Exhibit 10.3

ALON USA, LP

7616 LBJ Freeway, Suite 300

Dallas, Texas 75251

 

Re:    Third Letter Agreement with Respect to Ethanol Offloading, Storage and
Blending Facilities to be Constructed and Ethanol Offloading, Storage and
Blending Services to be Provided Under the Pipeline and Terminals Agreement (as
such agreement has been amended and supplemented through the date hereof, the
“Agreement”) entered into on February 28, 2005, between Holly Energy Partners,
L.P. (“HEP”) and ALON USA, LP (“ALON”)

Ladies and Gentlemen,

As you are aware, ALON has requested that HEP provide certain ethanol
offloading, storage and blending services under the Agreement to ALON at HEP’s
Refined Products Terminals located in Abilene, Texas and Wichita Falls, Texas.
Such services, which are more fully described in Exhibit 1 hereto (the
“Services”), constitute additional ancillary services under Section 2(c) of the
Agreement for which the parties have agreed upon additional fees and rates as
set forth herein. HEP will incur capital expenditures to modify existing
equipment and facilities and to construct additional equipment and facilities
necessary to provide such services to ALON at the Refined Products Terminals.
The purpose of this letter agreement (this “Third Letter Agreement”) is to
supplement the Agreement by memorializing the agreement between HEP and ALON
with respect to the construction and operation of the equipment and facilities
HEP will use to provide the Services to ALON, the fees that ALON will pay to HEP
with regard to the use of such Services, equipment and facilities, and the other
matters set forth herein. Capitalized terms used in this Third Letter Agreement
that are not otherwise defined herein shall have the meaning given to them in
the Agreement. Now, therefore, HEP and ALON agree as follows:

1. Construction. HEP agrees to modify existing equipment and facilities and to
construct, or cause to be constructed, additional equipment and facilities at
the Refined Products Terminals as described in Exhibit 1 hereto (the
“Facilities”). During construction and following the date upon which
construction is completed and the Facilities are ready for use (the “Completion
Date”), HEP or one of its Affiliates shall own the Facilities (subject to the
provisions of the Agreement, including the second sentence of Section 2(b)(i)
thereof) and, following the Completion Date, will operate and maintain them in
accordance with applicable law and recognized industry standards.

2. Volume Commitment and Fees.

(a) Minimum Volume Commitment. Commencing on the Completion Date, ALON will
utilize the Facilities and the Services with regard to volumes of ethanol equal
to or greater than 1,000 bpd (the “Minimum Ethanol Volume Commitment”) applied
on a quarterly basis as set forth in Section 3 of this Third Letter Agreement.

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(b) Volume Measurement. For the purposes of measuring the volumes of ethanol
applied to the Minimum Ethanol Volume Commitment, calculating the fees due under
this Third Letter Agreement and any additional terminalling fees due with
respect to such volumes of ethanol under Section 3(c) of the Agreement, the
volume shall be the volume of ethanol received into the Refined Products
Terminals.

(c) Adjustment for HEP Operational Difficulties. Without prejudice to any other
remedy available to ALON, if for any period of time ALON is unable, because of
HEP’s operational difficulties, to utilize the Services in the volumes that are
required to meet the Minimum Ethanol Volume Commitment and for which ALON is
ready, willing and able to utilize the Services with respect to such volumes,
then the Minimum Ethanol Volume Commitment will be reduced for such period of
time by the volume of ethanol for which ALON is unable to utilize the Services
as reasonably determined and communicated by ALON to HEP in writing from
time-to-time during such period. The parties agree that no discount rates, as
provided in Section 2(a)(v) of the Agreement, shall apply to the Minimum Ethanol
Volume Commitment.

(d) Ethanol Rate. The initial fee for the Services shall be $1.85 per barrel of
ethanol received into the Refined Products Terminals (the “Ethanol Rate”);
provided, however, that (i) the Ethanol Rate shall be lowered to $1.00 per
barrel upon the earlier to occur of (A) the receipt of at least 1,825,000
barrels of ethanol in the aggregate, or (B) the date that is five (5) years from
the Completion Date, and (ii) the Ethanol Rate is subject to further and
additional adjustment as provided in Section 2(e) of this Third Letter
Agreement. For the sake of clarity, the volume of ethanol loaded across the
loading rack at a Refined Products Terminal will be included in calculating
terminalling fees under Section 3(c) of the Agreement, and the fees payable
under this Third Letter Agreement are in addition to such terminalling fees.

(e) Adjustments to the Ethanol Rate. The Ethanol Rate shall be adjusted on [July
1] of each calendar year commencing on [July 1,] 2012, by an amount equal to the
upper change in the annual change rounded to four decimal places of the PPI. The
change factor shall be calculated as follows: annual PPI index (most current
year) less annual PPI index (most current year minus 1) divided by annual PPI
index (most current year minus 1). An example of the formula for the 2010 change
is [PPI (2009) – PPI (2008)] / PPI (2008)]. If the PPI index change is negative
in a given year then there will be no change in the Ethanol Rate. If the PPI is
no longer published, then HEP and ALON shall negotiate in good faith to agree on
a new index that gives comparable protection against inflation, and the same
method of adjustment for increases in the new index shall be used to calculate
increases in the Ethanol Rate. If ALON and HEP are unable to agree, a new index
will be determined by binding arbitration in accordance with Section 21(g) of
the Agreement, and the same method of adjustment for increases in the new index
shall be used to calculate increases in the Ethanol Rate.

3. Activity Notice, Billing, and Payment.

(a) Activity Notice. HEP shall include in each Activity Notice delivered to ALON
under the Agreement the following information:

 

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(i) the total volume of ethanol received using the Facilities during the
Contract Quarter to which such Activity Notice relates (the “Total Ethanol
Volume”) together with the total revenues attributable to such volumes (the
“Total Ethanol Revenue”);

(ii) a statement of the amount by which the Total Ethanol Volume was greater
than or less than (such deficiency being the “Deficient Ethanol Volume”) the
Minimum Ethanol Volume Commitment multiplied by the actual number of days in
such Contract Quarter (the “Quarterly Minimum Ethanol Volume”);

(iii) the revenue due to HEP with respect to any Deficient Ethanol Volume (the
“Deficient Ethanol Revenues”), which shall be calculated by multiplying the
Deficient Ethanol Volume by the Ethanol Rate applicable to such volumes (as
adjusted pursuant to the provisions of this Third Letter Agreement) had they
been received using the Facilities;

(b) Billing Statement. Amounts due from ALON to HEP under this Third Letter
Agreement, including any Deficient Ethanol Revenues, shall be included in the
monthly Statement and paid in accordance with the provisions of the Agreement.

(c) No Offset; No Carry-Over. The amounts due under this Third Letter Agreement
shall not be considered in calculating any Total Deficient Revenues, Total
Excess Revenues, Total Revenues or Net Excess Revenues in Section 15 of the
Agreement, and ALON shall not be permitted to offset any amounts it owes with
respect to its use of the Facilities or the Services against any other amounts
owed to it by HEP. No amounts of excess revenue or volume attributable to ALON’s
use of the Facilities or Services and no Deficient Ethanol Volume, Deficient
Ethanol Revenues, Total Ethanol Volume or Total Ethanol Revenue with respect to
any Contract Quarter shall be considered in calculating the Deficient Ethanol
Volume, Deficient Ethanol Revenues, Total Ethanol Volume or Total Ethanol
Revenue for any subsequent Contract Quarter or the amounts due from ALON with
respect to any such subsequent Contract Quarter.

(d) Survival. The obligation of ALON to pay the amounts due hereunder with
respect to the Minimum Ethanol Volume Commitment shall survive the termination
of the Agreement until such time as HEP shall have received aggregate payments
hereunder equal to $3,376,250.

4. Other Matters.

(a) Exclusion from Section 14. The parties agree that the Facilities shall not
be considered “Capital Improvements” under Section 14 of the Agreement, and ALON
shall not be required to make payment to HEP of any Monthly Capital Construction
Amount with regard to the Facilities.

(b) Addendum and Supplement. The parties agree that this Third Letter Agreement
shall constitute an addition and supplement to the Agreement regarding the
matters set forth herein and therefore shall be in effect for the Initial

 

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Term and any Renewal Term. The terms of this Third Letter Agreement, and the
Exhibits hereto, are incorporated into the Agreement.

(c) Counterparts. This Third Letter Agreement may be executed in two or more
counterparts, each of which, when delivered (which deliveries may take place by
facsimile or electronic mail) shall be deemed an original, but all of which
shall constitute one and the same instrument

[Signatures appear on the following page.]

 

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IN WITNESS WHEREOF, this Third Letter Agreement has been executed as of the date
first written above by the undersigned:

 

HEP: Holly Energy Partners, L.P. By:  

Holly Logistics Holdings, L.P.

General Partner

  By:  

Holly Logistic Services, L.L.C.,

General Partner

  By:  

 

  Name:  

 

  Title:  

 

ALON: ALON USA, L.P. By:   ALON USA GP, LLC, General Partner   By:  

 

  Name:  

 

  Title:  

 

 

[SIGNATURE PAGE TO THIRD LETTER AGREEMENT]

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EXHIBIT 1

Description of Services:

Ethanol offloading, storage and blending capabilities at Abilene and Wichita
Falls Terminals. Ethanol offloading will be allowed from the hours of 7am to 4pm
on normal business days. Each terminal modification constructed will be capable
of receiving an average of 750 barrels of ethanol per calendar day.

Description of Equipment and Facilities to be Constructed:

 

  a. The scope of work at the Abilene Terminal includes: installation of a new
single lane ethanol unloading rack south of the existing tank containment
complete with unloading skid consisting of a pump, piping, positive displacement
meter and sump with pump; installation of tank pad, foundation and containment
for a new 30,000 barrel diesel tank along with tank valves, level switches and a
level transmitter; installation of fill piping from the unloading facility to
existing Tank 103, modification of existing Tank 103 pump piping to extend its
discharge to the existing loading manifold area and tie in to existing premium
and regular loading lines to the existing rack, extension of existing Tank 103
fill line to the new tank, installation of a suction line to a new product
loading pump outside the new tank containment and installation of a discharge
line from the new tank pump to tie in to the discharge line from Tank 103;
installation of electrical facilities to power the unloading system and the new
tank product pump; and installation of controls for the unloading skid and the
new tank level switches and transmitter.

 

  b. The scope of work at the Wichita Falls Terminal includes: installation of a
new single lane ethanol unloading rack extension east of the existing loading
racks complete with unloading skid consisting of a pump, piping and positive
displacement meter along with extension of the existing transmix arm;
installation of fill piping from the unloading facility to existing Tank 5 via
an existing 4” under road pipe section, installation of a new suction piping
from Tank 5 to the new ethanol loading pumps via an existing 8” under road pipe
section, installation of discharge piping from the new ethanol pumps to the
existing loading manifold area and tie in to two (2) each existing premium and
regular loading lines to the existing rack, extension of the existing transmix
loading line to the new rack extension along with relocation of the loading arm
for same, extension of the existing fire suppression header to the new rack,
extension of the vent line to the new rack, and tie in of rack extension drain
to existing rack drain; installation of electrical facilities to power the
unloading system and the ethanol loading pumps; and installation of controls for
the unloading skid and ethanol loading pumps.

 

[EXHIBIT 1 TO THIRD LETTER AGREEMENT]