  utilization  of  such  pipelines at a rate that will generate a 17% capital
cost  return,  then  Bracamontes shall be paid (a) a bonus of $250,000.00 on the
first  day  after  the pipeline agreement has been executed by and between Pemex
Gas  and  Petrochemical  and  Penn-Octane  Corporation,  and  (b)  an additional
$250,000.00  bonus  will  be  paid  on  the  first  day  after  full-time

<PAGE>
commercial  operation  of the extended pipeline begin. In order to guarantee the
payment  of  the  compensation  described  in  this sub-paragraph (d), Jerome B.
Richter  shall  cause  to  be  pledged  100,000  shares  of his common shares of
Penn-Octane Corporation as collateral for the payment of such consideration.

     3.     A new Paragraph 5(e) is hereby added and incorporated into the terms
of  the  Stock  Purchase  Agreement  as  follows:

     "Within  sixty (60) days of Closing, Penn-Octane Corporation shall cause to
be issued to Employee 21,818 shares of newly issued and restricted common shares
of  Penn-Octane Corporation. The parties agree that the shares being received by
Employee  represent  additional  compensation  received  by  Employee  for  (i)
severance  compensation  received  by  Employee  related  to  any  of  his prior
positions or employment or affiliation with Termatsal, S.A. de C.V., Penn-Octane
de  Mexico,  S.A.  de  C.V.,  and  Tergas,  S.A. de C.V., and (ii) as additional
consideration  for the purchase price of Tergas, S.A. de C.V. (and to the extent
of  any  previous  or  concurrent  transfer  of  stock related to Penn-Octane de
Mexico, S.A. de C.V. and Termatsal, S.A. de C.V.

     4.     The  parties  acknowledge  and  agree  that  the documents listed or
identified  on Exhibit "A" attached hereto will be executed at the Closing to be
held  on  September  11,  2003,  at the law offices of Lic. Roberto Olea, Sierra
Nevada No. 712, Col. Lomas de Chapultepec, C.P. 11000, Mexico, D.F.

     5.     Additionally, at the Closing, Penn-Octane will deliver to Employee a
Satisfaction  of  Indebtedness related to (i) that promissory note in the amount
of  $498,000.00  (U.S.  dollars),

<PAGE>
dated March 25, 2000, executed by Jorge R. Bracamontes, and (ii) that promissory
note  in the amount of $46,603.00 (U.S. dollars), dated March 26, 2000, executed
by  Maria  Isabel Garcia Cuesta. Said Satisfaction of Indebtedness shall release
the pledges and security agreements executed by the Makers of such notes. A copy
of the Satisfaction of Indebtedness is attached hereto as Exhibit "B."

     6.     Additionally,  within  sixty  (60) days of Closing, Penn-Octane will
deliver  to  Employee  a  guaranty  agreement,  security  agreement  and  escrow
agreement.  The  guaranty  agreement  will  be  executed by Jerome B. Richter to
guarantee  the  contractual  obligation  of  Penn-Octane  Corp.  to  Employee as
detailed  in  Paragraph  5(d) of the Stock Purchase Agreement, wherein, upon the
occurrence  of  certain events, Penn-Octane shall pay a bonus to Employee in the
amount  of  $250,000.00 upon the execution of a Pipeline Agreement between Pemex
Gas and Petrochemical and Penn-Octane Corporation, and an additional $250,000.00
bonus  to  be paid on the first day after full-time commercial operation of such
extended  pipelines  begins.  The guaranty by Jerome B. Richter shall be secured
by  a  security  interest in 100,000 shares of common stock of Penn-Octane Corp.
Such  shares  shall  be  delivered  to Dennis Sanchez, in escrow, pursuant to an
Escrow  Agreement.  The  form  of  the  guaranty,  security agreement and escrow
agreement  are  attached  hereto  as  Exhibit  "C."

<PAGE>
     IN WITNESS WHEREOF, the parties set their hands in agreement as of the date
first  above  written.

                                            PENN OCTANE CORPORATION

                                       By:____________________________________
                                                 IAN  BOTHWELL

                                       By:____________________________________
                                            JORGE  BRACAMONTES

<PAGE>
                                  EXHIBIT "A"
                (PENN OCTANE Documents to be Executed on Closing)

The documents that are going to be executed on the closing are:

a)     Mexican  documents  prepared  by  CCN/Olea:

1.     POM  Annual  Meeting  Minutes  removing and naming Board of Directors and
Inspectors
2.     TERMATSAL  Annual  Meeting Minutes removing and naming Board of Directors
and  Inspectors
3.     TERGAS  Annual Meeting Minutes removing and naming Board of Directors and
Inspectors
4.     POM  Meeting  Minutes  amending  bylaws.
5.     Transfer  of  POM's  Stock  Agreement
6.     Endorsement  of  POM's  Stock  Certificates
7.     Transfer  of  Termatsal's  Stock  Agreement
8.     Endorsement  of  Termatsal's  Stock  Certificates
9.     Transfer  of  Tergas'  Stock  Agreement
10.    Endorsement  of  Tergas'  Stock  Certificates
11.    Bracamontes'  Affidavit
12.    Option  Agreement  to  buy  Tergas'  Stock
13.    POM  Meeting  Minutes  revoking  and  granting  powers  of  attorney
14.    TERMATSAL  Meeting  Minutes  revoking  and  granting  powers of attorney
15.    TERGAS  Meeting  Minutes  revoking  and  granting  powers  of  attorney.
16.    Letter  Acknowledging  Ttransfer  Pricing

b)     Dennis  Sanchez's  documents:

16.    Supplement  and  Amendment  to  Stock  Purchase and Separation Agreement
(Exhibit  A-C)
17.    Satisfaction  of  Debt  (Exhibit  B)
18.    Guaranty  Agreement  (Exhibit  C)
19.    Security  Agreement  (Exhibit  C)
20.    Escrow  Agreement  (Exhibit  C)

<PAGE>
                                   EXHIBIT "B"

                              SATISFACTION OF DEBT
                              --------------------

     Pursuant  to  the  terms  of  a  Stock  Purchase and Satisfaction Agreement
executed  on  July 22, 2003, as amended pursuant to the supplement and amendment
to stock purchase and separation agreement dated September 12, 2003, Penn-Octane
Corporation  does  hereby  declare  that the following described indebtedness is
hereby  declared  as  forgiven  and  discharged:

     1.     That  certain  Promissory  Note  in the amount of $498,000.00, dated
March  25,  2000,  executed  by  Jorge  Bracamontes  in  favor  of  Penn-Octane
Corporation.  Furthermore,  Penn-Octane Corporation hereby declares that certain
Pledge and Security Agreement dated March 25, 2000, and executed by Bracamontes,
as  null  and  void, which security agreement was provided as collateral for the
repayment  of  the  foregoing  described  promissory  note.

     2.     That  certain  Promissory  Note  in  the amount of $46,603.00, dated
March  26,  2000, executed by Maria Isabel Garcia Cuesta in favor of Penn-Octane
Corporation.  Furthermore,  Penn-Octane Corporation hereby declares that certain
Pledge  and  Security Agreement dated March 26, 2000, executed by Garcia Cuesta,
as  null  and  void, which security agreement was provided as collateral for the
repayment  of  the  foregoing  described  promissory  note.

     IN WITNESS WHEREOF, this Satisfaction is given on this 12 day of September,
2003.

                                       PENN OCTANE CORPORATION

                                       By:____________________________________
                                                 IAN  BOTHWELL

<PAGE>
                                  EXHIBIT "C"

                                    GUARANTY
                                    --------

     IN CONSIDERATION OF certain business and financial accommodations attendant
thereto  extended  to PENN-OCTANE CORPORATION by JORGE BRACAMONTES and for other
good  and  valuable  consideration, the receipt of which is hereby acknowledged,
the  undersigned,  JEROME  RICHTER  ("Guarantor,")  hereby  unconditionally  and
absolutely  guarantees  to  and for the benefit of JORGE BRACAMONTES the payment
when  due  of all compensation and the performance by PENN-OCTANE CORPORATION of
all  of  the obligations and conditions contained in that certain Stock Purchase
And  Separation Agreement under Paragraph 5(d), dated July 22, 2003 entered into
by  and  between  JORGE  BRACAMONTES,  as Employee, and PENN-OCTANE CORPORATION,
whether  now  existing  or hereafter created or arising in connection therewith.
In  order  to  guarantee  the  payment  of  the  compensation due BRACAMONTES as
described  in  Paragraph  5  (d) of the Stock Purchase And Separation Agreement,
Guarantor  shall  cause  to  be  pledged  100,000  shares of his common stock in
PENN-OCTANE  CORPORATION  as  collateral  and shall execute a Security Agreement
("Contract  Document")and  Escrow  Agreement  of  even  date herewith giving and
granting  unto  BRACAMONTES  a  security  interest  in  and  to said stock.  For
purposes  of  this  Guaranty,  all  indebtedness  and  obligations arising under
Paragraph 5(d) of the Stock Purchase and Separation Agreement referred to herein
are  hereinafter  collectively  called  (the  "Indebtedness.")

     1.     RENEWALS  AND  EXTENSIONS.  This  Guaranty  shall  apply  to  the
            -------------------------
Indebtedness  and  any  renewals,  extensions,  refinancings  or  modifications
thereof.

     2.     OTHER  REMEDIES.  BRACAMONTES  shall  not  be required to pursue any
            ---------------
other  remedies  before  invoking  the  benefits of this Guaranty; specifically,
BRACAMONTES  shall  not  be  required  to  take  any  action against PENN-OCTANE
CORPORATION  or  any  other  entity  or  person, to exhaust his remedies against
endorsers,  collateral  and  other  security, or to resort to any balance of any
deposit  account  or  credit on the books of BRACAMONTES in favor of PENN-OCTANE
CORPORATION  or  any  other  person  or  entity.

     3.     OBLIGATIONS  NOT  IMPAIRED.  The  obligations of any Guarantor under
            --------------------------
this  Guaranty  shall  not  be  released  or  impaired without the express prior
written  consent  of BRACAMONTES.  The obligations of any Guarantor shall not be
released or impaired on account of the following events:

          (a)     the  voluntary  or  involuntary  liquidation,  sale  or  other
     disposition  of  all  or  substantially  all  of  the assets of PENN-OCTANE
     CORPORATION, or any receivership, insolvency, bankruptcy, reorganization or
     other  similar  proceedings affecting PENN-OCTANE CORPORATION or any of its
     assets;

<PAGE>
          (b)     the  addition  of  a  new  guarantor  or  guarantors;

          (c)     any  impairment,  modification,  release  or  limitation  of
     liability  of, or stay of lien enforcement proceedings against, PENN-OCTANE
     CORPORATION, its property, or its estate in bankruptcy or any modification,
     discharge  or extension of the Indebtedness resulting from the operation of
     any present or future provision of the Federal Bankruptcy Code or any other
     similar  federal  or  state  statute, or from the decision of any court, it
     being  the  intention  hereof  that  Guarantor  shall  remain liable on the
     Indebtedness,  notwithstanding  any act, omission or thing which might, but
     for  the  provisions  hereof,  otherwise  operate  as  a legal or equitable
     discharge  of  Guarantor;

          (d)     BRACAMONTES'  failure  to  use  diligence  in  preserving  the
     liability of any person on the Indebtedness, or in bringing suit to enforce
     collection  of  the  Indebtedness;

          (e)     the substitution or withdrawal of  collateral  or  release  of
     security,  and  the  exercise  or failure to exercise by BRACAMONTES of any
     right  conferred  upon  it  herein  or  in  any  collateral  agreement;

          (f)     if  PENN-OCTANE CORPORATION is not liable because  the  act of
     creating  the  Indebtedness  is  ultra  vires  or  the  officers or persons
     creating  the  Indebtedness  acted in excess of their authority, or for any
     reason the Indebtedness cannot be enforced against PENN-OCTANE CORPORATION;

          (g)     any payment by PENN-OCTANE CORPORATION to  BRACAMONTES if such
     payment is held to constitute a preference under the bankruptcy laws, or if
     for  any  other  reason  BRACAMONTES  is required to refund such payment to
     PENN-OCTANE  CORPORATION  or  pay  the  amount  thereof to any other party;

     4.     BENEFIT  TO  GUARANTOR.  Guarantor acknowledges and warrants that he
            ----------------------
derived or expects to derive financial and other advantage and benefit, directly
or  indirectly,  granted  or to be made or granted by PENN-OCTANE CORPORATION to
BRACAMONTES  in  an  amount  not  less  than  the  amount  guaranteed hereunder.

     5.     GUARANTOR'S  WARRANTIES  AND  REPRESENTATIONS.
            ---------------------------------------------

          (a)     All of the Contract  Documents,  if  any,  including,  without
     limitation,  this  Guaranty  and  any other documents referred to herein to
     which  Guarantor  is a party, will, upon execution and delivery, constitute
     duly  authorized,  valid  and  binding  obligations  of

<PAGE>
     Guarantor,  enforceable in accordance with their respective terms except as
     limited  by  applicable  relief  laws  which  may be granted to PENN-OCTANE
     CORPORATION.

     6.     DEATH  OF GUARANTOR.  Upon the death of Guarantor, the obligation of
            -------------------
the  deceased shall continue against his estate and to all surviving Guarantors,
if  any,  as  to  all  of  the  Indebtedness,  including  that  portion  of  the
Indebtedness  incurred  after  such  death.

     7.     WAIVER  OF NOTICE.  Guarantor waives grace, presentment for payment,
            -----------------
notice of dishonor or default, notice of intent to demand, and of demand, notice
of  intention  to accelerate and of acceleration, protest and notice of protest,
diligence  in  collecting  and  bringing suit against any party thereto, and all
other  notices  of  every  kind,  and all renewals, extensions, refinancings and
modifications that may be granted to PENN-OCTANE CORPORATION.  BRACAMONTES shall
be  under no obligation to notify Guarantor of its acceptance hereof, nor of any
advances  made  or  credit  extended  on the faith hereof, nor of the failure of
PENN-OCTANE  CORPORATION  to  pay  the  Indebtedness  as  it  matures.

     8.     MODIFICATION  OR CONSENT.  No modification, consent or waiver of any
            ------------------------
provision  of  this  Guaranty,  or  consent  to  any  departure by any Guarantor
therefrom,  shall be effective unless the same shall be in writing and signed by
an  officer  of  BRACAMONTES,  and  then shall be effective only in the specific
instance  and  for  the  purpose for which given.  No notice to or demand on any
Guarantor  in  any  case shall, of itself, entitle any Guarantor to any other or
further  notice  or  demand  in  similar  or  other  circumstances.  No delay or
omission  by BRACAMONTES in exercising any power or right hereunder shall impair
any  such right or power to be construed as a waiver thereof or any acquiescence
therein,  nor  shall  any  single or partial exercise of any such power preclude
other  or  further exercise thereof, or the exercise of any other right or power
hereunder.  All  rights  and remedies of BRACAMONTES hereunder are cumulative of
each  other  and  of every other right or remedy which BRACAMONTES may otherwise
have  at  law  or  in  equity  or  under any other contract or document, and the
exercise  of  one  or  more rights or remedies shall not prejudice or impair the
concurrent  or  subsequent  exercise  of  other  rights  or  remedies.

     9.     COSTS  OF  COLLECTION.  Guarantor  agrees  to  pay  all  costs  of
            ---------------------
collection,  including  attorney's fees and expenses, if this Guaranty is placed
in  the  hands  of an attorney for collection or is collected through any court.

     10.     NOTICE OF LITIGATION, CLAIMS AND FINANCIAL CHANGE.  Guarantor shall
             -------------------------------------------------
promptly inform BRACAMONTES of (a) any litigation against Guarantor or affecting
any  security  for the Indebtedness which, if determined adversely, might have a
material  adverse  effect upon the financial condition of Guarantor or upon such
security  or  might  cause  a  default  under  any  of the documents evidencing,
securing or governing the Indebtedness, (b) any claim or controversy which might
become  the  subject  of such litigation, and (c) any material adverse change in
the  financial  condition  of  Guarantor.

<PAGE>
     11.     SUCCESSORS  AND  ASSIGNS:     This  Guaranty  is for the benefit of
             ------------------------
BRACAMONTES,  his  heirs, legal representatives, successors and assigns, and, in
the  event  of  an  assignment by BRACAMONTES, his heirs, legal representatives,
successors  or assigns, of the Indebtedness, or any part thereof, the rights and
benefits  hereunder,  to  the extent applicable to the Indebtedness so assigned,
may  be  transferred  with  such  Indebtedness.

     12.     HEADINGS.  THE  paragraph  headings  hereof  are  inserted  for
             --------
convenience  of  reference  only  and  shall  not  alter,  define  or be used in
construing  the  text  of  such  paragraphs.

     13.     GOVERNING  LAW  AND  PLACE  OF PERFORMANCE.  GUARANTOR  AGREES THAT
             ------------------------------------------
THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS.  THIS AGREEMENT IS
PERFORMABLE  IN  CAMERON  COUNTY,  TEXAS.

     IN  WITNESS WHEREOF the undersigned Guarantor has executed this Guaranty as
of  the  12  day  of  September,  2003.

                               GUARANTOR:

                               _________________________________
                               JEROME  RICHTER

<PAGE>
                                      2267
          Prepared by the State Bar of Texas for use by lawyers only.
                              Revised 10-85; 5-92

                     0 1985, 1992 by the State Bar of Texas

                               SECURITY AGREEMENT

Date:  September  12,  2003

Debtor:    PENN  OCTANE  CORPORATION

Debtor's Mailing Address (including county) 902 Chemical Road, Brownsville, TX
78521
                                Cameron County:

Secured Party:    JORGE BRACAMONTES

Secured Party's Mailing Address (including county): c/o Roberto Olea H.
                                                    Sierra  Nevada  No.  712
                                                    Col.  Lomas  de  Chapultepec
                                                    C.P.  11000,  Mexico  D.F.

Classification  of  Collateral:

Collateral (including all accessions):   One Hundred Thousand (100,000) shares
                                         of  common  stock  of  PENN-OCTANE
                                         CORPORATION,  represented  by  Stock
                                         Certificate  No.  _________,  dated
                                          ________, registered to Jerome Richter

Obligation
     Note        CONTRACTUAL  AGREEMENT
          Date:  July  22,  2003,  AS  AMENDED  on  September  12,  2003.

          Amount: FIVE HUNDRED THOUSAND and NO/100 DOLLARS ($500,000.00)
          DOLLARS

          Maker:   PENN-OCTANE  CORPORATION

          Payee:   JORGE  BRACAMONTES

          Final Maturity Date:  As therein provided.

<PAGE>
     Terms  of  Payment  (optional): In accordance with the terms of Paragraph 5
     (d)  of that certain Stock Purchase And Separation Agreement dated July 22,
     2003  as amended pursuant to the supplement and amendment to Stock Purchase
     and  Separation Agreement entered into by and between JORGE BRACAMONTES, as
     Employee,  and  PENN-OCTANE  CORPORATION,  as  Employer.

Other Obligation:    None.

Debtor's Representation Concerning Location of Collateral (optional):

     Subject  to  the  terms of this agreement, Debtor grants to Secured Party a
security  interest  in the collateral and all its proceeds to secure payment and
performance  of  Debtor's obligation in this security agreement and all renewals
and  extensions  of  any  of  the  obligation.

DEBTOR'S  WARRANTIES

     1.  Financing  Statement.  Except  for  that  in favor of Secured Party, no
financing statement covering the collateral is filed in any public office.
     2.  Ownership.  Debtor  owns  the collateral and has the authority to grant
this  security  interest. Ownership is free from any setoff, claim, restriction,
lien,  security interest, or encumbrance except this security interest and liens
for  taxes  not  yet  due.
     3.  Fixtures  and  Accessions.  None  of  the collateral is affixed to real
estate,  is  an  accession to any goods, is commingled with other goods, or will
become  a  fixture,  accession,  or  part  of a product or mass with other goods
except  as  expressly  provided  in  this  agreement.
     4.  Financial  Statements.  All  information  about  Debtor's  financial
condition  provided to Secured Party was accurate when submitted, as will be any
information  subsequently  provided.

DEBTOR'S  COVENANTS

     1.  Protection of Collateral. Debtor will defend the collateral against all
claims  and  demands  adverse to Secured Party's interest in it and will keep it
free  from  all  liens  except those for taxes not yet due and from all security
interests  except this one. The collateral will remain in Debtor's possession or
control  at  all  times,  except as otherwise provided in this agreement. Debtor
will  maintain  the  collateral in good condition and protect it against misuse,
abuse, waste, and deterioration except for ordinary wear and tear resulting from
its  intended  use.
     2.  Insurance.  Debtor  will  insure  the collateral in accord with Secured
Party's  reasonable requirements regarding choice of carrier, casualties insured
against, and amount of coverage. Policies will be written in favor of Debtor and
Secured  Party  according  to their respective interests or according to Secured
Party's  other  requirements.  All policies will provide that Secured Party will
receive  at  least  ten  days'  notice  before cancellation, and the policies or
certificates  evidencing  them  will  be  provided to Secured Party when issued.
Debtor  assumes  all  risk of loss and damage to the collateral to the extent of
any  deficiency in insurance coverage. Debtor irrevocably appoints Secured Party
as attomey-in-fact to collect any return, unearned premiums, and proceeds of any
insurance  on the collateral and to endorse any draft or check deriving from the
policies  and  made  payable  to  Debtor.
     3.  Secured Party's Costs. Debtor will pay all expenses incurred by Secured
Party  in  obtaining,  preserving,  perfecting,  defending,  and  enforcing this
security  interest  or  the  collateral and in collecting or enforcing the note.
Expenses  for  which  Debtor  is  liable include, but are not limited to, taxes,
assessments,  reasonable  attorney's  fees,  and  other  legal  expenses.  These
expenses  will  bear  interest  from  the  dates of payments at the highest rate
stated  in  notes  that  are part of the obligation, and Debtor will pay Secured
Party  this  interest  on  demand  at  a  time and place reasonably specified by
Secured  Party.  These  expenses and interest will be part of the obligation and
will  be  recoverable  as  such  in  all  respects.

<PAGE>
     4.  Additional  Documents.  Debtor  will sign any papers that Secured Party
considers  necessary  to obtain, maintain, and perfect this security interest or
to  comply  with  any  relevant  law.
     5.  Notice  of Changes. Debtor will immediately notify Secured Party of any
material  change  in  the  collateral;  change  in  Debtor's  name,  address, or
location;  change  in  any  matter  warranted  or represented in this agreement;
change  that  may  affect  this  security  interest;  and  any event of default.
     6.  Use and Removal of Collateral. Debtor will use the collateral primarily
according  to  the stated classification unless Secured Party consents otherwise
in  writing.  Debtor  will  not  permit the collateral to be affixed to any real
estate,  to become an accession to any goods, to be commingled with other goods,
or to become a fixture, accession, or part of a product or mass with other goods
except  as  expressly  provided  in  this  agreement.
     7.  Sale. Debtor will not sell, transfer, or encumber any of the collateral
without  the  prior  written  consent  of  Secured  Party.

RIGHTS  AND  REMEDIES  OF  SECURED  PARTY

     1.  Generally. Secured Party may exercise the following rights and remedies
either  before  or  after  default:
          a.   take  control  of  any  proceeds  of  the  collateral;
          b.   release  any  collateral  in  Secured  Party's  possession to any
               debtor,  temporarily  or  otherwise;
          c.   take  control  of  any funds generated by the collateral, such as
               refunds  from  and  proceeds of insurance, and reduce any part of
               the  obligation accordingly or permit Debtor to use such funds to
               repair  or  replace  damaged  or  destroyed collateral covered by
               insurance;  and
          d.   demand,  collect,  convert,  redeem,  settle, compromise, receipt
               for,  realize  on,  sue  for, and adjust the collateral either in
               Secured  Party's  or  Debtor's  name,  as  Secured Party desires.

     2.  Insurance.  If  Debtor  fails to maintain insurance as required by this
agreement  or  otherwise  by  Secured  Party,  then  Secured  Party may purchase
single-interest  insurance  coverage  that  will  protect only Secured Party. If
Secured  Party  purchases  this  insurance, its premiums will become part of the
obligation.

EVENTS  OF  DEFAULT

     Each of the following conditions is an event of default:
     1.    if  Debtor  defaults  in  timely  payment  or  performance  of  any
obligation,  covenant,  or liability in any written agreement between Debtor and
Secured  Party  or  in  any  other  transaction  secured  by  this  agreement:
     2.    if any warranty, covenant, or representation made to Secured Party by
or  on  behalf  of Debtor proved to have been false in any material respect when
made;
     3.    if  a  receiver  is  appointed  for  Debtor or any of the collateral;
     4.    if the collateral is assigned for the benefit of creditors or, to the
extent  permitted  by  law,  if  bankruptcy  or  insolvency proceedings commence
against or by any of these parties: Debtor; any partnership of which Debtor is a
general  partner;  and any maker, drawer, acceptor, endorser, guarantor, surety,
accommodation  party,  or  other  person  liable  on  or  for  any  part  of the
obligation;
     5.    if  any  financing statement regarding the collateral but not related
to  this  security  interest  and  not  favoring  Secured  Party  is  filed;
     6.    if  any  lien  attaches  to  any  of  the  collateral;  and
     7.    if  any  of  the  collateral  is lost, stolen, damaged, or destroyed,
unless  it  is  promptly replaced with collateral of like quality or restored to
its  former  condition.

REMEDIES  OF  SECURED  PARTY  ON  DEFAULT

     During the existence of any event of default, Secured Party may declare the
unpaid  principal  and  earned  interest

<PAGE>
of  the obligation immediately due in whole or part, enforce the obligation, and
exercise  any rights and remedies granted by chapter 9 of the Texas Business and
Commerce Code or by this agreement, including the following:
     1.  require  Debtor  to  deliver  to  Secured  Party  all books and records
relating  to  the  collateral;
     2.  require  Debtor  to  assemble  the  collateral and make it available to
Secured  Party  at  a  place  reasonably  convenient  to  both  parties;
     3.  take possession of any of the collateral and for this purpose enter any
premises  where  it  is located if this can be done without breach of the peace;
     4.  sell,  lease,  or  otherwise dispose of any of the collateral in accord
with  the rights, remedies, and duties of a secured party under chapters 2 and 9
of the Texas Business and Commerce Code after giving notice as required by those
chapters;  unless  the  collateral  threatens  to  decline speedily in value, is
perishable,  or  would  typically  be sold on a recognized market, Secured Party
will  give Debtor reasonable notice of any public sale of the collateral or of a
time  after  which  it  may  be  otherwise disposed of without further notice to
Debtor; in this event, notice will be deemed reasonable if it is mailed, postage
prepaid,  to Debtor at the address specified in this agreement at least ten days
before  any  public  sale or ten days before the time when the collateral may be
otherwise disposed of without further notice to Debtor;
     5. surrender any insurance policies covering the collateral and receive the
unearned  premium;
     6.  apply  any proceeds from disposition of the collateral after default in
the  manner  specified  in  chapter  9  of the Texas Business and Commerce Code,
including  payment  of  Secured  Party's  reasonable  attorney's  fees and court
expenses;  and
     7.  if  disposition  of  the  collateral leaves the obligation unsatisfied,
collect  the  deficiency  from  Debtor.

GENERAL  PROVISIONS

     1.  Parties  Bound. Secured Party's rights under this agreement shall inure
to  the  benefit  of  its  successors and assigns. Assignment of any part of the
obligation  and  delivery  by  Secured  Party of any part of the collateral will
fully  discharge  Secured  Party  from  responsibility  for  that  part  of  the
collateral.  If  Debtor is more than one, all their representations, warranties,
and  agreements are joint and several. Debtor's obligations under this agreement
shall  bind  Debtor's  personal  representatives,  successors,  and  assigns.
     2. Waiver. Neither delay in exercise nor partial exercise of any of Secured
Party's  remedies  or  rights  shall waive further exercise of those remedies or
rights.  Secured  Party's  failure to exercise remedies or rights does not waive
subsequent  exercise  of those remedies or rights. Secured Party's waiver of any
default  does  not waive further default. Secured Party's waiver of any right in
this  agreement  or  of any default is binding only if it is in writing. Secured
Party  may  remedy  any  default  without  waiving  it.
     3.  Reimbursement.  If Debtor fails to perform any of Debtor's obligations,
Secured  Party  may  perform  those  obligations  and be reimbursed by Debtor on
demand  at  the  place where the note is payable for any sums so paid, including
attorney's  fees  and other legal expenses, plus interest on those sums from the
dates of payment at the rate stated in the note for matured, unpaid amounts. The
sum  to  be  reimbursed  shall  be  secured  by  this  security  agreement.
     4.  Interest Rate. Interest included in the obligation shall not exceed the
maximum  amount  of  nonusurious  interest  that  may  be contracted for, taken,
reserved, charged, or received under law; any interest in excess of that maximum
amount shall be credited to the principal of the obligation or, if that has been
paid,  refunded.  On any acceleration or required or permitted prepayment of the
obligation,  any  such  excess  shall  be  canceled  automatically  as  of  the
acceleration or prepayment or, if already paid, credited on the principal amount
of  the  obligation  or,  if  the principal amount has been paid, refunded. This
provision  overrides  other  provisions  in  this  and  all  other  instruments
concerning  the  obligation.
     5.  Modifications.  No  provisions  of  this agreement shall be modified or
     limited  except  by  written  agreement.
     6.  Severability.  The  unenforceability of any provision of this agreement
     will  not  affect  the  enforceability  or validity of any other provision.
     7.  After-Acquired  Consumer  Goods. This security interest shall attach to
     after-acquired consumer goods only to the extent permitted by law. '

<PAGE>
     8.  Applicable  Law.  This  agreement  will be construed according to Texas
     laws.
     9. Place of Performance. This agreement is to be performed in the county of
     Secured  Party's  mailing  address.
     10.  Financing  Statement. A carbon, photographic, or other reproduction of
this  agreement or any financing statement covering the collateral is sufficient
as  a  financing  statement.
     11.  Presumption  of  Truth  and  Validity. If the collateral is sold after
default,  recitals  in the bill of sale or transfer will be prima facie evidence
of  their  truth,  and all prerequisites to the sale specified by this agreement
and  by  chapter  9  of  the  Texas  Business and Commerce Code will be presumed
satisfied.
     12.  Singular  and  Plural.  When  the context requires, singular nouns and
pronouns  include  the  plural.
     13.  Priority  of  Security  Interest. This security interest shall neither
affect  nor be affected by any other security for any of the obligation. Neither
extensions  of  any of the obligation nor releases of any of the collateral will
affect  the priority or validity of this security interest with reference to any
third  person.
     14. Cumulative Remedies. Foreclosure of this security interest by suit does
not  limit  Secured Party's remedies, including the right to sell the collateral
under  the  terms  of  this  agreement.  All  remedies  of  Secured Party may be
exercised  at  the  same or different times, and no remedy shall be a defense to
any  other. Secured Party's rights and remedies include all those granted by law
or  otherwise,  in  addition  to  those  specified  in  this  agreement.
     15.  Agency.  Debtor's  appointment  of  Secured Party as Debtor's agent is
coupled  with  an  interest  and  will  survive  any  disability  of  Debtor.
     16.  Attachments  Incorporated. The addendum indicated below is attached to
this agreement and incorporated into it for all purposes:

          (  )  addendum  relating  to  accounts,  inventory, documents, chattel
                paper,  and  general  intangibles
          (  )  addendum  relating  to  instruments

_______________________________                  ____________________________
JORGE BRACAMONTES                                  PENN OCTANE CORPORATION
Secured Party                                          - Debtor -

_______________________________
JEROME  RICHTER
Guarantor

<PAGE>
                                ESCROW AGREEMENT

     WITNESS THIS AGREEMENT made effective the 12 day of September, 2003, by and
between  JORGE  BRACAMONTES, PENN OCTANE CORPORATION, JEROME RICHTER, and DENNIS
M. SANCHEZ, P.C. (hereinafter called "Trustee/Escrow Agent.")

     By  their  signatures  hereto  the  undersigned  hereby  agree  that DENNIS
SANCHEZ, P.C.  shall act as Trustee/Escrow Agent from the date of closing of the
transaction described in the Stock Purchase And Separation Agreement of July 22,
2003.  The  Escrow  Agent  shall  hold  the  100,000  common  shares of stock of
PENN-OCTANE  CORPORATION  delivered  to  him  by JEROME RICHTER, together with a
Guaranty  and  Security  Agreement  executed  by  JEROME RICHTER and PENN OCTANE
CORPORATION.

     The  Escrow  Agent shall hold such documents until such time as PENN-OCTANE
CORPORATION has either complied with or defaulted under the terms of Paragraph 5
(d)  of  the  Stock Purchase and Separation Agreement.  The terms of this Escrow
are  as  follows:

          a)   If  PENN-OCTANE  CORPORATION  defaults  under  its  obligations
               described in paragraph 5 (d) of the Stock Purchase and Separation
               Agreement,  then the Escrow Agent shall deliver such documents to
               BRACAMONTES.

          b)   If  PENN-OCTANE  CORPORATION  complies  with  its  obligations
               described in paragraph 5 (d) of the Stock Purchase and Separation
               Agreement,  then the Escrow Agent shall deliver such documents to
               JEROME  RICHTER.

          EXECUTED this __________ day of September, 2003.

                                        Penn  Octane  Corporation

                                        ______________________________
                                        JEROME  RICHTER

                                        ______________________________
                                        JORGE  BRACAMONTES

TRUSTEE/ESCROW  AGENT:

DENNIS  M.  SANCHEZ,  P.C.

By:______________________________
     DENNIS  SANCHEZ

<PAGE>

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