<PAGE>
EXHIBIT 10.1
PIPELINE LEASE AGREEMENT
by and between
MID-AMERICA PIPELINE COMPANY,
as LESSOR,
and
NAVAJO PIPELINE COMPANY,
as LESSEE
<PAGE>
PIPELINE LEASE AGREEMENT
THIS
PIPELINE LEASE AGREEMENT (this "Lease" or this "Agreement") is
entered into by and between MID-AMERICA PIPELINE COMPANY, a
Delaware corporation
("Lessor") and NAVAJO PIPELINE COMPANY, a Delaware corporation
("Lessee").
R-E-C-I-T-A-L-S
A.
Lessor is
the owner of an 8" natural gas liquids pipeline currently
running from Lessor's Kutz Station in San Juan County, New Mexico
to Lessor's
Hobbs Station in Gaines County, Texas. Lessor currently uses the 8"
pipeline to
transport NGL south from its Kutz Station past White Lakes Station
to its Hobbs
Station.
B.
Lessee,
and/or its affiliates, is engaged in the business of
refining crude oil into gasoline and other petroleum products and
the
transportation and sale of such products. Lessor and Lessee desire
to enter into
a transaction in which Lessee will lease the 8" pipeline from White
Lakes
Station to Kutz Station running from Milepost 80.65 through
Milepost 415.29, as
encompassed in the Alignment Sheets attached hereto as Exhibit A,
together with
all attendant equipment and systems (hereinafter collectively
referred to as the
"Pipeline System") and 100% of its capacity on an exclusive basis,
subject to
common carrier requirements, for the purpose of transporting
petroleum products
from White Lakes Station to Kutz Station. The origin of the
Pipeline System will
be Lessor's White Lakes Station and the terminus will be at
Lessor's Kutz
Station.
W-I-T-N-E-S-S-E-T-H
NOW THEREFORE, for
good and valuable consideration, the receipt and
sufficiency of which being hereby acknowledged, Lessor and Lessee
agree as
follows:
1.
DEMISE.
Lessor, for and in consideration of the covenants and
agreements hereinafter set forth to be kept and performed by both
parties, does
hereby demise and lease to Lessee for the Lease Term (hereinafter
defined) the
Pipeline System and 100% of its capacity for transporting petroleum
products
and/or crude oil from White Lakes Station to Kutz Station
(provided; however, if
Lessee elects to transport crude oil: (1) it may do so only subject
to any
Applicable Laws, which, at Lessee's expense, Lessor shall take
reasonable steps
to address; and (2) if NGLs shipped on the Pipeline System by
Lessor after
surrender of the Pipeline System by Lessee as referenced in
Paragraph 18 are
crude-contaminated in excess of Lessor's specifications in an
amount in excess
of 5,000 barrels, Lessor shall notify Lessee and Lessor and Lessee
in
consultation and at Lessee's expense shall decontaminate all
contaminated NGLs
and take such other steps as are reasonably necessary to resolve
the
contamination.).
2.
LESSOR'S
WORK. Attached to this Lease as Exhibit "B" is a
description of
PIPELINE LEASE AGREEMENT--PAGE 1
<PAGE>
work to be performed by Lessor, at its sole cost and expense
(hereinafter,
"Lessor's Work"). Such work involves reversing and converting the
Pipeline
System from its current use to transportation of petroleum products
with a
minimum capacity of 16,000 barrels per day. Lessor covenants and
agrees to
perform Lessor's Work as described on Exhibit "B" in a good and
workmanlike
manner, in accordance with Applicable Laws (hereinafter defined)
and industry
standards and within 180 days of Lessee's providing Lessor written
notice to
proceed on Lessor's Work. Lessor may continue to use the Pipeline
System until
the onset of Lessor's Work prohibits it.
3.
LEASE
TERM.
A. Initial
Term. While the Lease will be effective upon
execution, the "Initial Term" of the Lease will commence on the
Commencement
Date (hereinafter defined) and expire on that day that is the tenth
(10th)
anniversary thereof. The "Commencement Date" will be the earlier to
occur of (i)
that date that is the first (1st) day of the sixteenth calendar
(16th) month
following the date of this Lease, (ii) one hundred eighty (180)
days after
Lessee has provided written notice to Lessor that Lessee desires to
commence
shipments on the Pipeline System, or (iii) such earlier date as
Lessee actually
commences shipments on the Pipeline System. In the event upon the
occurrence of
(i) or (ii) above Lessee's shipments cannot commence by virtue of
Lessor not
having fulfilled its obligations hereunder, the Commencement Date
shall be
delayed until such time as Lessee is able to commence
shipments.
B. Option
to Renew. Provided that Lessee is not in default under
this Lease beyond applicable notice and cure periods at the time of
the exercise
of the Option granted herein, Lessee is granted the option (the
"Option") to
renew this Lease for one (1) additional term of ten (10) years (the
"Renewal
Term") commencing on the next day after the expiration of the
Initial Term.
Lessee shall exercise the Option, if at all, by delivering Lessor
written notice
of the exercise of the Option at least one year prior to the
expiration of the
Initial Term. Lessee's lease of the Pipeline System during the
Renewal Term will
be upon the same terms as for the Initial Term, except that the
Base Rent
(hereinafter defined) will adjust as hereinafter provided and
during the Renewal
Term Lessee will have no further right to renew this Lease.
C. Lease
Term. The "Lease Term" shall initially be the Initial
Term and, if Lessee exercises the Option, the "Lease Term" will
also include the
Renewal Term.
D. Lease
Year. As used in this Lease, a "Lease Year" shall
initially mean the twelve (12) month period commencing on the
Commencement Date
and ending on the first anniversary thereof. The term "Lease Year"
will
thereafter mean the successive twelve (12) month periods ending on
the
anniversary of the Commencement Date.
4.
BASE
RENT.
A. Initial
Term. Lessee agrees to pay to Lessor rent for the
Pipeline System
PIPELINE LEASE AGREEMENT--PAGE 2
<PAGE>
during the Initial Term in one hundred twenty (120) monthly
installments, in
advance, beginning on the Commencement Date ("Base Rent"), as
follows:
-
Lease Year 1: $316,666.67 per month ($3,800,000.00 total);
-
Lease Year 2: $341,666.67 per month ($4,100,000.00 total);
-
Lease Year 3: $375,000.00 per month ($4,500,000.00 total);
-
Lease Year 4: $408,333.33 per month ($4,900,000.00 total);
-
Lease Year 5: $441,666.67 per month ($5,300,000.00 total);
Commencing Lease Year 6 of the Initial Term, and for each Lease
Year of the
Initial Term thereafter, the Base Rent shall be the greater of (1)
the Base Rent
for Lease Year 5 of the Initial Term or, (2) an amount determined
by multiplying
the Base Rent for the immediately preceding Lease Year by the Base
Rent
Adjuster. The "Base Rent Adjuster" shall be determined by dividing
the Producer
Price Index for Finished Goods (as found in Table 1 of the Product
Prices and
Price Indexes published by the U.S. Department of Labor, Bureau of
Labor
Statistics) ("PPIFG") for the last month of the immediately
preceding Lease Year
for which such index has been published by the United States
Government by the
PPIFG published for the same month of the second immediately
preceding Lease
Year and subtracting one one-hundredth (0.01) from the quotient so
obtained. In
the event the United States Government should no longer publish the
PPIFG, then
the parties shall mutually agree upon an alternative index that
most nearly
captures the change in prices reflected therein for purposes of
calculating the
Base Rent Adjuster.
B. Renewal
Term. Base Rent for the first Lease Year of the
Renewal Term (the eleventh (11th) Lease Year) shall be the greater
of (1)
$441,666.67, multiplied by the quotient obtained by dividing
Lessor's posted
tariff for NGL movement from Group 110 to Hobbs in effect on the
day the Initial
Term expires by Lessor's posted tariff for NGL movement from Group
110 to Hobbs
on the last day of the fifth (5th) Lease Year of the Initial Term,
or (2) the
Base Rent in effect during the tenth (10th) Lease Year of the
Initial Term
multiplied by the Base Rent Adjuster; provided, however, in no
event shall the
Base Rent be less than $441,666.67. The Base Rent in effect for
each subsequent
Lease Year of the Renewal Term shall be the greater of (1) the Base
Rent in
effect for the first (1st) Lease Year of the Renewal Term, or (2)
the Base Rent
in effect for the immediately preceding Lease Year of the Renewal
Term
multiplied by the Base Rent Adjuster.
C. Payment
of Base Rent. Each installment of Base Rent shall be
due and payable on the first day of each month. Any installment of
Base Rent due
for any fractional month shall be prorated based upon the actual
number of days
in that month. All obligations of Lessee measured by Lease Years
shall be
prorated as appropriate based upon the number of days in the
applicable Lease
Year during the term of this Lease divided by the actual number of
days in such
Lease Year. Base Rent shall be paid at the times and in the amounts
provided for
herein in legal tender of the United States of America to Lessor by
wire
transfer of immediately available funds at the address specified in
Paragraph 21
hereof or to such other person or at such other
PIPELINE LEASE AGREEMENT--PAGE 3
<PAGE>
address as Lessor may from time to time designate in writing.
5.
OPERATION
OF THE PIPELINE. Lessor shall at all times during the
Lease Term use all reasonable efforts to operate the Pipeline
System for the
benefit of Lessee, subject to common carrier requirements as more
specifically
discussed herein. Lessor shall operate the Pipeline System and
Lessee shall
operate its related facilities in accordance with all Applicable
Laws and in
accordance with industry standards. As used herein, the term
"Applicable Laws"
means and includes any and all federal, state and local laws,
ordinances,
orders, easements and right-of-way agreements of record, rules, and
regulations
of all governmental bodies (state, federal, tribal and municipal)
applicable to
or having jurisdiction over the use, occupancy, operation and
maintenance of the
Pipeline System, as such may be amended or modified from time to
time. Lessor
shall not be responsible for measurement "overs and shorts" other
than for
product losses arising from fault or failure of Lessor to satisfy
its
obligations hereunder.
6.
SHIPMENTS
AND TARIFFS. Lessee shall at all times during the Lease
Term be solely responsible for shipments of product and will
publish and file
tariffs in its own name and in accordance with Applicable Laws
covering capacity
in the Pipeline System. Lessor shall have the right to review and
approve such
tariffs prior to filing, with such approval not to be unreasonably
withheld.
Lessee agrees that it will not impair and at its expense will take
all
reasonable steps to protect Lessor's rights under all Applicable
Laws respecting
the Pipeline System to the extent such rights are materially
threatened by
virtue of any act or failure to act of Lessee hereunder. In the
event counsel
jointly retained by Lessor and Lessee is of the opinion that such
rights are
materially threatened by virtue of an act or failure to act of
Lessee, Lessee
must take all the reasonable steps as referenced above in this
paragraph 6.
Lessee shall collect for its own account all revenues payable by
shippers
applicable to the Pipeline System. From and after the Commencement
Date,
Lessee's designated shipper(s) will be responsible for all linefill
in the
Pipeline System.
7.
ALTERATIONS BY LESSEE. Except as expressly permitted hereby,
Lessee
may not alter or make any modifications to the Pipeline System
without Lessor's
prior written consent, such consent not to be unreasonably
withheld. Lessee may,
however, without Lessor's prior written consent, but with notice to
Lessor and
at Lessee's sole cost and expense, increase the capacity of the
Pipeline System
through the introduction of drag reducing agents, increased
horsepower or a
combination thereof. If Lessee desires to increase capacity through
any other
means it must obtain the consent of Lessor, with such consent not
to be
unreasonably withheld. Lessee may elect to undertake to increase
the capacity of
the Pipeline System itself, in which event Lessor shall have the
right to
oversee the increase in capacity, or request that Lessor perform
such, in which
event Lessee and Lessor shall mutually agree upon a reasonable cost
for such
increase in capacity.
8. MAINTENANCE AND
REPAIR. Lessor, at its sole cost and expense, shall
maintain all aspects of the Pipeline System in good condition and
repair, in
accordance with Applicable Laws and in accordance with industry
standards. If
any changes, modifications or
PIPELINE LEASE AGREEMENT--PAGE 4
<PAGE>
alterations to the Pipeline System are required during the Lease
Term due to the
enactment or amendment of Applicable Laws, then Lessor shall
promptly make such
changes, modifications or alterations and will bear the cost
thereof.
Notwithstanding Lessor's obligation to repair and maintain the
Pipeline System
at its sole cost and expense, Lessee shall be responsible for the
incremental
cost of maintaining and repairing those aspects of the Pipeline
System relating
solely to alterations or modifications to the Pipeline System
requested or made
by Lessee for the sole purpose of increasing the capacity of the
Pipeline System
as provided in Paragraph 7 above. Such costs shall be paid by
Lessee within
fifteen (15) days of receipt of invoice from Lessor.
9.
ADDITIONAL
PIPELINE CONNECTIONS. Lessor hereby grants Lessee
permission to connect petroleum terminals and pipeline connections
to the
Pipeline System at points at or between Lessor's White Lakes
Station and Kutz
Station provided that the construction, connection, operation and
maintenance of
such will be at Lessee's sole cost and expense and subject to the
terms and
provisions of Exhibit B attached hereto.
10.
REPRESENTATIONS,
WARRANTIES AND COVENANTS OF LESSOR. Lessor
represents, warrants and covenants to Lessee that:
A. Title.
Lessor has good, marketable and indefeasible title to
the Pipeline System, subject only to the easements/rights-of-way on
which the
Pipeline System exists and the agreements creating same.
B.
Organization. Lessor is duly organized, validly existing and
in good standing under the laws of the state of its organization,
and is duly
qualified to transact business in the state in which the Pipeline
System is
situated.
C.
Authority. Lessor has all requisite power and authority, has
taken all actions required by its organizational documents and
applicable law,
and has obtained all necessary consents, to execute and deliver
this Lease and
to consummate the transactions contemplated in this Lease.
D. Other
Agreements, etc. Neither the execution of this Agreement
nor the confirmation by Lessor of the transactions contemplated
hereby will (i)
conflict with or result in any breach of the terms, conditions or
provisions of,
or constitute a default under, or result in any termination of
easement or
right-of-way on which the Pipeline Systems is located; (ii) violate
any
restriction to which Lessor or the Pipeline System is subject;
(iii) constitute
the violation of any Applicable Laws; or (iv) result in the
creation of any
lien, charge or encumbrance upon the Pipeline System or any part
thereof.
E.
Proceedings. There are no attachments, executions, assignments
for the benefit of creditors, or voluntary or involuntary
bankruptcy
proceedings, or under any debtor relief laws, contemplated by or
pending or
threatened against Lessor or the Pipeline System.
PIPELINE LEASE AGREEMENT--PAGE 5
<PAGE>
F.
Litigation. Lessor is not now a party to any material
litigation, arbitration or administrative proceeding (i) with any
person or
entity having or claiming any interest in the Pipeline System, or
(ii) affecting
or questioning Lessor's title to the Pipeline System or Lessor's
ability to
perform its obligations under this Lease. Lessor knows of no
presently pending
or threatened material litigation, arbitration or administrative
proceeding
affecting or questioning Lessor's title to, or use of, the Pipeline
System or
any part thereof, or Lessor's ability to perform its obligations
under this
Lease.
G.
Compliance with Laws. To the best of Lessor's knowledge and
belief, all Applicable Laws bearing on the construction or
operation of the
Pipeline System have been complied with, the Pipeline System
currently complies
with all Applicable Laws, and the operation of the Pipeline System
as
contemplated by this Lease will not violate any such Applicable
Laws.
H.
Consents. As of the Commencement Date, no consent to the
execution or implementation of this Lease is required from any
third party,
including the grantor of any easement on which the Pipeline System
is located
and the owner of any right-of-way on which the Pipeline System is
located.
I.
Administrative Notices. Lessor has not received notice of, and
has no other knowledge or information of, any pending or
contemplated change in
any Applicable Laws applicable to the Pipeline System, or any
pending or
threatened judicial or administrative action, or any action pending
or
threatened, or of any natural or artificial condition upon or
affecting the
Pipeline System, or any part thereof, any of which would result in
any material
change in the condition of the Pipeline System, or any part
thereof, or would in
any way limit or impede the operation of the Pipeline System.
J.
Licenses. Lessor possesses all licenses, certificates and
permits that are required to fulfill all of its obligations
hereunder.
K. Taxes.
There are no unpaid taxes, assessments or charges
against the Pipeline System.
L.
Condemnation. Lessor has no knowledge of any condemnation,
eminent domain or similar proceedings having been instituted or
threatened
against the Pipeline System.
M.
Encumbrances. Lessor may not further encumber the Pipeline
System or any part thereof without the prior written consent of
Lessee, which
consent shall not be unreasonably withheld.
N. True
and Correct. To Lessor's best knowledge, after reasonable
inquiry, all information and other items heretofore or hereafter
submitted to
Lessee by or on behalf of Lessor are true, correct and complete.
Lessor is not
aware of any omission to supply Lessee with any material
information or other
items with respect to the Pipeline System, its history, prospects
or
PIPELINE LEASE AGREEMENT--PAGE 6
<PAGE>
operations, or any information which may be required to prevent the
information
or other items already supplied from being misleading.
Lessor acknowledges that the execution of this Lease by Lessee has
been made,
and the lease of the Pipeline System by Lessee will have been made,
in material
reliance by Lessee on Lessor's representations and warranties
contained in this
Paragraph 10.
11.
REPRESENTATIONS,
WARRANTIES AND COVENANTS OF LESSEE. Lessee
represents, warrants and covenants to Lessor that:
A.
Organization. Lessee is duly organized, validly existing and
in good standing under the laws of the state of its organization,
and is duly
qualified to transact business in the state in which the Pipeline
System is
situated.
B.
Authority. Lessee has all requisite power and authority, has
taken all actions required by its organizational documents and
Applicable Laws,
and has obtained all necessary consents, to execute and deliver
this Lease and
to consummate the transactions contemplated in this Lease.
C.
Proceedings. There are no attachments, executions, assignments
for the benefit of creditors, or voluntary or involuntary
bankruptcy
proceedings, or under any debtor relief laws, contemplated by or
pending or
threatened against Lessee.
D.
Consents. No consent to the execution or implementation of
this Lease is required from any third party.
E.
Licenses. Lesse
