§ 2. Terms and conditions.

Each of the following terms, provisions and conditions is a material part of the franchise herein granted, and grantee by its acceptance of this franchise agrees to perform each and every provision and condition:

(a)

The franchise herein granted shall and does hereby authorize the grantee to run a thirty-six-inch pipeline across and underneath the public streets and easements from its entrance as aforesaid into the city and continuing across the City of South Houston as aforesaid to its exit at the northerly city limit line, upon the approval of the building inspector as to the points at which the pipeline will cross or run along or underneath any street or streets and right-of-way or rights-of-way within the City of South Houston in accordance to plans and specifications heretofore filed with the city secretary and approved by the city engineer.

(b)

When found necessary by the city council or building inspector, any such line or other structures shall be lowered [or] relocated, upon written request by said building inspector at the sole expense of the grantee. It is the purpose of this subsection that improvements, changes and alterations in either existing or future streets, street right-of-way, water, sanitary, sewer, or storm sewers shall in no way be hampered by the line or other structures of the grantee.

(c)

The grantee shall pay to the City of South Houston an initial franchise fee in the amount of two hundred fifty dollars ($250.00) and shall thereafter pay to said city an annual fee in the amount of twenty-five dollars ($25.00) per year, payable annually in advance, on or before the anniversary date of the final passage of the ordinance granting this franchise; provided, that the grantee may at its election and option pay in advance at the time the initial franchise fee is paid the aggregate amount of the twenty-five dollar ($25.00) annual fees to be thereafter payable for the full term covered hereby and if such advance payment is made of such annual fees, no further annual fees shall be payable during the life and term of this franchise.

(d)

Grantee shall save the city harmless from and against all liability for injury or damage to any person or persons or property caused by the construction, maintenance, operation, repair or removal of any part or all of such pipeline within the right-of-way of any street or alley of the city. Grantee shall pay to the city all damages caused to the city of any of its agencies by the construction, maintenance, operation, repair or removal of such pipeline or any part thereof.

(e)

Grantee shall refill (including the repaving of any cut in any pavement) all excavations made by it within the right-of-way of any street or alley in the constructing, operating, maintaining, or removing of such pipeline or any part thereof; and if after once refilling such excavation the earth within such excavated area settles so as to leave a depression, the grantee shall make further necessary fills from time to time as ordered by the city's building inspector or by the city council. Grantee will repair all portions of any street or alley across or along which its said line is laid and place the same in as good a state of repair and condition as they were in at the time of construction, repair or removal was commenced, such repairs to be the satisfaction of the city council.

(f)

All construction contemplated by grantee, including all work of repairing or refilling, shall be done under plans and specifications thereof approved by the building inspector and subject to his approval of the completed work; and any excavation in or along any such street or alley shall be replaced with materials of the same kind as those removed unless the city's such building inspector approves of some other type of fill or material. Grantee shall notify the city's building inspector before commencing at any time an excavation in any portion of any street or alley and shall not wholly close any street or alley but shall at all times maintain a route of travel along and within such roadway area which shall include any sidewalk area, except that in cases of emergency the city's such building inspector, the mayor, or the city council may authorize a temporary closing of any street, alley, or sidewalk in order to take care of any break or leakage in the pipeline if in the opinion of the city's such building inspector, the mayor or the city council, such closing is necessary to protect the safety of the public.

(g)

If the grantee fails to commence or thereafter to diligently prosecute any such repair, refilling or other work so required to be done by it within a reasonable time after being notified thereof by the city's building inspector, the city may cause such work to be done at the expense of the grantee and may recover all such expenses from the grantee, together with all costs and reasonable attorney's fees.

(h)

The grantee shall provide the necessary automatic pressure release (cutoff) valves which prevent the flow of the commodity, in either direction if there should be any break or rupture within the right-of-way limits of any street or public property; such valves must meet with the approval of the building inspector.

(i)

Upon completion of the laying of the initial pipeline, grantee shall furnish to the city a building plan and drawing accurately showing the actual location, course and alignment of the pipeline, said plans shall consist not only of the plan but also of a suitable profile accurately showing the location of all streets or alleys across or along which the pipeline was laid as well as the location of any other pipeline, utility line or other underground facility in close proximity of said pipeline.

(j)

All notices to grantee shall be given as follows:

Arco Pipeline Company
P.O. Box 22146
Houston, Texas 77027

(k)

Initial construction and installation of such pipeline will be in accordance to the plans and specifications heretofore submitted to, and approved by, the city.

(l)

The city may, at any such time deemed advisable by the city, retain a professional engineer to inspect in-progress construction by grantee, or to examine any plans and specifications submitted by grantee, to city concerning construction proposed by grantee, and grantee shall pay and reimburse the city for the cost of such services within ten (10) days following notice of same given by city. With reference to the inspection of in-progress work, should such engineer be of the opinion that same is not in compliance with the plans and specifications, or the city permit relating to same, he shall have the authority to stop the work in progress until such time as compliance is achieved. This provision shall be in addition to other provisions contained herein.

(m)

Pipeline will be used for the transportation of crude oil.

(n)

Maximum operating pressure will be five hundred (500) pounds per square inch.

(o)

Maximum operating temperature will be ambient.

(p)

In addition to any provision herein contained, pipeline will be constructed and operating in accordance with rules and regulations of U. S. Department of Transportation.

(q)

Prior notice of construction will be given to city before actual construction in the city.

(r)

All street crossings will be installed by boring under them.

(s)

Pipeline will have adequate cathodic protection as defined by the U.S. Department of Transportation.