EXCHANGE AGREEMENT
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THIS EXCHANGE AGREEMENT (this "Agreement"), dated as of August 12, 1997, is
entered into among BUCKEYE MANAGEMENT COMPANY, a Delaware corporation (the
"General Partner"), BUCKEYE PARTNERS, L.P., a Delaware limited partnership (the
"Partnership"), BUCKEYE PIPE LINE COMPANY, a Delaware corporation (the
"Manager"), and BUCKEYE PIPE LINE COMPANY, L.P., a Delaware limited partnership,
BUCKEYE PIPE LINE COMPANY OF MICHIGAN, L.P., a Delaware limited partnership,
LAUREL PIPE LINE COMPANY, L.P., a Delaware limited partnership, EVERGLADES PIPE
LINE COMPANY, L.P., a Delaware limited partnership and BUCKEYE TANK TERMINALS
COMPANY, L.P., a Delaware limited partnership (together, the "Operating
Partnerships") and BMC ACQUISITION COMPANY, a Delaware corporation and owner of
all of the outstanding common stock of the General Partner ("BAC").
WITNESSETH:
WHEREAS, the Partnership is a publicly traded limited partnership in which
the General Partner is the general partner;
WHEREAS, the Operating Partnerships are owned 99% by the Partnership, and
1% by the Manager, which acts as general partner of the Operating Partnerships
(except Buckeye Pipe Line Company of Michigan, L.P., which is owned 98.01% by
the Partnership and 1.99% by the Manager);
WHEREAS, the Partnership is governed pursuant to an Amended and Restated
Agreement of Limited Partnership (the "Master Partnership Agreement"), dated as
of December 23, 1986, as amended, between the General Partner and the limited
partners of the Partnership (the "Limited Partners"); the Operating
Partnerships, other than Laurel, are governed pursuant to similar Amended and
Restated Agreements of Limited Partnership, each dated as of December 23,1986,
as amended, between the Manager and the Partnership; and Laurel is governed
pursuant to an Amended and Restated Agreement of Limited Partnership dated
October 21, 1992, between the Manager and the Partnership (collectively, the
"Operating Partnership Agreements");
WHEREAS, a special committee (the "Special Committee") of disinterested
directors of the General Partner has determined that it is in the best interests
of the Partnership (i) to issue limited partnership units of the Partnership
("LP Units") to Buckeye Pipe Line Services Company, a Pennsylvania corporation
(the "Company") whose shares of capital stock are owned by the BMC Acquisition
Company Employee Stock Ownership Plan (the "ESOP"), in exchange for 63,000
shares of BMC Acquisition Company Series A Convertible Preferred Stock, stated
value $1,000 per share (the "BAC Preferred Stock"), (ii) to have the Partnership
convert the BAC
Preferred Stock into BMC Acquisition Company Common Stock ("BAC Common Stock"),
and (iii) to contribute the BAC Common Stock to the Operating Partnerships
(collectively, the "Restructuring");
WHEREAS, pursuant to the LP Unit Subscription Agreement dated
contemporaneously herewith (the "LP Unit Subscription Agreement"), the
Partnership has issued 1,286,573 LP Units to the Company in exchange for the BAC
Preferred Stock;
WHEREAS, pursuant to a notice to BAC of even date herewith, the Partnership
has converted the BAC Preferred Stock received pursuant to the LP Unit
Subscription Agreement into 484,616 shares of BAC Common Stock (the "Exchange
Shares");
WHEREAS, the Partnership has contributed an undivided interest in the
Exchange Shares to the Operating Partnerships; and
WHEREAS, the Operating Partnerships desire to transfer and assign the
Exchange Shares to the Manager in exchange for the release of certain
obligations that the Partnership has to the General Partner and the Operating
Partnerships have to the Manager, and BAC, the General Partner and the Manager
wish for the Manager to receive the Exchange Shares and to release such
obligations of the Partnership and the Operating Partnerships, and for the
Exchange Shares to be transferred by the Manager to the General Partner and by
the General Partner to BAC, which shall thereafter hold the Exchange Shares as
treasury stock.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I
THE EXCHANGE
Upon the terms and subject to the conditions of this Agreement, the
Operating Partnerships hereby agree to transfer and assign the Exchange Shares
to the Manager in exchange for the release of certain obligations of the
Partnership to the General Partner and of the Operating Partnerships to the
Manager, as set forth in Article II below.
ARTICLE II
RELEASE OF OBLIGATIONS
2.01 Obligations to Reimburse for Executive Compensation. (a) Upon the
terms and subject to the conditions of this Agreement, BAC, the General Partner
and the Manager, for themselves and their affiliates, successors and assigns,
hereby and irrevocably release, relinquish and discharge the Partnership and the
Operating Partnerships from any and all liability, obligation, claim, demand,
action or suit of any kind or nature, in law or in equity, whatsoever,
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known or unknown, which may be asserted for or on account of or arising out of
or in any manner relating to the Partnership's and/or the Operating
Partnerships' obligations pursuant to Section 7.4(b) of the Master Partnership
Agreement and the Operating Partnership Agreements or otherwise to reimburse
BAC, the General Partner or the Manager for total compensation paid for
executive level duties performed for the General Partner or the Manager with
respect to the functions of operations, finance, legal, marketing and business
development, and treasury, as well as President of the Manager following the
date hereof. The parties hereto acknowledge that the individuals who presently
perform these executive level functions are: Xxxxxxx X. Xxxxxxx, Xxxxxx X.
Xxxxxx, Xxxxxxx X. Xxxxxx, Xxxxxxx X. Xxxx, Xx., Xxxxx X. Xxxxxxxxxx and C.
Xxxxxxx Xxxxxx, respectively, and their total compensation in all forms on a pro
forma annualized basis for 1996 was $2,300,000. Nothing in this Section 2.01(a)
shall be deemed to waive the obligations of the Partnership and the Operating
Partnerships to reimburse the General Partner and the Manager for (i) employee
fringe benefits and retirement benefits for their executives relating to
services performed prior to the date hereof, (ii) obligations under severance
agreements with their executives to the extent currently reimbursable under the
Master Partnership Agreement or (iii) any obligations in respect of their
executives which are not related to compensation, including, without limitation,
indemnification obligations.
(b) BAC, the General Partner and the Manager agree, unless the General
Partner is removed as general partner of the Partnership, to perform the
executive level functions referred to in Section 2.01(a) for the benefit of the
Partnership and the Operating Partnerships in a manner satisfactory to the board
of directors of the General Partner, which shall be of a quality, scope and
nature equivalent to the executive level functions currently performed by the
Manager.
2.0 ESOP Contributions Generally. (a) From the date of this Agreement
until all principal, interest and premium is paid in full under the Amended and
Restated Note Agreement of even date herewith among the ESOP, The Prudential
Insurance Company of America and Pruco Life Insurance Company (the "Note
Agreement") (the "ESOP Period"), and only following the exhaustion of the "Top
Up Reserve Fund" provided for in paragraph (b) below, the Partnership and the
Operating Partnerships shall reimburse the General Partner and the Manager,
respectively, for (i) cash contributions made by the Company to the ESOP
pursuant to the terms thereof, as necessary for the ESOP to make all payments of
principal, interest (including additional interest payable as the result of an
interest rate increase under paragraph 7 of the Note Agreement) and premium due
under the Note Agreement (excluding, however, the accelerated portion of any
payments which have become due and payable upon acceleration of such
indebtedness as the result of a default under the Note Agreement), (ii) any
income taxes incurred by the Company on the sale of LP Units made to satisfy the
redemption obligations described in Section 2.03 below, and (iii) routine
administrative charges and expenses common to employee stock ownership plans
incurred in connection with the operation of the ESOP, in each case, to the
extent distributions from LP Units owned by the Company are not sufficient to
make all such payments. Following the ESOP Period, the Partnership and the
Operating Partnerships shall have no further obligations to reimburse the
General Partner or the Manager for contributions to the ESOP.
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(b) Top Up Reserve Fund. For purposes of this Agreement, the "Top Up
Reserve Fund" shall mean the amount set forth on a statement delivered by the
General Partner to the Partnership on the date hereof which is equal to the
amount of all reimbursements associated with the ESOP made to the General
Partner by the Partnership prior to the date hereof, minus the actual cash
payments by the ESOP for principal and interest payments and routine
administrative charges and expenses actually incurred by the ESOP.
2.03 No ESOP Contributions for Departing Employees. The General Partner
and the Manager acknowledge that neither the Partnership nor the Operating
Partnerships shall be obligated to reimburse BAC, the General Partner or the
Manager for obligations to redeem the ESOP accounts of departing employees upon
the termination of their employment with the Company, or for any other costs or
expenses of or relating to the operation of the ESOP other than those specified
in Section 2.02(a) above.
2.04 Representations and Warranties. BAC, the General Partner and the
Manager hereby represent and warrant to the Partnership and the Operating
Partnerships that (a) neither the Company nor any entity treated as a single
employer with the Company under Sections 414(b), 414(c), 414(m), or 414(o) of
the Internal Revenue Code of 1986, as amended (the "Code"), or Section 4001(b)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
has incurred any liability under any provision of ERISA or other applicable law
relating to the ESOP; (b) the ESOP has been administered, in all material
respects, in compliance with its terms and complies, both in form and operation,
with the applicable provisions of ERISA (including, without limitation, the
funding and prohibited transactions provisions thereof), the Code and other
applicable laws; (c) the ESOP has been determined by the Internal Revenue
Service to be qualified within the meaning of Section 401 of the Code, and
neither BAC, the General Partner nor the Manager is aware of any fact or
circumstances which would adversely affect the qualified status of the ESOP; and
(d) the restructuring of the ESOP contemplated by this agreement does not
constitute a "prohibited transaction" under ERISA.
2.05 Certain Agreements. (a) The parties acknowledge that nothing in the
Services Agreement (the "Services Agreement") of even date herewith among the
General Partner, the Manager and the Company shall be deemed to enlarge the
obligation of the Partnership to reimburse the General Partner under the Master
Partnership Agreement or the obligation of the Operating Partnerships to
reimburse the Manager under the Operating Partnership Agreements. Furthermore,
the Partnership and the Operating Partnerships shall have no obligation to
reimburse the General Partner or the Manager for the amounts paid to the Company
pursuant to Article V of the Services Agreement unless such amounts were paid as
reimbursement for costs and expenses for which the General Partner or the
Manager would be entitled to reimbursement under the Master Partnership
Agreement or the Operating Partnership Agreements, as such agreements are
modified by the terms hereof, if the General Partner or the Manager had incurred
such costs and expenses directly. In addition, the Partnership and the
Operating Partnerships shall have no obligation to reimburse the General Partner
or the Manager for amounts paid to the Company pursuant to Article VI of the
Services Agreement unless such amounts were paid as
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indemnification for damages and expenses for which the General Partner or the
Manager would be entitled to indemnification under the Master Partnership
Agreement or the Operating Partnership Agreements if the General Partner or the
Manager had incurred such damages or expenses directly.
(b) The Partnership and each of the Operating Partnerships hereby
waive any right of offset or counterclaim or similar right it may have against
the General Partner or the Manager (including, without limitation, as a result
of any Forfeiture Payment (as hereinafter defined) due from the General Partner
and the Manager pursuant to Section 3.01), with respect to their respective
obligations to reimburse the General Partner or the Manager, as the case may be,
for contributions to the ESOP pursuant to Section 2.02 hereof.
(c) The parties acknowledge that the Partnership and the Operating
Partnerships are not obligated to reimburse the General Partner or the Manager
if any tax is owed by BAC, the General Partner or the Manager pursuant to
Section 83 of the Internal Revenue Code as a result of the Restructuring.
ARTICLE III
FORFEITURE
3.01 Failure to Act as General Partner Over the ESOP Period. Except to the
extent this obligation is assumed by a successor general partner pursuant to
Section 3.02, if, prior to the end of the ESOP Period, the General Partner
ceases to be the general partner of the Partnership or the Manager ceases to be
the general partner of all of the Operating Partnerships (the "Termination
Date") for any reason other than in connection with the dissolution of the
Partnership under Section 14.1(d) of the Master Partnership Agreement, BAC, the
General Partner and the Manager shall jointly and severally be obligated to pay
to the Operating Partnerships in cash in a lump sum payment an aggregate amount
(the "Forfeiture Payment") equal to the product of (A) the greater of (i)
$64,200,000 or (ii) the fair market value (as determined by an independent
appraiser selected by the Partnership) of the Exchange Shares, which shall be
held by BAC as treasury stock until the end of the ESOP Period on the
Termination Date (before giving effect to the termination) multiplied by (B) the
fraction, the numerator of which is the amount of time (expressed in whole
years) before the expiration of the scheduled amortization of the ESOP loan, and
the denominator of which is 15. Any payment made pursuant to this Section 3.01
by BAC, the General Partner or the Manager will not be reimbursable by the
Partnership or the Operating Partnerships.
3.02 Assumption of Forfeiture Obligation by a Successor General Partner.
If the General Partner is removed as general partner of the Partnership or the
Manager is removed as general partner of one or more of the Operating
Partnerships during the ESOP Period (but not if the General Partner or the
Manager voluntarily withdraws as general partner) pursuant to Section 13.1(b) of
the Master Partnership Agreement, the General Partner may cause the successor
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general partner of the Partnership and the Manager may cause the successor
general partner of the Operating Partnerships to assume their respective
obligations, liabilities and duties under this Agreement.
3.03 ESOP Loan Secured. The Partnership and the Operating Partnerships
acknowledge that BAC, the General Partner and the Manager have each executed and
delivered a Guaranty Agreement pursuant to which each has guaranteed the payment
and performance of all obligations under the Note Agreement and related
documents (the "Note Obligations"), that such guaranty obligations are secured
by substantially all assets of BAC, the General Partner and the Manager and,
that, as a result, all claims of the Partnership and the Operating Partnerships
against BAC, the General Partner and the Manager in respect of the Forfeiture
Payment will effectively be subordinated to the Note Obligations.
ARTICLE IV
TAX INDEMNITY AGREEMENT
4.01 Indemnification by the General Partner and the Manager. BAC, the
General Partner and the Manager shall, jointly and severally, reimburse and
indemnify and hold the Partnership and each Operating Partnership harmless
against and in respect of any and all damage, loss, liability, deficiency,
settlement payments, interest (including any increase in the rate of interest
paid on any loan to the ESOP), penalties, obligations, levies or expenses
(including without limitation reasonable legal fees and expenses) (collectively,
"Damages") in connection with, resulting from or relating to one of (i) the
failure of the lenders to the ESOP to qualify pursuant to Section 133 of the
Internal Revenue Code for the interest received exclusion in connection with the
loan to the ESOP as a result of the Restructuring or (ii) any excise tax imposed
as a result of the Restructuring (each, a "Tax Risk"). The Partnership and the
Operating Partnerships shall pay to the ESOP or the lenders to the ESOP (in the
case of the Tax Risk described above in clause (i) of this Section 4.01), or to
the appropriate taxing authority or other third party (in the case of the Tax
Risk described above in clause (ii) of this Section 4.01) any Damages in the
event that a Tax Risk is incurred, subject to the foregoing reimbursement
obligation. Neither BAC, the General Partner, the Manager nor their affiliates
shall be entitled to reimbursement from the Partnership or any Operating
Partnership for any indemnification payment made pursuant to this Article IV.
4.02 Selection of Tax Risk. The disinterested directors of the board of
directors of the General Partner shall determine the Tax Risk for which the
Partnership and the Operating Partnerships shall be entitled to indemnification
from BAC, the General Partner and the Manager and such directors may make such
determination at any time. Such determination shall be communicated to the
entire board of directors in writing and once so communicated may not be
modified or revoked.
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4.03 Loan From Partnership. Subject to Section 7.7(g) of the Master
Partnership Agreement, in the event that a Tax Risk is incurred, and the
Partnership or the Operating Partnerships incur the Damages associated
therewith, the General Partner shall issue to the Partnership a promissory note
(the "Note") for the amount of the Damages, with interest calculated at the rate
(including points or other financing charges or fees) that the General Partner
would be charged by an unrelated lender on a comparable loan. The Note shall be
payable by right of offset of the amounts due to the General Partner under the
Amended and Restated Incentive Compensation Agreement dated as of March 22,
1996, as amended from time to time, until the Note is paid in full.
ARTICLE V
THE CLOSING
5.01 Date and Time. The closing for the transactions contemplated hereby
(the "Closing") shall be held at the offices of Xxxxxx, Xxxxx & Xxxxxxx LLP in
Philadelphia contemporaneously with the execution of this Agreement.
5.02 Economic Effect. The parties desire to give economic effect to the
transactions contemplated by this Agreement as of 11:59 p.m. on the date of
Closing.
5.03 Closing Deliveries. At the Closing, the Operating Partnerships shall
deliver to the Manager certificates representing the Exchange Shares, duly
endorsed for transfer to the Manager or with separate stock transfer powers
attached thereto and signed in blank.
ARTICLE VI
GENERAL PROVISIONS
6.01 Entire Agreement. This Agreement supersedes all prior discussions and
agreements among the parties hereto with respect to the subject matter hereof
and contains the sole and entire agreement among the parties hereto with respect
to the subject matter hereof.
6.02 Headings. The heading used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
6.03 Waiver and Amendment. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or of any other covenant, duty,
agreement or condition. Any amendment to this Agreement shall be effective only
if in a writing signed by each of the parties hereto.
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6.04 Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof, or of such provision in other
respects, shall not be affected thereby.
6.05 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
6.06 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its officer duly authorized as of the date first above written.
BUCKEYE MANAGEMENT COMPANY
BY:
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NAME:
TITLE:
BUCKEYE PARTNERS, L.P.
BY: BUCKEYE MANAGEMENT COMPANY,
AS GENERAL PARTNER
BY:
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NAME:
TITLE:
BUCKEYE PIPE LINE COMPANY
BY:
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NAME:
TITLE:
BUCKEYE PIPE LINE COMPANY
OF MICHIGAN, L.P.
BY: BUCKEYE PIPE LINE COMPANY,
AS GENERAL PARTNER
BY:
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NAME:
TITLE:
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LAUREL PIPE LINE COMPANY, L.P.
BY: BUCKEYE PIPE LINE COMPANY,
AS GENERAL PARTNER
BY:
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NAME:
TITLE:
EVERGLADES PIPE LINE COMPANY, L.P.
BY: BUCKEYE PIPE LINE COMPANY,
AS GENERAL PARTNER
BY:
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NAME:
TITLE:
BUCKEYE TANK TERMINALS
COMPANY, L.P.
BY: BUCKEYE PIPE LINE COMPANY,
AS GENERAL PARTNER
BY:
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NAME:
TITLE:
BUCKEYE PIPE LINE COMPANY, L.P.
BY: BUCKEYE PIPE LINE COMPANY,
AS GENERAL PARTNER
BY:
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NAME:
TITLE:
BMC ACQUISITION COMPANY
BY:
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NAME:
TITLE:
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