Document:

Exhibit 10.2

 

 

OMNIBUS AGREEMENT

 

by and among

 

PHILLIPS 66 COMPANY,

 

PHILLIPS 66 PIPELINE LLC,

 

PHILLIPS 66 PARTNERS LP,

 

PHILLIPS 66 PARTNERS HOLDINGS, LLC,

 

PHILLIPS 66 CARRIER LLC

 

and

 

PHILLIPS 66 PARTNERS GP LLC

 

 

 

 

Contents

 

	
Article I.
    	
Defined   Terms
    	
2
    
	
 
    	
 
    	
 
    
	
Section 1.01
    	
Defined   Terms
    	
2
    
	
Section 1.02
    	
Other   Defined Terms
    	
6
    
	
Section 1.03
    	
Terms   Generally
    	
6
    
	
 
    	
 
    	
 
    
	
Article II.
    	
Term
    	
7
    
	
 
    	
 
    	
 
    
	
Section 2.01
    	
Term   and Termination
    	
7
    
	
 
    	
 
    	
 
    
	
Article III.
    	
Indemnity
    	
7
    
	
 
    	
 
    	
 
    
	
Section 3.01
    	
Environmental   Indemnification
    	
7
    
	
Section 3.02
    	
Right   of Way and Real Property Indemnification
    	
8
    
	
Section 3.03
    	
Additional   Indemnification by Company and Pipeline
    	
9
    
	
Section 3.04
    	
Additional   Indemnification by the Partnership Group
    	
10
    
	
Section 3.05
    	
Indemnification   Procedures
    	
10
    
	
Section 3.06
    	
Limitations   on Indemnity Coverage
    	
12
    
	
 
    	
 
    	
 
    
	
Article IV.
    	
Services
    	
12
    
	
 
    	
 
    	
 
    
	
Section 4.01
    	
Operational   and Administrative Services
    	
12
    
	
Section 4.02
    	
Reimbursable   Costs
    	
14
    
	
 
    	
 
    	
 
    
	
Article V.
    	
 Right of First Offer
    	
15
    
	
 
    	
 
    	
 
    
	
Section 5.01
    	
Right   of First Offer to Purchase Certain Assets
    	
15
    
	
Section 5.02
    	
Procedures
    	
15
    
	
 
    	
 
    	
 
    
	
Article VI.
    	
License   of Name and Mark
    	
17
    
	
 
    	
 
    	
 
    
	
Section 6.01
    	
Grant   of License
    	
17
    
	
Section 6.02
    	
Ownership   and Quality
    	
17
    
	
Section 6.03
    	
Termination
    	
17
    
	
 
    	
 
    	
 
    
	
Article VII.
    	
Prefunded   Projects
    	
17
    
	
 
    	
 
    	
 
    
	
Section 7.01
    	
Prefunded   Projects
    	
17
    
	
 
    	
 
    	
 
    
	
Article VIII.
    	
Notices
    	
18
    
	
 
    	
 
    	
 
    
	
Section 8.01
    	
Notices
    	
18
    
	
Section 8.02
    	
Effective   upon Receipt
    	
18
    
	
 
    	
 
    	
 
    
	
Article IX.
    	
Applicable   Law
    	
18
    
	
 
    	
 
    	
 
    
	
Section 9.01
    	
Applicable   Law
    	
18
    
	
 
    	
 
    	
 
    
	
Article X.
    	
Limitation   of Liability
    	
18
    
	
 
    	
 
    	
 
    
	
Section 10.01
    	
No   Liability for Consequential Damages
    	
18
    
	
Section 10.02
    	
Limitation   of Liability
    	
18
    
	
 
    	
 
    	
 
    
	
Article XI.
    	
Miscellaneous
    	
19
    
				

 

i

 

	
Section 11.01
    	
Disputes   between the Parties
    	
19
    
	
Section 11.02
    	
Assignment
    	
19
    
	
Section 11.03
    	
No   Third-Party Rights
    	
19
    
	
Section 11.04
    	
Compliance   with Laws
    	
19
    
	
Section 11.05
    	
Severability
    	
19
    
	
Section 11.06
    	
Non-Waiver
    	
19
    
	
Section 11.07
    	
Entire   Agreement
    	
19
    
	
Section 11.08
    	
Amendments
    	
20
    
	
Section 11.09
    	
Survival
    	
20
    
	
Section 11.10
    	
Counterparts;   Multiple Originals
    	
20
    
	
Section 11.11
    	
Exhibits   and Schedules
    	
20
    
	
Section 11.12
    	
Table   of Contents; Headings; Subheadings
    	
20
    
	
Section 11.13
    	
Construction
    	
20
    
	
Section 11.14
    	
Business   Practices
    	
20
    

 

	
Schedule I
    	
Environmental Matters
    	
 
    
	
Schedule II
    	
Litigation
    	
 
    
	
Schedule III
    	
Services
    	
 
    
	
Schedule IV
    	
Prefunded Projects
    	
 
    
	
 
    	
 
    	
 
    
	
Exhibit A
    	
Dispute Resolution Procedures
    	
 
    

 

ii

 

OMNIBUS AGREEMENT

 

This OMNIBUS AGREEMENT (“Agreement”) is entered into as of the Effective Date by and among PHILLIPS 66 COMPANY, a Delaware corporation (“Company”), on behalf of itself and the other Phillips 66 Entities (as defined herein), PHIILLIPS 66 PIPELINE LLC, a Delaware limited liability company (“Pipeline”), PHIILLIPS 66 PARTNERS LP, a Delaware limited partnership (the “Partnership”), PHILLIPS 66 PARTNERS HOLDINGS LLC, a Delaware limited liability company (“Holdings”), PHILLIPS 66 CARRIER LLC, a Delaware limited liability company (“Carrier”), and PHILLIPS 66 PARTNERS GP LLC, a Delaware limited liability company (the “General Partner”).

 

Recitals

 

WHEREAS, the Parties (as defined herein) desire by their execution of this Agreement to evidence their understanding, as more fully set forth in Article III, with respect to certain indemnification obligations of the Parties to each other.

 

WHEREAS, the Parties desire by their execution of this Agreement to evidence their understanding, as more fully set forth in Article IV, with respect to the amount to be paid by the Partnership for the operational and administrative support services to be performed by the General Partner and its Affiliates (as defined herein) for and on behalf of the Partnership Group (as defined herein).

 

WHEREAS, the Parties desire by their execution of this Agreement to evidence their understanding, as more fully set forth in Article V, with respect to the Partnership Group’s right of first offer with respect to the ROFO Assets (as defined herein).

 

WHEREAS, the Parties desire by their execution of this Agreement to evidence their understanding, as more fully set forth in Article VI, with respect to the granting of a license to the Partnership Group and the General Partner to use the “Phillips 66” name and any other trademarks owned by the Company that contain such name.

 

WHEREAS, the Parties desire by their execution of this Agreement to evidence their understanding, as more fully set forth in Article VII, with respect to certain projects that will be undertaken by the Partnership Group after the Effective Date and the prepayment by Company of certain amounts relating to such projects.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

 

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ARTICLE I.                DEFINED TERMS

 

Section 1.01                             Defined Terms.

 

The following definitions shall for all purposes apply to the capitalized terms used in this Agreement:

 

(a)                                 “Affiliate” has the meaning ascribed to that term in the Partnership Agreement.

 

(b)                                 “Agreement” means this Omnibus Agreement, together with all exhibits and schedules attached hereto, as the same may be amended, supplemented or restated from time to time in accordance with the provisions hereof.

 

(c)                                  “Assets” means all gathering pipelines, transportation pipelines, storage tanks, trucks, truck racks, terminal facilities, offices and related equipment, real estate and other assets, or portions thereof, conveyed, contributed or otherwise transferred or intended to be conveyed, contributed or otherwise transferred pursuant to the Contribution Agreement to any member of the Partnership Group, or owned by, leased by or necessary for the operation of the business, properties or assets of any member of the Partnership Group, prior to or as of the Effective Date.

 

(d)                                 “Business Day” means any Day except for Saturday, Sunday or a legal holiday in Texas.

 

(e)                                  “Company” has the meaning ascribed to that term in the introductory paragraph.

 

(f)                                   “Contribution Agreement” means that certain Contribution, Conveyance and Assumption Agreement, dated as of the Effective Date, among Company, the General Partner, the Partnership, Holdings, 66 Pipeline LLC, Phillips Texas Pipeline Company Ltd., Carrier and Phillips 66 Pipeline LLC, together with the additional conveyance documents and instruments contemplated or referenced thereunder, as such may be amended, supplemented or restated from time to time.

 

(g)                                  “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise.

 

(h)                                 “Covered Environmental Losses” has the meaning ascribed to that term in Section 3.01(a).

 

(i)                                     “Covered Property Losses” has the meaning ascribed to that term in Section 3.02.

 

(j)                                    “Day” means the period of time commencing at 0000 hours on one calendar day and running until, but not including, 0000 hours on the next calendar day, according to local time in Houston, Texas.

 

(k)                                “Effective Date” means the date of the closing of the initial public offering of common units representing limited partner interests in the Partnership.

 

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(l)                                     “Environmental Laws” means all federal, state, and local laws, statutes, rules, regulations, orders, judgments, ordinances, codes, injunctions, decrees, Environmental Permits and other legally enforceable requirements and rules of common law now or hereafter in effect, relating to (a) pollution or protection of human health, natural resources, wildlife and the environment including, without limitation, the federal Comprehensive Environmental Response, Compensation, and Liability Act, the Superfund Amendments Reauthorization Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution Control Act, the Toxic Substances Control Act, the Oil Pollution Act, the Safe Drinking Water Act, the Hazardous Materials Transportation Act, and other environmental conservation and protection laws and the regulations promulgated pursuant thereto, and any state or local counterparts, each as amended from time to time, and (b) the generation, manufacture, processing, distribution, use, treatment, storage, transport, or handling of any hazardous wastes.

 

(m)                             “Environmental Permit” means any permit, approval, identification number, license, registration, certification, consent, exemption, variance or other authorization required under or issued pursuant to any applicable Environmental Law, including applications for renewal of such permits in which the application allows for continued operation under the terms of an expired permit.

 

(n)                                 “General Partner” has the meaning ascribed to that term in the introductory paragraph.

 

(o)                                 “Governmental Authority” means any government, any governmental administration, agency, instrumentality or other instrumentality or other political subdivision thereof or any court, commission or other governmental authority of competent jurisdiction.

 

(p)                                 “Hazardous Substance” means (a) any substance, whether solid, liquid, gaseous, semi-solid or any combination thereof, that is designated, defined or classified as a hazardous waste, solid waste, hazardous material, pollutant, contaminant or toxic or hazardous substance, or terms of similar meaning, or that is otherwise regulated under any Environmental Law, including, without limitation, any hazardous substance as defined under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, and including friable asbestos and lead containing paints or coatings, radioactive materials, and polychlorinated biphenyls, and (b) petroleum, oil, gasoline, natural gas, fuel oil, motor oil, waste oil, diesel fuel, jet fuel, and other refined petroleum hydrocarbons, solely to the extent regulated under applicable Environmental Laws.

 

(q)                                 “Indemnified Party” means any applicable Partnership Group Member or any applicable Phillips 66 Entity, as the case may be, in its capacity as the party entitled to indemnification in accordance with Article III.

 

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(r)                                    “Indemnifying Party” means either the Partnership or Company, as the case may be, in its capacity as the Party from which indemnification may be sought in accordance with Article III.

 

(s)                                   “Law” means all constitutions, laws (including common law), treaties, statutes, orders, decrees, rules, injunctions, licenses, permits, approvals, agreements, regulations, codes, ordinances issued by any Governmental Authority, including judicial or administrative orders, consents, decrees, and judgments, published directives, guidelines, governmental authorizations, requirements or other governmental restrictions which have the force of law, and determinations by, or interpretations of any of the foregoing by any Governmental Authority having jurisdiction over the matter in question and binding on a given Person, whether in effect as of the date hereof or thereafter and, in each case, as amended.

 

(t)                                    “License” has the meaning ascribed to that term in Section 6.01.

 

(u)                                 “Limited Partner” has the meaning ascribed to that term in the Partnership Agreement.

 

(v)                                 “Losses” means any losses, damages, liabilities, claims, demands, causes of action, judgments, settlements, fines, penalties, costs and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent.

 

(w)                               “Marks” has the meaning ascribed to that term in Section 6.01.

 

(x)                                 “Month” or “Monthly” means a calendar month commencing at 0000 hours on the first Day thereof and running until, but not including, 0000 hours on the first Day of the following calendar month, according to local time in Houston, Texas.

 

(y)                                 “Name” has the meaning ascribed to that term in Section 6.01.

 

(z)                                  “Notice” means any notice, request, instruction, correspondence or other communication permitted or required to be given under this Agreement.

 

(aa)                          “Operational and Administrative Support Fee” has the meaning ascribed to that term in Section 4.01(a).

 

(bb)                          “Operational Services Agreement” means that certain Operational Services Agreement, dated as of the Effective Date, among Carrier, Holdings and Phillips 66 Pipeline LLC, as such may be amended, supplemented or restated from time to time.

 

(cc)                            “Parties” means Company, Pipeline, the Partnership, Holdings, Carrier and the General Partner, collectively.

 

(dd)                          “Partnership” has the meaning ascribed to that term in the introductory paragraph.

 

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(ee)                            “Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of the Effective Date, as such agreement is in effect on the Effective Date, to which reference is hereby made for all purposes of this Agreement.

 

(ff)                              “Partnership Change of Control” means Company ceases to Control the general partner of the Partnership.

 

(gg)                            “Partnership Group” means the Partnership and any of its Subsidiaries, treated as a single consolidated entity.

 

(hh)                          “Partnership Group Member” means any member of the Partnership Group.

 

(ii)                                  “Partnership Interest” has the meaning ascribed to that term in the Partnership Agreement.

 

(jj)                                “Party” means Company, Pipeline, the Partnership, Holdings, Carrier or the General Partner, individually; and “Parties” means Company, Pipeline, the Partnership, Holdings, Carrier and the General Partner, collectively.

 

(kk)                          “Person” means, without limitation, an individual, corporation (including a non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Authority, and shall include any successor (by merger or otherwise) of such entity.

 

(ll)                                  “Phillips 66 Entities” means Company and any Person Controlled, directly or indirectly, by Company other than the General Partner or a Partnership Group Member; and “Phillips 66 Entity” means any of the Phillips 66 Entities.

 

(mm)                  “Pipeline” has the meaning ascribed to that term in the introductory paragraph.

 

(nn)                          “PPI-FG” has the meaning ascribed to that term in Section 4.01(b).

 

(oo)                          “Prefunded Projects” has the meaning ascribed to that term in Section 7.01.

 

(pp)                          “Proposed Transaction” has the meaning ascribed to that term in Section 5.02(a).

 

(qq)                          “Prudent Industry Practice” means such practices, methods, acts, techniques, and standards as are in effect at the time in question that are required by and in accordance with applicable Law and are consistent with the higher of (a) the standards generally followed by reputable owners and operators of crude oil and refined petroleum products pipelines and terminals in the United States, including the inland marine terminal industry, and (b) the standards applied or followed by Company or its Affiliates as owners or operators of such assets, or by the Partnership Group or its Affiliates as owners or operators of such assets.

 

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(rr)                                “Registration Statement” means the Registration Statement on Form S-1 filed by the Partnership with the United States Securities and Exchange Commission (Registration No. 333-187582), as amended.

 

(ss)                              “Retained Assets” means all gathering pipelines, transportation pipelines, storage tanks, trucks, truck racks, terminal facilities, offices and related equipment, real estate and other related assets, or portions thereof, owned by any of the Phillips 66 Entities that were not directly or indirectly conveyed, contributed or otherwise transferred to the Partnership Group pursuant to the Contribution Agreement or the other documents referred to in the Contribution Agreement.

 

(tt)                                “ROFO Assets” means Pipeline’s limited liability company interest in each of (i) Phillips 66 Sand Hills LLC, a Delaware limtied liability company, and (ii) Phillips 66 Southern Hills LLC, a Delaware limited liability company.

 

(uu)                          “ROFO Notice” has the meaning ascribed to that term in Section 5.02(a).

 

(vv)                          “ROFO Period” has the meaning ascribed to that term in Section 5.01(a).

 

(ww)                      “ROFO Response” has the meaning ascribed to that term in Section 5.02(a).

 

(xx)                          “Taxes” means any income, sales, use, excise, transfer, and similar taxes, fees and charges (including ad valorem taxes), including any interest or penalties attributable thereto, imposed by any Governmental Authority.

 

(yy)                          “Tax Sharing Agreement” means that certain Tax Sharing Agreement, dated as of the Effective Date, between the Partnership and Phillips 66, a Delaware corporation, as such may be amended, supplemented or restated from time to time.

 

(zz)                            “Transfer” means to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of, whether in one or a series of transactions.

 

(aaa)                   “Services” has the meaning ascribed to that term in Section 4.01(a).

 

(bbb)                   “Subsidiary” has the meaning ascribed to that term in the Partnership Agreement.

 

(ccc)                      “Voting Stock” means securities of any class of a Person entitling the holders thereof to vote on a regular basis in the election of members of the board of directors or other governing body of such Person.

 

Section 1.02                             Other Defined Terms.  Other terms may be defined elsewhere in this Agreement, and, unless otherwise indicated, shall have such meanings ascribed to such terms elsewhere in this Agreement.

 

Section 1.03                             Terms Generally.  The definitions in this Agreement shall apply equally to both singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The

 

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word “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  All references to Articles, Sections, Exhibits and schedules shall be deemed to be references to Articles and Sections of, and Exhibits and schedules to, this Agreement unless the context requires otherwise.

 

ARTICLE II.                     TERM

 

Section 2.01                             Term and Termination.  This Agreement shall commence on the Effective Date and shall continue in effect until terminated by a written agreement executed by all of the Parties.  At any time following the occurrence of a Partnership Change of Control, either Company or the Partnership may terminate this Agreement upon written Notice to the other and such termination shall be effective at the later of such Partnership Change of Control and the date specified in such Notice; provided, however, that the Parties’ indemnification obligations under Article III shall, to the fullest extent permitted by law, survive the termination of this Agreement in accordance with their respective terms.

 

ARTICLE III.                INDEMNITY

 

Section 3.01                             Environmental Indemnification.

 

(a)                                 Subject to Section 3.01(b), Company and Pipeline shall indemnify, defend and hold harmless the Partnership Group from and against any Losses suffered or incurred by the Partnership Group, directly or indirectly, or as a result of any claim by a third party, by reason of or arising out of the following (collectively, “Covered Environmental Losses”):

 

(i)             any violation or correction of a violation of Environmental Laws associated with or arising from the ownership or operation of the Assets;

 

(ii)          any event, condition or matter associated with or arising from the ownership or operation of the Assets (including, without limitation, the presence of Hazardous Substances on, under, about or migrating to or from the Assets or the disposal or release of Hazardous Substances generated by operation of the Assets at non-Asset locations) that requires investigation, assessment, evaluation, monitoring, containment, cleanup, repair, restoration, remediation, or other corrective action under Environmental Laws, including, without limitation, (A) the cost and expense of any such activity, (B) the cost or expense of the preparation and implementation of any closure, remedial, corrective action, or other plans required or necessary under Environmental Laws, and (C) the cost and expense of any environmental or toxic tort pre-trial, trial or appellate legal or litigation support work;

 

(iii)       any environmental event, condition or matter associated with or arising from the Retained Assets, whether occurring before or after the Effective Date.

 

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(b)                                 With respect to any discrete violation under Section 3.01(a)(i) or any discrete environmental event, condition or matter included under Section 3.01(a)(ii), Company and Pipeline will be obligated to indemnify the Partnership Group only if and to the extent that:

 

(i)             such violation, event, condition or environmental matter occurred before the Effective Date under then-applicable Environmental Laws; and

 

(ii)          either (A) such violation, event, condition or environmental matter is set forth on Schedule I attached hereto or (B) Company is notified in writing of such violation, event, condition or environmental matter prior to the fifth anniversary of the Effective Date.

 

For the avoidance of doubt, nothing in this Section 3.01(b) shall apply to Company’s and Pipeline’s indemnification obligations under Section 3.01(a)(iii).

 

(c)                                  The Partnership Group shall indemnify, defend and hold harmless each of the Phillips 66 Entities from and against any Losses suffered or incurred by the Phillips 66 Entities, directly or indirectly, or as a result of any claim by a third party, by reason of or arising out of:

 

(i)             any violation of Environmental Laws associated with or arising from the ownership or operation of the Assets; and

 

(ii)          any event, condition or matter associated with or arising from the ownership or operation of the Assets (including, without limitation, the presence of Hazardous Substances on, under, about or migrating to or from the Assets or the disposal or release of Hazardous Substances generated by operation of the Assets at non-Asset locations) that requires investigation, assessment, evaluation, monitoring, containment, cleanup, repair, restoration, remediation, or other corrective action under Environmental Laws, including, without limitation, (A) the cost and expense of any such activity, (B) the cost and expense of the preparation and implementation of any closure, remedial, corrective action, or other plans required or necessary under Environmental Laws, and (C) the cost and expense of any environmental or toxic tort pre-trial, trial or appellate legal or litigation support work;

 

and regardless of whether such violation under Section 3.01(c)(i) or such event, condition or environmental matter included under Section 3.01(c)(ii) occurred before or after the Effective Date, in each case, to the extent that any of the foregoing do not constitute Covered Environmental Losses for which the Partnership Group is entitled to indemnification from Company and Pipeline under this Article III.

 

Section 3.02                             Right of Way and Real Property Indemnification.  Company and Pipeline shall indemnify, defend and hold harmless the Partnership Group from and against any

 

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Losses suffered or incurred by the Partnership Group by reason of or arising out of the following (collectively, “Covered Property Losses”):

 

(a)                                 the failure of the applicable Partnership Group Member to be the owner of such valid and indefeasible easement rights or fee ownership or leasehold interests in and to the lands on which any crude oil or refined products pipeline or related pump station, storage tank, terminal or truck rack or any related facility or equipment conveyed or contributed to the applicable Partnership Group Member on the Effective Date is located as of the Effective Date, and such failure renders the Partnership Group liable to a third party or unable to use or operate the Assets in substantially the same manner that the Assets were used and operated by the applicable Phillips 66 Entity immediately prior to the Effective Date as described in the Registration Statement;

 

(b)                                 the failure of the applicable Partnership Group Member to have the consents, licenses and permits necessary to allow any such pipeline referred to in clause (a) of this Section 3.02 to cross the roads, waterways, railroads and other areas upon which any such pipeline is located as of the Effective Date, and such failure renders the Partnership Group liable to a third party or unable to use or operate the Assets in substantially the same manner that the Assets were used and operated by the applicable Phillips 66 Entity immediately prior to the Effective Date as described in the Registration Statement; and

 

(c)                                  the cost of curing any condition set forth in clause (a) or (b) of this Section 3.02 that does not allow any Asset to be operated in accordance with Prudent Industry Practice;

 

in each case to the extent that Company is notified in writing of any of the foregoing prior to the fifth anniversary of the Effective Date.

 

Section 3.03                             Additional Indemnification by Company and Pipeline.  In addition to and not in limitation of the indemnification provided under Section 3.01(a) and Section 3.02, Company and Pipeline shall indemnify, defend, and hold harmless the Partnership Group from and against any Losses suffered or incurred by the Partnership Group by reason of or arising out of any of the following:

 

(a)                                 (i) the consummation of the transactions contemplated by the Contribution Agreement or (ii) events and conditions associated with the ownership or operation of the Assets and occurring before the Effective Date (other than Covered Environmental Losses, which are provided for under Section 3.01, Covered Property Losses, which are provided for under Section 3.02, and current liabilities incurred in the ordinary course of business that have been accrued but not paid prior to the Effective Date), to the extent that Company is notified in writing of any such Loss prior to the fifth anniversary of the Effective Date;

 

(b)                                 any litigation matters attributable to the ownership or operation of the Assets prior to the Effective Date, including any currently pending legal actions against any of

 

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the Phillips 66 Entities set forth on Schedule II attached hereto (“Covered Litigation Matters”);

 

(c)                                  events and conditions associated with the Retained Assets and whether occurring before or after the Effective Date;

 

(d)                                 all federal, state and local Tax liabilities attributable to the ownership or operation of the Assets prior to the Effective Date, including under Treasury Regulation Section 1.1502-6 (or any similar provision of state or local law), and any such Tax liabilities of any of the Phillips 66 Entities that may result from the consummation of the formation transactions for the Partnership Group and the General Partner occurring on or prior to the Effective Date or from the consummation of the transactions contemplated by the Contribution Agreement (other than real property taxes that have been accrued but not paid prior to the Effective Date); and

 

(e)                                  the failure of any Partnership Group Member to have on the Effective Date any consent, license, permit or approval necessary to allow such Partnership Group Member to own or operate the Assets in substantially the same manner described in the Registration Statement.

 

Section 3.04                             Additional Indemnification by the Partnership Group.  In addition to and not in limitation of the indemnification provided under Section 3.01(c) or the Partnership Agreement, the Partnership Group shall indemnify, defend, and hold harmless Pipeline and the Phillips 66 Entities from and against any Losses suffered or incurred by Pipeline or the Phillips 66 Entities, or any of them, by reason of or arising out of events and conditions associated with the ownership or operation of the Assets and occurring after the Effective Date (other than Covered Environmental Losses which are provided for under Section 3.01), unless such indemnification would not be permitted under the Partnership Agreement by reason of one of the provisos contained in Section 7.7(a) of the Partnership Agreement.

 

Section 3.05                             Indemnification Procedures.

 

(a)                                 The Indemnified Party agrees that within a reasonable period of time after it becomes aware of facts giving rise to a claim for indemnification under this Article III, it will provide notice thereof in writing to the Indemnifying Party, specifying the nature of and specific basis for such claim.

 

(b)                                 The Indemnifying Party shall have the right to control all aspects of the defense of (and any counterclaims with respect to) any claims brought against the Indemnified Party that are covered by the indemnification under this Article II, including, without limitation, the selection of counsel, determination of whether to appeal any decision of any court and the settling of any such claim or any matter or any issues relating thereto, provided that no such settlement shall be entered into without the consent of the Indemnified Party unless it includes a full and unconditional release of the Indemnified Party from such claim; provided,

 

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however, that no such settlement containing any form of injunctive or similar relief shall be entered into without the prior written consent of the Indemnified Party, which consent shall not be unreasonably delayed or withheld.

 

(c)                                  The Indemnified Party agrees to cooperate in good faith and in a commercially reasonable manner with the Indemnifying Party with respect to all aspects of the defense of, and the pursuit of any counterclaims with respect to, any claims covered by the indemnification under this Article III for which a request for indemnification is made, including, without limitation, the prompt furnishing to the Indemnifying Party of any correspondence or other notice relating thereto that the Indemnified Party may receive, permitting the name of the Indemnified Party to be utilized in connection with such defense or counterclaims, the making available to the Indemnifying Party of any files, records or other information of the Indemnified Party that the Indemnifying Party considers relevant to such defense or counterclaims, the making available to the Indemnifying Party of any employees of the Indemnified Party and the granting to the Indemnifying Party of reasonable access rights to the properties and facilities of the Indemnified Party, provided that in connection therewith the Indemnifying Party agrees to use reasonable efforts to minimize the impact thereof on the operations of the Indemnified Party and further agrees to maintain the confidentiality of all files, records, and other information furnished by the Indemnified Party pursuant to this Section 3.05(c).  In no event shall the obligation of the Indemnified Party to cooperate with the Indemnifying Party as set forth in the immediately preceding sentence be construed as imposing upon the Indemnified Party an obligation to hire and pay for counsel in connection with the defense of, or the pursuit of any counterclaims with respect to, any claims covered by the indemnification set forth in this Article III; provided, however, that the Indemnified Party may, at its own option, cost and expense, engage and pay for counsel in connection with any such defense and counterclaims.  The Indemnifying Party agrees to keep any such counsel engaged by the Indemnified Party informed as to the status of any such defense, but the Indemnifying Party shall have the right to retain sole control over such defense and counterclaims.

 

(d)                                 In determining the amount of any loss, cost, damage or expense for which the Indemnified Party is entitled to indemnification under this Agreement, the gross amount of the indemnification will be reduced by (i) any insurance proceeds realized by the Indemnified Party, and such correlative insurance benefit shall be net of any incremental insurance premium that becomes due and payable by the Indemnified Party as a result of such claim and (ii) all amounts recovered by the Indemnified Party under contractual indemnities from third Persons.

 

(e)                                  With respect to Covered Environmental Losses, Company shall have the sole right and authority to manage any remediation required by Law, and, upon reasonable request from Company, the Partnership will, and will cause each Partnership Group Member to, cooperate with Company and its contractors or subcontractors to facilitate such remediation.

 

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Section 3.06                             Limitations on Indemnity Coverage.

 

(a)                                 With respect to Covered Environmental Losses under Sections 3.01(a)(i) or 3.01(a)(ii), neither Company nor Pipeline shall be obligated to indemnify, defend and hold harmless any Partnership Group Member until such time as the total aggregate amount of such Covered Environmental Losses exceeds $100,000 (the “Environmental Deductible”), at which time Company and Pipeline shall be obligated to indemnify the Partnership Group for the excess of such Covered Environmental Losses over the Environmental Deductible; provided, however, that to the extent any cure or remediation of any environmental matter is required under Sections 3.01(a)(i) or 3.01(a)(ii), Company and Pipeline will be obligated to indemnify the Partnership Group only to the extent of any cure or remediation that is required by Law (after giving effect to the Environmental Deductible).  For the avoidance of doubt, it is agreed that the Environmental Deductible shall not apply to any Covered Environmental Losses incurred by any Partnership Group Member related to the matters set forth on Schedule I attached hereto.

 

(b)                                 With respect to Covered Property Losses under Section 3.02 and Covered Litigation Matters under Section 3.03(b), neither Company nor Pipeline shall be obligated to indemnify, defend and hold harmless any Partnership Group Member until such time as the total aggregate amount of (i) such Covered Property Losses exceeds $200,000 (the “Property Deductible”) and (ii) Losses incurred by the Partnership Group for such Covered Litigation Matters exceeds $200,000 (the “Litigation Deductible”), at which time Company and Pipeline shall be obligated to indemnify the Partnership Group for the excess of (x) such Covered Property Losses over the Property Deductible or (y) such Losses incurred by the Partnership Group for such Covered Litigation Matters exceeds the Litigation Deductible; provided, however, that to the extent the Partnership Group attempts to cure any any matter for which it is entitled to indemnification under Section 3.02, Company and Pipeline will be obligated to indemnify the Partnership Group only to the extent of any reasonably required cure (after giving effect to the Property Deductible). For the avoidance of doubt, it is agreed that the Litigation Deductible shall not apply to any Losses incurred by any Partnership Group Member related to the matters set forth on Schedule II attached hereto.

 

(c)                                  For the avoidance of doubt, there is no deductible with respect to the indemnification owed by any Indemnifying Party under any portion of this Article III other than as described in this Section 3.06, and there is no monetary cap on the amount of indemnity coverage provided by any Indemnifying Party under this Article III other than as described in this Section 3.06.

 

ARTICLE IV.                 SERVICES

 

Section 4.01                             Operational and Administrative Services.

 

(a)                                 Company agrees to provide, and agrees to cause its Affiliates to provide, on behalf of the General Partner and for the Partnership Group’s benefit, certain

 

12

 

operational and administrative support services that Company and its Affiliates have traditionally provided in connection with the Assets, including the services listed on Schedule III to this Agreement (“Services”).  As consideration for the Services, the Partnership will pay Company an operational and administrative support fee (the “Operational and Administrative Support Fee”) of $1,144,000 per Month, payable without discount no later than the 21st Day of the Month in which Services are rendered, provided that if such Day is not a Business Day, then Partnership shall pay such amount without interest on the next Business Day.  If the Effective Date is any day other than the first day of a Month, or if this Agreement is terminated on any day other than the last day of a Month, then the Operational and Administrative Support Fee for the revelant Month shall be prorated based on the ratio of the number of days in the relevant partial Month to the number of days in the relevant full Month.

 

(b)                                 Company may increase the Operational and Administrative Support Fee on each anniversary of the Effective Date (or, if the Effective Date is any day other than the first day of a Month, on the first day of the Month following each anniversary of the Effective Date) by a percentage equal to the greater of zero and the positive change in the Producer Price Index for Finished Goods (“PPI-FG”), provided that if, with respect to any annual period or periods, the PPI-FG has decreased, Company may increase the Operational and Administrative Support Fee only to the extent that the percentage increase in the PPI-FG since the most recent previous increase in the Operational and Administrative Support Fee exceeds the cumulative decreases in the PPI-FG during the intervening periods.

 

(c)                                  From time to time, but not more frequently than once during any calendar year:

 

(i)             the Partnership will have the right to submit to Company a proposal to reduce the amount of the Operational and Administrative Support Fee if the Partnership believes, in good faith, that the prospective value of the Services to be performed by Company and its Affiliates for the benefit of the Partnership Group will be less than the Operational and Administrative Support Fee in effect at such time; and

 

(ii)   Company may propose to increase the Operational and Administrative Support Fee if Company believes, in good faith, that the prospective cost of the Services to be performed by Company and its Affiliates for the benefit of the Partnership Group (including costs incurred by reason of the Partnership’s acquisition or development of assets or changes in the complexity of the Partnership’s operations) will exceed the Operational and Administrative Support Fee in effect at such time.

 

If either Party submits such a proposal to the other Party, both Parties will negotiate in good faith to determine if the Operational and Administrative Support Fee should be changed and, if so, the amount of such change.  If the Parties agree that the Operational and Administrative Support Fee should be changed, then the

 

13

 

Operational and Administrative Support Fee shall be changed as of the first day of the Month following such agreement.

 

Section 4.02                             Reimbursable Costs.

 

(a)                                 The Partnership Group shall reimburse Company for all other direct or allocated costs and expenses incurred by Company and its Affiliates on behalf of the Partnership Group including, but not limited to:

 

(i)                       salaries and related costs (including employment taxes) of employees of Company or its Affiliates (other than executive officers of the General Partner who devote less than a majority of their working time to the Partnership Group), and the cost of individual contractors to the extent, but only to the extent, such employees or contractors perform services for the Partnership Group that are directly related to the Services;

 

(ii)                    the cost (including employment taxes and similar expenses) of employee benefits relating to employees of Company or its Affiliates, including, but not limited to, 401(k), pension, bonuses and health insurance benefits, to the extent, but only to the extent, such employees perform services for the Partnership Group that are directly related to the Services;

 

(iii)                 any expenses incurred or payments made by Company or its Affiliates for insurance coverage with respect to the assets or the business of the Partnership Group;

 

(iv)                all expenses and expenditures incurred by Company or its Affiliates as a result of the Partnership becoming and continuing as a publicly traded entity, including, but not limited to, costs associated with annual and quarterly reports, independent director and auditor fees, Partnership governance and compliance, registrar and transfer agent fees, tax return and Schedule K-1 preparation and distribution, legal fees and independent director compensation; and

 

(v)                   all sales, use, excise, value-added or similar taxes, if any, that may be applicable from time to time with respect to the Services.

 

(b)                                 As long as the General Partner is an Affiliate of Company, the Partnership and Company may settle the Partnership Group’s financial obligations to Company through Company’s normal interaffiliate settlement processes.  Except as provided in the immediately preceding sentence, the amount of any reimbursements due to Company under this Section 4.02 shall be paid by the Partnership Group no later than the 22nd Day of the Month following the Month in which the applicable reimbursable costs or expenses are incurred, provided that if such Day is not a Business Day, then the Partnership Group shall pay such amount without interest on the next Business Day.

 

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(c)                                  For the avoidance of doubt, the costs and expenses set forth in Section 4.02(a) shall be paid by the Partnership Group in addition to, and not as a part of or included in, the Operational and Administrative Support Fee.

 

ARTICLE V.                      RIGHT OF FIRST OFFER

 

Section 5.01                             Right of First Offer to Purchase Certain Assets.

 

(a)                                 Pipeline hereby grants to the Partnership a right of first offer for a period (the “ROFO Period”) beginning at the Effective Date and ending at the earlier of (i) five years from the Effective Date and (ii) upon the occurrence of a Partnership Change of Control on all or any part of the ROFO Assets to the extent that Pipeline proposes to Transfer all or any part of either ROFO Asset; provided, however, that Pipeline may Transfer all or any part of either ROFO Asset to an Affiliate of Pipeline that agrees in writing that such ROFO Asset remains subject to the provisions of this Article V and such Affiliate assumes the obligations of Pipeline under this Article V with respect to such ROFO Asset, and such Transfer shall not be subject to the Partnership Group’s right of first offer.

 

(b)                                 The Parties acknowledge that any Transfer of all or any part of any ROFO Asset pursuant to the Partnership’s right of first offer is subject to the terms of all existing agreements with respect to the ROFO Assets and shall be subject to and conditioned on the obtaining of any and all necessary consents of securityholders, Governmental Authorities, lenders or other third parties; provided, however, that Company and Pipeline hereby represent and warrant that, to their knowledge after reasonable investigation, there are no terms in such agreements that would materially impair the rights granted to the Partnership Group pursuant to this Article V with respect to any ROFO Asset.

 

Section 5.02                             Procedures.

 

(a)                                 In the event Pipeline proposes to Transfer all or any part of any applicable ROFO Asset (other than to an Affiliate in accordance with Section 5.01(a)) during the ROFO Period (a “Proposed Transaction”), Pipeline shall, prior to entering into any such Proposed Transaction, first give notice in writing to the Partnership (the “ROFO Notice”) of its intention to enter into such Proposed Transaction.  The ROFO Notice shall include any material terms, conditions and details as would be necessary for the Partnership to make a responsive offer to enter into the Proposed Transaction with Pipeline, which terms, conditions and details shall at a minimum include any terms, condition or details that Pipeline would propose to provide to non-Affiliates in connection with the Proposed Transaction.  If the Partnership determines to purchase the ROFO Assets, the Partnership shall have 60 days following receipt of the ROFO Notice to propose an offer to enter into the Proposed Transaction with Pipeline (the “ROFO Response”).  The ROFO Response shall set forth the terms and conditions (including, without limitation, the purchase price the Partnership proposes to pay for the ROFO Asset and the other terms of the purchase) pursuant to which the Partnership would be willing to

 

15

 

enter into a binding agreement for the Proposed Transaction. If no ROFO Response is delivered by the Partnership within such 60-day period, then the Partnership shall be deemed to have waived its right of first offer with respect to such ROFO Asset, subject to Section 5.02(c).

 

(b)                                 Unless the ROFO Response is rejected pursuant to written notice delivered by Pipeline to the Partnership within 60 days of the delivery to Pipeline of the ROFO Response, such ROFO Response shall be deemed to have been accepted by Pipeline, and Pipeline shall enter into an agreement with the Partnership providing for the consummation of the Proposed Transaction upon the terms set forth in the ROFO Response.  Unless otherwise agreed between Pipeline and the Partnership, the terms of the purchase and sale agreement will include the following:

 

(i)                       the Partnership will deliver the agreed purchase price (in cash, Partnership Securities, an interest-bearing promissory note, or any combination thereof);

 

(ii)                    Pipeline will represent that it has title to the applicable ROFO Asset that is sufficient to own and operate the applicable ROFO Asset in accordance with its intended and historical use, subject to all recorded matters and all physical conditions in existence on the closing date for the purchase of the applicable ROFO Asset, plus any other such matters as the Partnership may approve;

 

(iii)                 the closing date for the purchase of the ROFO Asset shall occur no later than 180 days following receipt by Pipeline of the ROFO Response pursuant to Section 5.02(a);

 

(iv)                each of Pipeline and the Partnership shall use commercially reasonable efforts to do or cause to be done all things that may be reasonably necessary or advisable to effectuate the consummation of any transactions contemplated by this Section 5.02(b), including causing its respective Affiliates to execute, deliver and perform all documents, notices, amendments, certificates, instruments and consents required in connection therewith; and

 

(v)                   neither Pipeline nor the Partnership shall have any obligation to sell or buy the applicable ROFO Asset if any consent referred to in Section 5.01(b) has not been obtained.

 

(c)                                  If the Partnership has not timely delivered a ROFO Response as specified above with respect to a Proposed Transaction that is subject to a ROFO Notice, Pipeline shall be free to enter into a Proposed Transaction with any third party on terms and conditions no more favorable to such third party than those set forth in the ROFO Notice.  If Pipeline rejects a ROFO Response with respect to any Proposed Transaction, Pipeline shall be free to enter into a Proposed Transaction with any third party (i) on terms and conditions (excluding those relating to price) that are

 

16

 

not more favorable in the aggregate to such third party than those proposed in respect of the Partnership Group in the ROFO Response and (ii) at a price equal to no less than 100% of the price offered by the Partnership in the ROFO Response to Pipeline.

 

(d)                                 The Partnership can assign its rights and obligations under this Article V to any Partnership Group Member.

 

ARTICLE VI.                 LICENSE OF NAME AND MARK

 

Section 6.01                             Grant of License.  Upon the terms and conditions set forth in this Article VI, Company hereby grants and conveys to each of the entities currently or hereafter comprising a part of the Partnership Group a nontransferable, nonexclusive, royalty-free right and license (“License”) to use the name “Phillips 66” (the “Name”) and any other trademarks owned by Company that contain the Name, the Name together with the distinctive shield graphic, the shield graphic alone, or the name “Phillips 66 Partners” together with the partial outline shield graphic (collectively, the “Marks”).

 

Section 6.02                             Ownership and Quality.  The Partnership agrees that ownership of the Name and the Marks and the goodwill relating thereto shall remain vested in Company both during the term of this License and thereafter, and the Partnership further agrees, and agrees to cause the other Partnership Group Members, never to challenge, contest or question the validity of Company’s ownership of the Name and Marks or any registration thereof by Company.  In connection with the use of the Name and the Mark, the Partnership and any other Partnership Group Members shall not in any manner represent that they have any ownership in the Name and the Marks or registration thereof except as set forth herein, and the Partnership, on behalf of itself and the other Partnership Group Members, acknowledge that the use of the Name and the Marks shall not create any right, title or interest in or to the Name and the Mark, and all use of the Name and the Marks by the Partnership or any other Partnership Group Members, shall inure to the benefit of Company. The Partnership agrees, and agrees to cause the other Partnership Group Members, to use the Name and Marks in accordance with such quality standards established by Company and communicated to the Partnership from time to time, it being understood that the products and services offered by the Partnership Group Members immediately before the Effective Date are of a quality that is acceptable to Company and justifies the License.

 

Section 6.03                             Termination.  The License shall terminate upon any termination of this Agreement.

 

ARTICLE VII.            PREFUNDED PROJECTS

 

Section 7.01                             Prefunded Projects. Prior to the Effective Date, Company has contributed $3.0 million to Holdings, and Holdings has contributed $0.3 million to Carrier, in each case as prepayment for the completion of the projects set forth on Schedule IV (the “Prefunded Projects”). Holdings and Carrier hereby agree, in consideration of such contributions, that Holdings and Carrier will use their respective commercially

 

17

 

reasonable efforts to complete, or cause the completion, of each Prefunded Project in accordance with such specifications and on or before such dates as shall be reasonably agreed by the Parties following the Effective Date. The Parties acknowledge and agree that Holdings or Carrier, as applicable, will bear any costs and expenses associated with the completion of the Prefunded Projects in excess of the amounts contributed to them prior to the Effective Date.

 

ARTICLE VIII.       NOTICES

 

Section 8.01                             Notices.  Unless otherwise specifically provided in this Agreement, all Notices between the Parties given under or in relation to this Agreement shall be made in writing and shall be deemed to have been properly given if:  (i) personally delivered (with written confirmation of receipt); or (ii) delivered by a recognized overnight delivery service (delivery fees prepaid), in either case to the appropriate address set forth below:

 

	
 
    	
If to any Partnership Group Member:
    	
If to Company or Pipeline:
    
	
 
    	
 
    	
 
    
	
 
    	
Phillips 66 Partners GP LLC
    	
Phillips 66 Company
    
	
 
    	
3010 Briarpark Dr.
    	
3010 Briarpark Dr.
    
	
 
    	
Houston, TX 77042
    	
Houston, TX 77042
    
	
 
    	
Attn: President
    	
Attn: General Counsel
    

 

A Party may change its address for Notice upon Notice to each other Party in accordance with this Section 8.01.

 

Section 8.02                             Effective upon Receipt.  Any Notice given in the manner set forth in Section 8.01 shall be effective upon actual receipt if received during normal business hours, or at the beginning of the recipient’s next Business Day if not received during normal business hours.

 

ARTICLE IX.                APPLICABLE LAW

 

Section 9.01                             Applicable Law.  Regardless of the place of contracting, place(s) of performance or otherwise, this Agreement and all amendments, modifications, alterations or supplements hereto, shall be governed and interpreted in accordance with the laws of the State of Texas without regard to the principles of conflicts of law or any other principle that might apply the law of another jurisdiction.

 

ARTICLE X.                     LIMITATION OF LIABILITY

 

Section 10.01                      No Liability for Consequential Damages.  Except as provided in Article III, in no event shall a Party be liable to another Party for, and no arbitral panel is authorized to award, any punitive, special, indirect or consequential damages of any kind or character resulting from or arising out of this Agreement, including, without limitation, loss of profits or business interruptions, however they may be caused.

 

Section 10.02                      Limitation of Liability.  Except as provided in Article III, each Party shall be discharged from any and all liability with respect to Losses arising out of this

 

18

 

Agreement unless suit or action is commenced within two years after the cause of action arises.

 

ARTICLE XI.                MISCELLANEOUS

 

Section 11.01                      Disputes between the Parties.  Any dispute between or among the Parties in connection with this Agreement shall be resolved by arbitration in accordance with the procedures set forth in Exhibit A; provided, however, that a Party may seek a restraining order, temporary injunction, or other provisional relief in any court with jurisdiction over the subject matter of the dispute and sitting in Houston, Texas, if such Party in its sole judgment believes that such action is necessary to avoid irreparable injury or to preserve the status quo ante.

 

Section 11.02                      Assignment.  No Party may assign its rights or delegate its duties under this Agreement without prior written consent of each other Party; provided, however, that (a) Company may delegate any of its duties and obligations hereunder to any Phillips 66 Entity and (b) the Partnership can assign its rights under Article V to any Partnership Group Member.

 

Section 11.03                      No Third-Party Rights.  Except as expressly provided in this Agreement, nothing in this Agreement is intended to confer any rights, benefits or obligations to any Person other than the Parties and their respective successors and permitted assigns.  No Limited Partner shall have any right, separate and apart from the Partnership, to enforce any provision of this Agreement or to compel any Party to comply with the terms of this Agreement.

 

Section 11.04                      Compliance with Laws.  Each Party shall at all times comply with all Laws as are applicable to its performance of this Agreement.

 

Section 11.05                      Severability.  If any provision of this Agreement or the application thereof shall be found by any arbitral panel or court of competent jurisdiction to be invalid, illegal or unenforceable to any extent and for any reason, this Agreement shall be adjusted rather than voided, if possible, in order to achieve the intent of the Parties.  In any event, the remainder of this Agreement and the application of such remainder shall not be affected thereby and shall be enforced to the greatest extent permitted by Law.

 

Section 11.06                      Non-Waiver.  The failure of any Party to enforce any provision, condition, covenant or requirement of this Agreement at any time shall not be construed to be a waiver of such provision, condition, covenant or requirement unless the other Parties are so notified by such Party in writing.  Any waiver by a Party of a default by any other Party in the performance of any provision, condition, covenant or requirement contained in this Agreement shall not be deemed to be a waiver of such provision, condition, covenant or requirement, nor shall any such waiver in any manner release such other Party from the performance of any other provision, condition, covenant or requirement.

 

Section 11.07                      Entire Agreement.  This Agreement, together with all exhibits and schedules attached hereto, the Tax Sharing Agreement (with respect to tax matters) and

 

19

 

the Operational Services Agreement (with respect to employee reimbursement matters), constitute the entire agreement among the Parties relating to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, between the Parties relating to the subject matter hereof, and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as specifically set forth in, or contemplated by, this Agreement, the Tax Sharing Agreement (with respect to tax matters) and the Operational Services Agreement (with respect to employee reimbursement matters).

 

Section 11.08                      Amendments.  This Agreement shall not be modified or amended, in whole or in part, except by a written amendment signed by all of the Parties.

 

Section 11.09                      Survival.  Any indemnification granted hereunder by a Party to any other Party shall survive the termination of this Agreement in accordance with the terms of the indemnification.

 

Section 11.10                      Counterparts; Multiple Originals.  This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding each of the Parties.  Each of the Parties may sign any number of copies of this Agreement.  Each signed copy shall be deemed to be an original, and all of them together shall represent one and the same agreement.

 

Section 11.11                      Exhibits and Schedules.  The exhibits and schedules attached to this Agreement are incorporated into and constitute part of this Agreement.  If there is any conflict between this Agreement and any exhibit or schedule, the provisions of the exhibit or schedule shall control.

 

Section 11.12                      Table of Contents; Headings; Subheadings.  The table of contents and the headings and subheadings of this Agreement have been inserted only for convenience to facilitate reference and are not intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

 

Section 11.13                      Construction.  The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

 

Section 11.14                      Business Practices.  Company shall use its best efforts to make certain that all billings, reports, and financial settlements rendered to or made with the Partnership Group pursuant to this Agreement, or any revision of or amendments to this Agreement, will properly reflect the facts about all activities and transactions handled by authority of this Agreement and that the information shown on such billings, reports and settlement documents may be relied upon by the Partnership Group as being complete and accurate in any further recording and reporting made by the Partnership Group for

 

20

 

whatever purposes.  Company shall notify the Partnership if Company discovers any errors in such billings, reports, or settlement documents.

 

[Signature pages follow.]

 

21

 

IN WITNESS WHEREOF, Company, the Partnership and the General Partner have signed this Agreement as of the Effective Date.

 

	
 
    	
PHILLIPS 66 COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ T.G. Taylor
    
	
 
    	
 
    	
T.G. Taylor
    
	
 
    	
 
    	
Executive Vice President, Commercial,   Marketing,
    
	
 
    	
 
    	
Transportation and Business Development
    
	
 
    	
 
    	
of Phillips 66 Company
    
	
 
    	
 
    
	
 
    	
PHILLIPS 66 PIPELINE LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ C.L. Brooks
    
	
 
    	
 
    	
C.L. Brooks
    
	
 
    	
 
    	
Vice President
    
	
 
    	
 
    
	
 
    	
PHILLIPS 66 PARTNERS LP
    
	
 
    	
By:
    	
Phillips 66 Partners GP LLC,
    
	
 
    	
 
    	
General Partner of Phillips 66 Partners LP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ J.T. Liberti
    
	
 
    	
 
    	
J.T. Liberti
    
	
 
    	
 
    	
Vice President and Chief Operating Officer
    
	
 
    	
 
    	
of Phillips 66 Partners GP LLC
    
	
 
    	
 
    
	
 
    	
PHILLIPS 66 PARTNERS GP LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ J.T. Liberti
    
	
 
    	
 
    	
J.T. Liberti
    
	
 
    	
 
    	
Vice President and Chief Operating Officer
    
	
 
    	
 
    	
of Phillips 66 Partners GP LLC
    

 

[Second signature page follows.]

 

First Signature page to Omnibus Agreement

 

 

	
 
    	
PHILLIPS 66 PARTNERS HOLDINGS LLC
    
	
 
    	
By:
    	
Phillips 66 Partners LP,
    
	
 
    	
 
    	
Sole Member of Phillips 66 Partners Holdings   LLC
    
	
 
    	
By:
    	
Phillips 66 Partners GP LLC
    
	
 
    	
 
    	
General Partner of Phillips 66 Partners LP
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ J.T. Liberti
    
	
 
    	
 
    	
J.T. Liberti
    
	
 
    	
 
    	
Vice President and Chief Operating Officer
    
	
 
    	
 
    	
of Phillips 66 Partners GP LLC
    
	
 
    	
 
    	
 
    
	
 
    	
PHILLIPS 66 CARRIER LLC
    
	
 
    	
By:
    	
Phillips 66 Partners Holdings LLC,
    
	
 
    	
 
    	
Sole Member of Phillips 66 Carrier LLC
    
	
 
    	
By:
    	
Phillips 66 Partners LP,
    
	
 
    	
 
    	
Sole Member of Phillips 66 Partners Holdings   LLC
    
	
 
    	
By:
    	
Phillips 66 Partners GP LLC,
    
	
 
    	
 
    	
General Partner of Phillips 66 Partners LP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ J.T. Liberti
    
	
 
    	
 
    	
J.T. Liberti
    
	
 
    	
 
    	
Vice President and Chief Operating Officer
    
	
 
    	
 
    	
of Phillips 66 Partners GP LLC
    

 

Second Signature page to Omnibus Agreement

 

 

Exhibit A

 

Arbitration Procedure

 

A Party may initiate dispute resolution procedures by sending a Notice to each other Party specifically stating the complaining Party’s Claim and by initiating binding arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by three arbitrators who shall be neutral, independent, and generally knowledgeable about the type of transaction which gave rise to the dispute.  The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16, provided that the arbitrators shall include in their report/award a list of findings, with supporting evidentiary references, upon which they have relied in making their decision.  Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof.  The place of arbitration shall be Houston, Texas.

 

Notwithstanding anything herein and regardless of any procedures or rules of the Center for Public Resources, it is expressly agreed that the following shall apply and control over any other provision in this Agreement:

 

(a)                                 All offers, conduct, views, opinions and statements made in the course of negotiation or mediation by any of the Parties, their employees, agents, experts, attorneys and representatives, and by any mediator, are confidential, made for compromise and settlement, protected from disclosure under Federal and State Rules of Evidence and Procedure, and inadmissible and not discoverable for any purpose, including impeachment, in litigation or legal proceedings between the Parties, and shall not be disclosed to any Person who is not an agent, employee, expert or representative of the Parties, provided that evidence otherwise discoverable or admissible is not excluded from discovery or admission as a result of presentation or use in mediation.

 

(b)                                 Except to the extent that the Parties may agree upon selection of one or more arbitrators, the Center for Public Resources shall select arbitrators from a panel reviewed by the Parties.  The Parties shall be entitled to exercise peremptory strikes against one-third of the panel and may challenge other candidates for lack of neutrality or lack of qualifications.  Challenges shall be resolved in accordance with Center for Public Resource rules.

 

(c)                                  The Parties shall have at least 20 Days following the close of hearing within which to submit a brief (not to exceed 18 pages in length) and ten Days from date of receipt of the opponent’s brief within which to respond thereto.

 

(d)                                 The Parties expressly agree that the arbitrators shall not award punitive damages, consequential damages, or attorneys’ fees (except attorneys’ fees specifically authorized by the Agreement).

 

1

 

(e)                                  The fees and expenses of any mediator or arbitrator shall be shared equally by the Parties.

 

(f)                                   The Parties may, by written agreement (signed by the Parties), alter any time deadline or location(s) for meetings.

 

Time is of the essence for purposes of the provisions of this exhibit.

 

2

 

Schedule I
 Environmental Matters

 

	
ISSUE
    	
 
    	
SUMMARY
    
	
IEPA E-2003-00026
   INCIDENT #20021565
   WOOD RIVER PRODUCTS
   TERMINAL GASOLINE
   RELEASE
    	
 
    	
The site was entered into the Illinois Site   Remediation Program in early 2003. After a 60 gallon gasoline release in   October 2002, subsurface investigation uncovered evidence of prior   releases of other products in the manifold area on the NW corner of the   Terminal property. In 2012, a detailed LNAPL mobility assessment was   conducted which demonstrates stable, not practicably recoverable, and   relatively immobile material. Currently the remedial plan and spend forecast   is being re-evaluated considering this information. The plan will include   long-term monitoring.
    
	
 
    	
 
    	
 
    
	
IEPA E-2002-00081
   INCIDENT #20011073
   WOOD RIVER PRODUCTS
   TERMINAL TRANSMIX
   RELEASE
    	
 
    	
After a 140 bbl overfill of Transmix   (gasoline/diesel) in June 2001, excavation identified additional   historical subsurface impacts. Subsurface investigation was performed,   expanded, and the release was enrolled in the Illinois Site Remediation   Program. Additional assessment requested by IEPA will be performed in 2103   and a remedial plan will be developed based on results.
    

 

 

Schedule II
 Pending Litigation

 

	
Name
    	
 
    	
Subject Area
    	
 
    	
Issues
    	
 
    	
Location
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Petrocom Energy Group LLC v COP Pipe Line
    	
 
    	
Property Damage
    	
 
    	
Product discoloration
    	
 
    	
Pasadena Terminal
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Brown, Harold L v Eastman Chemical
    	
 
    	
Toxic Tort \ Asbestos
    	
 
    	
“Asbestos Exposure- Mesothelioma.”
    	
 
    	
Pasadena (non-specific)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Guidry, Steven v Inland-Gulf Towing
    	
 
    	
Personal Injury \ Maritime
    	
 
    	
Alleged Personal injury while boarding barge
    	
 
    	
Pecan Grove Terminal
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cordova, Noel J v Dealers Electrical Supply   Co
    	
 
    	
Personal Injury \ Premises
    	
 
    	
Personal Injury Claim
    	
 
    	
Pasadena Terminal
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Bass, Kenneth v Air Liquid America
    	
 
    	
Toxic Tort \ Asbestos
    	
 
    	
Asbestos   Exposure; Asbestos; Premises; Asbestosis
    	
 
    	
Pasadena (non-specific)
    

 

 

Schedule III
 Services

 

	
(a)
    	
 
    	
Executive services
    
	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Financial and administrative services (including treasury and   accounting)
    
	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Information technology
    
	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Legal services
    
	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Corporate health, safety and environmental services
    
	
 
    	
 
    	
 
    
	
(f)
    	
 
    	
Facility services
    
	
 
    	
 
    	
 
    
	
(g)
    	
 
    	
Human resources services
    
	
 
    	
 
    	
 
    
	
(h)
    	
 
    	
Procurement services
    
	
 
    	
 
    	
 
    
	
(i)
    	
 
    	
Corporate engineering services (such as asset integrity and   regulatory services, but not including engineering services directly related   to Partnership Group assets)
    
	
 
    	
 
    	
 
    
	
(j)
    	
 
    	
Logistical services, including Bartlesville control center
    
	
 
    	
 
    	
 
    
	
(k)
    	
 
    	
Asset oversight (such as operational management and supervision, but   not including operational services directly related to Partnership Group   assets)
    
	
 
    	
 
    	
 
    
	
(l)
    	
 
    	
Business development services
    
	
 
    	
 
    	
 
    
	
(m)
    	
 
    	
Investor relations
    
	
 
    	
 
    	
 
    
	
(n)
    	
 
    	
Tax matters
    
	
 
    	
 
    	
 
    
	
(o)
    	
 
    	
Public company reporting matters
    

 

 

Schedule IV
 Prefunded Projects

 

Debottlenecking project at Clifton Ridge terminal, including the installation of a custody transfer meter, prover and sampler at the Pecan Grove barge dock.

 

Repair and maintenance of Tank 27 at Clifton Ridge terminal.

 

Complete connection to Shell Houston-Houma Pipeline at Clifton Ridge terminal.

 

Repair of mooring dolphin at Hartford barge dock.Exhibit 10.3

 

 

OPERATIONAL SERVICES AGREEMENT

 

by and among

 

PHILLIPS 66 CARRIER LLC,

 

 PHILLIPS 66 PARTNERS HOLDINGS LLC

 

and

 

PHILLIPS 66 PIPELINE LLC

 

 

 

TABLE OF CONTENTS

 

	
 
    	
Page
    
	
Article I.
    	
Defined   Terms
    	
1
    
	
Article II.
    	
Responsibilities   of Operator
    	
5
    
	
Article III.
    	
Financial   Accounting and Billing Practices
    	
7
    
	
Article IV.
    	
Safety
    	
9
    
	
Article V.
    	
Relationship   of the Parties
    	
9
    
	
Article VI.
    	
Liability   Standard and Indemnification
    	
9
    
	
Article VII.
    	
Insurance
    	
11
    
	
Article VIII.
    	
Term   and Termination
    	
12
    
	
Article IX.
    	
Alcohol   and Controlled Substances
    	
13
    
	
Article X.
    	
Force   Majeure
    	
13
    
	
Article XI.
    	
Notices
    	
14
    
	
Article XII.
    	
Applicable   Law
    	
15
    
	
Article XIII.
    	
Confidentiality
    	
15
    
	
Article XIV.
    	
Disputes   Between the Parties
    	
15
    
	
Article XV.
    	
Assignability
    	
15
    
	
Article XVI.
    	
Compliance   with Laws
    	
16
    
	
Article XVII.
    	
Severability
    	
16
    
	
Article XVIII.
    	
Non-Waiver
    	
16
    
	
Article XIX.
    	
Entire   Agreement; Amendments
    	
16
    
	
Article XX.
    	
Survival
    	
17
    
	
Article XXI.
    	
Counterparts;   Multiple Originals
    	
17
    
	
Article XXII.
    	
Construction
    	
17
    
	
Article XXIII.
    	
Article Headings;   Exhibits
    	
17
    
	
 
    	
 
    	
 
    
	
Exhibits
    	
 
    
	
 
    	
 
    
	
A
    	
Description of Pipelines and Terminals
    
	
B
    	
Maintenance Services
    
	
C
    	
Operating Services
    
	
D
    	
Administrative Services
    
	
E
    	
Construction Services
    
	
F
    	
Accounting Procedures
    
	
G
    	
Dispute Resolution Procedures
    

 

i

 

OPERATIONAL SERVICES AGREEMENT

 

This OPERATIONAL SERVICES AGREEMENT is made and entered into as of the 26th day of July, 2013, by and between PHILLIPS 66 CARRIER LLC, a Delaware limited liability company (“Carrier”), PHILLIPS 66 PARTNERS HOLDINGS LLC, a Delaware limited liability company (“Holdings”) and PHILLIPS 66  PIPELINE LLC, a Delaware limited liability company (“Operator”).  Carrier and Holdings are collectively referred to herein as “Company”.

 

W I T N E S S E T H :

 

WHEREAS, Company owns various crude oil and refined products pipelines and terminal assets; and

 

WHEREAS, Operator has experience and expertise in the maintenance and operation of pipelines and terminals and can provide or make available to Company the personnel, technology, and other resources necessary to maintain and operate such crude oil and refined products pipelines and terminal assets; and

 

WHEREAS, Company and Operator desire that Operator maintain and operate such crude oil and refined products pipelines and terminal assets for Company;

 

NOW, THEREFORE, for and in consideration of the foregoing, the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Company and Operator, Company and Operator agree as follows:

 

Article I.                                                                            Defined Terms

 

1.01                        Defined Terms.  The following definitions shall for all purposes, unless clearly indicated to the contrary, apply to the capitalized terms used in this Operational Services Agreement:

 

(a)                                 “Accounting Procedures” has the meaning set forth in Section 3.01 hereof and Exhibit F hereto.

 

(b)                                 “Administrative Services” has the meaning set forth in Section 2.01(c) hereof.

 

(c)                                  “Affiliate” means with respect to any Person:  (i) any other Person which beneficially owns, directly or indirectly, fifty percent (50%) or more of such Person’s stock or fifty percent (50%) or more of the ownership interest entitled to vote in such Person, or (ii) any other Person as to which fifty percent (50%) or more of the voting stock or fifty percent (50%) or more of the ownership interest entitled to vote therein, is beneficially owned, directly or indirectly, either by such Person or by an affiliate of such Person as defined in (i) above.  For the purposes of this Agreement, Company and Operator are not considered Affiliates.

 

 

(d)                                 “Agreement” means this Operational Services Agreement, together with all exhibits attached hereto, as the same may be amended, supplemented or restated from time to time in accordance with the provisions hereof.

 

(e)                                  “Bankruptcy” means, with respect to any Person, that:  (i) such Person (A) makes a general assignment for the benefit of creditors; (B) files a voluntary bankruptcy petition; (C) becomes the subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceedings; (D) files a petition or answer seeking for such Person, a reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any Law; (E) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Person in a proceeding of the type described in subclauses (A) through (D) of this clause (i); or (F) seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of such Person or of all or any substantial part of such Person’s properties; or (ii) against such Person, a proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any Law has been commenced, and 120 Days have expired without dismissal thereof or with respect to which, without such Person’s consent or acquiescence, a trustee, receiver, or liquidator of such Person or all or any substantial part of such Person’s properties has been appointed and 90 Days have expired after the date of expiration of a stay, if the appointment has not previously been vacated.

 

(f)                                   “Business Day” means any Day except for Saturday, Sunday or a legal holiday in the State of Texas.

 

(g)                                 “Carrier” has the meaning set forth in the introductory paragraph hereof.

 

(h)                                 “Category of Expenditure” means each of the types of capital and expense expenditures, or combinations thereof, for the Services set forth in Section 2.01 hereof and in accordance with the Accounting Procedures set forth in Exhibit F.

 

(i)                                    “Partnership Change of Control” means Phillips 66 Company ceases to Control the general partner of Phillips 66 Partners LP.

 

(j)                                   “Claim” means any and all judgments, claims, causes of action, demands, lawsuits, suits, proceedings, governmental investigations or audits, losses, assessments, fines, penalties, administrative orders, obligations, costs, expenses, liabilities and damages (whether actual or consequential), including interest, penalties, reasonable attorneys’ fees, disbursements and costs of investigations, deficiencies, levies, duties and imposts.

 

(k)                                 “Claim Notice” has the meaning set forth in Section 6.05 hereof.

 

(l)                                    “Company” has the meaning set forth in the introductory paragraph hereof.

 

(m)                             “Construction Services” has the meaning set forth in Section 2.01(d) hereof.

 

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(n)                                 “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise.

 

(o)                                 “Day” means the period of time commencing at 0000 hours on one calendar day and running until, but not including, 0000 hours on the next calendar day, according to Houston, Texas, local time.

 

(p)                                 “Dispute Resolution Procedures” has the meaning set forth in Section 14.01 hereof.

 

(q)                                 “DOT” means the United States Department of Transportation.

 

(r)                                  “Effective Date” means the date of the closing of the initial public offering of common units representing limited partner interests in Phillips 66 Partners LP.

 

(s)                                   “FERC” means the Federal Energy Regulatory Commission.

 

(t)                                    “Force Majeure” has the meaning set forth in Section 10.02 hereof.

 

(u)                                 “GAAP” means United States generally accepted accounting principles.

 

(v)                                 “Holdings” has the meaning set forth in the introductory paragraph hereof.

 

(w)                               “Indemnified Parties” has the meaning set forth in Section 6.03 hereof.

 

(x)                                 “Law” means any applicable constitutional provision, statute, act, code, law, regulation ordinance, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision or declaration.

 

(y)                                 “Liability Claim” means any Claim against Operator or Company, except Claims made by employees under any workers compensation Law or those fully covered by insurance.

 

(z)                                  “Maintenance Services” has the meaning set forth in Section 2.01(a) hereof.

 

(aa)                          “Material Default” means:  (i) the failure of a Party to pay the other Party any material amount of money payable by that Party, except a failure related to a bona fide business dispute about the amount of such payment or the liability for such payment, not accompanied by a general failure by that Party to pay the amounts it owes under this Agreement, (ii) the general, continuing failure of a Party to perform its material obligations under this Agreement, except when excused by Force Majeure or by some other provision of this Agreement, and except a failure related to a bona fide dispute about any obligation, or (iii) with respect to Company, its failure to approve any budgetary expense or capital project involving any pipeline integrity, compliance or regulatory issue that Operator, in its reasonable judgment, deems necessary or required by any Law.

 

3

 

(bb)                          “Month” or “Monthly” means a calendar month commencing at 0000 hours on the first Day thereof and running until, but not including, 0000 hours on the first Day of the following calendar month, according to Houston, Texas, local time.

 

(cc)                            “Normal Business Hours” means the period of time commencing at 0800 hours on one Day and running until 1700 hours on the same Day, according to Houston, Texas, local time.

 

(dd)                          “Notice” means any notice, request, instruction, correspondence or other communication permitted or required to be given under this Agreement in accordance with Article XI hereof, or received from a Person who is not a Party.

 

(ee)                            “Omnibus Agreement” shall mean the Omnibus Agreement by and among Phillips 66 Company, Phillips 66 Pipeline LLC, Phillips 66 Partners LP and Phillips 66 Partners GP LLC.

 

(ff)                              “Operating Services” has the meaning set forth in Section 2.01(b) hereof.

 

(gg)                          “Operator” has the meaning set forth in the introductory paragraph hereof.

 

(hh)                          “Overrun” has the meaning set forth in Section 3.03(b) hereof.

 

(ii)                                “Parties” means Carrier, Holdings and Operator, collectively.

 

(jj)                                “Party” means Carrier, Holdings or Operator, individually.

 

(kk)                          “Person” means, without limitation, an individual, corporation (including a non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or governmental body, and shall include any successor (by merger or otherwise) of such entity.

 

(ll)                                “Pipelines” means the crude oil pipelines and refined petroleum products pipelines and related facilities identified in Exhibit A hereto, and any other crude oil pipelines, natural gas pipelines, natural gas liquid pipelines, liquefied petroleum gas pipelines and refined petroleum products pipelines and related facilities that Operator agrees to operate on behalf of Company upon reasonable request by Company.

 

(mm)                  “Recovery Claim” means any liability or claim which Company has against one or more Persons.

 

(nn)                          “Services” means the Maintenance Services, Operating Services, Administrative Services, Construction Services, and the other services included in Section 2.01 hereof, collectively.

 

(oo)                          “Terminals” means the terminals and related facilities identified in Exhibit A hereto, and any other terminals and related facilities that Operator agrees to operate on behalf of Company upon reasonable request by Company.

 

4

 

(pp)                          “Year” means a period of three hundred sixty five (365) consecutive Days, commencing on the date hereof, and it shall also include each successive three hundred sixty five (365) Day period; provided, however, that any Year which contains a date of February 29 shall consist of three hundred sixty six (366) Days.

 

1.02                        Terms Generally.  The definitions in Section 1.01 shall apply equally to both singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The word “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections and exhibits shall be deemed references to Articles and Sections of, and exhibits to, this Agreement unless the context shall otherwise require.  Unless the context shall otherwise require, any reference to any federal, state or local statute, act, code or law shall be deemed also to refer to all rules, regulations and directives promulgated thereunder (and to any successor provision).

 

Article II.                                                                       Responsibilities of Operator

 

2.01                        Services to be Provided by Operator.  During the term of this Agreement, and subject to the terms and conditions hereof, Operator shall be obligated to perform and provide, or cause to be performed and provided, the following Services:

 

(a)                                 Such services as may be required by Company for the day-to-day routine and emergency maintenance and repair of the Pipelines and Terminals.  Operator’s obligation to maintain and repair the Pipelines and Terminals shall include the obligation to perform and provide such maintenance, repair and related services and activities as are described in Exhibit B (the “Maintenance Services”).

 

(b)                                 Such services as may be required by Company for the day-to-day operation of the Pipelines and Terminals.  Operator’s obligation to operate the Pipelines and Terminals shall include the obligation to perform and provide such operating services and activities as are described in Exhibit C (the “Operating Services”).

 

(c)                                  Such administrative services as may be required by Company in order for it to own the Pipelines and Terminals and conduct its business and affairs from time to time.  Operator’s obligation to provide administrative services shall include the obligation to perform and provide such administrative services as are described in Exhibit D (the “Administrative Services”).

 

(d)                                 Such construction and related services as may be required by Company from time to time in connection with the Pipelines and Terminals, consisting of the services described in Exhibit E (the “Construction Services”).

 

(e)                                  Such other services related to the Pipelines and Terminals as the Parties may agree upon in writing from time to time.

 

2.02                        Manner of Performing/Providing Services.  The Services to be performed and provided by Operator hereunder shall be performed and provided in an efficient and prudent manner with the same degree of diligence and care that Operator would exercise if operating its

 

5

 

own property and in all respects in accordance with all applicable Laws relating to Operator, Company and the Pipelines and Terminals, and Company’s ownership and operation thereof.  Operator shall operate the Pipelines and Terminals in a safe, professional and economical manner and, in a timely fashion, shall advise Company of all matters of significance that could affect the safety or economics relating to their operation so that Company can make appropriate decisions with respect thereto.  Operator shall provide such Services in accordance with and subject to the terms of the budget that is submitted by it to and approved by Company pursuant to Section 3.03 hereof.

 

2.03                        Personnel.  Operator shall utilize and have supervision, subject to the ultimate direction and control of Company, over such Persons (including consultants and professionals, service or other organizations) as Operator deems necessary or appropriate in order to permit Operator to perform its duties and responsibilities hereunder in an efficient and prudent manner.  Subject to Operator’s right to be reimbursed for such expenses in accordance with the Accounting Procedures (as defined in Section 3.01), Operator shall pay all expenses incurred by it in connection with the retention of such Persons, including, but not limited to, compensation, salaries, wages and overhead and administrative expenses, charges to or incurred by Operator, and, if applicable, social security taxes, workers compensation insurance, retirement and insurance benefits and other such expenses.  Any such Persons retained by Operator may be union or non-union employees, and Operator shall have the sole right to negotiate the terms and provisions of any labor or other agreements with the unions to which such employees belong.  Operator shall provide, or cause to be provided, all workers who will perform Services.  With respect to Company operations in Texas, Operator shall obtain workers’ compensation coverage as defined by Texas Labor Code Section 401.011(44) on behalf of both Operator and Company, and Company shall be considered an employer solely for the purposes of Texas Labor Code Section 401.011(18) and Section 408.001.  With respect to Company operations performed in any jurisdiction other than Texas, to the extent that such jurisdiction would regard Company as a joint or dual employer of any such employee, Operator shall obtain workers’ compensation coverage as defined and required by Law on behalf of both Operator and Company, provided that Company shall be considered an employer solely for the purposes of its status as a joint or dual employer under the relevant workers’ compensation regime.

 

2.04                        Use of Affiliates.  In its performance of the Services hereunder, Operator may, but shall not be obligated to, use the services of Operator’s or its Affiliates’ accounting, construction, purchasing, engineering, legal, planning, budgeting, operating, regulatory, and other departments.

 

2.05                        Contracts.  Operator is authorized to execute, in its name and for the benefit of Company, such contracts as may be necessary for Operator to carry out its responsibilities under this Agreement; provided, however, that Operator shall not execute any contract in excess of Five Million Dollars ($5,000,000.00), or that covers a period longer than the term of this Agreement, unless Operator obtains Company’s prior written approval.

 

6

 

2.06                        Claims.

 

(a)                                 Any Liability Claim or Recovery Claim, to the extent relating to the operation or maintenance of the Pipelines and Terminals, shall be defended, prosecuted or settled by Operator, subject to the ultimate direction and control of Company.

 

(b)                                 The costs of handling a Liability Claim or a Recovery Claim, including reasonable costs of legal counsel, together with the amount of any settlement of or judgment rendered on a Liability Claim, including court costs, shall be paid by Operator and shall be reimbursed by Company.  Any amounts received by Operator in settlement of a Recovery Claim or in payment of a judgment on a Recovery Claim shall be paid over to Company.

 

(c)                                  Operator shall promptly notify Company whenever Operator receives actual Notice of any claim against Company or Operator (in its capacity as Operator).

 

(d)                                 Before making any settlement of any Liability Claim and before filing any lawsuit or making any settlement with respect to any Recovery Claim, Operator shall give to Company written Notice of the fact that it desires to file such suit or make such settlement (as the case may be), which Notice shall set forth the nature of the claim and the amount for which Operator proposes to sue or settle, and Operator shall not file any such suit nor make any such settlement without the approval of Company.

 

2.07                        Company Property.  All property, equipment and material acquired solely on behalf of Company by Operator hereunder shall be deemed to be owned by Company.

 

Article III.                                                                  Financial Accounting and Billing Practices

 

3.01                        Accounting.  Operator shall keep a full and complete account of all costs and expenses incurred by it in connection with the performance and provision of the Services hereunder in the manner set forth in the Accounting Procedures.

 

3.02                        Compensation.  Operator shall be fully reimbursed by Company for all necessary and reasonable costs, expenses and expenditures incurred by Operator on behalf of Company in connection with the provision of the Services at the rates and in the manner set forth in the Accounting Procedures.

 

3.03                        Budgets.

 

(a)                                 By November 1st of each year, Operator shall prepare and submit to Company for approval a detailed maintenance, operating, and capital budget setting out the amounts Operator proposes to expend for such purposes during the next calendar Year, which budget shall, to the extent practicable, provide for a breakdown of expenses and expenditures on a Monthly basis, by Category of Expenditure and by asset as defined by Operator. Upon Company approval of such budget, Operator shall have the authority to award and execute contracts within the expenditure limits set forth in such budget.  When expense and capital appropriation requests are not required (such as with annual maintenance contracts), Operator shall have the authority to award and execute such contracts without additional Company approval, subject to Section 2.05 of this Agreement.

 

7

 

(b)                                 If it appears at any time after Operator receives a budget approved by Company that the total actual expenditures for any calendar Year will exceed the total annual budgeted amount for such calendar Year, Operator shall notify Company of such expected excess expenditure as part of the normal Monthly billing process.  If it subsequently appears that the total actual expenditures for any calendar Year will exceed ten percent (10%) of the total annual budgeted amount (“Overrun”), Operator shall submit to Company for approval an amendment to the then-applicable budget, together with an explanation of the reason(s) for the anticipated budget Overrun.  As soon as practicable following the last Day of each Month, Operator shall submit to Company a Monthly report comparing actual expenditures for such Month to budgeted operating expenses and capital projects for such Month.

 

(c)                                  Company shall notify Operator in writing of the approval or disapproval of any proposed budget or amendment thereto in writing within fifteen (15) Days after receipt thereof.  In the event Company does not so notify Operator within such time period, or if Company notifies Operator that such budget or amendment has been disapproved, then until Operator receives approval of a proposed budget or amendment:  (i) the current approved budget shall remain in effect, and (ii) Operator shall continue to have the authority to make expenditures with regard to items previously approved by Company.  If any such proposed budget or amendment is disapproved, Operator shall submit a revised proposed budget or amendment to Company for approval as soon as is reasonably practicable.

 

(d)                                 Operator shall meet with Company a minimum of four (4) times during each calendar Year, or more if Company requests, in order to review the budget and permit Company to monitor the accuracy of the budget for current Year operations.

 

(e)                                  The Parties agree that the maintenance, operating and capital budget for 2013 shall be as presented by Company to Operator no later than the Effective Date.

 

(f)                                   Except as Company may otherwise direct in writing, the approval by Company of a budget or an amendment to a budget shall constitute Company’s authorization of Operator to incur the expenses contained in such budget or amendment.

 

3.04                        Safety, Environmental and Emergency Expenditures.  Notwithstanding any other provision in this Agreement, Operator may incur (and be reimbursed for) any expenditures or take any other actions as Operator in its reasonable judgment deems to be immediately necessary:  (i) to protect the environment from immediate and present harm; (ii) to protect the health and safety of Persons from immediate and present harm; (iii) to safeguard lives or property in connection with the initial response to any emergencies affecting the Pipelines and Terminals; and (iv) proceed with maintenance or repair work necessary to keep the Pipelines and Terminals operating, or to restore the Pipelines and Terminals to operating conditions; however, it is also understood that every reasonable effort will be made by Operator to notify Company at the earliest possible convenience of such emergencies and expenditures involving same.

 

3.05                        Billing Practices.  Company shall pay and Operator shall receive as full and complete compensation for the performance of the Services hereunder, the sum of the amounts becoming due as described in the Accounting Procedures.  For Services provided by Operator in any

 

8

 

Month, payment by Company shall be made no later than the 21st Day of the immediately following Month, provided that if such Day is not a Business Day, then Company shall pay such amount without interest on the next Business Day.  As long as Operator is an Affiliate of Company, the Operator and Company may settle Company’s financial obligations to Operator through Operator’s normal interaffiliate settlement processes.

 

3.06                        Records and Audit Rights.  Operator shall maintain a true and correct set of records pertaining to all activities relating to its performance hereunder and all transactions related thereto.  Operator further agrees to retain all such records for a period of time not less than two (2) Years following the end of the calendar Year in which the applicable Services were performed. Company, or its authorized representative or representatives, shall have the right during Operator’s Normal Business Hours to audit, copy and inspect, at Company’s sole cost and expense, any and all records of Operator relating to its performance of its obligations hereunder (but not any other books and records of Operator).  Audits shall not be commenced more than once by Company during each calendar Year and shall be completed within a reasonable time frame not to exceed thirty (30) Days.  Company may request information from Operator’s books and records relating to Operator’s obligations hereunder from time to time and such requests shall not constitute an audit for that calendar Year.  Company shall have two (2) Years after the end of a calendar Year during which to conduct an audit of Operator’s books and records for such calendar Year, and any Claim arising out of or based in whole or in part on the information produced or obtained by the performance of any such audit must be made, if at all, within such two (2) Year period.

 

Article IV.                                                                   Safety

 

4.01                        Safety Requirements.  Company agrees that Operator will abide by, at a minimum, the safety requirements promulgated by Operator from time to time with respect to the Pipelines and Terminals and in compliance with applicable Laws.

 

Article V.                                                                        Relationship of the Parties

 

5.01                        General Principles Regarding Relationship of the Parties.  The Parties agree that Operator shall provide the Services to Company as an independent contractor and not as an agent or representative of Company.  This Agreement is not intended to and shall not create or otherwise form a partnership or joint venture between Operator and Company.

 

5.02                        Standard of Operational Control.  The Parties agree that the Services shall be performed under the absolute direction and control of Company.  Company shall have the right to monitor, consult with and give operational instructions to Operator.  Operator shall not unreasonably refuse service requests or operational instructions of Company.

 

Article VI.                                                                   Liability Standard and Indemnification

 

6.01                        Liability Standard.  Notwithstanding anything herein to the contrary, and in recognition of the fact that the Services to be performed and provided by Operator hereunder are to be furnished, performed and provided in exchange for the reimbursement provided for in the Accounting Procedures, Operator shall only be liable to Company for gross negligence or willful or wanton misconduct in the performance of its obligations hereunder, AND NEITHER

 

9

 

OPERATOR NOR SUCH OF ITS AFFILIATES OR AGENTS AS IT SHALL APPOINT TO PERFORM DUTIES HEREUNDER OR THEIR RESPECTIVE DIRECTORS, STOCKHOLDERS, OFFICERS, MEMBERS, PARTNERS, EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES, SUCCESSORS, TRANSFERREES AND ASSIGNEES SHALL BE LIABLE TO COMPANY OR PERSONS WHO HAVE ACQUIRED INTERESTS IN COMPANY, WHETHER AS PARTNERS, ASSIGNEES OR OTHERWISE, FOR ERRORS IN JUDGMENT OR FOR ANY ACTS OR OMISSIONS THAT DO NOT CONSTITUTE GROSS NEGLIGENCE OR WILLFUL OR WANTON MISCONDUCT, IT BEING THE INTENTION OF THE PARTIES THAT NEITHER OPERATOR NOR SUCH OF ITS AFFILIATES OR AGENTS AS IT SHALL APPOINT TO PERFORM DUTIES HEREUNDER OR THEIR RESPECTIVE DIRECTORS, STOCKHOLDERS, OFFICERS, MEMBERS, PARTNERS, EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES, SUCCESSORS, TRANSFEREES AND ASSIGNEES SHALL BE LIABLE FOR THEIR OWN NEGLIGENCE (SOLE, PARTIAL OR CONCURRENT).

 

6.02                        Responsibility for Affiliates and Agents.  Operator may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its Affiliates or agents, and Operator shall not be responsible for any misconduct or negligence on the part of any such Affiliate or agent appointed by Operator with due care.

 

6.03                        Indemnification.  FROM AND AFTER THE DATE OF THIS AGREEMENT, COMPANY SHALL INDEMNIFY AND HOLD HARMLESS OPERATOR AND EVERY AFFILIATE OF OPERATOR AS IT SHALL APPOINT TO PERFORM SERVICES HEREUNDER AND ITS AND THEIR RESPECTIVE DIRECTORS, STOCKHOLDERS, OFFICERS, MEMBERS, PARTNERS, EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES, SUCCESSORS, TRANSFEREES AND ASSIGNEES (COLLECTIVELY THE “INDEMNIFIED PARTIES”) FROM, AGAINST AND IN RESPECT OF ANY AND ALL LIABILITY CLAIMS ASSERTED BY OR ON BEHALF OF ANY PERSON OTHER THAN COMPANY ARISING FROM, RELATING TO, OR ASSOCIATED WITH THE PERFORMANCE OR PROVISION OR FAILURE TO PERFORM OR PROVIDE BY OPERATOR ANY OF THE SERVICES OR THE FAILURE BY COMPANY TO PERFORM ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT, IN EACH CASE REGARDLESS OF WHETHER ANY SUCH CLAIM RESULTS FROM THE NEGLIGENCE (SOLE, PARTIAL OR CONCURRENT) OF OPERATOR OR ANY OF THE INDEMNIFIED PARTIES; PROVIDED, HOWEVER, THAT SUCH INDEMNIFICATION SHALL NOT EXTEND TO ANY AMOUNT OF DAMAGES THAT ARE DETERMINED TO BE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL OR WANTON MISCONDUCT OF THE INDEMNIFIED PARTY.

 

6.04                        Consequential Damages.  Notwithstanding anything herein to the contrary, neither Party shall be liable to the other Party for special, indirect or consequential damages resulting from or arising out of this Agreement, including, without limitation, loss of profits or business interruptions, however they may be caused.

 

10

 

6.05                        Notice of Claims.  Promptly after any Indemnified Party becomes aware of facts giving rise to a Claim by it for indemnification pursuant to this Article, such Indemnified Party shall provide Notice to Company (a “Claim Notice”) outlining such Claim and a copy of all papers served with respect thereto (if any).  For purposes of this Section, receipt by an Indemnified Party of Notice of any Claim by or from any Person other than a Party to this Agreement which gives rise to a Claim on behalf of such Indemnified Party shall require prompt Notice from the Indemnified Party to Company of the receipt of such Notice as provided in the first sentence of this Section 6.05; provided, however, that the failure of any Indemnified Party to give timely Notice shall not affect its rights to indemnification hereunder except to the extent that Company is materially prejudiced thereby.  Each Claim Notice shall set forth all information regarding the Claim as the Indemnified Party shall then have and shall contain a statement to the extent that the Indemnified Party giving the Notice is making a Claim pursuant to a formal demand for indemnification under this Article VI.

 

Article VII.                                                              Insurance

 

7.01                        Insurance.

 

(a)                                 Operator shall at all times during the term of this Agreement procure and maintain workers’ compensation insurance or similar insurance, including all such insurance as may be required by all applicable state and federal workers’ compensation Laws and such other Laws as may be applicable to the Services performed under this Agreement.  Operator shall cause its workers’ compensation and employers liability insurers to waive their rights of subrogation against Company.

 

(b)                                 Operator may elect to self-insure all or any part of the insurance requirements set forth in Section 7.01(a) above to the extent allowed by applicable Law.  If Operator elects to self-insure, then Operator shall respond to any insurance claim, with regard to waiving rights of subrogation against Company, in the same manner as a commercial market insurance policy that waived subrogation rights against Company would have responded to such insurance claim.

 

7.02                        Cost Reimbursement.  Insurance as required in Section 7.01 hereof shall be a reimbursable cost pursuant to the Accounting Procedures.

 

7.03                        Required Contractor Coverage.  Operator shall require all contractors and subcontractors employed by Operator in performing and/or providing Services hereunder to procure and maintain the following insurance:  (i) workers’ compensation insurance or similar insurance, including all such insurance as may be required by all applicable state and federal workers’ compensation Laws and such other Laws as may be applicable to the Services provided by such contractors and subcontractors; (ii) employers’ liability insurance with amounts required by Law or One Million Dollars ($1,000,000.00) per occurrence, whichever is greater; (iii) commercial general liability insurance on an occurrence form covering liabilities for death and personal injury and liabilities for loss or damage to property with a combined single limit of not less than One Million Dollars ($1,000,000.00) per occurrence, which insurance must cover all Services conducted by such contractors and subcontractors related to this Agreement; and (iv) business vehicle insurance covering liabilities for death of or injury to any one Person and

 

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liabilities for loss of or damage to property resulting from any one (1) accident with a combined single limit of not less than One Million Dollars ($1,000,000.00) per occurrence.  Further, Operator shall require such contractors and subcontractors to cause their workers’ compensation and employers’ liability insurance insurers to waive their rights of subrogation against Company, and to name Company as an additional insured under any commercial general liability and business vehicle liability insurance policies carried by such contractors and subcontractors.

 

Article VIII.                                                         Term and Termination

 

8.01                        Term.  Unless terminated in accordance with Section 8.02, Section 8.03 or Section 8.04 below, this Agreement shall have a five (5) Year primary term, commencing on the date hereof, and this Agreement shall continue in full force and effect thereafter unless it is terminated by either Party at the end of the primary term or at any time thereafter by giving not less than six (6) Months prior Notice of such termination to the other Party.

 

8.02                        Termination by Company.  Company shall have the right to terminate this Agreement immediately upon the occurrence of any of the following events:  (i) upon the Bankruptcy of Operator; or (ii) upon a finding by Company that Operator (A) has been grossly negligent or engaged in willful or wanton misconduct in the performance of its obligations hereunder and that such gross negligence or willful or wanton misconduct has had a material adverse effect on the Pipelines and Terminals or Company’s business as it relates to the Pipelines and Terminals, or (B) has engaged in a continued or regular pattern or gross negligence or willful or wanton misconduct that Company reasonably determines to pose a risk of resulting in a material adverse effect on the Pipelines and Terminals or Company’s business as it relates to the Pipelines and Terminals; provided that Company shall deliver to Operator Notice of any such affirmative finding, which shall include a reasonably detailed description of the basis therefor.

 

8.03                        Termination by Operator.  Operator shall have the right to terminate this Agreement or any Services provided hereunder:  (i) immediately upon the Bankruptcy of Company or (ii) on six (6) Months prior Notice upon the occurrence of a Partnership Change of Control. Notwithstanding the foregoing, if Phillips 66 Partners LP ceases to Control, directly or indirectly, either Carrier or Holdings, as the case may be, then Operator shall have the right to terminate this Agreement with respect to any Services provided to Carrier or Holdings, as applicable.

 

8.04                        Right of Termination by Either Party.  Any Party may terminate this Agreement at any time upon sixty (60) Days prior Notice to the other Party if:

 

(a)                                 the other Party is in Material Default of any of its obligations under this Agreement; and

 

(b)                                 the non-defaulting Party gives Notice of such Material Default to the defaulting Party, which Notice shall set forth in reasonable detail the facts and circumstances of such Material Default; and

 

(c)                                  the defaulting Party fails to cure the Material Default within thirty (30) Days, or, for a Material Default not reasonably susceptible to cure within that period, to undertake to cure such Material Default and thereafter to diligently continue such efforts until the Material Default is cured.

 

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8.05                        Effect of Termination.  The termination of this Agreement shall not relieve either Party of its obligations to pay amounts of money due hereunder which accrued prior to such termination.  Upon termination, Operator shall promptly make available to Company its books and records relating to the Pipelines and Terminals.

 

Article IX.                                                                  Alcohol and Controlled Substances

 

9.01                        Substance Abuse.  Operator shall prohibit the use, possession, distribution, sale or storage of illegal or controlled substances, and substance-related paraphernalia, by its personnel while performing Services hereunder or while located on Company premises.  Operator shall perform or cause to be performed all actions necessary for compliance with any applicable Laws pertaining to illegal or controlled substances, specifically including, but not limited to, the Drug-Free Workplace Act of 1988 (41 U.S.C. §§ 701-707) and DOT regulations applicable to operators of pipeline facilities subject to applicable 49 C.F.R. Part 199.  Unless prohibited by Law, Operator shall require all personnel who enter Company premises to consent to searches, whether performed by Company or appropriate law enforcement officials, of the vehicles and other personal effects of such personnel for monitoring the presence of any illegal or controlled substances or substance-related paraphernalia.  Company reserves the right, exercisable in Company’s sole discretion, to bar any of Operator’s personnel from performing Services hereunder, so long as such discretion is not exercised in violation of any governing Law.  Such discretion shall apply with respect to, but not be limited to, any personnel whom Company reasonably suspects to be involved with illegal or controlled substances, and such discretion shall not be unreasonably exercised.

 

Article X.                                                                       Force Majeure

 

10.01                 Force Majeure.  If, because of an event of Force Majeure, either Party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligation to make money payments when due, and if such Party gives Notice and reasonably full particulars of such Force Majeure in writing to the other Party within a reasonable time after the occurrence of the cause relied upon, the Party giving such Notice, so far and to the extent that it is affected by such Force Majeure, shall not be liable in damages due to such Party’s failure to carry out its obligations under this Agreement; provided, however, that the cause of the event of Force Majure shall be remedied with all reasonable dispatch.

 

10.02                 Meaning of “Force Majeure”.  As used herein, the term “Force Majeure” shall mean acts of God; strikes, lockouts or other industrial disturbances; acts of a public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, crevasses, subsidences, floods, washouts; arrests and restraints of the government, necessity for compliance with any court order, Law promulgated by any governmental authority having jurisdiction, either federal or state, civil or military; civil disturbances; shutdowns for purposes of necessary repairs; relocation or construction of facilities; breakage or accident to machinery or lines of pipe; the necessity for testing (as required by governmental authority or as deemed necessary by the testing Party for the safe operation thereof), the necessity of making repairs or alterations to machinery or lines of pipe; failure of surface equipment or pipelines; accidents, breakdowns, inability of either Party to obtain necessary material, supplies, permits or labor to perform or comply with any obligation or condition under this Agreement, or rights of way; and

 

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any other causes, whether of the kind herein enumerated or otherwise, which are not reasonably in the control of the Party claiming suspension.

 

10.03                 Strikes or Lockouts.  It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the Party having the difficulty and that the requirement in Section 10.01 that any event of Force Majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of an opposing party when such course is inadvisable in the discretion of the Party having the difficulty.

 

10.04                 Performance by Company or Third Parties.  If, because of an event of Force Majeure, Operator is unable to perform the Services required of it hereunder, Company may perform such Services itself or arrange for such Services to be performed by a third party, but only for the duration of such event of Force Majeure.

 

Article XI.                                                                  Notices

 

11.01                 Notices.  Unless otherwise specifically provided herein, all Notices between the Parties given under or in relation to this Agreement shall be made in writing and shall be deemed to have been properly given if:  (i) personally delivered; (ii) delivered and confirmed by telecopier or like transmission service; (iii) delivered by a reputable overnight courier delivery service; or (iv) sent by certified United States mail (postage prepaid, return receipt requested), addressed as follows:

 

	
If   to Carrier:
    	
Phillips   66 Carrier LLC
    
	
 
    	
3010   Briarpark Drive
    
	
 
    	
Houston,   TX 77042
    
	
 
    	
Attn:   President
    
	
 
    	
 
    
	
If   to Holdings:
    	
Phillips   66 Partners Holdings LLC
    
	
 
    	
3010   Briarpark Drive
    
	
 
    	
Houston,   TX 77042
    
	
 
    	
Attn:   President
    
	
 
    	
 
    
	
If   to Operator:
    	
Phillips   66 Pipeline LLC
    
	
 
    	
3010   Briarpark Drive
    
	
 
    	
Houston,   TX 77042
    
	
 
    	
Attn:   President
    

 

11.02                 Effective Date.  Any Notice given in the manner set forth in Section 11.01 shall be effective upon actual receipt if received during the recipient’s Normal Business Hours or at the beginning of the recipient’s next Business Day if not received during the recipient’s Normal Business Hours.

 

11.03                 Change of Address Notice.  Either Party may change its Notice address by giving notice to the other Party in the manner set forth in Section 11.01; provided, however, that no change of address Notice shall be effective until actually received by the other Party.

 

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Article XII.                                                             Applicable Law

 

12.01                 Applicable Law.  REGARDLESS OF THE PLACE OF CONTRACTING, PLACE(S) OF PERFORMANCE, OR OTHERWISE, THE PROVISIONS OF THIS AGREEMENT AND ALL AMENDMENTS, MODIFICATIONS, ALTERATIONS OR SUPPLEMENTS HERETO SHALL BE GOVERNED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OR ANY OTHER PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR INTERPRETATION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION.

 

Article XIII.                                                        Confidentiality

 

13.01                 Confidentiality.  During the performance of this Agreement, each Party acknowledges that it will receive confidential business and technical information from or regarding the other Party.  All information disclosed between the Parties will be deemed confidential, unless expressly designated otherwise at the time of disclosure.  The receiving Party agrees not to disclose to any third Person, except as permitted herein, any confidential information it receives from the disclosing Party.  The receiving Party agrees that it will not use the confidential information for any purpose other than the performance of this Agreement.  The receiving Party may disclose confidential information:  (i) when compelled by Law (but the receiving Party must notify the disclosing Party promptly of any request for such information before disclosing it, if practicable); and (ii) only to those employees, advisers, consultants, or representatives of the receiving Party who have a need to know (provided that such Persons are obligated to the receiving Party in a manner consistent with the terms of this Section).  This Section will be inoperative as to particular portion of the confidential information if such information (i) is or lawfully becomes available to the public through no fault of the receiving Party; (ii) was available to the receiving Party on a non-confidential bas is prior to its disclosure to the receiving Party by the disclosing Party; (iii) becomes available to the receiving Party on a non-confidential basis from a source other than the disclosing Party when such source is entitled, to the best of the receiving Party’s knowledge, to make the disclosure to the receiving Party; or (iv) independently developed by or for the receiving Party by Persons who have not had access to the disclosing Party’s confidential information.

 

Article XIV.                                                         Disputes Between the Parties

 

14.01                 Dispute Resolution.  Any dispute between the Parties in connection with this Agreement shall be resolved by arbitration in accordance with the procedures set forth in Exhibit G; provided, however, that either Party may seek a restraining order, temporary injunction, or other provisional relief in any court with jurisdiction over the subject matter of the dispute and sitting in Houston, Texas, if such Party in its sole judgment believes that such action is necessary to avoid irreparable injury or to preserve the status quo ante.

 

Article XV.                                                              Assignability

 

15.01                 Assignability.  This Agreement shall inure to the benefit of and shall be binding upon the Parties and their respective successors and assigns; provided, however, that neither this

 

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Agreement nor any of the rights, benefits or obligations hereunder shall be assigned, by operation of Law or otherwise, by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld.  Except as provided for herein, nothing in this Agreement is intended to confer any rights, benefits or obligations upon any Person other than the Parties and their respective successors and assigns.

 

Article XVI.                                                         Compliance with Laws

 

16.01                 Compliance with Laws.  This Agreement is in all respects subject to all Laws.  The Parties shall at all times comply with all of these Laws as are applicable to their performance of this Agreement.  If applicable, the Parties shall comply with the provisions of Executive Order 11246 (Equal Employment Opportunity), as amended, together with all rules, regulations and relevant orders of the United States Department of Labor.  Notwithstanding the provisions of any other Section of this Agreement, Company shall have no liability hereunder for any fines, penalties, or other assessments by regulatory agencies if and to the extent such fines, penalties, or other assessments result from Operator’s sole negligence in performing its obligations hereunder.

 

Article XVII.                                                    Severability

 

17.01                 Severability.  If any provision of this Agreement or the application thereof shall be found by any arbitral panel or court of competent jurisdiction to be invalid, illegal or unenforceable, to any extent and for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the Parties.  In any event, the remainder of this Agreement and the application of such remainder shall not be affected thereby and shall be enforced to the greatest extent permitted by Law.

 

Article XVIII.                                               Non-Waiver

 

18.01                 Non-Waiver.  The failure of either Party to enforce any provision, condition, covenant or requirement of this Agreement at any time shall not be construed to be a waiver of such provision, condition, covenant or requirement unless so notified by such Party in writing.  No waiver by either Party of any default by the other Party in the performance of any provision, condition, covenant or requirement contained in this Agreement shall be deemed to be a waiver of, or in any manner release such other Party from performance of any other provision, condition, covenant or requirement herein contained, nor be deemed to be a waiver of the same provision, condition, covenant or requirement.

 

Article XIX.                                                        Entire Agreement; Amendments

 

19.01                 Entire Agreement.  This Agreement, together with all exhibits attached hereto, constitutes the entire Agreement between the Parties relating to the subject matter hereof and it supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, between the Parties relating to the subject matter hereof, and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as specifically set forth in, or contemplated by, this Agreement.

 

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19.02                 Amendments.  This Agreement shall not be modified or amended, in whole or in part, except by a written amendment signed by the Parties.

 

Article XX.                                                             Survival

 

20.01                 Survival. Any indemnification granted hereunder by one Party to another Party shall survive the termination of all or any part of this Agreement.

 

Article XXI.                                                        Counterparts; Multiple Originals

 

21.01                 Counterparts; Multiple Originals.  This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding on the Parties.  Each of the Parties may sign any number of copies of this Agreement.  Each signed copy shall be deemed to be an original, but all of them together shall represent one and the same agreement.

 

Article XXII.                                                   Construction

 

22.01                 Construction.  The Parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring a Party by virtue of the authorship of any of the provisions of this Agreement.

 

Article XXIII.                                              Article Headings; Exhibits

 

23.01                 Article Headings.  The Article Headings used in this Agreement have been inserted only for convenience to facilitate reference and they shall not be determinative in construing the meaning, interpretation or application of any Article or provision hereof

 

23.02                 Exhibits.  The exhibits referred to herein are attached hereto and by this reference are incorporated herein and made a part hereof.  In the event there is any conflict between this Agreement and an exhibit, the provisions of this Agreement shall be deemed controlling.

 

[Signature page follows.]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their duly authorized officers as of the date first set forth above.

 

	
 
    	
PHILLIPS   66 PIPELINE LLC
    
	
 
    	
(“Operator”)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ C.L. Brooks
    
	
 
    	
 
    	
C.L.   Brooks
    
	
 
    	
 
    	
Vice   President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PHILLIPS   66 CARRIER LLC
    
	
 
    	
By:
    	
Phillips   66 Partners Holdings LLC
    
	
 
    	
 
    	
Sole   Member of Phillips 66 Carrier LLC
    
	
 
    	
By:
    	
Phillips   66 Partners LP,
    
	
 
    	
 
    	
Sole   Member of Phillips 66 Partners Holdings LLC
    
	
 
    	
By:
    	
Phillips   66 Partners GP LLC
    
	
 
    	
 
    	
General   Partner of Phillips 66 Partners LP
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   J.T. Liberti
    
	
 
    	
 
    	
J.T.   Liberti
    
	
 
    	
 
    	
Vice   President and Chief Operating Officer
    
	
 
    	
 
    	
of   Phillips 66 Partners GP LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PHILLIPS   66 PARTNERS HOLDINGS LLC
    
	
 
    	
By:
    	
Phillips   66 Partners LP,
    
	
 
    	
 
    	
Sole   Member of Phillips 66 Partners Holdings LLC
    
	
 
    	
By:
    	
Phillips   66 Partners GP LLC
    
	
 
    	
 
    	
General   Partner of Phillips 66 Partners LP
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   J.T. Liberti
    
	
 
    	
 
    	
J.T.   Liberti
    
	
 
    	
 
    	
Vice   President and Chief Operating Officer
    
	
 
    	
 
    	
of   Phillips 66 Partners GP LLC
    

 

Signature Page to Operational Services Agreement

 

 

Exhibit A
 Description of Pipelines and Terminals

 

Attached to and made a part of that certain Operational Services Agreement (the “Agreement”), dated June 1, 2013, by and among Phillips 66 Carrier LLC, Phillips 66 Partners Holdings LLC and Phillips 66 Pipeline LLC

 

Crude Oil Pipelines

 

Clifton Ridge to Lake Charles refinery — a 20” crude oil pipeline extending from the Clifton Ridge marine terminal to the Lake Charles Refinery, in Calcasieu Parish, Louisiana.

 

Pecan Grove to Clifton Ridge — a 12” crude oil pipeline extending from the Pecan Grove marine terminal to the Clifton Ridge marine terminal, in Calcasieu Parish, Louisiana.

 

Shell to Clifton Ridge — a 20” crude oil pipeline extending from Shell’s Houma to Houston pipeline to the Clifton Ridge marine terminal, in Calcasieu Parish Louisiana.

 

Refined Product Pipelines

 

Sweeny to Pasadena — a 12” refined products pipeline extending from the Sweeny Refinery, in Brazoria County, Texas to the Pasadena terminal, in Harris County, Texas.

 

Sweeny to Pasadena — a 18” refined products pipeline extending from the Sweeny Refinery, in Brazoria County, Texas to the Pasadena terminal, in Harris County, Texas.

 

Wood River to Hartford — a 12” refined products pipeline extending from the Wood River Refinery, in Madison County, Illinois to the Hartford terminal, in Madison County, Illinois.

 

Hartford to Explorer — a 24” refined products pipeline extending from the Hartford terminal, in Madison County, Illinois to the Explorer Pipeline system in Madison County, Illinois.

 

Terminals

 

Hartford Terminal.  Hartford Terminal is located at or near Hartford, Illinois.  The facility consists of a two-bay truck rack with 17,000 barrels of active terminaling capacity, 13 above-ground storage tanks with approximately 1.1 million barrels of total storage capacity.  The Hartford barge dock consists of a single-berth barge loading facility, approximately 0.8 miles of 8-inch pipeline and approximately 0.8 miles of 14-inch pipeline from the Hartford terminal to the Hartford barge dock for delivery.

 

Pasadena Terminal.  Pasadena Terminal is located at or near Pasadena, Texas and consists of a five-bay truck rack and tankage with 65,000 barrels per day of active terminaling capacity, 22 above ground storage tanks with approximately 3.2 million barrels of total storage capacity and a vapor combustion unit.

 

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Clifton Ridge Terminal.  Clifton Ridge Terminal is located at or near Sulphur, Louisiana and consists of a single-berth ship dock, 12 above-ground storage tanks with approximately 3.4 million barrels of total storage capacity and a truck offloading facility.

 

Pecan Grove Terminal.  Pecan Grove terminal is adjacent to the Clifton Ridge Terminal.  The facility consists of a single-berth barge dock and three above-ground storage tanks with 142,000 barrels of total storage capacity.

 

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Exhibit B
 Maintenance Services

 

Attached to and made a part of that certain Operational Services Agreement (the “Agreement”), dated June 1, 2013, by and among Phillips 66 Carrier LLC, Phillips 66 Partners Holdings LLC and Phillips 66 Pipeline LLC.

 

(a)                                 Day-to-day routine and emergency supervision, administrative liaison and related services required in connection with the maintenance and repair of the Pipelines and Terminals.

 

(b)                                 Provision of communications, inspection, surveillance, flow control, corrosion control, and monitoring.

 

(c)                                  Maintenance and repair of the Pipelines and Terminals within such maintenance/repair parameters and specifications as may be in accordance with sound engineering and maintenance practices and applicable Laws.

 

(d)                                 Implementation of a preventative maintenance program for the Pipelines and Terminals, including, without limitation, periodic testing, adjustment and maintenance of the Pipelines and Terminals, in each case in accordance with prudent maintenance practices and applicable Laws.

 

(e)                                  Implementation of a tank maintenance and integrity program for the Pipelines and Terminals, including, without limitation, periodic testing, maintenance, repair and/or replacement in each case in accordance with prudent maintenance practices and applicable Laws.

 

(f)                                   Implementation of a marine facility maintenance and integrity program for the Terminals, including, without limitation, dredging, maintenance, repair, and/or replacement in each case in accordance with prudent maintenance practices and applicable Laws.

 

(g)                                  Preparation and retention of appropriate records and logs as required by applicable Laws and that a prudent provider of maintenance services would maintain regarding the Pipelines and Terminals, which records and logs shall be made available to Company upon request.

 

(h)                                Reconstruction, reconditioning, overhaul or replacement of the Pipelines and Terminals.

 

(i)                                     Establishment of safety, health, environmental, training, emergency response, spill response and other programs in connection with the maintenance and repair of the Pipelines and Terminals, in each case as may be required by prudent maintenance practices or under applicable Laws.

 

(j)                                    Providing technical services for purposes of trouble-shooting problems, improving Pipeline and Terminal performance, upgrading the Pipelines and Terminals, repairing the Pipelines and Terminals or meeting regulatory or safety requirements.

 

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(k)                                 Maintaining compliance with all applicable federal, state and local environmental, health and safety Laws; in addition, conducting all environmental investigation and remediation activities, as required by federal, state and local environmental Laws and/or prudent business practices.

 

(l)                                     Facilitate the acquisition of all materials (including spare parts inventories), equipment, services, supplies and labor necessary for the maintenance and repair of the Pipelines and Terminals.

 

(m)                             Perform all planning, design and engineering functions related to the maintenance and repair of the Pipelines and Terminals; selecting contractors and material suppliers for such activities.

 

(n)                                 Advise Company of major plans or significant changes in the maintenance or repair of the Pipelines and Terminals.

 

(o)                                 Close Pipeline valves in connection with a response to any emergency affecting the Pipelines.  The Pipelines shall remain down until such time that it is determined safe by Company (in consultation with Operator) to resume operation.  For normal scheduled maintenance, Operator will provide Company with sufficient advance Notice for Company’s planning purposes.

 

(p)                                 Prepare excavation plans for Pipeline right-of-way work, and advise Company of any right-of-way work which could threaten the integrity of the Pipelines.

 

(q)                                 Such other Pipeline and Terminal maintenance, repair and related services as Company may request from time to time.

 

(r)                                    The Maintenance Services to be performed by Operator hereunder shall include, but shall not be limited to, Pipeline repairs, Terminal repairs, aerial pipeline patrols, population density counts, right-of-way maintenance, gas leakage surveys, pipeline pigging operations, cathodic protection work as required by all governmental regulatory agencies, tank cleaning, tank repair and truck rack maintenance.  Operator will maintain suitable meter station, valve inspection and meter proving maintenance programs.  Any operating or maintenance deficiencies so discovered in the Pipelines or Terminals, or any appurtenances thereto, will be corrected by Operator.  Operator will provide inspectors for monitoring work performed by others in the vicinity of the Pipelines and Terminals.

 

(s)                                   Right-of-Way maintenance shall include, but not be limited to, filling of washes, mowing weeds and brush, and repair fences.  In all cases where Company’s Pipelines are exposed above the ground, fences, barricades or other suitable protection shall be erected to protect the Pipelines and associated equipment from damage due to mowers, trucks or other vehicles.  In the event that any known excavation is to be performed in the vicinity of Company’s Pipelines by Operator or third parties, Operator shall locate, flag and identify the pertinent lines.  Operator shall also provide a qualified inspector on-site during periods of construction activity.  If a Company Pipeline should be damaged, a prompt report shall be forwarded to Company describing the incident, extent of damage, and recommended course of action.

 

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Exhibit C
 Operating Services

 

Attached to and made a part of that certain Operational Services Agreement (the “Agreement”), dated June 1, 2013, by and among Phillips 66 Carrier LLC, Phillips 66 Partners Holdings LLC and Phillips 66 Pipeline LLC

 

(a)                                 Day-to-day routine and emergency supervision of the operation of the Pipelines and Terminals.

 

(b)                                 Operation of the Pipelines and Terminals’ pump stations and other facilities within such operating parameters and specifications as may be in accordance with sound engineering and operating practices and applicable Laws.

 

(c)                                  Preparation and retention of appropriate records and logs as required by applicable Laws and that a prudent provider of operating services would maintain regarding the Pipelines and Terminals, which records and logs shall be made available to Company upon request.

 

(d)                                 Operator shall perform monitoring and control services (SCADA) for the Pipelines.  Operator shall be responsible for the maintenance of the Pipeline meter station equipment required for performance of monitoring and control services, product analysis, and custody transfer measurements in accordance with Company requirements and/or generally accepted industry practices.

 

(e)                                  Operator shall conduct the actual operations and maintenance of the Pipelines and Terminals in accordance with the directions for product and feedstock movements given by Company, and shall employ such of its own or outside personnel as may be necessary to perform this operation and maintenance.

 

(f)                                   Determine net volume received and delivered by utilizing measurement facilities comprised of components of standard make, installed, operated and maintained in accordance with the latest edition of the American Petroleum Institute Manual of Petroleum Measurement Standards and standard industry practices, and reconcile book inventory with actual inventory.

 

(g)                                  Payment of damages in accordance with Section 2.06 of the Agreement occurring as a result of, or settlement of, claims made in connection with the Pipelines and Terminals and Operator’s operation, maintenance and repair activities.

 

(h)                                 Operator shall include the operation of the Pipeline meter stations including calibration of measurement and product analysis equipment, operation of booster pumps, providing custody measurement as required by Company and the coordination of product and feedstock movements as directed by Company.  Operator will provide sufficient on-the-job and outside training to its employees and contractors operating and maintaining the Pipelines and Terminals for the operation thereof in a safe and efficient manner in accordance with applicable Operator and governmental rules and regulations and Laws.  Operator shall prepare, file and renew, as applicable, all operating licenses and/or permits

 

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as directed by Company.  Operator shall also be responsible for arranging for payment of any fees in regard to operation of the Pipelines and Terminals.

 

(i)                                     Operator will close Pipeline valves in connection with a response to any emergency involving the Pipelines.  The Pipelines shall remain down until such time as it is deemed safe by Company (in consultation with Operator) to resume operation.

 

(j)                                    Such other operating services as Company may request from time to time.

 

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Exhibit D
 Administrative Services

 

Attached to and made a part of that certain Operational Services Agreement (the “Agreement”), dated June 1, 2013, by and among Phillips 66 Carrier LLC, Phillips 66 Partners Holdings LLC and Phillips 66 Pipeline LLC

 

(a)                                 As directed by Company, preparation, filing and renewal, as applicable, of tariffs with FERC and/or state agencies.

 

(b)                                 As directed by Company, preparation and filing of permits, permit updates, and other documents required by any regulatory body or government agency, federal, state or local, if any, having jurisdiction over Operator, Company or their respective businesses.

 

(c)                                  Maintain fixed asset records of the Pipelines, Terminals and/or other regulated pipeline systems or terminals that Operator may operate upon request by Company and acceptance by Operator.

 

(d)                                 Product quality and assurance.

 

(e)                                  Such other administrative services as Company may request from time to time.

 

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Exhibit E
 Construction Services

 

Attached to and made a part of that certain Operational Services Agreement (the “Agreement”), dated June 1, 2013, by and among Phillips 66 Carrier LLC, Phillips 66 Partners Holdings LLC and Phillips 66 Pipeline LLC

 

(a)                                 Construction, reconstruction, reconditioning, overhaul and replacement of Pipelines and Terminals and their related facilities.

 

(b)                                 Provide such oversight and management services as may be necessary in connection with the activities described in item (a) above.

 

(c)                                  Perform all planning, design and engineering functions related to the activities described in item (a) above as may be necessary.

 

(d)                                 Facilitate the acquisition of all materials, equipment, services, supplies and labor necessary for and related to the activities described in item (a) above.

 

(e)                                  Prepare and/or assist in the preparation of capital project (AFE) documents for approval by Company.

 

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Exhibit F
 Accounting Procedures

 

Attached to and made a part of that certain Operational Services Agreement (the “Agreement”), dated June 1, 2013, by and among Phillips 66 Carrier LLC, Phillips 66 Partners Holdings LLC and Phillips 66 Pipeline LLC

 

This Exhibit shall govern the Accounting Procedures with regard to the billing and/or reimbursement of costs incurred by Operator in connection with the performance by Operator of the Services pursuant to the Agreement.  These Accounting Procedures shall be effective from the date hereof until replaced or modified by mutual agreement of the Parties.

 

1.                                      General Provisions

 

(a)                                 Statements and Billings.  Operator shall record Company’s financial transactions resulting from this Agreement in Operator’s financial system and allow Company to access its records in that system.

 

(b)                                 Payments by Company.  Company shall pay all charges from Operator in accordance with Section 3.05 of the Agreement.

 

(c)                                  Adjustments.  Except as otherwise provided in the Agreement, the actual payment of any such bills shall not prejudice the right of Company to protest or question the correctness or appropriateness thereof; provided, however, that all bills and statements rendered to Company during any calendar Year shall conclusively be presumed to be true and correct after twenty-four (24) Months following the end of any such calendar Year, unless prior to the end of said twenty-four (24) Month period Company takes written exception thereto and makes a claim against Operator for adjustment.

 

(d)                                 Financial Records.  Operator shall maintain accurate books and records in accordance with GAAP (as may be modified by FERC requirements) and in accordance with the prescribed accounting requirements or system of accounts mandated by any regulatory body or government agency, both federal and state, if any, having jurisdiction over Operator, Company, or their respective businesses.

 

2.                                      Determination of Costs, Expenses and Expenditures.  Subject to the limitations and determinations hereinafter prescribed and the provisions of the Agreement, Operator shall be reimbursed for all costs, expenses, expenditures and fees by or on behalf of Operator in connection with the provision of the Services.  Such reimbursement shall include any necessary Direct Costs (as defined in Paragraph 3 below) and the applicable portion of the Management Fee (as defined in the Omnibus Agreement).

 

(a)                                 It is the intent of the Parties that Services provided by employees of Operator shall be budgeted and billed by Operator on a Direct Cost basis pursuant to Section 3.03(a) to the extent that is feasible to measure and account for the Services directly provided by such employees to Operator by means of time sheets or other methods approved by Company.  Direct Costs billed to Company shall normally include field operation and maintenance personnel, administrative personnel supporting Company on a full time or near full time

 

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basis, and Home Office personnel (such as engineering and drafting personnel) typically assigned directly to Company-related projects whose time is accounted for by time sheets or other methods approved by Company.

 

(b)                                 It is the intent of the Parties that routine, ongoing Services (Home Office Overhead, General and Administrative Costs (hereinafter “G&A Costs”)) benefiting Company that are not feasible to measure and account for on a Direct Cost basis shall be billed by Operator as part of the Operational and Administrative Services Fee under the Omnibus Agreement.

 

(c)                                  It is the intent of the Parties that any G&A Cost associated with Company capital projects be billed as a Direct Cost and submitted as a line item on capital appropriations submitted by Operator to Company for approval.  Such G&A Costs shall not be included in the Operational and Administrative Services Fee under the Omnibus Agreement.

 

(d)                                 Operator reserves the right to submit for Company review and approval unusual G&A Costs that do not fit normal business billing patterns.  Such costs might be for items that in Operator’s judgment are outside the scope of the Administrative Fee work such as engineering and drafting.  (An example of this might be Operator’s attorney devoting several weeks exclusively to Company to handle a Company related issue.)

 

3.                                      Direct Costs.  Reimbursement of Operator shall include, but shall not be limited to, the right to reimbursement for the following Direct Costs:

 

(a)                                 Labor and Benefits.

 

(i)                                     Salaries and wages of Operator’s employees (or employees of Operator’s Affiliate) directly assigned to the operation, maintenance, project work, or other work relating to Company’s Pipelines and Terminals, including that portion of such employees’ time related to ancillary activities such as training required by Operator, and in any other activities required of Operator pursuant to the Agreement.

 

(ii)                                  Operator’s costs of all payroll taxes, and benefits and allowances and any other payment paid or contributed by Operator which is measured by Operator’s employees’ compensation; the above to include without limitation F.I.C.A., Operator’s costs of holiday, vacation, sickness and disability and other customary allowances, Operator’s current costs of established plans for employees’ group life insurance, hospitalization, retirement, stock purchase, and other benefit plans of a like nature.  Such costs will be charged on a percentage assessment rate on the amount of salaries and wages chargeable to Company under Paragraph 3(a)(i) above.  The percentage assessment rate shall be based on Operator’s actual cost experience.  Company payment to Operator for Operator’s workers’ compensation insurance premium is provided for in Paragraph 3(h) below and not in this Paragraph 3(a)(ii).

 

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(b)                                 Plant, Property and Equipment.  The cost of plant, property and equipment purchased, leased or rented from suppliers and vendors expressly for the purpose of providing Services to Company under the Agreement.

 

(c)                                  Materials, Supplies, Tools and Miscellaneous Equipment.  Any materials, supplies, tools and miscellaneous equipment purchased or furnished by Operator for the benefit of Company shall be priced at cost.  Equipment provided by Company warehouse shall be priced at replacement value.  For equipment or materials that are transported to a location by Operator for the benefit of Company, any costs or expenses incurred by Operator in connection therewith shall be reimbursed at cost.  Operator shall make reasonable efforts to ensure costs for such materials, supplies, tools and miscellaneous equipment are compatible with industry norms.

 

(d)                                 Reimbursable Expenses of Employees.  Operator shall bill Company for reasonable personal expenses of its (or its Affiliates’) employees whose salaries, wages and labor costs are chargeable under Paragraph 3(a)(i) above.  Such reasonable personal expense shall include out-of-pocket expenditures incurred by employees in the performance of their duties on behalf of Company and which were reimbursed under the terms of Operator’s official policy governing reimbursable employee expenses.

 

(e)                                  Autos, Trucks and Heavy Mobile Work Equipment.  All automotive, truck and other mobile equipment shall be charged on a direct charge basis that is consistent with Operators practices in charging such costs to its own facilities.  When a driver or operator is furnished with any such equipment, the rental rate of such equipment shall not include wages and expenses of the driver or operator if they will be charged separately.

 

(f)                                   Permits, Licenses and Bond.  Cost of permits, licenses and bond premiums necessary to perform and provide Services for the Pipelines and Terminals.

 

(g)                                  Outside Services.  The cost of outside services and expertise, including but not limited to engineering, fees from consultants on regulatory matters, provided that the outside services rendered were for the benefit of Company under the Agreement, including the cost of contract services required or necessary in the opinion of Operator in connection with the provision of the Services.  Operator shall make reasonable efforts to ensure costs for such services are competitive with industry norms.

 

(h)                                 Insurance.  Workers’ compensation insurance premiums paid or allocated as respects Operator’s employees performing Services under this Agreement, not to exceed state manual rates for such insurance on a guaranteed cost basis and charged as an amount per $100 of payroll.

 

(i)                                     Utilities, Communication and Power.  All costs incurred by Operator on behalf of Company for utility, communication and power services, plus fuel costs.

 

(j)                                    Maintenance and Repair.  All costs incurred to maintain the Pipelines and Terminals and related facilities, periodically inspect the Pipelines and Terminals for damages or other conditions that could affect the safe, efficient and economical operation of the

 

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Pipelines and Terminals, and perform such repairs to the Pipelines and Terminals as may be required.

 

(k)                                 Legal Expenses and Claims.  (i) All costs and expenses, net of insurance proceeds, of handling, investigating and settling litigation or Claims arising by reason of the provision of the Services, or necessary to protect or recover any of Company’s property, including, but not limited to, attorneys fees, court costs, cost of investigation or procuring evidence and any judgments paid or amounts paid in settlement or satisfaction of any such litigation or claims.  (Note:  a “baseload” level of in-house legal assistance for Company is provided and is included by Operator in the Operational and Administrative Services Fee under the Omnibus Agreement.)

 

(l)                                     Damages and Losses to Pipelines and Terminals.  To the extent not covered by insurance, all costs or expenses necessary for the repair or replacement of the Pipelines and Terminals made necessary because of damages or losses incurred by fire, floods, earthquake, storm, theft, chemicals spills, accident, or other cause, except those costs or expenses which Operator is liable for pursuant to Article VI of the Agreement to which this Exhibit is attached.  Operator shall furnish Company Notice of damages or losses incurred as soon as practicable after a report thereof has been received.

 

(m)                             Right-of-Way Costs.  The costs of rights-of-way and land purchases, damages and appraisals, and legal, regulatory and permit fees specifically related thereto.

 

(n)                                 Taxes.  All Taxes of every kind and nature assessed or levied upon or incurred in connection with the Pipelines and Terminals that have been paid by Operator for the benefit of Company, including any charges or penalties for late payment thereof, provided such late charge or fee did not arise from Operator’s gross negligence of willful misconduct in the filing and payment of the appropriate Tax.

 

(o)                                 Regulatory Costs.  The cost of complying with mandated regulatory programs, including, but not limited to, DOT operator qualification training.

 

(p)                                 Other Expenditures.  Any other expenditure not covered or dealt with in the foregoing provisions of Paragraphs 3(a) through (o), and that is incurred by Operator in the necessary and proper conduct of the Services, and that may be captured and billed to Company on a Direct Cost basis.

 

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Exhibit G
 Arbitration Procedure

 

Attached to and made a part of that certain Operational Services Agreement (the “Agreement”), dated June 1, 2013, by and among Phillips 66 Carrier LLC, Phillips 66 Partners Holdings LLC and Phillips 66 Pipeline LLC

 

Either Party may initiate dispute resolution procedures by sending a Notice to the other Party specifically stating the complaining Party’s Claim and by initiating binding arbitration in accordance with the Center for Public Resources Rules for Non-Administered Arbitration of Business Disputes, by three arbitrators who shall be neutral, independent, and generally knowledgeable about the type of transaction which gave rise to the dispute.  The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16, provided that the arbitrators shall include in their report/award a list of findings, with supporting evidentiary references, upon which they have relied in making their decision.  Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof.  The place of arbitration shall be Houston, Texas.

 

Notwithstanding anything herein and regardless of any procedures or rules of the Center for Public Resources, it is expressly agreed that the following shall apply and control over any other provision in this Agreement:

 

(a)                                 All offers, conduct, views, opinions and statements made in the course of negotiation or mediation by any of the Parties, their employees, agents, experts, attorneys and representatives, and by any mediator, are confidential, made for compromise and settlement, protected from disclosure under Federal and State Rules of Evidence and Procedure, and inadmissible and not discoverable for any purpose, including impeachment, in litigation or legal proceedings between the Parties, and shall not be disclosed to any Person who is not an agent, employee, expert or representative of the Parties, provided that evidence otherwise discoverable or admissible is not excluded from discovery or admission as a result of presentation or use in mediation.

 

(b)                                 Except to the extent that the Parties may agree upon selection of one or more arbitrators, the Center for Public Resources shall select arbitrators from a panel reviewed by the Parties.  The Parties shall be entitled to exercise peremptory strikes against one-third of the panel and may challenge other candidates for lack of neutrality or lack of qualifications.  Challenges shall be resolved in accordance with Center for Public Resource rules.

 

(c)                                  The Parties shall have at least 20 Days following the close of hearing within which to submit a brief (not to exceed 18 pages in length) and ten Days from date of receipt of the opponent’s brief within which to respond thereto.

 

(d)                                 The Parties expressly agree that the arbitrators shall not award punitive damages, consequential damages, or attorneys’ fees (except attorneys’ fees specifically authorized by the Agreement).

 

(e)                                  The fees and expenses of any mediator or arbitrator shall be shared equally by the Parties.

 

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(f)                                   The Parties may, by written agreement (signed by both Parties), alter any time deadline or location(s) for meetings.

 

Time is of the essence for purposes of the provisions of this Exhibit.

 

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