EXHIBIT 10.17
PIPELINE AND TERMINAL LEASE AGREEMENT
DATED AS OF MAY 25, 2001,
BY AND BETWEEN
COASTAL LIQUIDS PARTNERS, L.P.,
AS LESSOR,
AND
VALERO MARKETING AND SUPPLY COMPANY AND
VALERO PIPELINE COMPANY,
AS LESSEE
THIS PIPELINE AND TERMINAL LEASE AGREEMENT (this "Lease"),
dated as of May 25, 2001, is entered into by and between Coastal Liquids
Partners, L.P., a Delaware limited partnership (hereinafter referred to as
"Lessor"), and Valero Marketing and Supply Company, a Delaware corporation, and
Valero Pipeline Company, a Delaware corporation (collectively hereinafter
referred to as "Lessee").
WHEREAS, Lessor is the owner of the Leased Property, Inventory
and Equipment; and
WHEREAS, Lessor desires to lease the Leased Property and sell
the Inventory and Equipment to Lessee, and Lessee desires to lease the Leased
Property and purchase the Inventory and Equipment from Lessor;
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF the
mutual agreements herein contained and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Defined Terms. Unless the context otherwise requires, the
respective terms defined in Appendix A attached hereto and incorporated herein
shall, when used herein, have the respective meanings therein specified, with
each such definition to be equally applicable both to the singular and the
plural forms of the term so defined.
1.2 References, Gender, Number. All references in this Lease to an
"Article," "Section," or "subsection" shall be to an Article, Section, or
subsection of this Lease, unless the context requires otherwise. Unless the
context otherwise requires, the words "this Lease," "hereof," "hereunder,"
"herein," "hereby," or words of similar import shall refer to this Lease as a
whole and not to a particular Article, Section, subsection, clause or other
subdivision hereof. Whenever the context requires, the words used herein shall
include the masculine, feminine and neuter gender, and the singular and the
plural.
ARTICLE 2
PRE-CLOSING AGREEMENTS
2.1 Agreement to Lease. Upon the Closing, subject to the terms and
conditions of this Lease, (i) Lessor agrees to lease the Leased Property to
Lessee, and Lessee agrees to lease the Leased Property from Lessor, and (ii) the
parties agree to execute and deliver (or cause the execution and delivery of)
the Related Agreements (other than those to be executed after the Closing
pursuant to Section 10.3) as more fully provided in Section 2.11.
(a) As of the Effective Time, subject to the terms and
conditions of this Lease and for the consideration specified below, Lessor shall
sell, assign, transfer, grant, bargain, deliver and convey to Lessee, free and
clear of all Liens, all of Lessor's and its Affiliates' right, title and
interest in, to and under the Inventory. In consideration of the transfer to
Lessee of the Inventory,
Lessee shall deliver to Lessor the Estimated Inventory Sale Price set forth in
SCHEDULE 2.2, PART I BY WIRE transfer of immediately available funds at the
Closing. The Estimated Inventory Sale Price is subject to later adjustment
pursuant to Section 2.2(e).
(b) As of the Effective Time, subject to the terms and
conditions of this Lease and for the consideration specified below, Lessor shall
sell, assign, transfer, grant, bargain, deliver and convey to Lessee, free and
clear of all Liens, all of Lessor's and its Affiliates' right, title and
interest in, to and under the Equipment. In consideration of the transfer to
Lessee of the Equipment, Lessee shall deliver to Lessor $426,384.
(c) The Estimated Inventory Sale Price will be adjusted
following Closing based on a physical inventory (the "Physical Inventory")
commenced no more than two Business Days prior to the Closing. The Physical
Inventory shall be conducted in accordance with the measurement and other
procedures specified in Schedule 2.2, Part I and shall be conducted by
independent inspectors.
(d) Within ten Business Days of receipt of the Final Inventory
Quantity Report (as provided in Section 0 of Schedule 2.2 PART I), LESSOR shall
deliver the Statement (defined below) to Lessee. As used herein, the Statement
shall mean an invoice, based on the valuation formulae set forth in Schedule 2.2
PART II AND the Final Inventory Quantity and Final Inventory Quality set forth
in the Final Inventory Quantity Report, that indicates by product and in the
aggregate the final value for the Inventory conveyed to Lessee pursuant hereto.
(e) Lessee shall have ten Business Days from receipt of the
Statement to review the Statement. During this ten Business Day period, Lessee
shall be permitted to review the working papers of Lessor relating to, and shall
be given access to the employee of Lessor primarily responsible for the
preparation of, the Statement. The Statement shall become final and binding upon
the parties on the tenth Business Day following delivery thereof to Lessee,
unless Lessee gives written notice of its disagreement with the Statement
("Notice of Disagreement") to Lessor prior to such date. Any Notice of
Disagreement shall (A) specify in reasonable detail the nature of any
disagreement so asserted and (B) include only disagreements based on
mathematical or typographical errors or the amount to be paid for Inventory not
being calculated in accordance with this Section 2.2 or Schedule 2.2 If a Notice
of Disagreement is received by Lessor in a timely manner, then the Statement (as
revised in accordance with clause (A) or (B) below) shall become final and
binding upon Lessor and Lessee upon the earlier of (A) the date Lessor and
Lessee resolve in writing any differences they have with respect to the matters
specified in the Notice of Disagreement or (B) the date any disputed matters are
finally resolved in writing by the Independent Arbitrator (as defined below).
The Statement, upon becoming final and binding in accordance with this Section
2.2, and as the same may be revised in accordance with the preceding clause (A)
or (B), is hereinafter referred to as the "Final Statement".
(f) During the ten Business Day period following the delivery
of a Notice of Disagreement, Lessor and Lessee shall seek in good faith to
resolve in writing any differences which they may have with respect to the
matters specified in the Notice of Disagreement. During such period, Lessor
shall have access to the working papers of Lessee prepared in connection with
its certification of the Notice of Disagreement. At the end of such ten Business
Day period, Lessor and Lessee shall submit to an independent arbitrator (the
"Independent Arbitrator") for review and resolution of any and all matters which
remain in dispute and which were properly included in the
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Notice of Disagreement, in the form of a written brief. The Independent
Arbitrator shall be Ernst & Young. The Independent Arbitrator shall make a final
and binding determination as to the submitted matters within 45 days after its
appointment. The Independent Arbitrator's determination shall be in the form of
an opinion as is appropriate under the circumstances and shall confirm that IT
was rendered in accordance with this Section 2.2(f) Lessor and Lessee agree that
judgment may be entered upon the determination of the Independent Arbitrator in
any court having jurisdiction over the party' against which such determination
is to be enforced. The fees and expenses of the Independent Arbitrator and the
reasonable attorney's fees and expenses of the parties incurred in connection
with the matters submitted to the Independent Arbitrator shall be borne by
Lessor and Lessee in inverse proportion as they may prevail on matters resolved
by the Independent Arbitrator, which proportionate allocations shall also be
determined by the Independent Arbitrator at the time the determination of the
Independent Arbitrator is rendered on the merits of the matters submitted.
Notwithstanding the foregoing, the fees and expenses of Lessor incurred in
connection with its preparation and certification of the Statement and its
review of the Notice of Disagreement shall by borne by Lessor, and the fees and
expenses of Lessee incurred in connection with its review of the Statement and
the preparation and certification of any Notice of Disagreement shall be borne
by Lessee.
(g) If the amounts indicated in the Final Statement are, in
the aggregate, more than the Estimated Inventory Sale Price, Lessee shall,
within 10 days after the Statement becomes final and binding pursuant to Section
2.2 hereof, make payment to Lessor by wire transfer in immediately available
funds of the amount of such difference not otherwise paid by Lessee, together
with interest thereon at a rate equal to the Agreed Rate, calculated on the
basis of the actual number of days elapsed over 365, from and including the
Effective Time to but excluding the date of payment if paid by 12:00 noon
Central Time. If the amounts indicated in the Final Statement are, in the
aggregate, less than the Estimated Inventory Sale Price, Lessor shall, within 10
days after the Statement becomes final and binding pursuant to Section 2.2
hereof, make payment to Lessee by wire transfer in immediately available funds
of the amount of such difference overpaid by Lessee, together with interest
thereof at a rate equal to the Agreed Rate, calculated on the basis of the
actual number of days elapsed over 365, from and including the Effective Time to
but excluding the date of payment if paid by 12:00 noon Central Time. Either
party may elect, at any time in advance of the Statement becoming final and
binding, to pay to the other party any portion which is not in dispute of such
difference in the amount between the Estimated Inventory Sale Price and in the
Statement, which such payment shall include interest thereon at the foregoing
rate from and including the Effective Time to but excluding the date of payment
if paid by 12:00 noon Central Time.
(h) Not later than ten Business Days following Lessee's
receipt of the Final Inventory Quantity Report referred to in Section 2.2(e),
Lessee shall give Lessor written notice of any solid Hazardous Material (other
than tank bottoms and sediment) stored in the tanks on the Leased Property as of
the Effective Time that Lessee requires to be disposed of by Lessor. Lessor, at
Lessor's risk and expense, agrees to promptly dispose of any solid Hazardous
Waste (other than tank bottoms and sediment) stored in tanks on the Leased
Property as of the Effective Time of which Lessee gives Lessor timely written
notice in accordance with the preceding sentence.
(i) Within a reasonable time after the Effective Time and
subject to any storage rights contemplated by Section 10.3, (i) Lessee, at its
cost and expense, will remove any items of Equipment that are located on any
property (other than Leased Property) owned or leased by Lessor
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or its Affiliates and (ii) Lessor, at its cost and expense, will remove any
warehouse inventory (including tools, parts, supplies and other similar items)
that is not included in the Equipment and is located on the Leased Property.
Until removed pursuant to the foregoing, either party or its Affiliates shall be
entitled to use such Equipment or warehouse inventory which is owned by the
other party in connection with any safety or emergency related repair or
maintenance work, and in each such event shall promptly notify the other of such
use and shall promptly replace such item of Equipment or warehouse inventory
with a like item of Equipment or warehouse inventory of the same type,
description, design and quality.
2.3 Access to Information.
(a) General Access. Subject to Sections 2.3(a)(3) and 2.3(b),
promptly following the execution of this Lease and until the Closing Date (or
earlier termination of this Lease):
(1) Books and Records. Lessor shall permit Lessee and
its representatives to have reasonable access at reasonable times in
Lessor's offices, and in a manner so as not to interfere unduly with
the business operations of Lessor, to all Lessor's books and records,
including contracts, title opinions, title files, ownership maps,
assignments and documents, relating to the Leased Property, Inventory
and Equipment insofar as Lessor may do so without (i) violating legal
constraints or any legal obligation or (ii) waiving any
attorney/client, work product or like privilege.
(2) Limitation on Access. Nothing in this Lease shall
be construed to permit Lessee or its representatives to have access to
any files, records, contracts or documents of Lessor or any Affiliate
of Lessor relating to (i) Lessor's or any of its Affiliate's
inter-company or intra-company feedstock and product pricing
information, internal transfer prices, hedging activity records and
hydrocarbon inventory valuation procedures and records or (ii) this
transaction.
(b) Confidential Information. The Confidentiality Agreements
are incorporated by reference into this Lease and made a part hereof.
2.4 Conduct of Business Pending Closing. Except as otherwise
contemplated herein or agreed to by Lessee in writing (which agreement shall not
be unreasonably withheld or delayed), from the date hereof until the Closing
Date, Lessor shall:
(a) conduct its operations of the Leased Property according to
its ordinary and usual course of business consistent with past practice,
(b) use reasonable efforts to keep available the services of
Lessor's or its Affiliate's employees who are currently employed in connection
with the operation of the Leased Property,
(c) use reasonable efforts to maintain Lessor's present
relationships with customers, service providers and others having business
relationships with the Leased Property,
(d) maintain the Leased Property in accordance with its
current plans and
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practices, including the conduct of scheduled maintenance, the replacement or
upgrades of facilities, piping and storage, the continuation of capital
improvement projects and the treatment and disposal of Hazardous Materials prior
to closing, in each case to the extent required by Law or a reasonable and
prudent operator would do so to maintain safety conditions,
(e) not transfer or dispose of any Equipment or other tangible
property, including vehicles or computer equipment, or remove any books and
records at the sites of the Leased Property used or useful in the business being
conducted at the Leased Property, except for (i) sales of Inventory in the
ordinary course of business and (ii) Excluded Assets,
(f) place any Lien on the Leased Property, Inventory or
Equipment except (i) Permitted Liens or (ii) any Lien arising from Lessor's
enforcement of its rights under this Lease or from Lessor's compliance with its
obligations under this Lease,
(g) not grant any general wage or benefit increase to persons
who will not be Retained Employees except consistent with past practice or the
May 1, 2001 wage increase heretofore disclosed to Lessee,
(h) notify Lessee promptly, and in any event prior to the
Closing, of any written notice of violation or written threatened notice of
violation received from any Governmental Body after the date of this Agreement
relating to Environmental Laws or Permits at the Leased Property, and
(i) not enter into any new commitment for capacity on the
Pipeline Systems or at the Terminals if such commitment extends for more than 60
days.
Notwithstanding the foregoing, Lessor may take (or not take, as the case may be)
any actions contrary to the foregoing to the extent reasonably necessary under
emergency circumstances (or if required or prohibited, as the case may be,
pursuant to Law) and provided Lessee is notified as soon thereafter as
practicable.
2.5 Public Announcements. Prior to the Closing Date, without the prior
written approval of the other party hereto, which approval shall not be
unreasonably withheld or delayed, no party hereto will issue, or permit any
agent or Affiliate of it to issue, any press releases or otherwise make, or
cause any agent or Affiliate of it to make, any public statements with respect
to this Lease and the transactions contemplated hereby, except where such
release or statement is deemed in good faith by the releasing party to be
required by Law or under the rules and regulations of any public stock exchange
on which the shares of such party or any of its Affiliates are listed. In each
case to which such exception applies, the releasing party will use its
reasonable best efforts to provide a copy of such release or statement to the
other party prior to releasing or making the same.
2.6 Actions and Efforts by Parties.
(a) Reasonable Efforts. Without limiting the respective
warranties, representations, covenants and agreements of the parties contained
herein, each of the parties agrees to use its reasonable efforts to satisfy the
conditions to Closing set forth in Section 2.10 and to refrain from taking any
action within its control which would cause a breach of a representation or
warranty set forth herein. Without limiting the respective warranties,
representations, covenants and
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agreements of the parties contained herein, each of the parties agrees to use
its reasonable efforts (and to cause its Affiliates to use their reasonable
efforts) to refrain from taking any action within its control which would cause
a breach of any of its representations and warranties contained in Articles 7 or
8, as the case may be, or which would prevent it from delivering to the other
party the certificate which it is required to deliver pursuant to Section
2.10(a)(2) or 2.10(b)(2), as the case may be. In connection with the continuing
operations of the Leased Property between signing of this Lease and the Closing,
Lessor shall use reasonable efforts to consult in good faith on a regular and
frequent basis with the representatives of Lessee to report material operational
developments and the general status of ongoing operations. Lessor and Lessee
acknowledge that any such consultation shall not constitute (i) a waiver by
Lessee or Lessor of any rights it may have under this Lease or any Related
Agreements or (ii) any warranty or representation by Lessor.
(b) Further Assurances. Lessor and Lessee each agrees that
from time to time after the Closing Date, each of them will execute and deliver
or cause their respective Affiliates to execute and deliver such further
instruments, and take (or cause their respective Affiliates to take) such other
action, as may be necessary to carry out the purposes and intents of this Lease.
Nothing in this Section shall cause any representation, warranty, covenant or
agreement contained in other Sections or provisions of this Lease to survive
later than the time stipulated for the survival of such representation,
warranty, covenant or agreement in Section 2.12. To the extent that any
Affiliate of Lessor has legal or beneficial title to any of the Leased Property,
Inventory or Equipment, Lessor will cause such Affiliate to convey (or lease, as
appropriate) such legal or beneficial title in the Leased Property, Inventory or
Equipment to Lessee on the same terms and to the same extent that Lessor is
obligated under this Lease to convey (or lease, as appropriate) such legal or
beneficial title in the Leased Property, Inventory or Equipment to Lessee.
(c) Restrictions. If there are prohibitions against, or
conditions to, the transfer of any permit, license, easement, contract or other
property (other than Environmental Permits), or if the transfer, apportionment
or division of any permit, license, easement, contract or other property (other
than Environmental Permits), contemplated to be transferred to Lessee (or to be
apportioned or divided) pursuant to this Lease, the Related Agreements or the
Special Warranty Conveyance without the prior written consent of third parties,
including Governmental Bodies whose consent is needed for permits to be issued
to Lessee or modified, which if not satisfied would result in a breach of such
prohibitions or conditions or would give an outside party the right to terminate
or limit any right of Lessee or Lessor with respect to any such permit, license,
easement, contract or other property (herein called a "Restriction"), then,
without delaying the Closing, any provision contained in this Lease, the Related
Agreements or the Special Warranty Conveyance shall not become effective with
respect to such permit, license, easement, contract or other property unless and
until such Restriction is satisfied, waived or no longer applies. Following the
Closing, when and if such a Restriction is so satisfied, waived or no longer
applies, to the extent permitted by Law and any applicable contractual
provisions, the assignment of the permit, license, easement, contract or other
property subject thereto shall become effective automatically as of the
applicable closing date, without further action on the part of Lessor or Lessee
and without payment of further consideration. Each of Lessor and Lessee agrees
to use its commercially reasonable best efforts to obtain satisfaction of any
Restriction on a timely basis post-Closing. To the extent that any Restriction
exists, Lessor agrees to use its commercially reasonable best efforts (without
infringing upon the legal rights of such third party or outside party or
violating any Law) to provide Lessee with the equivalent assets or benefits
thereof by subcontract or otherwise, at no additional cost to Lessee (other than
the assumption of any related liability and the performance and compliance by
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Lessee with the terms of such permit, license, easement, contract or other
property) effective as of the applicable closing date. Lessee agrees (without
infringing upon the legal rights of such third party or outside party or
violating any Law) to bear the economic burden of any related liability and of
the performance and compliance with the terms of the permit, license, easement,
contract or other property subject to the Restriction, at no additional cost to
Lessor, effective as of the applicable closing date to the same extent as Lessee
would have borne such liability and other obligations if this Lease, the Related
Agreements or the Special Warranty Conveyance, as the case may be, had been
effective as of the applicable closing date with respect to such permit,
license, easement, contract or other property. In the case of a contract, Lessor
agrees (without infringing upon the legal rights of such third party or outside
party or violating any Law) to exercise its rights under such contract at the
direction and/or for the benefit of Lessee. Notwithstanding the foregoing,
nothing in this Section 2.6(c) shall require or obligate Lessee or Lessor to
purchase or pay consideration to acquire any new or additional permit, license,
easement, contract or other property right or interest.
(d) Environmental Permits. If there are prohibitions against,
or conditions to, the transfer of any Environmental Permit contemplated to be
transferred to Lessee pursuant to this Lease, the Related Agreements or the
Special Warranty Conveyance without the prior written consent of third parties,
including Governmental Bodies whose consent is needed for such Environmental
Permit to be issued to Lessee or modified, which if not satisfied would result
in a breach of such prohibitions or conditions or would give an outside party
the right to terminate or limit any right of Lessee with respect to any such
Environmental Permit, then, without delaying the Closing, (i) any provision
contained in this Lease, the Related Agreements or the Special Warranty
Conveyance shall not become effective with respect to such Environmental Permit
and (ii) Lessor, at Lessee's cost and expense, agrees to use reasonable
commercial efforts to assist Lessee in obtaining consent to the transfer of such
Environmental Permits to Lessee or the issuance or modification of such
Environmental Permits in Lessee's name. Until the earlier of the closing of the
Option or the termination of this Lease, Lessor agrees that it shall maintain
its existing coverage in connection with the Pipeline System Interests and the
Terminal Interests under the Environmental Protection Agency's NPDES
multi-sector general permit until the proposed Texas Natural Resource
Conservation Commission multi-sector general permit is issued and effective, and
thereafter for such period of time as is necessary to ensure continuous coverage
under at least one of the two general permits pending Lessee's obtaining
coverage under the new TNRCC general permit, which Lessee agrees to accomplish
promptly after the new permit has been issued and has become effective. Nothing
hereunder shall in any way affect Lessee's obligations in this Lease, including,
without limitation, its obligation to comply with Environmental Law and to
indemnify Lessor for Assumed Environmental Claims and Costs of Compliance
related thereto.
(e) Cooperation. Lessor and Lessee shall cooperate in
obtaining any required consents and permits to permit the transactions
contemplated by this Agreement. Lessee shall take the primary role in obtaining
any Environmental Permits and the transfer of technology licenses, and Lessor
shall take the primary role in obtaining consents to the transfer of contracts
other than technology licenses.
(f) Lease Consents and Expiration.
(1) Lease Consents. To the extent that the sublease
of any land or facilities included in the Leased Property to Lessee, or
the assignment to Lessee pursuant to
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the Option of a lease covering any land or facilities included in the
Leased Property, pursuant to the terms of this Lease requires consent
of a third party lessor under such lease and such consent is not
obtained by the Closing Date, then such failure to obtain consent by
the Closing Date shall not prevent or delay the Closing and, to the
extent necessary for Lessee to receive the benefits of this Lease,
Lessor (or El Paso Field Services Company) pursuant to the terms of the
Operating Agreement included in the Related Agreements (i) will provide
Lessee throughput services for refined petroleum products through the
facilities subject to such lease until such consent is obtained and/or
(ii) will continue to operate the dock facilities subject to such lease
until such consent is obtained. Each of Lessor and Lessee agrees to
use its commercially reasonable best efforts to obtain any such consent
on a timely basis post-Closing. Notwithstanding the foregoing, nothing
in this Section 2.6(f)(1) shall require or obligate Lessee or Lessor to
pay consideration to obtain any such consent.
(2) Lease Expiration. In the event the term of any
real property lease included in the Leased Property expires after the
Effective Time and prior to the earlier of the closing of the Option or
the termination of this Lease, Lessee, at Lessee's cost and expense,
agrees to use all reasonable commercial efforts to extend or renew such
lease (or obtain a replacement lease) on terms and conditions
substantially similar to the currently existing terms and conditions of
such lease; provided that, Lessee shall not be obligated to extend,
renew or replace any real property lease that is not necessary for
Lessee to comply with Lessee's obligations under Article 16. Any such
extended, renewed or new real property lease which is on terms and
conditions substantially similar to the currently existing terms and
conditions of such lease (or which is approved by Lessor) shall be
considered to be part of the Leased Property. Any such extended,
renewed or new real property lease which is not on terms and conditions
substantially similar to the currently existing terms and conditions of
such lease and is not approved by Lessor shall not be considered to be
part of the Leased Property; provided, however, Lessor shall have the
option, exercisable within 30 days after the termination of this Lease
(other than by reason of the closing of the Option), to elect to cause
such extended, renewed or new lease to be deemed to have been part of
the Leased Property. Lessee assumes all risk of acquiring any
extension, renewal or replacement of a real or personal property lease
that expires after the Effective Time and, notwithstanding any other
provision of this Lease, Lessor shall not have any liability to Lessee
if Lessee is unable to acquire an extension, renewal or replacement of
any such expired real or personal property lease on similar or
reasonable terms.
(g) Multiple Line Interests. Notwithstanding anything in this
Lease to the contrary, Lessor makes no warranty or representation, express or
implied, that the Multiple Line Interests are divisible or partially assignable.
Although Lessor and Lessee believe that the division or partial assignment of
the Multiple Line Interests will not breach or violate, or cause or result in
any termination or limitation of all or any part of, any Multiple Line Interest
and intend for Section 2.6(c) to operate to prevent any such breach, violation,
termination or limitation, if any such breach, violation, termination or
limitation nevertheless occurs, then (i) Lessor shall solely bear and be
responsible for all Covered Liabilities arising out of or attributable to such
breach, violation, termination or limitation with respect to the Multiple Line
Reserved Interests and (ii) Lessee shall solely bear and be responsible for all
Covered Liabilities arising out of or attributable to such breach, violation,
termination or limitation with respect to the portion of the Multiple Line
Interests that does not constitute Multiple Line Reserved Interests.
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2.7 Casualty and Condemnation.
(a) Material Casualty. If after the date of this Lease and
prior to the Closing, all or any part of the Leased Property is damaged or
destroyed by fire or other casualty and such damage or destruction has a
Material Adverse Effect:
(1) Lessee shall have the option, exercisable within
ten days after receiving written notice thereof from Lessor (but before
Closing), to elect by written notice to Lessor to terminate this Lease;
provided, however, that such election by Lessee to terminate this Lease
shall not be effective if
(i) such damaged or destroyed Leased
Property can be repaired or replaced to the state in which it
existed immediately preceding such damage or destruction
within 180 days from the date of Lessor's receipt of Lessee's
notice of termination, and
(ii) within ten days after Lessor's receipt
of Lessee's notice of termination, Lessor gives Lessee written
notice of Lessor's election to repair or replace such damaged
or destroyed Leased Property at Lessor's sole expense
(including any insurance proceeds attributable thereto under
insurance policies of Lessor or its Affiliates).
If Lessor elects to repair or replace such damaged Leased Property
pursuant to the foregoing, Lessor shall be obligated to proceed in good
faith to diligently repair or replace such damaged or destroyed Leased
Property to the state in which it existed immediately preceding such
damage or destruction and the Closing Date shall be extended until the
third Business Day following the date on which Lessor and Lessee
mutually agree that such damaged Leased Property has been so repaired
or replaced, such mutual agreement not to be unreasonably withheld or
delayed; provided, however, this Lease shall terminate, at Lessee's
option, if such damaged Leased Property is not so repaired or replaced
within 180 days from the date of Lessor's receipt of Lessee's aforesaid
notice of termination.
(2) If Lessee does not exercise its option to
terminate this Lease within the time period provided in Section 2.7(a),
Lessor shall have the option, exercisable within 25 days after Lessor
gives Lessee written notice of such damage or destruction pursuant to
Section 2.7(a) (but before Closing), to elect by written notice to
Lessee to terminate this Lease; provided, however, that such election
by Lessor to terminate this Lease shall not be effective if within ten
days after Lessee's receipt of Lessor's notice of termination, Lessee
gives Lessee written notice of Lessee's election to repair or replace
such damaged or destroyed Leased Property to the state in which it
existed immediately preceding such damage or destruction using any net
insurance proceeds attributable thereto under insurance policies of
Lessor or its Affiliates, but otherwise at Lessee's sole expense
(including any insurance proceeds attributable thereto under insurance
policies of Lessee or its Affiliates). If Lessee elects to repair or
replace such damaged Leased Property pursuant to the foregoing, then
following the Closing Lessee shall be obligated to proceed in good
faith to diligently repair or replace such damaged or destroyed Leased
Property to the state in which it existed
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immediately preceding such damage or destruction. In such event, (i)
all insurance proceeds paid on account of such damage or destruction
under insurance policies held by Lessor or its Affiliates (less any
reasonable costs and expenses incurred in collecting same) shall be
made available for the payment of the cost of such Work of repairing or
replacing the same subject to Lessee furnishing reasonable evidence of
the costs incurred by Lessee for such Work to Lessor or Lessor's or its
Affiliate's insurance carrier(s) and (ii) all such insurance proceeds
not applied to such Work shall be delivered to Lessee up to the amount
of the deductible applicable to such insurance and any excess shall be
retained by Lessor or its Affiliates as its or their sole property.
(b) Other Casualty Repair by Lessor. If after the date of this
Lease and prior to the Closing, all or any part of the Leased Property is
damaged or destroyed by fire or other casualty and either (i) such damage or
destruction does not have a Material Adverse Effect or (ii) neither party elects
to terminate this Lease pursuant to Section 2.7(a), then this Lease shall remain
in full force and effect notwithstanding any such damage or destruction, and
Lessor at Lessor's sole expense (including any insurance proceeds attributable
thereto under insurance policies of Lessor or its Affiliates) shall be obligated
to proceed in good faith to diligently repair or replace such damaged or
destroyed Leased Property to the state in which it existed immediately preceding
such damage or destruction and the Closing Date shall not be extended on account
thereof. In the event Lessee wishes to repair or replace such damaged or
destroyed Leased Property to a state other than that in which it existed
immediately preceding such damage or destruction, Lessor shall be obligated to
do so only if (A) Lessee agrees to indemnify and hold harmless the Lessor
Indemnitees from all Covered Liabilities attributable to such extra cost, risk
and expense under clause (a) of Section 17.2 as a Post-Closing Liability and (B)
the same would otherwise have been permitted under Section 11.5 if carried out
by Lessee.
(c) Condemnation. If after the date of this Lease and prior to
the Closing, all or any part of the Leased Property is taken in condemnation or
if proceedings for such purpose shall be pending, and such taking or threatened
taking has a Material Adverse Effect, the provisions of Section 2.7(a) shall
apply to such circumstance as if such taking or threatened taking were a
casualty, mutatis mutandis, except that (A) if Lessee elects to terminate this
Lease based on condemnation which has a Material Adverse Effect, Lessor shall
not have the right to make an election analogous to the election it may make
pursuant to Section 2.7(a)(1) and (B) if this Lease is not terminated, any
portion of the condemnation award received by Lessor as a result of such
condemnation shall be and remain the sole property of Lessor and the amount of
such condemnation award so received by Lessor (less any reasonable costs and
expenses incurred in collecting same) shall operate to reduce the Purchase
Price. If after the date of this Lease and prior to the Closing, all or any part
of the Leased Property is taken in condemnation or if proceedings for such
purpose shall be pending, and either (i) such taking or threatened taking does
not have a Material Adverse Effect or (ii) neither party elects to terminate
this Lease pursuant to the preceding sentence, then this Lease shall remain in
full force and effect notwithstanding any such taking or threatened taking, and
the provisions of Section 2.7(b) shall apply to such circumstance as if such
taking or threatened taking were a casualty, mutatis mutandis.
2.8 Lessor Name, Logos, etc. Following the Closing, Lessee will not be
entitled to use (a) the names "El Paso" or "Coastal" or any variations and
derivations thereof (including any logo, trademark or design containing such
name) or (b) any logo, service ▇▇▇▇, trade name or trademark which constitutes
an Excluded Asset. Accordingly, as soon as reasonably practicable, but in any
10
event within six months following the Closing, Lessee will remove or paint over,
as appropriate, any logo, service ▇▇▇▇, trade name or trademark which
constitutes an Excluded Asset and is on any of the Leased Property, Inventory or
Equipment.
2.9 Release and Replacement of Bonds, Guarantees, etc. At the Closing,
Lessee shall deliver to the applicable beneficiary replacement or substitute
guaranties, letters of credit, bonds, and other surety obligations for those set
forth on Schedule 2.9 and Lessee, in form and substance acceptable to Lessor,
shall have caused the release as of the Closing Date of Lessor and its
Affiliates from all obligations relating to any such guaranties, letters of
credit, bonds, or other surety obligations and any liabilities related thereto.
2.10 Closing Conditions.
(a) Lessor's Closing Conditions. The obligation of Lessor to
proceed with the Closing contemplated hereby is subject, at the option of
Lessor, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(1) Representations, Warranties and Covenants. The
(i) representations and warranties of Lessee contained in this Lease
shall be true and correct in all material respects (and in all
respects, in the case of representations and warranties which are
qualified by materiality or by the requirement of a Material Adverse
Effect) on and as of the Closing Date as though made as of the Closing
Date, and (ii) covenants and agreements of Lessee to be performed on or
before the Closing Date in accordance with this Lease shall have been
duly performed in all material respects (and in all respects, in the
case of covenants and agreements which are qualified by materiality).
(2) Officer's Certificate. Lessor shall have received
a certificate dated as of the Closing Date, executed on behalf of each
Lessee by a duly authorized officer of Lessee, to the effect that the
conditions set forth in subsection (1) of this Section 2.10(a) have
been satisfied.
(3) Closing Documents. On or prior to the Closing
Date, Lessee shall have delivered, or be standing ready to deliver (or
cause to be delivered) at Closing, all agreements, instruments and
other documents that Lessee is required to deliver or cause to be
delivered pursuant to Section 2.11(c).
(4) No Existing Order. No order, writ, injunction or
decree shall have been entered and be in effect by any court of
competent jurisdiction or any Governmental Body, and no statute, rule,
regulation or other requirement shall have been promulgated or enacted
and be in effect, that restrains, enjoins or invalidates the
transactions contemplated hereby.
(5) Guaranties and Sureties. Lessor shall have
received from Lessee replacement or substitute guaranties, letters of
credit, bonds, and other surety obligations for those set forth on
Schedule 2.9 and Lessee, in form and substance acceptable to Lessor,
shall have caused the release as of the Closing Date of Lessor and its
Affiliates from all obligations relating to any such guaranties,
letters of credit, bonds, or other surety obligations and any
liabilities related thereto.
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(6) Consents. Except for such consents, licenses and
approvals the failure of which to obtain or with which to comply will
not be reasonably likely to have a Material Adverse Effect,
Environmental Permits, and Post-Closing Consents, the consents,
licenses and approvals from all third parties or Governmental Bodies
necessary or appropriate for Lessor to consummate the transactions
contemplated by this Lease shall have been received.
(7) HSR Act. All necessary filings and notifications
under the HSR Act shall have been made, including any required
additional information and documents, and the waiting period referred
to in the HSR Act applicable to the transactions contemplated hereby
shall have expired or been terminated.
(8) Contemporaneous Closing. The "Closing" under the
Other Lease shall occur simultaneously with the Closing under this
Lease.
(b) Lessee's Closing Conditions. The obligation of Lessee to
proceed with the Closing contemplated hereby is subject, at the option of
Lessee, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(1) Representations, Warranties and Covenants. The
(i) representations and warranties of Lessor contained in this Lease
shall be true and correct in all material respects (and in all
respects, in the case of representations and warranties which are
qualified by materiality or by the requirement of a Material Adverse
Effect) on and as of the Closing Date as though made as of the Closing
Date, and (ii) covenants and agreements of Lessor to be performed on or
before the Closing Date in accordance with this Lease shall have been
duly performed in all material respects (and in all respects, in the
case of covenants and agreements which are qualified by materiality).
(2) Officer's Certificate. Lessee shall have received
a certificate dated as of the Closing Date, executed on behalf of
Lessor by a duly authorized officer of a General Partner of Lessor, to
the effect that the conditions set forth in subsection (1) of this
Section 2.10(b) have been satisfied.
(3) Closing Documents. On or prior to the Closing
Date, Lessor shall have delivered, or be standing ready to deliver (or
cause to be delivered) at the Closing, all agreements, instruments and
documents that Lessor is required to deliver or cause to be delivered
pursuant to Section 2.11(b).
(4) No Existing Order. No order, writ, injunction or
decree shall have been entered and be in effect by any court of
competent jurisdiction or any Governmental Body, and no statute, rule,
regulation or other requirement shall have been promulgated or enacted
and be in effect, that restrains, enjoins or invalidates the
transactions contemplated hereby.
(5) Consents. Except for such consents, licenses and
approvals the failure of which to obtain or with which to comply will
not be reasonably likely to have a Material Adverse Effect,
Environmental Permits, and Post-Closing Consents, (A) the
12
consents, licenses and approvals necessary or appropriate for Lessor to
consummate the transactions contemplated by this Lease shall have been
received and (B) the consents, licenses, and approvals identified in
Schedule 2.10(b)(5) shall have been received; provided that a third
party lessor's consent to the sublease of any part of the Leased
Property, or the assignment to Lessee pursuant to the Option of a lease
covering any part of the Leased Property, shall not be a condition to
Closing under this Section 2.10(b) as long as Lessor and El Paso Field
Services Company are ready and willing on the Closing Date to enter
into the Operating Agreement as provided for in Section 2.6(f)(1) with
respect to such lease.
(6) HSR Act. All necessary filings and notifications
under the HSR Act shall have been made, including any required
additional information and documents, and the waiting period referred
to in the HSR Act applicable to the transactions contemplated hereby
shall have expired or been terminated.
(7) Contemporaneous Closing. The "Closing" under the
Other Lease shall occur simultaneously with the Closing under this
Lease.
2.11 Closing.
(a) Place of Closing. The Closing shall be held on the Closing
Date at 10:00 a.m., local time, at the office of Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.,
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, or at such other time or place as
Lessor and Lessee may otherwise agree in writing.
(b) Lessor's Closing Obligations. At or prior to Closing,
Lessor shall execute and deliver, or cause to be executed and delivered, to
Lessee the following:
(1) The Effectiveness Certificate, in the form
attached hereto as Exhibit 2.11, joined in by Lessee, acknowledging and
confirming that (i) the Closing has occurred, (ii) the lease of the
Leased Property from Lessor to Lessee, and by Lessee from Lessor,
pursuant to this Lease has become effective, (iii) that the Effective
Time is as set forth in the Effectiveness Certificate, and (iv)
Articles 3, 4, 5, 6, 10, 11 through 19 of this Lease have become
effective and are in full force and effect;
(2) The officer's certificate of a General Partner of
Lessor referred to in Section 2.10(b)(2), with such exceptions thereto
which are scheduled in such certificate with respect to matters
discovered, occurring or arising after the date of this Lease as may be
necessary to make the statements contained therein true and correct;
(3) A non-foreign affidavit, as such affidavit is
referred to in Section 1445(b)(2) of the Tax Code, in form attached
hereto as Exhibit 2.11(b)(3), dated as of the Closing Date;
(4) A copy, certified as of the Closing Date, by a
Secretary or Assistant Secretary, as the case may be, of a General
Partner of Lessor of the resolutions duly adopted by the partners of
Lessor authorizing the transactions contemplated by this Lease;
(5) Reasonable written evidence that the waiting
period referred to in the HSR Act applicable to the transactions
contemplated hereby shall have expired or been terminated;
13
(6) A ▇▇▇▇ of Sale and Assignment, in the form
attached hereto as Exhibit 2.11(b)(6), dated as of the Effective Time;
(7) The other Related Agreements (other than those to
be executed after the Closing pursuant to Section 10.3);
(8) The Guaranty Agreement of El Paso Corporation, in
the form attached hereto as Exhibit 2.11(b)(8) and
(9) Any other agreements, instruments and documents
which are required by other terms of this Lease to be executed and/or
delivered by Lessor or its Affiliates to Lessee or its Affiliates at
the Closing.
(c) Lessee's Closing Obligations. At or prior to Closing,
Lessee shall (i) deliver, or cause to be delivered, the initial Lease Payment to
Lessor in immediately available funds to the bank account specified in Section
5.3 and (ii) execute and deliver, or cause to be executed and delivered, to
Lessor the following:
(1) The Effectiveness Certificate, in the form
attached hereto as EXHIBIT 2.11, joined in by Lessor, acknowledging and
confirming that (i) the Closing has occurred, (ii) the lease of the
Leased Property from Lessor to Lessee, and by Lessee from Lessor,
pursuant to this Lease has become effective, (iii) the Effective Time
is as set forth in the Effectiveness Certificate, and (iv) Articles 3,
4, 5, 6, 10 through 19 of this Lease have become effective and are in
full force and effect;
(2) The officer's certificate of Lessee referred to
in Section 2.10(a)(2), with such exceptions thereto which are scheduled
in such certificate with respect to matters discovered, occurring or
arising after the date of this Lease as may be necessary to make the
statements contained therein true and correct;
(3) A copy, certified as of the Closing Date, by
Lessee's Secretary or Assistant Secretary, as the case may be, of the
resolutions duly adopted by the Board of Directors of Lessee
authorizing the transactions contemplated by this Lease;
(4) Reasonable written evidence that the waiting
period referred to in the HSR Act applicable to the transactions
contemplated hereby shall have expired or been terminated;
(5) The Related Agreements (other than those to be
executed after the Closing pursuant to Section 10.3);
(6) The Guaranty Agreement of Valero Energy
Corporation, in the form attached hereto as Exhibit 2.11(c)(6) and
(7) Any other agreements, instruments and documents
which are required by other terms of this Lease to be executed and/or
delivered by Lessee or its Affiliates to Lessor or its Affiliates at
the Closing.
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2.12 Survival.
(a) This Section 2.12 shall not apply to the Exhibits to this
Agreement, each of which shall be considered independently. Each representation,
warranty, covenant and agreement made herein shall terminate and cease to be of
further force and effect as of the Closing or such later date after Closing as
is expressly stipulated in this Section 2.12 for the survival thereof provided,
however, that any such representation, warranty, covenant or agreement shall
survive beyond the applicable date specified herein with respect to any claim
for indemnification under Article 17 based on such representation, warranty,
covenant or agreement provided that a Claim Notice with respect to such claim
has been delivered to the applicable Indemnitor on or prior to such date.
Neither the officer's certificate of Lessee referred to in Section 2.10(a)(2) or
2.11(c)(ii)(2) nor the officer's certificate of Lessor referred to in Section
2.10(b)(2) or Section 2.11(b)(2) shall operate or cause any underlying
representation, warranty, covenant or agreement referenced or certified to
therein, or Lessee's or Lessor's obligations under said certificate with respect
to such representation, warranty, covenant or agreement, to change or survive
later than the time stipulated for the survival of such representation,
warranty, covenant or agreement in this Section 2.12. Following the Closing or
such later date stipulated in this Section 2.12 for the survival thereof, no
representation, warranty, covenant or agreement shall form the basis for or give
rise to any claim, demand, cause of action, counterclaim, defense, damage,
indemnity, obligation or liability which is asserted, claimed, made or filed by
a party to this Lease (or its successors or assigns as permitted herein). It is
expressly agreed that the terms and provisions of:
(1) Articles 7, 8 and 9 (except as provided in
subsection (2) below) and Sections 2.2 and 2.4 shall survive the
Closing for a period of one year from the Closing Date and Section 7.4
shall survive the Closing until the end of the second Lease Year,
(2) Sections 2.6, 2.7, 2.8, 2.9, 2.12, 7.1, 7.7, 8.1,
8.4, 8.5, and 8.6, Articles 1, 3, 4, 5, 6, and 10 through 21, shall
survive the Closing without limitation or for such shorter period of
time as may be stipulated in such provisions, in Section 2.12(a)(3) or
allowed by Law, and
(3) Article 16 shall not survive the closing of the
Option and Section 4.2, Articles 10 through 15 (other than Sections
10.1(b), 10.2 and 10.3) and Sections 18.1 and 18.2 shall not survive
the earlier of the closing of the Option or the termination of this
Lease; provided that, such non-survival shall not affect, release, or
discharge any liability for any breach of such provisions prior to the
closing of the Option or the termination of this Lease.
(b) In addition, the definitions set forth in Appendix A to
this Lease or in any other provision of this Lease which are used in the
representations, warranties, covenants and agreements which survive the Closing
pursuant to this Section 2.12 shall survive the Closing to the extent necessary
to give operative effect to such surviving representations, warranties,
covenants and agreements. Subject to the limitations on survival contained in
this Section 2.12, the delivery by a party, and the acceptance by the other
party, of an officer's certificate pursuant to Section 2.11(c)(ii)(2) or
2.11(b)(2) containing any exceptions shall not operate to release or waive any
claim or cause of action which the other party might have for breach by the
party delivering such
15
officer's certificate of any of its representations and warranties made as of
the date of this Lease or any of its covenants and agreements hereunder. Except
to the extent terminated pursuant to the foregoing provisions of this Section
2.12, expiration or other termination of the Term of this Lease after the
Effective Time shall not affect, release or discharge any liability for any
breach of any covenants, agreements or obligations under this Lease, and the
obligations of Lessor and Lessee under Article 17 shall survive such expiration
or other termination as provided in Sections 17.1 and 17.2.
2.13 Termination Before Closing; Pre-Closing Remedies.
(a) Termination of Lease. This Lease and the transactions
contemplated hereby may be terminated at any time prior to the Closing:
(1) By the mutual consent of Lessor and Lessee;
(2) If the Closing has not occurred (A) within 365
days following the date of this Lease because the conditions in
Sections 2.10(a)(7) and 2.10(b)(6) have not been satisfied or (B) by
the close of business on August 31, 2001 because of any other reason,
then (i) by Lessor if any condition specified in Section 2.10(a) has
not been satisfied on or before such close of business, and shall not
theretofore have been waived by Lessor, or (ii) by Lessee if any
condition specified in Section 2.10(b) has not been satisfied on or
before such close of business, and shall not theretofore have been
waived by Lessee; provided, in each case, that the failure to
consummate the transactions contemplated hereby on or before such date
did not result from the failure by the party or parties seeking
termination of this Lease to fulfill any undertaking or commitment
provided for herein on the part of such party or parties that is
required to be fulfilled on or prior to Closing;
(3) By Lessee, if a material default shall have been
made in the observance or performance by Lessor of any agreements and
covenants of Lessor contained herein, or if there shall have been a
material breach by Lessor of any representations or warranties
contained herein and, in each case, such default or breach is not cured
within 30 days after receipt by Lessor of written notice from Lessee of
such default or breach or is incapable of being cured;
(4) By Lessor, if a material default shall have been
made in the observance or performance by Lessee of any agreements and
covenants of Lessee contained herein, or if there shall have been a
material breach by Lessee of any representations or warranties
contained herein and, in each case, such default or breach is not cured
within 30 days after receipt by Lessee of written notice from Lessor of
such default or breach or is incapable of being cured; or
(5) By either party, if there shall be any order,
writ, injunction or decree of any Governmental Body binding Lessor or
Lessee which prohibits or restrains Lessor or Lessee from consummating
the transactions contemplated hereby and such order, writ, injunction
or decree shall have become final.
(b) EFFECT OF TERMINATION. IN THE EVENT OF TERMINATION OF THIS
Lease by Lessor, on the one hand, or Lessee, on the other hand, pursuant to
Section 2.13(a), written notice thereof shall
16
forthwith be given by the terminating party or parties to the other party or
parties hereto, and this Lease shall thereupon terminate; provided, however,
that following such termination Lessee will continue to be bound by its
obligations set forth in Section 2.3(b). If this Lease is terminated as provided
herein all filings, applications and other submissions made to any Governmental
Body shall, to the extent practicable, be withdrawn from the Governmental Body
to which they were made.
(c) Lessor's Remedies. Notwithstanding anything herein
provided to the contrary, if this Lease is not terminated by Lessee pursuant to
Section 2.13(a) and Lessee fails to satisfy on or prior to the Closing Date the
conditions to Closing or the Closing obligations, as the case may be, set forth
in Section 2.11(c) or subsections (1), (2), (3), (5) or (9) of Section 2.10(a),
as a result of a breach of its obligations under this Lease (or a breach of its
Affiliate's obligations under the Other Lease), Lessor, at its sole option, may
(i) enforce specific performance of this Lease and the Other Lease or (ii)
terminate this Lease (without waiving or releasing Lessee's obligations under
Section 2.3(b)) and recover from Lessee any and all actual damages, costs and
expenses sustained or incurred by Lessor as a result of Lessee's failure to
close and to perform Lessee's obligations under Section 2.11 and other
provisions of this Lease; including the recovery of damages equal to the damages
to which Lessor would be entitled under Section 19.2 if the Closing had occurred
on the Closing Date (but without any Lease Payments being made) and this Lease
was terminated on account of Lessee's default effective as of the Effective
Time. Such remedies shall be Lessor's sole and exclusive remedies for such
failure, all other remedies being expressly waived by Lessor.
(d) Lessee's Remedies. Notwithstanding anything herein
provided to the contrary, if this Lease is not terminated by Lessor pursuant to
Section 2.13(a) and Lessor fails to satisfy on or prior to the Closing Date the
conditions to Closing or the Closing obligations, as the case may be, set forth
in Section 2.11 (b) or subsections (1), (2), (3), or (8) of Section 2.10(b), as
a result of a breach of its obligations under this Lease (or a breach of its
Affiliate's obligations under the Other Lease), Lessee, at its sole option, may
(i) enforce specific performance of this Lease and the Other Lease, or (ii)
terminate this Lease and recover from Lessor any and all actual damages, costs
and expenses sustained or incurred by Lessee as a result of Lessor's failure to
close and to perform Lessor's obligations under Section 2.11 and the other
provisions of this Lease. Such remedies shall be Lessee's sole and exclusive
remedies for such failure, all other remedies being expressly waived by Lessee.
ARTICLE 3
LEASE GRANT
3.1 Grant of Lease. Subject to all of the terms and conditions of this
Lease, effective as of the Effective Time, (i) Lessor does hereby lease, demise
and let unto Lessee the Leased Property for the Term stated herein and (ii)
Lessee does hereby hire, take and lease from Lessor the Leased Property for the
Term stated herein.
3.2 Quiet Enjoyment. Effective as of the Effective Time, Lessor
covenants and warranties that Lessee, on payment of all Rent hereunder as and
when the same comes due and payable and performance and compliance with all of
the other terms and conditions hereof to be performed and complied with by
Lessee, may peaceably and quietly have, hold, occupy and enjoy
17
the Leased Property during the Term hereof provided that, Lessor reserves, and
shall have, the right of access to the Leased Property as provided in this
Lease.
3.3 Net Lease. Without limiting Lessor's obligations under Section
17.1, Lessee agrees that this is an absolutely net lease and Lessor shall not be
required to provide or furnish any services or do any act or thing with respect
to the Leased Property (except as otherwise specifically provided in this
Agreement or in any Related Agreement), or any part thereof or the appurtenances
thereto, and the Lease Payments reserved herein and all other sums payable by
Lessee hereunder (other than on account of Section 17.2(a) or a breach or
non-fulfillment of a representation or warranty covered by Section 17.2(b))
shall be paid without any claim on the part of Lessee for diminution, setoff or
abatement and nothing shall suspend, ▇▇▇▇▇ or reduce any rent to be paid
hereunder. Except for Pre-Closing Liabilities, Lessee shall (i) pay when due all
rent and other sums coming due under any lease, easement, license or other
property use right included in the Leased Property and (ii) comply with (or
cause to be complied with) any and all covenants and other obligations of the
lessee, grantee, licensee or other transferee under any such lease, easement,
license or other property use right, all at Lessee's sole cost and expense.
ARTICLE 4
LEASE TERM AND PERMITTED USES
4.1 Term. Subject to the earlier termination of this Lease as provided
herein, this Lease shall be for a term of 20 years beginning as of the Effective
Time and ending 20 years thereafter at midnight, Central time, on the same day
of the month as the day on which Closing occurred (the "Term"). The "Effective
Time" shall be 12:01 a.m., Central time, on the day following the day of
Closing.
4.2 Permitted Uses. Lessee shall use the Leased Property for (a)
operating refined petroleum product pipeline systems and terminals, including
(i) the operation, maintenance, modification, repair, expansion, improvement,
and enhancement of the existing pipelines, terminals, and other facilities
included in the Leased Property; (ii) the transporting, storing, loading,
unloading, sale, marketing, distributing and/or otherwise dealing with refined
petroleum products; (iii) the receiving, storing, loading, unloading,
transporting and/or otherwise dealing with supplies, spare parts, tools,
equipment and other materials related to the operation of such pipeline systems
and terminals; (iv) the conduct or provision of support services relating
thereto (such as, but not limited to, managerial, sales, marketing, finance,
payroll, invoicing, accounts payable, accounting, treasury, computer and data
processing, communications, employee benefits, record and data storage and
handling, insurance and legal services); and (v) any lawful purposes as may be
related or incidental thereto and (b) with the written consent of Lessor, any
other lawful purpose.
ARTICLE 5
RENT
5.1 Lease Payment. On and after the Closing, Lessee, in consideration
of the leasing of the Leased Property to Lessee by Lessor, hereby covenants and
agrees to pay Lease Payments to Lessee during the Term in amounts as set out in
Schedule 5.1 attached hereto and incorporated by reference herein, without
notice or demand and without any setoff or deduction whatsoever. The Lease
Payments shall be due and payable quarterly in advance, with the first Lease
Payment being due and payable at Closing on the Closing Date and the remaining
Lease Payments equal to one-fourth of the annual payment being
18
due and payable quarterly in advance during the Term on the same day of each
third consecutive month following the Closing Date, with the annual Lease
Payments for each of the first two years of the Term being $4,500,000 and the
annual Lease Payments for each of the next 18 years of the Term being
$10,000,000. By way of example, if the Closing occurs on May 1, 2001, then the
quarterly Lease Payments shall be due and payable in advance on each August 1,
November 1, February 1 and May 1 thereafter during the Term. If any Lease
Payment falls due on a day that is not a Business Day, then such Lease Payment
shall be due and payable on the next day that is a Business Day. Notwithstanding
the foregoing, if Lessee is ready, willing and able to exercise the Option
referred to in Article 6, but is unable to lawfully do so because an order,
writ, injunction or decree shall have been entered into and be in effect by a
court of competent jurisdiction that restrains or enjoins the Option Closing
(other than as a result of any claim or Action under the HSR ACT), THEN:
(a) if primarily as a result of an act or failure to act by
Lessor after the Effective Time in breach of its obligations under this Lease or
any act by Lessor or any Affiliate of Lessor before or after the Effective Time,
then during the period when such restriction is in effect, the annual Lease
Payments shall be $4,500,000 per annum;
(b) if primarily as a result of an act or failure to act by
Lessee after the Effective Time in breach of its obligations under this Lease or
any act by Lessee or any Affiliate of Lessee before or after the Effective Time,
then the annual Lease Payments shall be $10,000,000 per annum as above provided;
and
(c) if resulting from any cause not set forth in clause (a) or
(b) above, then during the period when such restriction is in effect, the annual
Lease Payments shall be $4,500,000 per annum, subject to escalation as provided
in this clause (c). If the annual Lease Payment under this clause (c) continues
in effect for longer than one year, then the annual Lease Payment under this
clause (c) shall be increased annually as of each anniversary of the date the
first Lease Payment became due pursuant to this clause (c) (each such
anniversary being referred to as an "Index Date") by an amount equal to the
Escalation Amount on such Index Date. The Escalation Amount for an Index Date
shall be deemed to be zero if the Escalation Amount for such Index Date is zero
or a negative number. Commencing with each Index Date and continuing until the
next succeeding Index Date (such period being referred to as an "Index Year"),
the annual Lease Payment under this clause (c) shall be an amount equal to the
Lease Payment amount in effect under this clause (c) during the preceding Index
Year (or $4,500,000, if the first Index Year) plus the Escalation Amount, if
any. The "Escalation Amount" shall be determined as of the applicable Index
Date, in accordance with the following formula, but the Escalation Amount for
any Index Year shall not exceed $275,000:
EA = LP x CPI - PPI
---------
PPI
Where:
EA = Escalation Amount
LP = The annual Lease Payment in effect for the
preceding Index Year (or $4,500,000, in the
case of the first Escalation Amount
calculation)
CPI = The Producer Index for the current Index Date
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PPI = The larger of (i) the Producer Index for the
immediately preceding Index Date (or the
date the first Lease Payment became due
pursuant to this clause (c), in the case of
the first Escalation Amount calculation) or
(ii) the Producer Index for any preceding
Index Date or the date the first Lease
Payment became due pursuant to this clause
(c)
As used in the foregoing formula, "Producer Index" means the Producer Price
Index -- Finished Goods (final and not seasonally adjusted), published by the
Bureau of Labor Statistics (BLS). If the Producer Index is not published for an
Index Date, the Producer Index for the nearest preceding date shall be used.
5.2 SUPPLEMENTAL RENT. IF LESSEE FAILS TO PERFORM OR COMPLY WITH ANY OF
ITS covenants or agreements contained in this Lease (other than on account of
Section 17.2(a) or a breach or non-fulfillment of a representation or warranty
covered by Section 17.2(b)), then upon not less than 20 days' prior written
notice to and demand upon Lessee, and without releasing Lessee from any
obligation hereunder, Lessor shall have the right, but not the obligation, to
perform or comply with such covenants or agreements, and Lessee shall indemnify
and pay to Lessor, on demand, all costs and expenses sustained by Lessor in
complying with any such covenants or agreements (such costs and expenses being
herein called the "Supplemental Rent"). Any action taken by Lessor under this
Section shall not be deemed to cure any default or Event of Default hereunder
(except to the extent all related Supplemental Rent is paid by Lessee).
5.3 Payment of Rent. The Lease Payments and Supplemental Rent are
referred to herein as "Rent." Payments of Rent shall be made by wire transfer in
immediately available funds to First Union Natl BK NC, Automated Clearing House
Bank Routing Number ▇▇▇▇▇▇▇▇▇, D/5000000016439 - Corp Trust Ops, Reference:
1572004879/EPC/Coastal Liquid, Attn to: CT1870 (or any other banking institution
as Lessor may specify in writing to Lessee from time to time, provided that any
such change shall not become effective until the second (2nd) Business Day
following delivery to Lessee of written notice thereof, including the bank name
and address, the account name and number and routing number). To the extent
permitted by Law, Rent not paid when due shall bear interest from the date due
until paid at the Default Rate. The expiration or other termination of Lessee's
obligation to pay Lease Payments shall not limit or modify the obligations of
Lessee with respect to the Supplemental Rent as provided hereunder.
ARTICLE 6
PURCHASE OPTION
6.1 Option. Lessor hereby grants to Lessee an option (the "Option") to
purchase the Leased Property pursuant to the terms of this Article for the
Purchase Price provided in Section 6.2; provided, however, Lessee shall not have
the right to purchase the Leased Property pursuant to the Option unless (i) at
the time of exercise of the Option and the time of the closing of Lessee's
purchase of the Leased Property, an Event of Default as a result of failure to
pay any Lease Payment does not exist under this Lease, (ii) at the time of
exercise of the Option and the time of the Option Closing, the Other Lease is in
full force and effect and an "Event of Default" as a result of failure to pay
any "Lease Payment" thereunder does not exist under the Other Lease, (iii)
contemporaneous with Lessee's
20
exercise of the Option, the Other Lessee exercises its option to purchase the
Other Leased Property pursuant to the Other Lease Option, and (iv)
contemporaneous with Lessee's purchase of the Leased Property pursuant to the
Option, the Other Lessee purchases the Other Leased Property pursuant to the
Other Lease Option.
6.2 Purchase Price. The purchase price (the "Purchase Price") that
Lessee shall pay to Lessor for the Leased Property pursuant to the Option shall
be a lump sum cash payment equal to the fixed purchase price amount which is set
forth in Schedule 6.2 next to (a) the Lease Year during which Lessee delivers
the Option Notice to Lessor or (b) the third Lease Year if Lessee delivers the
Option Notice to Lessor during the 30 days preceding the commencement of the
third Lease Year. If any Rent or other amount (other than the Purchase Price) is
due and payable by Lessee to Lessor (or would be due and payable but for the
fact that the grace period for curing an Event of Default has not yet expired)
on the Option Closing Date, such unpaid Rent and other amounts plus the Purchase
Price (collectively, the "Option Closing Payment") shall be due and payable at
the Option Closing; provided, however, that the Option Closing Payment shall not
include (i) any disputed item of Supplemental Rent or (ii) any amounts owed on
account of Section 17.2(a) or a breach or non-fulfillment of a representation or
warranty covered by Section 17.2(b), however, the exclusion of such amounts from
the Option Closing Payment, or the failure to include in the Option Closing
Payment any other amount which may be payable by Lessee to Lessor under this
Lease, shall not release or impair any liability or obligation of Lessee
therefor under this Lease and such liabilities and obligations shall survive the
Option Closing. The quarterly Lease Payment for the quarter during which the
Option Closing occurs shall be apportioned to the Option Closing Date and Lessee
shall be entitled to a refund or credit for any portion of a Lease Payment
theretofore paid under this Lease which is attributable to the period after the
Option Closing Date. Otherwise, Lessee shall not be entitled to any refund or
pro ration of Rent or other amounts theretofore paid or due and payable under
this Lease on or before the Option Closing as a result of Lessee's exercise of
the Option and purchase of the Leased Property. The term "Lease Year" means any
12-month period commencing at the Effective Time or any anniversary thereof and
ending on the first or a subsequent anniversary of the Effective Time. By way of
example, first Lease Year shall begin at the Effective Time and end on the first
anniversary thereof, and the second Lease Year shall begin on the first
anniversary of the Effective Time and end on the second anniversary of the
Effective Time.
6.3 Option Exercise and Closing. Lessee may exercise the Option by
delivering to Lessor written notice of Lessee's election to exercise the Option
(the "Option Notice") at any time after the 30 days preceding the commencement
of the third Lease Year and on or before the expiration of the Term or the
earlier termination of this Lease. If Lessee timely gives the Option Notice,
then as of the delivery of the Option Notice Lessee shall be legally obligated
to purchase the Leased Property in accordance with this Section 6.3 and the
closing of the sale of the Leased Property from Lessor to Lessee (the "Option
Closing") shall occur (i) on the first Business Day of the third Lease Year if
Lessee exercises the Option more than five Business Days prior to the first
Business Day of the third Lease Year and (ii) otherwise on the fifth Business
Day following the date of delivery of the Option Notice or such earlier or later
date as Lessee and Lessor may mutually agree in writing. The date on which the
Option Closing is required to occur under this Section shall be referred to as
the "Option Closing Date". If Lessee exercises the Option during the second
Lease Year as permitted above and closes its purchase of the Leased Property on
the Option Closing Date as herein provided, no Lease Payment shall be due with
respect to the third Lease Year. If Lessee has delivered the Option Notice in a
timely manner to Lessor, then on the Option Closing Date:
21
(a) Lessee shall be legally obligated (i) to purchase the Leased
Property from Lessor for the Purchase Price, (ii) to pay the
Option Closing Payment to Lessor in the manner provided in
this Section, and (iii) to duly and properly execute,
acknowledge and deliver, as grantee therein, an original
counterpart of Lessor's Special Warranty Conveyance.
(b) Subject to the full and complete satisfaction of all
requirements of Section 6. 1 (or the waiver thereof, in whole
or in part, in writing by Lessor at Lessor's option) and
compliance by Lessee with Section 6.3(a), Lessor shall be
legally obligated (i) to sell the Leased Property to Lessee
for the Purchase Price, (ii) to duly and properly execute,
acknowledge and deliver, as grantor therein, an original
counterpart of Lessor's Special Warranty Conveyance and (iii)
to deliver to Lessee an owner's title policy covering the
portion of the Terminals and Terminal Interests that
constitutes land and improvements to real property issued by
LandAmerica Financial Group (the "Title Policy") in the amount
of $10,000,000, being the portion of the Purchase Price that
Lessor and Lessee, for purposes of the title policy only, have
allocated to the portion of the Terminals and Terminal
Interests that constitutes land and improvements to real
property. The Title Policy shall be in the standard form
promulgated by the Texas State Board of Insurance or other
appropriate Governmental Body. It shall not be a requirement
of the Option Closing that the Title Policy have the survey
exception modified in any manner or that any other special
endorsements be made to the Title Policy, including any
endorsement regarding restrictive covenants.
(c) The Purchase Price shall be paid to Lessor by wire transfer in
immediately available funds to First Union Natl BK NC,
Automated Clearing House Bank ROUTING Number ▇▇▇▇▇▇▇▇▇,
D/5000000016439 -- Corp Trust Ops, Reference: 1572004879/EPC/
Coastal Liquid, Attn to: CT1870 (or any other banking
institution as Lessor may specify in writing to Lessee from
time to time, provided that any such change shall not become
effective until the next Business Day following delivery to
Lessee of written notice thereof, including the bank name and
address, the account name and number and routing number).
(d) Except for the provisions of this Lease which survive the
Option Closing as provided in Section 2.12, this Lease shall
terminate and merge into Lessor's Special Warranty Conveyance
upon the Option Closing. Following the Option Closing the sole
obligations of Lessor to Lessee, and of Lessee to Lessor, with
respect to the transaction evidenced by this Lease shall be
(i) under Lessor's Special Warranty Conveyance and (ii) under
the provisions of this Lease which survive the Option Closing
as provided in Section 2.12, but only to the extent provided
in Section 2.12.
If Lessee fails to deliver the Option Notice to Lessor on or before the
expiration of the Term or the earlier termination of this Lease, then the Option
shall terminate and be of no further force and effect. If Lessee delivers an
Option Notice to Lessor and fails to purchase the Leased Property on the Option
Closing Date as provided above for any reason other than a legal restriction
referred to in the last sentence of Section 5.1 or fails to satisfy all
requirements of Section 6.1 and Lessor is able to deliver the Special Warranty
Conveyance without exception to the warranties set forth therein and the Title
Policy, then the Option shall terminate and be of no further force and effect.
If
22
Lessee timely delivers the Option Notice to Lessor, and Lessor or Lessee fails
to comply with its obligations under this Article 6 for any reason other than a
legal restriction referred to in the fifth sentence of Section 5.1, the other
shall have all rights and remedies available at law or in equity (all of which
shall be cumulative), including the right to specifically enforce Lessee's
purchase of the Leased Property and payment of the Option Closing Payment (plus
interest thereon at the Default Rate from the Option Closing Date until paid),
to specifically enforce Lessor's obligation to sell the Leased Property or to
recover damages on account of such non-compliance. If title to the whole of the
Leased Property shall be "taken" as provided in Section 15.2, then the Option
shall be deemed to have been exercised as provided in Section 15.2, and this
Article 6 shall be modified by the provisions of Section 15.2.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF LESSOR
Except as set forth in this Article 7 and the Schedules hereto prepared
by Lessor and attached hereto at the time of the execution hereof, Lessor
represents and warrants to Lessee that all of the following statements contained
in this Article 7 are true as of the date of this Lease:
7.1 Organization and Authority. Lessor is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Lessor has all requisite power and authority to own, operate and lease
its properties and assets and to carry on its business in the manner currently
conducted, except where the failure to have that power and authority would not
have a Material Adverse Effect. Lessor is licensed or qualified to transact
business as a foreign limited partnership and is in good standing in the State
of Texas. Lessor has all requisite limited partnership power and authority to
enter into this Lease, to perform its obligations under this Lease and to
consummate the transactions contemplated hereby. This Lease, and the
transactions contemplated hereby, have been duly authorized and approved by all
necessary action on the part of Lessor, including the approval of the general
partner(s) of Lessor and, to the extent required by law, its limited partner(s).
This Lease has been duly executed and delivered by Lessor and is a legal, valid
and binding obligation of Lessor enforceable against Lessor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect that affect creditors' rights generally and by legal and equitable
limitations on the availability of specific remedies.
7.2 Consents; Conflict with Other Instruments.
(a) Except as set forth in Schedule 7.2(a), compliance with
and filings under the HSR Act, and the transfer or obtaining of any
Environmental Permit, no order, license, consent, waiver, permit, authorization
or approval of, or exemption by, or the giving of notice to, or the
qualification, registration with, or the taking of any other action in respect
of, any Person not a party to this Lease, including any Governmental Body, and
no filing, recording, publication or registration in any public office or any
other place is now, or under existing law in the future will be, necessary on
behalf of Lessor to authorize its execution, delivery and performance of this
Lease and the consummation of the transactions contemplated hereby, or to effect
the legality, validity, binding effect or enforceability hereof except for any
of the foregoing which would not have or reasonably be expected to have a
Material Adverse Effect.
(b) The execution, delivery and performance of this Lease
(including the
23
Option), the consummation of the transactions contemplated hereby and the
compliance by Lessor with the provisions hereof will not, with or without the
passage of time or the giving of notice or both:
(1) conflict with, constitute a breach, violation or
termination of any provision of, or give rise to any right of
termination, cancellation or acceleration, or loss of any material
right or benefit or both, under any agreement, indenture, instrument,
lease, contract or other undertaking to which Lessor is a party or by
which Lessor or its assets may be bound;
(2) result in an acceleration or increase of any
amounts due from Lessor to any Person;
(3) conflict with or violate the Certificate of
Limited Partnership or limited partnership agreement of Lessor;
(4) give rise to any preferential or other right of
any third party to purchase the Facilities, Pipeline System Interests
or Terminal Interests;
(5) result in the creation or imposition of any Lien
on the Facilities, Pipeline System Interests or Terminal Interests; or
(6) violaTE any law, statute, ordinance, regulation,
judgment, writ, injunction, rule, decree, order or any other
restriction of any kind or character applicable to Lessor or any of its
material properties,
except, with respect to clauses (1), (2) and (6), for such violations, conflicts
and other matters which will not (i) prevent or materially delay the
consummation of the transactions contemplated by this Lease, (ii) prevent Lessor
from performing its obligations under the Lease or (iii) result or reasonably be
expected to result in a Material Adverse Effect. Notwithstanding the foregoing,
Lessor makes no representation or warranty, express or implied, under this
Section 7.2 relating to any Environmental Law or Environmental Permit. The
representations and warranties in this Section 7.2 are subject to and limited by
Section 2.6(g).
7.3 Licenses and Authorizations.
(a) To the knowledge of Lessor, Schedule 7.3(a) sets forth (i)
a true and complete list of all material Intellectual Property, (ii) the name of
the Person who owns such Intellectual Property, and (iii) in the case of such
Intellectual Property not owned by Lessor, other than licenses for software
having a value of less than $1,000.00 per license, identifying information
regarding the agreement pursuant to which Lessor uses any such Intellectual
Property ("Intellectual Property Contracts"). Except as otherwise specified on
SCHEDULE 7.3(A), Lessor has the right to assign to Lessee the Intellectual
Property and Intellectual Property Contracts upon the consummation of the
transactions contemplated hereunder. Lessor has taken reasonable precautions to
protect its rights in and to the Intellectual Property, including maintaining
the confidentiality of trade secrets, pending patent applications, know-how, and
other confidential Intellectual Property; provided that Lessor does not
represent or warrant that any of the Intellectual Property is proprietary to
Lessor or that Lessor has any proprietary rights to assign in the Intellectual
Property.
24
To the knowledge of Lessor, Lessor is not in material breach of any agreement,
commitment, contractual understanding, license, sublicense, assignment, or
indemnification which relates to any of the Intellectual Property.
(b) To the knowledge of Lessor, Schedule 7.3(b) sets forth an
accurate and complete list of all Environmental Permits that are in force and
effect with respect to the operations or ownership of the Assets by Lessor.
Lessor makes no representation or warranty, express or implied, under this
Section 7.3(b) relating to whether any other Environmental Permits are necessary
to the operation or ownership of the Assets.
(c) To the knowledge of Lessor, Schedule 7.3(c) sets forth an
accurate and complete list of all material permits, licenses, or similar rights
from any Governmental Body (other than Environmental Permits) that are in force
and effect with respect to the operations or ownership of the Assets by Lessor.
Lessor makes no representation or warranty, express or implied, under this
Section 7.3(c) relating to whether any other permits, licenses, or similar
rights are necessary to the operation or ownership of the Assets.
(d) Lessor has not assigned or encumbered its interest in the
"Contracts" included in the "Conveyed Personalty" (as such terms are defined in
the ▇▇▇▇ of Sale and Assignment included in the Related Agreements) and there is
no default under such "Contracts" that would have a Material Adverse Effect on
the operations of the Leased Property after the Effective Time.
7.4 Title.
(a) Except for failures that would not have a Material Adverse
Effect, (i) Lessor has Defensible Title in and to the Pipeline System Interests,
(ii) the Pipeline System Interests on which each Pipeline System is located
(other than pump stations, storage sites or work sites adjacent to or near the
Pipeline System as to which public and/or private ingress and egress rights
adequate for their present use exist and will be useable by Lessee for such
present use) are contiguous, and (iii) the entirety of each Pipeline System is
located on or beneath land covered by the Pipeline System Interests. Except for
purposes of Sections 2.10 and 2.11, the reference in the preceding sentence to
"Material Adverse Effect" shall mean failures which result in an adverse effect
of more than $600,000 on the value, or the results of operations, of the Assets,
taken as a whole and as currently operated. To the extent Lessee or Lessor has
or can legally obtain the right of eminent domain or condemnation with respect
to the Pipeline System Interests or the affected portion thereof, the Agreed
Cost shall be used for purposes of determining whether any such failure with
respect to a Pipeline System Interest has or results in a Material Adverse
Effect. Lessor has Defensible Title in and to the Pipeline Systems, the
Terminals, the other portions of the Leased Property that constitute tangible
personal property, and the Terminal Interests.
(b) Except as set forth in Schedule 7.4(b) AND EXCLUDING any
representation or warranty relating to Environmental Laws or Environmental
Permits, Lessor has not received any written notice to the effect that (i) any
betterment assessments have been levied against, or condemnation or re-zoning
proceedings are pending or threatened with respect to the Leased Property, or
(ii) any zoning, building or similar law or regulation is or will be violated by
the continued maintenance, operation or use of any buildings or other
improvements on the Leased Property as used and operated on the date of this
Lease. There are no outstanding abatement proceedings or appeals with
25
respect to the assessment of the Leased Property for the purpose of real
property taxes, and there is no written agreement with any Governmental Body
with respect to such assessments or tax rates on the Leased Property. Schedule
7.4(b) sets forth a list of material leases related to the Leased Property where
Lessor is the lessee or lessor.
(c) All pipelines, pipeline easements, utility lines, utility
easements and other easements, leaseholds, servitudes and rights-of-way
burdening or benefiting any of the Leased Property will not at Closing
unreasonably and materially interfere with or prevent any material operations
conducted on the Leased Property by Lessor in the manner operated on the date of
this Lease. Except as set forth on Schedule 7.4(c) and for Permitted
Encumbrances, with respect to any pipeline, utility, access or other easements,
servitudes or leaseholds located on or directly serving the Leased Property and
owned or used by Lessor in connection with its operations at the Leased
Property: (i) Lessor either has the contractual right to use or is the exclusive
or non-exclusive legal and beneficial owner of the respective easement and
leasehold established thereunder; (ii) such leaseholds, easements and the rights
and interests of Lessor thereunder are in all material respects in full force
and effect; and (iii) to Lessor's knowledge, no material defaults exist
thereunder and no events or conditions exist which, with or without notice of
lapse of time or both, would constitute a material default thereunder or result
in a termination; provided, however, that clauses (i) and (ii) above shall not
apply to the Pipeline System or Pipeline System Interests and, in lieu thereof,
Lessee has agreed to rely on the representations and warranties in the first
sentence of Section 7.4(a).
(d) Lessor has good and valid title to the Equipment and
Inventory, free and clear of all Liens except Permitted Liens.
7.5 Tax Matters. With respect to Lessor's business and the Facilities,
Pipeline System Interests and Terminal Interests, Lessor has filed or will
timely file or send all applicable federal, state, county and local returns,
declarations and reports and information returns and statements required to be
filed by or with respect to them in respect of any Taxes for any period ending
on or before the date hereof (collectively, "Returns") where the failure to so
file would have a Material Adverse Effect. Lessor has timely paid or will timely
pay all Taxes that it owes, including all Taxes that have been shown or will be
shown as due and payable on its Returns and Lessor is not delinquent in the
payment of any Taxes; except those which would not have or reasonably be
expected to have a Material Adverse Effect and those being contested in good
faith. Schedule 7.5 lists the pending tax disputes with respect to the Assets.
7.6 No Violations or Litigation. Subject to the exclusions set forth in
this Section 7.6 and except as set forth in Schedule 7.6, (i) there is no Action
or any change in any zoning or building ordinance pending or, to the knowledge
of Lessor, threatened (A) against or affecting the Facilities, Pipeline System
Interests or Terminal Interests or otherwise affecting operations at the
Facilities or (B) relating to the transactions contemplated by this Lease, at
law or in equity, before or by any Governmental Body which would have a Material
Adverse Effect, and (ii) there is no outstanding order, writ, injunction, decree
judgment or award or action, suit, claim, investigation or legal,
administrative, arbitration or other proceeding against or affecting the Assets
which would have a Material Adverse Effect. Notwithstanding the foregoing,
Lessor makes no representation or warranty, express or implied, under this
Section 7.6 relating to (a) any Environmental Claims, Environmental Law,
Environmental Permit, or Tax Law or (b) Lessor's title to any Assets or the
existence or non-existence of any title defect.
26
7.7 Finder's Fees. Lessor has not employed or retained any investment
banker, broker, agent, finder or other party, or incurred any obligation for
brokerage fees, finder's fees or commissions, with respect to the lease by
Lessor of the Leased Property or with respect to the transactions contemplated
by this Lease, or otherwise dealt with anyone purporting to act in the capacity
of a finder or broker with respect thereto whereby any party hereto may be
obligated to pay a fee or commission.
7.8 Compliance with Laws. Subject to the exclusions set forth in this
Section 7.8 and except as disclosed in Schedule 7.8, (i) Lessor has complied in
all material respects with all Laws with respect to the Facilities, Pipeline
System Interests and Terminal Interests and has filed with the proper
Governmental Bodies all statements and reports with respect to the Facilities,
Pipeline System Interests and Terminal Interests required by all Laws; except
where the failure to so comply would not have a Material Adverse Effect, and
(ii) Lessor has not received any written notice from any Governmental Body or
other third party that alleges any violation by Lessor of any Laws with respect
to the Facilities, Pipeline System Interests or Terminal Interests.
Notwithstanding the foregoing, Lessor makes no representation or warranty,
express or implied, under this Section 7.8 relating to (a) any Environmental
Law, Environmental Permit, or Tax Law, including any compliance therewith or any
filings or notices with respect thereto, or (b) Lessor's title to any Assets or
the existence or non-existence of any title defect.
7.9 Employee and Labor Matters. Lessor has delivered to Lessee complete
and correct lists of (i) all current directors and officers of Lessor employed
at the Facilities and (ii) all employees of Lessor employed at the Facilities
indicating each such employee's expected salary and minimum bonus for 2001.
Except as described in Schedule 7.9, there are no material labor-related
disputes of any kind asserted against Lessor in connection with the operation of
any of the Assets pending before or, to Lessor's knowledge, threatened before,
any Governmental Body. With respect to the Assets and except to the extent set
forth in Schedule 7.9: (i) there is no unfair labor practice charge or complaint
against Lessor actually pending or, to Lessor's knowledge, threatened, before
the National Labor Relations Board; (ii) there is no labor strike, slowdown or
stoppage actually pending or, to Lessor's knowledge, threatened against or
affecting the Assets; (iii) none of the operations of any of the Assets have
experienced any material labor disputes or any material work stoppage due to
labor disagreements within the past three years; and (iv) no attempt to organize
employees has resulted in an election within the past three years or, to
Lessor's knowledge, is threatened with respect to the Assets. None of the Assets
are now, nor at any time within the past three years have been, subject to any
collective bargaining agreement, contract, letter of understanding or other
similar arrangement with any labor union or organization.
7.10 Disclosure Relating to Environmental Matters. Lessor has disclosed
to Lessee all judgments, orders, consent decrees and written notices of
violation received from any Governmental Body during the last five years
relating to Environmental Laws or Permits at the Facilities, Pipeline System
Interests or Terminal Interests.
7.11 No Material Changes. To the knowledge of Lessor, except as set
forth in SCHEDULE 7.11, there has not occurred at, on or under the Leased
Property (a) any event or. occurrence giving rise to a release, emission, spill
or discharge or (b) any other event or occurrence not relating to Environmental
Claims or Hazardous Materials since December 31, 2000 that has caused or would
reasonably be expected to cause an adverse change in the value, or results of
operations, of the
27
Leased Property of more than $600,000. For avoidance of doubt, as used in this
Section 7.11, an "event or occurrence" shall not include the continuation of any
event or occurrence which existed on or prior to December 31, 2000.
7.12 Sufficiency of Assets. The assets included in the Leased Property,
the Inventory, the Equipment, the Assignment of the Environmental Permits and
the Related Agreements constitute substantially all the assets currently used by
Lessor in conducting its business at the Facilities prior to the Closing.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF LESSEE
Except as set forth in this Article 8 and the Schedules hereto prepared
by Lessee and attached hereto at the time of the execution hereof, Lessee
represents and warrants to Lessor that all of the following statements contained
in this Article 8 are true as of the date of this Lease:
8.1 Organization and Authority. Each Lessee is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each Lessee has all requisite power and authority to own, operate and
lease its properties and assets and to carry on its business in the manner
currently conducted, except where the failure to have that power and authority
would not have a Material Adverse Effect. Each Lessee is licensed or qualified
to transact business as a corporation and is in good standing in the State of
Texas. Each Lessee has all requisite corporate power and authority to enter into
this Lease, to perform its obligations under this Lease and to consummate the
transactions contemplated hereby. This Lease, and the transactions contemplated
hereby, have been duly authorized and approved by all necessary action on the
part of each Lessee, including the approval of the directors of each Lessee.
This Lease has been duly executed and delivered by each Lessee and is a legal,
valid and binding obligation of each Lessee enforceable against each Lessee in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect that affect creditors' rights generally and by legal and
equitable limitations on the availability of specific remedies.
8.2 Consents; Conflict with Other Instruments.
(a) Except as set forth in Schedule 8.2(a) attached hereto and
compliance with and filings under the HSR Act, and the transfer or obtaining of
any Environmental Permit, no order, license, consent, waiver, permit,
authorization or approval of, or exemption by, or the giving of notice to, or
the qualification, registration with, or the taking of any other action in
respect of, any Person not a party to this Lease, including any Governmental
Body, and no filing, recording, publication or registration in any public office
or any other place is now, or under existing law in the future will be,
necessary on behalf of Lessee to authorize its execution, delivery and
performance of this Lease and the consummation of the transactions contemplated
hereby, or to effect the legality, validity, binding effect or enforceability
hereof except for any of the foregoing which would not have or reasonably be
expected to have a Material Adverse Effect.
(b) The execution, delivery and performance of this Lease,
including the Option, the consummation of the transactions contemplated hereby
and the compliance by Lessee with the
28
provisions hereof will not, with or without the passage of time or the giving of
notice or both:
(1) conflict with, constitute a breach, violation or
termination of any provision of, or give rise to any right of
termination, cancellation or acceleration, or loss of any material
right or benefit or both, under any agreement, indenture, instrument,
lease, contract or other undertaking to which Lessee is a party or by
which Lessee or its assets may be bound;
(2) result in an acceleration or increase of any
amounts due from Lessee to any Person;
(3) conflict with or violate the Certificate of
Incorporation or bylaws of Lessee; or
(4) violate any law, statute, ordinance, regulation,
judgment, writ, injunction, rule, decree, order or any other
restriction of any kind or character applicable to Lessee or any of its
material properties,
except, with respect to clauses (1), (2) and (4), for such violations and
conflicts which will not (i) prevent or materially delay the consummation of the
transactions contemplated by this Lease, (ii) prevent Lessee from performing its
obligations under this Lease or (iii) result or reasonably be expected to result
in a Material Adverse Effect.
8.3 No Violations or Litigation. Except as disclosed in the reports,
schedules, forms, statements and other documents required to be filed by Valero
Energy Corporation with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, since January 1, 1999 or in Schedule 8.3, there is no action, suit,
claim, investigation or legal, administrative, arbitration or other proceeding,
or governmental investigation or examination, at law or in equity which would
delay the transactions contemplated hereby or would have a material impact on
Lessee's ability to perform its obligations hereunder.
8.4 Independent Decision. Lessee has made its own independent judgment
of the commercial potential, condition and usefulness of the Facilities,
Pipeline System Interests and Terminal Interests, taking into consideration all
current Laws, including Environmental Laws, and assuming all risks associated
with the likelihood that such Laws will change in the future. Lessee has such
experience in business and financial affairs in general, and of the oil refining
business as conducted and regulated in Texas in particular, as to be capable of
evaluating the merits and risks of this transaction.
8.5 Finder's Fees. Lessee has not employed or retained any investment
banker, broker, agent, finder or other party, or incurred any obligation for
brokerage fees, finder's fees or commissions, with respect to the lease to
Lessee of the Leased Property or with respect to the transactions contemplated
by this Lease, or otherwise dealt with anyone purporting to act in the capacity
of a finder or broker with respect thereto whereby any party hereto may be
obligated to pay a fee or commission.
29
8.6 Disclaimer. THE LEASED PROPERTY IS LEASED (AND THE INVENTORY AND
EQUIPMENT ARE TRANSFERRED), AND IF THE OPTION IS EXERCISED THE LEASED PROPERTY
WILL BE TRANSFERRED, TO LESSEE ON AN "AS-IS, WHERE-IS" BASIS WITHOUT ANY IMPLIED
OR EXPLICIT REPRESENTATIONS OR WARRANTIES EXCEPT AS EXPLICITLY PROVIDED IN THIS
LEASE OR THE RELATED AGREEMENTS. LESSEE HEREBY ACKNOWLEDGES THAT IT HAS
INDEPENDENTLY EVALUATED AND CONDUCTED ENVIRONMENTAL DUE DILIGENCE SATISFACTORY
TO LESSEE WITH RESPECT TO THE ASSETS AND HAS BEEN REPRESENTED BY, AND HAD THE
ASSISTANCE OF, COUNSEL IN THE CONDUCT OF SUCH DUE DILIGENCE, THE PREPARATION AND
NEGOTIATION OF THIS LEASE AND THE RELATED AGREEMENTS, AND THE CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. FURTHER, LESSOR HAS MADE
AVAILABLE TO LESSEE AND ITS REPRESENTATIVES CERTAIN INFORMATION, BOOKS, RECORDS,
DOCUMENTS, REPORTS AND ASSOCIATED DATA RELATING TO THE ASSETS. EXCEPT AS
EXPLICITLY PROVIDED IN THIS LEASE OR THE RELATED AGREEMENTS, IT IS UNDERSTOOD
AND AGREED BY THE PARTIES THAT NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, HAS BEEN MADE BY LESSOR, ANY AFFILIATE OF LESSOR OR ANY DIRECTOR,
OFFICER, EMPLOYEE, AGENT, REPRESENTATIVE, INVESTMENT BANKER, COUNSEL, CONSULTANT
OR ADVISOR OF LESSOR OR ANY AFFILIATE OF LESSOR REGARDING THE ACCURACY OR
COMPLETENESS OF ANY SUCH INFORMATION, BOOKS, RECORDS, DOCUMENTS, REPORTS AND
ASSOCIATED DATA, AND THAT NEITHER LESSOR, ITS AFFILIATES NOR SUCH OTHER PERSONS
WILL HAVE OR BE SUBJECT TO ANY LIABILITY TO LESSEE OR ANY OTHER PERSON RESULTING
FROM THE DISTRIBUTION TO LESSEE OR LESSEE'S USE OF ANY SUCH INFORMATION,
DOCUMENTS, STATEMENTS, REPORTS OR RECORDS. ALL STATEMENTS OF FACT OR
DISCLOSURES, IF ANY, MADE IN THIS LEASE OR THE RELATED AGREEMENTS OR IN
CONNECTION WITH THIS LEASE OR THE RELATED AGREEMENTS ARE FOR INFORMATIONAL
PURPOSES ONLY AND SUCH STATEMENTS DO NOT CONSTITUTE WARRANTIES OR
REPRESENTATIONS OF ANY NATURE.
ARTICLE 9
EMPLOYEE MATTERS
9.1 Employment. Schedule 9.1 sets forth the list of each employee of
Lessor whom Lessor does not intend to continue to employ after the date when
neither Lessor nor El Paso Field Services Company is providing services under
the Operating Agreement that are related to the specific area of employment in
which such employee is currently employed or such earlier date after the
Effective Time as Lessor determines such employee's services are no longer
needed by Lessor or El Paso Field Services Company (each such date, which shall
be respectively applicable to each employee listed in Schedule 9.1, is referred
to as the "Service Termination Date"). Lessor will give Lessee prompt notice of
the specific Service Termination Date with respect to each employee listed in
Schedule 9.1. Lessee may offer employment to any employees of Lessor working at
the Facilities, in Lessee's sole discretion. Any such employee that Lessee in
fact employs upon or promptly following the Effective Time (or in the case of
employees listed in Schedule 9.1, upon the later of such employee's Service
Termination Date or within ten Business Days after Lessee receives notice from
Lessor of such employee's specific Service Termination Date) shall be referred
to as a
30
"Transferred Employee". Any employee engaged in Lessor's business at the
Facilities who is not employed by Lessee upon or promptly following the
Effective Time (or, if applicable, such employee's Service Termination Date), or
any Transferred Employee who is identified in writing by Lessee to Lessor within
six months of the Effective Time (or, if applicable, such employee's Service
Termination Date) as an employee whose employment Lessee intends to terminate,
shall be referred to as a "Retained Employee".
9.2 Retained Employees. Lessor may retain the services of any Retained
Employee or terminate any such Retained Employee's employment by Lessor on or
following the Effective Time (or, if applicable, such employee's Service
Termination Date). Except to the extent otherwise described in this Article 9 as
the responsibility of Lessee, Lessor shall retain liability and be responsible
for (including after the Effective Time or such employee's Service Termination
Date, as applicable) all claims, costs, expenses, liabilities and other
obligations, including liability for severance benefits, accrued vacation,
benefits under SFAS 106, benefits required by Section 4980(f) of the Tax Code,
or other applicable statute and all other retiree medical benefits that any
Retained Employee may otherwise be entitled to received under any employee
benefit plan, related to the retention, termination or transfer of any Retained
Employee; provided, however, that Lessee shall reimburse Lessor for the cost of
any severance payments (including payments made for the termination of
employment agreements) provided by Lessor to any Retained Employee if Lessee or
any of its Affiliates hires such Retained Employee in any capacity (including as
a consultant) within one year of the Effective Time (or, if applicable, such
employee's Service Termination Date) for a period in excess of 30 days, except
as provided in the Operating Agreement. Lessor shall be responsible for
complying with all requirements of the WARN Act applicable to its business prior
to, on and following the Effective Time. Lessee shall be responsible for
complying with all such requirements applicable to it or its business prior to,
on and following the Effective Time.
9.3 Transferred Employees Except to the extent otherwise described in
this Article 9 as the responsibility of Lessor, Lessee shall assume and be
responsible for (including after the Effective Time or such employee's Service
Termination Date, as applicable) all claims, costs, expenses, liabilities and
other obligations related to each Transferred Employee, including for
compensation (salary and bonuses), for post-retirement medical and insurance
benefits under SFAS 106 and for all other employee benefits. Lessor shall be
responsible for all claims, costs, expenses, liabilities and other obligations
related to each Transferred Employee (other than for compensation) to the extent
attributable to the employment of such Transferred Employee by Lessor prior to
the Effective Time or such employee's Service Termination Date, as applicable.
Lessee shall provide, or cause to be provided, compensation packages and
benefits plans and programs to each Transferred Employee substantially
comparable in the aggregate to those provided by Lessee for its other employees
and, for eligibility and vesting purposes only, each Transferred Employee shall
be given full credit for such Transferred Employee's prior service with Lessor
and its predecessors as if such service was with Lessee. Lessee agrees to cause
all waiting periods and pre-existing condition exclusions to be waived for the
Transferred Employees under Lessee's medical, dental, disability and life
insurance benefits. The schedule of information delivered by Lessor to Lessee
with respect to the employees at the Facilities and their respective ages,
tenure and salaries is complete and accurate in all material respects.
31
ARTICLE 10
COVENANTS
10.1 Post-Closing Access.
(a) Access to Leased Property. In addition to, and without in
any manner limiting, the access provided in Section 17.6, from and after the
Effective Time, during the Term, Lessee shall afford the duly authorized
representatives of Lessor, upon reasonable prior notice, access to the Leased
Property (i) to inspect the Leased Property for compliance by Lessee with the
terms of this Lease and (ii) such access is reasonably required in connection
with any Action or other obligation under this Lease or required by Law
involving Lessor which pertains to the Leased Property. Lessor shall indemnify
Lessee against any Covered Liabilities to the extent resulting from such access
by Lessor's representatives.
(b) Access to Records and Personnel.
(1) Property Records. During the Term, each of Lessor
and Lessee agrees to maintain the Property Records in its possession
substantially in the manner maintained by Lessor prior to Closing and
Lessee shall deliver the Property Records to Lessor upon the expiration
or earlier termination of this Lease or if Lessee purchases the Leased
Property pursuant to the Option, Lessee shall maintain the Property
Records in its possession substantially in the manner maintained by
Lessor prior to Closing until the sixth anniversary of the Option
Closing (or for such longer period of time as one party shall advise
the other party in writing is necessary in order to have Property
Records available with respect to open years for tax audit purposes),
or, if any of the Property Records pertain to any claim or dispute
pending by or against a party or its Affiliates on the sixth
anniversary of the Option Closing, the other party shall maintain any
of the Property Records designated by the first party until such claim
or dispute is finally resolved and the time for all appeals has been
exhausted ("Document Retention Period"). Each of Lessor and Lessee
agrees to maintain the Property Records in its possession so that they
may be reasonably retrievable and shall provide the other party and its
representatives reasonable access during business hours to and the
right to copy the Property Records in its possession, at the other's
expense, for the purposes of (i) preparing and delivering any
accounting provided for under this Lease and adjusting, prorating and
settling the charges and credits provided for in this Lease, (ii)
complying with any Law relating to the Leased Property, (iii) preparing
Tax returns, (iv) responding to or disputing any Tax audit, (v)
asserting, defending or otherwise dealing with any claim or dispute,
known or unknown, under this Lease or with respect to the Leased
Property, or (vi) asserting, defending or otherwise dealing with any
Third Party claim or dispute by or against Lessor, Lessee or their
respective Affiliates relating to the Leased Property or any activities
or operations relating to the Leased Property, including any claim or
Action for death, injury or damage to person or property and
specifically including but not limited to the pending matters set forth
in Schedule 10.1(b)(1). During the Document Retention Period, none of
Lessee or Lessor or any of their Affiliates shall destroy any Property
Records without giving the other party 60 days' advance written notice
thereof and the opportunity during such 60-day period, at such other
party's expense, to obtain such Property Records prior to their
destruction.
(2) Special Documents. Lessor shall retain custody of
all documents listed on the index provided by Lessor to Lessee at
Closing and which are stored at the File Pro warehouse in Corpus
Christi, Texas as of the date of Closing. Lessor agrees to retain and
store said documents in the File Pro warehouse for so long as Lessor
believes that it needs access to the documents to defend any claim or
Action relating to the Leased Property or any activities or operations
relating to the Leased Property. Lessor, at Lessee's expense, shall
32
make all such documents reasonably available to Lessee at the File Pro
warehouse on an as needed basis during normal business hours. All such
documents shall constitute Confidential Information of Lessor and
Lessee's access thereto shall be subject to the requirements of Section
10.2. At such time as Lessor no longer needs access to said documents,
Lessor shall so advise Lessee in writing and Lessee shall have 60 days
thereafter to obtain permanent custody of the documents. In the event
Lessee does not take custody of the documents at that time, Lessor
shall be free to destroy said documents.
(3) Personnel.
(i) Lessee shall permit Lessor and its
representatives, at Lessor's expense, to have reasonable
access to all former employees and other personnel of Lessor
or its Affiliates who are employed or retained by Lessee or
any of Lessee's Affiliates and who have relevant information
regarding any claim or dispute referenced in clause (vi) of
Section 10.1(b)(1).
(ii) Lessor shall permit Lessee and its
representatives, at Lessee's expense, to have reasonable
access to those employees and other personnel of Lessor or its
Affiliates who are or have been employed by Lessor or any of
Lessor's Affiliates in connection with the Assets or the Other
Leased Property and who have relevant information regarding
any claim or dispute referenced in clause (vi) of Section
10.1(b)(1).
(iii) Lessee and Lessor agree, for purposes
of this Section 10.1(b)(3), that:
(A) the requesting party must
provide advance notice to the providing party of its
request to obtain access to specified employees with
sufficient enough time to allow the providing party
to rearrange work schedules to accommodate the
absence of the specified employee(s) from their work;
(B) access to the specified
employees must be during reasonable work hours (or as
otherwise agreed to by the parties and the specified
employees) and be conducted in a manner so as not to
interfere unduly with the business operations of the
providing party;
(C) the requesting party will have
access to the specified employees only at the
providing party's offices, unless otherwise agreed to
by the providing party (such agreement not to be
unreasonably withheld);
(D) when a requesting party
requires access to any employee in excess of three
Business Days in any calendar year, the expenses to
be borne by the requesting party will include
reimbursement for such employee's wages upon receipt
of an invoice from the providing party;
(E) the providing party will not be
held responsible for the specified employee's actions
taken or testimony given on behalf of the requesting
party; and
33
(F) access to any employees or
other personnel pursuant to this Section 10.1(b)(3)
shall be limited to information which (i) is relevant
to a claim or dispute referenced in clause (vi) of
Section 10.1(b)(1) and (ii) relates to the period
prior to the earlier of the expiration of the Term or
the closing of the Option.
10.2 Confidentiality. It is anticipated that from time to time after
Closing, in the course of the activities relating to this Lease, a party to this
Lease will directly or indirectly disclose to the other party to this Lease
certain proprietary information and material developed or acquired by such party
or an Affiliate of such party ("Confidential Information"). The party disclosing
such Confidential Information shall be designated as the disclosing party and
the party receiving Confidential Information shall be designated the receiving
party. The disclosing party shall designate and identify in writing
(electronically or otherwise) the information and materials it considers
Confidential Information.
(a) In consideration of any disclosure referred to above, the
receiving party agrees that the Confidential Information is proprietary and is
the property of the disclosing party or its Affiliate. The receiving party
agrees such Confidential Information shall be kept strictly confidential and
shall not be sold, traded, published or otherwise disclosed to anyone in any
manner whatsoever or photocopied or reproduced in any way, without the
disclosing party's prior written consent, except as provided below.
(b) The receiving party may disclose the Confidential
Information without the disclosing party's prior written consent only to the
extent such information is:
(1) already known to the receiving party or any of
its Affiliates as of the date of disclosure hereunder or becomes
available from a source other than the disclosing party who is entitled
to make such disclosure;
(2) already in possession of the public or becomes
available to the public other than through the act or omission of the
receiving party;
(3) required to be disclosed under Law or judicial
proceeding, by a Governmental Body, or by a rule of any recognized
stock exchange affecting the receiving party or any of its Affiliates
and to the extent permitted under Law after notification to the
disclosing party; or
(4) independently developed by the receiving party or
any of its Affiliates without reference to the Confidential
Information.
(c) The receiving party shall be entitled to disclose the
Confidential Information (including making photocopies or reproduction of such
Confidential Information for purposes of such disclosure) without the disclosing
party's prior written consent to persons (said persons to be limited to
employees, officers, directors, agents, attorneys, accountants, consultants, or
representatives of the receiving party or any of its Affiliates) who have a
clear need to know in order for the receiving party or its Affiliates (i) to
perform or comply with its obligations under this Lease or the Related
Agreements, (ii) to exercise or enforce its rights under this Lease or the
Related Agreements, or (iii) to comply with Laws. The receiving party shall be
responsible for
34
ensuring that all persons to whom the Confidential Information is disclosed by
the receiving party under this Lease shall keep such information confidential.
(d) The restrictions and obligations on disclosure or use of
Confidential Information contained in this Section shall survive and continue in
full force and effect for a period of two years after the earlier of the closing
of the Option or the termination of this Lease. Such restrictions and
obligations shall terminate upon the expiration of such 2-year period, however,
such termination shall not affect, release, or discharge any liability for any
breach of such provisions prior to such termination.
10.3 Easements, Property Allocations, etc. After Closing, Lessor and
Lessee agree to perform their respective obligations as provided in Schedule
10.3 attached hereto.
10.4 Liens. After Closing and prior to the Option Closing, Lessor
agrees not to take any action which would result in placement of any Lien on the
Leased Property except (i) a memorandum of this Lease, (ii) any Lien arising
from Lessor's enforcement of its rights under this Lease or from Lessor's
compliance with its obligations under this Lease, (iii) any right-of-way,
easement or other taking of any of the Leased Property granted or conveyed by
Lessor pursuant to Section 15.2 or at Lessee's written request, and (iv) any
Lien or encumbrance created or granted at Lessee's written request. Any Lien
which results from any action taken by, through or under Lessee shall not be
considered to have been placed on the Leased Property by Lessor.
ARTICLE 11
USE, MAINTENANCE, ALTERATIONS, AND REPAIRS
11.1 Use by Lessee.
(a) Lessee shall at all times use reasonable care in the use
of the Leased Property.
(b) At Lessee's sole cost and expense, Lessee shall obtain and
comply with (or cause to be obtained or complied with) any and all Permits
necessary for any use of the Leased Property or any operations thereon by
Lessee, Lessee's employees, Affiliates, contractors or agents, or anyone
claiming by, through or under Lessee, except those which would not have (or the
failure to comply with which would not have) a Material Adverse Effect.
(c) Except with respect to Retained Environmental Claims, at
Lessee's sole cost and expense, Lessee shall comply with (or cause to be
complied with) all Laws relating to the use of the Leased Property or any
operations thereon, and shall promptly comply with all orders and directives of
any Governmental Body for the correction, prevention and abatement of nuisances,
wastes or hazards in, upon, or in connection with the Leased Property or any
operations thereon, all at Lessee's sole cost and expense, except those which
would not have (or the failure to comply with which would not have) a Material
Adverse Effect.
(d) In its use, occupancy and operation of the Leased
Property, Lessee shall not take any action (or allow Lessee's employees,
Affiliates, contractors or agents, or anyone claiming by, through or under
Lessee to take any action) that would cause the termination, revocation or
35
denial of any insurance policies required to be maintained under this Lease or
that pursuant to written notice from any applicable insurer, would be the basis
for a defense to any claim under any insurance policy required by this Lease in
respect of the Leased Property, and Lessee shall otherwise comply in all
material respects with the requirements of any insurer that issues a policy of
insurance required by this Lease in respect of the Leased Property, failure with
which to comply would cause cancellation of the policy, provided that Lessee
shall be afforded a reasonable time to comply with any insurance requirements.
(e) Lessee shall have no right or power to grant or create any
Lien in or against the Leased Property or Lessee's or Lessor's interest therein
except for the filing of a memorandum of this Lease in the property records and
except for Permitted Encumbrances which will not survive the termination of this
Lease (other than Permitted Encumbrances under clauses (b), (c) or (d) of the
definition of Permitted Encumbrances). Lessee shall not allow the Leased
Property or Lessee's or Lessor's interest therein to become subject to any Liens
in connection with or as a result of any activities or actions by Lessee, its
employees, Affiliates, contractors or agents, or anyone claiming by, through or
under Lessee (or anyone acting for or on behalf of any of the foregoing), and
shall at all times keep the Leased Property and Lessee's and Lessor's respective
interests therein free and clear of all Liens on account of such matters except
for Permitted Encumbrances which will not survive the termination of this Lease
(other than Permitted Encumbrances under clauses (b), (c) or (d) of the
definition of Permitted Encumbrances) and to the extent Section 11.9 (Permitted
Contests) applies.
11.2 Operation, Maintenance and Repairs.
(a) Operations. Except with respect to Retained Environmental
Claims, Lessee, at its sole cost and expense, shall operate the Leased Property
in a manner consistent with (i) Prudent Operating Practices, (ii) Codes and
(iii) Laws, except to the extent Section 11.9 (Permitted Contests) shall apply,
except those which would not have (or the failure to comply with which would not
have) a Material Adverse Effect.
(b) Maintenance and Repairs. Lessee, at its sole cost and
expense, shall maintain, service and repair the Leased Property in use (or
temporarily out of use due to turnarounds or unscheduled outages) at the time of
Closing in accordance with standards of prudence applicable to the United States
petroleum industry consistent with Lessor's past practices, ordinary wear and
tear excepted, but in any event (a) in accordance with Laws, subject to the
application of Section 11.9 (Permitted Contests), and (b) to the extent required
to (i) maintain the Leased Property in good operating condition, (ii) cause the
Leased Property to have the capacity and functional ability to perform on a
continuing basis, in normal commercial operation (whether or not then
operating), the functions for which it was designed, subject to actions required
in Lessee's discretion to comply with Assumed Environmental Claims, to Section
11.4 (Alterations Required by Law) and Lessee's rights to make any Alterations
permitted by Section 11.5 (Optional Alterations), and (iii) comply with such
standards and periodic maintenance inspections as shall be required to enforce
warranty claims which Lessor or Lessee may have against third parties, except
those which would not have (or the failure to comply with which would not have)
a Material Adverse Effect.
(c) Utilities. Lessee, at its sole cost and expense, shall
provide, or cause to be provided, all electricity, telephone, water, wastewater,
sewage, garbage and other utilities or utility
36
services necessary for the operation, maintenance, repair and other use of the
Leased Property.
(d) Environmental. Except with respect to Retained
Environmental Claims, Lessee, at its sole cost and expense, shall:
(1) provide and be responsible for the proper
handling, treatment, storage and disposal of all Hazardous Materials
and waste products produced, generated, used, stored, handled or
present at, in or on the Leased Property in accordance with all
Environmental Laws and other Laws except to the extent Section 11.9
(Permitted Contests) shall apply;
(2) cause the Leased Property and all operations
conducted thereon by Lessee, its employees, Affiliates, contractors or
agents, or anyone claiming by, through or under Lessee (or anyone
acting for or on behalf of any of the foregoing) to be in compliance
with all Environmental Laws, except to the extent Section 11.9
(Permitted Contests) shall apply;
(3) from time to time undertake and implement, or
cause to be undertaken or implemented, all Environmental Activities
with respect to the Leased Property which are required by Environmental
Law or which would be undertaken or implemented by a reasonably prudent
owner or operator of the Leased Property, except to the extent Section
11.9 (Permitted Contests) shall apply;
(4) maintain in good standing and in full force and
effect, all Environmental Permits required by applicable Environmental
Law, it being agreed that any and all costs of obtaining, renewing, or
maintaining all such Environmental Permits, including the cost of
obtaining, installing, and operating any new or upgraded environmental
controls, is a Cost of Compliance;
(5) provide Lessor written notice of any anticipated
new or renewal Environmental Permit and provide Lessor a copy the
proposed draft of any new, renewal or modification application at least
ten days prior to its submission to the relevant Governmental Body;
(6) subject to Sections 2.6(d) and (e), take all
measures necessary to have the Facility Environmental Permits
transferred to Lessee or to otherwise obtain the Facility Environmental
Permits, it being agreed that Lessor will execute any documents or take
such additional actions as Lessee, at Lessee's expense, may reasonably
require to transfer or obtain the Facility Environmental Permits; and
(7) maintain in force the any financial
responsibility required under Environmental Laws with respect to the
Leased Property or operations conducted in connection therewith.
except, in each case, those which would not have (or the failure to comply with
which) would not have a Material Adverse Effect.
11.3 Replacement of Parts. Lessee, at its expense, shall (unless
prohibited by Law) replace all necessary or useful appliances, parts,
instruments, appurtenances, accessories and miscellaneous
37
equipment of whatever nature (hereinafter collectively referred to as "Parts")
that may from time to time be incorporated or installed in or attached to the
Leased Property and that may from time to time fail to function or become worn
out, destroyed, damaged beyond repair, lost, condemned, confiscated, stolen or
seized for any reason whatsoever in accordance with Prudent Operating Practices,
except to the extent the failure to do so would not have a Material Adverse
Effect. In addition, in the ordinary course of maintenance, service, repair or
testing, Lessee may remove any Parts if Lessee causes such Parts to be replaced
as promptly as practicable. All replacement Parts shall be free and clear of all
Liens except Permitted Liens and shall be in at least as good operating
condition as, and shall have a value and utility at least equal to, the Parts
replaced, assuming such replaced Parts were in the condition and repair required
to be maintained by the terms hereof.
11.4 Alterations Required By Law. Lessee, at its own expense, shall
make such alterations, modifications and additions (herein collectively referred
to as "Alterations") to the Leased Property as may be required or as may be
anticipated by Lessee to be required from time to time to meet the requirements
of Laws as soon as practicable after such requirements shall arise, except to
the extent Section 11.9 (Permitted Contests) shall apply, except those which
would not have (or the failure to comply with which would not have) a Material
Adverse Effect.
11.5 Optional Alterations. Unless an Event of Default shall have
occurred and be continuing, Lessee, at its own expense, may from time to time
make any Alteration to the Leased Property unless such Alteration (a) will
materially impair the value or utility of the Leased Property or (b) will cause
the Leased Property at the time of termination of the Lease not to have the
capacity and functional ability to perform on a continuing basis, in normal
commercial operation (whether or not then operating) the functions it was
performing or capable of performing at Closing; provided, however, that to the
extent it shall be reasonably feasible to do so, any such Alteration shall be
made in such a manner that title thereto will not pass to Lessor for the reasons
described in 11.6 (Title to Parts).
11.6 Title to Parts.
(a) Title to each Part (including any Alteration) incorporated
or installed in or attached to the Leased Property pursuant to this Article 11
shall without further act vest in Lessor and shall be deemed to constitute a
part of the Leased Property and be the property of Lessor subject to this Lease
if:
(1) such Part shall be in replacement of or in
substitution for, and not in addition to, any Part originally
incorporated in or installed as a part of the Leased Property at the
Effective Time or any Part title to which shall have vested in Lessor
pursuant to this Section 11.6;
(2) such Part shall be incorporated or installed in
or attached to the Leased Property pursuant to Section 11.3
(Replacement of Parts) or Section 11.4 (Alterations Required by Law);
(3) such Part cannot be readily removed from the
Leased Property without materially diminishing or impairing the value,
utility or condition that the Leased Property would have had at such
time had such Part not been so incorporated or installed; or
38
(4) such Part shall be paid for by Lessor.
(b) Title to all other property incorporated or installed in
or attached to the Leased Property as a result of Alterations made pursuant to
Section 11.5 (Optional Alterations) shall vest in Lessee (or in such other
Person as is entitled thereto) and such property shall not be part of the Leased
Property.
(c) All Parts, title to which is vested in Lessor, that are at
any time removed from the Leased Property shall remain the property of Lessor,
no matter where located, until such time as such Parts shall be replaced by
Parts that have been incorporated or installed in or attached to the Leased
Property and that meet the requirements for replacement Parts specified in
Section 11.3 (Replacement Parts). Immediately upon any replacement Part becoming
incorporated or installed in or attached to the Leased Property as provided in
Section 11.3 (Replacement Parts) without further act, (a) title to the removed
Part shall vest in Lessee or such Person as shall be designated by Lessee, free
and clear of all rights of Lessor, (b) title to such Replacement Parts shall
vest in Lessor, and (c) such Replacement Parts shall become subject to this
Lease and be deemed part of the Leased Property for all purposes hereof to the
same extent as the Parts originally incorporated or installed in or attached to
the Leased Property.
11.7 Removal of Parts. Parts installed or incorporated in or attached
to the Leased Property to which Lessee (or any other Person other than Lessor)
shall have title pursuant to the provisions of Section 11.6 (Title to Parts) may
be removed at any time by Lessee (or such other Person) so long as such removal
shall not result in any violation of Laws and, unless an Event of Default shall
have occurred and be continuing before the delivery of the Leased Property to
Lessor in accordance with the provisions of this Lease, and title to such Parts
shall at all times remain in Lessee (or such other Person). Lessor may, prior to
the removal of such Parts pursuant to this Section, elect to purchase for cash
any such Parts owned by Lessee (or such other Person) at the time of re-delivery
of the Leased Property to Lessor in accordance with the provisions of this
Lease. To exercise such rights, Lessor shall give Lessee (or such other Person)
written notice of its election to purchase at least fifteen (15) days before
such re-delivery. The purchase price of the Parts shall be the fair market value
thereof as of the date of purchase.
11.8 Parts Free and Clear of Liens. Lessee shall insure that any Part,
title to which shall vest in Lessor pursuant to Section 11.6 (Title to Parts),
shall be free and clear of all Liens except Permitted Encumbrances which will
not survive the termination of this Lease (other than Permitted Encumbrances
under clauses (b), (c) or (d) of the definition of Permitted Encumbrances).
11.9 Permitted Contests. If, to the extent and for so long as (a) a
test, challenge, appeal or proceeding for review of any applicable requirement
of Law or of a Governmental Body relating to the operation or maintenance of the
Leased Property shall be prosecuted in good faith by Lessee (or an appropriate
representative of Lessee's interest in such test, challenge, appeal or
proceeding) or (b) compliance with such requirement shall have been excused or
exempted by a nonconforming use permit, waiver, extension or forbearance
believed in good faith by Lessee to excuse or exempt it from such requirement,
Lessee shall not be required to comply with such requirement, if, but only if,
such test, challenge, appeal, proceeding or noncompliance shall not involve any
material risk of (i) foreclosure, sale, forfeiture or loss of, or imposition of
any Lien except Permitted Encumbrances which will not survive the termination of
this Lease (other than Permitted Encumbrances under
39
clauses (b), (c) or (d) of the definition of Permitted Encumbrances), on any
part of the Leased Property (or Lessee's or Lessor's interest therein) or of
impairment of the operation of the Leased Property, (ii) extending the ultimate
imposition of such requirement beyond the termination of the Term then in
effect, as the case may be, (iii) any material claim against Lessor or the
Leased Property, (iv) the nonpayment of Rent, or (v) subjecting Lessor to
criminal liability.
11.10 Operating Logs; Plans and Specifications. Lessee shall (a) keep
maintenance and repair reports in sufficient detail to indicate the nature and
date of major work done by Lessee, and (b) to the extent Lessor has delivered to
Lessee "as built" plans of any facilities, maintain a complete set of "as-built"
plans and specifications (which shall reflect all Parts incorporated in the
Leased Property and all Alterations). Such reports and plans shall be kept on
file by Lessee at its offices and shall be made available to Lessor upon
reasonable request solely for purposes of determining compliance with the terms
of this Lease or complying with Lessor's legal obligations as owner of the
Leased Property; provided, however, that such logs and reports may be destroyed
in accordance with a reasonable and prudent document retention program.
ARTICLE 12
[INTENTIONALLY OMITTED]
ARTICLE 13
IMPOSITIONS
13.1 Responsibility for Impositions. Lessee shall pay or cause to be
paid, as and when the same shall become due, all Impositions, except that:
(a) All Impositions for the tax year or other taxable period
in which the Term begins as well as for the tax year or other taxable period in
which the Term of this Lease expires or is otherwise terminated shall be
apportioned so that Lessee shall pay its proportionate share of the Impositions
which are attributable to such tax period in which the Term begins and in such
tax period in which the Term of this Lease expires or is otherwise terminated,
and Lessor shall pay its proportionate part; provided, however, that if Lessee
purchases the Leased Property pursuant to the Option, Lessee shall pay all
Impositions attributable to any tax period other than the tax period in which
the Term begins.
(b) Where any Imposition is permitted by law to be paid in
installments, Lessee may pay such Imposition in installments as and when such
installments become due; provided, however, that the amount of all installments
of any such Impositions which are to become due and payable after the expiration
of the Term or earlier termination of this Lease shall not be apportioned
(except to the extent such Imposition would have been apportioned between Lessor
and Lessee under Section 13.1(a) if not paid in installments) but shall be and
become due and payable to Lessor or the taxing authority six (6) months before
the date of the expiration of the Term or earlier termination of this Lease.
13.2 Payment of Impositions. Lessee shall pay all such Impositions
directly to the taxing authority, and shall exhibit and deliver to Lessor
photostatic copies of the receipted bills or other evidence reasonably
satisfactory to Lessor showing such payment promptly after written request from
Lessor for such receipts shall have been received by Lessee.
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13.3 Contest of Impositions. Lessee may, if Lessee shall so desire,
contest the validity or amount of any Imposition, in which event, Lessee may
defer the payment thereof during the pendency of such contest; provided that,
Lessee shall be fully liable for and shall indemnify Lessor against such
contested item together with all interest, fines, and penalties thereon and
additions thereto. Nothing herein contained, however, shall be so construed as
to allow such items to remain unpaid for such length of time as shall permit the
Leased Property, or any part thereof, to be sold by Governmental Body for the
non-payment of the same; and if at any time, in the judgment of Lessor,
reasonably exercised, it shall become necessary so to do, Lessor, after written
notice to Lessee, may require Lessee (under protest if so requested by Lessee)
to immediately pay all amounts as may be required to prevent the sale of the
Leased Property or any part thereof, or foreclosure of the lien created thereon
by such item.
13.4 Evidence of Payment. The certificate, advice, ▇▇▇▇ or statement
issued or given by the appropriate officials authorized or designated by law to
issue or give the same or to receive payment of any Impositions, of the
existence, non-payment or amount of such Imposition shall be prima facie
evidence for all purposes of the existence, non-payment or amount of such
Imposition.
13.5 Rendering of Leased Property. Lessee may render the Leased
Property for all taxing jurisdictions and may, if Lessee so desires, endeavor at
any time or times to obtain a lowering of the assessed valuation upon the Leased
Property for any tax year or other taxable period that does not include the
Effective Time (and for the period that does include the Effective Time, with
Lessor's prior written consent) for the purpose of reducing taxes thereon and,
in such event, Lessor will offer no objection, and, at the request of Lessee,
will cooperate with Lessee, but without expense to Lessor, in effecting such a
reduction. Lessee shall be authorized to collect any tax refund payable as a
result of any proceeding Lessee may institute for that purpose and any such tax
refund shall be the property of Lessee to the extent to which it may be based on
a payment made by Lessee, subject, however, to an apportionment between Lessor
and Lessee with respect to taxes paid or contributed by Lessor for the tax
period in which this Lease began and the tax period in which the Term ends or
this Lease is otherwise terminated, after deducting from such refund the
reasonable costs and expenses, including reasonable legal fees, incurred in
connection with obtaining such refund.
13.6 Joinder by Lessor. Lessor shall not be required to join in any
action or proceeding referred to in Section 13.3 or Section 13.5 unless required
by Law in order to make such action or proceeding effective, in which event, any
such action or proceeding may be taken by Lessee in the name of, but without
expense to, Lessor, Lessee hereby agreeing to indemnify and hold harmless Lessor
and all Lessor Indemnitees from all Covered Liabilities by reason of, in
connection with, on account of, growing out of, or resulting from, any such
action or proceeding.
13.7 Apportionment of Impositions. Whenever it is necessary for
purposes of Section 13.1(a) or 13.5 to determine the proportionate share of any
Impositions apportioned between Lessee or Lessor under Section 13.1(a) or 13.5:
(a) the determination of Lessee's proportionate share for a
tax year or other taxable period beginning on or before and ending after the
Effective Time, shall be made, by multiplying such Impositions by a fraction,
the numerator of which is the number of days in such tax period after the
Effective Time and the denominator of which is the total number of days in such
tax period,
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(b) the determination of Lessee's proportionate share for a
tax year or other taxable period beginning on or before and ending after the
expiration of the Term or earlier termination of this Lease, shall be made, by
multiplying such Impositions by a fraction, the numerator of which is the number
of days before the expiration of the Term or earlier termination of this Lease
and the denominator of which is the total number of days in such tax period, and
(c) Lessor's proportionate share of such Impositions shall be
the share not apportioned to Lessee pursuant to (a) or (b) above; provided that,
this Section shall not operate to apportion to Lessor any Impositions or share
thereof which are the obligation of Lessee under Sections 13.1(b) or 13.3.
ARTICLE 14
INSURANCE
14.1 Coverage.
(a) Without limiting any obligations or liabilities under this
Lease, Lessee shall, at its own expense, provide and maintain or cause to be
maintained for the life of this Lease, the following minimum insurance coverage
with insurers reasonably acceptable to Lessor:
(1) Workers' Compensation Insurance in accordance
with all applicable state, federal and maritime laws (including
protection under the U.S. ▇▇▇▇▇▇▇▇▇ and Harbor Worker's Act, Outer
Continental Shelf lands Act, and Maritime Law, including ▇▇▇▇▇ Act and
Death on the High Seas Act, where applicable) and Employers' Liability
coverage in the amount US$1,000,000 per accident. Coverage shall
include an alternate employers endorsement.
(2) Automobile Liability Insurance including owned,
hired, rented or non-owned vehicles for both bodily injury and property
damage (and containing appropriate no fault insurance provisions or
other endorsements as are required under State and Federal
regulations), with Combined Single Limit Each Occurrence: US$1,000,000
or amount required by Applicable Law, whichever is greater.
(3) Commercial General Liability Insurance including
coverage for bodily injury (including mental injury/mental anguish) and
property damage with a combined single limit of not less, on an
occurrence basis, One Million Dollars (US$1,000,000) each occurrence
and in the annual aggregate. Coverage shall include such terms and
conditions as are usually carried by Persons operating similar
properties in the same general region.
(4) Terminal Operators Liability Insurance (or the
equivalent), if not provided for elsewhere in the insurance program
carried by Lessee, including Stevedores Liability; pollution liability
from loading and unloading operations); Products Liability; third party
bodily injury and death, all with a combined single limit per
occurrence for these coverages of at least $1,000,000.
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(5) Excess/Umbrella Liability Insurance coverage in
excess of the limits, terms and conditions in 14.1(a)(1), (2), (3) &
(4) above, with a combined single limit for Bodily Injury and/or
Property Damage of US$100,000,000 for each occurrence and in the annual
aggregate.
(6) Property damage insurance (including boiler and
machinery coverage) with respect to the Leased Property insuring
against loss or damage from all risks, including flood and earthquake,
customarily included under all-risk policies available with respect to
facilities similar in construction, location and occupancy to the
Facilities, in amounts equal to not less than the greater of
$63,000,000 or the Option Price; and
(7) such other insurance with respect to the Leased
Property in such amounts and against such insurable hazards as Lessor
may from time to time reasonably request and as is usually carried by
Persons operating similar properties in the same general region.
(b) Any insurance policies carried in accordance with this
Section 14.1(Coverage) may be subject to (i) such normal exclusions as are usual
and customary for companies similarly situated, and (ii) such deductible amounts
and retentions, which shall be for the sole account of Lessee, as shall be
reasonable in the circumstances and shall be normal and customary for similar
facilities, if any, owned or leased by Lessee or its Affiliates.
(c) Notwithstanding anything to the contrary in this Article
14 (Insurance), Lessee shall at all times maintain insurance with respect to the
Leased Property at least in accordance with its standard corporate practice with
respect to other similar facilities, including the use of self-insurance,
deductibles, insurance subsidiaries and industry-captive insurance companies,
provided that such standard corporate practice is not lower than the standard
practiced by the United States petroleum refining industry.
14.2 Policy Provisions. Any insurance policy maintained by Lessee
pursuant to Section 14.1 (Coverage) shall to the extent permissible under the
policy:
(a) name Lessor as additional insured as respect to the
Property Insurance (referred to in 14.1(a)(6)) and, except for workers'
compensation insurance, name Lessor as an additional insured with respect to all
other insurance (but only to the extent required in (b) below) and as its
respective interests may appear;
(b) include effective waivers by the insurer of all claims for
insurance premiums or commissions or (if such policies provide for the payment
thereof) additional premiums or assessments against Lessor;
(c) to the extent commercially available, include
non-vitiation clause which provides that in respect of the interests of Lessor,
such policies shall not be invalidated by any action or inaction of Lessee or
any other Person and shall insure to Lessor, regardless of any claims for losses
shall be payable notwithstanding;
(1) any act of negligence, including any breach of
any condition or warranty in any policy of insurance, of Lessee,
Lessor, or any other Person, or
43
(2) any change in the title to or ownership of any of
the Leased Property;
(d) provide that such insurance shall be primary insurance
with respect to claims attributable solely to events occurring completely after
the Effective Time and that the insurers under such insurance policies shall be
liable under such policies without right of contribution from any other
insurance coverage effected by or on behalf of Lessor under any other insurance
policies covering the loss;
(e) provide that any cancellation thereof or material change
therein shall not be effective as to Lessor until at least 30 days after receipt
by Lessor of written notice thereof and
(f) WAIVE any right of subrogation of the insurers against
Lessor, in its capacities as Lessor under this Lease and owner of the Leased
Property, and waive any right of the insurers to any setoff or counterclaim or
any other deduction, whether by attachment or otherwise, in respect of any
liability of Lessor, in its capacities as Lessor under this Lease and owner of
the Leased Property, with respect to claims attributable solely to events
occurring completely after the Effective Time.
14.3 Delivery of Policies. Lessee shall deliver to Lessor on or prior
to the Closing Date, certificates of insurance signed by the insurance
underwriters or their duly authorized agents or an insurance broker
knowledgeable with respect to the insurance of Lessee (and, upon request, copies
of all insurance policies) with respect to the Leased Property that Lessee shall
be required to maintain pursuant to this Article 14 (Insurance).
14.4 Insurance Report. Within 30 days after any material change in the
information set forth in the certificates of insurance provided pursuant to
Section 14.3 (Delivery of Policies) (including changes in deductible amounts or
renewals of existing policies), Lessee shall deliver to Lessor a certificate of
an officer of Lessee certifying compliance with this Article 14 (Insurance).
14.5 Insurance Maintenance. If Lessee should fail to maintain or cause
to be maintained such required insurance for the benefit of Lessor as specified
under 14.1 (Coverage), Lessor may effect the same at Lessee's expense (with such
amounts immediately payable to Lessor by Lessee). Lessor shall not be limited in
the proof of any damages which Lessor may claim against Lessee arising out of
Lessee's failure to provide and keep in force such policies as are required
hereunder to the amount of the insurance premium or premiums not paid or
incurred by Lessee which would have been payable on such insurance, but shall
also be entitled to recover, as damages for such breach, the uninsured amount of
any loss, liability, damages, claims, costs and expenses of suit, judgements and
interest, suffered, or incurred by Lessor by reason of Lessee's failure to
maintain insurance for any occurrence on the Leased Property which should have
been insured in accordance with this Lease.
14.6 Notice by Insurers. Lessee shall cause the insurers with which it
maintains insurance required by this Article 14 (Insurance) to advise Lessor in
writing promptly of any act or omission on the part of Lessee of which such
insurer has knowledge that may invalidate or render unenforceable, in whole or
in part, any such insurance.
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14.7 Straddle Claims. With respect to injuries and damages which are of
a continuous or ongoing nature and extend over the Effective Time and are
apportioned between Pre-Closing Liabilities and Post-Closing Liabilities,
Lessor's insurance shall be the primary insurance for Pre-Closing Liabilities
and the insurers under such insurance policies shall be liable under such
policies without right of contribution from any other insurance coverage
effected by or on behalf of Lessee under any other insurance covering the loss
relating to the period prior to Closing, and Lessee's insurance shall be the
primary insurance for Post-Closing Liabilities and the insurers under such
insurance policies shall be liable under such policies without right of
contribution from any other insurance coverage effected by or on behalf of
Lessor under other insurance covering the loss relating to the period after
Closing.
14.8 Capacity of Lessor. Notwithstanding anything in this Article 14,
including the naming of Lessor as additional insured or the waiver of
subrogation in Section 14.2, Lessee's insurer shall be permitted to subrogate
against Lessor, to the extent Lessee would have a claim against Lessor under
Article 17 in the absence of insurance. The waiver of subrogation provided in
Section 14.2 and the legal effect of naming Lessor as an additional insured
under Lessee's insurance policies shall not extend beyond the scope of Lessor's
capacity as Lessor under the Lease.
ARTICLE 15
CASUALTY AND CONDEMNATION
15.1 Damage or Destruction.
(a) After the Effective Time, if the buildings, improvements,
equipment, fixtures and personal property constituting part of the Leased
Property are damaged or destroyed by fire or other casualty, the Term of this
Lease shall not be reduced or affected in any way, this Lease shall nevertheless
continue in full force and effect, and Lessee at its sole cost and expense (but
with the use of available insurance proceeds as provided in Section 15.3) shall
promptly and diligently replace, rebuild, repair and restore the damaged or
destroyed buildings, improvements, equipment, fixtures and personal property to
substantially the same condition and to their productive capacity existing at
the Effective Time (such replacement, rebuilding, repair and restoration being
referred to in this Article as the "Work"). All insurance money paid on account
of such damage or destruction under insurance policies provided for in Article
14 (less any reasonable costs and expenses incurred in collecting same) shall be
available for the payment of the cost of the Work as provided in Section 15.3.
Under no circumstances shall Lessor be obligated to make any payment,
disbursement, contribution or reimbursement towards the cost of the Work. Upon
completion of the Work, any insurance money paid on account of such damage or
destruction under insurance policies provided for in Article 14 and not applied
to the payment of the cost of the Work shall be retained by Lessee as Lessee's
sole property, Lessor hereby expressly assigning to Lessee any and all right,
title and interest of Lessee now or hereafter arising in or to any such
proceeds.
(b) In no event shall Lessee be entitled to any abatement,
allowance, reduction or suspension of Rent or other payments under this Lease
because all or any part of the Leased Property shall be untenantable owing to
the partial or total damage or destruction of the Leased Property; and
notwithstanding anything herein to the contrary, no such damage or destruction
shall affect in any way the obligation of Lessee to pay the Rent and other
payments herein reserved or required to be paid by Lessee or release Lessee of
or from any obligations imposed upon Lessee under this Lease.
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15.2 Condemnation. In the event condemnation proceedings for the taking
of title to the whole of the Leased Property are commenced against the Leased
Property during the Term, Lessee shall have control of such proceedings. In the
event any other condemnation proceedings for the taking of title to the Leased
Property are commenced against the Leased Property during the Term, Lessor shall
have control of such proceedings; provided that, prior to the third Lease Year
Lessee and Lessor shall have joint control with respect to any such proceedings.
(a) If, at any time during the Term of this Lease, title to
the whole of the Leased Property shall be taken in condemnation proceedings or
by any right of eminent domain or any transfer thereof shall be made by Lessor
at the request and with the consent of Lessee in lieu or under threat thereof,
Lessee shall be deemed to have exercised the Option as of the date of such
taking or transfer in lieu or threat thereof and the Lease Payments reserved
shall be apportioned and paid to the date of such taking or transfer in lieu or
threat thereof; provided, however, if such taking occurs prior to the third
Lease Year, Lessee shall be deemed to have exercised the Option on the first day
of the third Lease Year, no Lease Payments shall be due for the third Lease
year, and the closing of the Option shall occur on the first Business Day of the
third Lease Year. For purposes of this Article 15, any transfer by Lessor at the
request and with the consent of Lessee of the Leased Property or any part
thereof in lieu or under threat of condemnation or taking under right of eminent
domain shall be deemed a "taking" and all payments received by Lessor as
consideration for such transfer shall be deemed an "award" for such deemed
taking. In the event of any such taking of the whole of the Leased Property,
Lessee shall be entitled to receive the whole of any and all awards which may be
paid or made on account of any such taking, and Lessor will promptly forward any
payments received by it to Lessee; provided, however, any such proceeds or
payments which are received by or payable to Lessor or Lessee prior to the third
Lease Year shall be placed in escrow. Such escrowed funds, plus any income
earned thereon, shall be applied to pay the costs and expenses of such escrow
and the balance thereof shall be paid to Lessee upon the Option Closing. The
escrow agent and the terms and conditions of such escrow shall be determined by
Lessor, subject to the consent of Lessee which shall not be unreasonably
withheld or delayed. In lieu of placing such proceeds and payments in escrow
pursuant to the foregoing, Lessee may instead furnish Lessor with a letter of
credit in an amount equal to the aggregate amount of such proceeds and payments
which would otherwise be required to be placed in escrow; provided, however,
such letter of credit must be from a financial institution and on terms and in
form approved by Lessor, which approval shall not be unreasonably withheld or
delayed.
(b) In the event of any such taking of less than the whole of
the Leased Property, the Term of this Lease shall not be reduced or affected in
any way, this Lease shall nevertheless continue in full force and effect, and
Lessee at its sole cost and expense (but with the use of available awards
received on account of such taking as provided in Section 15.3) shall promptly
and diligently replace, rebuild, repair and restore the buildings, improvements,
equipment, fixtures and personal property not taken, but adversely affected by
such taking, to substantially the same condition and to their productive
capacity at the Effective Time (such replacement, rebuilding, repair and
restoration being referred to in this Article as the "Work"). All awards paid on
account of such taking (less any reasonable costs and expenses incurred in
collecting same) shall be available for the payment of the cost of the Work as
provided in Section 15.3. Under no circumstances shall Lessor be obligated to
make any payment, disbursement, contribution or reimbursement towards the cost
of the Work. Any awards paid to Lessor on account of such a taking under this
Section 15.2(b) and not applied to the payment of the cost of the Work (i) shall
be retained by Lessor as
46
Lessor's sole property, Lessee hereby expressly assigning to Lessor any and all
right, title and interest of Lessee now or hereafter arising in or to any such
awards, and (ii) the amount so retained by Lessor (less any reasonable costs and
expenses incurred in collecting same) shall operate to reduce the Purchase
Price.
(c) In the event Lessor or Lessee shall receive notice of any
proposed or pending condemnation proceeding affecting the Leased Property, the
party receiving such notice shall promptly notify the other party of the receipt
and contents thereof.
(d) In no event shall Lessee be entitled to any abatement,
allowance, reduction or suspension of Rent or other payments under this Lease
because all or any part of the Leased Property shall be untenantable owing to
the partial or total taking of the Leased Property; and notwithstanding anything
herein to the contrary, no such taking shall affect in any way the obligation of
Lessee to pay the Rent and other payments herein reserved or required to be paid
by Lessee or release Lessee of or from any obligations imposed upon Lessee under
this Lease.
15.3 Disbursement of Insurance and Condemnation Proceeds. All insurance
proceeds under insurance policies provided for in Article 14 on account of any
damage or destruction referred to in Section 15.1 and all awards received on
account of any taking referred to in Section 15.2(b), in each case less any
reasonable costs and expenses incurred in collecting same, shall be handled in
accordance with this Section 15.3 for the express purpose of paying the cost of
the Work necessitated as a result of such damage, destruction, or taking. Such
proceeds and awards shall be received, held, and disbursed for the cost of the
Work as follows:
(a) As to any loss not in excess of $20,000,000, all insurance
proceeds shall be paid to Lessee (or, if received by Lessor, forwarded promptly
to Lessee) for application to the cost of the Work.
(b) As to any loss in excess of $20,000,000, all insurance
proceeds shall be paid to Lessee (or, if received by Lessor, forwarded promptly
to Lessee); provided that Lessee must first secure Lessor's approval of the
plans and specifications for the proposed Work (which approval will not be
unreasonably withheld).
(c) The insurance proceeds under insurance policies provided
for in Article 14 on account of any damage or destruction referred to in Section
15.1 shall be applied by Lessee to such Work as above provided and all excess
insurance proceeds under such policies shall be retained by Lessee or promptly
delivered to Lessee.
(d) The funds that are attributable to a taking giving rise to
such Work shall be applied by Lessee to such Work as above provided and all
excess funds shall be promptly delivered to Lessor as Lessor's sole property.
ARTICLE 16
SURRENDER OF LEASE
16.1 Surrender of Leased Property. Upon the expiration or earlier
termination of this Lease, Lessee shall peaceably surrender to Lessor and place
Lessor in peaceful possession of the
47
Leased Property (and shall assign and transfer to Lessor any extended, renewed
or replacement lease included in the Leased Property pursuant to Section
2.6(1)), including all Alterations, improvements and changes (except as provided
in Section 16.2), free and clear of any and all Liens (except Permitted
Encumbrances under clauses (b), (c) or (d) of the definition of Permitted
Encumbrances) created by or growing out of Lessee's construction, improvement,
modification, repair, maintenance, operation, possession or use thereof, in the
same condition that the Leased Property was in at the Effective Time, subject
only to (i) ordinary and customary wear and tear and (ii) damage resulting from
fire or other casualty; provided that all insurance proceeds with respect to
such casualty have been deposited with Lessor or are applied to the Work with
respect thereto in accordance with Section 15.3. Lessee, at Lessee's sole cost
and expense, shall be obligated to cause the Leased Property so surrendered to
Lessor pursuant to this Section to constitute and contain all assets necessary
for Lessor to conduct, as a separate economic operating unit, substantially the
same business and pipeline system and terminal configurations on the Leased
Property that was conducted on the Leased Property on the Closing Date. If this
Lease expires or is terminated for any reason, other than the exercise of the
Option, Lessee shall immediately (a) transfer and assign to Lessor all
assignable Environmental Permits for the Leased Property in effect at that time,
(b) transfer and deliver to Lessor all files, books and records of Lessee
related to the operation, construction, maintenance, or repair of the Leased
Property (including plans, operational manuals and operational files, but
excluding any marketing, financial and tax (except property tax) records and any
litigation and other legal department records subject to work product,
attorney-client or other privilege), (c) at Lessor's option, reassign, convey,
transfer, and deliver to Lessor any Assigned Contracts (as amended and to the
extent then in existence) and any third party warranties, guarantees,
indemnities, and claims related to the Leased Property, and (d) at Lessor's
option, enter into an operating or transition services agreement with Lessor
under which Lessee would provide to Lessor the same operating or transition
services (or those services as Lessor may elect) as Lessor (or its Affiliate)
provided to Lessee under the Operating Agreement, all on terms and conditions
(including remuneration) which are substantially the same as those contained in
such Related Agreements, mutatis mutandis. Lessee shall cooperate with Lessor in
obtaining the assignment of all legally assignable Environmental Permits.
16.2 Removal of Alterations and Lessee's Property. If any furnishings,
equipment, furniture, trade fixtures or other removable equipment not included
in the Leased Property initially leased hereunder are not removed on or before
the expiration or earlier termination of this Lease, then Lessee hereby grants
to Lessor the option, exercisable at any time thereafter without the requirement
of any notice to Lessee, (a) to treat such property, or any portion thereof, as
being abandoned by Lessee to Lessor, whereupon Lessor shall be deemed to have
full rights of ownership thereof (b) to elect to remove and store such property,
or any portion thereof, on Lessee's behalf (but without assuming any liability
to any Person) and at Lessee's sole cost and expense, with reimbursement
therefor to be made to Lessor upon demand; and/or (c) to sell, give away, donate
or dispose of as trash or refuse any or all of such property without any
responsibility to deliver to Lessee any proceeds therefrom. Lessor shall have no
liability of any kind whatsoever to Lessee in respect of the exercise or failure
to exercise the options set forth in this Section. Specifically, Lessee shall
not have the right to assert against Lessor a claim either for the value, or the
use, of any such property, either as an offset against any amount of money owing
to Lessor or otherwise. The provisions of this Section shall supersede the
provisions of Section 93.002(d) and (e) of the Texas Property Code, as such may
be amended from time to time, and any other law which purports to restrict the
options granted to Lessor herein.
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16.3 Holding Over. If Lessee or any Person claiming by, through or
under Lessee remains in possession of the Leased Property after the expiration
or earlier termination of the tenancy created hereunder and without execution of
a new lease or other written agreement, Lessee shall be deemed to be occupying
the Leased Property as a tenant at sufferance and subject to all of the
provisions of this Lease except those relating to term and except that the Lease
Payments shall be one hundred fifty percent (150%) of the amount payable during
the last quarter of the Term (without waiver of Lessor's right to recover
damages as permitted by this Lease or by Law). Said tenancy may be terminated by
Lessor or Lessee by giving written notice to the other at any time. Lessor's
acceptance during any such holdover period of any Rent and/or any other payments
from Lessee of less than the full amounts to which Lessor is entitled under this
Section shall not be deemed to constitute a waiver of Lessor's right to later
collect from Lessee the difference between the amounts actually paid by Lessee
and the full amounts due hereunder. Additionally, Lessee shall pay to Lessor all
damages sustained by Lessor on account of such holding over by Lessee. No
holding over by Lessee, whether with or without consent of Lessor, and without
the execution of a new lease or other written agreement shall operate to extend
the Term or this Lease.
ARTICLE 17
INDEMNIFICATION
17.1 Indemnification by Lessor. From and after the Closing, Lessor
shall indemnify, hold harmless and defend Lessee, Lessee's respective
Affiliates, each of their respective directors, officers, employees, consultants
and agents, and each of the directors, officers, heirs, executors, successors
and assigns of any of the foregoing (collectively, the "Lessee Indemnitees")
from and against (a) the Retained Environmental Claims and the Pre-Closing
Liabilities and (b) all Covered Liabilities resulting from any breach or
nonfulfillment of any representation, warranty, covenant or agreement on the
part of Lessor which is expressly set forth in this Lease. Lessor's
indemnification obligation under clause (a) of this Section shall expressly
include indemnification of the Lessee Indemnitees against ANY LIABILITY BASED IN
WHOLE OR IN PART ON NEGLIGENCE, NEGLIGENCE PER SE, GROSS NEGLIGENCE OR STRICT
LIABILITY OF THE LESSEE INDEMNITEE OR ON ANY OTHER THEORY OF LIABILITY, WHETHER
IN LAW (WHETHER COMMON, CIVIL OR STATUTORY) OR EQUITY. The obligations of Lessor
in this Article 17 shall survive, without limitation, the expiration or other
termination of the Term of this Lease, and shall continue in full force and
effect following the expiration or other termination of the Term or this Lease.
17.2 Indemnification by Lessee. From and after the Closing, Lessee
shall assume, pay, perform, fulfill, and discharge all Assumed Environmental
Claims and the Post-Closing Liabilities and shall indemnify, hold harmless and
defend Lessor, Lessor's respective Affiliates, each of their respective
directors, officers, employees, consultants and agents, and each of the
directors, officers, heirs, executors, successors and assigns of any of the
foregoing (collectively, the "Lessor Indemnitees") from and against (a) Assumed
Environmental Claims and the Post-Closing Liabilities and (b) all Covered
Liabilities resulting from any breach or nonfulfillment of any representation,
warranty, covenant or agreement on the part of Lessee which is expressly set
forth in this Lease. Lessee's indemnification obligation under clause (a) of
this Section shall expressly include indemnification of the Lessor Indemnitees
against ANY LIABILITY BASED IN WHOLE OR IN PART ON NEGLIGENCE, NEGLIGENCE PER
SE, GROSS NEGLIGENCE OR STRICT LIABILITY OF THE LESSOR INDEMNITEE OR ON ANY
OTHER THEORY OF LIABILITY, WHETHER IN LAW (WHETHER COMMON, CIVIL
49
OR STATUTORY) OR EQUITY. The obligations of Lessee in this Article 17 shall
survive, without limitation, the expiration or other termination of the Term of
this Lease, and shall continue in full force and effect following the expiration
or other termination of the Term or this Lease.
17.3 Indemnification and Defense Procedures. A Person which is entitled
to be indemnified under Section 17.1 or 17.2 is herein referred to as an
"Indemnitee" and the party which is obligated to indemnify an Indemnitee under
Section 17.1 or 17.2 is herein referred to as the "Indemnitor" with respect to
the matter for which it is obligated to indemnify such Indemnitee. All claims
for indemnification under Sections 17.1 and 17.2 shall be asserted and resolved
as follows:
(a) If a Third Party Claim for which an Indemnitee is entitled
to indemnity under Sections 17.1 and/or 17.2 (an "Indemnified Claim") is made
against an Indemnitee, and if Lessor or Lessee intends to seek indemnity with
respect thereto by or from an Indemnitor pursuant to Sections 17.1 and/or 17.2,
then the party electing to seek indemnity on behalf of such Indemnitee shall
promptly transmit to the Indemnitor a written notice ("Claim Notice") (i)
notifying such Indemnitor of such Indemnified Claim and request indemnity on
behalf of such Indemnitee with respect to such Indemnified Claim under Sections
17.1 and/or 17.2, as the case may be, (ii) setting forth the full name, address
for all notices and the authorized representatives of such Indemnitee with
respect to such Indemnified Claim, and (iii) describing in reasonable detail the
nature of the Indemnified Claim, including a copy of all papers served with
respect to such Indemnified Claim (if any) and the basis of such request for
indemnification under Sections 17.1 and/or 17.2, as the case may be. Failure to
provide such Claim Notice promptly shall not affect the right of the Indemnitee
to indemnification hereunder except to the extent the Indemnitor is prejudiced
thereby; provided that, the Indemnitor shall not be obligated to defend,
indemnify or otherwise hold harmless an Indemnitee with respect to a Third Party
Claim until a Claim Notice meeting the foregoing requirements is furnished to
the Indemnitor by the party seeking indemnity hereunder. Within 10 days after
receipt of any Claim Notice (the "Election Period"), the Indemnitor shall notify
the party who sent the Claim Notice (A) whether the Indemnitor disputes its
potential liability to indemnify the Indemnitee under Sections 17.1 and/or 17.2,
as the case may be, with respect to such Third Party Claim and (B) whether the
Indemnitor desires to defend the Indemnitee against such Third Party Claim;
provided that, if the Indemnitor fails to so notify the Indemnitee during the
Election Period, the Indemnitor shall be deemed to have elected to dispute such
liability and not to defend against such Third Party Claim. The aforesaid
election or deemed election by the Indemnitor not to assume the defense of the
Indemnitee with respect to such Indemnified Claim, however, shall be subject to
the right of the Indemnitor to subsequently assume the defense of the Indemnitee
with respect to such Indemnified Claim at any time prior to settlement or final
determination thereof.
(b) If the Indemnitor notifies the party who sent the Claim
Notice within the Election Period that the Indemnitor (i) does not dispute its
liability to indemnify the Indemnitee under Sections 17.1 and/or 17.2, as the
case may be (or reserves the right to dispute whether such claim is an
Indemnified Claim under Sections 17.1 and/or 17.2) and (ii) elects to assume the
defense of such Indemnitee with respect to such Third Party Claim, then the
Indemnitor shall have the right to defend, at its sole cost and expense, such
Third Party Claim by all appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnitor to a final conclusion or settled at the
discretion of the Indemnitor in accordance with this Section 17.3(b). If an
Indemnitor elects pursuant to the foregoing to assume the defense of an
Indemnitee with respect to a Third Party Claim which is subsequently determined
not to be an Indemnified Claim, then, without limiting any
50
action the Indemnitor may have on account of actual fraud, the Indemnitor shall
not be entitled to recover from the other party or the Indemnitee the costs and
expenses incurred by the Indemnitor in providing such defense. The Indemnitor
shall have full control of such defense and proceedings, including any
compromise or settlement thereof provided, however, the Indemnitor shall not
enter into any settlement agreement (or settle or compromise any such Third
Party Claim in a manner) which provides for or results in any payment by or
liability of the Indemnitee of or for any damages or other amount, any Lien on
any property of the Indemnitee, any finding of responsibility or liability on
the part of the Indemnitee or any sanction or restriction upon the conduct of
any business by the Indemnitee or any obligation or action on the part of the
Indemnitee without the Indemnitee's express written consent, which consent shall
not be unreasonably withheld. The Indemnitee is hereby authorized, at the sole
cost and expense of the Indemnitor (but only if the Indemnitee is actually
entitled to indemnification hereunder), to file, during the Election Period, any
motion, answer or other pleadings which the Indemnitee shall deem necessary or
appropriate to protect its interests or those of the Indemnitor and not
reasonably expected to be prejudicial to the Indemnitor. If requested by the
Indemnitor, the Indemnitee agrees, at the sole cost and expense of the
Indemnitor, to cooperate with the Indemnitor and its counsel in contesting any
such Third Party Claim which the Indemnitor elects to contest, including the
making of any related counterclaim or cross-complaint against any Person (other
than a Lessor Indemnitee, if the Indemnitee is a Lessor Indemnitee, or a Lessee
Indemnitee, if the Indemnitee is a Lessee Indemnitee). The Indemnitee may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnitor pursuant to this Section 17.3(b), and the
Indemnitee shall bear its own costs and expenses with respect to such
participation. The prosecution of the defense of a Third Party Claim with
reasonable diligence shall include the taking of such action (including the
posting of a bond, deposit or other security) as may be necessary to prevent any
action to foreclose a Lien against or attachment of the property of the
Indemnitee for payment of such Third Party Claim.
(c) If the Indemnitor (i) fails to notify the party who sent
the Claim Notice within the Election Period that the Indemnitor elects to defend
the Indemnitee pursuant to Section 17.3(b) or (ii) elects to defend the
Indemnitee pursuant to Section 17.3(b) but fails to prosecute the defense of the
Third Party Claim with reasonable diligence, then the Indemnitee shall have the
right to defend, at the sole cost and expense of the Indemnitor (but only if the
Indemnitee is actually entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnitee to a final conclusion or settled. Unless
and until such defense is assumed by the Indemnitor as permitted in Section
17.3(a), the Indemnitee shall have full control of such defense and proceedings;
provided, however, that the Indemnitor, without assuming the defense of such
Indemnified Claim, may participate in, but not control, any defense or
settlement controlled by the Indemnitee pursuant to this Section 17.3(c), and
the Indemnitor shall bear its own costs and expenses with respect to such
participation. The Indemnitee may not enter into any compromise or settlement of
such Third Party Claim, without the Indemnitor's express written consent, which
shall not be unreasonably withheld.
(d) If an Indemnitee is entitled to indemnity under Sections
17.1 and/or 17.2 for a claim or other matter which does not involve a Third
Party Claim, and if Lessor or Lessee intends to seek indemnity on behalf of an
Indemnitee with respect thereto by or from an Indemnitor pursuant to Sections
17.1 and/or 17.2, then the party electing to seek indemnity on behalf of an
Indemnitee shall promptly transmit to the Indemnitor a written notice describing
in reasonable detail the nature of such claim or other matter, the Indemnitee's
best estimate of the amount of damages attributable to such claim or other
matter and the basis for the Indemnitee's entitlement to
51
indemnification under Sections 17.1 and/or 17.2, as the case may be. If the
Indemnitor does not notify the party who sent such notice within 30 days from
its receipt of such notice that the Indemnitor does not dispute such claim for
indemnity, the Indemnitor shall be deemed to have disputed such claim.
(e) To the extent any claim, action, suit or proceeding
includes one or more Indemnified Claims with respect to an Indemnitee and one or
more Third Party Claims which are not Indemnified Claims with respect to such
Indemnitee, any such non-Indemnified Claim insofar as it is with respect to such
Indemnitee shall not be covered by the indemnity in Sections 17.1 and 17.2, the
Indemnitor shall not be obligated to undertake, conduct and control the defense
or settlement of such non-Indemnified Claim insofar as it is with respect to
such Indemnitee, and such Indemnitee shall be responsible for its own defense
and settlement of such non-Indemnified Claim. The seeking by a party of
indemnity hereunder on behalf of any Indemnitee with respect to any Third Party
Claim or other claim or matter shall not prevent such. party from then or
thereafter also seeking indemnity hereunder on behalf of any other Indemnitee
with respect to such Third Party Claim or other claim or matter and shall not
prevent the other party from seeking indemnity hereunder on behalf of any
Indemnitee with respect to the same Third Party Claim or other claim or matter.
17.4 Liability Limitations.
(a) Notwithstanding anything herein provided to the contrary,
but subject to the last sentence of this subsection, Lessor shall have no
liability to Lessee or any other Lessee Indemnitee pursuant to Section 17.1 or
for any breach by Lessor of this Lease, unless and until the aggregate amount of
all Covered Liabilities covered by Section 17.1 or attributable to all breaches
by Lessor of this Lease exceeds $250,000. After the aforesaid $250,000 limit is
reached, Lessor shall be liable in accordance with the other terms of this Lease
for those Covered Liabilities in excess of $250,000, subject to the further
provisions of this Section 17.4; provided, however, for purposes of determining
the scope of indemnification under this Section 17.4(a) any qualification as to
materiality or Material Adverse Effect shall be disregarded (it being understood
that such qualifications as to materiality or Material Adverse Effect shall
apply for purposes of determining whether there is a breach in the first place).
The foregoing limitations shall not apply to (i) the failure by Lessor to pay
any Imposition, (ii) the failure by Lessor to comply with Section 10.3, (iii)
any amounts payable under or pursuant to Article 9, Article 15, clause (a) of
Section 17.1, Section 17.6, or Section 21.4, or (iv) any breach by Lessor with
respect to its representations and warranties in the first sentence of Section
7.4(a). Notwithstanding anything herein provided to the contrary, in the event
of one or more breaches by Lessor with respect to its representations and
warranties in the first sentence of Section 7.4(a), Lessor shall have no
liability for the portion of the aggregate amount of Covered Liabilities
attributable to such breach(es) which is below the threshold amount for the
Material Adverse Effect, as defined in Section 7.4(a), giving rise to such
breach(es).
(b) Notwithstanding anything herein provided to the contrary,
but subject to the last sentence of this subsection, Lessee shall have no
liability to Lessor or any other Lessor Indemnitee pursuant to Section 17.2 or
for any breach by Lessee of this Lease, unless and until the aggregate amount of
all Covered Liabilities covered by Section 17.2 or attributable to all breaches
by Lessee of this Lease exceeds $250,000. After the aforesaid $250,000 limit is
reached, Lessee shall be liable in accordance with the other terms of this Lease
for those Covered Liabilities in excess of $250,000; provided, however, for
purposes of determining the scope of indemnification under this Section 17.4(b)
any qualification as to materiality or Material Adverse Effect shall be
52
disregarded (it being understood that such qualifications as to materiality or
Material Adverse Effect shall apply for purposes of determining whether there is
a breach in the first place). The foregoing limitations shall not apply to (i)
the failure by Lessee to pay any Rent, the Option Closing Payment or any
Imposition, (ii) the failure by Lessee to comply with Section 10.3, or (iii) any
amounts payable under or pursuant to Article 9, Article 15, clause (a) of
Section 17.2, Section 17.6, or Section 21.4.
(c) Lessor, Lessee, and each other Indemnitee shall cooperate
with the Indemnitor with respect to resolving any Indemnified Claim with respect
to which either Lessor or Lessee is obligated to indemnify an Indemnitee under
this Article 17, including making commercially reasonable efforts to mitigate or
resolve any such Indemnified Claim and providing the others with reasonable
access to such Indemnitee's records (other than those subject to attorney-client
or attorney work product privilege) and personnel having relevant information
with respect to the Indemnified Claim. Without limiting the foregoing, to the
extent it may legally do so each party agrees to assign or cause the assignment
to the Indemnitor with respect to an Indemnified Claim any and all of the rights
and remedies that the Indemnitee may have with respect to such Indemnified Claim
against any Person (other than Lessor, Lessee, or any Affiliate of Lessor or
Lessee or any insurance carrier or bonding or surety company of the Indemnitee)
pursuant to any claims, rights and agreements of or for indemnification,
guarantee, contribution, reimbursement or similar assurances which are the
subject of such Indemnified Claim.
(d) Each party agrees to maintain all records and information
made available to it pursuant to Section 17.4(c) confidential and to cause its
directors, officers, employees, agents, representatives, consultants and
advisors to maintain all records and information made available to them pursuant
to this Section confidential, except (i) as required by Law, administrative
process or any standards or rules of any stock exchange to which such party or
any of its Affiliates is subject, (ii) for information which is available to the
public on the date hereof, or thereafter becomes available to the public other
than as a result of a breach of this Section 17.4(d), and (iii) to the extent
that such party must disclose the same in any court or arbitration proceedings
brought by it to enforce its rights hereunder.
(e) To the extent Lessee has or can legally obtain the right
of eminent domain or condemnation with respect to the Pipeline System Interests
or the affected portion thereof, the limit of Lessor's liability hereunder for
Lessor's failure to have Defensible Title to any Pipeline System Interests, for
any failure of the Pipeline System Interests to be contiguous or for any failure
of the Pipeline Systems to be located on or beneath the Pipeline System
Interests shall be the Agreed Cost for any portion of such Pipeline System
Interests as to which Lessor fails to have Defensible Title or for any required
easements, rights-of-way, surface leases, fee parcels or licenses, as
applicable, that are reasonably necessary to fill gaps between non-contiguous
portions of the Pipeline System Interests or to give Lessee the right to use the
land on which the Pipeline Systems are located. To the extent Lessor has common
carrier status with respect to any portion of the Pipeline Systems, Lessee
agrees not to change such common carrier status with respect to such portions of
the Pipeline Systems until after the closing of the Option.
17.5 Exclusive Remedy. After Closing, the indemnity provisions of this
Article 17 (including the obligations under the Affiliate Guarantees with
respect to this Article 17) shall be the sole and exclusive remedy of each party
for or on account of any breach by the other party of any of such other party's
representations and warranties under this Lease except for actual fraud. THE
53
PARTIES ACKNOWLEDGE AND AGREE THAT THE REMEDIES SET FORTH IN THIS LEASE,
INCLUDING THE DEDUCTIBLES, LIABILITY LIMITS, SURVIVAL PERIODS, DISCLAIMERS AND
LIMITATIONS ON REMEDIES, ARE INTENDED TO BE, AND SHALL BE, THE EXCLUSIVE
REMEDIES WITH RESPECT TO ANY ASPECT OF THE TRANSACTIONS CONTEMPLATED BY THIS
LEASE EXCEPT FOR THE ACTUAL FRAUD (OTHER THAN ANY FRAUD UNDER SECTION 27.01 OF
THE TEXAS BUSINESS AND COMMERCE CODE). EACH PARTY HEREBY RELEASES, WAIVES AND
DISCHARGES, AND COVENANTS NOT TO ▇▇▇ WITH RESPECT TO, ANY CAUSE OF ACTION OR
CLAIM NOT EXPRESSLY PROVIDED FOR IN THIS LEASE INCLUDING, WITHOUT LIMITATION,
CLAIMS UNDER STATE OR FEDERAL SECURITIES LAWS, AVAILABLE AT COMMON LAW OR BY
STATUTE (EXCEPT FOR ACTUAL FRAUD CLAIMS, OTHER THAN ANY FRAUD CLAIM UNDER
SECTION 27.01 OF THE TEXAS BUSINESS AND COMMERCE CODE).
17.6 OSHA Fines. Notwithstanding Section 17.2(a), if, within one year
after the Effective Time, any fine or penalty is imposed on or levied against
Lessee pursuant to any OSHA rules or regulations existing on the Effective Time
as a result of any non-compliance of the Leased Property or operations conducted
thereon, both before and after the Effective Time, the payment of such fine or
penalty shall be shared by Lessee and Lessor as follows:
(a) if such fine or penalty is specifically determined and
calculated on the basis of the time the violation existed, then such fine or
penalty shall be apportioned between Lessor and Lessee on the basis of the
number of days such violation existed before the Effective Time and the number
of days such violation existed after the Effective Time, with Lessor being
liable for the portion thereof attributable to the period before the Effective
Time and Lessee being liable for the portion thereof attributable to the period
after the Effective Time;
(b) if such fine or penalty is not specifically determined and
calculated on the basis of the time the violation existed, then Lessee shall be
responsible for one-half of such fine or penalty and Lessor shall be responsible
for one-half of such fine or penalty; and
(c) if such fine or penalty is imposed after the Effective
time but solely based on an inspection by OSHA before the Effective Time and is
not specifically determined and calculated based in part on a period after the
Effective Time, Lessor shall be responsible for all of such fine or penalty.
Any fine or penalty for which Lessor would any have responsibility pursuant to
this Section 17.6 shall be an Indemnified Claim to the extent of Lessor's
responsibility therefor pursuant to this Section 17.6, and Lessee shall be
required to comply with the provisions of Section 17.3 in regard to such
Indemnified Claim, including the sending of a Claim Notice to Lessor with
respect thereto.
ARTICLE 18
ASSIGNMENT AND SUBLEASE
18.1 Assignment by Lessee. Lessee shall not be entitled to sublease the
Leased Property or assign this Lease or its rights, duties or obligations
hereunder without the prior written consent of Lessor. Lessee shall have the
right to assign this Lease or sublease the Leased Property or any part thereof
54
to any Affiliate of Lessee without Lessor's prior consent in a transaction which
is not entered into or made in contemplation of directly or indirectly
transferring ownership or control of such Affiliate. All assignments or
subleases (i) shall be, and by their terms shall expressly provide that they
are, subject to the rights of Lessor under or in connection with this Lease and
the Related Agreements, (ii) shall require that the assignee or sublessee agree
to be bound by and perform all obligations of Lessee hereunder with respect to
the interest so assigned or subleased, and (iii) shall be covered by the
Affiliate Guaranty delivered pursuant to Section 2.11(c) which shall continue to
cover and guarantee all obligations of such assignee or sublessee. Any purported
assignment of this Lease without Lessor's prior written consent where required
by the provisions of this Section shall be void. Lessee shall remain primarily
liable in the event of permitted assignments hereunder.
18.2 Assignment by Lessor. Lessor shall not be entitled to assign this
Lease and/or any of its rights, duties or obligations hereunder without the
prior written consent of Lessee. All assignments (i) shall be, and by their
terms shall expressly provide that they are, subject to the rights of Lessee
under or in connection with this Lease and the Related Agreements, (ii) shall
require that the assignee agree to be bound by and perform all obligations of
Lessor hereunder with respect to the interest so assigned, and (iii) shall be
covered by the Affiliate Guaranty delivered pursuant to Section 2.11(b) which
shall continue to cover and guarantee all obligations of such assignee. Lessor
shall remain primarily liable in the event of assignments hereunder.
18.3 Successors and Assigns. Subject to the requirements of this
Article, this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
18.4 Surviving Rights & Obligations. Lessor's rights, duties and
obligations hereunder that survive the earlier of the closing of the Option or
termination of this Lease may not be assigned without the prior written consent
of Lessee, except to an Affiliate of Lessor as provided in this Section, and
Lessee's rights, duties and obligations hereunder that survive the earlier of
the closing of the Option or termination of this Lease may not be assigned
without the prior written consent of Lessor, except to an Affiliate of Lessee as
provided in this Section. Lessor may assign all or any part of such surviving
rights, duties and obligations of Lessor to an Affiliate of Lessor, and Lessee
may assign all or any part of such surviving rights, duties and obligations of
Lessee to an Affiliate of Lessee; in each case only in a transaction which is
not entered into or made in contemplation of directly or indirectly transferring
ownership or control of such Affiliate. All assignments under this Section (i)
shall be, and by their terms shall expressly provide that they are, subject to
the rights of the non-assigning party and its successors and assigns, under or
in connection with this Lease and the Related Agreements, (ii) shall require
that the assignee agree to be bound by and perform all obligations of assigning
party hereunder with respect to the rights, duties and obligations so assigned,
and (iii) shall be covered by the applicable Affiliate Guaranty delivered
pursuant to Section 2.11 which shall continue to cover and guarantee all
obligations of such assignee. Any purported assignment of such surviving rights,
duties and obligations without prior written consent where required by the
provisions of this Section shall be void. Lessor shall remain primarily liable
in the event of permitted assignments of the Lessor's surviving rights, duties
and obligations hereunder and Lessee shall remain primarily liable in the event
of permitted assignments of the Lessee's surviving rights, duties and
obligations hereunder.
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ARTICLE 19
DEFAULT AFTER CLOSING
19.1 Events of Default. For purposes hereof, the term "Event of
Default" shall mean any of the following with respect to a party (such party
being referred to as the "Affected Party"):
(a) The failure by Lessee to make, when due, any Lease Payment
required under this Lease if such failure is not remedied within ten (10)
Business Days after written notice of such failure is given to the Affected
Party;
(b) The failure by the Affected Party or its Affiliate to pay
any payment obligation under this Lease (other than its obligation to make any
Lease Payment) or any Related Agreement (other than the Other Lease) or to
perform in any material respect (unless such failure is caused by the wrongful
or negligent act or omission of, or the breach of lease or contract by, the
other party or its Affiliate) any covenant or agreement set forth in this Lease
or any Related Agreement (other than the Other Lease), and such failure remains
unexcused and uncured 30 days after the other party has given written notice
thereof to the Affected Party (or to its Affiliate under the Related Agreement,
as the case may be) or if subject to a good faith dispute such failure remains
unexcused and uncured 30 days after the resolution of such dispute, or, if such
failure cannot reasonably be cured or remedied within said 30-day period, the
Affected Party (or to its Affiliate under the Related Agreement, as the case may
be) shall fail to commence action in good faith to cure or remedy such failure
within said 30-day period or shall fail thereafter to complete curing or
remedying such failure as promptly as it is reasonably possible;
(c) The occurrence of a Bankruptcy Event with respect to the
Affected Party. "Bankruptcy Event" with respect to the Affected Party means the
occurrence of any of the following events with respect to such Affected Party:
(i) the filing of a petition by it seeking relief as debtor under any bankruptcy
or similar law; (ii) the filing of a petition against it as debtor by a creditor
under any bankruptcy or similar law, and such petition is consented to by such
debtor or, if contested, is not withdrawn or dismissed within sixty (60) days
after such filing; (iii) it is insolvent or unable to pay its debts as they
become due or admits such in writing; (iv) a trustee, conservator or receiver is
appointed for it or all or a material part of its property; or (v) the Affected
Party shall take any corporate or partnership action to authorize any of the
actions set forth in this Section 19.1(c); or
(d) The occurrence of an "Event of Default" by the Other
Lessee under the Other Lease shall constitute an Event of Default by the Lessee
under this Lease, and the occurrence of an "Event of Default" by the Other
Lessor under the Other Lease shall constitute an Event of Default by the Lessor
under this Lease.
19.2 Early Termination.
(a) If an Event of Default occurs as a result of the failure
by Lessee to pay any Lease Payment (or by the Other Lessee to pay any "Lease
Payment" under the Other Lease) at any time during the Term, then regardless of
and notwithstanding the fact that Lessor (or Other Lessor) has or may have some
other remedy under this Lease (or the Other Lease) by virtue thereof, or in law
or in equity, Lessor may give to Lessee a notice (herein called the "second
notice") of intention to end the Term of this Lease specifying a day not less
than thirty (30) days thereafter and, upon the giving of the second notice, this
Lease and the Term and estate hereby granted shall expire and terminate upon
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the day so specified in the second notice if such Event of Default be still then
continuing, as fully and completely and with the same force and effect as if the
day so specified were the date hereinbefore fixed for the expiration of the Term
of this Lease, and all rights of Lessee under this Lease shall expire and
terminate, but Lessee shall remain liable for damages as hereinafter provided;
provided, however, that notwithstanding the time limitation for exercising the
Option pursuant to Article 6, Lessee may exercise the Option pursuant to Article
6 so long as the scheduled closing under Article 6 shall occur prior to the end
of the Term of the Lease specified in Lessor's second notice and Lessee shall
comply with the other requirements of Article 6, including the contemporaneous
exercise and closing of the Other Lease Option. If the Other Lessor gives the
Other Lessee a "second notice" under Section 19.2(a) of the Other Lease, then
notwithstanding the time limitation for exercising the Option pursuant to
Article 6, Lessee may exercise the Option pursuant to Article 6 so long as the
scheduled closing under Article 6 shall occur prior to the end of the "Term" of
the Other Lease specified in Other Lessor's second notice and Lessee shall
comply with the other requirements of Article 6, including the contemporaneous
exercise and closing of the Other Lease Option. If the Option is exercised as
provided in this Section 19.2(a) prior to the 30 days preceding the commencement
of the third Lease Year, the Purchase Price under Section 6.2 shall be the sum
of (i) the amount the Purchase Price would have been if the Option had been
exercised during the 30 days preceding the commencement of the third Lease Year,
plus (ii) the positive amount, if any, obtained by subtracting (A) the aggregate
amount of all Lease Payments paid by Lessee through the date the Option is
exercised as provided in this Section 19.2(a) from (B) $9,000,000.
(b) Upon the occurrence of any Event of Default listed in
Section 19.1(c) with respect to Lessee, this Lease and the Term and estate
hereby granted shall automatically expire and terminate, without notice, as
fully and completely and with the same force and effect as if the day of the
occurrence of such Event of Default were the date hereinbefore fixed for the
expiration of the Term of this Lease, and all rights of Lessee under this Lease
shall expire and terminate, but Lessee shall remain liable for damages as
hereinafter provided.
(c) In the event that Lessor elects to terminate this Lease
pursuant to Section 19.2(a) and the Option is not exercised and Closed as
provided in Section 19.2(a) or this Lease automatically terminates pursuant to
Section 19.2(b), then Lessor may recover from Lessee:
(1) any unpaid Rent which had been earned at the time
of such termination, together with interest thereon at the Default Rate
from the date such Rent was due until paid; plus
(2) the (i) amount by which the unpaid Rent which
would have been earned after termination until the time of award
exceeds the amount of such rental loss that Lessee proves could have
been reasonably avoided plus (ii) interest on the net amount in clause
(i) at the Default Rate from the date such net amount would have been.
due until paid; plus
(3) the worth at the time of award of the amount by
which (i) the unpaid Lease Payments and other amounts payable hereunder
by Lessee for the balance of the Term after the time of award exceeds
(ii) the amount of such rental loss that Lessee proves could be
reasonably avoided; plus
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(4) any other amount necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure to perform
Lessee's obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom.
(d) As used in Section 19.2(c)(3) above, the "worth at the
time of award" is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of Dallas at the time of award plus one percent (1%).
(e) Except as expressly provided in this Section 19.2, no
Event of Default with respect to Lessee or Lessor under this Lease shall give
rise to any right to terminate or rescind this Lease and, except as expressly
provided in this Section 19.2, all such rights of early termination or
rescission are hereby expressly waived and released.
19.3 Additional Remedies. Upon the occurrence of any Event of Default
with respect to Lessee, Lessor shall have the right and option, by written
notice to Valero Energy Corporation in accordance with its Guaranty Agreement,
to put the Leased Property to Valero Energy Corporation for the Option Closing
Payment and on the other terms set forth in Article 6 as if Valero Energy
Corporation were Lessee and Lessee had properly exercised the Option upon the
occurrence of the Event of Default. Upon giving of such notice to Valero Energy
Corporation in accordance with its Guaranty Agreement, Valero Energy Corporation
shall be obligated to purchase the Leased Property in accordance with Article 6
as if Valero Energy Corporation were the Lessee hereunder.
19.4 Other Remedies. With respect to any Event of Default by the
Affected Party, the other party (the "Other Party") shall be entitled to all
rights and remedies which the Other Party may have under law or equity,
including, without limitation, the right of setoff, but subject to the express
limitations contained in this Lease, including Sections 3.3, 5.1, 17.4, 17.5,
19.2(e), and 20.2. All amounts payable under this Lease which are not paid when
due shall bear interest at the Default Rate from the due date of such payment
until paid. To the extent permitted by, and subject to the requirements of all
Law, and except as otherwise expressly provided herein, all rights and remedies
of the Other Party hereunder with respect to any Event of Default by the
Affected Party shall be cumulative, and the exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy. Neither failure
nor delay by the Other Party in exercising any of its rights, powers or
privileges herein with respect to any Event of Default by the Affected Party
shall operate as a waiver nor shall any single or partial exercise preclude any
other or further exercise of any such right, power or privilege of the Other
Party.
ARTICLE 20
DISCLAIMERS AND LIMITATIONS
20.1 Disclaimers.
(a) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY
OTHER PROVISION OF THIS LEASE, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO
THAT LESSOR IS NOT MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, BEYOND THOSE REPRESENTATIONS OR WARRANTIES
EXPRESSLY GIVEN IN THIS LEASE AND
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ANY RELATED AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE IMMEDIATELY
PRECEDING SENTENCE AND WITHOUT LIMITING THE EXPRESS REPRESENTATIONS AND
WARRANTIES OF LESSOR CONTAINED IN THIS LEASE AND ANY RELATED AGREEMENT, LESSOR
HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE, RELATING OR WITH RESPECT TO:
(1) THE CONDITION, VALUE OR QUALITY OF THE FACILITIES, PIPELINE
SYSTEM INTERESTS, TERMINAL INTERESTS, INVENTORY, EQUIPMENT OR
ANY OTHER ASSETS;
(2) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, USAGE,
SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT
TO THE ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP
THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT
OR PATENT, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
IT BEING UNDERSTOOD THAT ALL OF THE ASSETS ARE BEING LEASED OR
ACQUIRED, AS THE CASE MAY BE, "AS IS, WHERE IS" ON THE DATE OF
THIS LEASE, AND IN THEIR PRESENT CONDITION, WITH ALL FAULTS,
AND THAT LESSEE SHALL RELY ON ITS OWN EXAMINATION AND
INVESTIGATION THEREOF;
(3) ANY INFRINGEMENT BY LESSOR OR ANY OF ITS AFFILIATES OF ANY
PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY;
(4) THE ACCURACY OR COMPLETENESS OF THE INFORMATION, RECORDS, DATA
AND INTERPRETATIONS NOW, HERETOFORE OR HEREAFTER MADE
AVAILABLE TO LESSEE IN CONNECTION WITH THIS LEASE BY LESSOR,
ANY AFFILIATE OF LESSOR OR ANY DIRECTOR, OFFICER, EMPLOYEE,
AGENT, REPRESENTATIVE, INVESTMENT BANKER, COUNSEL, CONSULTANT
OR ADVISOR OF LESSOR OR ANY AFFILIATE OF LESSOR; OR
(b) LESSEE ACKNOWLEDGES AND AGREES THAT EXCEPT AS EXPLICITLY
PROVIDED IN SECTIONS 7.3(b), 7.10, AND 7.11 NO REPRESENTATIONS OR WARRANTIES OF
ANY KIND, EXPRESS OR IMPLIED, EITHER ORAL OR WRITTEN, ARE MADE BY LESSOR, ANY
AFFILIATE OF LESSOR OR ANY DIRECTOR, OFFICER, EMPLOYEE, AGENT, REPRESENTATIVE,
INVESTMENT BANKER, COUNSEL, CONSULTANT OR ADVISOR OF LESSOR OR ANY AFFILIATE OF
LESSOR WITH RESPECT TO: (1) THE EXISTENCE OR ABSENCE OF HAZARDOUS MATERIALS IN,
ON, UNDER OR OTHERWISE AFFECTING THE ASSETS OR THE SOIL, SEDIMENTS, AIR OR
GROUND WATER; (2) COMPLIANCE AT THE ASSETS OR THEIR OPERATION OR USE WITH ANY
ENVIRONMENTAL LAW; OR (3) THE COST OR TIME NECESSARY OR ADVISABLE TO CONDUCT OR
COMPLETE ENVIRONMENTAL ACTIVITIES AT THE ASSETS.
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20.2 Limitation of Damages. NOTWITHSTANDING ANYTHING CONTAINED TO THE
CONTRARY IN ANY OTHER PROVISION OF THIS LEASE, THE PARTIES AGREE THAT THE
INDEMNIFICATION OBLIGATIONS OF EACH PARTY, AND THE RECOVERY BY ANY PARTY OR
INDEMNITEE OF ANY COVERED LIABILITIES SUFFERED OR INCURRED BY IT AS A RESULT OF
ANY BREACH OR NONFULFILLMENT BY A PARTY OF ANY OF ITS REPRESENTATIONS,
WARRANTIES, COVENANTS, AGREEMENTS OR OTHER OBLIGATIONS UNDER THIS LEASE, SHALL
BE LIMITED TO ACTUAL DAMAGES AND SHALL NOT INCLUDE OR APPLY TO, NOR SHALL ANY
PARTY OR INDEMNITEE BE ENTITLED TO RECOVER, ANY INDIRECT, CONSEQUENTIAL,
SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY
DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES OR BUSINESS INTERRUPTION)
SUFFERED OR INCURRED BY ANY PARTY OR INDEMNITEE. For purposes of the foregoing,
actual damages may, however, include indirect, consequential, special, exemplary
or punitive damages to the extent (i) the injuries or losses resulting in or
giving rise to such damages are incurred or suffered by a third party who is not
an Affiliate of Lessor or Lessee and (ii) such damages are recovered against an
Indemnitee by a Person which is a third party who is not an Affiliate of Lessor
or Lessee. This Section 20.2 shall operate only to limit a party's liability and
shall not operate to increase or expand any contractual obligation of a party
hereunder.
20.3 Environmental Release. From and after the Closing and except for
Lessor's indemnity obligations under clause (a) of Section 17.1 and Lessor's
indemnity obligations under clause (b) of Section 17.1 with respect to Sections
7.3(b), 7.10 or 7.11, the Lessee Indemnitees shall have no rights to recovery
or indemnification for Environmental Claims or any environmental matters under
this Lease or Law (including any Environmental Law) relating to the Assets, and
all rights or remedies which any Lessee Indemnitee may have at or under Law
(including any Environmental Law) with respect to any Environmental Claims or
environmental matters relating to the Assets are expressly waived. FROM AND
AFTER CLOSING, BUT WITHOUT LIMITING OR RELEASING LESSOR'S INDEMNITY OBLIGATIONS
UNDER CLAUSE (a) OF SECTION 17.1 OR LESSOR'S INDEMNITY OBLIGATIONS UNDER CLAUSE
(b) OF SECTION 17.1 WITH RESPECT TO SECTIONS 7.3(b), 7.10 OR 7.11, LESSEE FOR
ITSELF AND ALL OTHER LESSEE INDEMNITEES DOES HEREBY RELEASE, ACQUIT AND FOREVER
DISCHARGE LESSOR AND ALL LESSOR INDEMNITEES FROM ANY AND ALL CLAIMS, DEMANDS AND
CAUSES OF ACTION OF WHATSOEVER NATURE, INCLUDING WITHOUT LIMITATION ALL CLAIMS,
DEMANDS AND CAUSES OF ACTION FOR CONTRIBUTION AND INDEMNITY UNDER STATUTE,
COMMON OR CIVIL LAW, WHICH COULD BE ASSERTED NOW OR IN THE FUTURE AND THAT
RELATE TO OR IN ANY WAY ARISE OUT OF ENVIRONMENTAL CLAIMS OR COSTS OF COMPLIANCE
RELATING TO THE ASSETS. FROM AND AFTER CLOSING AND EXCEPT FOR THE RIGHTS AND
REMEDIES EXPRESSLY PROVIDED UNDER CLAUSE (a) OF SECTION 17.1 OR LESSOR'S
INDEMNITY OBLIGATIONS UNDER CLAUSE (b) OF SECTION 17.1 WITH RESPECT TO SECTIONS
7.3(b), 7.10 OR 7.11, LESSEE FOR ITSELF AND ALL OTHER LESSEE INDEMNITEES
WARRANTS, AGREES AND COVENANTS NOT TO ▇▇▇ OR INSTITUTE ARBITRATION AGAINST
LESSOR OR ANY LESSOR INDEMNITEES UPON ANY CLAIM, DEMAND OR CAUSE OF ACTION FOR
INDEMNITY AND CONTRIBUTION THAT HAVE BEEN ASSERTED OR COULD BE ASSERTED FOR ANY
ENVIRONMENTAL CLAIMS COSTS OF COMPLIANCE.
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ARTICLE 21
MISCELLANEOUS
21.1 Counterparts. This Lease may be executed in one or more
counterparts, all of which shall be considered one and the same Lease, and shall
become effective when one or more counterparts have been signed by each of the
parties and delivered to the other party.
21.2 Governing Law. THIS LEASE AND THE TRANSACTIONS CONTEMPLATED HEREBY
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW
RULES THAT WOULD DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
21.3 Entire Agreement. This Lease and the Appendices, Schedules and
Exhibits hereto (together with the Other Lease and other Related Agreements)
contain the entire agreement between the parties with respect to the subject
matter hereof and there are no agreements, understandings, representations or
warranties between the parties other than those set forth or referred to herein.
21.4 Expenses. Lessee shall be responsible for (i) any sales or use
Taxes which may become due and owing by reason of the rent of the Leased
Property and any other property to Lessee contemplated pursuant to this Lease or
the sale of the Inventory, the Equipment, the Leased Property (pursuant to the
Option), and any other property to Lessee contemplated pursuant to this Lease,
(ii) all transfer, stamp, documentary and similar Taxes imposed on the parties
hereto with respect to all transfers of property to Lessee contemplated pursuant
to this Lease, and (iii) all recording, filing or registration fees relating to
the filing, recording or registration of this Lease or a memorandum hereof,
Lessor's Special Warranty Conveyance, and any other instruments or documents
transferring title in or to any assets from Lessor to Lessee pursuant to this
Lease. The Taxes and fees referred to in the preceding sentence shall be paid by
Lessee when due and Lessee, at Lessee's expense, shall file all necessary Tax
returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
Law, Lessor will, and will cause its Affiliates to, join in the execution of any
such Tax returns and other documentation with respect thereto. Lessee and Lessor
shall each be responsible for one-half of the HSR filing fee. Lessor shall be
responsible for up to $ 100,000 of the aggregate base costs of the Title Policy
under this Lease and the "Title Policy" under the Other Lease (excluding any
cost for modification of the survey exception or other endorsements to the
policy which Lessee may at its sole cost obtain, but which shall not be a
condition to the Option Closing). All costs of the Title Policy under this Lease
and the "Title Policy" under the Other Lease that exceed $100,000, in the
aggregate, shall be paid by Lessee. All other costs and expenses incurred by
each party hereto in connection with all things required to be done by it
hereunder, including attorney's fees and accountant fees, shall be borne by the
party incurring same. At Closing (and in connection with any assignment of this
Lease by Lessee pursuant to Section 18.1), Lessee (or such assignee, as the case
may be) shall execute and deliver to Lessor (i) a Texas Resale Certificate with
respect to the Inventory in form reasonably satisfactory to Lessor and (ii) a
State of Texas Direct Payment Exemption Certificate covering any sales, excise
or use Tax with respect to the matters covered by this Lease in the form
attached hereto as Exhibit 21.4.
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21.5 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed sufficiently given for all purposes hereof if (i)
delivered in person, by courier or by registered or certified United States Mail
to the Person to be notified, with receipt obtained, or (ii) sent by telecopy,
telefax or other facsimile or electronic transmission, with "answer back" or
other "evidence of receipt" obtained, in each case to the appropriate address or
number as set forth below (or at such other address or number for a party as
shall be specified by like notice). Each notice shall be deemed effective on
receipt by the addressee as aforesaid; provided that, notice received by telex,
telecopy, telefax or other facsimile or electronic transmission after 5:00 p.m.
at the location of the addressee of such notice shall be deemed received on the
first Business Day following the date of such electronic receipt or such earlier
time confirmed by the receiving party. Until changed pursuant to the foregoing,
notices to the parties shall be addressed as follows:
If to Lessor: Coastal Liquids Partners, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Operating Officer -- El Paso
Merchant Energy Group
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
Phone Number: (▇▇▇) ▇▇▇-▇▇▇▇
For all purposes of this Lease, notice to or from Valero Marketing and Supply
Company or Valero Pipeline Company shall be deemed notice to or from Valero
Marketing and Supply Company and Valero Pipeline Company. Lessor may give notice
to Lessee to either Valero Marketing and Supply Company or Valero Pipeline
Company, and either Valero Marketing and Supply Company or Valero Pipeline
Company, acting alone, may act for and bind Lessee. Lessor may conclusively rely
and shall be protected in acting or refraining from acting upon any instruction,
request, statement, agreement, consent, notice or other action taken in
connection with this Lease by either Valero Marketing and Supply Company or
Valero Pipeline Company, acting alone.
21.6 Attorneys' Fees. The prevailing party in any legal proceeding
brought under or to enforce this Lease shall be additionally entitled to recover
court costs and reasonable attorneys' fees from the nonprevailing party.
21.7 Amendments and Waivers. This Lease may not be modified or amended
except by an instrument or instruments in writing signed by the party against
whom enforcement of any such modification or amendment is sought. Any party
hereto may, only by an instrument in writing, waive compliance by another party
hereto with any term or provision of this Lease on the part of such other party
hereto to be performed or complied with. The waiver by any party hereto of a
breach of any term or provision of this Lease shall not be construed as a waiver
of any subsequent breach.
21.8 Appendices, Schedules and Exhibits. All Appendices, Schedules and
Exhibits hereto which are referred to herein are hereby made a part hereof and
incorporated herein by such reference.
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21.9 Interpretation. It is expressly agreed that this Lease shall not
be construed against any party, and no consideration shall be given or
presumption made, on the basis of who drafted this Lease or any particular
provision hereof or who supplied the form of Lease. Each party agrees that this
Lease has been purposefully drawn and correctly reflects its understanding of
the transaction that this Lease contemplates. In construing this Lease:
(a) examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
(b) the word "includes" and its derivatives mean "includes,
but is not limited to" and corresponding derivative expressions;
(c) a defined term has its defined meaning throughout this
Lease and each Appendix, Exhibit and Schedule to this Lease, regardless of
whether it appears before or after the place where it is defined;
(d) each Exhibit and Schedule to this Lease is a part of this
Lease, but if there is any conflict or inconsistency between the main body of
this Lease (including Appendix A which shall be considered part of the main body
of this Lease) and any Exhibit or Schedule, the provisions of the main body of
this Lease shall prevail;
(e) the headings and titles herein are for convenience only
and shall have no significance in the interpretation hereof; and
(f) the inclusion of a matter on a Schedule in relation to a
representation or warranty shall not be deemed an indication that such matter
necessarily would, or may, breach such representation or warranty absent its
inclusion on such Schedule.
21.10 Arbitration.
(a) It is agreed, as a severable and independent arbitration
agreement separately enforceable from the remainder of this Lease, that if the
parties hereto, the Indemnitees or the respective successors, assigns, heirs or
legal representatives of any of the foregoing are unable to amicably resolve any
dispute or difference arising under or out of, in relation to or in any way
connected with this Lease (whether contractual, tortious, equitable, statutory
or otherwise), such matter shall be finally and exclusively referred to and
settled by arbitration under the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). In the event of any conflict between the
Commercial Arbitration Rules of the AAA and the provisions of this Section
21.10, the provisions of this Section 21.10 shall govern and control.
(b) The arbitration shall be heard and determined by three (3)
arbitrators. Each side shall appoint an arbitrator of its choice within fifteen
(15) days of the submission of a notice of arbitration. The party-appointed
arbitrators shall in turn appoint a presiding arbitrator of the tribunal within
fifteen (15) days following the appointment of both party-appointed arbitrators.
If the party-appointed arbitrators cannot reach agreement on a presiding
arbitrator of the tribunal and/or one party fails or refuses to appoint its
party-appointed arbitrator within the prescribed period, the appointing
authority for the presiding arbitrator and/or such party-appointed arbitrator
shall be the AAA, who, in each case, shall appoint an independent arbitrator who
does not have any financial
63
interest in the dispute, controversy or claim or bear any relationship to either
party. If an arbitrator should die, withdraw or otherwise become incapable of
serving, or refuse to serve, a successor arbitrator shall be selected and
appointed in the same manner as the original arbitrator.
(c) Unless otherwise expressly agreed in writing by the
parties to the arbitration proceedings:
(1) The arbitration proceedings shall be held in
Houston, Texas;
(2) The arbitrators shall be and remain at all times
wholly independent and impartial;
(3) The arbitration proceedings shall be conducted
under the Commercial Arbitration Rules of the AAA, as amended from time
to time;
(4) Any procedural issues not determined under the
arbitration rules selected pursuant to Section 21.10(c)(3) shall be
determined by the arbitration act and any other Laws of the State of
Texas, other than those laws which would refer the matter to another
jurisdiction;
(5) All decisions and awards by the arbitration
tribunal shall be made by majority vote;
(6) The decision of a majority of the arbitrators
shall be reduced to writing; shall be final and binding without the
right of appeal; and shall be the sole and exclusive remedy regarding
any claims, counterclaims, issues or accountings presented to the
arbitrators; any damage awards by the arbitrators shall be promptly
paid free of any deduction or offset; and any costs or fees incident to
enforcing the award shall to the maximum extent permitted by law be
charged against the party resisting such enforcement;
(7) Consequential, indirect, special, exemplary,
punitive or other similar damages shall not be allowed except those
payable to third parties (and permitted under Section 20.2) for which
liability is allocated among the parties by the arbitration award;
(8) Any award of damages shall include interest from
the date of any breach or violation of this Lease, as determined by the
arbitration award, and from the date of the award until paid in full,
at the Agreed Rate in effect at the end of the first trading day of
each month during which such amount was owed;
(9) The costs of the arbitration proceedings
(including attorneys' fees and costs) shall be borne in the manner
determined by the arbitrator(s);
(10) Judgment upon the award may be entered in any
court having jurisdiction over the person or the assets of the party
owing the judgment, or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the
case may be;
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(11) The arbitration shall proceed in the absence of
a party who, after due notice, fails to answer or appear; an award
shall not be made solely on the default of a party, but the
arbitrator(s) shall require the party who is present to submit such
evidence as the arbitrator(s) may determine is reasonably required to
make an award.
21.11 Lease for the Parties' Benefit Only. This Lease is for the sole
benefit of Lessee, Lessor and their respective successors and assigns as
permitted herein and no other Person shall be entitled to enforce this Lease,
rely on any representation, warranty, covenant or agreement contained herein,
receive any rights hereunder or be a third party beneficiary of this Lease. Any
Indemnitee which is a third party shall be indemnified and held harmless under
the terms of this Lease only to the extent that a party expressly elects to
exercise such right of indemnity and hold harmless on behalf of such third party
Indemnitee pursuant to Section 17.3; and no party shall have any direct
liability or obligation to any third party or be liable to any third party for
any election or non-election or any act or failure to act under or in regard to
any term of this Lease. Any claim for indemnity or hold harmless hereunder on
behalf of an Indemnitee must be made and administered by a party to this Lease.
21.12 Severability. If any term, provision or condition of this Lease,
or any application thereof, is held invalid, illegal or unenforceable in any
respect under any Law, this Lease shall be reformed to the extent necessary to
conform, in each case consistent with the intention of the parties, to such Law,
and to the extent such term, provision or condition cannot be so reformed, then
such term, provision or condition (or such invalid, illegal or unenforceable
application thereof) shall be deemed deleted from (or prohibited under) this
Lease, as the case may be, and the validity, legality and enforceability of the
remaining terms, provisions and conditions contained herein (and any other
application such term, provision or condition) shall not in any way be affected
or impaired thereby. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Lease so as to effect the original intent
of the parties as closely as possible in an acceptable manner to the end that
the transactions contemplated hereby are fulfilled to the extent possible.
21.13 Time of Essence. Time is of the essence in this Lease, including
the Closing Date, the dates for payment of Rent, and the Option. If the date
specified in this Lease for giving any notice or taking any action is not a
Business Day (or if the period during which any notice is required to be given
or any action taken expires on a date which is not a Business Day), then the
date for giving such notice or taking such action (and the expiration date of
such period during which notice is required to be given or action taken) shall
be the next day which is a Business Day.
(a) The parties recognize and agree that while the transaction
contemplated hereby is described as a lease, for federal income tax purposes, it
will be treated as a sale of the Leased Property.
(b) Upon Lessor's request to Lessee, Lessee agrees to
cooperate with Lessor so that Lessor's lease and, upon exercise of the Purchase
Option, the transfer, of the Leased Property to Lessee shall, at Lessor's
election, be accomplished in a manner enabling the lease and subsequent transfer
to qualify as part of a like-kind exchange of property by Lessor within the
meaning of Section 1031 of the Tax Code (a "Like-Kind Exchange"). If Lessor so
elects, Lessee shall reasonably cooperate with Lessor to effect such Like-Kind
Exchange, which cooperation shall include, without limitation, taking such
actions as Lessor reasonably requests in order to pay the Rent due hereunder
and, upon exercise of the Purchase Option, the Purchase Price, in a manner
65
which enables such transfer to qualify as part of a Like-Kind Exchange. Lessee
agrees that Lessor may assign its rights under this Agreement to payment of Rent
and, upon exercise of the Purchase Option, the Purchase Price, (all other
rights, remedies, liabilities and obligations arising under this Lease are
retained by Lessor) to an escrow agent acting as a qualified intermediary under
United States Treasury Regulations in order to qualify the payment of amounts
due hereunder as part of a Like-Kind Exchange. At the Closing, Lessee agrees to
execute and deliver to Lessor the form of Transferee's Consent attached hereto
as Exhibit 21.14. Lessor and Lessee agree that (1) neither party's obligations
hereunder shall be increased as a result of the agreements provided in this
Section 21.14(b); (2) the Rent and the Purchase Price paid to the qualified
intermediary will not be different from that which Lessee would have otherwise
been obligated to pay under this Lease; (3) Lessee will not incur any additional
cost, expense or liability as a result of Lessee's cooperation with Lessor in a
Like-Kind Exchange; and (4) Lessor will indemnify and hold harmless Lessee for
additional expenses, including, without limitation, taxes, closing costs and
reasonable attorneys' fees, that Lessee may sustain or become subject to as a
result of the Rent and subsequently the Purchase Price being paid to an
intermediary party rather than to Lessor and the intermediary's subsequent use
of the Rent and Purchase Price.
(c) Lessor and Lessee agree that the Purchase Price will be
allocated among the properties for tax purposes as may be jointly agreed between
them within 180 days after the Closing Date. In the event that the parties agree
to an allocation of the Purchase Price for tax purposes within such 180-day
period, Lessor and Lessee will file all Tax returns (including amended Tax
returns and claims for refund) and information reports in a manner consistent
with such allocation. In the event the parties do not agree on the allocation,
each shall be entitled to report the allocation as it determines is appropriate.
In WITNESS WHEREOF, this Lease has been signed by or on behalf of each of the
parties as of the day first above written.
LESSOR:
Coastal Liquids Partners, L.P.
By: Coastal Liquids Transportation, L.P.,
Its General Partner
By: Coastal States Crude Gathering Company
Its General Partner
By:
--------------------------------------
Name:
-------------------------------------
Title:
-----------------------------------
LESSEE:
Valero Pipeline Company
By:
--------------------------------------
Name:
-------------------------------------
Title:
-----------------------------------
Valero Marketing and Supply Company
By:
--------------------------------------
Name:
-------------------------------------
Title:
-----------------------------------
66
APPENDIX A
TO
PIPELINE AND TERMINAL LEASE AGREEMENT
DEFINITIONS
"AAA" shall be as defined in Section 21.10.
"Action" shall mean, whether civil or criminal in nature, any action, suit,
proceeding, condemnation or audit by or before any court or other Governmental
Body.
"Adjacent Lessor Facilities" means pipelines, terminals, tanks and other
facilities that (i) are located on property that is adjacent to or on the Leased
Property and (ii) comprise part of any crude oil and/or LPG pipeline system or
terminal owned or leased by Lessor or an Affiliate of Lessor, expressly
excluding any part of any such system or terminal that is included in the Leased
Property pursuant to Schedule 10.3 of this Lease, but including (whether or not
comprising part of any crude oil and/or LPG pipeline system or terminal) the
properties to be assigned, granted or transferred to Lessor, or reserved by
Lessor, pursuant to Section 10.3 and the Mobil San Antonio System.
"Affected Party" shall have the meaning given to such term in Section 19.1.
"Affiliate" shall mean, as to the Person specified, any Person controlling,
controlled by or under common control with such specified Person. The concept of
control, controlling or controlled as used in the aforesaid context means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of another, whether through the
ownership of voting securities, by contract or otherwise. No Person shall be
deemed an Affiliate of any Person by reason of the exercise or existence of
rights, interests or remedies under this Lease.
"Affiliate Guaranty" shall mean either of the guaranty agreements delivered at
Closing pursuant to Section 2.11(b) or 2.11(c).
"Agreed Cost" with respect to any portion of the Pipeline System Interests which
is not contiguous or as to which Lessor fails to have Defensible Title to any
land in or on which the Pipeline Systems are located, shall mean (i) the lesser
of the U.S. Dollar cost per rod (or per acre in the case of tracts outside the
pipeline right-of-way) prevailing in the area of such portion of the Pipeline
Systems for the acquisition of similar easements, rights-of-way, surface leases,
fee parcels or licenses or the actual acquisition cost paid by Lessee for such
portion or such land (in each case, plus the reasonable attorney's fees and
court costs incurred by Lessee in attempting or threatening to acquire such
portion or land by eminent domain or condemnation) or (ii) if such portion or
land is actually acquired through eminent domain or condemnation proceedings,
then the purchase price or damages paid by Lessee to acquire such portion or
land pursuant to such proceedings and, without duplication, the reasonable
attorney's fees and court costs incurred by Lessee in such proceedings.
"Agreed Rate" shall mean an annual rate of interest equal to seven percent (7%)
per annum.
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"Alterations" shall have the meaning given to such term in Section 11.4.
"Arbitration Procedures" shall mean the arbitration procedures set forth in
Section 21.10.
"Assets" means the Leased Property, Inventory and Equipment.
"Assigned Contracts" means the "Contracts" and the licenses, permits or similar
documents included in the "Conveyed Personally" (as such terms are defined in
the ▇▇▇▇ of Sale and Assignment included in the Related Agreements), excluding
any Environmental Permits.
"Assumed Environmental Claims" means, except for and excluding the Retained
Environmental Claims, any and all Environmental Claims and Costs of Compliance
arising out of or attributable to the ownership, operation, control,
construction, maintenance, occupancy, condition or use of the Assets, without
regard to when the Environmental Claim, violation or obligation arose or
occurred. If this Lease expires or is terminated after the Effective Time for
any reason, other than the acquisition of the Leased Property by Lessee, any
Affiliate of Lessee, or any successor or assign of Lessee or any Affiliate of
Lessee, then the Assumed Environmental Claims shall be limited to any and all
Environmental Claims and Costs of Compliance with respect to the Assets
resulting from the use, maintenance, control, construction, occupancy, ownership
or operation of the Assets prior to the expiration or other termination of the
Lease, but without regard to whether the Environmental Claim, violation or
obligation arose or occurred before or after the Effective Time.
"Bankruptcy Event" shall have the meaning given to such term in Section 19.1.
"Business Day" shall mean any day which is not a Saturday, Sunday or legal
holiday recognized by the United States of America.
"Claim Notice" shall be as defined in Section 17.3.
"Closing" shall be the consummation of the transaction contemplated by
Section 2.11.
"Closing Date" shall mean (a) the later of (i) May 31, 2001, or (ii) the third
Business Day following the satisfaction of the conditions in Sections 2.10(a)(7)
and 2.10(b)(6), or (b) such other date as may be mutually agreed to in writing
by Lessor and Lessee.
"Codes" means the generally accepted codes, standards, guidelines, and other
criteria of any societies, institutes, associations, Governmental Bodies or any
similar organizations, which may be applicable to all or any part of the
Facilities.
"Confidential Information" shall have the meaning given to such term in
Section 10.2.
"Confidentiality Agreements" means (i) that certain letter agreement dated
November 9, 2000, between Valero Energy Corporation and Coastal Refining &
Marketing, Inc. and (ii) that certain letter agreement dated March 27, 2001,
between Valero Energy Corporation and El Paso Merchant Energy Group.
"Costs of Compliance" shall mean all costs, capital expenditures, fees, fines,
penalties and expenditures of any kind associated with attaining or maintaining
compliance with any Environmental Law, all costs, fees, fines, penalties and
expenditures of any kind required to obtain, renew or otherwise
68
maintain any Environmental Permits, including, without limitation, permits for
the "grandfathered" units at the Facilities, or required to settle or resolve
any alleged violation of any Environmental Law.
"Covered Liabilities" means any liability, obligation, Tax, loss, settlement,
damage, claim, Action, demand, order, decree, directive, judgment, penalty, fine
or other legal or administrative sanction, judicial or administrative
proceeding, cost, expense or disbursement, including reasonable legal,
investigation and expert fees, expenses and reasonable related charges, of
whatsoever kind and nature, matured or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, known or unknown, including
any of the foregoing arising under, out of or in connection with any demand,
assessment, settlement, judgment or compromise relating to any actual or
threatened Action, any order or consent decree of any Governmental Body, any
award of any arbitrator, any Law, on account of any former employee, or any
contract, commitment or undertaking (including any employee plan or employment
agreement).
"Debt Obligations" means any contract, agreement, indenture, note or other
instrument relating to the borrowing of money or any guarantee or other
contingent liability in respect of any indebtedness or obligation of any Person
(other than the endorsement of negotiable instruments for deposit or collection
in the ordinary course of business).
"Default Rate" shall mean an annual rate of interest equal to the lesser of (a)
the greater of (i) the Agreed Rate or (ii) two percent (2%) per annum over the
Prime Rate as reported in the Money Rates column (or a successor column) of The
Wall Street Journal on the last Business Day of the preceding calendar month and
(b) the maximum rate of interest allowed by Law.
"Defensible Title" shall mean good and indefeasible title free and clear of all
liens, security interests and encumbrances, subject to and except for any
Permitted Encumbrances. The parties agree that obligations relating to
imbalances with respect to the transportation, storage, distribution or other
handling of refined petroleum products transported on the Pipeline Systems are
dealt with elsewhere in this Lease or the Related Agreements and are not the
subject of Defensible Title. Similarly, any agreement or commitment of Lessor
relating to the operation or maintenance of the Pipeline Systems or the
transportation, shipment, storage, treatment, processing, sale, purchase,
handling or other dealing with any refined petroleum products in connection with
the Pipeline Systems shall not be the subject of Defensible Title unless such
agreement or commitment is (i) recorded in the applicable real or personal
property records or filed as a financing statement under the uniform commercial
code or other Law and (ii) creates a title encumbrance on the property in
question.
"Document Retention Period" shall have the meaning given to such term in
Section 10.1(b).
"Effective Time" shall have the meaning given to such term in Section 4.1.
"Election Period" shall be as defined in Section 17.3.
"Environmental Activities" means the investigation, study, sampling, monitoring,
testing, cleanup, removal activities, remedial actions, corrective measures,
mitigation, response actions, and any other action to address Hazardous
Materials.
"Environmental Claims" means any Covered Liability relating in any way to any
Environmental Law, Hazardous Material or actual or alleged injury or threat of
injury to human health, safety, natural
69
resources or the environment, including any Covered Liability relating in any
way to OSHA and any Costs of Compliance and costs of Environmental Activities,
excluding, however, Covered Liabilities under (i) common law principles relating
to negligence or the failure to maintain a safe working environment, in each
case other than negligence or failure relating to or on account of Hazardous
Materials or other environmental concerns, and (ii) workmen's compensation Laws.
"Environmental Laws" means any present or future federal, state or local laws,
ordinances, rules, orders, statutes, decrees, judgments, injunctions,
directives, Environmental Permits, codes and regulations relating to the
environment, human health, safety, natural resources or any Hazardous Material,
as each may from time to time be amended, supplemented or supplanted, including
the OSHA, but excluding workmen's compensation Laws.
"Environmental Permit" means any permit, authorization, license, registration,
consent, order, approval, certificate, waiver, exception, variance, exemption or
filing with or issued by any Governmental Body relating to or required by any
Environmental Law.
"Equipment" means the warehouse inventory (including tools, parts, supplies and
other similar items) that has been tagged or otherwise specifically marked by a
joint team composed of respective representatives of Lessor and Lessee as items
being sold by Lessor to Lessee pursuant to Section 2.2 of this Lease.
"Escalation Amount" shall have the meaning given to such term in Section 5.1.
"Event of Default" shall have the meaning given to such term in Section 19.1.
"Excluded Assets" shall mean the following:
(a) all accounts receivable, income, revenues, cash, bank
deposits and securities and exchange imbalances;
(b) any (i) claims, demands and causes of action against third
parties (including any claims, rights or agreements of or for guaranty,
indemnity, contribution or reimbursement) which relate to the Retained
Environmental Claims, Pre-Closing Liabilities or the Covered Liabilities
indemnified against under Section 17.1 and defenses, warranties and other
similar rights which relate to the Retained Environmental Claims, Pre-Closing
Liabilities or the Covered Liabilities indemnified against under Section 17.1
and (ii) claims, demands and causes of action (including any claims, rights or
agreements of or for guaranty, indemnity, contribution or reimbursement) against
Lessor or any Lessor Indemnitee;
(c) all files, books and records of Lessor, other than those
related to (i) the operation, construction, maintenance, or repair of the Assets
(including plans, operational manuals and operational files), (ii) Transferred
Employees, or (iii) any contracts assigned to Lessee pursuant to the Related
Agreements; provided, however, (A) the files, books and records described in
(i), (ii), or (iii) shall not include any marketing, financial and tax (except
property tax) records and any litigation and other legal department records
subject to work product, attorney-client or other privilege and (B) Lessor, at
Lessor's expense, may retain copies of any files, books and records described in
(i), (ii), or (iii);
(d) all rights or claims by Lessor or any Affiliate of Lessor
to any Tax refund;
70
(e) all contracts and contract rights, other than those
contracts and contract rights which are assigned to Lessee pursuant to the
Related Agreements;
(f) except as provided under Article 15 and Section 2.7 with
respect to condemnation awards, under Section 2.7 or 14.7 with respect to
insurance proceeds and under any Related Agreement, all rights, titles, claims
and interests of Lessor or any Affiliate of Lessor (i) under any policy or
agreement of insurance, (ii) under any bond, (iii) to or under any condemnation
awards, or (iv) to any insurance or bond proceeds;
(g) the right to retain copies and the non-exclusive right to
use, transfer, license and sell any portion of the Intellectual Property which
is proprietary to Lessor or any of its Affiliates;
(h) (i) the names "El Paso" and "Coastal" and (ii) any logo,
service ▇▇▇▇, copyright, trade name or trademark of or associated with Lessor or
any Affiliate of Lessor or any business of Lessor or of any Affiliate of Lessor;
(i) any interconnecting facilities owned by the owner (other
than Lessor or an Affiliate of Lessor) of any pipeline interconnecting with the
Pipeline Systems, including related valves, flanges, taps and side valves,
meters and measurement equipment, regulators and pressure regulation and/or
overpressure protection equipment, applicable instrumentation, and associated or
connecting piping;
(j) the Multiple Line Reserved Interests;
(k) the interests in properties, easements, and property use
rights to be assigned, granted or transferred to Lessor, or reserved by Lessor,
pursuant to Section 10.3;
(l) tangible personal property located on the Pipeline System
Interests or Terminal Interests that is (i) owned (or leased from third parties)
by contractors or service providers doing work or providing services on the
Pipeline System Interests or Terminal Interests and used or held for use in
connection with such work or services or (ii) owned (or leased from third
parties) by employees of Lessor and not used or held for use by Lessor;
(m) improvements, fixtures, equipment and tangible personal
property located on an easement, right-of-way, lease, license or similar land
use right which encumbers the Pipeline System Interests or Terminal Interests
insofar as such improvements, fixtures, equipment and tangible personal property
are owned (or leased from third parties) by the holder of such easement,
right-of-way, lease, license or similar land use right which encumbers the
Pipeline System Interests or Terminal Interests;
(n) Lessor's or its Affiliates' warehouse inventory (including
tools, parts, supplies and other similar items) that is not included in the
Equipment;
(o) all vehicles covered by a certificate of title or an
application for a certificate of title, other than those described in Exhibit C,
and all rail cars;
(p) any asphalt that has been loaded on rail cars or any
product owned by third party customers that has been loaded on or in rail cars,
tank trucks or other vehicles owned, leased or hired by such customers; and
71
(q) the Mobil San Antonio System.
It is expressly understood and agreed that the Leased Property and other Assets
do not include any of the Excluded Assets.
"Facilities" means the existing Pipeline Systems and Terminals.
"Facility Environmental Permits" means the Environmental Permits held by Lessor
for the Facilities.
"Final Statement" shall have the meaning given to such term in Section 2.2.
"Governmental Body" means (i) the United States of America, (ii) any state,
county, municipality or other governmental subdivision within the United States
of America, (iii) any court or any governmental department, commission, board,
bureau, agency or other instrumentality of the United States of America, or of
any state, county, municipality or other governmental subdivision within the
United States of America, and (iv) to the extent having jurisdiction over Lessor
or Lessee, any arbitration tribunal.
"Hazardous Material" means any (i) polychlorinated biphenyls, chromium and its
derivatives, lead, radon gas, ureaformaldehyde foam insulation, asbestos,
petroleum, benzene petroleum derivatives or products or crude oil or any
fraction thereof, or (ii) substance, material, chemical, waste or gas (a) that
is toxic, explosive, corrosive, flammable, infectious or radioactive, or defined
as a "hazardous substance," "hazardous waste," "hazardous material," "hazardous
chemical," "toxic chemical," "toxic substance," "pollutant," "contaminant," or
the like under any Environmental Law, (b) exposure to which or the presence,
use, generation, treatment, release, transport or storage of which is now or
hereafter prohibited, limited, restricted or regulated under any Environmental
Law or by any governmental entity, or (c) that could require Environmental
Activities, or could support the assertion of an Environmental Claim.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976.
"Impositions" means all taxes, assessments, use and occupancy taxes, water and
sewer charges, rates and rents, charges for public utilities, excises, levies,
license and permit fees and other charges by public authority, general and
special, ordinary and extraordinary, foreseen and unforeseen, of any kind and
nature whatsoever, which shall or may during the term of this Lease be assessed,
levied, charged, confirmed or imposed by Governmental Body upon or accrue or
become due or payable out of or on account of or become a lien on the Leased
Property or any part thereof, the appurtenances thereto or the sidewalks,
streets or vaults adjacent thereto, or the rent and income received by or for
the account of Lessee from any subtenants or for any use or occupation of the
Leased Property, and such franchises, licenses and permits as may be appurtenant
to the use of the Leased Property, or any documents to which Lessee is a party,
creating or transferring an interest or estate in the Leased Property payable to
any Governmental Body; but shall not include any income taxes, capital levy,
estate, succession, inheritance or transfer taxes or similar tax of Lessor, or
any franchise taxes imposed upon any owner of the fee of the Leased Property, or
any income, profits or revenue tax, assessment or charge imposed upon the rent
or other benefit received by Lessor under this Lease, by any Governmental Body;
provided, however, that if at any time during the Term of this Lease, the
present method of taxation or assessment shall be so changed that the whole or
any part of the taxes, assessments, levies, impositions
72
or charges now levied, assessed or imposed on real estate and the improvements
thereon shall be discontinued and as a substitute therefor, taxes, assessments,
levies, impositions, or charges shall be levied, assessed and/or imposed wholly
or partially as a capital levy or otherwise on the rents received from said real
estate or the rents reserved herein or any part thereof, then such substitute
taxes, assessments, levies, impositions or charges, to the extent so levied,
assessed or imposed, shall be deemed to be included within the term
"Impositions" to the extent that such substitute tax would be payable if the
Leased Property were the only property of Lessor subject to such tax.
"Indemnified Claim" shall be as defined in Section 17.3.
"Indemnitor" shall be as defined in Section 17.3.
"Indemnitee" shall be as defined in Section 17.3.
"Independent Arbitrator" shall have the meaning given to such term in
Section 2.2.
"Index Date" shall have the meaning given to such term in Section 5.1.
"Index Year" shall have the meaning given to such term in Section 5.1.
"Intellectual Property" means the U.S. and foreign intellectual and industrial
property, including patent applications, patents and any reissues or
reexaminations thereof, copyright registrations, mask works, copyrights, moral
rights of authorship, rights in designs, trade secrets, technology, inventions,
discoveries, improvements, know-how, proprietary rights, formulae, processes,
methods, technical information, confidential and proprietary information, and
all other intellectual and industrial property rights, whether or not subject to
statutory registration or protection, which are used or held for use with
respect to the Leased Property, except trademarks, service marks,
trademark/service ▇▇▇▇ registrations and applications, brand names, trade names,
other names and slogans embodying business or product goodwill.
"Inventory" means inventory, including crude oil, blendstocks, feedstocks and
other raw materials, intermediate stocks and finished products, including water
bottoms, bottom sediment, sludge, slops, line fill and unit fill, in each case
acquired for use at or produced at the "Facility" subject to the Other Lease
whether at such "Facility" or Lessor's terminals included in the Leased Property
or ▇▇▇▇▇▇▇▇ Storage Facility in Corpus Christi, Texas and two 10,000 barrel
interface tanks at ▇▇▇▇▇▇ ▇▇▇▇▇▇ in Pasadena, Texas, or in transit in the
Pipeline Systems or otherwise in transit to the "Facility" subject to the Other
Lease by vessel (as designated pursuant to Schedule 2.2 Part I) or pipeline
(but, unless Lessor elects otherwise, excluding any located elsewhere), whether
in the possession of Lessor or any other Person and excluding wholesale exchange
imbalances and excluding catalysts, chemicals and precious metals. The
definition of Inventory in this Lease is intended to describe and cover the same
property that is described and covered by the definition of Inventory in the
Other Lease, and it is not intended that Lessor will receive a double purchase
price payment for any item of property included in Inventory.
The terms "knowledge," "known" or words of similar import when used with respect
to Lessee or Lessor shall mean (i) the actual knowledge of any fact,
circumstance or condition by a current officer of such Person and (ii) also, in
the case of Lessor, the actual knowledge of the following Persons: ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, J.
Jeder, and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇. References herein to "actual knowledge" do not
include imputed knowledge.
73
"Law" shall mean any applicable statute, law, ordinance, regulation, rule,
ruling, order, writ, injunction, decree or other official act of or by any
Governmental Body.
"Lease Payments" means the rental payment amounts set forth in Schedule 5.1, as
adjusted pursuant to Section 15.1.
"Lease Year" shall have the meaning given to such term in Section 6.2.
"Leased Property" means (i) the Pipeline Systems, (ii) the Pipeline System
Interests, (iii) the Terminals, (iv) the Terminal Interests, (v) all of the
tangible personal property (or applicable leasehold interest therein in cases
where Lessor owns a leasehold interest) located at the Effective Time at, on or
under the land, the fee or applicable leasehold interest which constitutes part
of the Pipeline System Interests or Terminal Interests (together with Parts
hereafter becoming part of the Leased Property pursuant to Article 11),
including, without limitation, vehicles (other than vehicles covered by a
certificate of title or an application for a certificate of title), machinery,
tools, drawings, plats, files, manuals, computers, parts, furniture and
fixtures, that does not constitute the Inventory or Equipment, (vi) the vehicles
described in Exhibit C, and ( vii) the interests in properties, easements, and
property use rights to be assigned, granted or transferred to Lessee pursuant to
Section 10.3; provided that, the Leased Property shall not include any Excluded
Assets. It understood and agreed that the interests in properties, easements,
and property use rights to be assigned, granted or transferred to Lessee
pursuant to Section 10.3 are appurtenant to and shall run with the Pipeline
System Interests or Terminal Interests to which they respectively relate, and as
such are included as part of the Leased Property.
"Lessor Indemnitees" shall be as defined in Section 17.2.
"Lien" means any lien, pledge, claim, charge, security interest, mortgage, deed
of trust, option or other encumbrance or similar right of any third Person.
"Like-Kind Exchange" shall be as defined in Section 21.14(b).
For purposes of this Lease, an event, action or circumstances shall be deemed to
have a "Material Adverse Effect" on a party to this Lease if any of the
following shall occur:
(a) such event, action or circumstance shall prohibit the
person from leasing the Assets as contemplated hereby or shall prohibit the
person from consummating the sale or purchase, as applicable, of the Assets upon
exercise of the Option;
(b) such event, action or circumstance shall result in a
material adverse effect on the value, or the results of operations, of the
Assets, taken as a whole and as currently operated; or
(c) such event, action or circumstance shall result in a
material adverse change on the financial condition, results of operation or
business of such person together with its Affiliates taken as a whole;
excluding, however, in the case of (b) and (c) above, any effect resulting from
any change in economic, industry or market conditions (whether general or
regional in nature or limited to any area where any Assets are located) or from
any change in Law or regulatory policy.
74
"Mobil San Antonio System" means Lessor's "Mobil San Antonio" products pipeline
system extending from Corpus Christi, Texas to San Antonio, Texas, which was
previously acquired by. Lessor from Mobil Oil Corporation or an Affiliate
thereof and which is not currently in use. The Mobil San Antonio products
pipeline is more specifically identified as the "MS" pipeline in the Coastal
States Crude Gathering Pipeline System Map Book Corpus Christi District (a copy
of said map book having been furnished to Lessee).
"Multiple Line Interests" mean (i) the Pipeline System Interests described in
Part II of the Property Schedule and (ii) any other Pipeline System Interests on
which are currently located a portion of the Pipeline Systems and a portion of
one or more other pipeline systems currently owned by Lessor or any Affiliate of
Lessor.
"Multiple Line Reserved Interests" mean all rights, title and interests in and
to each Multiple Line Interest, except (i) the exclusive right (subject to the
below reserved rights of ingress and egress) to use the portion of such Multiple
Line Interest on which a refined petroleum product pipeline included in the
Pipeline Systems is currently located plus the "agreed distance" on either side
of such refined petroleum product pipeline as currently located, (ii) the
exclusive right (subject to the below reserved rights of ingress and egress) to
use the portion of such Multiple Line Interest on which other portions of the
Pipeline Systems are currently located, and (iii) the non-exclusive right of
ingress and egress over and across the other portions of such Multiple Line
Interest insofar as (a) reasonable and necessary to construct, maintain,
operate, repair, alter, replace, change the size of and remove or abandon any
part of the Pipeline Systems currently located on such Multiple Line Interest
and (b) such ingress and egress does not unduly interfere with the construction,
maintenance, operation, repair, alteration, replacement, change in the size of
or removal or abandonment of any pipeline, equipment or other facilities located
on other parts of such Multiple Line Interest. The Multiple Line Reserved
Interests shall also include the non-exclusive right of ingress and egress over
and across the other portions of each Multiple Line Interest included in the
Leased Property insofar as (a) reasonable and necessary to construct, maintain,
operate, repair, alter, replace, change the size of and remove or abandon any
part of any pipeline (other than the Pipeline System) located on such Multiple
Line Interest and (b) such ingress and egress does not unduly interfere with the
construction, maintenance, operation, repair, alteration, replacement, change in
the size of or removal or abandonment of any pipeline, equipment or other
facilities located on parts of such Multiple Line Interest which are included in
the Leased Property. As used in this definition, the "agreed distance" is the
lesser of ten feet or one-half of the distance between such refined petroleum
product pipeline and the Adjacent Lessor Facilities.
"Notice of Disagreement" shall have the meaning given to such term in
Section 2.2.
"Operating Agreement" means a Interim Operating and Transition Agreement in the
form attached hereto as Exhibit D.
"Option" shall have the meaning given to such term in Section 6.1.
"Option Closing" shall have the meaning given to such term in Section 6.3.
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"Option Closing Date" shall have the meaning given to such term in Section 6.3.
"Option Closing Payment" shall have the meaning given to such term in
Section 6.2.
"Option Notice" shall have the meaning given to such term in Section 6.3.
"OSHA" means the Occupational Safety and Health Act of 1970 and regulations
thereunder.
"Other Lease" means that certain Refinery Lease Agreement of even date with this
Lease between Coastal Refining & Marketing, Inc., as lessor, and Valero Refining
Company-Texas, as lessee, covering a refinery and certain related facilities in
or near Corpus Christi, Texas.
"Other Lease Option" means the "Option" (as defined in the Other Lease).
"Other Leased Property" means the "Leased Property" (as defined in the Other
Lease).
"Other Lessee" means the "Lessee" under the Other Lease.
"Other Lessor" means the "Lessor" under the Other Lease.
"Other Party" shall have the meaning given to such term in Section 19.4.
"Parts" shall have the meaning given to such term in Section 11.3.
"Permitted Encumbrances" shall mean any of the following matters:
(a) all agreements, leases, instruments, documents, liens,
encumbrances, which are described in any Schedule or Exhibit to this Lease;
(b) any (i) undetermined or inchoate liens or charges
constituting or securing the payment of expenses which were incurred incidental
to the conduct of the business or the operation, repair, construction,
improvement or maintenance of the Leased Property and (ii) materialman's,
mechanics', repairman's, employees', contractors', operators' or other similar
liens, security interests or charges for liquidated amounts arising in the
ordinary course of business incidental to the conduct of the business or the
operation, repair, construction, improvement or maintenance of the Leased
Property, securing amounts the payment of which is not delinquent and that will
be paid in the ordinary course of business or, if delinquent, that are being
contested in good faith with any Action to foreclose or attach any of the Leased
Property on account thereof properly stayed; provided, that, the affected party
shall be responsible for, and shall promptly pay when due, all amounts finally
determined to be owed that are the subject of such contest;
(c) any liens for Taxes not yet delinquent or, if delinquent,
that are being contested by Lessor in good faith in the ordinary course of
business with any Action to foreclose or attach any of the Leased Property on
account thereof properly stayed; provided, that, the affected party shall be
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responsible for, and shall promptly pay when due, all amounts finally determined
to be owed that are the subject of such contest, other than amounts which are
the obligation of the other party under Article 13;
(d) any liens or security interests created by Law or reserved
in leases, rights-of-way or other real property interests for rental or for
compliance with the terms of such leases, rights-of-way or other real property
interests, provided payment of the debt secured is not delinquent or, if
delinquent, is being contested in good faith in the ordinary course of business
with any Action to foreclose or attach any of the Leased Property on account
thereof properly stayed; provided, that, the affected party shall be responsible
for, and shall promptly pay when due, all amounts finally determined to be owed
that are the subject of such contest, other than amounts which are the
obligation of the other party under this Lease or the Related Agreements;
(e) all Transfer Requirements;
(f) any titles or rights asserted by any Person to (i)
tidelands, or lands comprising the shores or beds of navigable or perennial
rivers and steams, lakes, bays or other bodies of water, (ii lands beyond the
line of the harbor or bulkhead lines as established or changed by any
Governmental Body, (iii) filled-in lands or artificial islands, (iv) statutory
water rights, including riparian rights, and (v) the area extending from the
line of mean low tide of any body of water to the line of vegetation, or the
rights of access to that area or any easement along or across that area;
(g) all prior reservations of minerals in and under or that
may be produced from any of the lands constituting part of the Leased Property
or on which any of the Leased Property is located, other than mineral
reservations that would be reasonably expected to interfere in a material
respect with the operation of the Facilities as currently operated by Lessor;
(h) all liens (other than liens for borrowed money), charges,
leases, easements, restrictive covenants, encumbrances, contracts, agreements,
instruments, obligations, discrepancies, conflicts, shortages in area or
boundary lines, encroachments or protrusions, or overlapping of improvements,
defects, irregularities and other matters affecting the Leased Property which
individually or in the aggregate are not such as to unreasonably and materially
interfere with or prevent any material operations conducted on the Leased
Property by Lessor in the manner operated on the date of this Lease;
(i) any defect that has been cured by the applicable statutes
of limitations or statutes for prescription;
(j) any defect affecting (or the termination or expiration of)
any easement, right-of-way, leasehold interest, license or other real property
interest which has been replaced by an easement, right-of-way, leasehold
interest, license or other real property interest constituting part of the
Leased Property covering substantially the same rights to use the land or the
portion thereof used by Lessor in connection with Lessor's business conducted on
the Leased Property;
(k) the failure to locate on the ground a "blanket" or similar
easement or right-of-way;
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(l) rights reserved to or vested in any Governmental Body to
control or regulate any of the Leased Property or the business conducted on the
Leased Property and all Laws of such authorities, including any building or
zoning ordinances and all Environmental Laws;
(m) any agreement, contract, lease, easement, instrument,
lien, encumbrance, permit, amendment, extension or other matter entered into by
a party to the Lease in accordance with the terms of this Lease or in compliance
with the approvals or directives of the other party made pursuant to this Lease.
"Permitted Liens" means (i) Liens for current Taxes and assessments not yet due,
(ii) inchoate mechanic and materialmen Liens for construction in progress, (iii)
inchoate workmen, repairmen, warehousemen and carriers Liens arising in the
ordinary course of business or (iv) Liens created by Lessee.
"Person" means any Governmental Body or any individual, firm, partnership,
corporation, joint venture, trust, unincorporated organization or other entity
or organization.
"Pipeline Systems" mean the following tangible personal property:
(a) the refined petroleum products pipeline (the "Houston
System") extending from Lessor's Origin Station adjacent to the refinery covered
by the Other Lease to ▇▇▇▇▇▇'▇ ▇▇▇▇▇▇ terminal, Pasadena (▇▇▇▇▇▇ ▇▇▇▇▇▇)
interface tanks and Hobby terminal, all in ▇▇▇▇▇▇ County, Texas, as more fully
described in Exhibit B-i hereto;
(b) the refined petroleum products pipeline (the "San Antonio
System") extending from Lessor's ▇▇▇▇▇▇▇ ▇▇▇▇ Station adjacent to the refinery
covered by the Other Lease to Lessor's San Antonio terminal in Bexar County,
Texas, as more fully described in Exhibit B-2 hereto;
(c) the refined petroleum products pipeline (the "R.P. Valley
System") extending from Lessor's ▇▇▇▇▇▇▇ ▇▇▇▇ Station adjacent to the refinery
covered by the Other Lease to Lessor's Edinburg terminal in ▇▇▇▇▇▇▇ County,
Texas, as more fully described in Exhibit B-3 hereto; and
(d) the refined petroleum products pipeline segments as more
fully described in Exhibit B-4 hereto;
in each case together with all piping, valves, taps and side valves, regulators,
meters, pumps, station piping and other equipment used exclusively for the
transportation of refined petroleum products through each pipeline system
described above, other than the Excluded Assets.
"Pipeline System Interests" means (i) the easements, rights-of-way, surface
leases, fee interests, and licenses described in Parts I and II of the Property
Schedule and (ii) all right, title and interest of Lessor or an Affiliate of
Lessor in and to any other easements, rights-of-way, surface leases, fee
interests, and licenses on which the Pipeline Systems are currently located,
together with all properties described in the definition of Pipeline Systems
which are real property improvements to the properties described in clauses (i)
and (ii) above rather than tangible personal property; provided that, the
Pipeline System Interests shall not include any Excluded Assets.
"Physical Inventory" shall have the meaning given to such term in Section 2.2.
"Post-Closing Consents" means (i) any consent, approval or permit of, or filing
with or notice to, any
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Governmental Body, railroad company or public utility which has issued or
granted any permit, license, right-of-way, lease or other authorizations
permitting any part of any pipeline included in the Leased Property to cross or
be placed on land owned or controlled by such Governmental Body, railroad
company or public utility and (ii) any consent, approval or permit of, or filing
with or notice to, any third party that is customarily obtained or made after
closing in connection with transactions similar in nature to the transactions
contemplated hereby.
"Post-Closing Liabilities" means Covered Liabilities incurred or imposed as a
result of a Third Party Claim for injury, death or damage to person or property
of or a liability (including a liability for Taxes or a liability related to the
Assigned Contracts) to a Third Party or an Affiliate of Lessee occurring after
the Effective Time to the extent arising out of or attributable to the
ownership, operation, control, construction, maintenance, occupancy, condition
or use of the Leased Property or the Assigned Contracts after the Effective
Time, it being agreed that such injuries, damages, and liabilities which are of
a continuous or ongoing nature and extend over the Effective Time shall be
apportioned between Pre-Closing Liabilities and Post-Closing Liabilities on the
basis of the respective portions of the injury or damage suffered or the
liability accruing before or after the Effective Time; provided, however, that
Post-Closing Liabilities shall not include (i) Covered Liabilities for any
injury, death or damage to person or property of any person, presently or
hereafter employed in the operation of the Leased Property which solely arises
out of and is solely attributable to such person's employment in the operation
of the Leased Property prior to the Effective Time, (ii) any Environmental
Claims and Costs of Compliance, including the Assumed Environmental Claims and
the Retained Environmental Claims, (iii) any employee liabilities covered by
Article 9, and (iv) a Third Party Claim for injury, death or damage to person or
property of or a liability to a Third Party or an Affiliate of Lessee to the
extent resulting from Lessor's or any of its Affiliate's past, present or future
operation and use of Adjacent Lessor Facilities. Post-Closing Liabilities shall
also include the Covered Liabilities which Lessee agrees to indemnify Lessor
against pursuant to Section 2.7. If this Lease expires or is terminated after
the Effective Time for any reason, other than the acquisition of the Leased
Property by Lessee, any Affiliate of Lessee, or any successor or assign of
Lessee or any Affiliate of Lessee, then the Post-Closing Liabilities shall be
limited to any and all Third Party Claims for injury, death or damage to person
or property of or a liability (including a liability for Taxes or a liability
related to the Assigned Contracts) to a Third Party or an Affiliate of Lessee
occurring after the Effective Time to the extent arising out of or attributable
to the ownership, operation, control, construction, maintenance, occupancy,
condition or use of the Leased Property or the Assigned Contracts after the
Effective Time and prior to the expiration or other termination of the Lease,
subject to apportionment as hereinabove provided and to the exclusions from
Post-Closing Liabilities provided in clauses (i), (ii), (iii) and (iv) above;
provided, however, that Post-Closing Liabilities shall include, and Lessee shall
retain, all Covered Liabilities relating to any Assigned Contracts or extended,
renewed or replaced leases which are not assigned back to Lessor pursuant to
Section 1 6.1 and any and all other contracts, agreements, commitments and other
obligations entered into or incurred by Lessee or any of its Affiliates after
the Effective Time.
"Pre-Closing Liabilities" means Covered Liabilities incurred or imposed as a
result of a Third Party Claim for injury, death or damage to person or property
of or a liability (including a liability for Taxes or a liability related to the
Assigned Contracts) to a Third Party or an Affiliate of Lessor occurring prior
to the Effective Time to the extent arising out of or attributable to the
ownership, operation, control, construction, maintenance, occupancy, condition
or use of the Leased Property or the Assigned Contracts prior to the Effective
Time, it being agreed that such injuries, damages, and liabilities which are of
a continuous or ongoing nature and extend over the Effective Time shall be
apportioned between Pre-Closing Liabilities and Post-Closing Liabilities on the
basis of the respective portions of the injury
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or damage suffered or the liability accruing before or after the Effective Time;
provided, however, that Pre-Closing Liabilities shall not include (i) Covered
Liabilities for any injury, death or damage to person or property of any person,
presently or hereafter employed in the operation of the Leased Property which
solely arises out of and is solely attributable to such person's employment in
the operation of the Leased Property on or after the Effective Time, (ii) any
Environmental Claims and Costs of Compliance, including the Assumed
Environmental Claims and the Retained Environmental Claims, (iii) any employee
liabilities covered by Article 9, and (iv) any loss or lack of, or defect in, or
encumbrance against title to any Asset (but not including a liability occurring
prior to the Effective Time as a result of the obligation or claim giving rise
thereto).
"Property Records" means (a) files, books and records related to (i) the
operation, construction, maintenance, or repair of the Assets (including plans
and specifications, operational manuals and operational files) or (ii) any
contracts assigned to Lessee pursuant to the Related Agreements, and (b) title
policies, title files, ownership maps or surveys, deeds, leases, assignments and
other documents relating to the title to the Assets or the title to any
contracts assigned to Lessee pursuant to the Related Agreements; provided,
however, the files, books and records described in (a) or (b) shall not include
any marketing, financial and tax (except property tax) records and any
litigation and other legal department records subject to work product,
attorney-client or other privilege.
"Property Schedule" means Exhibit A attached hereto and made a part hereof.
"Prudent Operating Practices" shall mean those practices, standards, designs,
methods, means, techniques, equipment and acts that are then generally accepted
by the pipeline, petroleum product terminal and/or petroleum products industries
as commonly used in prudent engineering and operations consistent with good
business practices, reliability, safety, efficiency and economy as they may
apply to units of the size and service of the Facilities.
"Purchase Price" shall be as defined in Section 6.2.
"Related Agreements" means (i) the Other Lease, (ii) the ▇▇▇▇ of Sale and
Assignment in form attached hereto as Exhibit 2.11(b)(6), (iii) the Operating
Agreement, (iv) the other agreements or assignments in forms attached hereto as
Exhibit E, and (v) the easements, assignments and agreements contemplated by
Section 10.3.
"Rent" shall have the meaning given to such term in Section 5.3.
"Restriction" shall have the meaning given to such term in Section 2.6(c).
"Retained Employee" shall have the meaning given to such term in Section 9.1.
"Retained Environmental Claims" shall mean (a) Environmental Claims and Costs of
Compliance under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601 et seq., and its Texas
counterpart or any other Environmental Law, for the disposal of hazardous
substances generated and transported to any off-site disposal facilities prior
to the Effective Time; (b) bodily injury and property damage Covered Liabilities
for exposure to or contamination by Hazardous Materials, arising from Lessor's
or its Affiliate's operation and use of the Leased Property prior to the
Effective Time, (c) Environmental Claims and Costs of Compliance with respect to
any written judgment, order, consent decree or notice of violation from any
Governmental Body related to
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the Leased Property that has not been disclosed to Lessee prior to the date of
this Lease, and (d) Environmental Claims and Costs of Compliance (other than
"Assumed Environmental Claims" under the Other Lease) to the extent resulting
from the presence of Hazardous Materials on the Leased Property as a result of
Lessor's or any of its Affiliates' past, present or future operation and use of
Adjacent Lessor Facilities; provided that Retained Environmental Claims shall
not include any Environmental Claims and Costs of Compliance to the extent
resulting from (i) the aggravation of the Environmental Activities regarding
such Hazardous Materials as a result of operation and use of the Assets after
the Effective Time by any Person (other than Lessor or its Affiliates or any
Person acting on behalf of Lessor or its Affiliates) or (ii) the presence of
Hazardous Materials on any property as a result of operation and use of the
Assets after the Effective Time by. any Person (other than Lessor or its
Affiliates or any Person acting on behalf of Lessor or its Affiliates).
"Returns" shall have the meaning given to such term in Section 7.5.
"Service Termination Date" shall have the meaning given to such term in
Section 9.1.
"Special Warranty Conveyance" means, collectively, Assignments and Conveyances
and Bills of Sale from Lessor, as grantor or assignor, to Lessee, as grantee or
assignee, covering the Leased Property and in the forms attached hereto as Parts
I, II, III and IV of Exhibit 6.3.
"Supplemental Rent" shall have the meaning given to such term in Section 5.2.
"Tax Code" means the Internal Revenue Code of 1986, as amended from time to
time, together with all regulations promulgated thereunder.
"Taxes" means all foreign, federal, state, provincial, local and other taxes,
charges, fees, duties, levies, imposts, customs or other assessments, including
all net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, profit share, license, lease, service, service use, value
added, withholding, payroll, employment, unemployment, disability, social
security (or similar), registration, excise, estimated, severance, stamp,
occupation, premium, real property, personal property, windfall profits,
environmental, alternative or add-on minimum, or other taxes, fees, assessments,
customs, duties, levies, imposts, or charges of any kind whatsoever, together
with any interest, penalties, additions to tax, fines or other additional
amounts imposed thereon or related thereto, and the term "Tax" means any one of
the foregoing Taxes.
"Term" shall have the meaning given to such term in Section 4.1.
"Terminal Interests" means (i) the fee parcels described in Part III of the
Property Schedule, together with the improvements to real property located
thereon, and (ii) the leasehold interests described in Part III of the Property
Schedule, together with fee or leasehold interests in the improvements to real
property located on such leasehold interests; provided that, the Terminal
Interests shall not include any Excluded Assets
"Terminals" mean the facilities constituting tangible personal property that are
located on the land covered by the Terminal Interests, including those
facilities at the ▇▇▇▇▇▇ Terminal specifically described in Part IV of the
Property Schedule; provided that, the Terminals shall not include any Excluded
Assets. In instances where such facilities are located on a leased Terminal
Interest, such facilities are subject to the rights of the lessor under the
lease of such Terminal Interest.
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"Third Party" means a Person which is not (i) Lessor or an Affiliate of Lessor,
(ii) Lessee or an Affiliate of Lessee, or (iii) a Person that, after the
Effective Time, becomes a successor entity of Lessee, Lessor, or any of their
respective Affiliates. An employee of Lessor or Lessee shall not be deemed an
Affiliate thereof.
"Third-Party Claim" means (i) any written claim or Action asserted against an
Indemnitee by a Third Party, (ii) any written assertion by a Third Party of any
right of a Third Party against an Indemnitee, or (iii) any written allegation,
claim or assertion by a Third Party of Covered Liabilities of, or amounts
payable by an Indemnitee to, a Third Party arising out of clauses (i) or (ii).
"Title Policy" shall have the meaning given to such term in Section 6.3.
"Transfer Requirement" shall mean any consent, approval, authorization or permit
of, or filing with or notification to, any Person which is required to be
obtained, made or complied with for or in connection with any sale, assignment,
transfer or encumbrance of any Asset or any interest therein.
"Transferred Employee" shall have the meaning given to such term in Section 9.1.
"Work" shall have the meanings given to such term in Sections 15.1 and 15.2.
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