<PAGE>
EXHIBIT 10.8
EXECUTION VERSION
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PIPELINES AND TERMINALS AGREEMENT
BY AND AMONG
ALON USA, LP,
A TEXAS LIMITED PARTNERSHIP
AND
HOLLY ENERGY PARTNERS, L.P.,
A DELAWARE LIMITED PARTNERSHIP
================================================================================
DATED: FEBRUARY 28, 2005
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TABLE OF CONTENTS
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SECTION 1.
DEFINITIONS..................................................................................1
SECTION 2.
THROUGHPUT AND STORAGE
COMMITMENT............................................................7
SECTION 3.
TARIFFS, FEES AND
SURCHARGES.................................................................9
SECTION 4.
BILLING.....................................................................................12
SECTION 5.
TAXES.......................................................................................12
SECTION 6.
TRANSPORTATION AND DELIVERY OF
PRODUCT......................................................13
SECTION 7.
PRODUCT QUALITY STANDARDS AND
REQUIREMENTS..................................................16
SECTION 8.
PRODUCT MEASUREMENTS; INVENTORY REPORTS; AUDIT
RIGHTS.......................................17
SECTION 9.
TITLE TO PRODUCT AND PRODUCT
LOSSES.........................................................18
SECTION 10.
EXCEPTIONS TO
OBLIGATIONS...................................................................18
SECTION 11.
AGREEMENT TO REMAIN
SHIPPER.................................................................21
SECTION 12.
AGREEMENT NOT TO CHALLENGE TARIFFS OR TERMINAL CHARGES;
GOVERNMENTAL ACTIONS................21
SECTION 13.
TERM AND RENEWAL;
RIGHT TO ENTER NEW
AGREEMENT..............................................22
SECTION 14.
CONSTRUCTION OF UPGRADES; EXPANSION OF
PIPELINE.............................................22
SECTION 15.
CONTRACT QUARTER
ADJUSTMENTS................................................................24
SECTION 16.
EVENTS OF
DEFAULT...........................................................................26
SECTION 17.
REMEDIES....................................................................................27
SECTION 18. ALON
RIGHT OF FIRST
REFUSAL.................................................................30
SECTION 19.
INSURANCE;
INDEMNIFICATION..................................................................31
SECTION 20.
NOTICES.....................................................................................32
SECTION 21.
MISCELLANEOUS...............................................................................33
</Table>
EXHIBITS
Exhibit A
- Refined Product
Pipelines
Exhibit B
- Refined Product
Terminals
Exhibit C
- Terminals Fee
Schedule
Exhibit D
- Interstate Tariff
(Rates, Rules and Regulations)
Exhibit E
- Intrastate Tariff
(Rates, Rules and Regulations (Public))
Exhibit F
- Intentionally
Omitted
Exhibit G
- Intrastate Tariff
(Rates, Rules and Regulations (Private))
Exhibit H
- Insurance
Exhibit I
- Schedule of
Settlement Procedures
Exhibit J
- Access Agreement
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
PIPELINES AND TERMINALS AGREEMENT
This Pipelines and Terminals Agreement (this "Agreement") is dated
as
of February 28, 2005, by and among ALON
USA, LP, a Texas limited partnership and
Holly Energy Partners, L.P., a Delaware
limited partnership.
RECITALS:
Pursuant to that certain Contribution Agreement dated as of January
25,
2005 (the "Contribution Agreement") by and
among HEP, Holly Energy
Partners-Operating, L.P., a Delaware
limited partnership, T&R Assets, Inc., a
Texas corporation, Fin-Tex Pipeline
Company, a Texas corporation, and ALON USA
Refining, Inc., a Delaware corporation
(together with T&R Assets, Inc. and
Fin-Tex Pipeline Company, "Transferors"),
and ALON Pipeline Logistics, LLC, a
Delaware limited liability company, ALON
USA, INC., a Delaware corporation,
ALON, and ALON Pipeline Assets, LLC, a
Texas limited liability company, and an
Affiliate of ALON ("Newco1"), Transferors
have agreed to contribute to HEP,
through Newco1, and HEP has agreed to
acquire, certain pipelines and terminals
which historically have been utilized by
ALON to transport and terminal Refined
Products.
ALON desires to continue to transport and terminal Refined Products
in
the Transferred Assets and HEP desires to
provide transportation and
terminalling services to ALON, all on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual obligations,
covenants
and conditions contained herein, the
parties to this Agreement hereby agree as
follows:
SECTION 1. DEFINITIONS
(a) As used herein, the following terms shall have the meaning
specified below:
"Abilene Pipeline" has the meaning set forth in Section
2(b)(ii).
"Activity Notice" has the meaning set forth in Section 15(a).
"Affiliate" means, with respect to any Person, any other Person
that
directly or indirectly through one or more
intermediaries Controls, is
Controlled by or is under common Control
with, the Person in question.
"ALON" means ALON USA, LP, a Texas limited partnership.
"ALON Events of Default" has the meaning set forth in Section
16(b).
"ALON Indemnified Parties" has the meaning set forth in Section
19(c).
"Ancillary Documents" has the meaning set forth in the
Contribution
Agreement.
PIPELINES AND TERMINALS AGREEMENT
<PAGE>
"Applicable Law" means any applicable statute, law, regulation,
ordinance, rule, judgment, rule of law,
order, decree, permit, approval,
concession, grant, franchise, license,
agreement, requirement, or other
governmental restriction or any similar
form of decision of, or any provision or
condition of any permit, license or other
operating authorization issued under
any of the foregoing by, or any
determination by any Governmental Authority
having or asserting jurisdiction over the
matter or matters in question, whether
now or hereafter in effect and in each case
as amended (including, without
limitation, all of the terms and provisions
of the common law of such
Governmental Authority), as interpreted and
enforced at the time in question.
"Arbitrable Dispute" means any and all disputes, Claims,
controversies
and other matters in question between ALON,
on the one hand, and HEP, on the
other hand, arising out of or relating to
this Agreement or the alleged breach
hereof, or in any way relating to the
subject matter of this Agreement
regardless of whether (a) allegedly
extra-contractual in nature, (b) sounding in
contract, tort or otherwise, (c) provided
for by Applicable Law or otherwise or
(d) seeking damages or any other relief,
whether at law, in equity or otherwise.
"bpd" means barrels per day.
"Capital Amortization Period" has the meaning set forth in
Section
14(a)(iv).
"Capital Improvement" means (a) any modification, improvement,
expansion or increase in the capacity of
the Refined Product Pipelines or
Refined Product Terminals or any portion
thereof, or (b) any connection, or new
point of receipt or delivery for Refined
Products, including any terminals,
lateral pipelines or extensions of Refined
Products Pipelines.
"Claim" means any existing or threatened future claim, demand,
suit,
action, investigation, proceeding,
governmental action or cause of action of any
kind or character (in each case, whether
civil, criminal, investigative or
administrative), known or unknown, under
any theory, including those based on
theories of contract, tort, statutory
liability, strict liability, employer
liability, premises liability, products
liability, breach of warranty or
malpractice.
"Claimant" has the meaning set forth in Section 21(g).
"Chevron Segment" means the approximately 38-mile, 6-inch pipeline
from
Coahoma Station to Midland, Texas, leased
by ALON.
"Common Carrier Requirements" means duties relating to the
provision of
shipping rights and prorationing which are
required under Applicable Law with
respect to any Refined Product
Pipeline.
"Construction Capital Expenditure" has the meaning set forth in
Section
14(a)(iii).
"Contract Quarter" means a three-month period that commences on
January
1, April 1, July 1, or October 1, and ends
on March 31 June 30, September 30, or
December 31, respectively, except that the
initial Contract Quarter shall
commence on the Effective Date.
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
"Contract Year" means a year that commences on January 1 and ends
on
the last day of December, except that the
initial Contract Year shall commence
on the Effective Date.
"Contribution Agreement" has the meaning set forth in the first
recital.
"Control" (including with correlative meaning, the term
"Controlled
by") means, as used with respect to any
Person, the possession, direct or
indirect, of the power to direct or cause
the direction of the management and
policies of such Person, whether through
the ownership of voting securities, by
contract or otherwise.
"Control Center" has the meaning set forth in Section 6(a)(ix).
"Controlled Affiliates" means with respect to any Person, any
other
Person that directly or indirectly through
one or more intermediaries is
Controlled by such Person.
"Deficiency Payment" has the meaning set forth in Section
15(a)(v).
"Deficient Volumes" has the meaning set forth in Section
15(a)(i).
"Disputed Amount" has the meaning set forth in Section
15(a)(v).
"Due Date" has the meaning set forth in Section 4(b).
"Dyess Pipeline" Section 2(b)(ii).
"Effective Date" means the date of the closing of the
Contribution
Agreement.
"Escrow Agent" has the meaning set forth in Section 15(a)(v).
"Excess Volumes" has the meaning set forth in Section 15(a)(i).
"Exercise Period" has the meaning set forth in Section 18(b).
"Extended HEP Cure Period" has the meaning set forth in Section
16(a)(ii).
"Fin-Tex Pipeline" has the meaning set forth in Section
2(b)(ii).
"Force Majeure" means acts of God, strikes, lockouts or other
industrial disturbances, acts of the public
enemy, wars, blockades,
insurrections, riots, storms, floods,
washouts, arrests, the order of any court
or Governmental Authority having
jurisdiction while the same is in force and
effect, civil disturbances, explosions,
breakage, accident to machinery, storage
tanks, terminals, or lines of pipe,
inability to obtain or unavoidable delay in
obtaining material or equipment, and any
other causes, whether of the kind
herein specifically enumerated or
otherwise, which is not reasonably within the
control of the party claiming suspension
and which by the exercise of due
diligence such party is unable to prevent
or overcome. For avoidance of doubt,
the unavailability of any segment of a
Refined Product Pipeline leased by ALON
or its
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
Affiliates that is due to the termination,
expiration or nonrenewal of such
lease shall not be included within the
meaning of Force Majeure.
"Governmental Authority" means any federal, state, local or
foreign
government or any provincial, departmental
or other political subdivision
thereof, or any entity, body or authority
exercising executive, legislative,
judicial, regulatory, administrative or
other governmental functions or any
court, department, commission, board,
bureau, agency, instrumentality or
administrative body of any of the
foregoing.
"HEP" means Holly Energy Partners, L.P., a Delaware limited
partnership, and its operating
affiliates.
"HEP Events of Default" has the meaning set forth in Section
16(a).
"HEP Indemnified Parties" has the meaning set forth in Section
19(b).
"Incentive
Adjustment" has the meaning set forth in Section 15(a)(vi).
"Incentive Amount" means $22,891,000, subject to adjustment
pursuant to
Section 3(b).
"Incentive Revenues" has the meaning set forth in Section 3(b).
"Initial HEP Cure Period" Section 16(a)(ii).
"Initial Term" has the meaning set forth in Section 13(a).
"Intervention Period" has the meaning set forth in Section
17(c).
"Losses" has the meaning set forth in Section 19(b).
"Maintenance Activities" has the meaning set forth in Section
10(c).
"Maintenance Standards" has the meaning set forth in Section
6(a)(vii).
"Minimum Volume Commitment" has the meaning set forth in
Section
2(a)(i).
"Minimum Volumes Revenue" has the meaning set forth in Section
15(a)(iii).
"Monthly Capital Construction Amount" has the meaning set forth
in
Section 14(a)(iv).
"Monthly Services Charge" has the meaning set forth in Section
3(f).
"Navajo Pipeline Lease" means that certain Pipeline Lease
Agreement
dated February 21, 1997 between Navajo
Pipeline Company and ALON (as successor
in interest to American Petrofina Pipe Line
Company).
"Net Excess Revenues" has the meaning set forth in Section
15(d).
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
"Newco1" has the meaning set forth in the first recital.
"Objection Notice" has the meaning set forth in Section
15(a)(v).
"Operations" has the meaning set forth in Section 18(b).
"Other Products" means heating oil, distillates, transmix,
liquified
petroleum gas, natural gas liquids, blend
stocks, crude oil and any other
hydrocarbons which may hereafter be
transported or stored in the Transferred
Assets.
"PPI" means the inflationary adjustment index utilized by the
Federal
Energy Regulatory Commission from time to
time, which currently is the Producer
Price Index for Finished Goods, seasonally
adjusted, as published by the
Department of Labor.
"Person" means an individual or a corporation, limited
liability
company, partnership, joint venture, trust,
unincorporated organization,
association, Governmental Authority or
political subdivision thereof or other
entity.
"Pipeline Easements" has the meaning set forth in Section
6(a)(x).
"Prime Rate" means a rate per annum equal to the sum of (i) 3%
plus
(ii) the prime rate per annum announced by
Union Bank of California, N.A., or if
Union Bank of California, N.A. no longer
announces a prime rate for any reason,
the prime rate per annum announced by the
largest U.S. bank measured by deposits
from time to time as its base rate on
corporate loans, automatically fluctuating
upward or downward with each announcement
of such prime rate.
"Private Tariff" means each of the tariffs on Exhibits D, E, or G
which
is not designated as a "Public Tariff".
"Proposed Terms" has the meaning set forth in Section 18(b).
"Public Tariff" means each of the tariffs listed on Exhibits D, E,
or G
which is designated as a "Public Tariff"
and each other tariff which may
hereafter be filed publicly with respect to
a Refined Product Pipeline in
accordance with the terms of this
Agreement.
"Quarterly Minimum Volume" has the meaning set forth in Section
15(a)(i).
"Refined Products" means gasolines, diesel fuel, jet fuel and
kerosene.
"Refined Product Pipelines" means the pipelines described on
Exhibit A
attached hereto.
"Refined Product Terminals" means the terminals and tank farm
described
on Exhibit B attached hereto.
"Refinery" means the refining facilities owned and operated by ALON
and
its Affiliates in Big Spring, Texas.
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
"Renewal Terms" has the meaning set forth in Section 13(b).
"Respondent" has the meaning set forth in Section 21(g).
"River Pipeline" has the meaning set forth in Section 2(b)(ii).
"Services Agreement" has the meaning given to such term in the
Contribution Agreement.
"Statement" has the meaning set forth in Section 4(a).
"Third Party Sale Period" has the meaning set forth in Section
18(b).
"Total Activity" has the meaning set forth in Section 15(a)(i).
"Total Deficient Revenues" has the meaning set forth in Section
15(a)(v).
"Total Excess Revenues" has the meaning set forth in Section
15(a)(v).
"Total Volumes" has the meaning set forth in Section 15(a)(i).
"Total Revenues" has the meaning set forth in Section 15(a)(i).
"Transaction Notice" has the meaning set forth in Section
18(b).
"Transfer" including the correlative term "Transferring" or
"Transferred" means any direct or indirect
transfer, assignment, sale, gift,
pledge, hypothecation or other encumbrance,
or any other disposition (whether
voluntary, involuntary or by merger,
operation of law, or sale of equity
interests) of all or any portion of the
Refined Product Pipelines and the
Refined Product Terminals (including any
Capital Improvement).
"Transferred Assets" has the meaning set forth in Section
2(a)(iii).
"Transferors" has the meaning set forth in the first recital.
"Wichita Falls Pipeline" has the meaning set forth in Section
2(b)(ii).
(b) Other Terms. If other terms are defined elsewhere in the text
of
this Agreement, such terms shall have the
meaning so indicated.
(c) Interpretation. Unless the context of this Agreement
clearly
requires otherwise, (i) the references to
the plural include the singular, the
singular the plural, the part the whole,
(ii) "or" has the inclusive meaning
frequently identified with the phrase
"and/or", (iii) "including" has the
meaning frequently identified with the
phrase "but not limited to", (iv)
references to "hereunder" or "herein"
relate to this Agreement, and (v)
references to "Dollars" or "$" refer to
U.S. dollars. Section, Schedule and
Exhibit references are to this Agreement
unless otherwise specified.
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
SECTION 2. THROUGHPUT AND STORAGE COMMITMENT.
(a) Minimum Volume Commitment. During the term of this Agreement
and
subject to the terms and conditions of this
Agreement (including, without
limitation, Section 10 hereof), ALON agrees
as follows:
(i) Commencing on the Effective Date, ALON will transport on
the Refined Product Pipelines and terminal in the Refined
Product
Terminals volumes of Refined Products equal to or greater than
the
minimum volumes per day specified for each Refined Product Pipeline
and
Refined Product Terminal on Exhibits A and B hereto (collectively,
the
"Minimum Volume Commitment").
(ii) Without prejudice to any other remedy available to ALON,
if for any period of time ALON is unable to transport on the
Refined
Product Pipelines or terminal in the Refined Product Terminals
the
volumes of Refined Products which are required to meet the
Minimum
Volume Commitment and for which ALON is ready, willing and able
to
transport or terminal, whether such inability is due to HEP's
operational difficulties, prorationing, difficulties with
pipeline
connections, or otherwise, then the Minimum Volume Commitment will
be
reduced for such period of time by the volume of Refined Products
that
ALON is unable to transport on the Refined Product Pipelines or
terminal in the Refined Product Terminals as reasonably determined
and
communicated by ALON to HEP in writing from time to time during
such
period.
(iii) The parties acknowledge and agree that all volumes of
Refined Products and Other Products transported or stored in
the
Refined Product Pipelines, the Refined Product Terminals and/or
the
related assets transferred to HEP pursuant to the Contribution
Agreement (the "Transferred Assets"), whether transported or stored
for
or on behalf of ALON or any other party, shall apply toward
satisfaction of the Minimum Volume Commitment.
(iv) The Minimum Volume Commitment shall not be reduced and
ALON shall be responsible for providing alternative transportation,
at
ALON's sole cost and expense, should the Chevron Segment be
unavailable
due to the termination, expiration, or nonrenewal of the lease.
(v) Minimum Volume Adjustments. If for any reason ALON shall
not utilize a Refined Product Pipeline or a Refined Product
Terminal
for a period of 60 consecutive days and the Minimum Volume
Commitment
applicable to such Refined Product Pipeline or Refined Product
Terminal
shall not otherwise be excused pursuant to this Agreement with
respect
thereto, then from and after such 60th day (and only during
such
non-utilization), the minimum volume commitment then applicable to
such
Refined Product Pipeline or Refined Product Terminal shall be
discounted by the rate set forth for such pipeline or terminal in
the
column labeled "Section 2(a)(v) 60 Day Discount Rate" on Exhibit A.
At
such time as the Refined Product Pipeline or Refined Product
Terminal
is
returned to use, then the discount rate shall no longer apply.
In
the event the period of
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
non-utilization described in the foregoing sentence shall exceed
180
days or if ALON shall notify HEP that such non-utilization shall
be
permanent and such non-utilization is not otherwise excused
pursuant to
this Agreement, then, from and after such 180th day or from and
after
such notice, whichever is earlier (and only during such
non-utilization), the minimum volume commitment then applicable to
such
Refined Product Pipeline or Refined Product Terminal (without
giving
effect to any
discount pursuant to the foregoing sentence) shall be
discounted by the rate set forth for such pipeline or terminal in
the
column labeled "Section 2(a)(v) 180 Day Discount Rate" on Exhibit
A. At
such time as the Refined Product Pipeline or Refined Product
Terminal
is returned to use, then the discount rate shall no longer
apply.
(b) Obligations of HEP.
(i) During the term of this Agreement and subject to the terms
and conditions of this Agreement, HEP agrees to own or lease,
operate
and maintain the assets necessary to receive the Refined Products
from
ALON and to provide the services required under this Agreement.
Notwithstanding the preceding sentence, subject to Section
17(c),
Section 17(d), Section 18, and Section 21(c) of this Agreement
and
Section 11.6 of the Contribution Agreement, HEP is free (A) to sell
any
of its assets, including assets that provide services under
this
Agreement, (B) to merge with another entity (whether or not HEP is
the
surviving entity in such merger) or (C) to sell all of its assets
or
all of its equity to another entity at any time.
(ii) At the request of ALON and subject in each case to Common
Carrier Requirements and to Section 10 of this Agreement, HEP
agrees to
transport by pipeline for ALON each month during the term of
this
Agreement: (A) up to 20,000 bpd of Refined Products on the 6" line
from
Big Spring to Abilene (the "Abilene Pipeline"), (B) up to 25,000
bpd of
Refined Products on the 8" line from Midland to Orla (the
"Fin-Tex
Pipeline"), (C) up to 23,000 bpd of Refined Products on the 8"
line
from Big Spring to Wichita Falls (the "Wichita Falls Pipeline"),
(D) up
to 21,000 bpd of Refined Products on the 6" line from Wichita Falls
to
Duncan, OK (the "River Pipeline"), and (E) up to 53,000 bpd of
Refined
Products on the 8" line from Abilene to Dyess Air Force Base
(the
"Dyess Pipeline"). ALON represents that as of the Effective Date,
the
respective lines set forth above have the capacity to transport
the
volumes set forth above.
(iii) HEP agrees to provide terminalling services for all ALON
volumes of Refined Products transported to the Refined Product
Terminals.
To the extent that ALON is entitled to an exception under Section
10(a)
or Section 10(b) of this Agreement to its obligations under
Section
2(a) of this Agreement, the corresponding obligations of HEP under
this
Section 2(b) will be proportionately reduced.
(c) Ancillary Services. HEP will provide ancillary services to
ALON
with respect to the Refined Product
Pipelines and Refined Product Terminals,
including batch tracking, truck
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
rack blending, tank sampling, truck
sampling, tank-to-tank transfers,
information reporting, customer support
services, monitoring and storing
additives and such other services requested
by ALON that (i) reasonably relate
to ALON's Refined Products and activities
at the Refined Product Pipelines and
the Refined Product Terminals, (ii) are not
materially inconsistent with the
scope and nature of ancillary services
customarily provided by operators of
Refined Product pipelines and terminals,
and (iii) do not impose a material
burden on HEP; provided, however, that
irrespective of the foregoing clauses (i)
through (iii), HEP shall in any event
provide to ALON such ancillary services as
HEP provides from time to time to Holly
Corporation without additional charge
under that certain Pipelines and Terminals
Agreement dated July 13, 2004 (as may
be amended from time to time). The fees for
such ancillary services are included
in the fees provided for in Section 3. All
fuel additives, dyes, de-icers and
other additives requested to be added to
ALON's Refined Products will be
provided by ALON at no cost to HEP. If any
additional ancillary services are
requested by ALON that are different in
kind, scope or frequency from the
services set forth above, then HEP and ALON
shall negotiate in good faith to
determine the appropriate rates to be
charged for such ancillary services and
the capital costs, if any, that HEP may
reasonably incur to address such new
requirements. Each party shall be
responsible for maintaining the integrity of
its operations and the quality of its
products so as to not cause additional
operating costs related to ancillary
services to be incurred by the other party.
SECTION 3. TARIFFS, FEES AND SURCHARGES.
(a) Tariffs.
(i) The rules and regulations applicable to (A) interstate
service on the Refined Product Pipelines shall be as set forth in
the
pro forma rules and regulations tariffs attached hereto as Exhibit
D,
and (B) intrastate service (public line) and intrastate service
(private line) on the Refined Product Pipelines shall be as set
forth
in the pro forma rules and regulations tariffs attached hereto
as
Exhibit E and Exhibit G, respectively; provided that, as between
HEP
and ALON, the parties agree in the case of any conflict between
the
terms of this Agreement and the rules and regulations tariffs,
the
terms of this Agreement shall control. The initial tariff rates
for
interstate service on the Refined Product Pipelines shall be as
set
forth in the pro forma tariffs attached hereto as Exhibit D and
the
initial tariff rates for intrastate services (public line) and
intrastate service (private line) shall be as set forth in the
pro
forma tariffs attached hereto as Exhibit E and Exhibit G,
respectively.
In the event that any Governmental Authority having jurisdiction
over
HEP or the Refined Product Pipelines takes any action under
Applicable
Law which requires the tariff rates set forth in Exhibits D, E and
G to
be decreased, then the Minimum Volume Commitment shall be
proportionately adjusted in such a manner as may be necessary to
take
into account the economic benefits and obligations that would
have
otherwise been realized and borne by the parties had there not been
a
decrease in the tariff rates. If HEP and ALON are unable to agree,
such
proportionate adjustments will be determined by binding arbitration
in
accordance with Section 21(g) of this Agreement.
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
(ii) Subject to Common Carrier Requirements and the annual
adjustments contemplated by this Section 3(a)(ii), no tariff rates
or
incentive tariff rates set forth in Exhibits D, E or G shall be
amended
or modified and no new tariff shall be filed by HEP with respect to
the
Refined Product Pipelines, in each case, without the prior
written
consent of ALON. The initial tariff rates and incentive tariff
rates
set forth in Exhibits D, E and G (without consideration of any
previous
adjustment pursuant to this Section 3(a)) shall be adjusted on
March 1
of each Contract Year commencing on or after January 1, 2006, by
an
amount equal to the percentage change, if any, in the PPI from
the
month of December 2004 to the month of December immediately
preceding
such Contract Year, but in no event shall such adjustment ever
lower
the tariff rates below the initial tariff rates. HEP will deliver
a
copy of the Public Tariffs and the Private Tariffs, if any, to
ALON
setting forth the adjusted tariff rates and incentive tariff rates.
If
the PPI index is no longer published, ALON and HEP shall negotiate
in
good faith to agree on a new index that is recognized in the
refined
product pipeline and terminal industry or which otherwise gives
comparable protection against inflation or deflation in such
industry
and the same method of adjustment for increases or decreases in the
new
index shall be used to calculate increases or decreases in the
tariff
rates. If ALON and HEP are unable to agree, a new index will be
determined by binding arbitration in accordance with Section 21(g)
of
this Agreement, and the same method of adjustment for increases
or
decreases in the new index shall be used to calculate increases
or
decreases in the tariff rates.
(iii) The applicable fees, tariff rates and other charges
provided for in this Agreement will become effective as of the date
of
this Agreement, or in the case of Public Tariff rates relating to
the
Refined Product Pipelines, as soon thereafter as those rates
become
effective. HEP will use commercially reasonable efforts to obtain
the
necessary regulatory approvals for the Public Tariff rates set
forth in
Exhibit D and Exhibit E to become effective on the date of this
Agreement or as soon as possible thereafter.
(b) Incentive Tariffs. The incentive tariff rates applicable to
the
Refined Product Pipelines shall initially
be as set forth in Exhibits D, E and
G. The incentive tariff rates will be
adjusted each Contract Year as provided in
Section 3(a)(ii). In consideration of
ALON's commitments set forth in Section 2,
ALON shall be entitled to the incentive
tariff rates for transportation of
Refined Products on the Refined Product
Pipelines pursuant to this Agreement.
Notwithstanding the foregoing, ALON hereby
waives any claim to the incentive 2
tariff rates until the aggregate revenues
(not including any surcharges, charges
or tariff increases pursuant to Section
3(d), Section 3(e) and Section 3(f), and
any Monthly Capital Construction Amount
pursuant to Section 14(a)(iv)) generated
by the transportation and storage of
Refined Products or Other Products on the
Transferred Assets by ALON (including
transportation and storage by ALON on
behalf of third parties where ALON is the
shipper of record) exceed the
Incentive Amount in any Contract Year (such
excess being the "Incentive
Revenues"). At such time as ALON has
satisfied the Incentive Revenues
requirement, then ALON will be entitled to
receive the incentive 2 tariff rates
applicable during such Contract Year for
volumes of Refined Products or Other
Products transported by ALON (including
transportation by ALON on behalf of
third parties where ALON is the shipper of
record) on each Refined Product
Pipeline during such
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
Contract Year in excess of the incentive
volume requirement for such Refined
Product Pipeline for such Contract Year
(which Contract Year incentive volume
requirement shall equal the per day
incentive volume requirement as set forth in
Exhibit A multiplied by the actual number
of days in such Contract Year).
Settlement of any amounts due to ALON with
respect to incentive 2 tariff rates
shall be calculated as soon as practicable
following the end of each Contract
Year and shall be set forth in the Activity
Notice for the fourth Contract
Quarter in such Calendar Year, with actual
settlement made pursuant to Section
15(a)(vi). The Incentive Amount (without
consideration of any previous
adjustment pursuant to this Section 3(b)
shall be adjusted on March 1 of each
Contract Year commencing on or after
January 1, 2006, by an amount equal to the
percentage change, if any, in the PPI from
the month of December 2004 to the
month of December immediately preceding
such Contract Year.
(c) Terminal Fees. The initial service fees (as well as the method
for
subsequent adjustments in such fees) for
terminalling the Refined Products in
the Refined Product Terminals are set forth
on the fee schedule attached hereto
as Exhibit C.
(d) New Laws Monthly Surcharge. If new laws or regulations are
enacted
that require HEP to make substantial and
unanticipated capital expenditures with
respect to one or more Refined Product
Terminals, HEP may impose a monthly
surcharge to cover ALON's pro rata share of
HEP's cost of complying with these
laws or regulations; provided, however,
that ALON shall have the option to elect
not to incur such monthly surcharge
whereupon ALON shall, from and after the
date on which a Refined Product Terminal
shall have to satisfy such new law or
regulation, no longer be entitled to
utilize such Refined Product Terminal until
such time as ALON shall agree to incur such
monthly surcharge; provided further,
that (i) during the Initial Term, no such
election shall affect ALON's Minimum
Volume Commitment and (ii) during any
Renewal Term, any such election by ALON
shall decrease ALON's Minimum Volume
Commitment by the minimum volume applicable
to such Refined Product Terminal. ALON and
HEP shall negotiate in good faith to
mitigate the impact of these laws and
regulations and to determine the level of
the monthly surcharge. If ALON and HEP are
unable to agree on the level of the
monthly surcharge, such surcharge will be
determined by binding arbitration in
accordance with Section 21(g) of this
Agreement.
(e) Increases in Pipeline Tariff Rates. If new laws or regulations
are
enacted that require HEP to make
substantial and unanticipated capital
expenditures with respect to one or more
Refined Product Pipelines, HEP may
increase the tariff rates set forth on
Exhibits D, E and G to cover ALON's pro
rata share of HEP's cost (including cost of
capital) of complying with these
laws or regulations; provided, however,
that ALON shall have the option to elect
not to incur such increased tariff rates
whereupon ALON shall, from and after
the date on which a Refined Product
Pipeline shall have to satisfy such new law
or regulation, no longer be entitled to
utilize such Refined Product Pipeline
until such time as ALON shall agree to
incur such increased tariff rates;
provided further, that (i) during the
Initial Term, no such election shall
affect ALON's Minimum Volume Commitment and
(ii) during any Renewal Term, any
such election by ALON shall decrease ALON's
Minimum Volume Commitment by the
minimum volume applicable to such Refined
Product Pipeline. ALON and HEP shall
negotiate in good faith to mitigate the
impact of these laws and regulations and
to determine the amount of the new
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
tariff rates. If ALON and HEP are unable to
agree on the amount of the new
tariff rates that HEP will file, such
tariff rates will be determined by binding
arbitration in accordance with Section
21(g) of this Agreement.
(f) Terminal Access and Services Charge. The parties agree that
a
monthly terminal access and services charge
in the amount of $50,000 ("Monthly
Services Charge") shall be billed each
month to ALON with respect to monitoring,
control, reporting and other services to be
provided to ALON at the Refined
Product Terminals pursuant to this
Agreement. The Monthly Services Charge
(without consideration of any previous
adjustments pursuant to this Section
3(f)) shall be adjusted on March 1 of each
Contract Year commencing on or after
January 2006 by an amount equal to the
percentage increase, if any, in the PPI
from the month of December 2004 to the
month of December immediately preceding
such Contract Year; provided, however, the
Monthly Services Charge will not
decrease as a result of any decrease in the
PPI.
SECTION 4. BILLING
(a) Monthly Statement. Each month during the term of this
Agreement,
HEP will deliver a statement (the
"Statement") to ALON on or before the 20th day
of each month setting forth the fees due to
HEP by ALON for the services
rendered under this Agreement for the prior
month, net of the amount of any
adjustments due to ALON pursuant to Section
15(a)(vi).
(b) Due Date. ALON will pay HEP the amount specified on the
Statement
in the form of immediately available
federal funds by wire transfer to the bank
account specified on the Statement, or any
other mutually agreed upon method,
within 10 days after receipt of the
Statement (the "Due Date").
(c) Late Payments. Payments not received by HEP on or prior to the
Due
Date will accrue interest at the Prime Rate
from the Due Date until the date
actual payment is received by HEP.
SECTION 5. TAXES.
ALON will pay all taxes, import duties, license fees and other
charges
by any Governmental Authority levied on the
Refined Products delivered by ALON
for transportation or storage by HEP in the
Refined Product Pipelines and
Refined Product Terminals. HEP will pay all
taxes, import duties, license fees,
users fees and other charges by any
Governmental Authority levied on the
transportation and storage services
provided by HEP to ALON under this Agreement
or on the Refined Product Pipelines or the
Refined Product Terminals. Should
either party be required to pay or collect
any taxes, duties, charges and or
assessments pursuant to any federal, state,
county or municipal law or authority
now in effect or hereafter to become
effective which are payable by the other
party pursuant to this Section 5, the
proper party shall promptly reimburse the
other party therefor.
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
SECTION 6. TRANSPORTATION AND DELIVERY OF PRODUCT
(a) Refined Product Pipelines.
(i) Origin and Destination. HEP will receive Refined Products
from ALON at each of the Refined Product Pipelines origins as set
forth
in the applicable tariff. HEP will deliver the Refined Products
shipped
pursuant to this Agreement to the destination point set forth in
the
applicable tariff. Except as provided by Section 6(a)(vi) or
Section
14, or as may be otherwise agreed to by the parties, HEP will not
be
required to receive Refined Products from any other origin point,
nor
deliver Refined Products to any destination other than as provided
in
the tariff. Subject to Common Carrier Requirements, during the term
of
this Agreement, HEP shall not add or remove any origin or
destination
points to the Refined Product Pipelines without ALON's prior
written
consent.
(ii) Flow Rate. HEP shall ship Refined Products tendered by
ALON and as scheduled by ALON pursuant to Section 6(a)(v), in
accordance with the tariff rules and regulations set forth on
Exhibits
D, E, and G.
(iii) Minimum Batch Size. No Refined Products will be received
or moved through the Refined Product Pipelines except in
compliance
with the tariff rules and regulations set forth on Exhibits D, E,
and
G. The minimum batch size on the Refined Product Pipelines shall
be
3,000 barrels.
(iv) Notification of Utilization. When requested by HEP, ALON
will, within ten (10) days of such request, provide to HEP
written
notification of ALON's reasonable good faith estimate of its
anticipated future utilization of the Refined Product Pipelines of
HEP.
(v) Scheduling of Product Movements. Subject to Common Carrier
Requirements and the terms of this Agreement, ALON will have the
right
and responsibility to schedule all movements of Refined
Products
transported for or at the direction of ALON on the Refined
Product
Pipelines. HEP will ship such Refined Products at the times, in
the
specific pipelines and from the origin and to the destination
points as
set forth in the applicable tariffs as scheduled by ALON. Prior to
or
at the time of scheduling HEP's shipment of any Refined Products,
ALON
will provide a notice to HEP setting forth in detail the
specifications
of each shipment of Refined Products; provided that ALON, may
change
the scheduling and/or specifications of any shipment of Refined
Products up to the time of such shipment so long as ALON agrees to
be
responsible for any reasonable additional costs incurred by HEP as
a
direct result of such change and which would not have been incurred
by
HEP but for such scheduling change. In the event there shall occur
any
scheduling conflict between ALON and another shipper on any
Refined
Product Pipeline, the parties agree that the proration
provisions
contained in the document entitled, "Holly Energy
Partners-Operating,
L.P. Proration Policy," effective February 28, 2005, will control,
and,
to the extent such policy does not resolve
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
the conflict, the party with the greater historical usage over
the
preceding 24 months shall have priority.
(vi) Pipeline Direction and Connections. Without ALON's prior
written consent, HEP will not reverse the direction of any
Refined
Product Pipelines or, connect any other pipeline to the Refined
Product
Pipelines or the Refined Product Terminals; provided, however, that
HEP
may take any (A) emergency action reasonably necessary to prevent
or
remedy a release of Refined Products from a Refined Product
Pipeline or
Refined Product Terminal, or (B) take any action that may be
required
by Common Carrier Requirements without obtaining the consent
required
by this clause. ALON shall have the right to reverse the direction
of
any Refined Product Pipelines so long as (A) ALON agrees to
reimburse
HEP for reasonable additional costs and expenses incurred by HEP as
a
direct result of changing the direction of the Refined Product on
the
Refined Product Pipelines (both to reverse and re-reverse) and
which
would not have been incurred by HEP but for such change of
direction,
and (B) such reversal does not conflict with any of HEP's other
capacity commitments on the Refined Product Pipelines.
(vii) Maintenance. Except as set forth below, HEP, at its sole
cost and expense, shall maintain the Refined Product Pipelines in
good
condition and repair (A) in accordance with all Applicable Laws,
(B) in
accordance with accepted industry practices and procedures in
the
repair and maintenance of pipeline facilities, and (C) in
accordance
with provisions of clauses (i) through (iv) of Section 10(c)
(the
foregoing clauses (A) through (C) of this Section 6(a)(vii) are
collectively referred to herein as the "Maintenance Standards").
ALON,
for so long as ALON is shipping Refined Products on the Refined
Product
Pipelines pursuant to this Agreement, at its sole cost and
expense,
shall maintain in good condition and repair all connections,
valves,
tank farm and mainline pumps and other pipeline equipment that
connects
the Refinery to the Refined Product Pipelines, in accordance with
all
Applicable Laws and in accordance with applicable industry
standards.
Subject to Section 14, HEP, in its sole discretion, will make
the
determination if any capital expenditures or improvements are
needed to
the Refined Product Pipelines, and, except as provided in Section
3(e)
and Section 14, HEP will be responsible for all costs to implement
such
capital expenditures and improvements.
(viii) Shippers. HEP agrees that, without ALON's prior written
consent, neither HEP nor any of its Affiliates shall be a shipper
of
any Refined Products or Other Products in any Refined Product
Pipeline,
and HEP further agrees that, subject to Common Carrier
Requirements,
only ALON and such shippers as ALON shall designate shall be
permitted
to ship Refined Products on the Refined Product Pipelines.
(ix) Control Center. Without ALON's prior written consent, the
control center for the Refined Product Pipelines (the "Control
Center")
shall not be moved from Big Spring, Texas. HEP shall, during the
term
of this Agreement, provide ALON such level of communications
with
respect to the Refined Product Pipelines and the Refined
Product
Terminals as has been historically provided and such additional
communications
-14-
PIPELINES AND TERMINALS AGREEMENT
<PAGE>
services as ALON shall reasonably request so long as same does
not
impose a material burden on HEP. In addition, ALON shall retain
access
to the Control Center for purposes relating to any asset owned
or
operated by ALON pursuant to the Services Agreement.
Notwithstanding
the foregoing provisions, ALON shall not have access to any
information
pertaining to any other shippers, if any.
(x) No Additional Pipelines. HEP shall not construct or grant
any right to construct any pipeline for transporting Refined
Products
on any easement, right of way or other parcel of real property
transferred to HEP under the Contribution Agreement (the
"Pipeline
Easements"), nor shall HEP permit any pipeline controlled by HEP
and
currently or hereafter located or constructed on any Pipeline
Easement,
other than the Refined Products Pipelines or Capital Improvements,
to
transport any Refined Products; provided, however, HEP shall have
the
right to construct tanks and connecting lines at the Orla Tank Farm
and
the right to utilize any pipelines HEP currently utilizes at the
Orla
Tank Farm so long as
such use does not interfere with (x) HEP's service
to ALON pursuant to the terms of this Agreement or (y) ALON's
rights
pursuant to the terms of the Navajo Pipeline Lease.
(b) Refined Product Terminals.
(i) Deliveries to the Terminal. Deliveries of Refined Products
to the Refined Product Terminals will be made through existing
pipeline
connections at the Refined Product Terminals. At the beginning of
each
month, ALON will schedule the pipeline deliveries into the
Refined
Product Terminals, which may include deliveries of Refined
Products
from the Refined Product Pipelines or deliveries of third party
Refined
Products through existing pipeline connections at the Refined
Product
Terminals. ALON will provide HEP with a notice of scheduled
deliveries,
which notice will include details as to type, grade, quantity
and
quality of each Refined Product; provided that ALON may change
the
scheduling or specification of any scheduled delivery up to the
time of
such delivery so long as ALON agrees to be responsible for any
reasonable additional costs incurred by HEP as a direct result of
such
change and
which would not have been incurred by HEP but for such
change. Deliveries of Refined Products to the Refined Product
Terminals
may be made 24 hours per day, seven days per week. HEP agrees
that,
without ALON's prior written consent, neither HEP nor any of
its
Affiliates will make any deliveries for their own account into
the
Refined Product Terminals and, subject to Common Carrier
Requirements,
deliveries to the Refined Product Terminals will be limited to
deliveries from ALON or from third parties designated by ALON;
provided, however, HEP shall have the right to utilize the Orla
Tank
Farm, so long as such use does not interfere with (x) HEP's service
to
ALON pursuant to the terms of this Agreement or (y) ALON's
rights
pursuant to the terms of the Navajo Pipeline Lease.
(ii) Deliveries from the Terminal. Deliveries of Refined
Product from the Refined Product Terminals will be made to ALON, or
to
such third parties as ALON may direct, in accordance with HEP's
operating procedures. HEP may require ALON and each of its
employees,
agents and representatives to execute an access agreement in
the
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PIPELINES AND TERMINALS AGREEMENT
<PAGE>
form attached as Exhibit J hereto (and as may be subsequently
revised
as mutually agreeable to HEP and ALON) prior to loading Refined
Products at the Refined Product Terminals, to comply with rules
and
procedures posted at the Refined Product Terminals, and to
undergo
training regarding loading at the Refined Product Terminals. HEP
may
exclude anyone from the Refined Product Terminals who fails to
execute
or to comply with an access agreement, fails to comply with the
rules
and procedures posted at the Refined Product Terminals, fails to
attend
or comply with training, or, in HEP's reasonable opinion, poses a
risk
to the Refined Product Terminals, its personnel, the public, or
the
environment. Deliveries of Refined Products to trucks from the
Refined
Product Terminals may be made 24 hours per day, 7 days per week,
unless
otherwise notified by HEP due to maintenance-type activities or
emergencies. Unless otherwise consented in writing by the other
party
hereto, which consent shall not be unreasonably withheld, each
party
agrees that it shall continue the utilization of the terminal
operating
systems put in place by ALON, including systems to monitor and
control
customer identification, credit, access and loading volumes.
Subject to
Common Carrier
Requirements, HEP agrees to comply with and use
commercially reasonable efforts to enforce the limitations
instituted
by ALON from time to time with respec
