Opinion

Unocal Pipeline Company v. BP Pipelines (Alaska) Inc., Conoco Phillips Transportation Alaska, Inc., and ExxonMobil Pipeline Co.

Court: Texas Court of Appeals, 1st District (Houston)
Filed: Sep 15, 2015
Status: Published
Cited by: 0 cases

The opinion

ACCEPTED

01-15-00266-CV

FIRST COURT OF APPEALS

HOUSTON, TEXAS

9/15/2015 11:43:07 AM

CHRISTOPHER PRINE

CLERK

NO. 01-15-00266-CV

IN THE FIRST COURT OF APPEALS FILED IN

1st COURT OF APPEALS

HOUSTON, TEXAS HOUSTON, TEXAS

9/15/2015 11:43:07 AM

CHRISTOPHER A. PRINE

Clerk

UNOCAL PIPELINE COMPANY

Appellant,

BP PIPELINES (ALASKA) INC., ET AL.

Appellees

AMENDED APPENDIX

TO BRIEF OF APPELLANT UNOCAL PIPELINE COMPANY

PART ONE OF TWO: APPENDIX TABS A-F

ORAL ARGUMENT REQUESTED

GIBBS & BRUNS, L.L.P.

Mark A. Giugliano

mgiugliano@gibbsbruns.com

TBA No. 24012702

Anthony N. Kaim

akaim@gibbsbruns.com

TBA No. 24065532

J. Benjamin Bireley

bbireley@gibbsbruns.com

TBA No. 24076086

1100 Louisiana, Suite 5300

Houston, Texas 77002

Telephone: (713) 650-8805

Facsimile: (713) 750-0903

ATTORNEYS FOR APPELLANT,

UNOCAL PIPELINE COMPANY

CERTIFICATE OF SERVICE

I certify that on the 15th day of September, 2015 I served a copy of the

foregoing document upon the following attorneys of record via electronic filing:

Michael V. Powell

Elizabeth L. Tiblets

Locke Lord LLP

2200 Ross Avenue, Suite 2200

Dallas, Texas 75201

Fax: (214) 756-8520

mpowell@lockelord.com

etiblets@lockelord.com

Steven G. Reed

Lara E. Romansic

Steptoe & Johnson LLP

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036-1795

Fax: (202) 429-3902

sreed@steptoe.com

lromansic@steptoe.com

/s/ Mark A. Giugliano .

Mark A. Giugliano

AMENDED APPENDIX

TO BRIEF OF APPELLANT UNOCAL PIPELINE COMPANY

A. Final judgment of the trial court, CR629-630

B. Trial court order regarding DR&R, SCR4:2415-2417

C. Trial court order regarding “Shall Pay Claim,” SCR6:3687-3688

D. TAPS Agreement, CR60-164

E. TAPS Operating Agreement, CR524-571

F. Federal Right-of-Way, CR166-305

G. Alaska Right-of-Way, CR307-442

H. Trial court order striking evidence, SCR4:2529-2538

I. Remaining Owners’ Motion for Partial Summary Judgment Regarding

DR&R, CR39-58

J. Unocal’s Cross-Motion for Partial Summary Judgment Regarding DR&R,

SCR3:1074-1109

K. Remaining Owners’ Summary Judgment Reply Regarding DR&R, CR464-

522

L. Unocal Motion for Partial Summary Judgment Regarding “Shall Pay

Claim,” SCR4:2539-2549

M. Remaining Owners’ Motion to Dismiss the “Shall Pay Claim,” SCR3:2665-

2674

N. Remaining Owners’ Opposition to Unocal’s Motion for Partial Summary

Judgment on the “Shall Pay Claim,” SCR6:3645-3650

O. Final Environmental Impact Statement for Renewal of the Federal Grant of

the Trans-Alaska Pipeline System Right-of-Way, SCR3:1477-1480

P. Trial court order severing and consolidating into one action the DR&R

claims and Unocal’s “Shall Pay Claim,” CR622-627

Q. Mobil 1999 Sales Solicitation, SCR3:1482-1488

R. 1980 proposed amendment, SCR3:1519-1521

S. Sept. 10, 1980 Exxon letter regarding proposed amendment, SCR3:1523-

1525

T. Dec. 19, 1980 Exxon letter regarding proposed amendment, SCR3:1527-

1528

U. In re Mobil Alaska Pipeline Co., Dkt. No. P-00-8, Order No. 1 (RCA June

20, 2000), SCR3:1769-1776

V. BP Pipelines (Alaska) Inc., et al., 134 FERC ¶63020 (March 10, 2011),

SCR3:1798-1804

W. Internal Revenue Service Closing Agreement, SCR3:1718-1733

X. Trial court order denying motion to compel arbitration, SCR3:1060

Y. Remaining Owners’ First Amended Counterclaim, SCR5:2689-2709

Z. 2010 Alyeska DR&R estimate, SCR5:2947-2953

AA. 2003 Fluor Daniel DR&R estimate, SCR6:3280, 3285, 3397, 3424, 3426,

and 3427

APP. A

Final judgment of the trial court

(CR629-630)

2/26/2015 3:54:02 PM

Chris Daniel District Clerk

Harris County

Envelope No: 4302740

By: CHEVALIER, BEVERLY

Filed: 2/26/2015 3:54:02 PM

CAUSE NO. 2013-06244ÿ

UNOCAL PIPELINE COMPANY, §

Plaintiff, § IN THE DISTRICT COURT OF

v. §

§ HARRIS COUNTY, TEXAS

BP PIPELINES (ALASKA) INC., § 165th JUDICIAL DISTRICT

CONOCOPHILLIPS TRANSPORTATION §

ALASKA, INC., and §

EXXONMOBIL PIPELINE CO., §

Defendants. §

PROPOSED FINAL JUDGMENT

For the reasons set forth in this Court’s May 14, 2014, Order, this Court hereby

ADJUDGES, DECLARES, AND DECREES as follows:

I. The Trans-Alaska Pipeline System (“TAPS") Agreement does not transfer

Plaintiff Unocal Pipeline Company’s dismantlement, removal or restoration (“DR&R”)

obligations (as described in the Right of Way Leases for TAPS with the United States of

America and the State of Alaska) to the Defendants BP Pipelines (Alaska) Inc., ConocoPhillips

Transportation Alaska, Inc., or ExxonMobil Pipeline Co. when Plaintiff Unocal Pipeline

Company discontinues operations.

2. Plaintiff Unocal Pipeline Company’s claim seeking a declaratory judgment that

,![t]he Remaining Owners are required to assume unconditionally the obligations to perform or

pay for the Dismantlement, Removal, or Restoration of TAPS arising from the undivided interest

in TAPS the Remaining Owners are acquiring from withdrawing Owner, [Unocal Pipeline

Company]’' is DENIED and DISMISSED WITH PREJUDICE.

RECORDER S MEMORANDUM

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at the time of imaging

629

3. For the reasons set forth in this Court's November 10, 2014, Order, Plaintiff

Unocal Pipeline Company’s claim for declaratory relief that “[t]he Trans-Alaska Pipeline System

Agreement entitles the Departing Owners to receive their proportion of Net Salvage Value if it is

determined to be positive, but does not obligate them to pay any portion of Net Salvage Value to

the Remaining Owners if it is determined to be negative” is DISMISSED WITHOUT

PREJUDICE.

4. All relief not expressly granted herein is DENIED. This judgment is final,

disposes of all parties’ claims in this cause number, and is immediately appealable. Costs are

taxed against the party incurring same.

SIGNED this the 47 day of

JUDGE PRESIDING

630

APP. B

Trial court order regarding DR&R

(SCR4:2415-2417)

Cause No. 2013-06244

UNOCAL PIPELINE COMPANY, § IN THE DISTRICT CO

Plaintiff, §

v. §

§ HARRIS COUNTY, TEXAi

BP PIPELINES (ALASKA) INC., § .:<

CONOCOPHILLIPS TRANSPORTATION,§

ALASKA, INC., AND §

EXXONMOBIL PIPELINE CO., §

Defendants. § 165TH DISTRICT COURT

ORDER GRANTING DEFENDANTS' FIRST AMENDED

MOTION FOR PARTIAL SUMMARY JUDGMENT CONCERNING DR&R OBLIGATIONS and

ORDER DENYING PLAINTIFF'S CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT

The Court considered the First Amended Motion for Partial Summary Judgment ofBP Pipelines

(Alaska) Inc., ConocoPhillips Transportation Alaska, Inc., and ExxonMobil Pipeline Company

(collectively, "Defendants" or "Remaining Owners") and the Cross-Motion for Partial Summary

Judgment ofUnocal Pipeline Company ("UPC"), the materials contained therein, all papers filed in

response thereto, all evidence admitted in connection therewith, all pleadings on file, and the oral

arguments of counsel. After considering the law in connection with all of the above, the Court finds that

Defendants' First Amended Motion for Partial Summary Judgment should be granted and UPC's Cross-

Motion for Partial Summary Judgment should be denied.

In 1970, a group of major oil companies entered into agreement(s) to construct and maintain the

Trans-Alaska Pipeline System ("TAPS"). In 1974, the parties entered into lease agreements with the

State of Alaska, the United States and private individuals to secure easements and rights ofway to build

the pipeline and its accompanying roads and facilities.

, MEMORANDUM

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at the ume ollmagmg

2415

Today, UPC wants to discontinue operations and revert its interest in the pipeline to the

Remaining Owners. The question before the Court is, when the pipeline ceases operations, at some

unknown time in the future, who will have the financial burden to pay to dismantle and remove the

pipeline and restore the rights-of-way ("DR&R obligations), an amount which may cost millions of

dollars. In order for UPC to receive a release from the United States and Alaska for its proportionate

share of the DR&R obligations, UPC seeks a ruling from this Court that, when it ceases operations and

reverts its ownership back to the Remaining Owners, it also transfers its DR&R obligations. The

Remaining Owners argue that, under the terms of the TAPS Agreement, only UPC's ownership and

obligations transfer to the Remaining Owners and not its DR&R obligations. By its ruling here, this court

holds that the TAPS Agreement does not transfer the DR&R obligations from UPC to the Remaining

Owners when UPC discontinues operations.

The DR&R obligations do not transfer .from UPC to the Remaining Owners because the TAPS

Agreement does not transfer the DR&R obligations when a party discontinues its operations. The parties

primarily argue over the application of §§7.8 and 8.2(e) of the contract. 1 Section 8.2(e) requires the

Remaining Owners to "assume the obligations accruing under this Agreement" when UPC discontinues

its operations. Section 8.2(e) does not contain the additional express language of Section 7.8 that "all

commitments made pursuant hereto" also transfer. Since Section 8.2(e) fails to include provisions

expressly incorporating the Right-of-Way leases that give rise to the DR&R obligations, the DR&R

obligations do not transfer to the Remaining Owners when UPC discontinues operations.

The parties also refer to Section 8.3 but that is inapplicable here because 8.3 contemplates complete

termination of the entire project and how salvage, sale, or cleanup would occur under those inapplicable

circumstances.

2416

It is therefore ORDERED that Defendants' First Amended Motion for Partial Summary

Judgment is GRANTED.

It is further ORDERED that PlaintiffUPC's Cross-Motion for Partial Summary

Judgment that the Remaining Owners must Assume UPC's DR&R Obligations is DENIED.

SIGNED on this

2417

APP. C

Trial court order regarding “Shall Pay Claim”

(SCR6:3687-3688)

2013-06244A / Court: 165

CAUSE NO 2013-06244

UNOCAL PIPELINE COMPANY ( IN THE DISTRICT COURT

(

Plaintiff, (

(

v (

( HARRIS COUNTY, TEXAS

BP PIPELINES (ALASKA) INC., (

CONOCOPHILLIPS TRANSPORTATION (

ALASKA, INC., AND EXXONMOBIL (

PIPELINE CO., c

(

Defendants. ( 165th JUDICIAL COURT

ORDER ON PLAINTIFFS MOTION FOR PARTIAL SUMMARY IUDGMENT

(on Plaintiff s Motion for Declaratory ludgment - Net Salvage Valuel and

DEFENDANTS' MOTION TO DISMISS PLAINTIFFS MOTION FOR PARTIAL

SUMMARY IUDGMENT fLack of jurisdiction)

On September 24, 2014, the Parties argued the Plaintiffs Motion for Partial

Summary Judgment relating to Net Salvage Value. The Defendants argue that

because the issue is not ripe, the Court does not have jurisdiction to consider it. The

basis for the jurisdictional challenge is not complicated.

This case involves the contractual obligations surrounding a joint venture

entered into by 5 major oil companies to build and operate the Alaska pipeline 1

The fundamental issue in this case is whether the Plaintiff remains contractually

obligated to pay its proportionate share of the DR&R costs2 after it withdraws from

the joint venture Through a myriad of motions and machinations, the parties

continue to litigate that premier issue, and it is this issue that drives the entire case.

The parties have estimated that the DR&R costs will be in the billions of dollars, if

and when they are required to pay.

"Net Salvage Value" may or may not include DR&R costs. This cannot be

;2T

known until the Arbitration Panel is convened and can consider whether to includJ&5ÿ 'cJH o hs i

Trans Alaska Pipeline System Agreement , executed in 1970 ("TAPS Agreement'ÿ

•3 lajZ

and the Amended and Restated Agreement for the Operation and Maintenance oÿ

the Alaska Pipeline System, updated December 1977 ("OA")

§ fx

2 DR&R is, in essence, the costs associated with the dismantling of the pipeline

3687

DR&R costs. Meanwhile, this Court entered an order on May 14, 2014, currently on

appeal, which held that the Plaintiff was not relieved of its DR&R obligations by

initiating the withdrawal process provided for in Section 8.2 of the TAPS Agreement.

Plaintiff argues that it might be subject to double penalty in the event the

Court of Appeals upholds this Court's ruling from May 14, 2014 AND the Arbitration

Panel includes DR&R costs in its calculations.

Defendants respond (in open court and on the record) that, if the Court of

Appeals upholds this Court's May ruling, it will not seek DR&R costs in the

arbitration hearing.

The issue is not ripe for determination by this Court, and, for this reason, the

Plaintiffs Motion for Summary Judgment on the issue of Net Salvage Value must be

denied. It is, therefore,

ORDERED, ADJUDGED and DECREED that the Plaintiffs Motion for Partial

Summary Judgment on the issue of Net Salvage Value is DENIED and it is further

ORDERED, ADJUDGED and DECREED that the Defendants' Motion to Dismiss the

Plaintiffs Motion for Partial Summary Judgment on the issue of Net Salvage Value is

GRANTED.

SIGNED the /&_ day of bof 2014.

JUDGÿffiysABETH RAY

sss? at the time ot

imaging

3688

APP. D

TAPS Agreement

(CR60-164)

Page 1 of 1 05

TRANS ALASKA PIPELINE SYSTEM AGREEMENT

BT AND AMONG

ATLANTIC PIPE LINE COMPANY

BP PIPE LINE CORPORATION

HUMBLE PIPE LINE COMPANY

AMERADA HESS CORPORATION

HOME PIPE LINE COMPANY

MOBIL PIPE LINE COMPANY

PHILLIPS PETROLEUM COMPANY

AND

UNION OIL COMPANY OF CALIFORNIA

Page 2 of 1 05

TRANS ALASKA PIPELINE SYSTEM AGREEMENT

TABLE OF CONTENTS

Pjj.

Index of Definitions vi

Parties 1

ARTICLE I

DESCRIPTION OF PIPELINE SYSTEM

SECTION

1.1 Description 1

1.2 Design Capacity 1

ARTICLE II

DESIGN AND CONSTRUCTION

SECTION

2.1 Design and Construction Contract . I

2.2 Construction Committee 2

(a) Members and Alternates 2

(b) Meetings o

...

( d) Committee Secretary 2

(e) Certificates ......

. 3

(f) Other expenses .... . 3

2.3 Powers and Functions of the Construction Committee 3

2.4 Effect of Construction Committee Action on Parties 3

ARTICLE III

OWNERSHIP OP TAPS

SECTION

3.1 Ownership of TAPS 3

3.2 Ownership of Terminal Tankage 4

3.3 Payment of Costs of Initial Design Capacity and Terminal Tankage 5

3.4 Record Title 5

3.3 Form of Conveyance 6

ARTICLE IV

OPERATION AS INDIVIDUAL COMPANIES

SECTION

4.1 Individual Common Carriers 6

4.2 Tariffs 6

4.3 Other Plans of Operation 6

Page 3 of 1 05

ARTICLE V

OPERATION AND MAINTENANCE

SECTION

S.I Operating Agreement S

5.2 Power* Reserved to the Parties 0

5.3 Selection of a Successor Operator 6

ARTICLE VI

EXPANSION

SECTION

6.1 Total Expansion Capacity . 7

(a) Total Expansion Capacity 7

(b) Determination of Expansion Stages 7

6.2 Expansion Rights of the Parties 7

(a) According to Percentage of Ownership 7

(b) Revision of Table II S

(d) Initiation of Expansions S

0J Commencement of Construction of an Expansion 9

(a) Proposal of an Expansion 9

(b) Insufficient Participation

—Apportionment

—

Withdrawal of

—

Proposal 9

( c) Insufficient Expansion Capacity Apportionment 9

(d) Reinstatement of Withdrawn Proposal 9

(a) Elimination of Excess Capacity 9

(f) Construction of Expansion 10

(g) Adjustment of Percentages of Ownership 10

0.4 Distribution of Costs in Expansion 10

(a) Initial Payment of Cost of New Facilities 10

(b) Redistribution of Expansion and Pre-Expansion Costs 10

(d) Payment 11

0.5 Review and Adjustment 11

(a) Review and Adjustment 11

(b) Protection of Design Capacity 12

0.0 Expansion Prior to Date of Commissioning 12

(a) Election by Certain Parties 12

(b) Settlement 12

Page 4 of 1 05

?ss*

(d) Payment of Costs 13

(e) Exercise of Completion Option 13

(f) Review of Capacity 13

(g) Second Expansion 14

6.7 Additional Terminal Tankage 15

(a) Upon Expansion 15

(b) At Election of Parties 15

(d) Terminal Tankage Costs 15

(e) Options Not Applicable 15

ARTICLE VII

TRANSFER OF INTERESTS IN TAPS

SECTION

7.1 Definitions 15

(a) Affiliate 16

(b) Enabling Agreement 16

(d) Equity Security 16

(e) New Corporation 16

(f) Owner 16

(g) Shareholder 16

(h) Throughput Agreement 16

12 Preferential Right to Purchase 16

(a) Transfer of a Direct Interest in TAPS 16

(b) Indirect Transfers of an Interest in TAPS 17

12 Transfers not Subject to a Preferential Right to Purchase 17

(a) Merger. Consolidation or Reorganization 17

(b) Sale of Assets 17

(i) Undivided Interest in TAPS 17

(ii) Equity Securities 17

(d) Formation of a New Corporation 17

(i) New Corporation as OWNER 17

(ii) New Corporation owns Equity Securities of OWNERS 18

(e) Dissolution or Liquidation of a New Corporation 18

(i) New Corporation is OWNER 18

(ii) New Corporation Holds Equity Securities of OWNERS 18

(f) Partial Distributions by New Corporation 18

(i) New Corporation is OWNER 18

(ii) New Corporation Holds Equity Securities of OWNERS . 18

(g) Increase or Reduction in the Outstanding Equity Securities of a

New Corporation 18

iii

Page 5 of 1 05

SECTION

7.4 Expansions and Exercise of Preferential Rights by New Corporations 18

7.5 Required Terms for Sale of any Equity Security 19

7.6 Transfer Procedure Upon Exercise of Preferential Right Upon Sale of

Equity Securities 19

7.7 Terms for Financing Arrangements 20

7.8 Successors and Assigns 20

ARTICLE VIII

TERM OF AGREEMENT

SECTION

8.1 Initial Term 21

S.2 Discontinuance of Operations by One or More Parties 21

(a) Definitions and General Provisions 21

(i) Term Notice 21

(i!) Positive Term Notice 21

(lii) Negative Term Notice 21

(b) Notices of Parties' Desires 21

(i) First Term Notice 21

(ii) Second Term Notice 21

—

(d) Rights of Parties Determination of Salvage Value

(e) Conveyance to Parties Desiring to Continue Operations

(f) Sale in Lieu of Acceptance of Net Salvage Value 22

8.3 Disposition of Properties Upon Termination of Agreement 23

ARTICLE IX

FDERAL INCOME TAX ELECTION

SECTION

9.1 Election to be Excluded from Partnership Regulations 23

ARTICLE X

PAYMENT or COSTS AND EXPENSES

SECTION

10.1 Payment of Costs and Expenses 24

ARTICLE XI

ARBITRATION

SECTION

11.1 Arbitration Procedure 24

Page 6 of 1 05

ARTICLE XII

TECHNICAL INFORMATION, INVENTIONS AND PATENTS

PM.

SECTION

12.1 Technical Information 25

LL2 Patent Infringement 25

12.3 Inventions by Third Parties 25

12.4 Inventions by Parties 26

12JS Party Employees 28

12.6 Loaned Employees 26

12.7 Own Operations 27

12.8 Term 27

12.9 Associated Companies 27

ARTICLE XIII

MINERAL DISCOVERIES

SECTION

13.1 Mineral Discoveries 27

ARTICLE XIV

GENERAL PROVISIONS

SECTION

14.1 Notices 28

142 Laws and Regulations 28

14.3 Warranties 28

14.4 Law Governing 29

145 Entirety of Agreement 29

14.6 Captions or Headings .v»V 29

14.7 Effect of Prior Agreements 29

14.8 Establishment of Date of Commissioning 29

14.9 Counterparts 29

Exhibit A

Map

Exhibit B

Construction Committee

Exhibit C

Enabling Agreement

Page 7 of 1 05

INDEX OF DEFINITIONS

TAPS Agreement

Terra P )

Agreement 1

Date of this Agreement 1

Atlantic I

BP 1

Humble 1

Amerada Hess 1

Home 1

Mobil 1

Pt.<ll.p« 1

Union 1

Party and Parties I

Owner and Owners 1

TAPS or System 1

Initial Design Capacity 1

Contract I

Contractor 1

—

Construction Committee . 2

Member 2

Alternate 2

Committee Secretary 2

Construction Project Budget .3

Budget Amendment . 3

Percentages of Ownership 3

Operator e

Operating Agreement 6

Alyeska 6

Total Expansion Capacity 7

Expansions 7

First Expansion 7

First Expansion Capacity 7

Second Expansion 7

Second Expansion Capacity 7

Initial Percentage 8

Remaining Expansion Capacity 8

Excess Capacity 8

Excess Party 9

vi !

Page 8 of 1 05

TAPS Agreement

Term P»W

Purchasing Party 9

Date of Completion . 10

Cost of all pre-expansion facilities 11

Post Expansion Percentage 12

Inareasing Party 12

Allocation Factor 12

Allocation Ratio 12

Settlement 12

Reducing Party 12

Completion Option 12

Option Party 12

Final Option 14

Final Option Capacity 14

Affiliate 16

Subsidiary 16

Parent Corporation 16

Enabling Agreement 16

Enabling Party 16

Equity Security 16

New Corporation 16

OWNER 16

Shareholder 16

Throughput Agreement 16

Merging Party 17

Selling Party 17

Agreement Term 21

Term Notice 21

Positive Term Notice 21

Negative Term Notice 21

Net Salvage Value 22

Saleable Value . 23

Technical Information 25

Party Employee . 26

Loaned Employee 28

Project Improvement 26

Own Operations 27

Associated Companies 27

Date of Commissioning 29

vii

Page 9 of 1 05

TRANS ALASKA PIPELINE SYSTEM AGREEMENT

THIS AGREEMENT (the “Agreement-), entered into as of August 27, 1970 (the “Date of this

Agreement-) by and among ATLANTIC PIPE LINT COMPANY, a Pennsylvania corporation ( "ATLANTIC- ) ,

BP PIPE LINE CORPORATION, a Delaware corporation ("BP”), HUMBLE PIPE LIKE COMPACT, a Delaware

corporation ("Humble"). AMERADA HESS CORPORATION, a Delaware corporation (“Amerada Hess”),

HOME PIPE LINE COMPANY, a Delaware corporation (“Home"). Moan. PIPE LINE COMPANY, a Delaware

corporation (“Mobil"), PHILLIPS PETROLEUM COMPANY, a Delaware corporation (“Phillips"), and

UNION OIL COMPANY or CALIFORNIA, a California corporation ("Union"), (herein sometimes individ¬

ually called Tarty" or "Owner” and collectively called Tarties” or “Owners’);

WIYNESSEYH :

WHEREAS, the respective Parties to this Agreement have previously agreed to design and construct

an undivided interest forty-eight Inch diameter petroleum pipeline system from a point In the Prudboe

Bay area of the North Slope m the State of Alaska to a point in or near Valdez, Alaska, including

suitable pump stations, mnlragg terminals, docks, communications facilities and other facilities; and

WHEREAS, the Parties to this Agreement desire to revise and amend in their entirety their existing

agreements for the construction, ownership and operation of said petroleum pipeline system,

THEREFORE, in consideration of the mutual covenants herein contained, the Parties agree to the

following provisions for the construction, ownership and operation of said petroleum pipeline system;

.ARTICLE I

DESOUTTTON or PTYELIN* STTTEM

1.1 Description. The pipeline system, which will be known for purposes of Identification as die

Trans Alaska Pipeline System (hereinafter referred to as "TAPS" or "System"), shall consist of a

forty-eight (48) inch diameter petroleum pipeline extending from a point in the Prudboe Bay area of

the North Slope of the State of Alaska to a point in or near the City of Valdez in the State of Alaska,

together with suitable pump stations, tankage, terminals, docks, communications facilities and other

facilities as generally shown on Exhibit A attached hereto and made a part of this Agreement.

1.2 Design Capacity. The initial design capacity of the pipeline and pump stations will be

. approximately Six Hundred Thousand (600,000) barrels per day. Tankage, terminals, docks, com¬

_• munications facilities and other facilities will be designed so that the over-all initial design capacity

of the System will be approximately Six Hundred Thousand ( 600,000) barrels per day ("Initial Design

Capacity”). TAPS will be designed to permit expansion of capacity to approximately Two Million

(2.000.000) barrels per day.

ARTICLE n

DESICN AND CONSTRUCTION

2.1 Design and Construction Contract By the execution and delivery of this Agreement, each

Party hereby confirms that h has simultaneously executed and delivered the Agreement for the Design

and Construction of the Trans Alaska Pipeline System (“Contract"), dated as of August 27, 1970, by

and between the Parties hereto and ALYESEA PIPELINE SERVICE COMPANY, a Delaware corporation

("Contractor"). Pursuant to the terms of the Contract, the Parties appoint and authorize Contractor,

I as agent for the Parties, to engineer, design and construct the System (including all related facilities).

1 Contractor, on behalf of the parties hereto, shall be responsible for the diligent and exp'iditious per¬

formance of this work, shall select all subcontractors to be employed to perform engineering, design,

Page 10 of 105

construction and other related ecrvioc* ud shall supervise (heir activities to the end that all such work

is performed in the best and soundest way, all as further provided in the Contract

2-2 Construction Committee. The Parties recognize that it is necessary and desirable to establish

)

a committee for the efficient administration of the Contract on behalf of the Parties and to exercise

certain of the functions reserved to the Parties thereunder. A committee to be knows as the construc¬

tion committee ('Construction Committee*) is hereby established for these purposes.

( a) Member* and Alternate*. Each Party shall designate one representative as it* member

("Member*) on the Construction Committee and shall designate one representative as the Mem¬

ber's alternate ("Alternate*) who shall represent the Party on the Construction Committee only in

the absence of the Member Each Party whose Percentage of Ownership (as defined in Section

3.1) appearing in Column (2) on Table I in Section 3.1 is at least Twenty-Five percent (23%)

may designate one additional representative as a second Member and one additional representa¬

tive as his Alternate. Exhibit B attached hereto contains the name, address and telephone number

of each Party's M«mber(s) and Alternate* s ) on the Construction Committee. Each Party reserves

the right from HIM to time to change its Member*s ) or Alternate* s) and their respective addresses

and telephone numbers by giving written notice of any such change to the secretary of the Con¬

struction Committee {“Committee Secretary”).

(b) Meeting*. The Construction Committee may bold monthly meetings at which the Con¬

tractor shall present progress reports on the project and such other meetings as may be requested

by any Member or by the Contractor. All such requests shall be made in writing, or by telephooe

confirmed in writing, to the Committee Secretary and shall state the matters to be considered at

such meeting. The Committee Secretary shill notify each Member at least three (3) days in

advance of any meeting of the date, time, place and purpose of the meeting. If such notice is

given by telephone, it shall be confirmed in writing, by telegram, cable or letter to the Member

so notified. Failure to give such notice shall not nullify any action taken at any meeting if each

Party not re protected at such meeting by its Member* s) or Alternate**) shall waive such notice

in writing signed by said Party's Member(s) or Alternate(s), either before or after the meeting.

The Construction Committee shall establish rules and procedures for the conduct of meetings.

including but not limited to the selection of a chairman and the attendance of advisors; provided

—

that such rules and procedures shall not contradict any provisions of Sections 2-2 and 2.3.

( c ) Action Without Meeting, ft is recognized that matters requiring the immediate decision

of the Construction Committee may arise from time to time. Any Member or the Contractor may

propose that any matter upon which the Construction Committee is authorized to act be decided

pursuant to the informal procedure established hereunder by giving notice to the Committee

Secretary, which notice may be given in writing, by letter, telegram or cable, or by telephone,

confirmed in writing. The Committee Secretary shall immediately notify each Member by tele¬

phone of the matter to be decided and shall confirm surh notice by telegram. 1/ the Committee

Secretary is unable to contact a Member by telephone, he shall immediately notify that Members

Alternate, which notice shall be confirmed in writing to both the Member and his Alternate.

Each Member or Alternate, os the case may be, shall notify the Committee Secretary in writing.

by letter, telegram or cable, or by telephooe confirmed in writing of his approval or disapproval

of the matter for decision. As soon as the Committee Secretary shall ascertain that a matter has

been approved or disapproved, he shall notify all Members of the result, which notification, if

made by telephone, shall be confirmed in writing to each Member

(d) Committee Secretory. The Construction Committee shall appoint a Committee Secre¬

tary and an Assistant Committee Secretary. In addition to the functions assigned to the Com¬

mittee Secretary in subdivisions (b) and (e) of this Section 2.2, he shall prepare and retain

custody of the original record book which will contain the minutes of all meetings, notices.

written confirmations, certificates, and, as the Construction Committee shall direct, all other

Page II of 105

document* and communications relating to the Construction Committee. Duplicate copies of all

materials in the record book shall be promptly mailed by the Committee Secretary to each

Member. The record book shall be kept available for inspection by duly authorized representatives

of the Parties hereto at all times and, upon termination of the Construction Committee, shall bo

delivered to one of the Parties for safekeeping under such terms as the Construction Committee

shall approve. All expenses incurred in connection with the performance of the duties of the

Committee Secretary shall be borne by the Parties in proportion to their Percentages of Ownership

in TAPS then appearing in Column (2) of Table 1 in Section 3.1 under such arrangements as the

Construction Committee «hall approve. The Committee Secretary shall serve at the pleasure of

the Construction Committee. The Assistant Committee Secretary shall perform the duties of the

Committee Secretary in the event of the absence of the Committee Secretary.

(e) Certificatei. The Committee Secretary may issue certificates with respect to actions of

the Construction Committee. The Contractor and other third parties shall be entitled to rely on

such certificates if they are countersigned by any Member or Alternate (other than the Membcr(s)

or Alternateÿ}, if any, representing the Party employing the Committee Secretary).

(f) Other Expense*. Except as provided in Subdivision (d) of this Section 2.2. each Party,

shall pay all expenses incurred by it relating to its representation on the Construction Committee.

2.3 Powers and Functions of the Construction Committee. The Construction Committee is

hereby authorized to exercise only the powers and functions specified as foDows:

(a) The approval of any 'Construction Project Budget’ or "Budget Amendment" prepared

and submitted by the Contractor pursuant to the Contract

(b) All other matters which the Contractor is expressly required or permitted to submit to

the Parties for decision or approval under the Contract.

and VI of this Agreement.

All matters properly presented to the Construction Committee for determination shall be approved

upon the affirmative vote of Member(s) or Alternated s), as the case may be, representing Three (3)

or more Parties having Percentages of Ownership in TAPS then appearing in Column (2) of Table I

of Section 3.1 which aggregate at least Sixty-six and Two-thirds percent (66% Tc) cl the total owner¬

ship interest in TAPS,

2.4 Effect of Construction Committee Action on Parties. Any and all decisions which die Con¬

struction Committee is authorized to moke under Section 2.3 shall be conclusively binding on all

Parties to this Agreement and shall have the same effect as a separate agreement on the matter by and

among the Parties hereto.

.ARTICLE m

OwxrasHip or TAPS

3.1 Ownership of TAPS. TAPS (including but not limited to all fee titles, easements, leases.

permits, nghts-of-way and other interests in land) shall be owned by the Parties hereto with each Party's

undivided interest in TAPS, except as provided in Section 3.2 with respect to terminal tankage, being

equal to its percentage of ownership ('Percentage of Ownership") in TAPS as set forth in Column (2) *

of Table I below, as such Percentage of Ownership may be amended from time to time as hereinafter

provided. The initial Percentage of Ownership of each Party in TAPS and the estimated initial daily

barecl design capacity of each Party in TAPS are set forth opposite such Party's name in Columns

(2) and (3), respectively, of Table I below, with such percentages and capacities both being those

which are applicable before an)’ expansion of TAPS capacity has been made pursuant to Article VT

of this Agreement.

Page 1 2 of 1 05

TABLE I

(») (3)

PMMiH

(1) af \

p“«r Ownmbp iBMa/Pay)

Atlantic 2730% 195.000

BP 27,50 195,000

Humble 25.00 150,000

.Amerada Hess 3.00 18,000

Home 2.00 12,000

Mobil 8.50 51,000

Phillips 3.25 19,500

Union 325 19,500

Totals 100.00% 900,000

Within nine (9) months after the Date of Commissioning of TAPS, the estimated capacities set

faith in Column (3) of Table I above will be reviewed by the Construction Committee and adjusted

to reflect changes in design capacities which are required based on line length, elevations, pipe, pump¬

ing equipment, and station spacing of TAPS as installed; and if there are any such changes, a formal

amendment to the Agreement shall be prepared and circulated to the Parties by the Construction Com¬

mittee, and the Parties will execute such formal amendment revising Column ( 3 ) above so as to credit

to each Party its percentage, as then set forth in Column (2) above, of the revised design capacity

of TAPS. It is further contemplated that Columns (1), (2). and/or (3) of Table I above will be

revised to reflect changes resulting from any Expansion of TAPS pursuant to Article VI hereof, or

changes of ownership in TAPS resulting from transfers made in accordance with Article VTI hereof.

Any reference in this Agreement to said Columns (1), (2) and/or (3) above shall, unless the context

clearly requires a different meaning, constitute a reference to the latest revision of such Columns as

of the time when the Agreement is to be applied. .Any reference in this Agreement to the Tercentage(i)

of Ownership in TAPS" shall unless the context clearly requires a different meaning, mean such

percentage/ 1 ) ax determined in accordance with what is then the latest revision of Columns (1)

and (2) above.

32 Ownership of Terminal Tankage. Terminal tankage ( including tanks, tank farm piping, and

tank farm land ) shall be owned by the Parties hereto with each Party’s undivided interest in terminal

tankage being equal to its undivided interest percentage as set forth in Column (2) of Table LA below,

as such undivided interest percentage may be changed from time to time as hereinafter provided.

The total terminal tankage to be constructed as a part of the Initial Design Capacity shall be not leu

than Six Million (6,000.000) barrels capacity. The initial undivided interest percentage of each Party

in terminal tankage and the initial tankage capacity of each Party are set forth opposite such Party's

name in Columns (2) and (3), respectively, of Table LA below, with such percentages and capacities

both being those which arc applicable before any increase in tankage capacity has been made pursuant

to this Section 3.2 or pursuant to Article VI.

TABLE IA

(SI (3)

UmlWded Taoka«a

Party

C*pa«ity

(Bbb.)

Atlantic 27.50% 1650,000

BP 2750 1,650,000

Humble 25.00 1,500,000

.Amerada Haas 100 180,000

Home 2.00 120,000

Mobil 8.50 510,000

Phillips . 325 195,000

Union 325 195,000

Totals 100.00% 6,000,000

;

Page 13 of 105

Within six (6) months after the date on which the Contractor notifies the Parties the con¬

struction of TAPS has commenced, each Party, if any, desiring additaonoi tankage capacity to be

constructed as pan of the Initial Design Capacity shall specify by notice to each other Party the

terminal tankage capacity in addition to its capacity then set forth in Column (3) of Table LA which

It desires to have constructed. IS aggregate additional capacity u nominated equal to not less than

One-Half (Vi) the capacity of a Five Hundred Ten Thousand (510.000) barrel capacity tunic, addi¬

tional terminal tankage capacity shall be contmicted at a port of the initial Design Capacity at least

equal to such aggregate additional capacity, to the nearest whole Five Hundred Ten Thousand

(510,000) barret capacity tank, of additional terminal tankage capacity specified by all Parties noeni-

natiag additional capacity. If pursuant to the foregoing more or less additional terminal tankage

capacity Is to be constructed than the capacity nominated in the aggregate by all of the Parties

desiring additional tankage capacity, the additional terminal tankage capacity to be constructed shall

be allocated among such Parties in the proportion that each such Party's additional tankage capacity

nomination bears to the total additional tankage capacity nomination of »U such Parties or u such

Parties may otherwise agree. In the event of any change in tankage capacity to be constructed as a

part of the Initial Design Capacity, the Construction Committee shall cause to be prepared and circu¬

lated to the Parties hereto, and the Parties hereto shall execute a formal amendment to this Agreement

revising Columns (2) and (3) of Table I A of this Section 32 crediting to each Party its revised undi¬

vided interest percentage and revised tankage capacity. Columns (1), (2) and/or (3) of Tabic 1A in

this Section 3.2 will also be revised to reflect changes resulting from any Expansion of TAPS or the

construction of additional tankage capacity for any Party pursuant to Article VI hereof, or changes ©f

ownership in TAPS. No Party shall be entitled at any time, without the consent in writing of all other

Parties, to have tankage capacity constructed which would result in its ownership of tankage capacity

in excess of the aggregate of fifteen ( 15) days storage capacity for its daily System throughput capacity

then constructed or under construction plus the capacity of One ( 1 ) Five Hundred Ten Thoutimd

(510,000) barrel capacity tank.

3.3 Payment of Costs of Initial Delian Capacity and Terminal Tankage. The total cost of the

Zmtial Design Capacity, except terminal tankage, shall be initially paid by the Parties in accordance

with their respective Percentages of Ownership in TAP5 appearing in Column (2) of Table 1 in

Section 3.1 The total cost of terminal tankage constructed as a part of the Initial Design Capacity

shall be initially paid by the Parties in accordance with their respective undivided interest percentages

in terminal tankage appearing in Column (2) of Table LA in Section 3.2.

3.4 Record Title. All land rights, including but not limited to fee titles, easements, leases.

permits, rights-of-way and other Interests In land, required for the design, construction, operation and

maintenance of TAPS shall be conveyed to or acquired for the Parties (in all of their names or in the

name of one Party as trustee for the benefit of all Parties). All instruments and conveyances evidencing

such land rights or the trust instruments relating thereto shall indicate each Party's respective interest

therein which interest will be the Party's Percentage of Ownership as it appears in Column (2) of

Tabic I in Section 3.1 or its undivided interest percentage in terminal tankage as it appears in Column

(2) of Table LA of Section 3.2. as the case mav be. at the time the land right b acquired or conveyed

to the Parties. When required or permitted under applicable law. such instruments and conveyances

shall be recorded, filed or otherwise made a matter of public record as so required or permitted. The

Parties will cooperate to enable each Party to receive such instruments and conveyances is may be

necessary to evidence such Party's legal title to or beneficial interest in TAPS ( including all land rights

therein) ns reflected by its Percentage of Ownership as It appears in Column (2) of Table I in Section

3.1, or its then undivided interest percentage in terminal tankage os its appears In Column (2) of Table

IA of Section 3.2, as the case may be, as amended from time to time pursuant to this Agreement

Whenever a Party's Percentage of Ownership or its undivided interest percentage in terminal tankage is

reduced by reason of an adiustment as provided in Article VT hereof or by agreement of the Parties

hereto so that such Party holds apparent legal title to or a beneficial interest in a greater Percentage of

Page 1 4 ofl 05

Ownenhip in TAPS or greater undivided interest percentage in terminal tankage than is then owned

by such Party (except where such Party holds legal tide as trustee for the benefit of the Parties hereto),

such Party shall convey tide to portion of its legal or beneficial ownenhip in TAPS ( including all

land rights included therein) which exceeds the Percentage of Ownenhip or undivided interest percent¬

age in terminal tankage it is then entitled to own to one or more Parties who by reason of an Expansion

then own greater Percentages of Ownenbip or greater undivided interests in terminal tankage than that

evidenced by their apparent legal title or beneficial interest.

3*5 Farm of Convey Each Party executing a conveyance as grantor of any interest in TAPS

(including an undivided interest in terminal tankage) shall warrant title to the interest conveyed

against rUiim by, through or under the grantor, but no further. Each such conveyance shall recite

that the interests conveyed thereby are subject to the terms of this Agreement

ABTICLE IV

OrauTioM AS iNorvmuAi. COMTANIXS

4L Individual Common Carriers. From and after the Date of Commissioning of TAPS, each

Pasty, its successors and assigns, shall utilize its undivided interest in TAPS solely as an individual

common carrier facility.

42 Tends. Each Party shall separately publish and file tariffs in its own name in accordance

with any applicable state and federal laws and regulations covering its share of the capacity In TAPS

and shall collect for Its own account all revenues payable by shippers under such tariffs. The Operator

( as defined in Section 5.1) shall not be a sect for any Party in connection with acceptance from shippers

of tenders for shipment of petroleum, it being understood that each Pasty, as to its capacity in TAPS.

is the carrier.

43. Other Hans of Operation. Nothing in Sections 41 or 42 shall be deemed to prohibit any

plan of operation approved by any governmental authority having jurisdiction in accordance with any

valid and applicable order, rule, regulation and/or law.

ABTICLE V

OrnuTioN AMD MASXTTMANCX

5.1 Operating Agreement. The operation and maintenance of TAPS shall be performed under

an operating agreement between the Parties to this Agreement and an operator (“Operator”) selected

by the Parties hereto. By the execution and delivery of this Agreement, each Party hereby severally

confirms that it intends to execute an agreement (“Operating Agreement”) in such form as shall be

unanimously agreed to by the Parties hereto with ALTZSIA PTMUNZ Snmcr COMPANT, a Delaware

corporation ( "Alyeska" ) as agent for the operation and maintenance of TAPS.

AH references to Operator in this Agreement shall mean Alyeska so long as the Operating Agree¬

ment and any extensions thereof shall remain in full force and effect or, in the event the Operating

Agreement is terminated, the corporation selected as Operator pursuant to Section 5-3 of this Agreement

5.2 Powers Reserved to the Parties. The Operating Agreement shall reserve certain powers and

functions to the Parties. All matters required to be approved by the Parties* shall be approved upon the

affirmative vote of Three (3) or more Parties having Percentages of Ownership as then appearing

in Column (2) of Table I of Section 3.1 which aggregate at least Sixty-six and Two-thirds percent

( 06%%) of the total ownenhip interest in TAPS.

5.3 Selection of a Successor Operator. The Operating Agreement shall provide that the Operator

or the Parties to the Operating Agreement may terminate the Operating Agreement subject to the

Page 15 of 105

conditions contained therein. In the event of such termination, a new operator may be selected by Three

(3) or more Parties having Percentages of Ownership which aggregate at least Sixty-si* and Two-

thirds percent (66%%) of the total ownership interest in TAPS. The Parties selecting the new

operator shall execute a written notice which shall be sent to all other Parties not executing such

notice. If the person selected as the new operator shall accept this duty, such new operator shall

execute and send to each Party hereto an instrument accepting such appointment as Operator under

the terms and provisions of the Operating Agreement (including the termination provisions thereof) v

and agreeing to discharge the duties of the Operator thereunder from and after the effective date of

his appointment as Operator. Such instrument shall be binding upon each Party to the Operating

Agreement, and shall have the same effect 2s the several agreements by and between each Party and

the new operator to operate and maintain TAPS under the terms and provisions of the Operating

Agreement from Bnd after the effective date of the appointment of the new operator as Operator.

If the termination of the Operator is effective upon the expiration of the initial term or any renewal

term of the Operating Agreement, the new operator shall serve as Operator for the next succeeding

Agreement Term. If the termination shall be effective during the initial term or any renewal term.

the new operator shall serve as Operator for the remainder of the current term. In either case, the

new operator shall thereafter serve as Operator for each successive term unless and until such new

operator shall be terminated sooner as Operator under the termination provisions of the Operating

Agreement.

ARTICLE VI

EXPANSION

6.1 Total Expansion Capacity. The System will be designed for expansion in accordance with

the following plan :

(a) Total Expansion Capacity. TAPS will be designed for and may be expanded to approxi¬

mately Two Million ( 2,000,000 ) barrels per day. Accordingly, based on the estimated minimum

Initial Design Capacity of Six Hundred Thousand (600,000) barrels per day, the total increase

in design capacity (herein called "Total Expansion Capacity") attainable from Expansion is

approximately One Million Four Hundred Thousand (1,400,000) barrels per day.

(b) Determination of Expansion Stages. It is the intention of the Parties hereto that the

design capacity of TAPS will be increased in two economically logical stages ("Expansions").

The first Expansion (“First Expansion") will consist of the construction of three pump stations

and of the related storage tanks, terminal facilities, communications system and other required

facilities to result in an increase of capacity of approximately Six Hundred Thousand (600,000)

barrels per day ("First Expansion Capacity"). The second Expansion ("Second Expansion") will

consist of the construction of four pump stations and of the necessary associated facilities to

increase the capacity of TAPS by approximately Eight Hundred Thousand (800,000) barrels per

day (“Second Expansion Capacity").

(e) Revision of Expansions. If. as a result of a revision of Table II in Subsection (a) of

Section 6.2 pursuant to Subsection (b) of Section 6.2 or an adjustment of Table I in Section 3.1

pursuant to Section 0.5 or Subsection (f) of Section 6.6. the Construction Committee shall deter¬

mine that a revision is necessary in the First Expansion Capacity or Second Expansion Capacity,

a formal amendment of this Agreement revising Subsection (b) of Section 6.1 shall be executed

by the Parties hereto to reflect such revision.

0.2 Expansion Rights of the Parties. The rights of the respective Parties hereto to participate tn

Expansions shall be determined in accordance with the following provisions:

(a) According to Percentage of Ownership, The right of each Party to share in the Total

Expansion Capacity shall be determined by its initial Percentage of Ownership m TAPS as

Page 1 6 ofl 05

niin«J in accordance with Columns (1) nod (2) of Table I in Section 3.1 before toy revision

other than a revision to record a transfer of an internet in the system of such Columns is made

('Initial Percentage’), to the end that die total increase in estimated design capacity in barrels

per day initially available to each Party from all Expansions shall be as shown In Table II, as

follows.

TAiLE

(SI

m Cspacitv (B/PI

las.

Atlantic 385,000

BP 385,000

Humble 350,000

Amerada Hess 42,000

Home 28,000

Mobil 119.000

Phillips 45.500

Union 45.500

Total 1,400.000

(b) Revision of Table II. At the time of the review of the Initial Design Capacity required

under Section 3.1 the Total Expansion Capacity shall be reviewed by the Construction Com¬

mittee and, if such review indicates that such quantity of Total Expansion Capacity is not

accurate, Column (2) of Table II above will be revised by the Construction Committee, in which

event the Construction Committee shall then prepare and circulate to the Parties hereto, and the

) -

Parties hereto will execute, a formal amendment to this Agreement revising Subsections (a) and

(b) of Section 6.1 and revising Table II above to credit to each Party hereto its then Percentage

of Ownership of the revised quantity of Total Expansion Capacity.

Table II shall be revised at the tone the First Expansion is initiated pursuant to Subsection (d)

of this Section 6-2 bv adding Column ( 3 ) thereto, which shall set forth the remaining increase in

design capacity which is available to each Party from the Second Expansion, and the Parties shall

execute a formal amendment to this Agreement revising such Table II by adding such Column (3)

in which each Party shall be credited with the amount remaining ('Remaining Expansion

Capacity") after subtracting the amount of expansion capacity which such Party is to receive

in the First Expansion from the amount of the Total Expansion Capacity then credited to such

Party in Table II. If any Party shall have a deficit in Column (3) as a result of this revision, the

amount of such deficit shall be excess capacity ("Excess Capacity*).

(d) Initiation of Expansions. For the purposes of this Article VI, an Expansion shall be

deemed to have been initiated at such time as (i) it has been proposed pursuant to Subsection (a)

of Section 6.3 hereof, and (ii) one of the following has occurred (x) there has been a sufficient

undertaking by one Party or agreement to participate therein by two or more Parties so that the

proposal therefor is no longer subject to withdrawal pursuant to the last sentence of Subsection (b)

of Section 8.3, or (y) a withdrawn proposal has been reinstated pursuant to Subsection (d) of

Section 6.3; provided, however, except as set forth in Section 6.8, the Second Expansion shall not

be initiated unless any Excess Capacity resulting from the First Expansion has been eliminated

Page 17 of 105

as provided in Subjection (*) of Section 6.3 and Pasties then having a majority of the Remaining

Expansion Capacity agree to the Expansion. The Contractor shall notify all parties of the date on

which each Expansion is initiated.

6.3 Commencement of the Construction of an Expansion, (a) Proposal of an Expansion.

Except os otherwise provided In Section 8 6, any Party may propose the First Expansion at any time

after the Date of Commissioning of the Initial Design Capacity and the Second Expansion may bo

proposed by any Party at any time after the First Expansion has been initiated (but not necessarily

commenced or completed) by giving written notice to the other Partita hereto. Within Forty-five (45)

days after each such notice is given, each other Party shall notify all other Parties in writing as to

whether It desires to participate in the proposed Expansion. Failure to give such notice shall be deemed

an election not to participate. In the notifications provided above, each Party ( including the Party pro¬

posing the Expansion) shall state the increase in design capacity, if any, desired by that Party from

the particular Expansion. Any such statement that a Party desires to participate in an Expansion

— —

shall constitute such Party's agreement to participate therein. In the amount stated in the notification.

( b) Insufficient Participation Apportionment W'lf hdrau al of Proposal. Should the aggregate

of the desired increases in design capacity in the above-provided notifications be less than the increase

io design Capacity for the proposed stage of Expansion, the remainder of such increase shall be divided

among one or more of the Parties as they may mutually agree. However, if all of the remainder is not

so taken within seventy-five (75) days from the date the proposal is made, then the entire proposal

shall be deemed to be withdrawn as of the end of such 75-day period, subject to reinstatement as pro¬

vided in Subsection (d) of this Section 6,3

—

increases in design capacity set forth in the above-provided notifications total more than the increase

in design capacity for the proposed stage of Expansion, the increase to design capacity for such

Expansion shall be apportioned pro rata among the Parties having the right to and desiring to partici¬

pate therein on the basis of their respective Remaining Expansion Capacities. Notwithstanding the

next preceding sentence, however, no Party participating in an Expansion shall be requited to accept

more capacity thin its desired increase in design capacity, as set forth in its above-provided notifica¬

tion, And any design capacity made available as a result of the refusal of one or more participants in

an Expansion to accept all or any portion of the capacity In excess of the capacity requested in the

notification shall be apportioned among the remaining participants who agree to take such available

capacity, in proportion to their respective Remaining Expansion Capacities.

(d) Reinstatement of Withdrawn Proposal. Whenever any proposal for any Expansion is with¬

drawn pursuant to the last sentence uf Subsection (b) or (c) of this Section 6.3, the Forty who pro¬

posed such Expansion, mny. by giving written notice to the other Parties within thirty ( 30 ) days next

following the expiration of the 75-day period described in said Subsection (b) or (c), reinstate such

proposil, in which case the Expansion covered by auch proposal shall be deemed to have been initiated.

Such notice of reinstatement shall constitute the agreement of the Party giving same to take that

part of the design capacity provided by such Expansion which has not been theretofore taken by -my

other party pursuant to Subsections (a), (b) and/or (c).

(ei Elimination of Excess Capacity. Except as provided to Subsection (c) of Section 6.6, if

any Party ("Excess Party") shall have Excess Capacity upon the completion of the First Expansion.

every Party having Remaining Expansion Capacity shall have an option to purchase from the Excess

Party all or anv part of such Excess Capacity, up to but not in excess of the amount of the purchasing

Party's then existing Remaining Expansion Capacity, by giving written notice to the Excess Party,

specifying the amouat of such Excets Capacity which the Party giving the notice ("Purchasing Party*)

desires to purchase. Effective as of the first day of the first calendar month which begins after the

elapse of thirty (30) days following the giving of such nobce, (i) the Purchasing Party shall become

the owner of the amount of such Excess Capacity specified to the Purchasing Party’s said notice;

Page 18 of 105

(U) the Purchasing Party'* Remaining Expansion Capacity shall be reduced by the amount of capacity

tbut purchased: (id) the Excess Party's Excess Capacity shall likewise be reduced by such amount

thus sold; (iv) the capacity thus purchased shall no longer be considered to be 'Excess Capacity*:

and (v) the tabulations appearing in Table I in Section 11 and io Table U of Section 6.2 shall

be revised accordingly by a formal amendment hereto executed by all Parties. As consideration

for the acquisition of the portion of Excess Capacity so purchased, the Purchasing Party shall pay to

the Excel* Party a sum determined by multiplying the original cast of aQ design capacity acquired by

the Fwas Party in tach Expansion ( including but not limited to coats incurred by the Excess Party

as a mult of redistribution* pursuant to Section 0.4 hereof, and revisions of such redistributions),

without any allowance for depreciation, by a fraction, the numerator of which shall be the design

capacity thus purchased, and the denominator of which shall be the total design capacity originally

acquired by tb* Excess Party in such Expansion, each expressed in barrels per day. Any purchase of

design capacity pursuant to this Subsection (e) shall not be subject to the preferential option to

purchase set forth in Section 7.2. The option provided for in this Subsection (e) may be exercised

at any time and from time to time by any Party or Parties having such option, until all of the Excess

Capacity has been purchased in one or more purchases by one or more Parties having the option. If

two or more Parties desire to exercise such option to purchase Excess Capacity and the total capacity

desired to be purchased by such Parties exceeds the amount of Excess Capacity then remaining

available for purchase under the provisions of tins Subsection, the right of each Party who has elected

to purchase all or any portion of the Excess Capacity available for purchase (hall be determined by the

order in which said notice* of exercise of option have been given, as determined by postmarks tad/ os

by telegraph company records, with the notice which has been given first in time to have priority over

the subsequent notices.

(f) Construction of Expansion, When an Expansion has been initiated, the Parties shall proceed

to have such Expansion accomplished pursuant to the provisions of Article II.

(g) Adjustment of Percentages of Ownership. Whtu the new facilities are completed, tested

and substantially ready for operation, the Contractor shall notify all Parties of the date on which

operation of such facilities will commence ("Date of Completion’) which in no event shall be prior to

the Date of Commissioning. Except as provided In Section 00, the design capacity of each Party shall

I -

be adflated on the Date of Completion to reflect the design capacity (if any) acquired by each Party

in the Expansion; and the Percentages of Ownership of the Parties shall be revised so that the Percent¬

age of Ownership of each Party after the Expansion will be the same as the percentage which it owns

of the deiign capacity of the System after the Expansion. The tabulations set forth in Table I in Sec¬

tion 3.1 shall be revised accordingly by a formal amendment to this Agreement which shall be effective

as of the Date of Completion of the Expansion to which the revision relates.

6.4 Distribution ai Costs hi Krpamion. Except as otherwise provided In Subsections (d), (•)

and (f) of Section 6.6, costs shall be distributed among the Parties as follows:

(a) Initial Payment of Cost of New Facilities. The total cost of the new facilities (includ¬

ing, but not limited to, any related costs that may be incurred in rearranging existing facilities)

required for any Expansion shall be initially paid by the Parties acquiring Increases in design

capacity or terminal tankage capacity os a result of the Expansion. Such total cost shall be

distributed among said Parties pro rata in accordance with the distribution of the increase in

design capacity or terminal tankage capacity among them.

(b) Redistribution of Expansion and Pre-Expansion Costs. Effective as of the Date of

Completion of on Expansion, said total cost of the new facilities (including but not limited to any

related oosti that may be incurred in rearranging existing facilities) other than terminal n nVag*

shall be redistributed among all Parties in accordance with the Percentages of Ownership as they

appear in Table I of Section 3.1 after the ad(uatmeot pursuant to Subsection (g) of Section 0.3,

Simultaneously, the cost of all pre-expansion facilities shall be similarly redistributed, and a

Page 19 of 105

settlement among all the Parties with respect to all facilities shall be made. Said cost of all pro-

expansion facilities to be redistributed shall be determined from the accounts of the Parties ( main¬

tained by the Contractor in accordance with the F.C.C. Uniform System of Accounts) on (lie basis

Of (i) the accumulated investment in "carrier property’" under the I.C.C. Uniform System of

Accounts less retirements, and before provisions for depreciation and amortization and (ii) other

costs and expenses paid or incurred, incident to the planning, development, design and construc¬

tion of TAPS by all Parties as provided in the nest succeeding paragraph of this Subsection (b).

There shall be included in investment in 'earner property" for the purpose of the above redistri¬

butions. as interest during construction for each month preceding the commencement of con¬

struction of the Initial Design Capacity and during the period of construction of the Initial

Design Capacity and each Expansion interest on the accumulated balance (exclusive of interest

included therein pursuant to this sentence) of investment in the "carrier property* under con¬

struction as of the end of the preceding month, calculated at an annual rate equivalent to 125%

of the ben rate of interest of the First National City Bank of New York, New York on ninety-day

loans to substantial and responsible commercial borrowers as such rate shall change from time

to time during the construction period, each such change to become effective on the date of

announcement of such change by the Bank

Each Party shall, within six months after the Date of this Agreement, submit to the Con¬

struction Committee an accounting setting forth the amount of all of the above described other

costs and expenses paid Or incurred by it to the Date of this Agreement for which it has not been

reimbursed. All such costs and expenses which have previously been approved pursuant to prior

agreements of the Parties or which the Construction Committee may approve shall be included

in the accounts maintained by the Contractor. As of the time any redistribution of costs is made

pursuant to this Section 6.4. the term ‘cost of all pre-expansion facilities* means (I) the cost of

all facilities which are a part of the Initial Design Capacity, plus (Si) the cost of the First

Expansion in the case of the Second Expansion.

(c ) Redistribution of Terminal Tankage Costs. Effective as of the Date of Completion of an

Expansion, the cost of all terminal tankage, including interest during construction calculated at

provided in Subsection (b) of this Section 6.4. shall be redistributed so that each Party pays the

portion of the total cost of all terminal tankage capacity equivalent to its then undivided interest

in the total terminal tankage act forth in Table 1A in Section 3 2.

( d) Payment. Except as otherwise provided In Section 6.6, the amounts due upon any redis¬

tribution shall be payable within thirty (30) days after the date the Contractor shall notify the

Parties of such amounts and shall bear interest from the Date of Completion of the Expansion

until the day payment is made at a rate equal to 125% of the best rate of interest of the Fust

National City Bank of New York. New York, on ninety-day loans to substantial and responsible

commercial borrowers as such rate shall change from time to time, each such change to become

effective on the date of announcement of such change of said Bank; provided that if such rate of

interest shall be unlawful under applicable law, then it shall be reduced to the highest lawful rate.

8,5 Review and Adjustment (a) Review and Adjustment. Except as provided la Subsection

(f) of Section 6.8. the design capacities then appearing in Column (3) of Table I in Sectioo 31 will

be reviewed within six (6) months after the construction of any Expansion has been completed and,

if necessary, adjusted by the Construction Committee to reflect experience with operations of TAPS

as then expanded. Such tabulations will be revised and a formal amendment hereto will be prepared

by the Construction Committee and executed by the Parties hereto to reflect changes, If any, which

shall be effective as of the Date of Completion of the Expansion to which such changes relate. If such

adjustment is necessary, then Columns (2) and (3) of Table I in Section 3.1 and Column (3) of

Table II in Subsection (a) of Section 62 shall be revised so that the Percentages of Ownership and

Remaining Expansion Capacity available to each Party are adjusted to reflect the revision of the

Page 20 of 105

design capacity- of TAPS, u then expanded. At mch time, than shall be a further review of the

redistribution made pursuant to Section 0.4 and further redistribution shell be made, if nccessarv,

to put the Parties in the position they would have been in had the formal amendment executed pur¬

suant to this Section 3.5 been executed prior to the time the redistribution pursuant to Section 6.4

was made. Any further redistribution payments shall be made and shall bear iuterMt as provided in

the provision of this Article VI governing the Expansion to which such further redistribution relates.

(b) Protection of Design Capacity. In the event a reduction in design capacity is required pur¬

suant to Subsection (a), no Party shall be deprived of any design capacity owned by It prior to the

initiation of the Expansion. Any reduction shall be borne solely by the Parties participating m the

Expansion in the same proportions that they acquired design capacity in the Expansion.

0.6 Expansion Prior to Data of Commissioning, Subject to the terms and conditions hereinafter

provided, any Party may propose that the First Expansion be initiated prior to the Date of Commis¬

sioning of Use Initial Design Capacity. If the Fint Expaxssion is to initiated, then the post expansion

Percentage of Ownership (Tost Expansion Percentage*) shall be computed for each Party, which

shall be the percentage which the sum of the design capacity set forth next to such Party's name in

Column (3) of Table 1 in Section 3.1 and the design capacity which it has agreed to acquire so the

Fint Expansion is of the sum of the Initial Design Capacity and the First Expansion Capacity.

Any Party whose Port Expansion Percentage exceeds its Initial Percentage is hereinafter referred

to aa an Increasing Party* and the amount by which its Post Expansion Percentage exceeds its Initial

Percentage is hereto referred to aa it* ‘Allocation Factor*. If there is more than ona Increasing Party,

the ratio of each Increasing Party's Allocation Factor to the sum of all Increasing Parties' Allocation

Factors is herein culled itx ‘Allocation Ratio".

(o) Election by Certain Parties. Any Party whose Initial Percentage exceeds its Post Expansion

Percentage shall elect either :

(i) to reduce its Initial Percentage in the System to its Past Expansion Percentage. (This

election is herein referred to as a “Settlement* and a Party electing Settlement is a ‘Reducing

P*ty);or

(11) to retain an option to purchase an amount of First Expansion Capacity equal to the

difference between the design capacity, if any, it initially agrees to acquire in the First Expansion

and an amount of design capacity not to exceed to its Initial Percentage of First Expansion

Capacity, which option may be exercised in whole or in part at any time, but only once, on or

prior to the Thirtieth (30th) day after the Date of Completion of the Expansion. (TTiis election is

herein referred to as ‘Completion Option" and any Party electing the Completion Option is

herr in referred to as an ‘Option Party". )

Each Party not electing to acquire at least its Initial Percentage of the First Expansion Capacity shall

specify in Its notice pursuant to Subsection (a) of Section 0.3 which of the above options it shall

elect and failure to so specify shall be deemed an election of Settlement

(b) Settlement The Percentage of Ownership and the design capacity of each Reducing Party

shall be reduced to Us Post Expansion Percentage of the Initial Design Capacity ia Columns (2) and

(3) of Table I in Section 3.L The Percentage of Ownership and design capacity of each Reducing

Party in excess of its Post Expansion Percentage shall be acquired by the Increasing Parties m the

proportions determined by their respective Allocation Ratio*. A formal amendment of this Agreement

shall be executed by the Parties to reflect the foregoing revisions in Columns (2) and (3) of Table I

in Section 3.1 effective as of the date the Expansion is initiated. Each Reducing Party shall be

paid ao amount determined by multiplying the total amount of costs which would be includable

in a redistribution pursuant to Subsection (b) of Section 6.4, as then appears in the account of the

Reducing Party maintained by the Contractor on the date the Expansion is initiated, by a fraction,

the numerator of which shall be the Reducing Party's Initial Percentage minus its Post Expansion

Page 21 of 105

Percentage and the denominator of which shall be its Initial Percentage. This amount shall be paid

by the Increasing Parties in the proportions determined by their respective Allocation Ratios, and

suck amounts shall be payable within the time period specified in end shell bear interest from the

effective date of a redistribution until the day payment is made at the rate specified in Subsection { d)

of Section 6.4.

by a formal amendment hereto by adding a Column (3A) in which each Party will be credited with

Remaining Expansion Capacity in the Second Expansion equal to its Percentage of Ownership, after any

adjustment pursuant to Subsection (b). No Parti' shall be deemed to have Excess Capacity' pursuant

to Subsection (b) of Section 6.2 after the First Expansion is initiated pursuant to this Section 6 8

( d ) Payment of Cotit. The Parties will execute a formal amendment of the Contract to provide

that all costs, other than costs for which settlement has been provided for in Subsection (b). charged

or to he charged to the undivided interest accounts of the Parties by the Contractor shall be charged

as follows:

(f) Costs incuned or to be Incurred to complete the Initial Design Capacity shall be charged

to the Parties In proportion to then Percentages of Ownership, after the amendment provided in

Subsection ( b) of this Section 66. and

(ii) The costs of the First Expansion shall be charged to the accounts of the Parties in pro*

portion to their Post Expansion Percentages.

(e) Exercise of Completion Option. Any Option Party may exercise its Completion Option by

notice in writing to each Increasing Party which notice shall specify:

(i) the amount of design capacity which such Option Party is electing to acquire; or

(ii) that it is electing not to acquire any design capacity pursuant to the Completion Option.

Any party failing to exercise its Completion Option on or prior to the expiration date specified in

Subsection (a)(ii) of this Section 6.6 shall be deemed to have elected not to acquire any additional

design capacitv pursuant to its Completion Option. Any design capacity acquired by any Party exer¬

cising its Completion Option shall be acquired from ail Increasing Parties in the proportions deter¬

mined by their respective Allocation Ratios.

Each Option Party exercising its Completion Option prior to the Date of Completion of

the First Expansion shall be deemed to be the Owner of such design capacity for purposes of

utilizing such capacity as a common comer from and after the Date of Completion. Any Option

Party' exercising its Completion Option after the Detc of Completion shall become the Owner of any

design capacity it elects to acquire upon the first day of the first calendar month which begins after the

elapse of 30 days following the day the Completion Option is exercised. A formal amendment of

this Agreement shall be executed by the Parties to reflect the foregoing changes In Percentages of

Ownership and design capacities in Table I In Section 31 effective rs of the Date of Completion of

the Expansion. Effective as of the same date, a redistribution of costs determined as provided in and

including interest during construction calculated as provided tn Subsection (b) of Section 6.4 shall

be made between the Parties retaining a Completion Option and all Increasing Parties. The amounts

due upon distributions under Subsection 6.6(e) shall lie payable within the time specified in and

shall bear interest from the effective date of the redistribution until the day payment is made at

the rate specified in Subsection (d) of Section 8.4; provided, however, that any Party obligated

to make any such payment may elect to defer payment for a period of time, if any. of up to

six (6 ) months after the date of die exercise of the Completion Option to which such paymeot relates.

(f) Reciew of Capacity The Construction Committee shall review and adjust the design capaci¬

ties appearing in Column (3) of Table I In Section 3.1 not earlier than nine (9) months and sot later

than nine (9) months and one (1) day after the Date of Completion of the First Expansion which re¬

view and adjustment, if any, will be in substitution for the reviews required pursuant to Sections 3.1

Page 22 of 105

tad 65. If on adjustment is required, each Party will be entitled to tbe Percentage of Ownership then

appearing opposite Its name in Cokaxm (2) of Table I in Section 3.1 of tbe revised capacity of tbe

System, as expanded; provided, however, that no Party shall obtain tesa capacity then tbe amount )

appearing in Column (3) of Table I in Section 3.1 after tbe adjustment, if any, pursuant to Subsection

(b) of this Section 6.6. Any defeat in capacity causing tbe above proviso to be elective shall be borne

by tbe Parties acquiring tbe Expansion Capacity in tbe proportion in which they have acquired such

Expansion Capacity, determined after tbe exercise of the Completion Option. A formal amendment

to Ibis Agreement will be prepared by the Construction Committor and executed by the Parties hereto

to redact the revision of tbe design capacities.

(g) Second Expansion. Any Party may propose the Second Expansion at any time after the

period for review and adjustment of design capacity required in Subjection (f) has elapsed. Any

Party not agreeing to acquire its entire Remaining Expansion Capacity at die date the Second Expan¬

sion is initiated may elect to retain the right to acquire up to the amount of its Remaining Expansion

Capacity (after the revision of Column (3A) in Table II has been made to reflect the acquisition of

design capacity in the Second Expansion by all Parties participating therein) at any time during the

two yuan following the Date of Completion of the Second Expansion. This right is hereafter referred

to as the 'Final Option'. Any Party electing tbe Final Option shall so specify in its notification for

the Second Expansion pursuant to tbe procedures provided in Subsection (a) of Section 6.3. The

adjustment of Percentages of Ownership pursuant to Subsection (g) of Section 6.3, tbe redistribution

of costs pursuant to Section 6.4, and tbe review and adjustment, if necessary, pursuant to Section Go

shall be made as specified in said Sections as if tbe Final Option did not exist, except that no Party

electing tbe Final Option shall be entitled to a redistribution of costs until its final Option has been

exercised, has been waived or has expired. Tbe Final Option shall be exercised or waived by notice

in writing to each of tbe Parties whose amount of design capacity acquired in the Second Expansion

exceeds its Remaining Expansion Capacity as provided in Subsection (c) of this Section 6.6. The

amount of such excess u berrsnafter referred to os Final Option Capacity (*Fiaal Option Capacity’)

which shall be represented as a deficit in Column (3A) of Table II. Each Final Option notice shall

specify:

(1) the amount of design capacity such Party is electing to acquire; or

(ii) that the exercising Party has elected to waive the right to acquire any design capacity

pursuant to the Final Option.

—

Upon termination of the two year exercise period, any Party electing but not exercising the

Final Option shall be deemed to have waived its right to acquire any additional design capacity.

Any design capacity acquired by any Party exercising its Final Option shall be obtained from

all Parties then having Final Option Capacity in the proportions which each ruch Party’s Final Option

Capacity bean to the total Final Option Capacity of all Parties then having Final Option Capacity.

Any Party mcresung its Final Option shall become the Owner of any design capacity it elects to

acquire as of the first day of tlie first calendar month which begins after the elapse of thirty (30) days

following the day the Final Option is exercised. A formal amendment to reflect the changes In

Percentages of Ownership and design capacities In Table I in Section 3.1 and changes ui Remaining

Expansion Capacities and Final Option Capacities in Column (3A) of Table 11 shall be executed by

all Parties which shall be effective as of the date the Final Option is exercised or expires. Effective

at of the same date, a redistribution of costs determined as provided in, and including interest

during construction calculated as provided in. Subtectioo (b) of Section 6.4 shall be made between

the Party exercising its Final Option and all Parties from which Final Option Capacity' was so

acquired, u if tbe Percentage of Ownership appearing opposite the names of the Parties in Column

(2) of Table I, as amended pursuant to this Subsection, had been owned by them at the time of the

redistribution upon completion of the Second Expansion. Payment of the amounts due upon distri¬

butions under this Subsection (g) of this Section 66 shall be payable within the time specified in and

shad bear interest from tbe effective date of tbe redistribution until the day payment is made at the rate

Page 23 of 105

specified in Subsection (d) of Section 8.4; provided that any Party obligated to make any such payment

may elect to defer payment for a period of time of up to six months after the date of the axerdsa of the

Final Option to which such payment relates.

8.7 Additional Terminal Tankage, (a) Upon Expansion, Within three (3) months after notice

to the Parties that an Expansion has been initiated, each Party shall specify by notice to each other

Party the terminal tankage capacity, if any. tn addition to its capacity then set forth in Column (3)

of Table IA. after any change therein pursuant to Section 3.2, which it desires to have constructed

as a part of the E.vpanslon subject to the tankage capacity ownership limitation set forth in Section 3.2.

If additional capacity is nominated equal to not less than one- half (H) the capacity of a Five Hundred

Ten Thousand (310,000) barrel capacity tank, additional terminal tankage capacity shall be con¬

structed os a part of the Expansion equalling the aggregate amount, to the nearest whole Five

Hundred Ten Thousand (310,000) barrel capacity tank, of additional terminal tankage capacity

specified by all Parties nominating additional capacity. If pursuant to the foregoing more or less

additional terminal tankage capacity is to be constructed than the capacity nominated in the aggregate

by all of the Parties desiring additional tankage capacity, the additional terminal tankage capacity

to be constructed shall be allocated among such Parties in the ratio that each such Party's additional

tankage capacity nomination bean to the total additional tankage capacity nomination of all such

Parties or as such Parties may agree.

(b) At Election of Parties. Subject to the tankage capacity ownership limitation set forth in

Section 3 2, any Party or Parties may at any time cause to be constructed additional tankage capacity

of not less than the capacity of one or more Five Hundred Ten Thousand (510.000) barrel capacity

tanks by giving written notice to each other Party and the Contractor. Such notice shall constitute

the undertaking of such Parry or Parties to bear the cost of constructing such additional tankage

capacity which the Contractor shall cause to be constructed for the account of such Party or Parties

subject to the provisions of Subsection (d) of this Section 6.7.

rapacity as a result of the construction of additional tankage capacity pursuant to this Section 6.7,

the Construction Committee shall, upon die completion of such additional tankage, cause to be pre¬

pared and circulated to the Parties hereto, and the Parties hereto shall execute, a formal amendment

to this Agreement revising Columns (2) and (3) of Table IA in Section 3.2 crediting to each Party

its revised ownership percentage of and revised quantity of tankage capacity.

( d ) Terminal Tankage Costs. The cost of additional terminal tankage constructed os a part of

any Expansion or constructed pursuant to the provisions of Subsection (b) of this Section 6.7 shall

be borne during construction by the Parties participating in the construction of additional tankage

in the proportion that each such Party's additional tankage capacity to be constructed bears to the

total tankage capacity to be constructed for all such Parties. The cost of terminal tankage shall be

redistributed upon the completion of each Expansion as provided in Subsection (c) of Section 6.4.

and the cost of any additional tankage constructed at the election of one or more of the Parties shall

be redistributed after completion as provided m Subsection (c) of Section 6.4 upon any subsequent

redistribution of terminal tankage costs thereunder.

(e) Options Sot Applicable. The Excess Capacity Option under Subsection (e) of Section 6L3,

the Completion Option under Subsection ( a ) of Section 6.6, and the Final Option under Subsection

(g) of Section 6.6 shall not include the nght to acquire any terminal tankage capacity from any Party.

ARTICLE VO

TaA-vinn or IMTZHUTS CM TAPS

7.1 Definitions. Wherever the following terms are used in this Article VII they shall have the

meanings assigned to them tn this Section 7.1.

Page 24 of 105

(a) 'Affiliate' of any corporation means (i) a company (herein sometimes called 'Sub¬

sidiary*) of which all of the outstanding capital stock is owned directly or indirectly by such

corporation, (ii) a company (herein sometimes called "Parent Corporation') which owns directly

or indirectly all of the outstanding capital stock of such corporation, (ill) a company of which

all of the outstanding capital stock Is owned direcdy or indirectly by a Parent Corporation of

such corporation, or ( !v) in the case of BP. any company of which all of the outstanding capital

stock is owned directly or indirectly by The British Petroleum Company Limited and/or The

Standard Oil Company (Ohio).

(b) “Enabling Agreement" means the agreement attached hereto is Exhibit C and any

other similar agreement executed on behalf of persons hereafter becoming Parties to this

Agreement.

(e) 'Enabling Parti/’ means any person executing an Enabling Agreement.

(d) 'Equity Security' means any stock or similar security, certificate of Interest or the

participation in any profit sharing agreement, preorganizatloa certificate or subscription, trans¬

ferable share, voting trust certificate or certificate of deposit for an equity security, or certificate

of interest in a business trust; or any band or dabeature or other security convertible, with or

without consideration. Into such a security, or carrying any warrant or right to subscribe to or

purchase such a security; or any such warrant or right.

(e) 'New Corporation' means any corporation of the types described in Subsections 7,3(d)(i)

and (11).

(f) “OWNER’ means any Party to this Agreement owning an undivided interest in TAPS.

(g) ’Shareholder’ means any OWNER who transfers Us undivided interest in TAi a

New Corporation of the type described In Subsection 7.3(d)(1) and its successors and assigns.

(h) "Throughput Agreement' means any throughput agreement or other covenant or under¬

taking by any Affiliate of an OWNER or by any Shareholder or any Affiliate of a Shareholder or I ~~

by any shareholder or any Affiliate of a shareholder of a New Corporation of the type described

in Subsection 7-3(d)(ii) for the purpose of aiding the financing of an Interest in the System, or

any assignment thereof.

72 Preferential Right to Purchase. Except as otherwise expressly provided in Sections 72 and

7.4:

(a) Tranefer of a Direct Interest in TAPS. An OWNER may sell, transfer or otherwise

dispose of all or any part cf its undivided interest in TAPS but only by a sale for cash and only

after offering such interest to all other OWNERS who are hereby granted the preferential right

to purchase such interest (but not a lesser or different interest) on the same terms offered by or

to any bona fide, prospective purchaser, who is ready, willing and able to so purchase same. The

OWNER desiring to sell shall promptly communicate in writing to the other OWNERS the

offer made to or received by it from a purchaser ready, willing and able to purchase the same,

together with the name and address of such purchaser, and the other OWNERS shall thereupon

have the right for a period of forty-five (45) day* after the giving of said notice to elect to

purchase such interest upon the same term*, by giving written notice within such 45-day period

to the OWNER desiring to sell the same. If none of the notified OWNERS so elect to purchase

such interest within such 45-day period, the OWNER desiring to sell same shall have the right

to complete said sale in accordance with said offer within sixty (60) day* after the expiration of

said 45-day period; provided, that, if the OWNER desiring to sell fails so to complete raid rale

within said period of sixty (60) days, the preferential purchase right of the other OWNERS

under this Subsection (a) shall be considered as revived, and the OWNER who desired to tell

shall not complete said sale unless and until said offer again has been presented to the other

Page 25 of105

OWNERS, as hereinabove provided, and the said other OWNERS again have failed to elect to

purchase on the same terms and conditions of said offer. If more than one OWNER desires to

|oin in the purchase of such interest then, unless otherwise agreed by the purchasing OWNERS.

all such OWNERS shall purchase the same proportionately in the ratio that their Percentages of

Ownership in TAPS prior to said purchase bear to each other.

(b) Indirect Transfers of an Interest In TAPS. The foregoing shall also apply to (i) any

sale, transfer or other disposition of any Equity Security Issued fay an OWNER ( other than a

New Corporation and other than any OWNER which does not have an Enabling Party), in

which event every other OWNER shall be entitled to exercise a preferential right to acquire the

undivided Interest in the System represented by such Equity Securities pursuant to Section 7.0;

and (ii) any sale, transfer or other disposition of any Equity Security issued by a New Corporation,

in which event (a) every OWNER (other than such New Corporation or any subsidiaries of such

New Corporation) shall have the preferential right described in clause (i) above, and (b) every

non-selling bolder of Equity Securities Issued by such New Corporation shall have a preferential

right to purchase such Equity Securities pursuant to Section 7.5. The undivided interest in the

System represented by the Equity Securities owned by any holder in a New Corporation ( whether

or not such New Corporation is an OWNER) shall be determined by multiplying the undivided

interest in the System owned by such New Corporation and/or by all Subsidiaries of such New

Corporation by the percentage of ownership of such holder of all Equity Securities issued by

such New Corporation.

7-3 Transfer not Subject to a Preferential Right to Purchase. The following transactions shall

not be subject to the preferential right to purchase granted in Section 7-2:

(a) Merger, Consolidation or Reorganisation. Any merger, consolidation or reorganization

between an OWNER or holder of Equity Securities issued by a New Corporation, or the Parent

Corporation of either ( "Merging Party"), and one or more of Us Affiliates or third parties; provided

that the preferential right shall apply to any merger, consolidation or reorganizatiun with a third

party if the Merging Party (either independently or together with any Affiliates who are also

parties to such merger, consolidation or reorganization ) does not have assets, other then its

interest, directly or indirectly, in the assets of TAPS at least equal in value to such interest

in the assets of TAPS.

(b) Sale of Asset]. A sale, transfer, or other disposition by an OWNER or holder of Equity

Securities issued by a New Corporation, or the Parent Corporation of either ("Selling Party*), of

all or substantially all of its assets; provided that the preferential right shall apply if the Selling

Party (either independently or together with any Affiliates who are also selling, transferring or

otherwise disposing of all or substantially all of their assets to the same transferee or an Affiliate

of the same transferee) does not have assets other than its interest, directly or indirectly in the

assets of TAPS at least equal in value to such interest in the assets of TAPS.

( C ) Transfers to on Affiliate

(i) Undivided Interest in TAPS. The sale, transfer or other disposition to an Affiliate

of all or any part of an OWNER'S undivided interest in TAPS.

(ii) Equity Securities. The sale, transfer or other disposition of any Equity Security

issued by an OWNER by or from a Shareholder or other holder of such Equity Security to an

Affiliate or a trustee or trustees of a retirement plan of such Shareholder or of such other

holder or of an .Affiliate of such Shareholder or other holder ( the ownership by such trustee

Or trustees not to exceed twenty percent (20%) of all Equity Securities issued by an

OWNER).

( d ) Formation of a New Corporation.

(i) New Corporation os OWNER. The transfer by two or more OWNERS of their

entire respective undivided interests to TAPS to a New Corporation, aD of the Equity

Page 26 of 1 05

Seaxriftw of which are owned or will be owned after such transfer, by such transferors,

tUr Affiliate* and/or the trustee or trustees of such transferors or their Affiliates' retirement

plan (the ownership by such trustee or trustees not to exceed twenty percent (20%) of

the Equity Securities issued by such New Corporation) ; provided that the ownership In the

aggregate oi each clear of Equity Securities of such New Corporation by each such trans¬

feror (end Its Affiliate s and/or the trustee or trustees of its or its Affiliate's retirement plan)

*K«n bo proportionate to the undivided interest In the System transferred to such New

Corporation by such transferor relative to the undivided interest in the System transferred

to such New Corporation by the other transferors.

(ii) New Corporation ownt Equity Securities of OWNERS. The transfer of the Equity

Securities of two or mare OWNERS by their Parent Corporations to a New Corporation, all

of the Equity Securities of which are owned or will be owned after such transfer, by said

Parent Corporations (and/or their Affiliates): provided that the ownership of the Equity

Securities of such New Corporation by each Parent Corporation (and/or its Affiliates) shall

be proportionate to the undivided interest in TAPS represented by the Equity Securities of

the OWNER tmufamd to such New Corporation by such Parent Corporation relative to

the undivided interest in TAPS represented by the Equity Securities of the other OWNERS

transferred to such New Corporation by the other Parent Corporations.

(e) Dissolution or Liquidation of a New Corporation.

(I) New Corporation it OWNER. The transfer by a New Corporation of the type de¬

scribed in Subdivision 7 3(d)(1) to its Shareholders, in proportion to their respective Equity

Security interests in such New Corporation, of die entire undivided interest in TAPS of such

New Corporation in complete liquidation or dissolution thereof.

(U) Nau> Corporation holds Equity Securities of OWNERS. The transfer by a New

Corporation of dm type described in Subdivision 7.3(d) (U) to its Shareholders in proportion

to their Equity Security interests in such New Corporation, of all of the Equity Securities of

OWNERS held by such New Corporation in complete liquidation or dissolution thereof.

(f) Partial Distributions by New Corporations.

(I) New Corporation is OWNER. The conveyance by a New Corporation of the type

described in Subdivision 7.3(d)(1) to one or more of Its Shareholders of the undivided

interest in TAPS represented by the Equity Securities exchanged therefor or redeemed by

such New Corporation; provided that the undivided interest in TAPS is acquired by the

Shareholder for the purpose of sale if, after such conveyance, the Shareholder continues to

own Equity Securities Issued by such New Corporation.

(U) New Corporation holds Equity Securities of OWNERS. The transfer by a New Cor¬

poration of the type described in Subdivision 7.3(d) (U) to one or more of its Shareholders

of the Equity Securities of on OWNER held by such New Corporation represented by the

Equity Securities of the New Corporation exchanged therefor or redeemed by such New

Corporation.

( g) Increase or Reduction in the outstanding Equity Securities of New Corporation. Except

in connection with the eserrise of an expansion ngbt or preferential right by a New Corporation

or one or more of its Subsidiaries, as provided in Section 7.4 hereafter, the increase or reduction

bv a New Corporation of its issued and outstanding Equity Securities in a manner which does

not vary the proportionate interests of the Shareholders of such New Corporation of either type

described in Subdivision 7.3( d ) above.

7.4 Expansion* and Exercise of Preferential Rights by Nrw Corporations. In connection with

the exercise of an expansion right or a preferential right by a New Corporation of either type described

Page 27 of 105

is Subdivision 73(d) or oaf or more of it* Subsidiaries, such New Corporation shall issue, repurchase

or redeem its Equity Securities if necessary for th# purpose of adjusting the ownership Interest In *ueh

New Corporation, so that after such adjustment a Shareholder or other holder of Equity Securities in

such New Corporation shall own Equity Securities In such New Corporation representing the undivided

interest in TAPS that such Shareholder or other holder of Equity Securities would have owned ii it

had been the OWNER of its Initial Percentage of Ownership in TAPS as set forth tn column (2) of

Table I in Section 3.1 of this Agreement and had exercised (or failed to exercise) its preferential

rights and expansion rights as an OWNER of such an undivided interest in TAPS. In making such

adjustment it wlR not be necessary that the voting rights of a Shareholder or other bolder of Equity

Securities In such New Corporation be increased or decreased. The preferential right to purchase

created in Section 73(b) shall not apply to any such issuance, repurchase or redemption of the

Equity Securities of a New Corporation.

7.S Required Terms for Sale of any Equity Security. As an additional term of any sale, transfer

or other disposition of any Equity Security to which a preferential right to purchase applies, the

seller shall require the purchaser to assume, to the extent of the Interest being acquired, the obligations

and liabilities of the seller and/or iu Affiliates under the terms and provisions of any Throughput

Agreement theretofore executed by nidi seller and/or its Affiliates. If the purchaser has a Moody’s

Bond Rating of Ana or better at the time of dosing of such purchase (either independently, or with a

guarantee by its Parent Corporation), then such assumption (together, if the Parent Corporation’s

guarantee is essentia) to such bond rating, with such further agreements of such Parent Corpora tic®

as will bind such Parent Corporation to cause and enable such purchaser to discharge the obligations

and liabilities assumed) shall, ii the Throughput Agreement so provides, release the idler and/or

its Affiliates from such obligations and liabilities without the consent of ary party to such Throughput

Agreement. If the purchaser does not ( either independently, or with a guarantee by its Parent Corpo¬

ration) have a Moody’s Bond Rating of Aaa or better at the time of closing of such purchase, then such

assumption shall not release the seller and/or Its Affiliates from such obligations and liabilities under

any such Throughput Agreement without the consent of all parties to such Throughput Agreement

and their rercetion and assigns and. in the absence of any such release, such purchaser shall agree

to indemnify ( together with such further agreements of the purchaser's Parent Corporation, if any. at

will bind such Parent Corporation to cause and enable such purchaser to perform under such indem¬

nity agreement) the teller and/or its Affiliates against any low or liability occurring thereafter U a

result of the purchaser's failure to discharge the obligations snd liabilities assumed.

7.6 Transfer Procedure Upon Exercise of Preferential Right Upon Sole of Equity Securities.

Every OWNER exercising a preferential right to purchase an undivided interest in TAPS upon the

sale, transfer or other disposition of Equity Securities shall in addition to paying the offering price

of the Equity Securities, assume that portion of the long-term indebtedness attributable, at the time

of closing of luch purchase, to the undivided interest in TAPS being acquired and, to the extent of

the Interest being acquired, the obligations and liabilities of the seller of such Equity Securities and/or

Its Affiliates under the terms and provisions of any Throughput Agreement theretofore executed by

such seller and/or Us Affiliates. If the exercising OWNER has a Moody's Bond Rating of Aaa or

better at the time of doting of such purchase (either independently, or with a guarantee by its Parent

Corporation), then the assumption by said OWNER (together, if the Parent Corporation's guarantee

is essential to such bond rating, with such further agreements of such Parent Corporation as will bind

such Parent Corporation to cause and enable such OWNER to discharge the obligations and liabilities

assumed ) shall if the terms of such long-term indebtedness and the Throughput Agreement so pro¬

ride respectively, release the obligor of such long-term indebtedness and the seller and/or its Affiliates

under taid Throughput Agreement without the consent of any holder of such indebtedness or any

party to said Throughput Agreement. If the exercising OWNER does not (either independently, or

with a guarantee of its Parent Corporation) have a Moody’s Bond Rating of Aaa or better at the

time of closing of such purchase, then such assumption shall not release the obligor of such long-term

Page 28 of 105

indebtedness or the cellar and/or its Affiliates from such obligations »nH liabilities under any such

Throughput Agreement without the respective consents of the holders of such indebtedness and the

parties to such Throughput Agreement and their successors and assigns and, in the absence of any

such release, such OWNER shall agree to indemnify (together with such further agreements of the

OWNER'S Parent Corporation, if any. as will bind such Parent Corporation to cause and enable such

OWNER to perform under such Indemnity agreement) the obligor of such long-term indebtedness

and the seller and/or its Affiliates which are parties to such Throughput Agreement against any loss

or liability occurring thereafter as s result of the OWNER'S failure to pay the long-term indebtedness

or to discharge the obligations and liabilities assumed. If the long-term indebtedness can be prepaid,

then the exercising OWNER may elect to prepay such indebtedness. In which event such OWNER

will not be required to assume such long-term indebtedness or any obligation under a Through¬

put Agreement.

The seller may elect to (a ) make arrangements to as to b« able to convey, and to convey, directly

to such OWNER an undivided Interest in TAPS, or (b) cause sad enable such undivided interest

to be conveyed to such OWNER, or (c) transfer the appropriate number of Equity Securities to

such OWNER, whereupon such OWNER shall immediately exchange such Equity Securities for such

undivided interest; provided such seller shall be responsible far and shall indemnify such OWNER

against any federal or state income tax liability directly resulting from suds transfer or exchange in

excess of any such tax liability upon such OWNER which would have been incurred as a result of

transfers under (a) and (b) above.

7.7 Terns for Financing Arrangements. Each OWNER, for itself and its respective successors

and assigns, agrees that it shall:

(a) Maks reasonable efforts to exclude from any agreement provisions which would prohibit

the transfer of Equity Securities or an undivided interest in the System in the manner provided

herein to an OWNER exercising its preferential rights hereunder.

(b) Include in any long-term indebtedness, the proceeds of which are to be used for the

purpose of financing an OWNER'S undivided interest to TAPS, and to any associated Throughput

Agreement terms and provisions authorising any purchaser having a Moody's Bond Rating of Aaa

or better at the time of dosing of such purchase ( either independently, or with a guarantee by its

Parent Corporation )

(i) to assume such long-term indebtedness and thereby release the obligor without the

consent of any holder of such indebtedness,

(if) to assume the obligations and liabilities under say associated Throughput Agree¬

ment and thereby release the seller and/or its Affiliates from such obligations and liabilities

in such Throughput Agreement without the consent of any party to such Throughput Agree¬

ment; and

of which are to be used for the purpose of financing an OWNER'S undivided interest to TAPS, a

prevision permitting such indebtedness to be payable at any time without any additional cost,

penalty or other expense by an OWNER exerasing a preferential ngbt pursuant to Section 7.8.

7.8 Successors and Assigns. In the event that any OWNER hereafter causae all or any part of

its undivided interest in TAPS to be transferred to an Affiliate or all of Its undivided interest to TAPS

to be transferred to a New Corporation or die Equity Securities of OWNERS are transferred by their

Parent Corporations to a New Corporation, then the transferor shall execute an F.naMtng Agreement

with respect to such Affiliate or New Corporation; provided, that any such transferor's obligations

under the Enabling Agreement as to a New Corporation shall be to the proportion that its Equity

Security ownership to such New Corporation bean to the total Equity Security ownership to such New

Corporation.

Page 29 of105

Any transfer of an undivided interest in TAPS shall be subject to this Agreement and shall require

the transferee to assume all of the obligations of an "OWNER” and a Party under this Agreement and

all commitments made pursuant hereto and its proportionate part of all costs and expenses of TAPS.

Any such transferee shall be deemed to be an OWNER and a Party under this Agreement upon (1)

the execution by such transferee of a Ratification Agreement confirming and adopting this Agreement

and (u) the execution of an Enabling Agreement by a Parent Corporation, if any, of such transferee.

ARTICLE Vm

TERM or ACKZEMZNT

8.1 Initial Term. This Agreement shall be in effect from the Date of this Agreement and until

the expiration of thirty (30) years from the Date of Commissioning, with successive five (5) year

renewal terms thereafter so long as at least two Parties hereto desire to continue operations here¬

under. Such initial thirty (30) year term and any such successive five (S) year renewal term are

each hereinafter sometimes referred to as an 'Agreement Term." If, at the end of any Agreement

Term, less than two Parties desire to continue operations hereunder, this Agreement shall terminate

8.2 Discontinuance of Operations by One or More Parties. If at the expiration of any Agree¬

ment Term, any one or more of the Parties hereto desire to discontinue operations hereunder and any

two Parties hereto desire to continue operations hereunder, then the following shall apply:

(a) Definitions and General Provisions. As used in this Section 8-2, the following terms

shall have the respective meanings indicated:

(i ) “Tern Notice' means a wntten notice stating whether or not the Party giving same

desires to continue or discontinue operations hereunder for the next succeeding Agreement

Term,

(11) ‘Positive Term Notice* means a written notice that the Party giving same desires

to continue operations hereunder for the next succeeding Agreement Term, and

(lii) ‘Negative Term Notice' means a written notice that the Party giving same does

not desire to continue operations hereunder for the next succeeding Agreement Term.

All Term Notices (whether positive or negative) given pursuant to this Section 8.2 shall be given

to Operator and to all the other Parties hereto. If any Party who is required by the provisions

of this Section 8.2 to give a Term Notice fails to give same within the applicable time limit

herein provided for. then as of the end of the last day upon which such Party could have given

such Term Notice in compliance with this Section 8.2, such Party shall be deemed for all pur¬

poses under this Section to have given a Positive Term Notice.

(b) Notice of Parties' Desires. Prior to the expiration of each Agreement Term, the Parties

hereto shall give Term Notices in accordance with the following:

(1) Firsi Term Notice. Not less than ninety (90) days prior to the expiration of each

such Agreement Term, each Party hereto shall give a Term Notion. If such notice is a

Negative Term Notice, it shall be final and may not be changed or revoked without the

written consent of all Parties hereto.

( li) Second Term Notice. If one or more Parties hereto so give a Negative Term Notice

pursuant to Subdivision (1) next above, then not less than eighty (80) days prior to the

expiration of the then current Agreement Term, Operator shall give written notice of such

fact to the Party or Parties hereto who have given a Positive Term Notice, specifying the

Party or Parties who have given a Negative Term Notice. In such event, then not less then

seventy (70) days prior to the expiration of the then current Agreement Term, each Party

Page 30 of 105

who hot previously given * Poritfv* Tom* Node* may recotuxW whether or not It desires

to continue operations hereunder for the next succeeding Agreement Term, And shell give

to Operator Another Term Notice (width mey be either pa*ittve or negativo, *t such Party's

option), ecd «oy Negative Term Notice so given by any such party shall be final and shall

supersede and replace the Positive Term Notice previously given by such Party

(e) Readjustments. If. as of sixty (00) days prior to the expiration of the then current

Agreement Term, at least two of the Parties hereto have given Positive Trim Notices which have

not been replaced or superseded by Negative Term Notice* pursuant to subdivision (b) of this

Section 8.2, this Agreement shall continue tn effect for the next suooeeding Agreement Term.

Upon the completion of all transfers of undivided interest in TAPS, the Parties desiring to con¬

tinue operations hereunder shell formally amend Table ! in Section 3.1 of this Agreement to reflect

the Percentages of Ownership in TAPS each has aapiired from the Party or Parties desiring to

discontinue operations.

—

(d) flight* of Parties Determination of Saluege Value. The Parties desiring to continue

operations hereunder may do so following the applicable Agreement Term, but the Pasty or

Parties who have elected not to continue operations hereunder shall not be charged with any

past of the expenses, costs and habtlltiee thereafter incurred in the operation, maintenance and

repair of TAPS except as provided in rubsection (f) hereof, and such Party or Parties discontinuing

operations hereunder shall not be entitled to accept any further tenders for shipment. All Parties

owning an interest in TAPS shall endeavor mutually to agree within sixty ( 00) days alter ter¬

mination of the applicable Agreement Term, upon the reasonable net salvage value of the TAPS

properties, including transferable interests in land, material, equipment and all other items of

value (herein called *Net Salvage Value'), and if such Parties are unable to mutually agree

upon such salvage value within the time fixed, then the matter shall be submitted to arbitration,

using the procedure set forth In Section 11.1 hereof.

(e) Conveyance to Partin Dutring to Continue Operations. Upon establishing the Net

Salvage Value as above provided, the Parties desiring to continue operations shall pay to the Party

or Pasties desiring to discontinue operations Its or their proper proportion of such Net Salvage

Value (such proper proportion being determined aa to each Party deairing to discontinue opera¬

tions hereunder by multiplying such Party's Percentage of Ownership times the Net Salvage

Value) and upon receipt of such payment, such Party or Parties shall convey to the purchasing

Parties >11 of Its or their interest in TAPS and all rights in connection therewith. Such convey¬

ance shall contain a special warranty of title, shall be made subject to this Agreement and shall

require the transferees to assume the obligations accruing under this Agreement subsequent tn

the lost day of the Agreement Term during which such Party or Parties made the election to

discontinue operations hereunder as to the interest covered thereby, each transferee severally

Assuming such obligations insofar as they relate to the interest acquired by it. Unless otherwise

agreed between them at the time, it is understood that, as between the Parties desiring to continue

operation of TAPS hereunder, they shall purchase and own the interest of the Party or Pvties

desiring to discontinue such operation in the ratio that each purchasing Pasty’s Percentage of

Ownership tn TAPS prior to the purchase bears to the total of all of the purchasing Parties’ Per¬

centages of Ownership in the System prior to such purchase.

(I) Sole <n Lira of Acceptance of Net Salvage Value. Any Party desiring to discontinue

operations may, in lieu of accepting payment on the basis of Net Salvage Value as provided

above, reaarve the right for a period of six months after the expiration of tha Agreement Term

in which it elected to discontinue operations to negotiate for a sola of Its entire interest in TAPS

( subject to the option of die Parties desiring to continue operations to purchase same in accord¬

ance with Section 7.2) by so specifying in writing (i) at the time of giving its Negative Term

Notice as before provided, or (ii) by notice to the Operator and all Parties hereto within tec

days (10) after the Net Salvage Value is determined. If thereafter such Party is not successful

Page 31 of 105

in effecting a tale within the six man tinbefore described, such Party shell then be obligated to

accept payment for its interest in TAPS upon the basis of Net Salvage Value as before provided.

less the portion of maintenance, repair and replacement expenses corresponding to jucb Party's

Percentage of Ownership in TAPS incurred between the date of expiration of the applicable

Agreement Term and the end of the six months or the earlier date when decision may be made

to accept payment on the basis of Net Salvage Value; and such Party shall then be further

obligated to convey its interest in TAPS to the Parties desiring to continue operations hereunder.

as before provided. If such Party is successful in effecting a sale, then upon the effective date

thereof the purchaser shall become entitled to utilize the capacity tn TAPS representing tbo

Interest purchased, shall pay the portion of capital expenditures and maintenance, tepair and

replacement expenses incurred between the date of expiration of the applicable Agreement Term

and the effective date of purchase corresponding to the interest acquired, and shall become

obligated as of such effective date to pay die portion of all expenses, costs and liabilities there¬

after incurred in operating, maintaining, repairing, and providing replacements and additions to

TAPS corresponding to the interest acquired, and shall be bound to all the obligations and shall

have ail the rights under this Agreement of the Party from whom the interest was purchased.

8-3 Disposition of Properties Upon Termination of Agreement. Upon termination of this Agree¬

ment TAPS shall be either continued in operation by the Parties under a new agreement, sold in place

for continued operation or salvage by others, or salvaged by the Partin as they may agree unanimously.

If they cannot so agree, TAPS shall be purged of all petroleum with each Party accepting its portion of

the line ftQ, tank working stocks and tank bottoms, and all TAPS properties (including transferable In¬

terests In land, materials, equipment and all other items of value ) shall be salvaged as necessary and

divided between the Parties in accordance with their respective Percentages of Ownership, or shall

be sold at public or private sale, as the Parties may agree, with proper division between the Parties

of the proceeds of such sale. Each Party shall bear that share of the cost of salvaging and disposing

of material and cleaning up the premises which is equal to its Percentage of Ownership. Any agree¬

ment to sell the facilities in place, as provided heretofore, shall include and he subject to a prefer¬

ential option for each Party to purchase the properties by meeting the highest price offered therefor.

and if more than one Pasty chooses to exercise such option, each shall be entitled tn do so tn the

proportion that its Percentage of Ownership in TAPS bean to the total Percentages of Ownership in

TAPS of all those desiring to exercise the option. Also if salvage and disposition of the properties

between the Parties, as provided heretofore. Is necessary because of inability of the Parties to agree

unanimously upon any other course of action, each Party shall have a preferential option, before any

salvage is begun, to purchase the properties at the salable value of the transferable interests in land plus

the net salvage value of the material, equipment and other items of value (herein called “Salable

Value”), such Salable Value to be determined by agreement of the Parties or by arbitration, using

the procedure set forth in Section 11.1 hereof; and if more than one Party chooses to exercise such

option, each shall be entitled to do so in the proportion that its respective Percentage of Ownership

bears to the total Percentages of Ownership of all Parties desiring to exercise the option.

ARTICLE IX

Fcnoui. INCOME TAX ELECTION

9.1 Election to be Excluded from Partnership Regulations. Each Party hereto hereby elects

that it and the operations covered by this Agreement be excluded from the application of Suhchapter K

of Chapter 1 of Subtitle A of the Internal Revenue Code of 1954. as permitted and authorized by

Section 761 of such Coda and the regulations promulgated thereunder or similar laws and regulations

hereinafter enacted or promulgated. The Parties hereby agree to execute such evidence of the election

as may be required by regulations issued under said Subchapter L Should the regulations require

each Pasty to execute additional evidences, each Party agrees to execute or Join in the execution

Page 32 of 105

thereof. The election hereby made and the other provisions of thb Section shall apply in like manner

bo applicable state laws, regulations, and rulings now in effect or hereafter enacted that have an

effect similar to the federal provisions referred to herein. In making the election, each of the Parties I

represents that the income derived fay such Party from the operations under this Agreement can be

adequately determined without the computation of partnership taxable income.

ARTICLE X

PATMXNT or COSTS AND Exnxsxi

10.1 Payment oi Coats and Expenses. The Parties hereto agree that all costs and expenses

incurred in the construction of TAPS, including costs and expenses as incurred prior to the Date of

this Agreement ( except any interest and other expenses related to the assignment of interests in TAPS

between the Parties) which would have been properly chargeable to the Parties If incurred by the

Contractor under the Contract, shall be paid by the Parties with each Party hereby agreeing to pay

the portion of all such costs and expenses equal to its Initial Percentage. Each Party hereby agrees

that it shall pay or provide for the payment of all costs and expenses properly chargeable to it under

and in accordance with the Contract and the Operating Agreement and under this Agreement

ARTICLE XI

AnmuTioN

11.1 Arbitration Procedure. The procedure aet forth in this Section 1L1 shall apply whenever a

determination of any of the following two matters is to be made by arbitration pursuant to the

respective provisions of this Agreement shown below, in which event the Parties shall select two

arbitrators in accordance with "(a)* or “(b)" below, whichever is applicable:

(a) A determination of Net Salvage Value pursuant to Subsection (d) of Section 3.2, in which

event within ten (10) days after it has been determined that the Parties cannot mutually agree

upon the Net Salvage Value, the Party or Parties desiring to discontinue operations shall select

one arbitrator and the Parties desiring to continue operations hereunder shall select another

arbitrator,

(b) A determination of Salable Value pursuant to Section 8.3, in which event within ten (10)

days after it has been determined that the Parties cannot mutually agree upon the Salable Value,

the Party or Parties desiring to exercise the option provided for in said Section 8.3 shall select

one arbitrator, and the other Party or Parties hereto shall select another arbitrator.

The two arbitrators thus selected in accordance with subsections (a) or (b) hereof, as the case may

be, shall select a third arbitrator. If any such group shall fail to choose an arbitrator within the time

required heretofore or if the arbitrators chosen cannot agree upon the choice of a third arbitrator

within thirty (30) days after the last one is named, then such arbitrator or arbitrators shall be

appointed by the person who is then the Chief Judge of the United States District Court for the

Southern District of Texas. It shall be the duty of foe arbitrators promptly to arrive at a decision

as to Net Salvage Value or Salable Value, as the case may be, and foe decision of any two of said

arbitrators in writing shall be binding upon all Parties hereto. The cost of foe arbitration shall be

borne by all foe Parties according to their Percentages of Ownership in TAPS. A majority of foe

arbitrators may determine the place or places at which will be held any hearing in connection with

foe arbitration. Each Party hereto shall be given reasonable advance notioe of foe time and place

of any such hearing. Each side shall have foe right to be heard and to be represented by counsel

at any such hearing, and it shall not be necessary to observe foe rules of evidence which are applicable

to an action in a court at law.

Page 33 of105

ARTICLE XII

TCCKNICAL INTORMATON, Lwevnows AXD FATEFCTJ

12.1 Technical Information. Each Party shall have access to all technical information received

by the Contractor, or resulting from, or utilized in the design, construction or operation of the System

( Technical Information* )

(a) Each Party shall own an undivided interest equivalent to its Percentage of Ownership

In the System in all Technical Information, the cost of which is includable for the purposes of a

redistribution pursuant to Subsection (b) of Section 6.4. and shall have the right to use and dispose

of said Technical Information in any manner it, in its sole discretion, deems appropriate,

(b) With regard to all other Technical Information (i.e. Technical Information not within

the scope of Subsection (a) of this Section 12.1), each Party shall have:

(1) the right to use said other Technical Information in its operations;

(2) the right to disclose said other Technical Information to its Associated Companies

for use by them in their operations; and,

(3) the right to disclose said other Technical Information to third parties who ate par¬

ticipants in a joint operation with such Party or Its Associated Companies for use in such

operation;

provided, however, that as to any such other Technical Information as is the proprietary Technical

Information of one of said Parties and/or its Associated Companies and is clearly designated as

proprietary, the other Parties each agree:

(i) to exercise the same degree of care in maintaining said proprietary Technical Infor¬

mation confidential as it exercises with regard to its own proprietary technical information;

(ii) to disclose said proprietary Technical Information referred to in this proviso only to

those of its Associated Companies which are obligated to exorcise the aforesaid degree of care;

and,

(iii) to disclose said proprietary Technical Information referred to in this proviso only to

third parties who are participants in a joint operation with said Party or its Associated Com¬

panies and who arc obligated to exercise the aforesaid degree of care:

I Nothing in this Section 12.1 shall grant or convey or be deemed to grant or convey any right whatso¬

ever under any patent

12.2 Patent Infringement With reference to. but only with reference to, operations conducted

L pursuant to this Agreement each Party agrees to hold each other Parti/ free and harmless from any and

all claims of patent infringement which are based on any patents owned or controlled by it or any

of its Associated Companies and which are based upon inventions made prior to or during the period

l that it is a Party to this agreement.

12.3 Inventions by Third Parties. Each Party agrees that any patent or patent application cover¬

ing an invention or discovery which arises nut of any separate research or development program car¬

L ried out for the Parties by the Contractor or by a third party for the development of equipment facili¬

ties, or techniques needed in the System shall belong jointly to the Parties and each of said Parties

shall have an undivided interest in each such patent and patent application equivalent to each Party’s

Percentage of Ownership in the System The ownership interests in patent rights acquired under this

L Section 12.3 by any Party which ceases to be a Party shall pass to such Party's transferee, as pro¬

vided in Article VII of this Agreement; provided, however, that in assigning its ownership inter-

Page 34 of 105

erts in such patents the Party may reserve for Itself and its Associated Companies a royalty free license

to use in its Own Operations ( hereinafter defined I the Inventions covered by such patent rights. The

Parties agree that title to any such patent or patent application may be held in the name of one )

Party for the benefit of all Parties.

114 Inventions by Parties. The Parties spec that any patent or patent application covering

an invention or discovery which arises out of any separate research or development program earned

out by one of the Parties or one of its Associated Companies, the costs and expenses of which have

bean paid far by the Contractor as agent for all Parties, shall belong to said Party or said Associated

Company but each of the other Parties shall have:

(a) A nonexclusive, worldwide, irrevocable, royalty-free, non transferable right under said

patents and patent applications to use the inventions or discoveries covered thereby in such of

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