ASSET PURCHASE AGREEMENT

                                  By and Among

                      TESORO REFINING AND MARKETING COMPANY

                                       and


                   KANEB PIPE LINE OPERATING PARTNERSHIP L.P.

                                   Dated as of

                                November 21, 2002



                                 Relating to the

                                Purchase and Sale

               of the Tesoro Northern Great Plains Product System




<PAGE>
                                    EXHIBITS






EXHIBIT                             DESCRIPTION
-------            -------------------------------------------------------------
  A                Form of Technology Agreement
  B                Form of Deeds for the Terminal Real Property
  C                Form of Assignment of Pipeline Agreements
  D                Form of Easement
  E                Mandan Pump Station Ground Lease
  F                Form of Pipeline Capacity Lease
  G                Form of Transition Services Agreement
  H                Form of Lease Agreement (Seller Office Space)
  I                Form of Assignment of Lease
  J                Form of Continuing Covenants Agreement
  K                Form of Terminal Capacity Lease - Jamestown Terminal
  L                Inventory Closing Procedure
  M                Seller Guaranty
  N                Form of Bill of Sale, Assignment, Transfer And Conveyance


<PAGE>
                                    SCHEDULES




SCHEDULE                                DESCRIPTION
--------               ---------------------------------------------------------


  1                     Description of Pipelines
 1(a)                   Pipeline Agreements and Real Property
 1(b)                   Improvements
 1(c)                   Terminal Personal Property Assets
 1(d)                   Terminal Real Property
 1(e)                   Personal Property
 1(i)                   Permits
 2(c)                   Excluded  Assets  Related to Support and Other  Services
                        Provided to the Pipeline Interest by the Seller
 2(i)                   Excluded Assets Not Owned by Seller
 2(j)                   Excluded Technology
 2(r)                   Other Excluded Assets
 2(s)                   Non-Assignable Rights and Obligations of Seller
 2(v)                   Affiliate Contracts to be Assumed by Buyer
6(f)(1)                 Real Property Fee Interests
6(f)(2)                 Real Property Exceptions
6(f)(3)                 Third Party Rights to Terminal Property
 6(h)                   Leased Machinery and Equipment
 6(k)                   Actions and Proceedings Against Seller
 6(l)                   Excluded Assets Needed to Operate Pipeline Interest
 6(o)                   Material Contracts
 6(q)                   Delinquent or Disputed Taxes
 6(r)                   Statement of 2002 Terminal Liftings
 6(s)                   Employee Benefit Plans
 7(a)                   Disclosed Environmental Liabilities
 7(b)                   Underground Storage Tanks
 7(c)                   Environmental Reports
10(c)(ii)(A)(II)        Matters to be Remedied by Seller
 11(a)                  Employees




<PAGE>


                              INDEX OF DEFINITIONS

Definitions                                                    Section Number
--------------------------------------------              ----------------------
Adverse Economic Effect                                   10(c)(ix)(A)
Affiliate                                                 37
Agreement                                                 Introductory Paragraph
Assumed Liabilities                                       4(a)
Buyer                                                     Introductory Paragraph
Buyer Environmental Liabilities                           4(c)(iv)
Buyer Indemnified Parties                                 15(b)
Casualty                                                  10(c)(ix)(A)
CERCLA                                                    4(c)(ii)
Closing                                                   5(a)
Closing Date                                              5(a)
Code                                                      5(b)(v)
Confidentiality Agreement                                 10(a)(i)
Data                                                      10(a)(i)
Disclosed Environmental Liabilities                       7(a)
Effective Date                                            Introductory Paragraph
Employees                                                 11(a)
Employment Sites                                          6(s)(viii)
Environmental Access Agreement                            10(c)(viii)
Environmental Liabilities                                 4(c)(i)
Environmental Permits                                     1(i)
ERISA                                                     6(s)(iii)
Excluded Agreements                                       15(d)
Excluded Assets                                           2
Health, Safety and Environmental Laws                     4(c)(ii)
HSR Act                                                   5(a)
Improvements                                              1(b)
Indemnification Notice                                    15(e)
Indemnified Party                                         15(e)
Indemnifying Party                                        15(e)
Knowledge                                                 6
Leave                                                     11(a)
Losses                                                    15(m)
Material Contracts                                        6(o)(i)
Permits                                                   1(i)
Permitted Liens                                           6(f)
Person                                                    6(c)
Personal Property                                         1(e)
Pipeline Agreements                                       1(a)
Pipeline Interest                                         Recitals
Pipelines                                                 1
Plans                                                     6(s)(iii)
Product Inventory                                         10(c)(x)
Purchase Price                                            3(c)(i)
Purchased Assets                                          1
Real Property                                             1(a)
Repair Period                                             10(c)(ix)(B)
Retained Liabilities                                      4(b)
Schedules                                                 32
Seller                                                    Introductory Paragraph
Seller Entity                                             6(s)(iii)
Seller Entities                                           6(s)(iii)
Seller Environmental Liabilities                          4(c)(iii)
Seller Indemnified Parties                                15(a)
Seller Information                                        10(b)(i)(B)
Severance Plan                                            11(h)
Taxes                                                     4(B)(ii)
Technology Agreement                                      1(j)
Terminal Assets                                           1(c)
Terminal Real Property                                    1(d)
Third Party Claim                                         15(f)(i)
Third Party Estimate                                      10(c)(ix)(C)
Transferred Employees                                     11(b)
WARN Act                                                  11(i)
WARN Obligations                                          11(i)

<PAGE>
                            ASSET PURCHASE AGREEMENT



     This  ASSET  PURCHASE  AGREEMENT  for  the  purchase  and  sale  of  assets
("Agreement"), is made and entered into as of November 21, 2002, (the "Effective
Date")  by and  between  Tesoro  Refining  and  Marketing  Company,  a  Delaware
corporation  ("Seller"),  and Kaneb  Pipe Line  Operating  Partnership  L.P.,  a
Delaware Limited Partnership ("Buyer").

                                   WITNESSETH:

     WHEREAS,  upon and subject to the terms and  conditions of this  Agreement,
Seller  wishes to sell its  interest in the assets  constituting  those  certain
pipelines, terminals and related assets and certain liabilities, each as further
described in Sections 1 and 4 (collectively, the "Pipeline Interest") located in
North Dakota and Minnesota,  and used to transport petroleum products, and Buyer
wishes to  purchase  such  assets  and to assume  certain  liabilities  relating
thereto,  in each case upon the terms and  subject to the  conditions  set forth
herein;

     WHEREAS,  concurrently  with the execution and delivery of this  Agreement,
Seller is causing Tesoro Petroleum Corporation to execute and deliver to Buyer a
Guaranty in the form  attached  hereto as Exhibit M, which  guarantees  Seller's
performance under this Agreement;

     NOW, THEREFORE, in consideration of the mutual promises made herein and for
other good and valuable consideration,  the receipt and sufficiency of which are
hereby  expressly  acknowledged,  and subject to the conditions  hereinafter set
forth, the parties hereto agree as follows:

     1.  PURCHASE  AND SALE OF THE PIPELINE  INTEREST.  Subject to the terms and
conditions of this Agreement,  Seller agrees to sell, assign,  convey,  transfer
and  deliver to Buyer at the  Closing,  and Buyer  agrees to  purchase  and take
assignment  and  delivery  from  Seller at the  Closing of all right,  title and
interest in and to all of the assets that  constitute,  or are used primarily in
connection with,  Seller's  Northern Great Plains Products System as it has been
operated  by  Seller  during  the   immediately   preceding   five  (5)  months,
(collectively,   the  "Purchased  Assets"),  whether  real,  personal  or  mixed
property, including, but not limited to, all right, title and interest in and to
the following  described  assets related to the ownership and operation of those
certain  8",  10"  and   railroad   pipelines   described  in  Schedule  1  (the
"Pipelines"), SAVE AND EXCEPT the Excluded Assets:

     (a)  all real property interests  associated with the Pipelines,  including
          any fee interests and appurtenances thereto (the "Real Property"), and
          all  easements,  rights-of-way,  permits,  licenses,  leases and other
          rights of access  or use  relating  to the  Pipelines  (the  "Pipeline
          Agreements"),  including without limitation those further described in
          Schedule 1(a);

     (b)  all improvements,  structures,  fixtures and facilities located in, on
          or under, and appurtenances to, the Real Property  described in clause
          (a) above and clauses (f) and (g) below including  without  limitation
          the Pipelines and all  buildings,  pump stations and facilities of any
          kind,  and  all  lateral  pipelines,  described  in  Schedule  1(b) or
          otherwise   associated   with   the   Pipelines   (collectively,   the
          "Improvements");

     (c)  all personal  property  constituting  and located at the  distribution
          terminals,  including all loading racks, equipment and spare parts and
          equipment,  located in Jamestown,  North Dakota; Moorhead,  Minnesota;
          Sauk Centre,  Minnesota; and Roseville,  Minnesota,  including in each
          case the items more  particularly  described on Schedule 1(c) attached
          hereto (the "Terminal Assets");

     (d)  all real property on which the Terminal Assets are situated  including
          the  real  property  more  particularly  described  on  Schedule  1(d)
          attached  hereto,  including  the  improvements  to such real property
          together  with all  appurtenances  thereto and  fixtures  thereon (the
          "Terminal Real Property");

     (e)  to the extent the same do not constitute Improvements or Terminal Real
          Property,  any and all  fittings,  cathodic  protection  ground  beds,
          rectifiers,  other cathodic or electric protection devices, machinery,
          equipment,   pumps,  pump  engine  fuel,   engines,   pipes,   valves,
          connections,  gates,  scraper traps and extenders,  telecommunications
          facilities and equipment,  lines, wires, computer hardware,  vehicles,
          and all other personal  property used primarily in connection  with or
          necessary for the ownership and operation of the Pipelines or Terminal
          Assets including, without limitation, the assets described in Schedule
          1(e) (collectively, the "Personal Property");

     (f)  subject to and in  accordance  with an easement  substantially  in the
          form  attached  hereto  as  Exhibit  D,  an  easement  for  operation,
          monitoring,  control, maintenance,  repair, removal and replacement of
          (A) a railroad  pipeline and related  pumps and  equipment and (B) the
          10" pipeline, at, in and under Seller's Mandan, North Dakota refinery;
          and

     (g)  a Ground Lease for the land  surrounding  the pump station for the 10"
          pipeline at the Seller's Mandan,  North Dakota refinery  substantially
          in the form attached hereto as Exhibit E;

     (h)  subject to Section  10(c)(ii),  the rights and  obligations  of Seller
          under  the  agreements,   contracts,   leases,  licenses  and  similar
          instruments  relating  to the  Pipeline  Interest  including,  without
          limitation, those certain contracts listed in Schedule 6(o);

     (i)  all assignable or transferable  permits or licenses of Seller from any
          federal,  state or local  regulatory  agencies which are necessary for
          and  used in  connection  with  the  ownership  and  operation  of the
          Pipeline  Interest  as it has  been  operated  by  Seller  during  the
          immediately  preceding five (5) months (excluding Pipeline Agreements)
          (collectively,  the "Permits"),  including,  without  limitation,  the
          Permits   described   in  Schedule   1(i)  and  any  other   approval,
          registration,  authorization,  certificate,  certificate of occupancy,
          consent,  exemption,   license,  order  or  permit  or  other  similar
          authorization of or filing with any governmental authority required by
          applicable Health, Safety and Environmental Laws in effect on or prior
          to the Closing Date, as they are enforced with respect to the Pipeline
          Interest,  for the ownership or operation of the Pipeline  Interest as
          it has been operated by Seller during the  immediately  preceding five
          (5) months (collectively, the "Environmental Permits");

     (j)  subject to and in accordance with the Technology  Transfer and License
          Agreement attached hereto as Exhibit A (the "Technology Agreement"), a
          nonexclusive,  royalty-free  license  to use in  connection  with  the
          operation of the Pipeline  Interest as it has been  operated by Seller
          during the immediately  preceding five (5) months certain  technology,
          software,  know-how  and  proprietary  information  owned  by  Seller,
          whether patented or unpatented,  as more specifically described in the
          Technology Agreement;

     (k)  all operating records and data owned by or in possession of Seller and
          relating  primarily to or necessary  for the operation of the Pipeline
          Interest  as it has been  operated  by Seller  during the  immediately
          preceding  five (5) months,  including  all books,  records,  cost and
          pricing information,  accounting records,  supplier lists and records,
          training  materials and equipment,  training records,  maintenance and
          inspection  reports,  copies of employment records for the Transferred
          Employees  (including  without  limitation  drug and alcohol  plan and
          employee  testing records as required by the United States  Department
          of  Transportation),  equipment lists, repair notes and archives (both
          hard and electronic copies, if available but excluding  e-mails),  but
          provided that Seller may retain copies of such records and data;

     (l)  subject to Section  10(c)(ii)  and in accordance  with the  Technology
          Agreement,  all assignable or transferable  technical drawings,  (both
          hard and electronic copies, if available) owned by or in possession of
          Seller or located at the Purchased Assets and relating primarily to or
          necessary  for the  operation of the Pipeline  Interest as it has been
          operated by Seller during the  immediately  preceding five (5) months,
          but provided that Seller may retain copies of such drawings; and

     (m)  all other assignable or transferable active operating assets, owned or
          leased by, or licensed to or used by Seller and used  primarily  in or
          necessary  for the  operation of the Pipeline  Interest as it has been
          operated by Seller during the immediately preceding five (5) months;

provided  that the  Purchased  Assets  shall not  include the  Excluded  Assets.


     2. EXCLUDED  ASSETS.  The Purchased  Assets shall not include the following
assets,  each of which is specifically  excluded from the Purchased Assets being
sold hereunder (collectively, the "Excluded Assets"):


     (a)  cash  and  cash  equivalents   (including  marketable  securities  and
          short-term investments);

     (b)  accounts and notes receivable accruing for goods and services provided
          before 12:01 a.m., Central Time, on the Closing Date;

     (c)  employee and other records (including employee,  personnel and medical
          records)  necessary to administer  salaried  payrolls and benefits for
          Seller  employees  other than the Employees and welfare plans retained
          by Seller and tax returns,  assets related to certain support services
          provided  by the  Seller to the  Pipeline  Interest  as  described  on
          Schedule 2(c) attached hereto and certain other  specified  assets not
          used  primarily  in or  necessary  for the  operation  of the Pipeline
          Interest as described on Schedule 2(c) attached hereto;

     (d)  tax refunds relating to the Purchased  Assets,  accruing to or for any
          period, or portion thereof, ending prior to the Closing Date;

     (e)  all financial and/or accounting  forecasts,  reports,  data, financial
          information  and/or  financial   statements  and  all  copies  of  and
          subscriptions to third-party reports;

     (f)  all proprietary  manuals (except rights to use manuals specific to and
          necessary  for the  operation of the Pipeline  Interest as it has been
          operated by Seller during the  immediately  preceding five (5) months)
          prepared  by or used by  Seller  to the  extent  not  relating  to the
          Pipeline Interest;

     (g)  except as otherwise  expressly  provided in the Technology  Agreement,
          all proprietary computer systems and software of Seller;

     (h)  defenses and claims that Seller could assert  against  third  parties,
          except  claims which Seller could assert on account of matters or acts
          as to which Buyer has agreed to assume  liability or matters for which
          Buyer  is  entitled  to be  indemnified  by  Seller  pursuant  to this
          Agreement;

     (i)  the assets, property improvements,  appurtenances, fixtures, equipment
          and  goods  located  at the  Purchased  Assets  which are not owned by
          Seller as described in Schedule 2(i);

     (j)  except as otherwise expressly provided in the Technology Agreement and
          to  the  extent  not  otherwise  excluded,   proprietary  information,
          intellectual   property  (including  patents,   inventions  and  trade
          secrets,  in each case, whether patentable or not, and copyrights) and
          technology  of Seller that either (i) was not used in the operation of
          the  Pipeline  Interest as it has been  operated by Seller  during the
          immediately  preceding  five (5)  months  or that (ii) was used in the
          operation of the Pipeline  Interest  (other than for the control room)
          during the preceding  five months but is not  otherwise  assignable by
          Seller, as described in Schedule 2(j);

     (k)  all  service  marks,  trademarks,  trade  names,  trade dress or other
          indicia of origin of Seller and variants thereof;

     (l)  all books,  documents,  records and files prepared in connection  with
          the  transactions  contemplated  by  this  Agreement,  including  bids
          received  from other  parties and analyses  relating in any way to the
          Purchased Assets, the Assumed Liabilities and the Pipeline Interest;

     (m)  all rights of Seller under or pursuant to this Agreement and the other
          agreements and transactions contemplated hereby;

     (n)  any  assets,  properties  and rights of Seller  which both (i) are not
          used  primarily  in or  necessary  for the  operation  of the Pipeline
          Interest  as it has been  operated  by Seller  during the  immediately
          preceding  five (5) months and (ii) are not  located at the  Purchased
          Assets;

     (o)  except  as  otherwise  provided  in  the  Technology  Agreement,   all
          telecommunications   facilities  and  equipment,   lines,  wires,  and
          computer  hardware  being used in  connection  with the  operation  of
          Seller's  Mandan,  North Dakota  refinery  and Seller's  Montana/North
          Dakota crude oil pipeline;

     (p)  except as otherwise  expressly  provided in the Technology  Agreement,
          the  pipeline  control  center  equipment,  and related  computer  and
          communications equipment located at the Roseville, Minnesota terminal;

     (q)  except as otherwise  expressly  provided in the Technology  Agreement,
          all  financial  and  accounting  software and  hardware  being used by
          Seller in connection with the Pipeline Interest;

     (r)  the  assets,   property  and  property  improvements,   appurtenances,
          fixtures,  equipment,  goods and rights  owned by Seller and listed on
          Schedule 2(r) attached hereto;

     (s)  the rights and obligations of Seller under any agreements,  contracts,
          leases,  licenses and similar instruments that do not relate primarily
          to the Pipeline  Interest or are not assignable by Seller as set forth
          on Schedule  2(s)  attached  hereto,  including but not limited to the
          terminaling and throughput agreements with Amoco Oil Company;

     (t)  Any rights  and  obligations  of Seller  under  collective  bargaining
          agreements;

     (u)  any rights under or amounts  payable to Seller or its affiliates  from
          present  or former  insurance  policies  of  Seller or its  affiliates
          applicable to the Pipeline Interest;

     (v)  all   arrangements,    contracts,   agreements,    understandings   or
          commitments,  whether written or oral, by and among the Seller and its
          affiliates (except those listed on Schedule 2(v) which will be assumed
          by Buyer),  it being  understood and agreed to by Seller that all such
          arrangements,  contracts,  agreements,  understandings  or commitments
          affecting  the Pipeline  Interest  will be  terminated  on or prior to
          Closing;

     (w)  subject  to  Section  10(c)(x),   all  petroleum  products  and  other
          hydrocarbons,  including without  limitation all line fill,  additives
          and  hydrocarbon  inventories in the Pipelines and the Terminal Assets
          excluding,  however,  pump engine fuel which is part of the  Purchased
          Assets; and

     (x)  all real  property  and  structures,  fixtures and  equipment  located
          within the plot plan for Seller's Mandan,  North Dakota refinery,  (i)
          except to the extent  provided under the Easement  attached  hereto as
          Exhibit  "D" or the Lease  attached  hereto as Exhibit  "E",  and (ii)
          except for the fixtures,  equipment and structures  listed on Schedule
          1(b);,

To the extent that any Excluded  Assets  remain  located at the  Pipelines,  the
Terminal  Assets,  the Terminal  Real Property or any other owned or leased real
property constituting part of the Purchased Assets after the Closing Date, Buyer
shall grant to Seller and its representatives reasonable access to such property
from and after the Closing  Date for a  reasonable  period of time not to exceed
180 days,  in order to permit  Seller and such persons to review and remove such
Excluded  Assets  and make  any  other  appropriate  arrangements  with  respect
thereto.  Seller  agrees  that  it will  give  Buyer  written  notice  at  least
forty-eight  (48) hours in advance of taking any such  actions  (other  than the
removal  of  petroleum  products  and  hydrocarbons  in the  ordinary  course of
business) following the Closing Date with a view towards establishing a mutually
agreeable  plan for such  review  and  removal so that  these  actions  will not
unreasonably interfere with the normal operation of the Pipeline Interest.

     3. PURCHASE PRICE.


     (a)  Purchase Price. In consideration for the Purchased Assets, Buyer shall
          pay, transfer and undertake to Seller as follows:

          (i)  Buyer shall pay to Seller a price of one hundred  million dollars
               ($100,000,000.00),   adjusted   as   provided   in  Section   16,
               representing  the agreed upon value of the Purchased Assets as of
               the Closing Date (the "Purchase Price"); and

          (ii) Buyer shall  assume and agree to pay and  perform  and  discharge
               when due the  Assumed  Liabilities  and the  Buyer  Environmental
               Liabilities.

     (b)  Closing  Date  Payments.  Buyer  shall pay to Seller  at  Closing,  in
          immediately available funds, by wire transfer to an account designated
          by  Seller at least  three (3) days  prior to  Closing,  the  Purchase
          Price,  adjusted for prorated ad valorem  taxes,  utility  charges and
          other apportionments as provided in Section 16.

     4. LIABILITIES.


     (a)  Assumed Liabilities.  Except as specifically set forth in this Section
          4(a) or in Section  4(c)  below,  but subject to the  indemnities  set
          forth in Section 15(a) Buyer shall not assume, or be deemed or treated
          as  having  assumed,  any  liability  or  obligation  of Seller or any
          liability  or  obligation  related  to the  Purchased  Assets,  as the
          Purchased  Assets exist at or before Closing.  As of the Closing Date,
          Buyer  shall,  without  any  further  action  on the  part of Buyer or
          Seller,  assume and agree to pay,  perform and discharge,  each of the
          following  liabilities  (collectively,   the  "Assumed  Liabilities");
          provided however,  that the Assumed  Liabilities shall not include the
          Retained Liabilities or the Environmental Liabilities:

          (i)  Subject to Section  10(a)(ii),  obligations for performance after
               Closing under all the agreements,  contracts,  leases, or similar
               instruments  constituting part of the Purchased Assets including,
               without limitation, the Pipeline Agreements, easements, rights of
               way,  and  other  rights  of  access  constituting  part  of  the
               Purchased  Assets,  provided  that Buyer shall not assume,  or be
               deemed or treated as having assumed,  any obligation or liability
               under  these  items to the extent such  obligation  or  liability
               relates  to or arises out of any breach of such items at or prior
               to  Closing,  or to any  action or  inaction  of Seller  prior to
               Closing or any action of Seller after Closing;

          (ii) Obligations  for  performance  after  Closing  under the  Permits
               constituting  part of the Purchased  Assets,  provided that Buyer
               shall not assume, or be deemed or treated as having assumed,  any
               obligation  or  liability  under  these  items to the extent such
               obligation or liability relates to or arises out of any breach of
               such items at or prior to Closing or to any action or inaction of
               Seller prior to Closing;

          (iii)Obligations  for payment of ad valorem taxes,  personal  property
               taxes, utility charges and other  apportionments,  as provided in
               Section 16.

     (b)  Retained  Liabilities.  Except for items specifically assumed by Buyer
          under  Section  4(a) or Section  4(c),  Seller shall retain and remain
          solely responsible for all liabilities and obligations  related to the
          Purchased  Assets  or the  Pipeline  Interests  as a  result  of acts,
          events,  omissions or conditions  existing or occurring on or prior to
          the Closing  Date and for all other  liabilities  and  obligations  of
          Seller.  Without limiting the generality of the foregoing,  and except
          for Buyer Environmental  Liabilities,  the liabilities and obligations
          of  Seller  transferred  to  Buyer  shall  not  include,  Buyer is not
          assuming,   and  Seller   shall  retain  the   following   liabilities
          (collectively, the "Retained Liabilities"):

          (i)  all  obligations,   responsibilities,   liabilities,   costs  and
               expenses  of  whatever  kind and  nature,  primary or  secondary,
               direct or  indirect,  absolute or  contingent,  whether  based in
               common  law or  statute  or arising  under  written  contract  or
               otherwise, known or unknown, liquidated or unliquidated,  real or
               potential,  tangible or intangible,  which accrue, are caused by,
               arise out of, or are incurred in connection with the ownership of
               the Purchased Assets or the operation of the Pipeline Interest at
               any time prior to the Closing. Without limiting the generality of
               the foregoing in this subparagraph (i), the Retained  Liabilities
               shall  include all  obligations,  responsibilities,  liabilities,
               costs and expenses,  save and except  Environmental  Liabilities,
               which are  covered by Section  4(c)  below,  of either  Seller or
               Buyer caused by,  arising out of, or incurred in connection  with
               any of the following prior to the Closing Date:

               (A)  the Pipeline  Interest  (including the  Pipelines,  the Real
                    Property,  the Terminal  Assets,  the Terminal Real Property
                    and the Personal Property);

               (B)  all of the agreements, contracts, leases, permits or similar
                    instruments,  including the Pipeline Agreements,  easements,
                    rights-of-way and other rights of access,  constituting part
                    of the Purchased Assets;

               (C)  the Permits  including those  transferred to Buyer and those
                    not transferred hereunder;

               (D)  all  accounts  payable and accrued  liabilities  relating to
                    goods  and/or  services  provided to the  Pipeline  Interest
                    prior to the Closing;

               (E)  the Employees and Retained  Employees to the extent provided
                    in Section 11; and

               (F)  all actions, grievances,  arbitrations,  suits, liabilities,
                    obligations,  proceedings  and  investigations  incurred  in
                    connection with,  relating to or arising out of the business
                    or  operations  of  the  Pipeline  Interest  or  any  of the
                    Purchased Assets;

          (ii) any  liability  or  obligation  for  all  taxes,  charges,  fees,
               imposts,  duties,  levies,   withholdings  or  other  assessments
               imposed  by  any  governmental  entity,  including  environmental
               taxes, excise taxes, customs duties, utility,  property,  income,
               sales,  use,  value  added,  transfer  and  fuel  taxes,  and any
               interest, fines, penalties or additions to tax attributable to or
               imposed on or with respect to any such assessment,  including all
               applicable income,  sales, use, excise,  business,  occupation or
               other tax, if any,  relating in any way to this  Agreement or any
               other   service,   supply  or   operating   agreement   including
               deficiencies,    interest   and   penalties    relating   thereto
               (collectively,  "Taxes")  accruing to or for any period ending on
               or prior to the  Closing  Date,  except  to the  extent  provided
               otherwise in Section 16;

          (iii)any liability or  obligation  of Seller for any expenses,  except
               for Taxes as provided in Section 16,  incurred in connection with
               the transactions contemplated by this Agreement;

          (iv) any  brokerage or finder's  fees payable by Seller in  connection
               with the transactions contemplated by this Agreement;

          (v)  any  liability or obligation  accruing  prior to the Closing Date
               for real  property  taxes and charges as  prorated in  accordance
               with Section 16(b);

          (vi) any liability or obligation with respect to any accounts payable,
               in each case,  determined in accordance  with generally  accepted
               accounting  principles  as in effect in the United  States at the
               Closing Date;

          (vii) any  liability  or  obligation  in  respect of indebtedness  for
               borrowed money;

          (viii)except as otherwise provided in this Agreement, all liabilities
               or  obligations  relating to or incurred in  connection  with any
               litigation, threatened litigation or claims against Seller to the
               extent  attributable  to periods ending or from events  occurring
               prior to the Closing,  including those set forth on Schedule 6(k)
               attached  hereto,  provided that Buyer shall provide  Seller with
               reasonable  access  to (and  permission  to make  copies  of) all
               records and  reasonable  access to all relevant  personnel of the
               Pipeline  Interest  in  connection  with the  defense of any such
               claims in accordance with the provisions of Section 17 hereof;

          (ix) to the extent attributable to periods ending prior to the Closing
               Date, all liabilities or obligations  with respect to third party
               bodily  injury or wrongful  death  claims  against  Seller or any
               prior owner of the Pipeline Interest, incurred in connection with
               or  relating  to  the  pre-Closing   operation  of  the  Pipeline
               Interest,  and all liabilities  and  obligations  with respect to
               third party property damage claims incurred in connection with or
               relating to the pre-Closing  operation of the Pipeline  Interest,
               provided,  that in both cases  Buyer  shall  provide  Seller with
               reasonable  access  to (and  permission  to make  copies  of) all
               records and  reasonable  access to all relevant  personnel of the
               Pipeline  Interest  in  connection  with the  defense of any such
               claims in  accordance  with the  provisions of Section 17 hereof;

          (x)  all  liabilities  or  obligations  relating to any  violations by
               Seller or any prior owner of the  Pipeline  Interest of antitrust
               laws prior to the Closing Date;

          (xi) any  responsibility  for the  payment of any  criminal  sanctions
               against  Seller  or any  prior  owner  of the  Pipeline  Interest
               imposed at any time arising from the  operation of the  Purchased
               Assets prior to the Closing;  provided  that Buyer shall  provide
               Seller with  reasonable  access to (and permission to make copies
               of) all records and reasonable  access to all relevant  personnel
               of the Pipeline  Interest in  connection  with the defense of any
               such claims in accordance with Section 17 hereof;

          (xii) any liability or obligation related to an Excluded Asset; and

          (xiii) all  liabilities  and   obligations  related  to  the  Retained
               Employees  relating  to  periods  prior to or  subsequent  to the
               Closing.

     (c)  Environmental  Liabilities.  On and after  Closing,  Buyer and  Seller
          shall each respectively be responsible for  Environmental  Liabilities
          as provided in this Section 4(c).

          (i)  As used  in this  Agreement,  "Environmental  Liabilities"  shall
               include all obligations, responsibilities, liabilities, costs and
               expenses  caused by, arising from,  incurred in connection  with,
               relating  in any way to or  otherwise  required  or  incurred  to
               achieve  or  maintain   compliance  with,   Health,   Safety  and
               Environmental  Laws, as the same are in effect from time to time,
               including  (A) fines and  penalties or other  criminal  sanctions
               arising  by  reason  of   violations   of   Health,   Safety  and
               Environmental  Laws; (B) any  responsibility  for any litigation,
               threatened  litigation  or claims  arising  under or by reason of
               actual or alleged violations of Health,  Safety and Environmental
               Laws;  (C) third party  bodily  injury or wrongful  death  claims
               arising  under or by reason of actual or  alleged  violations  of
               Health,  Safety  and  Environmental  Laws;  (D)  liabilities  and
               obligations  with respect to third party  property  damage claims
               relating  to,  arising  under,  or by reason of actual or alleged
               violations of Health,  Safety and Environmental Laws; (E) any and
               all  obligations,   responsibilities,   liabilities,   costs  and
               expenses caused by, arising from,  incurred in connection with or
               relating in any way to the  existence  of asbestos and lead based
               paint at, on or within the  Pipeline  Interest  or the  Purchased
               Assets,   including  any   incidental   contamination   resulting
               therefrom;  (F) liabilities or obligations  arising under Health,
               Safety and  Environmental  Laws with respect to or in  connection
               with the  disposal  prior to the  Closing  Date by  Seller or any
               prior owner of the Pipeline  Interest (or by a third-party at the
               express  direction of Seller or such prior owner) at any location
               other than the Purchased Assets of hazardous  materials generated
               as a  result  of or in  connection  with  the  operation  of  the
               Pipeline   Interest;   and   (G)   any   and   all   obligations,
               responsibilities,  liabilities,  costs and  expenses  caused  by,
               arising from,  incurred in connection with or relating in any way
               to clean-up,  restoration  or  remediation  of any property under
               Health, Safety and Environmental Laws,

          (ii) As used in this  Agreement,  "Health,  Safety  and  Environmental
               Laws" shall mean any and all past or present  local,  state,  and
               federal  laws,  principles of common law,  statutes,  ordinances,
               regulations,  rules, orders, permits,  standards, or requirements
               (including  consent  decrees,   judicial  decisions,   judgments,
               injunctions   and   administrative   orders  issued  or  approved
               thereunder),   together   with   all   related   amendments   and
               implementing  regulations  and all common law,  pertaining  to or
               regulating pollution, environmental protection, health and safety
               of  persons,   pipeline   safety,   natural   resource   damages,
               conservation of resources,  wildlife, waste management,  the use,
               storage, generation,  production, treatment, emission, discharge,
               remediation, removal, disposal or transport or any other activity
               related  to a toxic or  hazardous  substance,  waste or  material
               (including  crude  petroleum  and its  fractions  or  derivatives
               thereof),  or any  other  environmental  matter,  including:  the
               Comprehensive Environmental Response,  Compensation and Liability
               Act  ("CERCLA"),  42 U.S.C.  Section 9601 et. seq.;  the Resource
               Conservation  and  Recovery  ------ Act,  as  amended,  42 U.S.C.
               Section  6901 et.  seq.;  the Toxic  Substances  Control  Act, as
               amended,  15 U.S.C.  Section 2601 et. seq.; the Clean Air Act, as
               amended,  42 U.S.C.  Section  7401 et.  seq.;  the Federal  Water
               Pollution  Control  Act, as amended,  33 U.S.C.  Section 1251 et.
               seq.; the Safe Drinking Water Act of 1974, as amended,  42 U.S.C.
               Section  3009(f) et. seq.;  the Emergency  Planning and Community
               Right-to-Know Act of 1986, as amended, 42 U.S.C. Section 11001 et
               seq.; the Occupational Safety and Health Act of 1970, as amended,
               29 U.S.C. Section 651 et. seq.; and the Hazardous Liquid Pipeline
               Safety Act, as amended, 49 U.S.C. Section 60101 et. seq.

          (iii)Seller shall retain and agrees to pay,  perform and discharge the
               following  liabilities and obligations  (collectively the "Seller
               Environmental  Liabilities"):  (A)  the  Disclosed  Environmental
               Liabilities   identified   on  Schedule   7(a);   (B)  any  other
               Environmental Liabilities incurred in connection with or relating
               to the  ownership or operation of the  Purchased  Assets prior to
               the Closing that are within Seller's  Knowledge as of the Closing
               Date; (C) any Environmental  Liabilities relating to ownership or
               operation of Seller's  Mandan,  North Dakota  refinery,  SAVE AND
               EXCEPT Environmental Liabilities that are proximately caused by a
               release or discharge of hazardous  substances  from the Pipelines
               (including pump stations) on or after the Closing Date; and Buyer
               shall provide Seller with reasonable access to (and permission to
               make copies of) all records and reasonable access to all relevant
               personnel of the Pipeline Interest in connection with the defense
               of any Seller Environmental  Liabilities,  in accordance with the
               provisions of Section 17 hereof;

          (iv) Buyer shall assume and agrees to pay,  perform and  discharge all
               "Buyer Environmental Liabilities" which shall include any and all
               Environmental  Liabilities  relating to,  incurred in  connection
               with or by reason of the  ownership or operation of the Purchased
               Assets either before or after Closing, SAVE AND EXCEPT the Seller
               Environmental  Liabilities;  provided however that Buyer shall be
               responsible  for any  Environmental  Liabilities  relating to the
               presence of hazardous  substances  (including  without limitation
               asbestos  and  lead  based  paint)  at any  location  within  the
               boundaries of, or that have migrated from, Seller's Mandan, North
               Dakota  refinery  only  to the  extent  that  such  Environmental
               Liabilities are  proximately  caused by a release or discharge of
               hazardous substances from the Pipelines (including pump stations)
               on or after the Closing Date.

     (d)  Liabilities  From  Post-Closing  Operations.  Except as otherwise  set
          forth in this  Agreement or in the  documents  contemplated  herein or
          executed in  connection  with the  transactions  contemplated  herein,
          including  the  indemnity  obligations  of Seller set forth in Section
          15(b),  it is the  intention  of the Parties  that Seller shall not be
          responsible for liabilities,  obligations, costs or expenses which are
          caused by,  arise out of, or are  incurred  in  connection  with,  the
          ownership  of the  Purchased  Assets or the  operation of the Pipeline
          Interest at any time after Closing.  In this regard,  Buyer has agreed
          to indemnify Seller as set forth in Section 15(a).

     5. CLOSING.

     (a)  The closing and consummation of the transactions  contemplated by this
          Agreement  (the  "Closing")  shall take place at 10:00  a.m.,  Central
          Time, at the offices of Fulbright & Jaworski L.L.P., 2200 Ross Avenue,
          Suite  2800,  Dallas,  Texas  75201,  on the  date  which  is five (5)
          business days after the later of (i) the  expiration or termination of
          any applicable  waiting periods,  or any extension  thereof (without a
          material  condition to such HSR termination or  expiration),  provided
          for in the  Hart-Scott-Rodino  Antitrust  Improvement  Act of 1976, as
          amended (the "HSR Act") and (ii) satisfaction or waiving of all of the
          conditions  precedent set forth in Sections 12 and 13. The date of the
          Closing is referred to herein as the "Closing  Date." Closing shall be
          effective as of 12:01 a.m. on the Closing Date.

     (b)  On the Closing Date, Seller shall deliver to Buyer the following:

          (i)  duly  executed  special  warranty  deeds  for the  Terminal  Real
               Property and the Sauk Centre pump station,  substantially  in the
               form contained in Exhibit B attached hereto, conveying fee simple
               title to the  Terminal  Real  Property  and the Sauk  Centre pump
               station subject only to the Permitted  Liens, and quitclaim deeds
               substantially  in the forms  contained in Exhibit B for the other
               fee simple properties listed in Schedule 6(f)(1);

          (ii) appropriately executed instruments of sale, assignment,  transfer
               and conveyance  evidencing and effecting the sale and transfer to
               Buyer of the Purchased  Assets,  on the form  attached  hereto as
               Exhibit N (it being  expressly  understood by the parties hereto,
               however,  that such  instruments  shall not require Seller or any
               other Person to make any additional  representations,  warranties
               or  covenants,   express  or  implied,   not  contained  in  this
               Agreement);

          (iii)a  certified  copy of the  resolutions  adopted  by the  Board of
               Directors of Seller authorizing the transactions  contemplated by
               this Agreement and  authorizing  specified  individuals to act on
               behalf of Seller in connection therewith;

          (iv) an incumbency certificate, duly executed by an authorized officer
               of Seller  attesting to the due appointment and  authorization of
               individuals  signing  this  Agreement  on behalf of  Seller,  any
               agreement  contemplated  hereby or any  agreement  related to the
               transactions contemplated hereby;

          (v)  the affidavit  referred to in Section  1445(b)(2) of the Internal
               Revenue Code of 1986, as amended, (the "Code") in customary form;

          (vi) a certificate,  duly executed by an authorized officer of Seller,
               attesting  that all  representations  and  warranties  of  Seller
               provided in this  Agreement  are true and correct in all material
               respects as of the date of  Closing,  and that all  covenants  of
               Seller in this  Agreement  have been  performed  in all  material
               respects at all times up through and including  the Closing,  and
               that there has not been any material  adverse change with respect
               to the Purchased Assets or the Pipeline Interest, in each case as
               required by Section 12;

          (vii)The  Guaranty  by  Tesoro   Petroleum   Corporation  of  Seller's
               performance under this Agreement , on the form attached hereto as
               Exhibit M;

          (viii) a  certified  copy of the  resolutions  adopted by the Board of
               Directors  of  Tesoro  Petroleum   Corporation   authorizing  the
               Guaranty  of  Seller's   performance  under  this  Agreement  and
               authorizing  specified  individuals  to act on  behalf  of Tesoro
               Petroleum Corporation in connection therewith;

          (ix) an incumbency certificate, duly executed by an authorized officer
               of Tesoro Petroleum Corporation, attesting to the due appointment
               and authorization of individuals signing the Guaranty of Seller's
               performance under this Agreement; and

          (x)  Releases of deed of trust liens on the Terminal Real Property.

     (c)  On the Closing Date, Buyer shall deliver to Seller the following:

          (i)  the payment specified in Section 3(b) hereof;

          (ii) instruments of assumption evidencing and effecting the assumption
               by Buyer of the Assumed  Liabilities  and such other documents as
               are required by this Agreement;

          (iii)a  certified  copy of the  resolutions  adopted by the  governing
               body of Buyer or its affiliates, as appropriate,  authorizing the
               transactions  contemplated  by  this  Agreement  and  authorizing
               specified individuals to act on behalf of Buyer herewith;

          (iv) an incumbency certificate, duly executed by an authorized officer
               of Buyer's general  partner  attesting to the due appointment and
               authorization of individuals  signing this Agreement on behalf of
               Buyer, any agreement contemplated hereby or any agreement related
               to the transactions contemplated hereby;

          (v)  a certificate,  duly executed by an authorized  officer of Buyer,
               attesting  that  all  representations  and  warranties  of  Buyer
               provided in this  Agreement  are true and correct in all material
               respects as of the date of  Closing,  and that all  covenants  of
               Buyer in this  Agreement  have  been  performed  in all  material
               respects at all times up through and  including  the Closing,  in
               each case as required by Section 13;

     (d)  On the Closing Date, Buyer and Seller shall each deliver duly executed
          counterparts by the appropriate parties of the following:

          (i)  the Technology Agreement substantially in the form of Exhibit A;

          (ii) the Assignment of Pipeline  Agreements  substantially in the form
               of  Exhibit  C  attached  hereto  for  the  Pipeline  Agreements;

          (iii)duly   executed   easement   as   described   in   Section   1(f)
               substantially in the form of Exhibit D attached hereto;


          (iv) a Lease  Agreement for the Mandan Pump Station  substantially  in
               the form of Exhibit E attached hereto;

          (v)  the  Terminal   Capacity   Lease  for  the   Jamestown   Terminal
               substantially in the form of Exhibit K attached hereto;

          (vi) a Pipeline Capacity Lease  substantially in the form of Exhibit F
               attached  hereto which shall have been duly executed by Buyer and
               Seller;

          (vii)a  Transition  Services  Agreement  substantially  in the form of
               Exhibit G attached hereto;

          (viii) a  Lease  Agreement  substantially  in the  form of  Exhibit  H
               attached hereto for the  post-Closing  lease from Buyer to Seller
               of the office/storage space at the Roseville,  Minnesota terminal
               being  conveyed  to Seller  hereunder  as  further  described  in
               Exhibit H;

          (ix) an Assignment  of Lease in the form of Exhibit I attached  hereto
               for the assignment of the existing office space and parking lease
               between Seller and BP Corporation North America Inc.;

          (x)  a Continuing  Covenants  Agreement  substantially  in the form of
               Exhibit J attached hereto;

          (xi) the Environmental Access Agreement to be negotiated in good faith
               and  entered  into at Closing  pursuant  to  Section  10(c)(vii);

     (e)  All of the  transactions  identified  in this  Section  5 shall  occur
          simultaneously,  and none  shall be  deemed  completed  until  all are
          completed.

     6. SELLER'S  REPRESENTATIONS  AND  WARRANTIES.  Subject to the  exceptions,
disclaimers and other matters set forth in this Section 6 and in Section 8 below
and the matters set forth on the  Schedules  to this  Agreement,  Seller  hereby
represents  and  warrants  to Buyer as set forth  below.  For  purposes  of this
Agreement,  "Knowledge,"  when used in the phrase  "Seller's  Knowledge" in this
Agreement  or in similar  context  means,  and shall be  limited  to, the actual
knowledge  (without  independent  investigation)  of (i) John  Moore,  (ii) Alan
Anderson,  (iii) Joe Monroe,  (iv) James Reed and (v) Rob Donovan (but only with
respect to Section 7), and including but not limited to any  replacements of any
of the foregoing  individuals  prior to Closing.  Buyer understands that none of
such individuals is making any  representations  or warranties to Buyer and that
such  individuals  shall have no personal  liability to Buyer in connection with
the matters covered in this Section 6.

     (a)  Organization   and  Good  Standing.   Seller  is  a  corporation  duly
          organized, validly existing and in good standing under the laws of the
          State of Delaware.

     (b)  Authority.  Seller has the corporate power and authority to enter into
          this Agreement and the transactions  contemplated  hereby and to carry
          out its obligations hereunder. The execution, delivery and performance
          of this Agreement and the transactions  contemplated  hereby have been
          duly  authorized,  and this  Agreement  has  been  duly  executed  and
          delivered by Seller and  constitutes a valid and binding  agreement of
          Seller enforceable against Seller in accordance with its terms, except
          as such  enforceability is limited by general principles of equity and
          applicable   provisions   of   bankruptcy,   insolvency,   moratorium,
          reorganization or similar laws.

     (c)  Consents.  Other than with respect to (i) the HSR Act; (ii)  obtaining
          the consents  required in connection  with the  assignment of Pipeline
          Agreements  (iii)  obtaining the consents for assignments set forth on
          Schedule 6(o), (iv) obtaining the consents required in connection with
          the assignment of agreements, contracts, licenses, and leases that are
          included  in the  Purchased  Assets  but do  not  constitute  Material
          Contracts,  (v) obtaining the consents required in connection with the
          assignment  of  Permits  and  Environmental  Permits,  (vi)  filing of
          tariffs and other filings and approvals necessary for Buyer to operate
          the Pipeline Interest as a common carrier; (vii) filings and approvals
          required  under  Health,  Safety and  Environmental  Laws;  and (viii)
          recording of instruments of conveyance, no consent, approval of or by,
          or  filing  with  or  notice  to any  other  individual,  corporation,
          partnership,  association,  trust,  limited  liability  company or any
          other  entity or  organization,  including a  government  or political
          subdivision or agency, unit or instrumentality thereof (a "Person") is
          required with respect to Seller or the Purchased  Assets in connection
          with the execution,  delivery or  enforceability  of this Agreement or
          the consummation of the transactions provided for hereby.

     (d)  Third Party Purchase Rights. No rights of first refusal,  preferential
          rights to purchase,  rights of first  opportunity or similar rights or
          agreements  exist in connection with any of the Purchased Assets which
          would in any way  interfere  with  Buyer's  ability  to  purchase  the
          Purchased  Assets  as  provided  herein,  or  which  are in any way in
          contravention of this Agreement.

     (e)  No Breach.  Subject to obtaining  the consents  required in connection
          with  the  Pipeline  Agreements  and  certain  agreements,  contracts,
          licenses, leases, easements,  rights-of-way and permits as provided in
          Section  10(c)(ii),  the execution and delivery of this  Agreement and
          the  consummation  of the  transactions  contemplated  hereby  and the
          compliance  by Seller with any of the  provisions  hereof does not and
          will not (i)  violate or conflict  with,  or result in a breach of, or
          constitute a default (or an event which,  with notice or lapse of time
          or both,  would  constitute a default) under, or result in termination
          of,  or  accelerate  the  performance  required  by,  or result in the
          creation of any lien or other  encumbrance  upon the Purchased  Assets
          under,  any of the terms,  conditions or provisions of the Certificate
          of  Incorporation  or  By-Laws  of Seller or any  material  agreement,
          instrument or  obligation to which Seller is a party,  or by which the
          Purchased  Assets are  otherwise  bound,  or (ii)  violate  any order,
          injunction,  judgment,  decree or award, or federal,  state,  local or
          foreign law,  ordinance,  statute,  rule or  regulation  applicable to
          Seller, the Purchased Assets or the Pipeline Interest.

     (f)  Real Property.

          (i)  Title to the Terminal  Real  Property and the other real property
               listed on Schedule  6(f)(1) is owned in fee by Seller  and,  when
               transferred to Buyer will be good and marketable.

          (ii) A complete and accurate description of all Terminal Real Property
               and other real property  represented to be owned in fee simple by
               Seller and currently or historically used in the operation of the
               Pipeline  Interest  is set  forth  on  Schedule  6(f)(1).  Seller
               leases,  purportedly  owns  or  otherwise  validly  occupies  all
               Terminal Real Property.  The Terminal Real Property and all other
               real  property  purportedly  owned by  Seller  and  currently  or
               historically used in the operation of the Pipeline Interest, SAVE
               AND EXCEPT real property  within the plot plan of Seller's Mandan
               Refinery, is free and clear of all liens and encumbrances, except
               for: (i) such items as are set forth on Schedule 6(f)(2) attached
               hereto;  (ii) mechanics',  carriers',  workmen's,  repairmen's or
               other like liens  arising or incurred in the  ordinary  course of
               business,   relating  to  retained   liabilities  of  Seller  not
               exceeding  fifty  thousand  dollars  ($50,000) in the  aggregate;
               (iii) liens  arising  under  equipment  leases with third parties
               entered into in the ordinary  course of business,  (iv) liens for
               ad valorem  and  personal  property  taxes  which are not due and
               payable or which may  thereafter  be paid  without  penalty;  (v)
               zoning,  building,  fire,  health,  environmental  and  pollution
               control laws, ordinances,  rules and safety regulations and other
               similar   restrictions;   (vi)  the   rights  of  the  owners  of
               outstanding oil, gas and mineral  interests and/or their lessees,
               to explore  for,  drill,  produce and develop  said oil,  gas and
               minerals owned by them in, on and under said lands, together with
               the  rights  to use as much of the  surface  of said  lands as is
               reasonably  necessary to exercise their rights to explore for and
               extract said oil, gas and  minerals  from said lands;  (vii) acts
               done or suffered to be done by, and judgments against,  Buyer and
               those  claiming by,  through or under  Buyer;  (viii) liens which
               will be fully  released as to the  Purchased  Assets at or before
               Closing,  or (ix) any matters that are waived without reservation
               in writing by Buyer (collectively,  (i) through (ix) are referred
               to herein as the  "Permitted  Liens").  Except  as  described  in
               Schedule  6(f)(3),  which  includes  certain  rights  afforded to
               BP/Amoco set forth therein,  Seller has not granted a third party
               possession  of any  Terminal  Real  Property  or any right of way
               related to the  Pipelines or any portion  thereof nor is Seller a
               party  to any  lease,  sublease,  license,  concession  or  other
               contract  granting  to any third party the right to use or occupy
               any portion of the Terminal Real Property or other fee properties
               listed in Schedule 6(f)(1). The limited warranty set forth in the
               deeds to be executed and delivered at Closing pursuant to Section
               5(b)(i)  shall  be   independent  of  and  not  merged  into  the
               representations  and  warranties  set forth above in this Section
               6(f).

          (iii)Seller  has  delivered  to Buyer true and  correct  copies of all
               instruments  listed on Schedules 6(f)(1) and 6(f)(2),  other than
               instruments reflected in the title commitments referenced in such
               Schedules.

     (g)  Brokers.  Seller has not retained any broker or finder or incurred any
          liability or obligation for any brokerage fees, commissions,  finder's
          fees or similar  compensation  with  respect to this  Agreement or the
          transactions contemplated hereby.

     (h)  Title to Purchased Assets. Other than with respect to the items leased
          from third  parties  described in Schedule  6(h) Seller has, and as of
          the Closing Buyer will have, valid title to all the Purchased  Assets,
          including the Improvements,  but specifically  excluding Permits,  the
          Pipeline  Agreements  and other real property  interests  (but without
          limiting  clause  (f)  above),   free  and  clear  of  all  liens  and
          encumbrances, except for Permitted Liens.

     (i)  Compliance  With Laws.  The Purchased  Assets are in compliance in all
          material respects with all laws, governmental regulations,  orders and
          decrees,  as they are currently enforced with respect to the operation
          of the  Pipeline  Interest by Seller,  other than  Health,  Safety and
          Environmental Laws (which are addressed in Section 7).

     (j)  Permits.  Schedule  1(i)  sets  forth a true and  correct  list of all
          material Permits and other material governmental licenses,  permits or
          approvals  that  are  necessary  for  the  operation  of the  Pipeline
          Interest  as it has been  operated  by Seller  during the  immediately
          preceding five (5) months. Seller possesses all Permits, and all other
          governmental  licenses,   permits  and  approvals  necessary  for  the
          operation of the Pipeline  Interest as it has been  operated by Seller
          during the immediately preceding five (5) months, and all such Permits
          and other  governmental  licenses,  permits and  approvals are in full
          force  and  effect,   except  for  Environmental  Permits  (which  are
          addressed in Section 7).

     (k)  Actions and Proceedings. Except as set forth on Schedule 6(k) attached
          hereto:

          (i)  there  is  no  action,   suit,   arbitration,   investigation  or
               regulatory proceeding or claim pending or, to Seller's Knowledge,
               threatened  against  Seller  involving or affecting the Purchased
               Assets,  and, other than Permitted Liens,  except as set forth in
               Schedule 7(a), there are no decrees,  injunctions,  liens, orders
               or judgments of or with any court or  governmental  department or
               agency  outstanding  against Seller  relating to or affecting the
               Purchased Assets;

          (ii) no action, suit,  arbitration or regulatory proceeding is pending
               or, to  Seller's  Knowledge,  threatened  seeking to  restrain or
               prohibit  this   Agreement  or  any   agreement,   instrument  or
               transaction   contemplated   hereby,  or  to  obtain  damages,  a
               discovery order or other relief in connection with this Agreement
               or the transactions contemplated hereby; and

          (iii)there  is  no  pending  or,  to  Seller's  Knowledge,  threatened
               condemnation  or  other  governmental  taking  of any of the real
               property included in the Purchased Assets.  Further,  there is no
               pending  or, to  Seller's  Knowledge,  threatened  fire,  health,
               safety,   building,   zoning   or  other   land  use   regulatory
               proceedings,  lawsuits or administrative  actions relating to any
               portion of the real property included in the Purchased Assets nor
               has Seller received  notice of any pending or threatened  special
               assessment proceedings affecting any portion of the real property
               included in the Purchased Assets.

     (l)  Assets.  Except for (i)  Excluded  Assets and (ii) assets set forth on
          Schedule  6(l),  the Purchased  Assets and the assets,  properties and
          rights  provided  to Buyer  pursuant to this  Agreement  and the other
          agreements  contemplated  hereby,  include all assets,  other than the
          intellectual  property  assets,  leases,  licenses and other contracts
          that are not  transferable,  which are reasonably  required to operate
          the  Pipeline   Interest   immediately   following  the  Closing  Date
          substantially  in the manner in which the  Pipeline  Interest has been
          operated by Seller during the immediately preceding five (5) months.

     (m)  Tangible  Assets.  To  Seller's   Knowledge,   the  Purchased  Assets,
          excluding the Real Property  (other than the  Improvements),  are free
          from  material   defects,   have  been  maintained   substantially  in
          accordance with normal  industry  practice,  and are in  substantially
          good operating  condition and repair for their age (taking  account of
          their nature, current usage, normal wear and tear and continued repair
          and replacement in accordance with industry standards).

     (n)  Pipeline  Agreement.  Seller has not received  notice of default under
          any Pipeline Agreement.


     (o)  Material Contracts, Agreements, Plans and Commitments.

          (i)  Schedule 6(o) lists the following types of contracts constituting
               a part  of the  Purchased  Assets  (collectively,  the  "Material
               Contracts"):  (i) any contract  (other than Pipeline  Agreements)
               affecting   the   Purchased   Assets  that   involves   aggregate
               expenditures  by or payments  to Seller of more than  $50,000 per
               annum;  (ii) any  contract  for the  transportation  through  the
               Pipelines; (iii) any contract containing provisions that restrict
               the right of Seller to engage in any type of  business or compete
               in any geographic  area and which  provisions  will be binding on
               Buyer  following   Closing;   (iv)  any  contract  affecting  the
               Purchased   Assets,   the  performance  of  which  by  Seller  is
               guaranteed  by an  affiliate  of Seller or secured by a letter of
               credit,  surety or other  arrangements  (other than contracts for
               borrowed  money of Seller or its  affiliates);  (v) any  contract
               affecting  the  Purchased  Assets  pursuant  to which  Seller has
               guaranteed the  performance by another party of any obligation of
               such  party;  (vi) any  partnership  or joint  venture  agreement
               covering the Purchased Assets; and (vii) any security  agreement,
               mortgage or other agreement  creating an encumbrance  (other than
               Permitted Liens).

          (ii) Seller has  furnished  or made  available  to Buyer  complete and
               correct copies of all written Material  Contracts,  together with
               all amendments thereto, and accurate descriptions of all material
               terms of any oral Material Contracts.

          (iii)Each  Material  Contract is valid,  binding and in full force and
               effect in  accordance  with its  terms.  Seller is not in default
               under any Material Contract.  Seller has not received any written
               communication  from, or given any written  communication  to, any
               other party  indicating  that Seller or such other party,  as the
               case may be, is in default under any Material Contract.

          (iv) The sale of the Pipeline Interest pursuant to this Agreement will
               not trigger a default or breach  under the terms of any  Material
               Contract;

          (v)  Other than listed on Schedule 6(o), no consent or approval from a
               third party is required to assign the rights of Seller under such
               Material Contract under the terms provided in this Agreement.

     (p)  Prepaid Services. Seller has not received any prepayments for services
          associated  with  the  Pipeline  Interest  for  which  Buyer  will  be
          responsible.

     (q)  Taxes.  Except as set forth in  Schedule  6(q),  Seller has filed in a
          timely  manner  all tax  reports,  returns  and  forms  affecting  the
          Purchased  Assets  as may have been  required  under  applicable  law,
          including all required  federal,  state and local income,  sales, use,
          property and franchise tax returns,  and has paid (except  amounts for
          taxes  being  diligently   contested  in  good  faith  by  appropriate
          procedures  and  disclosed  in Schedule  6(q)) all  required  taxes or
          similar  assessments  affecting  the Purchased  Assets,  including any
          interest,  penalties or additions attributable thereto shown as due on
          all such  filings.  No  encumbrances  (other  than  Permitted  Liens),
          proceedings,  lawsuits,  investigations,  inquiries  or other  actions
          which  are  pending,   threatened  or  open  seek  the  assessment  or
          collection   of   additional   taxes  of  any  kind  from  the  Seller
          specifically  relating to any portion of the Purchased Assets,  and to
          the best of Seller's  Knowledge,  no other examination by the Internal
          Revenue Service or any other taxing authority affecting any portion of
          the Purchased  Assets is now pending.  Taxes which Seller was required
          by law to withhold or collect in respect to the Purchased  Assets have
          been  withheld  or  collected  and have been  paid over to the  proper
          governmental  entities  or are  properly  held by the  Seller for such
          payment when due and payable.

     (r)  Schedule  6(r)  contains a true and correct  statement  of the metered
          throughput volumes of petroleum products,  excluding ethanol and other
          additives  blended  at the  Terminals,  delivered  from each  Terminal
          during each month from and including January,  2002 through September,
          2002.

     (s)  Employee Matters.

          (i)  Schedule 11(a) contains a correct list of the Employees  employed
               by Seller on the  Effective  Date,  along with such  individual's
               title and/or job description and service credit date.  Seller has
               separately  provided  Buyer  with  each such  Employee's  current
               annual   salary,   bonus   for  the   previous   year  and  other
               compensation.  Except as otherwise stated in Schedule 11(a), none
               of the  Employees  has  provided  Seller with  notification  that
               he/she plans to terminate his/her employment during calendar year
               2002, whether by reason of the transactions  contemplated by this
               Agreement or otherwise.

          (ii) Employee Benefits Plans.  Schedule 6(s) lists all of the employee
               welfare benefit and employee  pension benefit plans as defined in
               Sections  3(1) and 3(2) of ERISA,  including  plans that  provide
               retirement  income  or  result  in a  deferral  of  income by the
               Employees for periods  extending to  termination of employment or
               beyond and plans that provide medical,  surgical or hospital care
               benefits or benefits for sickness, accident, disability, death or
               unemployment  and  all  other  employee  benefit   agreements  or
               arrangements,  including deferred  compensation plans,  incentive
               plans,  bonus plans or  arrangements,  stock  option  plans stock
               purchase plans, stock award plans,  golden parachute  agreements,
               severance  pay plans,  dependent  care  plans,  cafeteria  plans,
               employee assistance  programs,  scholarship  programs,  contracts
               with  any  of  the  Employees,  retention  incentive  agreements,
               non-competition agreements with any of the Employees,  consulting
               agreements with any of the Employees,  confidentiality agreements
               with any of the Employees,  vacation  policies and similar plans,
               agreements and arrangements  that are currently in effect for the
               benefit of the  Employees or their  beneficiaries  (collectively,
               the  "Plans").  Buyer will have no liability  with respect to any
               Plans or other  similar  plans or  arrangements  of Seller or its
               affiliates as a result of the  transactions  contemplated by this
               Agreement.

          (iii)Neither the  consummation of this Agreement nor the employment by
               Buyer of the  Transferred  Employees will result in any carryover
               liability  to Buyer for taxes,  penalties,  interest or any other
               claims resulting from any employee pension benefit plan, employee
               welfare  benefit plan,  or other  employee  benefit  agreement or
               arrangement  of Seller or any of its  affiliates  (each a "Seller
               Entity" and collectively the "Seller Entities").  With respect to
               employee  pension benefit plans of the Seller  Entities  covering
               Transferred  Employees:  (1) no Seller  Entity has a liability to
               the  PBGC  under  Section  4062,  4063 or  4064  of the  Employee
               Retirement Income Security Act of 1974 ("ERISA") for which a lien
               could attach to the assets of Seller under Section 4068 of ERISA;
               (2) no Seller Entity has ceased operations at a facility so as to
               become subject to the provisions of Section 4062(e) of ERISA; and
               (3) no Seller  Entity has made a complete  or partial  withdrawal
               from a multi-employer plan (as defined in Section 3(37) of ERISA)
               so as to incur withdrawal liability as defined in Section 4201 of
               ERISA.

          (iv) Seller has complied  with the group health plan  continuation  of
               coverage   requirements  of  the   Consolidated   Omnibus  Budget
               Reconciliation Act of 1985, as amended.

          (v)  In  connection  with  the  Pipeline  Interest,  there is no labor
               strike,  work stoppage,  lockout, or other material labor dispute
               or slowdown  pending,  or to Seller's  Knowledge,  threatened  in
               writing  against  Seller  and there has not been any such  action
               during the last one (1) year  period.  Other than as set forth in
               Schedule  11(a),  Seller  is  not a  party  to or  bound  by  any
               collective  bargaining  agreement or similar agreement or written
               work rules or practices with any labor  organization  or employee
               association  covering the terms and  conditions  of employment of
               any  Employee.  Other  than as set forth in  Schedule  11(a),  to
               Seller's  Knowledge,  no  Employee  is  represented  by any labor
               organization  and,  to Seller's  Knowledge,  there are no current
               union organizing activities among the Employees.

          (vi) Other than wage  increases  in the  ordinary  course of business,
               since  January 1, 2002,  Seller  has not made any  commitment  or
               agreement to increase the wages of any of the Employees.

          (vii)With respect to each Employee  hired by Seller after  November 6,
               1986 that is not a citizen of the  United  States,  Seller  shall
               have required a copy of Form 1-9 to be completed  pursuant to the
               Immigration  Reform and  Control  Act of 1986,  and the rules and
               regulations  promulgated  thereunder,  and shall have  retained a
               copy of such Form 1-9 in its employee files.

          (viii) During the one (1) year  period  immediately  prior to the date
               hereof,  Seller has not  effectuated  (i) a "plant  closing"  (as
               defined in the WARN Act)  affecting any site of employment of any
               of the  facilities  included in the Purchased  Assets  covered by
               this  transaction  (the  "Employment  Sites");  or  (ii) a  "mass
               layoff'  (as  defined  in  the  WARN  Act)  affecting  any of the
               Employment Sites; nor has Seller been affected by any transaction
               or engaged in layoffs or  employment  terminations  sufficient in
               number to trigger  application  of any similar state or local law
               at any of the Employment Sites.

     (t)  Work  Orders.  There  are no  outstanding  work  orders  or  contracts
          relating  to any portion of the  Purchased  Assets from or required by
          any  policy of  insurance,  fire  department,  sanitation  department,
          health authority or other  governmental  body, nor is there any matter
          under  discussion  with such Persons or  authorities  relating to such
          work orders or contracts.

     7. ENVIRONMENTAL MATTERS.

     (a)  Environmental   Representations   and   Warranties.   Subject  to  the
          exceptions,  disclaimers  and other matters set forth in Section 6 and
          Section  8 below  and the  matters  set  forth on  Schedule  7(a) (the
          "Disclosed Environmental  Liabilities"),  Seller hereby represents and
          warrants to Buyer, as follows:

          (i)  all  Environmental  Permits  necessary  for the  operation of the
               Pipeline  Interest as it has been  operated by Seller  during the
               immediately preceding five (5) months, have been obtained and are
               in effect and, where applicable, applications for renewal thereof
               have been timely filed.

          (ii) all environmental  control equipment  necessary for the operation
               of the Pipeline  Interest has been  operated by Seller during the
               immediately   preceding   five  (5)  months  is  in   substantial
               compliance with Health,  Safety and  Environmental  Laws, as they
               are  currently  enforced  with  respect to the  operation  of the
               Pipeline  Interest  by  Seller,  is  installed  at the  Purchased
               Assets, and such equipment is operating in a manner sufficient to
               achieve and  maintain  such  compliance  under  normal  operating
               conditions; and

          (iii)to  Seller's  Knowledge,  there  are no  existing  violations  of
               Health,  Safety and  Environmental  Laws,  as they are  currently
               enforced with respect to the  operation of the Pipeline  Interest
               by Seller.

          (iv) to  Seller's  Knowledge,  except as set forth on  Schedule  7(b),
               there are no underground  storage tanks in or under the Purchased
               Assets on the Effective Date;

          (v)  to Seller's Knowledge,  all prior spills of hazardous  substances
               on, from or related to the Pipeline  Interests  or the  Purchased
               Assets for which any future  remediation  might be required under
               Health,  Safety and  Environmental  Laws are  listed on  Schedule
               7(a);

          (vi) all reports and  assessments,  except those set forth in Schedule
               7(c), created or performed for Seller or, to Seller's  Knowledge,
               in  Seller's  possession  have been sent to Buyer,  to the extent
               that they pertain to the environmental condition of the Purchased
               Assets.

     (b)  Limitation.  The  representations  and warranties set forth in Section
          7(a) represent the sole and exclusive  representations  and warranties
          of Seller  with  respect to any matters  arising  under or relating to
          Health, Safety and Environmental Laws.

     8. DISCLAIMERS.  EXCEPT AS OTHERWISE  EXPRESSLY SET FORTH IN THIS AGREEMENT
(INCLUDING  BUT NOT LIMITED TO, THE EXPRESS  REPRESENTATIONS  AND  WARRANTIES OF
SELLER SET FORTH IN SECTIONS 6 AND 7 ABOVE) AND THE  INSTRUMENTS,  DOCUMENTS AND
AGREEMENTS  REFERRED TO HEREIN OR EXECUTED IN CONNECTION  WITH THE  TRANSACTIONS
CONTEMPLATED HEREBY:

     (a)  SELLER MAKES NO  REPRESENTATIONS  OR WARRANTIES OF ANY KIND OR NATURE,
          EXPRESS OR IMPLIED,  AT LAW OR IN EQUITY,  WITH RESPECT TO ITSELF, THE
          PIPELINE INTEREST,  THE PURCHASED ASSETS OR THE ASSUMED LIABILITIES OR
          ANY PORTION THEREOF, INCLUDING THE PIPELINES, THE TERMINAL ASSETS, THE
          TERMINAL  REAL  PROPERTY  OR ANY  OTHER  ASSET  TRANSFERRED  TO  BUYER
          PURSUANT  TO  THE  TERMS  OF  THIS  AGREEMENT,  AND  SELLER  EXPRESSLY
          DISCLAIMS ANY IMPLIED WARRANTIES,  INCLUDING ANY IMPLIED WARRANTIES OF
          MERCHANTABILITY  OR  FITNESS  FOR A  PARTICULAR  PURPOSE  OR  ORDINARY
          PURPOSE OR ANY REPRESENTATION OR WARRANTY AS TO VALUE;

     (b)  THE PURCHASED  ASSETS,  INCLUDING THE PIPELINES,  THE TERMINAL ASSETS,
          THE  TERMINAL  REAL  PROPERTY  AND ANY  PORTION  THEREOF AND ANY OTHER
          ASSETS  TRANSFERRED  TO BUYER  PURSUANT TO THE TERMS AND CONDITIONS OF
          THIS AGREEMENT,  ARE BEING TRANSFERRED "AS IS, WHERE IS" AND "WITH ALL
          FAULTS," AND BUYER SHALL RELY UPON ITS OWN EXAMINATION THEREOF;

     (c)  SELLER MAKES NO  REPRESENTATIONS OR WARRANTIES WITH RESPECT TO (I) THE
          CONDITION OR MERCHANTABILITY OF ANY OF THE PURCHASED ASSETS, INCLUDING
          THE PIPELINES, THE TERMINAL ASSETS, THE TERMINAL REAL PROPERTY AND ANY
          PORTION  THEREOF OR ANY OTHER ASSETS  TRANSFERRED TO BUYER PURSUANT TO
          THE TERMS AND  CONDITIONS OF THIS  AGREEMENT,  (II) THE FITNESS OF ANY
          ASSETS FOR ANY  PURPOSE OR (III) THE  ASSIGNABILITY,  COMPLETENESS  OR
          CONTIGUITY OF ANY PIPELINE RIGHTS OF WAY, THE PIPELINE AGREEMENTS, THE
          TERMINAL REAL PROPERTY,  PERMITS,  LICENSES AND OTHER PROPERTY RIGHTS,
          AND SELLER EXPRESSLY  DISCLAIMS ANY AND ALL SUCH  REPRESENTATIONS  AND
          WARRANTIES OF ANY KIND OR NATURE;

     (d)  BUYER EXPRESSLY  ACKNOWLEDGES THAT NEITHER SELLER NOR ANY OTHER PERSON
          HAS MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR
          IN EQUITY,  AS TO THE  ACCURACY  OR  COMPLETENESS  OF ANY  INFORMATION
          REGARDING THE PIPELINE  INTEREST,  THE PURCHASED ASSETS OR THE ASSUMED
          LIABILITIES,  AND BUYER  FURTHER  AGREES THAT  NEITHER  SELLER NOR ANY
          OTHER PERSON SHALL HAVE OR BE SUBJECT TO ANY LIABILITY  (EXCEPT TO THE
          EXTENT ARISING FROM THE FRAUDULENT MISCONDUCT OF SELLER, ITS EMPLOYEES
          OR  AGENTS)  TO  BUYER  OR  ANY  OTHER  PERSON   RESULTING   FROM  THE
          DISTRIBUTION  TO  BUYER,  OR  BUYER'S  USE OF,  ANY SUCH  INFORMATION,
          INCLUDING   ANY   CONFIDENTIAL   INFORMATION   MEMORANDUM,   AND   ANY
          INFORMATION,  DOCUMENT OR MATERIAL MADE  AVAILABLE TO BUYER IN CERTAIN
          "DATA  ROOMS,"   MANAGEMENT   PRESENTATIONS   OR  ANY  OTHER  FORM  IN
          EXPECTATION OF THE  TRANSACTIONS  CONTEMPLATED BY THIS AGREEMENT;  AND
          (e) BUYER EXPRESSLY ACKNOWLEDGES THE DISCLAIMERS OF SELLER,  INCLUDING
          (I) THOSE SET FORTH IN SECTIONS  8(a),  8(b),  8(c) AND 8(d) ABOVE AND
          (II)  THAT  THERE  ARE   UNCERTAINTIES   INHERENT  IN  ANY  ESTIMATES,
          PROJECTIONS AND OTHER FORECASTS AND PLANS PROVIDED BY SELLER TO BUYER,
          INCLUDING  ANY  SUCH   INFORMATION   CONTAINED  IN  ANY   CONFIDENTIAL
          INFORMATION  MEMORANDUM  MADE AVAILABLE TO BUYER IN EXPECTATION OF THE
          TRANSACTIONS  CONTEMPLATED BY THIS  AGREEMENT,  THAT BUYER IS AWARE OF
          AND  FAMILIAR  WITH  SUCH  UNCERTAINTIES  AND THAT  BUYER  TAKES  FULL
          RESPONSIBILITY  FOR  MAKING ITS OWN  EVALUATION  OF THE  ADEQUACY  AND
          ACCURACY OF ANY SUCH  ESTIMATES,  PROJECTIONS  AND OTHER FORECASTS AND
          PLANS (INCLUDING THE REASONABLENESS OF THE ASSUMPTIONS UNDERLYING SUCH
          ESTIMATES,   PROJECTIONS   AND  FORECASTS)  IN  CONNECTION   WITH  THE
          TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. ACCORDINGLY, SELLER MAKES
          NO  REPRESENTATIONS  OR  WARRANTIES  WITH  RESPECT TO SUCH  ESTIMATES,
          PROJECTIONS   AND   OTHER   FORECASTS   AND   PLANS   (INCLUDING   THE
          REASONABLENESS   OF  THE   ASSUMPTIONS   UNDERLYING   SUCH  ESTIMATES,
          PROJECTIONS  AND  FORECASTS).  BUYER  ACKNOWLEDGES  THAT  IT  HAS  HAD
          SUFFICIENT  OPPORTUNITY TO MAKE WHATEVER  INVESTIGATION  IT HAS DEEMED
          NECESSARY AND ADVISABLE FOR PURPOSES OF DETERMINING  WHETHER OR NOT TO
          ENTER  INTO  THIS  AGREEMENT.   NOTWITHSTANDING  THE  FOREGOING,  THIS
          PARAGRAPH  SHALL NOT EXCUSE OR RELEASE  SELLER FROM  LIABILITY FOR THE
          FRAUDULENT MISCONDUCT OF SELLER OR ITS EMPLOYEES OR AGENTS.

     (f)  Notwithstanding  any other  provisions  of this Section 8, and for the
          avoidance  of doubt,  Seller  and Buyer  agree  that  nothing  in this
          Section 8 shall in any way limit or  eliminate  Buyer's  rights to (i)
          seek damages or other remedies for any breach by Seller of any express
          representation, warranty or covenant set forth in this Agreement or in
          any  instruments,  documents  or  agreements  referred  to  herein  or
          executed in connection with the transactions  contemplated  hereby, or
          (ii)  enforce  Seller's  indemnity  obligations  as set  forth in this
          Agreement or in any instruments,  documents or agreements  referred to
          herein or executed in connection  with the  transactions  contemplated
          hereby.

     9. BUYER'S  REPRESENTATIONS  AND  WARRANTIES.  Buyer hereby  represents and
warrants to Seller as set forth below:


     (a)  Organization  and Good Standing.  Buyer is a limited  partnership duly
          formed or organized,  validly  existing and in good standing under the
          laws of the State of Delaware.

     (b)  Authority  of Buyer.  Buyer has the power and  authority to enter into
          this Agreement and the transactions  contemplated  hereby and to carry
          out its obligations hereunder. The execution, delivery and performance
          of this Agreement and the transactions  contemplated  hereby have been
          duly  authorized  and  this  Agreement  has  been  duly  executed  and
          delivered by Buyer and this Agreement  constitutes a valid and binding
          agreement of Buyer  enforceable  against Buyer in accordance  with its
          terms,  except as such enforceability is limited by general principles
          of  equity  and  applicable   provisions  of  bankruptcy   insolvency,
          moratorium, reorganization or similar laws.

     (c)  Consents. Other than with respect to the HSR Act, no consent, approval
          of or by, filing with, or notice to any other Persons is required with
          respect  to  Buyer  in  connection  with the  execution,  delivery  or
          enforceability   of  this  Agreement  or  the   consummation   of  the
          transactions provided for hereby.

     (d)  No Breach.  The  execution  and  delivery  of this  Agreement  and the
          consummation  of  the   transactions   contemplated   hereby  and  the
          compliance  by Buyer with any of the  provisions  hereof  does not and
          will not: (i) violate or conflict  with, or result in a breach of, any
          provisions of, or constitute a default (or an event which, with notice
          or lapse of time or both, would constitute a default) under, or result
          in termination  of, or accelerate the  performance  required by any of
          the terms, conditions or provisions of the organizational documents of
          Buyer or any material  agreement,  instrument  or  obligation to which
          Buyer is a party or (ii)  violate  any  order,  injunction,  judgment,
          decree or award applicable to Buyer, or any federal,  state,  local or
          foreign law,  ordinance,  statute,  rule or  regulation  applicable to
          Buyer.

     (e)  Litigation.  No action, suit,  arbitration or regulatory proceeding is
          pending or, to Buyer's  Knowledge,  threatened  seeking to restrain or
          prohibit this Agreement,  or any agreement,  instrument or transaction
          contemplated  hereby, or to obtain damages, a discovery order or other
          relief  in  connection   with  this  Agreement  or  the   transactions
          contemplated hereby.

     (f)  Brokers.  Buyer has not  retained any broker or finder or incurred any
          liability or obligation for any brokerage fees, commissions,  finders'
          fees or similar  compensation  with  respect to this  Agreement or the
          transactions contemplated hereby.

     (g)  Availability of Funds. Buyer will have sufficient cash available on or
          before the Closing Date to enable it to  consummate  the  transactions
          contemplated by this Agreement.

     10. COVENANTS.


     (a)  Covenants of Seller. Seller covenants and agrees as follows:

          (i)  Access and  Information.  Subject to the provisions of the letter
               agreement    between   Buyer   and   Seller   with   respect   to
               confidentiality   dated   on  or   about   May  20,   2002   (the
               "Confidentiality  Agreement") and upon reasonable notice,  Seller
               shall  grant,  or cause to be granted  to,  Buyer  access  during
               normal  business hours  throughout the period between the date of
               this  Agreement and the Closing Date to the Purchased  Assets and
               the  books and  records  and other  information  relating  to the
               operations of the Pipeline Interest.  During this period,  Seller
               shall use all  commercially  reasonable  efforts to  furnish,  or
               cause to be furnished to, Buyer and its  representatives all data
               and information concerning the Purchased Assets and the operation
               of the Pipeline  Interest  (the "Data")  which may  reasonably be
               requested  by Buyer  and shall  use all  commercially  reasonable
               efforts to make available,  or cause to be made  available,  such
               personnel  of  Seller  as may  reasonably  be  requested  for the
               furnishing  of such Data.  During  this  period,  Buyer shall not
               contact  or  communicate  with  any  employees,  customers  of or
               suppliers to the Pipeline Interest without Seller's prior written
               consent,  which  consent  shall  not  be  unreasonably  withheld,
               conditioned or delayed. Buyer shall indemnify and hold Seller and
               its affiliates  harmless against any and all Losses suffered as a
               result of Buyer's or its employees' or agents'  negligent acts or
               omissions  or  intentional  misconduct  in  connection  with  the
               exercise  of  Buyer's   rights  under  this   Section   10(a)(i).
               Notwithstanding  any provision in this Agreement to the contrary,
               Buyer's obligations under this Section 10(a)(i) shall survive the
               termination  of  this  Agreement  and  the  consummation  of  the
               transactions contemplated hereby.

          (ii) Conduct of  Business.  From the date  hereof  through the Closing
               Date, Seller shall: operate the Pipeline Interest in the ordinary
               course  of   business   consistent   with  past   practice;   use
               commercially   reasonable   efforts  to   maintain   satisfactory
               relationships with employees, suppliers, distributors,  customers
               and  others  having  business  relationships  with  the  Pipeline
               Interest;  use  commercially  reasonable  efforts to maintain the
               Purchased Assets in reasonably good operating  condition,  normal
               wear and tear excepted; maintain its inventory of supplies, parts
               and other materials and inventories and keep its books of account
               records  and  files,  in each  case  in the  ordinary  course  of
               business consistent with past practice; refrain from (A) entering
               into,   amending,   modifying,   waiving  any  rights   under  or
               terminating  (or allowing to  terminate)  any Material  Contract,
               other than  allowing  Material  Contracts to expire in accordance
               with  their  terms  in  the  ordinary  course  of  business,  (B)
               disposing of, encumbering,  selling or otherwise transferring any
               of the material  assets  constituting  Purchased  Assets or other
               rights of the Pipeline  Interest,  (C) commencing any new capital
               projects  or  making  any  additional   commitments  for  capital
               expenditures  relating  to the  Pipeline  Interest  in  excess of
               twenty five thousand  dollars  ($25,000.00) in the aggregate,  or
               (D)  granting  or  agreeing  to grant  any bonus or  increase  in
               compensation  to any employees of the Pipeline  Interest,  except
               for those that Buyer  would not be  responsible  for paying or as
               otherwise provided in the Transition Services Agreement, or enter
               into any contract of employment,  collective bargaining agreement
               or other  labor  contract  with  respect  to any such  employees;
               provided that Seller may take any action to which Buyer  consents
               in  advance  and  in  writing   (which   consent   shall  not  be
               unreasonably  withheld  taking  account of Buyer's  and  Seller's
               commercial objectives with respect to the Purchased Assets).

          (iii)Confidentiality.  Seller  recognizes and acknowledges that it has
               knowledge  of  certain  confidential  information  regarding  the
               Purchased Assets and the Pipeline Interest which will be conveyed
               to Buyer at Closing  hereunder.  Seller  agrees  that it will not
               disclose,  and will use reasonable  commercial efforts to prevent
               disclosure to any other Person of such  confidential  information
               except to authorized  representatives of Buyer. Seller recognizes
               and agrees that violation of this provision may cause irreparable
               damage  or injury  to  Buyer,  the  exact  amount of which may be
               impossible  to  ascertain,  and that Buyer may be  entitled to an
               injunction,  without the  necessity  of posting a bond  therefor,
               restraining any further violation of this provision.  Such rights
               to any injunction  shall be in addition to, and not in limitation
               of,  any other  rights  and  remedies  Buyer  may have  vis-a-vis
               Seller;  provided  however,  Seller  shall be permitted to use or
               disclose  any  confidential  information  as  required to operate
               Seller's ongoing business, or as required by law or regulation.

          (iv) Pursuit of Claims  Against Prior Owners.  In the event that Buyer
               incurs  Losses for which no  recovery  is  available  from Seller
               under  the terms of this  Agreement,  but for  which  Seller  has
               legitimate claims for recovery from a prior owner of the Pipeline
               Interest due to breach of warranty or otherwise,  Seller  agrees,
               for a  period  of one  year  from  the  Closing  Date  (i) to use
               commercially  reasonable  efforts  to pursue  all such  claims on
               Buyer's behalf and in consultation  and  cooperation  with Buyer;
               and (ii) that all amounts  recovered from pursuit of such claims,
               less the costs of any suit or other proceeding, attorney fees and
               any and all other  amounts  expended or incurred by Seller or its
               representatives  or  advisors in  connection  with the pursuit of
               such  claims,  shall be paid  over  from  Seller  to  Buyer  upon
               receipt.  It is understood  that pursuit of such claims by Seller
               shall not include any  requirement  of Seller to expend any money
               or  commence  any   litigation,   arbitration   or  other  formal
               proceeding  in  connection  therewith.  Notwithstanding  anything
               contained  herein to the contrary,  Seller shall not be obligated
               to take any action  pursuant to the foregoing and may immediately
               terminate any action so undertaken,  if Seller shall determine in
               its  sole  discretion  that  pursuit  of  any  such  claim  could
               adversely affect either Seller's  business  interests or Seller's
               customer relationships.

          (v)  Removal of Liens and  Encumbrances.  In the event there are liens
               and encumbrances,  other than Permitted Liens, against any of the
               Purchased Assets, Seller shall cause the removal of such liens at
               or  before  Closing,  at its  sole  cost  and  expense.  Seller's
               obligations under this paragraph shall not be subject to Sections
               15(j) through (m).

          (vi) Certain  Information.  Subject to the Confidentiality  Agreement,
               Seller shall use commercially  reasonable efforts to furnish,  at
               Buyer's expense, to Buyer such information,  to the extent Seller
               has such information  available in its corporate records,  as may
               be  necessary  to permit  Buyer to arrange for  financing  of the
               transaction contemplated by this Agreement.

          (vii)Lien  Assistance.  At and  prior to  Closing,  Seller  shall  use
               commercially  reasonable  efforts  to assist and  cooperate  with
               Buyer and its lenders as  reasonably  required to enable  Buyer's
               lenders to place liens and mortgages on the assets to be acquired
               by Buyer from Seller pursuant to this Agreement at Closing.  This
               cooperation  shall  include,   but  not  be  limited  to,  making
               necessary  personnel  reasonably  available  at Seller's  offices
               during  normal  business  hours and  execution  and filing of all
               deeds,  assignments and other instruments necessary to vest title
               to said assets in Buyer at Closing as contemplated herein.

          (viii) Pressure  Matters.  Prior to Closing,  Seller shall  complete a
               pipeline  inspection  tool run, as  contemplated  under 49 C.F.R.
               ss.195.303,  in the segment of the 10"  Pipeline  extending  from
               Medina, ND to Moorhead, ND.

     (b)  Covenants of Buyer. Buyer covenants and agrees as follows:

     (i)  Confidentiality.

          (A)  Buyer acknowledges that all information provided to any of it and
               its  affiliates,   directors,   officers,   employees,   counsel,
               auditors, accountants, agents, advisors and other representatives
               by  Seller  and  its  directors,  officers,  employees,  counsel,
               auditors, accountants, agents, advisors and other representatives
               is subject  to the terms of the  Confidentiality  Agreement,  the
               terms of which  are  hereby  incorporated  herein  by  reference.
               Effective upon, and only upon, the Closing,  the  Confidentiality
               Agreement  shall  terminate  only  with  respect  to  information
               provided to any of Buyer and its affiliates, directors, officers,
               employees, counsel, auditors,  accountants,  agents, advisors and
               other  representatives  that relates  primarily to the  Purchased
               Assets, the Pipeline Interest, or the Assumed Liabilities.

          (B)  Buyer agrees that,  from and after the Closing  Date,  all Seller
               Information shall continue to be confidential information subject
               to the terms,  conditions and restrictions of the Confidentiality
               Agreement.  In connection with the Transferred  Employees,  Buyer
               shall use commercially  reasonable  efforts,  at Seller's request
               and  at  Seller's  expense,   to  cooperate  with  Buyer  in  the
               enforcement  of existing  confidentiality  agreements  and rights
               requiring  employees  to keep  trade  secrets  confidential.  For
               purposes of this Agreement,  "Seller  Information" shall mean all
               information   concerning  Seller,  other  than  information  that
               relates primarily to the Pipeline Interest,  the Purchased Assets
               or the Assumed  Liabilities  and other than any such  information
               that  is  available  to  the  public  on  the  Closing  Date,  or
               thereafter  becomes  available  to the  public,  other  than as a
               result of a breach of this Section 10(b)(i).

          (ii) Notification.  From the date  hereof  through and  including  the
               Closing  Date,  Buyer  shall  promptly  notify  Seller  within  a
               reasonable   period  of  time  if  to  Buyer's   Knowledge,   any
               representation  or  warranty of Seller in this  Agreement  or any
               agreement  contemplated  hereby or  information  set forth in the
               Schedules  hereto  is  not  true  and  correct  in  all  material
               respects,  or if to  Buyer's  Knowledge,  there are any  material
               errors in, or omissions  from,  the Schedules to this  Agreement;
               provided  that any delay or failure by Buyer to so notify  Seller
               shall not in any way affect or limit Buyer's right to assert such
               matters  that were within  Buyer's  Knowledge as a breach of such
               representations  or warranties for purposes of exercising Buyer's
               right to  indemnification  after the Closing  Date,  it being the
               intention  of the  Parties  that any delay or failure by Buyer to
               notify Seller as required by this Section 10(b)(ii) shall operate
               only to limit  Buyer's  right under  Section  12(b) to claim such
               failure  of such  representation  and  warranty  to be  true  and
               correct in all material  respects as a condition to Closing.  For
               purposes of this Agreement,  "Knowledge," when used in the phrase
               "Buyer's  Knowledge"  in this  Agreement  or in  similar  context
               means,  and shall be limited  to, the actual  knowledge  (without
               independent  investigation)  of (i)  Edward  Doherty,  (ii) Jimmy
               Harrison,  (iii) Ron  Scoggins,  (iv) Leroy  Anderson and (v) Lee
               Childres,  and including but not limited to any  replacements  of
               any of the foregoing individuals prior to Closing.

          (iii)Litigation.  With respect to all litigation and other matters set
               forth on the Schedules attached hereto and any other matters that
               constitute  Retained  Liabilities  and for so long as  Seller  is
               contesting or defending such matter, Buyer shall cooperate in all
               reasonable  respects with Seller and its counsel in their efforts
               to  conduct  or  resolve  such  litigation,  including  by making
               available to them at Seller's  sole expense  such  documents  and
               witnesses  as may be  deemed  necessary  or  useful  therefor  in
               Seller's sole but reasonable discretion.

          (iv) Title Policies.  Buyer may procure, and shall pay the cost of the
               premium  for,  commitments  or  policies  from a title  insurance
               company  selected  by Buyer to provide  owner's  title  insurance
               policies  with  respect to the portions of the  Purchased  Assets
               constituting  real  property,  provided,  however,  that  Buyer's
               ability or  inability  to obtain  title  insurance  (and  without
               regard to (i) any exceptions contained therein and (ii) any title
               insurance  premium  Buyer is  required  to pay in order to obtain
               such title insurance) on such real property shall not cause there
               to be an adjustment to the Purchase Price; provided, however, the
               foregoing  shall not be deemed to mitigate  Seller's  obligations
               set forth in Section 10(a)(v).

          (v)  Removal  of  Seller  Marks.   Buyer  agrees  that  it  shall  use
               commercially  reasonable  efforts to, within six (6) months after
               the  Closing  Date,  remove,  obliterate,  cover or  replace,  as
               appropriate,   all   signs,   billboards,    containers,   drums,
               advertisements or other media containing any service marks, trade
               names,  trade dress or other indicia of origin of Seller  located
               on or  appurtenant  to  any of the  Purchased  Assets,  including
               signs,  billboards and  advertisements  or other media located at
               offices  and  facilities  related to the  Pipeline  Interest.  In
               addition,  Buyer agrees that it shall use commercially reasonable
               efforts to, within six (6) months after the Closing Date, replace
               all  signs  located  along  each  Pipeline,  including  at  river
               crossings, that identify Seller as the operator of such Pipeline.

     (c)  Mutual Covenants. Buyer and Seller covenant and agree as follows:

          (i)  HSR Act/State Regulatory  Approvals.  Buyer and Seller shall each
               file or cause to be filed with the Federal Trade  Commission  and
               the  United  States   Department  of  Justice  any  notifications
               required  to be filed  under  the HSR Act,  with  respect  to the
               transactions contemplated hereby, and Buyer and Seller shall bear
               the costs and expenses of their respective filings; provided that
               Buyer  and  Seller  shall  each  pay  50%  of the  filing  fee in
               connection therewith. Buyer and Seller shall use their respective
               commercially  reasonable  efforts to make such  filings  promptly
               (and in any  event  within  seven (7)  days)  following  the date
               hereof,  to  respond  promptly  to any  requests  for  additional
               information  and  documentary  materials  made by  either of such
               agencies or any state regulatory authorities, to make any further
               filings that may be necessary,  proper or advisable in connection
               therewith,  to cause  the  waiting  periods  under the HSR Act to
               terminate or expire at the earliest  possible  date and to resist
               in good  faith,  at each of their  respective  cost  and  expense
               (including the institution or defense of legal proceedings),  any
               assertion that the transactions  contemplated hereby constitute a
               violation  of the  antitrust  laws or are  adverse  to the public
               interest,  all  to  the  end of  expediting  consummation  of the
               transactions contemplated hereby. Each of Buyer, on the one hand,
               and Seller,  on the other,  shall consult with the other prior to
               any  meetings,  by telephone or in person,  with the staff of the
               applicable governmental authorities, and each of Buyer and Seller
               shall have the right to have a representative present at any such
               meeting.  Notwithstanding  anything to the contrary herein,  this
               paragraph shall not obligate Buyer to (A) divest or hold separate
               any asset, (B) enter into any material agreement not contemplated
               by this Agreement, or (C) materially modify this Agreement.

          (ii) Assignments.

               (A)  (I) With respect to any agreement, contract, license, lease,
                    easement,  right-of-way  or  Permit  which  (1)  is  not  an
                    Excluded  Asset,  (2) is  material to the  operation  of the
                    Pipeline  Interest as it is currently  and has been operated
                    by Seller during the  immediately  preceding five (5) months
                    and (3)  requires  consent  for the  assignment  thereof  to
                    Buyer, Seller shall take such actions as are necessary,  and
                    Buyer shall cooperate fully with Seller in all  commercially
                    reasonable  respects,  to effect assignment thereof to Buyer
                    as of the Closing Date.  It is understood  that such actions
                    by Seller  shall not  include any  requirement  of Seller to
                    commence any litigation or offer or grant any  accommodation
                    (financial  or  otherwise)  to any third  party,  but Seller
                    shall be required to expend money in  connection  therewith;
                    provided,  however,  that Buyer  shall be  obligated  to pay
                    Seller any railroad  application  fees  required to transfer
                    the rights of way,  up to a maximum  of sixty five  thousand
                    dollars  ($65,000).  In the event  that  Seller is unable to
                    obtain the  requisite  approval for  assignment  of any such
                    agreement, contract, license, lease, easement,  right-of-way
                    or  Permit,  or  in  the  event  such  agreement,  contract,
                    license, lease, easement, right-of-way or Permit is required
                    to be  amended  or  supplemented  and is not so  amended  or
                    supplemented  as of the Closing Date, and such assignment is
                    reasonably   necessary  to  conduct  the  operation  of  the
                    Pipeline Interest in the ordinary course of business,  then,
                    on or before the Closing  Date and except  where such action
                    would be unlawful or prohibited by such agreement, contract,
                    license,  lease,  easement,  right-of-way or Permit,  Seller
                    shall (x)  retain  any such  agreement,  contract,  license,
                    lease, easement, right-of-way or Permit and shall enter into
                    an arrangement with Buyer to provide Buyer with the benefits
                    of  such  agreement,  contract,  license,  lease,  easement,
                    right-of-way or Permit,  provided,  that Buyer shall perform
                    Seller's  obligations  thereunder  arising after the Closing
                    (and indemnify  Seller against Losses arising as a result of
                    Buyer  causing  a  breach  thereunder  or Buyer  failing  to
                    perform Seller's  obligations  thereunder after the Closing)
                    until such agreement,  contract,  license,  lease, easement,
                    right-of-way  or Permit is  assigned  to Buyer or expires at
                    the earliest opportunity in accordance with its terms, or is
                    properly   amended  or   supplemented,   and  (y)  take  all
                    commercially  reasonable and necessary  actions  required to
                    assign to Buyer,  or amend or supplement any such agreement,
                    contract,  license, lease, easement,  right-of-way or Permit
                    as soon as practicable after the Closing Date; and

               (II) In  addition  to the  obligations  of Seller  under  Section
                    10(c)(ii)(A)(I) above, Seller shall take such actions as are
                    necessary,  including  expending  money,  and  Seller  shall
                    cooperate  fully with Buyer in all  commercially  reasonable
                    respects,  to  remedy  the  matters  set  forth on  Schedule
                    10(c)(ii)(A)(II).

          (B)  Notwithstanding   Seller's   obligations   pursuant   to  Section
               10(c)(ii)(A), the assignment of any agreement, contract, license,
               lease,  easement,  right of way or  Permit to be  transferred  to
               Buyer which  requires  consent for  assignment,  or  amendment or
               supplement,  may be effected after the Closing Date. The Purchase
               Price shall not be subject to adjustment,  and the Closing of the
               transactions contemplated by this Agreement shall not be delayed,
               by reason of any  inability to obtain  consent for  assignment of
               any agreement,  contract,  license, lease, easement, right of way
               or Permit or any such amendment or supplement.  Buyer agrees that
               except as provided in Section  15(b)(iii),  Seller shall not have
               any  liability  whatsoever to Buyer arising out of or relating to
               the failure to obtain any such consents that may have been or may
               be required in connection with the  transactions  contemplated by
               this  Agreement  or  because  of  the  default,  acceleration  or
               termination  of any such  agreement,  contract,  license,  lease,
               easement,  right of way or Permit as a result  thereof  (provided
               that Seller has complied with its obligations  under this Section
               10(c)(ii)). Buyer further agrees that no representation, warranty
               or  covenant  of Seller  contained  herein,  shall be breached or
               deemed  breached and no condition of Buyer shall be deemed not to
               be  satisfied  as a result  of the  failure  to  obtain  any such
               consent  or as a result  of any  such  default,  acceleration  or
               termination  or  any  lawsuit,   action,  claim,   proceeding  or
               investigation  commenced  or  threatened  by or on  behalf of any
               Persons  arising  out of or relating to the failure to obtain any
               such consent or any such  default,  acceleration  or  termination
               (provided  that Seller has complied  with its  obligations  under
               this Section 10(c)(ii)).

          (iii)Other  Governmental  Approvals.  Buyer and Seller shall cooperate
               with each other and take all reasonable steps necessary to obtain
               authorization  for the  sale of the  Pipeline  Interest  from all
               other applicable governmental authorities.

          (iv) Other  Actions.  Buyer  and  Seller  shall  otherwise  use  their
               respective   commercially   reasonable   efforts   to  cause  the
               satisfaction  of all conditions  precedent in this Section 10 and
               Sections 12 and 13 and the Closing to occur as soon as reasonably
               practicable after the date of this Agreement.

          (v)  Pipeline  Capacity Lease. At the Closing,  Buyer and Seller shall
               execute and deliver a Capacity Lease substantially in the form of
               Exhibit  F under  which  Buyer  will  lease  to  Seller  capacity
               post-Closing in the Buyer's pipeline  intersecting the Pipelines,
               between  Mandan,  North  Dakota and certain  terminals on Buyer's
               Iowa/Dakota pipeline system.

          (vi) Jamestown  Terminal  Capacity  Lease.  At the Closing,  Buyer and
               Seller shall execute and deliver a Capacity  Lease  substantially
               in the form of Exhibit K under  which  Buyer will lease to Seller
               capacity  post-Closing  in the Jamestown,  North Dakota  terminal
               being purchased by Buyer under this Agreement.

          (vii)Other Agreements.  At the Closing, Buyer and Seller shall execute
               and deliver  each of the  agreements  substantially  in the forms
               attached  hereto as  Exhibits  and,  with  respect to  agreements
               contemplated  in  Section  5(b)(ii)  and  Section  5(d)  but  not
               attached hereto as Exhibits,  the parties shall negotiate in good
               faith and enter into such agreements at Closing.

          (viii) Environmental Access Agreement.  The parties shall negotiate in
               good  faith  and  enter  into an  environmental  agreement  to be
               executed at Closing (the "Environmental  Access Agreement").  The
               Environmental   Access  Agreement  shall  include,  or  otherwise
               provide, at a minimum, (i) for Seller's reasonable management and
               control  of  the  remediation  of  the  Disclosed   Environmental
               Liabilities, (ii) for Seller's necessary and reasonable access to
               the Purchased  Assets after Closing,  and (iii)for the expiration
               of  the   Environmental   Access  Agreement  as  to  a  Disclosed
               Environmental   Liability  upon  remediation  of  that  Disclosed
               Environmental Liability to a remediation clean-up standard and in
               a time frame no more  stringent  than required by the  government
               agencies  with  jurisdiction  over  the  Disclosed  Environmental
               Liabilities (as  demonstrated by receipt of a closure letter from
               the applicable  governmental  agency(ies) or demonstration of the
               clean-up  standard being  satisfied for a one-year period after a
               good faith request for closure is requested);  provided  however,
               that neither (A) the  Environmental  Access Agreement nor (B) any
               closure letter or demonstration of any clean-up standard, whether
               as  contemplated  by the  parenthetical  in clause  (iii) of this
               sentence or otherwise,  shall reduce or limit the  obligations of
               Seller  with  respect  to, or cause a  termination  of,  Seller's
               Environmental  Liabilities  provided  in Section  4(c)(iii),  nor
               shall it reduce or limit the  obligations  of Buyer with  respect
               to, or cause a termination of, Buyer's Environmental  Liabilities
               provided  in Section  4(c)(iv),  nor shall it affect any  Party's
               rights or obligations under Section 15.

          (ix) Casualty Loss.

               (A)  If, between the Effective  Date and the Closing Date,  there
                    shall  have  occurred  any  damage,   destruction  or  other
                    casualty  losses  (excluding   routine  wear  and  tear)  (a
                    "Casualty")  with respect to the  Purchased  Assets,  Seller
                    shall  promptly  notify  Buyer  of the  occurrence  of  such
                    Casualty,  providing full details about the nature, location
                    and  projected  effect of such  Casualty,  the equipment and
                    facilities affected thereby and the expected duration of the
                    Casualty,  together with the anticipated costs of repair and
                    the projected  time until  repairs can be completed,  and an
                    itemization  of repairs  required to return  such  Purchased
                    Assets  to their  condition  prior to such  Casualty.  Buyer
                    shall  have the right to audit,  inspect  and  evaluate  the
                    Casualty and Seller's  projections of necessary repairs.  If
                    Buyer, in its reasonable commercial judgment determines that
                    such Casualty,  or all Casualties combined, if more than one
                    has been  identified,  will cause an Adverse Economic Effect
                    upon the Purchased Assets,  taken as a whole, as intended to
                    be  operated  by  Buyer  after  Closing,  then  Buyer  shall
                    promptly  notify  Seller  accordingly,  within  15  days  of
                    Buyer's receipt of notice of a Casualty,  stating the amount
                    of Buyer's  projected  Adverse Economic Effect and providing
                    documentation     and    calculations     supporting    such
                    determination.   For  purposes  hereof,   "Adverse  Economic
                    Effect"  means the sum of (x) the  projected  loss of tariff
                    revenues resulting from the Casualty, based upon a projected
                    reduction in  throughput,  plus (y) projected  reductions in
                    lease  payments  resulting  from the Casualty  owed to Buyer
                    under the  Pipeline  Capacity  Lease and  Terminal  Capacity
                    Lease as set forth in Exhibit F and Exhibit K, respectively,
                    less (z) Buyer's savings in power costs,  resulting from the
                    Casualty.

               (B)  If the  Adverse  Economic  Effect  is  determined  to be two
                    hundred fifty thousand  dollars  ($250,000) or less,  Seller
                    may (i) after  providing  two days prior  written  notice to
                    Buyer  of  its  intent  to do so,  elect  to  terminate  the
                    Agreement  pursuant to Section  18(a)(vi),  or (ii) elect to
                    repair all damage to the  Purchased  Assets at its sole cost
                    and expense in which event  Buyer's  obligation to close the
                    transactions contemplated hereunder will not be affected. If
                    such repairs are not  completed by the Closing  Date,  Buyer
                    shall  proceed  to  close  the   transactions   contemplated
                    hereunder, and Seller shall complete such repairs as quickly
                    as reasonably  practicable  after Closing in accordance with
                    all applicable industry,  legal and regulatory standards, in
                    which case  Seller  shall pay Buyer a Delay Fee for each day
                    during the  Period,  which  begins on the  Closing  Date and
                    continues  until the date repairs are completed (the "Repair
                    Period").  The Delay Fee shall be equal to the  reduction in
                    Buyer's  anticipated  revenue from operation of the Pipeline
                    Interest,  which  shall  be  calculated  as  the  difference
                    between  (I) the revenue  Buyer  would have  received if all
                    portions of the  Pipeline  Interest  were  operated at their
                    respective  average throughput volumes during the sixty (60)
                    day  period  immediately  prior  to  the  occurrence  of the
                    Casualty, minus (II) the revenue Buyer actually receives for
                    shipment of  Petroleum  Products  during each day during the
                    Repair Period.  Seller's  indemnification  obligations under
                    Section 15 for its breach of this  Section  10(c)(ix)  shall
                    not be  subject  to the  deductibles  or cap  set  forth  in
                    Section 15(j) or Section 15(k).

               (C)  If the Adverse  Economic  Effect is determined to be greater
                    than two hundred fifty thousand dollars  ($250,000),  Seller
                    may (i) after  providing  two days prior  written  notice to
                    Buyer  of  its  intent  to do so,  elect  to  terminate  the
                    Agreement  pursuant to Section  18(a)(vi),  or (ii) elect to
                    request Fluor  Corporation to evaluate the Purchased  Assets
                    and deliver to Buyer and Seller its written  estimate of the
                    Adverse  Economic  Effect plus the cost to repair all damage
                    to the Purchased Assets ("Third Party  Estimate")  within 30
                    days of being  requested  to do so by  Seller.  If the Third
                    Party  Estimate is greater than two hundred  fifty  thousand
                    dollars  ($250,000),  the Parties  shall  negotiate  in good
                    faith to attempt to agree upon a Purchase Price reduction to
                    compensate  Buyer for the  Adverse  Economic  Effect and the
                    cost to repair the damage to the Purchased  Assets caused by
                    the Casualty. If the Parties cannot agree upon the amount of
                    such Purchase Price reduction within ten (10) days after the
                    issuance of the Third  Party  Estimate,  either  Party shall
                    have the  right,  after  providing  two days  prior  written
                    notice  to the  other  party  of  its  intent  to do so,  to
                    terminate this Agreement pursuant to Section  18(a)(vi).  In
                    the event that Seller exercises its rights to terminate this
                    Agreement  under  Section  10(c)(ix)(B)  or (C) , Buyer  may
                    provide  written  notice  to  Seller  within  three  days of
                    receipt of Seller's notice to terminate of Buyer's desire to
                    waive any and all  obligation of Seller with respect to such
                    Casualty,  in which event (x) the Parties  shall  proceed to
                    Closing,  (y) Seller  shall have no  obligation  to make any
                    repairs to the damaged  Purchased  Assets and there shall be
                    no Purchase  Price  reduction,  and (z) the Casualty  giving
                    rise to the Adverse  Economic  Effect shall be deemed not to
                    breach any  representation or warranty or covenant and Buyer
                    shall not have any right to receive indemnification or other
                    compensation hereunder with respect thereto.

               (D)  In the  event  that  any  Casualty  occurring  prior  to the
                    Closing (regardless of the amount of the associated Casualty
                    Loss) has been  repaired in full prior to the  Closing,  the
                    foregoing  provisions  shall not apply and the parties shall
                    proceed  to  Closing  as if such  Casualty  had never  taken
                    place.

               (E)  Notwithstanding  anything in this Agreement to the contrary,
                    in the event a Casualty  occurs prior to the  Closing,  this
                    Section shall exclusively govern any termination rights that
                    may exist as a result  of such  Casualty  and such  Casualty
                    shall  not  have any  effect  on  Seller's  representations,
                    warranties  or covenants set forth herein or cause a failure
                    of Buyer's conditions to close as set forth in Section 12 to
                    be satisfied.

          (x)  Product  Inventory.  At Closing,  Buyer will take  custody of all
               petroleum  products   inventories   contained  in  the  Pipelines
               linefill  and  Terminals  linefill  and  tankage,  and  including
               without  limitation,  additives  (the "Product  Inventory").  The
               volume  of  such  Product   Inventory   shall  be  determined  in
               accordance with an Inventory Closing Procedure attached hereto as
               Exhibit L.

          (xi) Name Change. Prior to Closing, Seller shall file all certificates
               and other documentation required to legally reflect the change in
               name of Seller from Tesoro West Coast Company to Tesoro  Refining
               and Marketing Company in all real property records related to the
               Pipeline Agreement or the real property included in the Purchased
               Assets.

     11. EMPLOYEES.

     (a)  Employees.  Schedule  11(a)  attached  hereto  contains  a list of all
          employees (collectively,  the "Employees") of Seller directly employed
          in the  operation  of the  Pipeline  Interest,  save and except  those
          employed in operation  of the control  room for the  Pipeline  System,
          including employees who are receiving  short-term  disability benefits
          or are on family and medical, administrative, or military leave or any
          other type of leave that entitles the Employee to  reinstatement  upon
          completion of the leave under the applicable  leave policies of Seller
          (collectively,  "Leave").  Seller shall be entitled to update Schedule
          11(a) as necessary at any time prior to Closing to reflect any and all
          employment  changes.  Any  reference to Buyer in this Section 11 shall
          refer to Buyer and its  affiliates.  (b)  Employment  Offers to Active
          Employees.  During the fifteen (15) day period following the Effective
          Date,  Buyer  shall  offer to  active  Employees  who are not on Leave
          employment  with Buyer to be effective as of the Closing Date,  and to
          Employees  on  short-term  disability,  employment  with  Buyer  to be
          effective  upon the later of the Closing Date or each such  Employee's
          respective  medical  clearance  to  return  to  work,  for  all of the
          Employees  associated  with the  Pipeline  Interest  (not to exceed 26
          employees),  at substantially  similar salaries or wages, with similar
          duties  and  responsibilities,  at the same  location  and on the same
          status   (e.g.,   full-time  or   part-time)  as  provided  by  Seller
          immediately  prior to the  Closing  Date.  All  Employees  who  accept
          employment with Buyer pursuant to the offers described in this Section
          11(b) are referred to herein as "Transferred  Employees."  Buyer shall
          not reduce any  Transferred  Employee's  initial salary or wages as an
          employee of Buyer  during the six (6) month  period  after the Closing
          Date.  Buyer  will  give  each  active  Employee  to  whom  it  offers
          employment  no less  than  seven (7) days in which to accept or reject
          Buyer's employment offer.  Notwithstanding  anything in this Agreement
          to the contrary, Seller will not provide to Buyer any medical or other
          records  related  to  Transferred  Employees  until  such  time as any
          consents  required by law or  regulation  have been received from such
          employees to transfer same.

     (c)  Transfer Time. All  Transferred  Employees  shall become  employees of
          Buyer as of Closing and except as otherwise  provided herein,  at such
          time,  Buyer  shall  assume  and be  responsible  for  payment  of all
          salaries and benefits and all other costs and liabilities  relating to
          the Transferred Employees incurred from and after Closing.

     (d)  Level of  Employee  Benefits  Provided by Buyer.  Except as  otherwise
          provided  herein,  Buyer shall  provide to all  Transferred  Employees
          employee  benefits in accordance with employee  benefit plans (such as
          defined  contribution  plans and  welfare  benefit  plans),  programs,
          policies and pay practices (such as vacations,  bonuses and short-term
          disability  leaves) that shall be the same as the benefits provided to
          substantially  similar  employees of Buyer.  No later than the Closing
          Date,  Seller  will  provide  to  Buyer  the  Transferred   Employees'
          recognized  credited  service,  and  participation,  vesting  and,  as
          applicable, benefit accrual periods of service amounts, with Seller as
          of the day immediately prior to the Closing Date.

     (e)  Defined Contribution Pension Plans. Buyer agrees that, effective as of
          the Closing Date, Buyer's defined  contribution pension plans in which
          Transferred  Employees  participate shall be amended to recognize such
          Transferred  Employees'  participation  and vesting periods of service
          with or credited by Seller for purposes of determining  participation,
          vesting and the level of company contributions.

     (f)  Welfare Benefits and Other Benefits and Policies. For each Transferred
          Employee who  participates  in any welfare benefit plan, or is subject
          to any policy or pay practice, of Buyer, both Buyer and the applicable
          welfare benefit, policy and pay practice shall:

          (i)  not   require  a   physical   examination   or  other   proof  of
               insurability; and

          (ii) subject to the  satisfaction of the conditions  described in this
               Section  11(f)(ii) on the Closing Date,  waive  waiting  periods,
               pre-existing condition exclusions, deductibles (for the remainder
               of  2002)  and  other  limitations  on  participation   otherwise
               applicable to any Transferred  Employee and qualified  dependents
               (who were covered by an employee  welfare  benefit plan of Seller
               or its  affiliates  and  immediately  elects to be  covered by an
               employee  welfare benefit plan of Buyer) under or with respect to
               all employee  welfare  benefit  plans  maintained  by Buyer.  The
               conditions  for the waivers  described in this Section  11(f)(ii)
               are:

               (A)  Buyer will waive waiting  periods to the extent service with
                    Seller would  otherwise  satisfy the waiting  period and the
                    Transferred  Employee  is  actively  at work;  for Long Term
                    Disability   Insurance,   the  waiver  is  contingent   upon
                    receiving a waiver from Buyer's insurance carrier;

               (B)  Buyer will waive  pre-existing  condition  exclusions to the
                    extent a Certificate of Creditable  Coverage is presented by
                    and for the Transferred  Employee and all dependents showing
                    coverage for the eighteen (18) months  immediately  prior to
                    coverage under Buyer's plan; and

               (C)  Buyer will offset (waive or partially waive)  deductibles to
                    the extent  the  Transferred  Employee  or  dependent  shows
                    reasonable   evidence  of  satisfaction  of  the  applicable
                    deductible with Seller during the same calendar year.

     (g)  Vacation. Seller shall be responsible for paying the Employees for any
          vacation  due as of the  Closing  Date under the  applicable  vacation
          policy of  Seller.  Subject  to Buyer's  vacation  scheduling  policy,
          between the Closing  Date and the end of the year in which the Closing
          occurs,  Buyer shall permit all Transferred  Employees to schedule and
          take the same number of days of  vacation  on an unpaid  basis as they
          had scheduled and would have been eligible to take  immediately  prior
          to the Closing Date under the Seller's  Vacation Policy based upon the
          recognized credited service amounts of such Transferred Employees with
          Seller.  All Transferred  Employees will be eligible for paid vacation
          under Buyer's  vacation policy  beginning  January 1, 2003, based upon
          their recognized transferred service.

     (h)  Severance.  Buyer shall  establish a  severance  policy  substantially
          similar  to the 2002  Tesoro  Special  Severance  Plan/Pipelines  (the
          "Severance  Plan"),  with respect to any Transferred  Employee who has
          actions  taken  against such  Transferred  Employee  prior to March 7,
          2003, that would make the Transferred  Employee eligible for severance
          benefits under the involuntary  terminations  section of the Severance
          Plan.  Buyer's  severance policy  established under this Section 11(h)
          shall recognize the Transferred Employees' recognized credited service
          amounts with Seller.

     (i)  WARN Act. Buyer represents and warrants to, and covenants with, Seller
          that there will be no major employment  losses as a consequence of the
          transactions   contemplated  by  this  Agreement  that  might  trigger
          obligations  under the Worker  Adjustment and Retraining  Notification
          Act, 29 U.S.C.  Section 2101 et. seq.  (the "WARN Act"),  or under any
          similar provision of any federal,  state,  regional,  foreign or local
          law, rule or regulation  (collectively,  "WARN  Obligations").  To the
          extent that any WARN  Obligations  might arise as a consequence of the
          transactions   contemplated   by  this   Agreement,   Buyer  shall  be
          responsible  for, and shall indemnify the Seller  Indemnified  Parties
          against any Losses  caused by,  arising  from,  incurred in connection
          with or  relating  in any way to,  any WARN  Obligations  arising as a
          result of any  employment  losses  occurring  on or after the  Closing
          Date. For ninety (90) days following the Closing Date, Buyer shall not
          engage in any mass  layoff,  plant  closing or other action that might
          trigger WARN Obligations of Seller.

     (j)  Service  Credit.  From and after the  Closing  Date,  the  Transferred
          Employees shall be given credit for their service recognized by Seller
          prior to the Closing  Date for all  purposes,  including  eligibility,
          vesting and benefit  determination  and accrual  under all  applicable
          plans and programs of Buyer,  as well as for  purposes of  determining
          any  vacation,  severance  or other  related  benefits  to be provided
          pursuant to the manner described above.

     (k)  Benefits Miscellaneous. Notwithstanding the foregoing, Buyer shall not
          be  liable  for  any  obligations  arising  out  of  participation  by
          Transferred Employees in the employee benefit plans of Seller.

     12.  BUYER'S  OBLIGATION TO CLOSE.  Buyer's  obligation to close under this
Agreement is subject to the  fulfillment on or prior to the Closing Date of each
of the  following  conditions  (except  to the  extent  that  Buyer  shall  have
hereafter agreed in writing to waive one or more of such conditions).

     (a)  Compliance with Agreement. Seller shall have performed and complied in
          all material  respects with all  covenants,  agreements and conditions
          required by this  Agreement to be performed or complied with by Seller
          prior to the Closing Date,  and Seller shall have delivered to Buyer a
          certificate executed by Seller to such effect.

     (b)  Representations and Warranties.  The representations and warranties of
          Seller  made in  this  Agreement  shall  be true  and  correct  in all
          material  respects  as of the date hereof and on and as of the Closing
          Date, as though made on and as of the Closing  Date,  and Seller shall
          have  delivered  to Buyer a  certificate  executed  by  Seller to such
          effect;  provided,  however,  that  breaches or  inaccuracies  in such
          representations  and warranties  shall not result in a failure of this
          condition to be satisfied unless the circumstances  giving rise to all
          such breaches or inaccuracies (considered collectively) are reasonably
          expected to have an adverse  effect on the Purchased  Assets in excess
          of one million dollars ($1,000,000).  The foregoing is not intended in
          any way to  mitigate  Seller's  indemnity  obligations  in  Section 15
          resulting from any such breaches or inaccuracies.

     (c)  Litigation.  There  shall  not be any  judicial  restraining  order or
          injunction,  preliminary  or  otherwise,  in  effect  prohibiting  the
          Closing of the  transactions  contemplated  by this  Agreement.  There
          shall not be  pending  or  threatened  any  litigation  or  proceeding
          instituted  by any federal,  state or foreign  governmental  agency to
          restrain,  prohibit or otherwise  interfere with or obtain substantial
          monetary   damages  in  connection   with  the   consummation  of  the
          transactions  contemplated  by this  Agreement,  or  operation  of the
          Pipeline Interest by Buyer after the Closing Date.

     (d)  Governmental Consents. All legal requirements under the HSR Act or any
          equivalent  state law for the valid  occurrence of Closing  (including
          the  expiration  or  termination  of any  applicable  waiting  periods
          without a material condition) shall have been fulfilled.

     (e)  Material Adverse Change.  Except for any Casualty Loss that is covered
          by the provision of Section  10(c)(ix),  there shall not have occurred
          any material adverse changes to the Pipeline Interest or the Purchased
          Assets or the business conducted  therewith,  which, in the aggregate,
          are  reasonably  expected to have an adverse  effect upon the Pipeline
          Interest,  the  Purchased  Assets or the  business to be  conducted by
          Buyer therewith in excess of an aggregate of $1,000,000.

     (f)  No  Financing  Contingency.  Buyer's  obligation  to close  under this
          Agreement is subject to any financing contingency.

     13. SELLER'S  OBLIGATION TO CLOSE.  Seller's obligation to close under this
Agreement is subject to the  fulfillment on or prior to the Closing Date of each
of the  following  conditions  (except  to the  extent  that  Seller  shall have
hereafter agreed in writing to waive one or more of such conditions).

     (a)  Compliance with Agreement.  Buyer shall have performed and complied in
          all material  respects with all  covenants,  agreements and conditions
          required by this  Agreement to be performed or complied  with by Buyer
          prior to the Closing Date,  and Buyer shall have delivered to Seller a
          certificate executed by Buyer to such effect;

     (b)  Representations and Warranties.  The representations and warranties of
          Buyer made in this Agreement shall be true and correct in all material
          respects as of the date hereof and on and as of the Closing  Date,  as
          though  made on and as of the  Closing  Date,  and  Buyer  shall  have
          delivered to Seller a certificate executed by Buyer to such effect;

     (c)  Litigation.  There  shall  not be any  judicial  restraining  order or
          injunction,  preliminary  or  otherwise,  in  effect  prohibiting  the
          Closing of the  transactions  contemplated  by this  Agreement.  There
          shall not be  pending  or  threatened  any  litigation  or  proceeding
          instituted  by any federal,  state or foreign  governmental  agency to
          restrain,  prohibit or otherwise  interfere with or obtain substantial
          monetary   damages  in  connection   with  the   consummation  of  the
          transactions  contemplated by this Agreement,  or the operation of the
          Pipeline Interest by Buyer after the Closing Date.

     (d)  Governmental Consents. All legal requirements under the HSR Act or any
          equivalent  state law for the valid  occurrence of Closing  (including
          the  expiration  or  termination  of any  applicable  waiting  periods
          without a material condition) shall have been fulfilled.

     14. FURTHER ASSURANCES.  To the extent title to any of the Purchased Assets
is held by any affiliate of Seller,  Seller shall cause title to such  Purchased
Assets to be vested in Seller prior to Closing.  From time to time,  as and when
reasonably  requested  by any party  hereto,  the other party shall  execute and
deliver,  or  cause  to be  executed  and  delivered,  all  such  documents  and
instruments  and shall  take,  or cause to be taken,  all such  further or other
actions  (subject  to the  limitations  set forth in Section  10(c)(ii)),  which
documents,  instruments  or actions  are  consistent  with,  and  customary  and
necessary  for,  the  consummation  of the  transactions  contemplated  by  this
Agreement.

     15. INDEMNIFICATION.

     (a)  Buyer's  Indemnification  of  Seller.  Except as  otherwise  expressly
          provided herein, and except for Environmental  Liabilities,  which are
          addressed in Section  15(c) below,  and subject to the  provisions  of
          this  Section  15,  from and  after  the  Closing  Date,  Buyer  shall
          indemnify,  defend,  save and hold harmless  Seller and its directors,
          officers, employees, shareholders, partners, counsel, agents, advisors
          and other representatives and each of the heirs, executors, successors
          and  assigns of any of the  foregoing,  including  without  limitation
          Tesoro Petroleum  Corporation  (collectively,  the "Seller Indemnified
          Parties"),  from and  against any and all Losses of any kind which are
          caused by, or arise from:

          (i)  except to the extent  Seller owes Buyer an indemnity  pursuant to
               Section 15(b) below, the ownership after Closing of the Purchased
               Assets,  including  the  Pipelines,  the Terminal  Assets and the
               Terminal  Real  Property,  and  the  operation  of  the  Pipeline
               Interest after the Closing, including those Losses arising under,
               any foreign, federal, state or local laws or regulations,  or any
               contract, warranty, tort or other theory of law;

          (ii) (A)  Buyer's  breach of or  failure to perform  any  covenant  or
               agreement in this Agreement requiring  performance by Buyer on or
               after   the   Closing   Date  or  (B)   Buyer's   breach  of  any
               representation or warranty in this Agreement; or

          (iii) the Assumed Liabilities.

     (b)  Seller's  Indemnification  of  Buyer.  Except as  otherwise  expressly
          provided herein, and except for Environmental  Liabilities,  which are
          addressed in Section  15(c) below,  and subject to the  provisions  of
          this  Section  15,  from and  after the  Closing  Date,  Seller  shall
          indemnify,  defend,  save and hold harmless Buyer,  its affiliates and
          their  respective  directors,   officers,   employees,   shareholders,
          partners, counsel, agents, advisors and other representatives and each
          of  the  heirs,  executors,  successors  and  assigns  of  any  of the
          foregoing  (collectively,  the "Buyer  Indemnified  Parties") from and
          against  any and all Losses of any kind  which are  caused  by,  arise
          from, are incurred in connection with or relate in any way to:

          (i)  except for Assumed Liabilities, the ownership prior to Closing of
               the Purchased Assets, including the Pipelines, the Real Property,
               the  Terminal  Assets and the  Terminal  Real  Property,  and the
               operation  of  the  Pipeline   Interest  prior  to  the  Closing,
               including those Losses arising under, any foreign, federal, state
               or local laws or regulations, or any contract,  warranty, tort or
               other theory of law;

          (ii) the Excluded  Assets or the Retained  Liabilities;  provided that
               with respect to Retained  Liabilities,  the provisions of Section
               15(j) will not apply.

          (iii)the  cost  to cure  any  defect  in a  Pipeline  Interest  or any
               failure of the Pipeline  Agreements  to cover all of the required
               right of way for  location of the  Pipelines,  provided  however,
               that such  defect or  failure  must be  identified  in writing by
               notice  from Kaneb to Tesoro  within  one year after the  Closing
               Date,  and this  indemnity  shall not apply to any such defect or
               failure that is not identified in such a notice;

          (iv) (A)  Seller's  breach of or failure to perform  any  covenant  or
               agreement in this Agreement or the documents  contemplated hereby
               or  executed in  connection  herewith  (other  than the  Excluded
               Agreements);  or (B)  Seller's  breach of any  representation  or
               warranty  under  this  Agreement  or the  documents  contemplated
               hereby  or  executed  in  connection  herewith  (other  than  the
               Excluded Agreements); or

          (v)  any failure by Seller to comply with the  provisions,  if any, of
               state or local bulk sales laws;

     (c)  Environmental  Indemnifications.  Buyer and Seller  shall  provide the
          environmental   indemnifications  specified  below  for  Environmental
          Liabilities:

          (i)  Seller shall indemnify,  defend, save and hold harmless the Buyer
               Indemnified  Parties  from and  against any and all Losses of any
               kind which  are,  or which  related  to or arise  out,  of Seller
               Environmental Liabilities; and

          (ii) Buyer  shall  assume  responsibility  for,  and shall  indemnify,
               defend,  save and hold  harmless the Seller  Indemnified  Parties
               from and against any and all Losses of any kind which (A) are, or
               relate to or arise out of, Buyer  Environmental  Liabilities,  or
               (B) result from changes in,  modifications  to or  amendments  of
               Health,  Safety and Environmental  Laws that were in effect prior
               to the  Closing  Date or Health,  Safety and  Environmental  Laws
               promulgated, made or enacted on or after the Closing Date.

     (d)  Exclusive  Remedy.  Except  for  matters  arising  out of any fraud or
          willful  misconduct (which are not subject to this Section 15(d)), any
          claim or cause of action  based on,  arising out of or relating in any
          way to  any of the  transactions  contemplated  under  this  Agreement
          (excluding the  Environmental  Access Agreement and the agreements and
          documents  described  in  Exhibits A, B, C, D, E, F, G, H, J, K, and L
          (collectively  the  "Excluded  Agreements"),  which are not subject to
          this Section  15(d),  but including  all other  Exhibits and Schedules
          attached hereto or referenced  herein) must be brought by either party
          in accordance  with the provisions and  limitations of this Agreement,
          whether  such claim  arises out of any  contract,  tort or  otherwise.
          Except as otherwise  provided in this Agreement and if Closing occurs,
          the  parties  hereby  waive  to the  fullest  extent  permitted  under
          applicable  law, any and all rights,  claims and causes of action they
          may have  against  each other  relating to the subject  matter of this
          Agreement and the other  agreements  contemplated  hereby  (except the
          Excluded  Agreements,  which are not subject to this  Section  15(d)),
          arising  under or based on any federal,  state,  provincial,  local or
          foreign  statute,  law,  ordinance,  rule or  regulation or otherwise,
          including  such  rights,  claims and  causes of action  Buyer may have
          against  Seller  under  CERCLA,   breaches  of  statutory  or  implied
          warranties  or otherwise,  nuisance or other tort actions,  and common
          law rights of  contribution.  Without  limiting the  generality of the
          foregoing,  the parties hereto understand and agree that after Closing
          occurs the  rights  accorded  under  this  Section 15 are the sole and
          exclusive remedies  ---------- of such parties against the other party
          hereto with respect to any matters  relating to this Agreement  (other
          than matters arising out of any fraud or willful  misconduct or out of
          the Excluded Agreements),  including but not limited to Health, Safety
          and Environmental  Laws.  Except as provided in this Agreement,  Buyer
          hereby waives any right to seek  contribution  or other  recovery from
          Seller  under such  Health,  Safety and  Environmental  Laws.  For the
          avoidance  of  doubt,  the  parties  acknowledge  that  they  may seek
          remedies  for  breach of the  Excluded  Agreements  under the terms of
          those  Excluded  Agreements  and under common or statutory law without
          regard to the provisions of this Agreement, provided however, that the
          Excluded  Agreements,  other  than deeds and  assignments,  shall each
          expressly exclude liability for punitive or exemplary damages.

     (e)  Procedures  Relating  to  Indemnification  between  Buyer and  Seller.
          Following  the  discovery  of any  facts  or  conditions  which  could
          reasonably  be  expected  to give rise to a Loss or  Losses  for which
          indemnification  is provided under this  Agreement,  the party seeking
          indemnification  (the  "Indemnified  Party")  shall,  as  promptly  as
          reasonably    possible    thereafter,     provide    written    notice
          ("Indemnification  Notice") to the party from whom  indemnification is
          sought (the  "Indemnifying  Party"),  setting forth the specific facts
          and  circumstances,  in  reasonable  detail,  relating to such Loss or
          Losses and the amount of Loss or Losses (or a  reasonable,  good-faith
          estimate  thereof if the actual  amount is not known or not capable of
          reasonable calculation);  provided, however, that failure to give such
          Indemnification  Notice  on  a  timely  basis  shall  not  affect  the
          indemnification   provided   hereunder   except  to  the   extent  the
          Indemnifying Party shall have been actually and materially  prejudiced
          as a result of such failure.

     (f)  Procedures Relating to Indemnification for Third Party Claims.

          (i)  After providing an Indemnification  Notice in respect of, arising
               out of or involving a claim or demand made by any Person  against
               the  Indemnified  Party (a "Third Party Claim"),  the Indemnified
               Party shall deliver to the  Indemnifying  Party,  within ten (10)
               business  days after the  Indemnified  Party's  receipt  thereof,
               copies of all  notices and  documents  (including  court  papers)
               received  by the  Indemnified  Party  relating to the Third Party
               Claim;   provided,   however,   that   failure   to   provide  an
               Indemnification  Notice  or  deliver  copies of all  notices  and
               documents on a timely manner shall not affect the indemnification
               provided  hereunder except to the extent the  Indemnifying  Party
               shall have been actually prejudiced as a result of such failure.

          (ii) If a Third Party Claim is made against an Indemnified  Party, the
               Indemnifying  Party  shall  be  entitled  to  participate  in the
               defense  thereof  and,  if it so  chooses  and  acknowledges  its
               obligation  to indemnify  the  Indemnified  Party  therefore,  to
               assume (so long as it thereafter  reasonably pursues) the defense
               thereof  with  counsel  selected  by the  Indemnifying  Party and
               reasonably   satisfactory  to  the  Indemnified   Party.  If  the
               Indemnifying  Party  acknowledges its obligation to indemnify the
               Indemnified   Party,  the  Indemnifying  Party  shall  thereafter
               continue to reasonably defend and/or settle the Third Party Claim
               until  final   resolution  and  shall   discharge  all  attendant
               liabilities   to  the   extent   of  its   indemnity   hereunder.
               Notwithstanding   any   acknowledgment   made   pursuant  to  the
               immediately preceding two sentences, the Indemnifying Party shall
               continue  to  be  entitled  to  assert  any   limitation  on  its
               indemnification   responsibility   contained  in  Sections  15(j)
               through  15(l).   Should  the   Indemnifying   Party  assume  and
               reasonably  pursue  the  defense  of a  Third  Party  Claim,  the
               Indemnifying  Party shall not be liable to the Indemnified  Party
               for legal expenses subsequently incurred by the Indemnified Party
               in connection with the defense thereof. If the Indemnifying Party
               assumes such defense,  the Indemnified Party shall have the right
               to participate in the defense thereof and to employ  counsel,  at
               its own  expense,  separate  from  the  counsel  employed  by the
               Indemnifying  Party,  it  being  understood,  however,  that  the
               Indemnifying  Party shall control such defense.  The Indemnifying
               Party  shall  be  liable  for the fees and  expenses  of  counsel
               employed by the Indemnified Party for any period during which the
               Indemnifying  Party has not  assumed and  reasonably  pursued the
               defense thereof. Whether or not the Indemnifying Party chooses to
               defend  any Third  Party  Claim,  all the  parties  hereto  shall
               cooperate  in the  defense or  prosecution  of such  Third  Party
               Claim.  Such  cooperation  shall  include the  retention  and the
               provision  of  records  and  information   which  are  reasonably
               relevant  to  such  Third  Party  Claim,   and  making  employees
               available on a mutually  convenient  basis to provide  additional
               information and explanation of any material  provided  hereunder.
               If the  Indemnifying  Party has  assumed  the  defense of a Third
               Party Claim, the Indemnified  Party shall not admit any liability
               with respect to, or settle,  compromise or discharge,  or consent
               to the entry of any  judgment  with  respect to, such Third Party
               Claim without the  Indemnifying  Party's  prior  written  consent
               (which  consent  shall  not  be  unreasonably  withheld).  If the
               Indemnifying Party does not assume the defense of any Third Party
               Claim, the Indemnified Party may settle or defend the Third Party
               Claim in any  manner  it shall in its sole  discretion  determine
               appropriate  and any such  settlement or defense shall not in any
               way affect the Indemnifying Party's indemnity hereunder.

     (g)  Waiver of Subrogation.  Each party hereby waives,  or will procure the
          waiver of,  any  subrogation  rights  that its  insurer  may have with
          respect to any indemnifiable Losses to the extent reasonably possible.

     (h)  Attorneys' Fees. In connection with any litigation arising out of this
          Agreement  or to enforce any  indemnification  claim  pursuant to this
          Agreement,  the prevailing party shall be entitled to recover from the
          nonprevailing  party its  reasonable  attorneys'  fees and  costs,  on
          appeal or otherwise.

     (i)  Time Limitation.  Except as otherwise  expressly  provided herein, any
          claim by any Buyer Indemnified Party for indemnity arising pursuant to
          Sections  15(b)(iv)(B) shall be brought within two (2) years after the
          Closing  Date,  except  that any claim for  indemnity  related  to tax
          matters  or  third  party  bodily  injury  or  wrongful  death  claims
          (excluding  liability for property  damage) may be brought at any time
          prior to the end of the applicable  statute of limitations.  All other
          indemnity  claims  shall  have no limit as to time.  A claim  shall be
          deemed  to  have  been  brought   only  upon   delivery  of  a  proper
          Indemnification  Notice to the other  party at the notice  address set
          forth in  Section  20.  Any  claim  required  to be made  within  such
          respective  limitations  period  not so timely  made  shall be forever
          barred.

     (j)  General Indemnity  Deductible.  Except as otherwise expressly provided
          in this  Agreement,  Buyer  shall have no claim  under this  Agreement
          against  Seller for any Losses  unless and until the  aggregate of all
          such Losses,  other than Losses that  constitute,  relate to, or arise
          out  of  Environmental  Liabilities  (which  are  not  subject  to any
          deductible),  incurred or sustained by the Buyer  Indemnified  Parties
          exceeds two hundred fifty  thousand  dollars  ($250,000) and then only
          for the excess over two hundred fifty thousand dollars ($250,000). If,
          between the Effective Time and the Closing Date, Buyer notifies Seller
          in writing of a breach of a  representation  or  warranty of Seller in
          this  Agreement  for which Buyer would be entitled to  indemnification
          under this  Section 15, and Seller does not cure such breach  prior to
          the Closing, the deductibles in this Section 15(j) will not apply with
          respect to any such indemnification claim by Buyer.


     (k)  Cap on  Certain of  Seller's  Indemnification  Liabilities.  Except as
          otherwise specifically provided in this Agreement,  Seller's aggregate
          liability for

          (i)  indemnification  pursuant to Section 15(b)(iv)(B),  to the extent
               and only to the extent that the  indemnification  does not relate
               to title to the Purchased Assets;

          (ii) indemnification  pursuant to Section 15(b)(v),  to the extent and
               only to the extent the  indemnification  does not relate to title
               to the Purchased Assets; and

          (iii)indemnification  pursuant to Sections 15(b)(i) and 15(b)(ii),  to
               the extent and only to the extent the indemnification  relates to
               items covered by Section  4(b)(ix) that were not within  Seller's
               Knowledge  as of the Closing  Date,  shall in no event  exceed an
               amount equal to twenty million  dollars  ($20,000,000);  provided
               that in no event shall this  Section  15(k) apply to matters that
               arise  out of,  are  caused by or  relate  to  Seller's  fraud or
               willful  misconduct.  For the avoidance of doubt,  Seller's other
               indemnification  obligations  set forth in this Agreement are not
               subject to this Section 15(k).

     (l)  Mitigation.  Each party hereto shall take all reasonable steps and use
          all commercially reasonable efforts to mitigate any and all Losses.

     (m)  Losses.  As used in this Agreement,  "Losses" means any and all costs,
          claims,  losses,  liabilities,  obligations  (including corrective and
          remedial obligations), damages and expenses including reasonable legal
          fees and  expenses,  and  liability for  consequential  damages,  lost
          profits, or punitive damages to third parties whose claims are subject
          to indemnification  under this Agreement,  but excluding any liability
          to the other party to this Agreement for consequential  damages,  lost
          profits or  punitive  damages  suffered,  incurred  or claimed by such
          other party.

     16. TAXES AND OTHER PRORATIONS.

     (a)  Except as provided in this  Section 16,  Buyer shall be liable for and
          pay all Taxes  (other than taxes based in whole or part upon  Seller's
          income),  utility charges or apportionments which arise as a result of
          this Agreement or the  consummation of the  transactions  contemplated
          hereby or as a result of any purchase,  sale, rental,  lease, storage,
          use, consumption or operation of the Purchased Assets by Buyer. Seller
          agrees to cooperate  with and assist Buyer in claiming any  applicable
          occasional sale or sales tax exemption; provided that Seller shall not
          incur  any  unreimbursed   third-party   costs,   expenses,   fees  or
          liabilities as a result of or in any way relating to, the provision of
          such assistance.

     (b)  General  and  special  real  estate  and  other ad  valorem  taxes and
          assessments  and  other  state  or  local  taxes,  fees,  charges  and
          assessments  in  respect of real  property  on the basis of the fiscal
          year in which the Closing  occurs shall be prorated  between Buyer and
          Seller as of 12:01 a.m.,  Central  Time,  on the Closing  Date. If the
          Closing  Date shall occur before the tax rate or  assessment  is fixed
          for such fiscal year, the  apportionment of such taxes and payments at
          the Closing  shall be based upon the most recently  ascertainable  tax
          bills;   provided,   that  Buyer  and  Seller  shall  recalculate  and
          re-prorate  said  taxes  and  payments  and  make the  necessary  cash
          adjustments  promptly  upon the  issuance,  and on the  basis,  of the
          actual tax bills  received  for the fiscal  year in which the  Closing
          occurs and the amount of any payments in lieu of tax made with respect
          to any such fiscal year.

     (c)  Personal  property  taxes,  if any, on the basis of the fiscal year in
          which the Closing occurs,  utility charges and other items customarily
          prorated in transaction of the type  contemplated  by this  Agreement,
          shall be prorated  between Buyer and Seller as of 12:01 a.m.,  Central
          Time,  on the Closing Date. If the Closing Date shall occur before the
          tax  rate  or   assessment   is  fixed  for  such  fiscal  year,   the
          apportionment  of such  taxes at the  Closing  shall  be based  upon a
          reasonable   estimate  mutually  agreed  upon  by  Buyer  and  Seller;
          provided,  that Buyer and Seller shall recalculate and re-prorate said
          taxes  and make  the  necessary  cash  adjustments  promptly  upon the
          issuance  of, and on the basis of, the actual tax bills  received  for
          such fiscal year.

     (d)  Three days prior to Closing,  Seller shall  deliver to Buyer  Seller's
          good faith  estimate of the  prorations  required by this  Section 16,
          which shall be used for  purposes of Closing.  As soon as  practicable
          after Closing,  the estimated  prorations shall be adjusted to reflect
          actual charges, and any necessary reimbursements shall be made between
          the Parties.

     17. RECORDS/LITIGATION ASSISTANCE.

     (a)  For a period of seven (7) years  following  the  Closing  Date,  Buyer
          shall  provide  to Seller  (and its  counsel,  auditors,  accountants,
          agents,  advisors or other  representatives)  reasonable access to and
          permission to make copies of any books,  records or accounts  relating
          to the Pipeline  Interest  through and including the Closing Date; and
          Buyer  shall not  destroy or dispose of any such  books,  records  and
          accounts  for a period of at least  seven (7) years  after the Closing
          Date without first offering to surrender to Seller such books, records
          and accounts  which Buyer may intend to destroy or dispose of.  Seller
          agrees that it will  consult  with Buyer in advance of taking any such
          actions following the Closing Date with a view towards  establishing a
          mutually agreeable plan for such visits so that these actions will not
          unreasonably  interfere  with the  normal  operation  of the  Pipeline
          Interest.

     (b)  After the Closing Date,  each party shall  provide such  assistance as
          the other party may from time to time reasonably request in connection
          with the preparation of tax returns required to be filed, any audit or
          other   examination   by  any  taxing   authority,   any  judicial  or
          administrative  proceeding  relating to  liability  for taxes,  or any
          claim for refund in respect  of such Taxes or in  connection  with any
          litigation  and  proceedings  or  liabilities  related to the Pipeline
          Interest,   including  making  available   employees  for  interviews,
          litigation  preparation  and  testimony.  The  requesting  party shall
          reimburse the assisting party for the out-of-pocket  costs incurred by
          the assisting party.

     (c)  If  Buyer,  as a  result  of the  transactions  contemplated  by  this
          Agreement,  at any time within  twelve  (12) months  after the Closing
          Date, is required to file with the Securities and Exchange  Commission
          financial  statements relating to the Pipeline Interest,  Seller shall
          provide such assistance as Buyer may reasonably  request in connection
          with the preparation of such financial statements, including providing
          to Buyer Seller's books,  records or accounts relating to the Pipeline
          Interest and relevant  personnel relating to the Pipeline Interest and
          access to Seller's  independent  auditors from the date hereof through
          and  including the Closing Date and for a period of twelve (12) months
          thereafter;  provided  that  Seller  shall not incur any  unreimbursed
          third-party costs, expenses,  fees or liabilities as a result of or in
          any way relating to, the provision of such assistance.

     18. TERMINATION RIGHTS.

     (a)  This Agreement may be terminated at any time prior to the Closing Date
          as follows and in no other manner:

          (i)  by mutual written consent of Buyer and Seller;

          (ii) by Buyer,  if any of the  conditions set forth in Section 12 have
               not  been  satisfied  as of the  Closing  Date  or if any of such
               conditions  shall become  incapable of being  satisfied and shall
               not have been waived by Buyer (provided,  however,  that Buyer is
               not in material breach of its obligations under this Agreement);

          (iii)by Seller,  if any of the conditions set forth in Section 13 have
               not  been  satisfied  as of  the  Closing  Date  or if  any  such
               conditions  shall become  incapable of being  satisfied and shall
               not have been waived by Seller (provided, however, that Seller is
               not in material breach of its obligations under this Agreement);

          (iv) by Seller,  if the Closing  does not occur on or prior to January
               31, 2003; provided that such failure of the Closing is not due to
               Seller's material breach of its obligations under this Agreement;

          (v)  by Buyer,  if the  Closing  does not occur on or prior to January
               31, 2003; provided that such failure of the Closing is not due to
               Buyer's material breach of its obligations  under this Agreement;
               or

          (vi) by Buyer and/or Seller as provided if either makes an election to
               terminate in Section 10(c)(ix).

     (b)  In the  event  of  termination  by Buyer or  Seller  pursuant  to this
          Section 18,  written  notice  thereof shall  forthwith be given to the
          other party, and the transactions contemplated by this Agreement shall
          be terminated  without  further action  required by any party.  If the
          transactions contemplated by this Agreement are terminated as provided
          herein:

          (i)  Buyer shall return to Seller all  documents  and copies and other
               materials  received  from or on behalf of Seller  relating to the
               transactions  contemplated hereby,  whether so obtained before or
               after the execution hereof; and

          (ii) all  confidential  information  received by Buyer with respect to
               the Purchased  Assets,  the Assumed  Liabilities and the Pipeline
               Interest  shall be  treated  in  accordance  with the  terms  and
               conditions of the Confidentiality  Agreement,  which shall remain
               in full force and effect  notwithstanding the termination of this
               Agreement.

     (c)  If this  Agreement is  terminated  and the  transactions  contemplated
          hereby are  abandoned as described in this Section 18, this  Agreement
          shall become void and of no further  force and effect,  except for the
          provisions of:

          (i)  Section 20, relating to Notices,

          (ii) Section 21, relating to governing law and jurisdiction;

          (iii) Section 24, relating to entirety;

          (iv) Section 22 relating to publicity;

          (v)  Section 10(a)(i) relating to  indemnification  in connection with
               the matters contemplated thereby;

          (vi) Section 27 relating to certain expenses;

          (vii)Sections  6(g) and 9(f)  relating to finders'  fees and  brokers'
               fees;

          (viii) Section 15(h), relating to attorneys fees; and

          (ix) this Section 18.


     Nothing in this Section 18,  including any  termination of this  Agreement,
shall be deemed to release any party from any  liability  for any breach by such
party of the terms and provisions of this Agreement.

     19. SPECIFIC PERFORMANCE.  Each party hereto acknowledges the unique nature
of the Purchased Assets and agrees that except as otherwise  expressly  provided
to the contrary in this Agreement,  the other party shall be entitled to enforce
specifically  this Agreement and the terms and  provisions  hereof in any action
instituted  in any  court of the  United  States  or any  state  thereof  having
jurisdiction  over the parties hereto and the matter  (subject to the provisions
set forth in Section 21 below),  in addition  to any other  remedy to which they
may be entitled, at law or in equity.

     20. NOTICES.

     (a)  All notices or other communications  required or permitted to be given
          hereunder  shall be in writing and shall be  delivered by hand or sent
          by  prepaid  facsimile,  or  sent,  postage  prepaid,  by  registered,
          certified or express mail, or reputable  overnight courier service and
          shall be deemed given when delivered as follows:

               If to Seller:

                           Tesoro Refining and Marketing Company
                           300 Concord Plaza Drive
                           San Antonio, Texas 78216
                           Attn:  James C. Reed, Jr., General Counsel
                           Telecopy:  (210) 283-2400

               If to Buyer:

                           Kaneb Pipe Line Partners, L.P.
                           P.O. Box 650283
                           Dallas, Texas 75265-0283
                           2435 N. Central Expressway, Suite 700
                           Richardson, Texas 75080-2731
                           Attn:  Chairman
                           Telecopy:  972-699-1894

               with a copy to:

                           Kaneb Pipe Line Operating Partnership L.P.
                           7340 West 21st Street N., Suite 200
                           Wichita Kansas 67205
                           Attn:  President
                           Telecopy:  (316) 773-9001

               and a copy to:

                           Fulbright & Jaworski L.L.P.
                           2200 Ross Avenue, Suite 2800
                           Dallas, Texas 75201
                           Attn:  Kenneth L. Stewart
                           Telecopy:  (214) 855-8200

     (b)  Any party may change the address to which such  communications  are to
          be directed to it by giving  written notice to the other in the manner
          in paragraph (a) above.

     21.  GOVERNING  LAW;  SUBMISSION TO  JURISDICTION.  This  Agreement and the
obligations  of the parties  hereunder  shall be governed by and  construed  and
enforced in accordance with the substantive laws of the State of Texas,  without
regard to rules on choice of law.  Any action to enforce the terms hereof may be
brought  in, and shall be  considered  properly  venued in, the federal or state
courts  located in Bexar County in the State of Texas.  Each party hereto agrees
that it shall submit to the  jurisdiction of such courts for purposes of actions
to enforce the terms of this Agreement.

     22.  PUBLICITY.  Buyer and Seller agree that,  from the date hereof through
and including the Closing Date, no public release or announcement concerning the
transactions  contemplated  hereby  shall be issued or made by any party  hereto
without  the  prior  consent  of the other  party  (which  consent  shall not be
unreasonably  withheld),  except  (a) as such  release  or  announcement  may be
required by law or the rules or regulations  of any  securities  exchange (or in
the opinion of counsel such release or  announcement is appropriate or desirable
under or in light of such laws and regulations),  in which case the party making
the  release or  announcement  shall allow the other  party  reasonable  time to
comment on such release or  announcement  in advance of such  issuance,  and (b)
that  Seller  and Buyer may each make  such an  announcement  to its  employees.
Notwithstanding  the  foregoing,  Buyer and Seller shall  cooperate to prepare a
joint press  release to be issued on the Closing  Date and,  upon the request of
either Buyer or Seller, at the time of the signing of this Agreement.  Buyer and
Seller  agree to keep the terms of this  Agreement  confidential,  except to the
extent  required by  applicable  law,  rule or  regulation  (including,  but not
limited to, the filing  requirements of the Securities  Exchange  Commission) or
for financial  reporting  purposes and except that the parties may disclose such
terms to their respective counsel, auditors,  accountants,  agents, advisors and
other  representatives  as necessary in connection with the ordinary  conduct of
their respective  businesses (so long as such Persons agree to keep the terms of
this Agreement confidential).

     23.   SURVIVAL  OF   COVENANTS,   REPRESENTATIONS   AND   WARRANTIES.   All
representations  and warranties in this Agreement  shall survive the Closing and
may be enforced  for a period of two (2) years from and after the Closing  Date,
except that (i) the  environmental  representations  and warranties in Section 7
shall survive for a period of three (3) years after the Closing  Date;  (ii) any
representation  and  warranties  related to tax matters in Section  6(q) and any
representation  or  warranty  the breach of which would  result in an  indemnity
claim  for third  party  bodily  injury  or  wrongful  death  claims  (excluding
liability for property  damage)  shall  survive until the end of the  applicable
statute of limitations; and (iii) the representations and warranties provided in
Section 6(f)(i) with respect to the Terminal Real Property shall not survive and
shall  terminate  at Closing;  provided,  however,  the  foregoing  shall not be
interpreted to cause the limited  warranty set forth in the deeds referred to in
Section 5(b)(i) to terminate at Closing. Notwithstanding the preceding sentence,
if prior to the  applicable  expiration  of the time  periods  set forth  above,
either Party provides the other Party with written notice of a specific  alleged
breach of a representation or warranty, such representation and warranty, to the
extent that it relates to such  specific  alleged  breach,  shall  survive until
final resolution of all matters related to such alleged breach. Unless otherwise
limited by this Agreement, the covenants in this Agreement shall survive Closing
so long as they are  executory  in nature.  The parties  agree and hereby  state
their mutual intention that the representations,  warranties and covenants under
this Agreement  shall survive the parties'  execution and delivery of the deeds,
bills of sale and  assignment  instruments  to be  executed  under  Section 5 at
Closing for the above periods and shall not be merged therein.

     24. ENTIRE AGREEMENT.  This Agreement,  the attached Schedules and Exhibits
and the agreements  referred to herein or executed in connection  herewith,  set
forth the entire  agreement and  understanding  of the parties in respect to the
transactions contemplated hereby and thereby and supersede all prior agreements,
arrangements and undertakings,  whether written or oral, relating to the subject
matter hereof (other than the Confidentiality Agreement, which shall continue in
effect).  No  representation,  promise,  inducement  or statement of  intention,
whether  written or oral, has been made by any party which is not embodied in or
superseded  by  this  Agreement  or  the  Confidentiality  Agreement  or in  the
documents  attached  hereto,  referred  to  herein  or  executed  in  connection
herewith,   and  no  party   shall  be  bound  by  or  liable  for  any  alleged
representation,  promise,  inducement or statement of intention not so set forth
whether in any  confidential  information  memorandum,  in certain "data rooms,"
management  presentations  or any other form in expectation of the  transactions
contemplated by this  Agreement.  Except as otherwise  specifically  provided in
this Agreement, no conditions, usage of trade, course of dealing or performance,
understanding or agreement purporting to modify, vary, explain or supplement the
terms or conditions of this Agreement  will be binding unless  hereafter made in
writing  and  signed  by the  party to be  bound,  and no  modification  will be
effected by the  acknowledgment  or acceptance of documents  containing terms or
conditions at variance with or in addition to those set forth in this Agreement,
except as otherwise specifically agreed to by the parties in writing.

     25.  ASSIGNMENT.  This Agreement and any rights and  obligations  hereunder
shall  not be  assignable  or  transferable  by Buyer or  Seller  (including  by
operation  of law in  connection  with a  merger  or sale of  stock,  or sale of
substantially  all the assets,  of Buyer or Seller)  without  the prior  written
consent of the other party and any  purported  assignment  without  such consent
shall be void and  without  effect;  provided,  however,  that each of Buyer and
Seller may (a) assign any and all of its rights and  interests  hereunder to one
or more of its  affiliates  and (b) designate  one or more of its  affiliates to
perform  its  obligations  hereunder;  provided  further  that each of Buyer and
Seller shall remain  responsible  for the  performance  of all of its respective
obligations  hereunder.  Notwithstanding  the  foregoing,  Seller  may assign or
transfer any or all of its rights  hereunder to any  qualified  intermediary  in
order to complete an exchange of like-kind  property  under  Section 1031 of the
Code and, at the request of Seller,  Buyer shall  execute  such  agreements  and
other  documents  as may be  necessary,  in the  reasonable  opinion of Seller's
counsel, to complete and otherwise effectuate Seller's exchange of properties in
accordance  with said Section 1031 of the Code and the  regulations  thereunder;
provided  that  Buyer  shall not  incur  any  unreimbursed  third  party  costs,
expenses,  fees or  liabilities as a result of or connected with the exchange or
Seller's failure to obtain any desired tax treatment with respect  thereto.  The
rights,  interests and  obligations  hereunder shall be binding upon the parties
hereto, their successor and their permitted assigns.

     26.  AMENDMENT  AND  WAIVER.  This  Agreement  may  be  amended,  modified,
superseded  or  canceled,  and  any of the  terms,  covenants,  representations,
warranties  or  conditions  hereof may be waived,  only by a written  instrument
executed by the parties hereto,  or, in the case of a waiver, by or on behalf of
the party waiving  compliance.  The failure of any party at any time or times to
require  performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. No waiver by any party of any condition, or
of any breach of any term,  covenant,  representation  or warranty  contained in
this Agreement, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of any breach of any other term, covenant  representation
or  warranty.  No course of  dealing  between  or among any  Persons  having any
interest  in this  Agreement  shall be  deemed  effective  to  modify,  amend or
discharge any part of this  Agreement or any rights or obligations of any Person
under or by reason of this Agreement.

     27.  EXPENSES.  Whether  or not the  transactions  contemplated  hereby are
consummated,  and except as otherwise  specifically  provided in this Agreement,
all costs and  expenses  incurred  in  connection  with this  Agreement  and the
transactions contemplated hereby, including legal, due diligence, accounting and
investment banking fees and expenses,  shall be paid by the party incurring such
costs or expenses.

     28.  HEADINGS.  The  section  and  paragraph  headings  contained  in  this
Agreement are for reference  purposes  only, and shall not in any way affect the
meaning or interpretation of this Agreement.

     29. COUNTERPARTS.  This Agreement may be executed  simultaneously in one or
more counterparts  (including by means of telecopied  signature  pages),  all of
which shall be considered one and the same agreement, and shall become effective
when one or more such  counterparts  have been signed by each of the parties and
delivered to the other party.

     30. INTERPRETATION. Unless the context requires otherwise:

     (a)  this Agreement  includes this Asset  Purchase  Agreement and any other
          agreement  entered  into by Buyer and Seller on the Closing Date or in
          connection with the transactions contemplated hereby;

     (b)  the singular shall include the plural and the plural shall include the
          singular  and any gender  shall  include all other  genders all as the
          meaning and the context of the Agreement shall require;

     (c)  references   to  Sections  and   paragraphs   refer  to  sections  and
          paragraphs, respectively, of this Agreement;

     (d)  references  to Exhibits and  Schedules  are to exhibits and  schedules
          attached to this Agreement,  each of which is hereby  incorporated and
          made a part of this Agreement for all purposes as if set forth in full
          herein;

     (e)  the words "including,"  "include," "includes" and all variants thereof
          mean "including, without limitation;"

     (f)  the words "hereof," "herein,"  "hereunder,"  "hereby," and other words
          or similar  import  refer to this  Agreement as a whole and not to any
          particular Section, paragraph or sentence; and

     (g)  all  references  to "dollars" in this  Agreement  are to United States
          dollars.

     31. NO STRICT  CONSTRUCTION.  Notwithstanding  the fact that this Agreement
has been  drafted or prepared by one of the  parties,  Buyer and Seller  confirm
that  both they and their  respective  counsel  have  reviewed,  negotiated  and
adopted this Agreement as the joint agreement and  understanding of the parties,
and the  language  used in this  Agreement  shall be deemed  to be the  language
chosen by the parties  hereto to express  their  mutual  intent,  and no rule of
strict construction shall be applied against any Person.

     32. SCHEDULES.  As referenced  herein,  the word "Schedules" shall mean the
Schedules  attached to this  Agreement.  The  inclusion  of  information  in the
Schedules hereto shall not be construed as an admission that such information is
material to the Pipeline Interest, the Purchased Assets, the Assumed Liabilities
or Seller.  In addition,  matters reflected in the Schedules are not necessarily
limited to matters required by this Agreement to be reflected in such Schedules.
Such additional matters are set forth for informational purposes only and do not
necessarily  include  other  matters  of a similar  nature.  The  Schedules  are
incorporated herein by reference and made a part hereof.

     33. REPRESENTATION BY COUNSEL; INTERPRETATION. Buyer and Seller acknowledge
that  each of them has been  represented  by  counsel  in  connection  with this
Agreement and the transactions contemplated hereby. Accordingly, any rule of law
or  any  legal  decision  that  would  require  interpretation  of  any  claimed
ambiguities  in  this  Agreement  against  the  party  that  drafted  it  has no
application and is expressly waived.

     34. SEVERABILITY. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be valid and effective under applicable law,
but if any provision of this Agreement or the  application of any such provision
to any Person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability  shall not affect any other  provision  hereof.  In such event,
however,  the parties  shall  negotiate in good faith to replace such invalid or
unenforceable  provision with a valid and enforceable provision that places each
party in substantially the same position it would have been in had such original
provision been valid and enforceable.

     35. BULK TRANSFER LAWS.  Buyer hereby waives  compliance by Seller with the
provisions of any so-called bulk transfer laws of any jurisdiction in connection
with the purchase and sale of the Purchased Assets;  provided,  however, that in
accordance  with Section 15, Seller shall indemnify and hold Buyer harmless from
any Losses which Buyer may incur due to failure to comply with such laws.

     36. NO THIRD  PARTY  BENEFICIARIES.  Except as  provided  with  respect  to
indemnification  as set forth in Section  15 and  elsewhere  in this  Agreement,
nothing in this Agreement shall confer any rights upon any Person other than the
parties hereto and their respective successors and permitted assigns.

     37.  DEFINITION OF AFFILIATE.  As used herein,  the term "affiliate"  shall
have the meaning set forth in Rule 405  promulgated  under the Securities Act of
1933, as amended.

     38.  TIME OF  ESSENCE.  With  regard to all rights and  obligations  of the
parties  and all  dates  and  time  periods  set  forth or  referred  to in this
Agreement, time is of the essence.

     39. NO  CONDITIONS.  For the  avoidance of doubt,  the only  conditions  to
closing are those set forth in Sections 12 and 13 herein, and no other covenants
or conditions set forth in this Agreement are intended to have any effect on the
Closing.


                         (Signatures on following page)


<PAGE>
     IN WITNESS  WHEREOF,  the parties have duly executed this  instrument as of
the day and year first above written.

                                     TESORO REFINING AND MARKETING COMPANY


                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title:


                                     KANEB PIPE LINE OPERATING PARTNERSHIP L.P.
                                     By: KANEB PIPE LINE COMPANY LLC,
                                         its general partner

                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title: