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EXHIBIT 10.7    
  


 
 

EMPLOYMENT AGREEMENT    
  


        THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of January, 2002 by and
between Pacific Energy GP, Inc., a Delaware corporation, having its principal executive offices in Long Beach, California (the "Company") and Kevin R. Lee, residing at Torrance, California (the
"Executive"). 


        WHEREAS, the Executive is currently serving as Vice President—Pacific Marketing and Transportation LLC, a wholly owned
subsidiary of the Company; and 


        WHEREAS, the Company and the Executive mutually desire to formalize the employment arrangement of the Executive and to agree upon the
terms of the Executive's employment as Vice President—Pacific Marketing and Transportation LLC, a wholly owned subsidiary of the Company and, in addition, to agree as to certain benefits
of said employment. 


        NOW, THEREFORE, in consideration of the mutual promises and agreements set forth below, the Company and the Executive hereby agree as
follows: 


        1.    TERM OF EMPLOYMENT: Subject to the terms of this Agreement, the Company hereby continues the employment of the Executive,
and the Executive hereby accepts such continuing employment, for the period beginning on January 1, 2002 and ending July 1, 2003 or as otherwise provided herein in Paragraph 4
(the "Term"). The Executive and the Company acknowledge that, except as may otherwise be provided under this Agreement, the employment of the Executive by the Company is "at will", and the Executive's
employment and/or this Agreement may be terminated by either the Executive or the Company at any time. The consequences of termination of employment are as set forth in this
Agreement. Portions of this Agreement that by their terms provide or imply that they survive the end of the Term shall survive the end of the Term. 


        2.    POSITION AND DUTIES:



        a.    Position: During the Term, the Executive shall serve as Vice President of Crude Oil Marketing of the Company and shall
perform such duties and responsibilities commensurate with such position as may be determined by the Executive Vice President of Corporate Development and Marketing of the Company. Such duties,
responsibilities, and authority shall include, without limitation, responsibility for managing the crude oil acquisition, marketing, trading and blending activities of Pacific Marketing and
Transportation LLC. The Executive shall perform his duties in accordance with such other guidance and direction as may be provided from time to time by the governing body of the Company (the "Board").
The Executive shall perform his duties and responsibilities at the Company's offices in Long Beach, California. For purposes of this Agreement, the term "employment" shall include the Executive's
service to the Company in any capacity during the Term; provided the foregoing shall not change the positions to be held by the Executive. 



        b.    Commitment of the Executive: During the Term, the Executive shall devote substantially his full business time, energy, and
ability to the business of the Company. The Executive shall report directly to Executive Vice-President—Corporate Development and Marketing. 


        c.    Other Positions and Services: The Executive may (i) serve on civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions (and retain any fees therefrom), and (iii) manage personal investments;  provided, however, that the Executive may not engage in any of the activities described in this
Paragraph 2 (c) to the extent such activities materially interfere with the performance of the Executive's duties and responsibilities to the Company. As used in this Agreement, the term
"affiliate" of the Company 



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means any company controlled by, controlling, or under common control with the Company, whether through stock ownership or otherwise. 


        d.    Investments: Without the prior express authorization of the Board, the Executive shall not, directly or indirectly, during
the Term (i) render services of a business, professional, or commercial nature to any other person or firm, whether for compensation or otherwise, or (ii) engage in any activity
competitive with the business of the Company or the business of any of its subsidiaries, present or future, or, to his knowledge, of any other affiliate of the Company, present or future, whether
alone, as a partner, or as an officer, director, employee, member or holder (directly or indirectly, such as by means of a trust or option arrangement). The Executive may be an investor, shareholder,
joint venturer, or partner (hereinafter referred to as "Investor"); provided, however, that his status
as an Investor shall not (i) pose a conflict of interest, (ii) require the Executive's active involvement in the management or operation of such Investment (recognizing that the
Executive shall be permitted to monitor and oversee the Investment), or (iii) materially interfere with the performance of the Executive's duties and obligations
hereunder. For the purposes of clause (i) of the proviso to the preceding sentence, the Executive shall not be deemed to be subject to a conflict of interest merely by reason of the ownership
of less than three percent (3%) of (i) the outstanding stock of any entity whose stock is traded on an established stock exchange or on the National Association of Securities Dealers Automated
Quotation System or (ii) the outstanding stock, partnership interests or other form of equity interest of any venture fund, investment pool or similar investment vehicle that shall solicit
investments on a "blind pool" basis. 


        e.    No Conflict: The Executive represents and warrants that, to the best of his knowledge after the review of his personal
files, he has the full right and authority to enter into this Agreement and to render the services as required under this Agreement, and that by signing this Agreement and rendering such services he
is not breaching any contract or legal obligation he owes to any third party. 




        3.    COMPENSATION AND BENEFITS: During the Term, while the Executive is employed by the Company, the Company shall compensate
the Executive for his services as set forth in this Paragraph 3. The Executive recognizes that during the Term of the Agreement, the Company reserves the right to change from time to time the
terms and benefits of any welfare or fringe benefit plan of the Company, including the right to change any service provider, so long as such changes are also generally applicable to all executives of
the Company. 



        a.    Salary: During the Term, the Company shall pay the Executive a base salary at an annual rate of One Hundred Fifty Thousand
Dollars ($150,000). Such salary shall be earned and shall be payable in periodic installments in accordance with the Company's payroll practices. Amounts payable shall be reduced by standard
withholding and other authorized deductions. The Board will review the Executive's salary at least annually and may increase (but not reduce) the Executive's annual base salary in its sole discretion.
Once increased such base salary shall not be reduced. His base salary as so increased shall thereafter be treated as his base salary hereunder. 


        b.    Annual Bonus: The Executive shall be eligible to receive an annual bonus in accordance with the Company's annual incentive
compensation program, as it may be modified from time to time by the Board. The Executive shall be provided with a target bonus opportunity of 25% of annual base salary with a maximum bonus
opportunity of 50% of annual base salary under the Company's annual incentive compensation program. The Executive shall be guaranteed a minimum annual bonus of $50,000 for calendar years 2001 and
2002. Any bonus awarded to the Executive shall be paid in the same form and manner and at or around the same time as such bonus payments are made to other senior executives of the Company. 


        c.    Long-Term Incentive Compensation Program: The Executive shall be eligible to participate in a
long-term incentive compensation program if, and to the extent, that the Company establishes 



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such a program. If the Company does establish such a long-term incentive compensation program, the Executive shall be eligible to participate in the same manner as other senior executives
of the Company. 


        d.    Savings and Investment Plans: The Executive shall be entitled to participate in all savings and investment plans
applicable generally to other senior executives of the Company, in accordance with the terms of such plans, as may be amended from time to time. 



        e.    Welfare Benefit Plans: The Executive and/or his family, as the case may be, shall be eligible to participate in and shall
receive all benefits under the Company's welfare benefit plans and programs applicable generally to other senior executives of the Company (collectively, as amended from time to time, the "Company
Plans"), in accordance with the terms of the Company Plans. 


        f.      Vacation: Beginning with the 2002 calendar year, the Executive shall be entitled to paid vacation at a rate of fifteen
(15) days per calendar year during the Term in accordance with the plans, policies, and programs as in effect generally with respect to other senior executives of the Company, including the
limitations, if any, on the carry-over of accrued but unused vacation time. 


        g.    Expenses: The Company shall reimburse the Executive for reasonable expenses for cellular telephone usage, entertainment,
travel, meals, lodging, and similar items incurred in the conduct of the Company business. Such expenses shall be reimbursed in accordance with the Company's expense reimbursement policies and
guidelines. 


        h.    Officers and Directors Liability Insurance; Indemnification: The Company shall obtain and continue in full force and
effect appropriate director and officer liability insurance in such amounts and with such terms and provisions as the Board shall determine in its sole discretion ("D&O Insurance"). To the fullest
extent permitted by the indemnification provisions of the Company's governing instruments in effect as of the date of this Agreement and the indemnification provisions of the governing laws of the
jurisdiction of the Company's formation in effect from time to time (collectively, the "Indemnification Provisions"), and in each case subject to the conditions thereof, the Company shall
(i) indemnify the Executive, as a director and officer of the Company or an affiliate of the Company or a trustee or fiduciary of an employee benefit plan of the Company or an affiliate of the
Company, or, if the Executive shall be serving in such capacity at the Company's written request, as a director or officer of any other corporation (other than an affiliate of the Company) or as a
trustee or fiduciary of an employee benefit plan not sponsored by the Company or an affiliate of the Company, against all liabilities and reasonable expenses that may be incurred by the Executive in
any threatened, pending, or completed action, suit or proceeding, whether civil, criminal or administrative, or investigative and whether formal or informal, because the Executive is or was a director
or officer of the Company, a director or officer of such other corporation or a trustee or fiduciary of such employee benefit plan, and against which the Executive may be indemnified by the Company,
and (ii) pay for or reimburse the reasonable expenses incurred by the Executive in the defense of any proceeding to which the Executive is a party because the Executive is or was a director or
officer of the Company, a director or officer of such other corporation or a trustee or fiduciary of such employee benefit plan. The rights of the Executive under the Indemnification Provisions shall
survive the termination of the employment of the Executive by the Company. 


        i.      Special Bonus: The Executive shall be provided with a special, one-time bonus opportunity for the employment
Term ending July 1, 2003. The maximum bonus available under this provision shall be $150,000 and the actual amount of bonus shall be prorated if the Pro-Forma EBITDA (as defined in
the purchase and sale agreement between EOTT and Pacific Marketing and Transportation LLC) achieved by the West Coast Crude Unit of Pacific Marketing and Transportation LLC for the period
July 1, 2001 through June 30, 2003 (the "average 12-month 



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proforma EBITDA") exceeds $2,000,000 but does not exceed $3,500,000. The proration shall be made in accordance with the following table: 



	Average 12-month

Proforma EBITDA

(millions)
	 	Percent of

Maximum Award
	 
	$2.00 - $2.75	 	25	%
	$2.75 - $3.00	 	60	%
	$3.00 - $3.33	 	85	%
	$3.33 - $3.50	 	100	%






        4.    TERMINATION: The Executive's employment with the Company during the Term may be terminated by the Company or the Executive
only under the circumstances described in this Paragraph 4, and subject to the provisions of Paragraph 5: 



        a.    Death or Disability: The Executive's employment hereunder shall terminate automatically upon the Executive's death. If the
Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), the Company may give to the Executive written notice of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall terminate effective on the 10th day after receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 10-day period after such receipt, the Executive shall not have returned to full-time performance of the Executive's material duties. For purposes of
this Agreement, "Disability" shall mean any physical or mental condition which prevents the Executive, for a period of 180 consecutive days, from performing and carrying out his material duties and
responsibilities with the Company. 


        b.    Cause: The Company may immediately terminate this Agreement for "Cause" by giving written notice to the Executive. Any one
or more of the following events shall constitute "Cause": 



          (i)  any
material breach of the representations of the Executive set forth in Paragraph 2(e); 


        (ii)  any
willful misconduct with respect to the Company which is materially detrimental to the Company and its subsidiaries in the aggregate, including but not limited to
theft or dishonesty (other than good faith expense account disputes); 


        (iii)  conviction
of (or pleading nolo contendere to) a felony (other than (A) a traffic violation that is in most
jurisdictions not classified as a felony and (B) a felony resulting from vicarious (rather than direct) liability arising out of his position as an officer or director of the Company); 


        (iv)  failure
or refusal to attempt to follow the written directions of the Board within a reasonable period after receiving written notice; or 



        (v)  gross
continuous nonfeasance with regard to the Executive's duties, taken as a whole, which materially continue after a written notice thereof is given to the Executive. 




        c.    Other than Death or Disability or Cause: The Company may terminate the Executive's employment upon written notice to the
Executive at any time and for any reason other than Death, Disability, or Cause, subject to the provisions of Paragraph 5(c). 



        d.    Termination by Executive: The Executive may terminate his employment upon written notice to the Company at any time and
for any reason. 


        e.    Resignations: On and as of the date that the employment of the Executive by the Company shall terminate for any reason,
the Executive shall resign from his position as a director 



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and employee of the Company and from all other positions he holds as a director or employee of any subsidiary or affiliate of the Company. 




        5.    OBLIGATIONS OF THE COMPANY AND THE EXECUTIVE UPON TERMINATION:



        a.    Death or Disability: If the Executive's employment is terminated by reason of the Executive's death or Disability during
the Term, the Term shall terminate without further obligations to the Executive or his legal representatives under this Agreement, other than for (A) payment of the sum of (i) any base
salary and bonus owed to the Executive through the date of termination (provided that for this purpose the amount of such bonus shall be calculated
based on the number of days in the year through the date of termination, as well as any earned bonus for any complete year that theretofore had not been paid) and (ii) any other compensation
earned through the date of termination but not yet paid or delivered to the Executive ("Accrued Obligations"), and (B) payment of any amounts due pursuant to the terms of any applicable
equity-based plan of the Company or any welfare or pension benefit plan of the Company as of the date of termination or which by their specific terms extend beyond such date of termination, and
(C) payments due, if any, and continuation of coverage (collectively, "Indemnification /Insurance Payments"), pursuant to the Indemnification Provisions and D&O Insurance. All such payments
shall be paid to the Executive or his estate or beneficiary, as applicable. 


        b.    Termination for Cause: If the Executive's employment is terminated by the Company for Cause, the Term shall terminate
without further obligations to the Executive or his legal representatives under this Agreement on the date of such termination and no further payments or benefits of any kind, including salary,
bonuses and any unpaid amount of the Equalization Payment, shall be payable to the Executive, other than for (i) Accrued Obligations and (ii) the payments and benefits provided in
Paragraph 5(e). 


        c.    Other than Death or Disability or Cause: Except as provided in Paragraph 5(c)(ii) below, if the Company
terminates the Executive's employment during the Term for any reason other than Death or Disability, or Cause, the Term shall terminate on the date of such termination without further obligation to
the Executive other than (A) Accrued Obligations, (B) payment of any amounts due pursuant to the terms of any applicable equity-based plan of the Company or any welfare or pension
benefit plan of the Company as of the date of termination or which by their specific terms extend beyond such date of termination, (C) payment to the Executive, within thirty (30) days
of the date of termination, of a lump sum equal to the sum of (1) the Executive's then current annual base salary, and (2) an amount equal to the maximum bonus opportunity under the
Company's annual bonus incentive compensation plan for the year in which the termination occurs, (D) subject to the terms of the applicable plans (or equivalent substitute(s) if the plan(s)
prohibit participation by ex-employees), continuation of the benefits provided in Paragraph 3(e) of this Agreement for one year following the date of termination (or such shorter
period as shall terminate on the date that the Executive shall commence his next employment), and (E) payment of Indemnification/Insurance Payments. The Company shall be obligated to make the
foregoing payments and to provide the foregoing benefits upon the Executive and the Company signing a mutual release of all claims against the other in the form provided by the Company; such release
shall not affect the Executive's rights (x) under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and (y) any conversion rights under any applicable life insurance
policies. The Release to be provided by the Company shall, if applicable, give the Executive appropriate notifications under the Age Discrimination in Employment Act, as amended by the Older Workers
Benefit Protection Act. 


        d.    Termination by Executive: If the Executive terminates his employment for any reason, the Term shall terminate without
further obligation to the Executive on the date of such termination and no further payments or benefits of any kind, including salary or bonuses shall be payable to 



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the Executive, other than for (A) Accrued Obligations and (B) the payments and benefits provided in Paragraph 5(e). 


        e.    Exclusive Remedy: Except for the payments and benefits provided in this Paragraph 5, the Executive acknowledges and
agrees that upon termination of the Term, he shall have no other claims against, and be entitled to no other payments or benefits from, the Company under this Agreement or pursuant to the Company's
policies and plans, other than (A) the Executive's rights under COBRA, (B) any conversion rights under any applicable life insurance policies, (C) payment of any amounts due
pursuant to the terms of any equity-based plan of the Company or any welfare or pension benefit plan of the Company as of the date of termination or which by their specific terms extend such date of
termination and (D) rights with respect to Indemnification/Insurance Payments. In no event shall the Executive be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. 




        6.    CONFIDENTIAL INFORMATION: During and after the Term, the Executive shall not use or disclose any secret, confidential,
and/or proprietary information, knowledge, or data relating to the Company, any of its subsidiaries or any of the other affiliates of the Company, present and future, and their respective businesses,
which shall have been obtained by the Executive during his employment by the Company, any of its subsidiaries or any of the other affiliates of the Company and which shall not be or become public
knowledge (other than by acts by the Executive or his representatives in violation of this Agreement) provided that the Executive may, (a) while employed by the Company, disclose such
information, knowledge, or data as he in good faith deems appropriate and (b) otherwise comply with legal process, so long as Executive gives prompt notice to the Company of any required
disclosure and reasonably cooperates (without being required to incur any expense or subject himself to sanction or penalty) with the Company if the Company determines to oppose, challenge, or quash
the legal process. 


        7.    NONSOLICITATION: The Executive agrees that during the Term of this Agreement and for a period of one (1) year
following the termination of the Term, he will not, directly or indirectly, knowingly solicit on behalf of any such entity any employee of the Company, any of its subsidiaries or any of its other
affiliates, present or future (while an affiliate), who is being compensated at a rate of Fifty Thousand Dollars ($50,000.00) or more per year as an employee of the Company, any of its subsidiaries,
or any of its other affiliates, present or future, to work for any individual or firm then in competition with the business of the Company, any of its subsidiaries or any other affiliate of the
Company, present or future. The Executive may give references with respect to such employees. 


        8.    SUCCESSORSHIP: This Agreement shall inure to the benefit of and be binding upon the Company and its successors and
permitted assigns and any such successor or permitted assignee shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" and
"assignee" shall be limited to any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or otherwise in
connection with any sale of all or substantially all of the assets of the Company, provided that any successor or permitted assignee promptly assumes in
a writing delivered to the Executive this Agreement and, in no event, shall any such succession or assignment release the Company from its obligations thereunder. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any 


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successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 


        9.    ARBITRATION: Any and all controversies, claims, or disputes arising out of or in any way relating to this Agreement or the
termination thereof shall be resolved by final and binding arbitration in Denver, Colorado before a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"). The arbitration shall be commenced by filing a demand for arbitration with the AAA within eighteen (18) months after the occurrence of the facts giving rise to any such
controversy, claim, or dispute. The arbitrator shall decide all issues relating to arbitrability. The costs of such arbitration, including the arbitrator's fees, shall be paid by the Company, except
for a filing fee to be paid by the Executive not to exceed $150.00. Each party to the arbitration shall be responsible for the payment of its own attorneys' fees, provided  that, if the Executive
prevails as to any matter in any such arbitration, the Company shall pay the reasonable attorneys' fees incurred by the Executive in connection with
those matters on which he prevails, in an amount to be determined by the arbitrator. 


        10.  GOVERNING LAW: The provisions of this Agreement shall be construed in accordance with, and governed by, the laws of the
State of Colorado without regard to principles of conflict of laws. 


        11.  SAVINGS CLAUSE: If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not
affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be
severable. 


        12.  WAIVER OF BREACH: No waiver of any breach of any term or provision of this Agreement shall be construed to be, nor shall
be, a waiver of any other breach of this Agreement. No waiver shall be binding unless in writing and signed by the party waiving the breach. 


        13.  MODIFICATION: No provision of this Agreement may be amended, modified, or waived except by written agreement signed by
the parties hereto. 


        14.  ASSIGNMENT OF AGREEMENT: The Executive acknowledges that his services are unique and personal. Accordingly, the Executive
may not assign his rights or delegate his duties or obligations under this Agreement to any person or entity; provided,  however, that payments may be made
to the Executive's estate or beneficiaries as expressly set forth herein. 


        15.  ENTIRE AGREEMENT: This Agreement is an integrated document and constitutes and contains the complete understanding and
agreement of the parties with respect to the subject matter addressed herein, and supersedes and replaces all prior negotiations and agreements, whether written or oral, concerning the subject matter
hereof. 


        16.  CONSTRUCTION: Each party has cooperated in the drafting and preparation of this Agreement. Hence, in any construction to
be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter. The captions of this Agreement are not part of the provisions and shall have
no force or effect. 


        17.  NOTICES: Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered
personally or sent by registered or certified mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below (or at
such other addresses as shall be specified by the parties by like notice). Such notices, demands, claims, and other communications shall be deemed given: 



        a.    in
the case of delivery by overnight service with guaranteed next day delivery, such next day or the day designated for delivery; 



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        b.    in
the case of certified or registered United States mail, five days after deposit in the United States mail; or 



        c.    in
the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone, or otherwise; and 


        d.    in
the case of personal delivery, when received. 




        Communications
that are to be delivered by the United States mail or by overnight service are to be delivered to the addresses set forth below: 



	(i)	 	To the Company:
	

 	
 	

Pacific Energy GP, Inc.

Attn: Irvin Toole, Jr.

5900 Cherry Avenue

Long Beach, CA 90805
	

(ii)	
 	
To the Executive:
	

 	
 	

Kevin R. Lee

1962 W. 232nd Street

Torrance, CA 90501






Each
party, by written notice furnished to the other party, may modify the acceptable delivery address, except that notice of change of address shall be effective only upon receipt. In the event that
the Company is aware that the Executive is not at the location when notice is being given, notice shall be deemed given when received by the Executive, whether at the aforementioned location or at
another location. 


        18.  TAX WITHHOLDING: The Company may withhold from any amounts payable under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to any applicable law or regulation. 



        19.  REPRESENTATION: The Executive represents that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he understands its terms. The Executive acknowledges that, prior to assenting to the terms of this Agreement, he has been
given a reasonable time to review it, to consult with counsel of his choice, and to negotiate at arm's-length with the Company as to its contents. The Executive and the Company agree that the language
used in this Agreement is the language chosen by the parties to express their mutual intent, and that they have entered into this Agreement freely and voluntarily and without pressure or coercion from
anyone. 


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        IN
WITNESS WHEREOF, the Company and the Executive, intending to be legally bound, have executed this Agreement on the day and year first above written. 



	 	 	PACIFIC ENERGY GP, INC.
	

 	
 	

By:	
 	

/s/ Irvin Toole, Jr.
	 	 	 	 	
 Name: Irvin Toole, Jr.

Title: President and Chief Executive Officer
	

 	
 	
EXECUTIVE
	

 	
 	

/s/ Kevin R. Lee
 Kevin R. Lee




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EXHIBIT 10.7

EMPLOYMENT AGREEMENT