Document:

Exhibit 10.1

 

AMENDED AND RESTATED EMPLOYMENT AND SEVERANCE
AGREEMENT

 

This Amended and Restated
Employment and Severance Agreement, dated as of October 25, 2007, by and among
Stephen C. Muther (“Muther”), Buckeye GP Holdings L.P., a Delaware limited
partnership (“BGH”), and Buckeye Pipe Line Services Company, a Pennsylvania
corporation (“BPLSC”), amends and restates the Amended and Restated Employment
and Severance Agreement, dated as of June 25, 2007, among Muther, BGH and BPLSC
(the “Prior Agreement”).

 

WHEREAS, Muther has served
as an executive of certain of the BPL Entities (defined below) pursuant to the
Prior Agreement and its predecessor agreements;

 

WHEREAS, in accordance with
past practices, Muther shall continue to be an employee of, and receive benefits
through, BPLSC;

 

WHEREAS, BGH is entering
into this Agreement to guarantee performance of BPLSC’s obligations under this
Agreement;

 

WHEREAS, in connection with
the transactions consummated by the Purchase Agreement (defined below), Muther,
BGH and BPLSC entered into the Prior Agreement and now desire to further amend
the Prior Agreement in connection with the promotion of Muther to the office of
President effective on the date hereof;

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants and agreements
hereinafter set forth and intending to be legally bound hereby, the parties
hereto agree as follows:

 

Section 1.                    Definitions

 

For all purposes of this
Agreement, the following terms shall have the meanings specified in this Section
unless the context clearly otherwise requires:

 

(a)                                  “BGH Entities” means BGH, MainLine Management
LLC, Buckeye GP LLC, MainLine GP, Inc., and MainLine L.P., collectively.

 

(b)                                 “BGH GP Holdings” means BGH GP Holdings, LLC,
a Delaware limited liability company, which as of the date hereof is owned by
ArcLight Energy Partners Fund III, L.P., Kelso Investment Associates VII, L.P.,
KEP VI, LLC and Lehman Brothers Co. – Investment Partners, L.P.

 

(c)                                  “BPL” means Buckeye Partners, L.P., a
Delaware limited partnership. .

 

(d)                                 “BPL Entities” means BPL, its operating
partnerships and other subsidiaries, and BPLSC, collectively.

 

 

(e)                                  “Board” means the board of directors or
similar governing body of BGH.

 

(f)                                    “Cause” means (1) misappropriation of funds
or any act of common law fraud, theft, or embezzlement, (ii) habitual
insobriety or substance abuse, (iii) conviction of or plea of nolo contendere
to a felony or any crime involving moral turpitude, (iv) willful misconduct or
gross negligence by Muther in the performance of his duties, the willful
failure of Muther to perform a material function of Muther’s duties hereunder
or material failure to comply with any lawful directive of the Board, or Muther’s
engaging in a conflict of interest or other breach of fiduciary duty, (v)
material violation of the code of conduct of the BPL Entities and policy on
workplace harassment, and (vi) subject of an order, judicial or administrative,
obtained or issued by the Securities and Exchange Commission for any securities
violation involving fraud.

 

(g)                                 “Change of Control” shall be deemed to have
taken place upon the occurrence of any of the following events:

 

(i)                                     any Person, except the BGH Entities or the
BPL Entities, or any employee benefit plan of the BGH Entities or the BPL Entities
(or of any Affiliate or Associate thereof, or any Person or entity organized,
appointed or established by the BGH Entities or the BPL Entities for or
pursuant to the terms of any such employee benefit plan), together with all
Affiliates and Associates of such Person, shall become the beneficial owner, or
the holder of proxies, in the aggregate of 80% or more of the limited
partnership units (the “Units”) of BGH or BPL then outstanding; provided,
however, that no “Change of Control” shall be deemed to occur for purposes of
clause (i) hereof
during any period in which any such Person, and its Affiliates and Associates,
are bound by the terms of a standstill agreement under which such parties have
agreed not to acquire more than 79% of the Units of BGH or BPL then outstanding
or to solicit proxies; or

 

(ii)                                  any Person, except one or more of the equity
owners of BGH GP Holdings as of the date hereof, or any Affiliate or Associate
of such equity owners or any employee benefit plan of the BGH Entities or the BPL
Entities (or of any Affiliate or Associate or any Person or entity organized,
appointed or established by the BGH Entities or the BPL Entities for or
pursuant to the terms of any such employee benefit plan), together with all
Affiliates and Associates of such Person, shall become the Beneficial Owner, or
the holder of proxies, in the aggregate of 51 % or more of the general partner
interests of BGH or BPL; or

 

(iii)                               if either BGH or BPL and its respective
general partner are combined into a single entity (the “Successor”), any
Person, except one or more of the equity owners of BGH GP Holdings as of the
date hereof, or any Affiliate or Associate of such equity owners or any
employee benefit plan of the BGH Entities or the BPL Entities (or of any
Affiliate or Associate thereof or any Person or entity organized, appointed or
established by the BGH Entities or the BPL Entities for or pursuant to the
terms of any such employee benefit plan), together with all Affiliates and
Associates of such Person, shall become the Beneficial Owner, or the holder of
proxies, in the aggregate of 50% or more of the voting equity interests of the
Successor then outstanding; provided, however, that no “Change of Control”
shall be deemed to occur for purposes of clause (iii) hereof

 

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during any period in which any such Person, and its
Affiliates and Associates, are bound by the terms of a standstill agreement
under which such parties have agreed not to acquire more than 49% of the voting
equity interests of the Successor then outstanding or to solicit proxies.

 

For purposes of this
Agreement, the term “Person” shall have the same meaning as in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”);
the term “Affiliate” and “Associate” are used as defined in Rule 12b-2 of the
Exchange Act.

 

Without limiting the
foregoing, the term “Change of Control” shall be deemed to include the
transactions contemplated by the Purchase Agreement, dated as of April 3, 2007,
among Carlyle/Riverstone BPL Holdings II, L.P., certain Limited Partners of
Buckeye GP Holdings L.P. and BGH GP Holdings, LLC, as well as any subsequent
transaction satisfying the foregoing definition of a “Change of Control”.

 

(h)                                 “Employment Period” is defined in Section 13.

 

(i)                                     “General Partner” means MainLine Management
LLC.

 

(j)                                     “Good Reason Termination” means a Termination
of Employment initiated by Muther upon one or more of the following
occurrences:

 

(i)                                     any failure of BGH or BPLSC to comply with
and satisfy any of the material terms of this Agreement, including any
reduction in Compensation;

 

(ii)                                  any removal by the BGH Entities or the BPL
Entities of Muther from the employment grade or officer positions which Muther
holds immediately prior to the date hereof except in connection with promotions
to higher office; provided, however, that in the absence of a Change of Control
solely changing Muther’s reporting relationships shall not be grounds for a “Good
Reason Termination” hereunder;

 

(iii)                               following a Change of Control, a transfer of
Muther, without his express written consent, to a location that is more than
100 miles from his principal place of business immediately preceding the Change
of Control; or

 

(iv)                              following a Change of Control, Muther
determines, in his sole discretion in the period between December 26, 2008, and
June 25, 2010, that circumstances have so changed that he is not willing to
continue in his position with the BGH Entities and the BPL Entities and elects
a Termination of Employment.

 

(k)                                  “Internal Revenue Code” means the Internal
Revenue Code of 1986, as amended.

 

(l)                                     “Partnerships” means the BGH Entities and the
BPL Entities, collectively.

 

(m)                               “Phase Out Date” means the first day of the
calendar month coincident with or next following Muther’s 65th birthday.

 

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(n)                                 “Purchase Agreement” means that certain
Purchase Agreement by and among Carlyle/Riverstone BPL Holdings II, L.P.,
certain Limited Partners of BGH and BGH GP Holdings, LLC, dated as of April 3,
2007.

 

(o)                                 “Subsidiary” means any entity in which the
BGH Entities or the BPL Entities, directly or indirectly, own at least a 50%
interest or an unincorporated entity of which the BGH Entities or the BPL
Entities, directly or indirectly, owns at least 50% of the profits or capital
interests.

 

(p)                                 “Termination Date” means the date of receipt
of the Notice of Termination described in Section 2 hereof or any later date
specified therein, as the case may be.

 

(q)                                 “Termination of Employment” means the
termination of Muther’s employment relationship with the Partnerships, which
event shall constitute a “separation from service” under section 409A of the
Internal Revenue Code.

 

Section 2.                    Employment

 

(a)                                  During the term of this Agreement, BPLSC
shall employ Muther, and Muther shall serve, as President of the BGH Entities
and the BPL Entities.

 

(b)                                 During the Employment Period (as defined in
Section 13), Muther shall devote his full time and attention to the business of
the Partnerships, will act in the best interests of the Partnerships and will
perform with due care the duties and responsibilities assigned to him by the
Board. Muther agrees to cooperate fully with the Board, and not to engage in
any activity that interferes with the performance of his duties hereunder.
During the Employment Period, Muther will not hold any type of outside
employment, engage in any type of consulting or otherwise render services to or
for any other person, entity or business concern without the advance written
approval of the Board. However, it shall not be a violation of this Agreement
for Muther to (1) serve on corporate, civic, or charitable boards or
committees, except for boards or committees of a competing business, provided
that such service does not interfere with the performance of his duties and
responsibilities under this Agreement, or (2) take vacation days and reasonable
absences due to injury or illness, as set forth herein and/or permitted by the
general policies of the Partnerships.

 

(c)                                  Muther represents and covenants to BGH and
BPLSC that he is not subject or a party to any employment agreement,
noncompetition covenant, nondisclosure agreement, or any other agreement,
covenant, understanding, or restriction that would prohibit him from executing
this Agreement and fully performing his duties and responsibilities hereunder,
or would in any manner, directly or indirectly, limit or affect the duties and
responsibilities hereunder.

 

(d)                                 Muther acknowledges and agrees that he owes
BGH and BPLSC a duty of loyalty and that the obligations described in this
Agreement are in addition to, and not in lieu of, Muther’s obligations under
common law.

 

(e)                                  Any salary, bonus and other compensation
payments hereunder shall be subject to all applicable payroll and other taxes.

 

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(f)                                    During the term of this Agreement, BPLSC
shall pay to Muther an annualized base salary of no less than $300,000 (such
amount, as it may be increased from time to time, is hereinafter referred to as
“Compensation”) (less applicable taxes and withholdings) in consideration for
Muther’s services under this Agreement, payable in conformity with BPLSC’s
customary payroll practices for executive salaries.

 

Section 3.                    Notice of Termination

 

Any Termination of
Employment shall be communicated by a Notice of Termination in accordance with
Section 15 hereof. For purposes of this Agreement, a “Notice of Termination”
means a written notice which, in the case of a Good Reason Termination by
Muther (i) indicates
the specific reasons for the termination, (ii) briefly summarizes the facts and
circumstances deemed to provide a basis for termination of Muther’s employment,
and (iii) if the Termination Date is other than the date of receipt of such
notice, specifies the Termination Date (which date shall not be more than 15
days after the giving of such notice). In the event of a Good Reason
Termination, Muther must provide the Notice of Termination to BGH and BPLSC
within 60 days of the day that he received notice of the event creating such
right and if such event is curable, BGH and BPLSC shall have 30 days to cure.
Failure to give such Notice of Termination within such 60 day time period
results in a waiver by Muther of his right to severance under Section 4 with
respect to such event.

 

Section 4.                    Severance Compensation upon
Termination

 

(a)                                  In the event of Muther’s involuntary
Termination of Employment (other than death or disability) for any reason other
than Cause or in the event of a Good Reason Termination, BPLSC shall pay to
Muther, subject to the execution of a release in form set forth as Exhibit A
(the “Release”) and the expiration of the revocation period thereunder, and
subject to required employment taxes and deductions, within 15 days after the
Termination Date, a single sum in cash equal to Two Million Dollars
($2,000,000). Except as provided below, all benefit coverages, retirement
benefit accruals and fringe benefit eligibility shall cease upon the
Termination Date, subject to applicable rights under ERISA and COBRA.

 

(b)                                 In the event a severance payment is made
under paragraph (a), BPLSC will provide Muther with the following payments for
a period of 18 months (or in the event that such payment was triggered by a
Change of Control, 36 months) from the Termination Date, provided, however,
that this obligation shall cease upon Muther’s obtaining new employment that
provides Muther with eligibility for medical benefits without a pre-existing
condition limitation (such period is referred to as the “Benefit Period”):

 

(i)                                     During the first 18 months of the Benefit
Period (or, if shorter or longer, during the period, within the Benefit Period,
during which Muther is eligible to elect COBRA continuation coverage under
health and dental plans of BPLSC) (the “COBRA Period”), BPLSC will pay Muther a
monthly payment on the first payroll date of each month equal to the COBRA cost
of continued health and dental coverage under health and dental plans of BPLSC
pursuant to section 4980B of the Internal Revenue Code, less the amount that
Muther would be required to contribute for health and dental coverage if Muther
were an active employee. These payments will commence on

 

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BPLSC’s first payroll date after the Termination
Date and will continue until the end of the COBRA Period (but not longer than
the Benefit Period).

 

(ii)                                  After the COBRA Period and during the balance
of the Benefit Period, if any, BPLSC will pay Muther (or directly to the
insurer on Muther’s behalf) a quarterly payment on the first payroll day of
each calendar quarter equal to the premium cost that Muther will incur during
the quarter (but not beyond the end of the Benefit Period) to maintain health
and dental coverage that is substantially similar to the health and dental
coverage that was in effect for Muther under plans of BPLSC immediately before
such coverage ended, as reasonably determined by Muther and BPLSC, less the
amount that Muther would be required to contribute for health and dental
coverage if Muther were an active employee.

 

(iii)                               On each date on which a payment is made under
subsection (i) or (ii) above, BPLSC will pay Muther an additional tax gross-up
amount equal to the federal, state and local income and payroll taxes, if any,
that Muther incurs on the amount paid under subsection (i) or (ii), and on the
amount paid under this subsection (iii), on that date; ; provided, however,
that for purposes of this subsection 4(b)(iii), the aggregate tax rate for the
federal, state and local income and payroll taxes above shall be assumed to be
25%. This gross up payment will be made with respect to each payment under
subsection (i) and (ii) and will cease when payments under subsection (i) and
(ii) cease.

 

(c)                                  In the event Muther’s Phase Out Date would
occur prior to 18 months (36 months if following a Change of Control) after the
Termination Date, the aggregate cash amount determined as set forth in
subsection (a) above shall be reduced to an amount equal to such aggregate cash
amount multiplied by a fraction, the numerator of which shall be the number of
days from the Termination Date to Muther’s Phase Out Date and the denominator
of which shall be 548 (1095 if following a Change of Control).

 

(d)                                 Notwithstanding any other provision of this
Agreement, if Muther’s employment with BPLSC is terminated such that Muther is
entitled to severance from BPLSC and within 60 days of such termination, the
Board, in its good faith judgment, unanimously determines that Cause existed
with respect to such termination, Muther shall not be entitled to any severance
from BPLSC, and any and all severance payments from BPLSC to Muther shall cease
and any such payments or reimbursements already made to Muther must be returned
to BPLSC within 60 days. In the event that BGH and BPLSC exercise their rights
under this Section 4(d), the Release shall be null and void and be of no force
or effect.

 

(e)                                  Any severance received by Muther under the
Severance Pay Plan for Employees of Buckeye Pipe Line Services Company, as may
be amended from time to time, or any successor severance plan, shall reduce the
amounts payable under this Agreement.

 

(f)                                    Nothing herein is intended to preclude the
ability of the General Partner from allocating all or a portion of the amount
payable to Muther hereunder any of the BGH Entities or the BPL Entities,
subject to the governing documents of such entity.

 

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Section 5.                    Enforcement

 

(a)                                  In the event that BPLSC shall fail or refuse
to make payment of any amounts due Muther under this Agreement, BGH agrees to
make such payment on behalf of BPLSC.

 

(b)                                 In the event that BGH and BPLSC shall fail or
refuse to make payment of any amounts due Muther under Section 4 hereof within
the respective time periods provided therein, BGH shall pay to an escrow agent,
who shall invest such sum with interest to be paid to the prevailing party, any
amount remaining unpaid under Section 4. In such event, the parties shall then
engage in arbitration in the City of Philadelphia, Pennsylvania in accordance
with the National Rules for the Resolution of Employment Disputes then in
effect of the American Arbitration Association, before a panel of three
arbitrators, one of whom shall be selected by BGH and one by Muther, and the
third of whom shall be selected by the other two arbitrators. Any award entered
by the arbitrators shall be final, binding and nonappealable and judgment may
be entered thereon by either party in accordance with applicable law in any court
of competent jurisdiction. This arbitration provision shall be specifically
enforceable. The arbitrators shall have no authority to modify any provision of
this Agreement or to award a remedy for a dispute involving this Agreement
other than a benefit specifically provided under or by virtue of the Agreement.
If Muther prevails on at least one material issue which is the subject of such
arbitration, BGH shall be responsible for all of the fees of the American
Arbitration Association and the arbitrators and any expenses relating to the
conduct of the arbitration (including reasonable attorneys’ fees and expenses).
Otherwise, each party shall be responsible for his or its own expenses relating
to the conduct of the arbitration (including reasonable attorneys’ fees and
expenses) and shall equally share the fees of the American Arbitration
Association.

 

(c)                                  In the event that an arbitration under
paragraph (a) takes place following a Change of Control, BGH shall pay Muther
on demand the amount necessary to reimburse Muther in full for all reasonable
expenses (including all attorneys’ fees and legal expenses) incurred by Muther
in enforcing any of the obligations of BGH under this Agreement subject to
Muther’s duty to repay such sums to BGH in the event that he does not prevail
on any material issue which is the subject of such arbitration. All
reimbursements shall be made in accordance with section 409A of the Internal
Revenue Code.

 

Section 6.                    No Mitigation

 

Muther shall not be required
to mitigate the amount of any payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for herein be reduced by any compensation earned by other
employment or otherwise.

 

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Section 7.                    Non-Exclusivity of Rights

 

Nothing in this Agreement
shall prevent or limit Muther’s continuing or future participation in or rights
under any benefit, bonus, incentive or other plan or program provided by the
BGH Entities or the BPL Entities and for which Muther may qualify from the date
hereof through the Termination Date.

 

Section 8.                    No Set-Off

 

Except as specifically
provided for herein, the obligation of BGH and BPLSC to make the payments
provided for in this Agreement and otherwise to perform their obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the BGH Entities or the BPL Entities may have against Muther or others.

 

Section 9.                    Taxes

 

Any payment required under
this Agreement shall be subject to all requirements of the law with regard to
the withholding of taxes, filing, making of reports and the like, and BGH and
BPLSC shall use their best efforts to satisfy promptly all such requirements.

 

Section 10.              Confidential Information

 

Muther recognizes and
acknowledges that, by reason of his relationship to the Partnerships, he has
had and will continue to have access to confidential information of the Partnerships,
including, without limitation, information and knowledge pertaining to products
and services offered, innovations, designs, ideas, plans, trade secrets,
proprietary information, distribution and sales methods and systems, sales and
profit figures, customer and client lists, and relationships between the
entities (“Confidential Information”). Muther acknowledges that such
Confidential Information is a valuable and unique asset and covenants that he
will not, either during or after his employment by BPLSC, disclose or use any
such Confidential Information to any person for any reason whatsoever without
the prior written authorization of the Chairman of the Board; unless such
information is in the public domain through no fault of Muther or except as may
be required by law.

 

Section 11.              Non-Competition

 

(a)                                  During his employment by BPLSC and for a
period of 18 months thereafter, Muther will not, unless acting with the prior
written consent of the Chairman of the Board, directly or indirectly, own, manage,
operate, join, control or participate in the ownership, management, operation
or control, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise with or use or permit
his name to be used in connection with, (i) any business or enterprise that competes with
the Partnerships in any business or enterprise that contributes more than ten
percent (10%) of BGH’s consolidated gross revenues, either during his
employment by BPLSC or on the Termination Date, as applicable, in any state in
which such business or enterprise is so operated (whether or not such business
is physically located within those areas) (the “Geographic Area”), or (ii) in
any business or enterprise that is a customer of the Partnerships if BGH derives
at least five percent of its

 

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consolidated gross revenues
either during his employment by BPLSC or on the Termination Date, as
applicable, from such customer. It is recognized by Muther that the
Partnerships and Muther’s connection therewith is or will be involved in
activity throughout the Geographic Area, and that more limited geographical
limitations on this non-competition covenant are therefore not appropriate.
Muther also shall not, directly or indirectly, during such 18-month period (i) solicit or divert
business from, or attempt to convert any client, account or customer of the
Partnerships, whether existing at the date hereof or acquired during Muther’s
employment nor (ii) following Muther’s employment, solicit or attempt to hire
any then employee of the Partnerships.

 

(b)                                 The foregoing restriction shall not be
construed to prohibit the ownership by Muther of less than five percent (5%) of
any class of securities of any corporation which is engaged in any of the
foregoing businesses having a class of securities registered pursuant to the
Exchange Act, provided that such ownership represents a passive investment and
that neither Muther nor any group of persons including Muther in any way,
either directly or indirectly, manages or exercises control of any such
corporation, guarantees any of its financial obligations, otherwise takes any
part in its business, other than exercising his rights as a shareholder, or
seeks to do any of the foregoing.

 

Section 12.              Equitable Relief

 

(a)                                  Muther acknowledges that the restrictions
contained in Sections 10 and 11 hereof are reasonable and necessary to protect
the legitimate interests of the Partnerships, that BGH and BPLSC would not have
entered into this Agreement in the absence of such restrictions, and that any
violation of any provision of those Sections will result in irreparable injury
to BGH and BPLSC. Muther represents that his experience and capabilities are
such that the restrictions contained in Section 11 hereof will not prevent
Muther from obtaining employment or otherwise earning a living at the same
general level of economic benefit as anticipated by this Agreement. Muther
further represents and acknowledges that (i) he has been advised by BGH and BPLSC to
consult his own legal counsel in respect of this Agreement, and (ii) that he
has had full opportunity, prior to execution of this Agreement, to review
thoroughly this Agreement with his counsel.

 

(b)                                 Muther agrees that BGH and BPLSC shall be
entitled to preliminary and permanent injunctive relief, without the necessity
of proving actual damages, as well as an equitable accounting of all earnings,
profits and other benefits arising from any violation of Section 10 or 11
hereof, which rights shall be cumulative and in addition to any other rights or
remedies to which BGH or BPLSC may be entitled. In the event that any of the
provisions of Section 10 or 11 hereof should ever be adjudicated to exceed the
time, geographic, service, or other limitations permitted by applicable law in
any jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic, service, or other limitations
permitted by applicable law.

 

(c)                                  Muther irrevocably and unconditionally (i) agrees that any suit,
action or other legal proceeding arising out of Section 10 or 11 hereof,
including without limitation, any action commenced by BGH or BPLSC for
preliminary and permanent injunctive relief or other equitable relief, may be
brought in the United States District Court for the Eastern District of

 

9

 

Pennsylvania, or if such
court does not have jurisdiction or will not accept jurisdiction, in any court
of general jurisdiction in Montgomery County, Pennsylvania, (ii) consents to
the nonexclusive jurisdiction of any such court in any such suit, action or
proceeding, and (iii) waives any objection which Muther may have to the laying
of venue of any such suit, action or proceeding in any such court. Muther also
irrevocably and unconditionally consents to the service of any process,
pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 15 hereof.

 

(d)                                 Muther agrees that he will provide, and that
BGH and BPLSC may similarly provide, a copy of Sections 10 and 11 hereof to any
business or enterprise (1) which he may directly or indirectly own, manage,
operate, finance, join, control or participate in the ownership, management,
operation, financing, control or control of, or (ii) with which he may be
connected as an officer, director, employee, partner; principal, agent,
representative, consultant or otherwise, or in connection with which he may use
or permit his name to be used; provided, however, that this provision shall not
apply in respect of Section 12 hereof after expiration of the time period set
forth therein.

 

Section 13.              Term of Agreement

 

The term of this Agreement
shall be for the period commencing on the date hereof and ending on June 25,
2010 and shall automatically be renewed for additional periods of one year
until one party notifies the other party in writing, at least 90 days in
advance of expiration, that this Agreement will not be renewed (such period of
employment is sometimes referred to as the “Employment Period”). If an
additional Change of Control occurs after the date hereof, the term of this
Agreement shall be automatically extended to three years following such Change
of Control. If any notice of non-renewal occurs within three years after such
Change of Control, such notice shall constitute an involuntary Termination of
Employment for purposes of Section 3 above. Notwithstanding anything herein to
the contrary, this Agreement shall terminate if the employment of Muther with the
Partnerships shall terminate for any reason other than as provided herein.

 

Section 14.              Successor Company

 

BGH and BPLSC shall require
any successor or successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of BGH or BPLSC by agreement in form and substance satisfactory to
Muther, to acknowledge expressly that this Agreement is binding upon and
enforceable against BGH or BPLSC in accordance with the terms hereof, and to
become jointly and severally obligated with BGH and BPLSC to perform this
Agreement in the same manner and to the same extent that BGH or BPLSC would be
required to perform if no such succession or successions had taken place.
Failure of BGH and BPLSC to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement. As used in this
Agreement, BGH and BPLSC shall mean BGH and BPLSC as hereinbefore defined and
any such successor or successors to their business and/or assets, jointly and
severally.

 

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Section 15.              Notice

 

All notices and other
communications required or permitted hereunder or necessary or convenient in
connection herewith shall be in writing and shall be delivered personally or
mailed by registered or certified mail, return receipt requested, or by
overnight express courier service, as follows:

 

If to BGH or BPLSC, to:

 

Buckeye
GP Holdings L.P.

Buckeye
Pipe Line Services Company

Five
TEK Park

9999
Hamilton Boulevard

Breinigsville,
PA 18031

Attention:
Chairman

 

If to Muther, to:

 

or to such other names or addresses as BGH, BPLSC or
Muther, as the case may be, shall designate by notice to the other party hereto
in the manner specified in this Section. Any such notice shall be deemed
delivered and effective when received in the case of personal delivery, five
days after deposit, postage prepaid, with the U.S. Postal Service in the case
of registered or certified mail, or on the next business day in the case of
overnight express courier service.

 

Section 16.              Section 409A

 

(a)                                  This Agreement shall be interpreted to avoid
any penalty sanctions under Internal Revenue Code section 409A. If any payment
or benefit cannot be provided or made at the time specified herein without
incurring sanctions under section 409A, then such benefit or payment shall be
provided in full at the earliest time thereafter when such sanctions will not
be imposed.

 

(b)                                 The parties agree that Muther is not a “specified employee” for
purposes of section 409A as of the date of this Agreement. Notwithstanding
anything in this Agreement to the contrary, if Muther is a specified employee of a publicly traded
corporation under section 409A at the time of his separation from service and
if payment of any amount under this Agreement is required to be delayed for a
period of six months after separation from service pursuant to section 409A,
payment of such amount shall be delayed as required by section 409A, and the
accumulated postponed amount shall be paid in a lump sum payment within 10 days
after the end of the six-month period. If Muther dies during the
postponement period prior to the payment of postponed amount, the amounts
withheld on account of section 409A shall be paid to the personal
representative of Muther’s estate within 60 days after the date of Muther’s
death. The determination of specified employees, including the number and
identity of persons considered specified employees and the identification date,
shall be made by the Board in accordance with the provisions of Section 409A
and the regulations issued thereunder.

 

11

 

(c)                                  For purposes of section 409A, the right to a
series of installment payments under this Agreement shall be treated as a right
to a series of separate payments. All reimbursements and in kind benefits
provided under this Agreement shall be made or provided in accordance with the
requirements of section 409A, including, where applicable, the requirement that
(i) any reimbursement is for expenses incurred during Muther’s lifetime (or
during a shorter period of time specified in this Agreement), (ii) the amount
of expenses eligible for reimbursement, or in kind benefits provided, during a
calendar year may not affect the expenses eligible for reimbursement, or in
kind benefits to be provided, in any other calendar year, (iii) the
reimbursement of an eligible expense will be made on or before the last day of
the calendar year following the year in which the expense is incurred, and (iv)
the right to reimbursement or in kind benefits is not subject to liquidation or
exchange for another benefit.

 

Section 17.              Governing Law

 

This Agreement shall be
governed by and interpreted under the laws of the Commonwealth of Pennsylvania
without giving effect to any conflict of laws provisions.

 

Section 18.              Contents of Agreement; Amendment and Assignment

 

(a)                                  This Agreement supersedes all prior
agreements, sets forth the entire understanding between the parties hereto with
respect to the subject matter hereof and cannot be changed, modified, extended
or terminated except upon written amendment executed by Muther, BGH and BPLSC.
The provisions of this Agreement may provide for payments to Muther under
certain compensation or bonus plans under circumstances where such plans would
not provide for payment thereof. It is the specific intention of the parties
that the provisions of this Agreement shall supersede any provisions to the
contrary in such plans, and such plans shall be deemed to have been amended to
correspond with this Agreement without further action by BGH or BPLSC.

 

(b)                                 Nothing in this Agreement shall be construed
as giving Muther any right to be retained in the employ of BPLSC or any of the
BGH Entities or the BPL Entities.

 

(c)                                  All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective heirs, representatives, successors and assigns of the parties
hereto, except that the duties and responsibilities of Muther, BGH and BPLSC
hereunder shall not be assignable in whole or in part.

 

Section 19.              Severability

 

If any provision of this
Agreement or application thereof to anyone or under any circumstances shall be
determined to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions or applications of this Agreement which
can be given effect without the invalid or unenforceable provision or
application.

 

Section 20.              Remedies Cumulative: No Waiver

 

No right conferred upon
Muther by this Agreement is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and shall
be

 

12

 

in addition to any other
right or remedy given hereunder or now or hereafter existing at law or in
equity. Except as provided by Section 3, no delay or omission by Muther in
exercising any right, remedy or power hereunder or existing at law or in equity
shall be construed as a waiver thereof.

 

Section 21.              Miscellaneous

 

All section headings are for
convenience only. This Agreement may be executed in several counterparts, each
of which is an original. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts.

 

Section 22.              Muther’s Acknowledgment

 

By executing this Agreement,
Muther acknowledges that he has no grounds for asserting that a Good Reason
Termination exists as of the date hereof and that no obligation to pay
severance under Section 4 exists at the current time.

 

Section 23.              Defense of Claims

 

Muther agrees that, during a
period of 36 months after the Termination Date, upon request from BGH or BPLSC,
Muther will cooperate with the BPL Entities and the Partnerships in the defense
of any claims or actions that may be made by or against the BPL Entities and
the Partnerships that relate to Muther’s prior areas of responsibility, except
if Muther’s reasonable interests are adverse to such entities in such claim or action.
BGH and BPLSC agree to pay or reimburse Muther for all of his reasonable travel
and other direct expenses incurred, or to be reasonably incurred, to comply
with Muther’s obligations under this Section 23. If the requirements of Muther
under this Section 23 exceed ten business days, BGH and BPLSC shall compensate
Muther thereafter in an amount equal to $1,000 per day.

 

Section 24.              Non-Disparagement

 

Muther agrees that, in
communications with Persons other than the Partnerships, he shall not disparage
in any way, and shall always speak well of the Partnerships, their Affiliates
or respective employees and under no circumstances shall Muther, in
communications with Persons other than the Partnerships and their Affiliates
criticize or disparage any business practice, policy, statement, valuation or
report that is made, conducted or published by such entities or individuals. Notwithstanding
the foregoing, this Section 24 shall not be construed to prohibit or restrain
any criticism or other statements made in communications exclusively between or
among the Partnerships and their Affiliates or their respective employees,
agents or representatives to the extent such communications or statements are
made in the ordinary course of business or in the discharge by Muther of his
duties and responsibilities on behalf of the Partnerships. The obligations of
Muther under this Section 24 shall continue after the termination of the
Employment Period. Muther acknowledges that any violation of this Section 24
may cause irreparable injury to the Partnerships and their Affiliates or their
respective employees for which monetary damages are inadequate and difficult to
compute. Accordingly, this Section 24 may be enforced by specific performance,
and prospective breaches of this Section 24 may be enjoined.

 

13

 

IN WITNESS WHEREOF, the
undersigned, intending to be legally bound, have executed this Agreement as of
the date first above written.

 

	
   

  	
  BUCKEYE
  GP HOLDINGS, L.P.

  
	
   

  	
  By:
  MainLine Management LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Forrest E. Wylie

  	
   

  
	
   

  	
   

  	
  Title:
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUCKEYE
  PIPE LINE SERVICES COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Forrest E. Wylie

  	
   

  
	
   

  	
   

  	
  Title:
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Stephen C. Muther

  	
   

  
	
   

  	
  Stephen
  C. Muther

  

 

14

 

EXHIBIT
A

 

TERMINATION OF EMPLOYMENT AGREEMENT

 

This Termination of
Employment Agreement (the “Agreement”) is
between Buckeye GP Holdings, L.P., a Delaware limited partnership (“BGH”), Buckeye Pipe Line Services Company, a Pennsylvania
corporation (“BPLSC”), and Stephen C. Muther (“Muther”), pursuant to the Amended and Restated Employment
and Severance Agreement between Muther, BGH and BPLSC, dated             ,
2007 (the “Employment Agreement”) and attached
hereto as Exhibit A.

 

WHEREAS, Muther is employed
by BPLSC pursuant to the Employment Agreement; and

 

WHEREAS, Muther’s employment
with BPLSC is being terminated in exchange for certain severance benefits and
other valuable consideration provided herein;

 

NOW, THEREFORE, the parties
agree to terminate their employment relationship on the following terms and
conditions.

 

1.                                       Termination of Employment. BGH, BPLSC and Muther agree that Muther’s
employment with BPLSC is terminated as of                 
(the “Termination Date”), pursuant to Section 3 of the Employment
Agreement.

 

2.                                       Complete Release and Other Consideration from
Muther. In exchange for the
obligations of BGH and BPLSC under this Agreement, Muther agrees as follows:

 

a.                                       Complete Release. On behalf of Muther and Muther’s heirs and
assigns, Muther fully releases BGH, BPLSC and each of their parents,
subsidiaries, affiliates, divisions, predecessors, successors, and assigns,
and, with respect to all such entities, their partners, members, officers,
directors, attorneys, agents, and employees (collectively, the “BGH Releasees”), from any and all claims, demands, or
causes of action (including claims for attorneys’ fees) (collectively, “Claims”), known or unknown, that Muther may have or may
claim to have against any of the BGH Releasees, including but not limited to
any claims arising out of Muther’s employment relationship with and service as
an employee, officer or director of BPLSC or any BGH Releasee, and the
termination of such relationship or service (the “Muther
Release”); provided, however, that this Muther Release shall not
apply to the obligations of BPLSC and BGH under this Agreement. This Muther
Release includes, without limitation, any claims arising out of any contract
(express or implied); any tort (whether based on negligent, grossly negligent,
or intentional conduct); or any federal, state, or local law, including,
without limitation, the Age Discrimination in Employment Act and the Employee
Retirement Income Security Act. This Muther Release does not include any claims
under the Age Discrimination in Employment Act that may arise after this Agreement
is executed. Nothing in this Agreement shall constitute a

 

A-1

 

waiver or release by Muther of any vested benefits
under any pension, retirement savings, deferred compensation, vacation, health
care or other benefit plan of BGH or BPLSC in which he was a participant.

 

b.                                      Confidentiality. Except as may be required by law or court
order or as may be necessary in an action arising out of this Agreement, Muther
agrees not to disclose the existence or terms of this Agreement to anyone other
than Muther’s immediate family, attorneys, tax advisors, and financial
counselors, provided that Muther first informs them of this confidentiality
clause and secures their agreement to be bound by it. Muther understands and
agrees that a breach of this confidentiality provision by any of these
authorized persons will be deemed a material breach of this Agreement by Muther.

 

3.                                       Release and Other Consideration from BPLSC
and BGH. In exchange for
Muther’s obligations under this Agreement, BPLSC or BGH shall pay Muther those
severance payments and benefits, on the terms provided in the Employment
Agreement. Muther acknowledges that these severance payments are subject to
Muther’s compliance with the Employment Agreement.

 

4.                                       Right to Consult an Attorney; Period of
Review. Muther is encouraged
to consult with an attorney before signing this Agreement.

 

5.                                       Entire Agreement; Amendment; Continuing
Obligations. This Agreement
and the Employment Agreement contain the entire agreements of the parties with
respect to Muther’s employment and the other matters covered herein and
therein; moreover, this Agreement supersedes all prior and contemporaneous
agreements and understandings, oral or written, between the parties hereto
concerning the subject matter hereof and thereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both
parties hereto. Muther hereby reaffirms and agrees to continue to abide by all
of Muther’s obligations under the Employment Agreement.

 

6.                                       Revocation/Effectiveness. Upon signing this Agreement, Muther will
have 7 days to revoke the Agreement. To properly revoke the Agreement, BGH and
BPLSC must receive written notice of revocation from Muther by the close of
business on the 7th day after the date the Agreement is signed by Muther.
Written notice must be delivered pursuant to the Employment Agreement. In the
event that BGH or BPLSC exercises its right under Section 4(e) of the
Employment Agreement to recover severance from Muther, the terms of this
Agreement shall be null and void and have no force or effect.

 

7.                                       Indemnification Rights. The execution and delivery of this Agreement
shall have no effect on the rights or entitlement of Muther to indemnification
under (a) any agreement between Muther and BGH or BPLSC or any of their
affiliates or (b) any of the organizational documents of BGH, BPLSC and their
affiliates, including, without limitation, MainLine Management LLC, Buckeye
Partners, L.P., and Buckeye GP LLC.

 

A-2

 

8.                                       Choice of Law. This Agreement will be governed in all
respects by the laws of the Commonwealth of Pennsylvania, without regard to its
choice of law principles. This Agreement is subject to the arbitration
provisions in the Employment Agreement.

 

9.                                       Effectiveness of Agreement. This Agreement will be effective, and the
payments described above will be made, only if Muther does not revoke the
Agreement under Section 6 above.

 

	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  	
   

  
	
   

  	
     Name: Stephen C. Muther

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUCKEYE
  GP HOLDINGS, L.P.

  
	
   

  	
  By:
  MainLine Management LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUCKEYE
  PIPE LINE SERVICES COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
											

 

A-3Exhibit 10.01

 

[Letterhead of Fredrikson & Byron, P.A].

 

September 19, 2007

 

BY ELECTRONIC MAIL AND U.S. MAIL

 

	
  Seth G. Heald, Esq.

  	
   

  	
  SETTLEMENT COMMUNICATION

  

R. Scott Clarke, Esq.

Gregory E. Van Hoey, Esq.

Matthew C. Hicks, Esq.

P.O. Box 7238

Ben Franklin Station

Washington, D.C. 20044

 

Re: Xcel Energy Inc. v. United States (D. Minn.)

 

Gentlemen:

 

On behalf of Xcel Energy Inc., I am submitting the following offer in
compromise with regard to the past, current, and future tax liabilities of Xcel
and its affiliates (“Xcel”) relating to the income tax treatment of the PERQ II
and PERQ IV COLI plan policies for the tax years 1993 and forward:

 

The terms of the offer are:

 

1.     Xcel will pay the IRS the total amount of
$64,423,263 as follows:

 

A.    The IRS will retain the $32,230,069 of additional
tax and deficiency interest that Xcel has previously paid or is deemed to have
paid under this settlement for tax years 1993 and 1994.

 

B.    Xcel will pay the remaining $32,193,194 to the
United States on or before October 31, 2007.

 

2.            A.    The $32,230,069 of payments previously made or
deemed to have been made under this settlement for tax years 1993 and 1994 will
be allocated to tax and interest as follows:

 

i.      1993 and 1994 tax in the total amount of
$19,119,757; and

 

ii.     1993 and 1994 interest on that tax in the total
amount of $13,110,312;

 

 

B.    The
$32,193,194 remaining payment referenced in paragraph 1B will be allocated as
follows:

 

i.      Section 6662 penalties for 1993 and 1994 in the
total amount of $2,151,861;

 

ii.     Deficiency interest on the Section 6662 penalties
for 1993 and 1994 in the total amount of $4,135,751;

 

iii.    Tax for 1995 in the amount of $10,344,509; and

 

iv.    Deficiency interest on that tax for 1995 in the
amount of $15,561,073.

 

3.     Except as stated above, Xcel will be permitted to
claim the COLI-related interest expense deductions on its tax returns for
1995-2007.

 

4.     On or before October 31, 2007, Xcel will cause PSR
Investments, Inc. (“PSRI”), its wholly-owned subsidiary that currently owns the
policies, to give notice to Provident (now “Unum”) that it is surrendering all
of its PERQ II and PERQ IV policies whose insureds have not died as of the date
of such notice. Xcel will not claim a deduction for any policy loan interest
expense paid or accrued with respect to any PERQ II or PERQ IV policy for any
date following the date of the notice of surrender.

 

5.     The government will permit Xcel to surrender those
policies without recognition of any taxable gain. The government reserves its
right, however, to review and adjust the tax treatment of any item relating to
ownership of the policies, other than the amounts paid to PSRI in consideration
of its surrender of the policies. For purposes of this provision, the amounts
payable to PSRI pursuant to the PERQ IV mortality experience refund agreement
will not be treated as amounts paid to PSRI in consideration of its surrender
of the policies.

 

6.     Following written acceptance of this offer, the
IRS and Xcel will enter into a closing agreement, a copy of which is attached
as Exhibit A to this offer letter.

 

7.     Following written acceptance of this offer, the
IRS and/or the Department of Justice Tax Division will execute a stipulation of
dismissal with prejudice in the pending suit for refund in the federal District
Court for the District of Minnesota and such other documents as may be
necessary to conclude Xcel’s three pending Tax Court petitions, with each party
to bear its own costs, disbursements, and fees.

 

2

 

8.     If implementation of this settlement for any
taxable year results in a proposed refund or credit in an amount exceeding the
amount set forth in IRC Section 6405(a), no such refund or credit shall be made
until the expiration of 30 days from the date on which a report of such refund
or credit is made to the Joint Committee on Taxation, as required by Section
6405(a).

 

9.     The Department of Justice and/or IRS will provide
Xcel with periodic status reports regarding their review of this offer.

 

Thank you for your assistance.

 

 

	
   

  	
  Very truly yours,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Steven Z. Kaplan

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Steven Z. Kaplan

  	
   

  

 

Enclosure

	
  cc:

  	
   

  	
  James J. Duevel w/enclosures

  
	
   

  	
   

  	
  James L. Altman, Esq. w/enclosures

  
	
   

  	
   

  	
  James E. Dorsey, Esq. w/enclosures

  
	
   

  	
   

  	
  David Jacobson, Esq. w/enclosures

  

 

SZK:jra

 

3

 

Exhibit A

 

Closing Agreement on Final Determination

Covering Specific Matters

 

 

Under section 7121 of the Internal Revenue code, Xcel Energy, Inc. and
Subsidiaries (EIN: 84-0296600), 414 Nicollet Mall, Minneapolis, Minnesota
55401, on behalf of itself and its subsidiaries (collectively, the “Taxpayer”),
and the Commissioner of Internal Revenue (the “Commissioner”), make the
following agreement (“Closing Agreement”):

 

WHEREAS, the Taxpayer filed consolidated federal income tax returns
with one or more affiliated corporations;

 

WHEREAS, the Taxpayer claimed deductions for interest paid or accrued
on loans secured by life insurance contracts (hereinafter referred to as the “Contracts”)
originally issued on November 1, 1984 (PERQ II Plan) and May 1, 1985 (PERQ IV
Plan) by Provident Life & Accident Insurance Company (“Provident”);

 

WHEREAS, a dispute has arisen between the parties as to whether the
interest paid or accrued on the loans secured by the Contracts (the “interest
deductions”) is deductible in the taxable years ended December 31, 1993 through
December 31, 2007;

 

WHEREAS, the Taxpayer terminated the contracts on               DATE by completely surrendering them to
Provident;

 

WHEREAS, pursuant to its termination of the Contracts, the Taxpayer
received from Provident the total surrender value of the Contracts, an amount
equal to the gross aggregate value of the policy value accounts as of October
31, 2007;

 

WHEREAS, pursuant to its termination of the Contracts, the Taxpayer
received from Provident a cash payment equal to the net surrender value of the
Contracts, which amount was equivalent to the remaining aggregate value of the
policy value accounts after repaying the outstanding policy loans and accrued
interest, which amounts were secured by the policy value accounts;

 

WHEREAS, a dispute has arisen between the parties as to how the
surrender value of the Contracts should be taxed for federal tax purposes;

 

WHEREAS, the correct federal tax treatment of any other amounts
received by the Taxpayer relative to the Contracts which are neither death
benefits nor amounts received as surrender value (for example, amounts received
pursuant to the experience refund provisions of the PERQ IV Plan) is not
determined under this Closing Agreement, and the Commissioner is not precluded
from challenging the Taxpayer’s federal tax treatment of such amounts;

 

1

 

Closing Agreement with Xcel Energy, Inc. and
Subsidiaries (EIN: 84-0296600)

 

WHEREAS, the Taxpayer’s entitlement to the interest deductions for the
taxable years ended December 31, 1993 and December 31, 1994, together with
additions to tax under I.R.C. section 6662, are at issue in Xcel Energy Inc.
v. United States, Docket No. 04-CV-01449 (D. Minn);

 

WHEREAS, the Taxpayer’s entitlement to the interest deductions for the
taxable years ended December 31, 1995, December 31, 1996 and December 31, 1997,
together with additions to tax under I.R.C section 6662 are at issue in the Tax
Court case bearing Docket No. 24264-04;

 

WHEREAS, the Taxpayer’s entitlement to the interest deductions for the
taxable years ended December 31, 1998 and December 31, 1999, together with
additions to tax under I.R.C. section 6662, are at issue in the Tax Court case
bearing Docket No. 5833-05;

 

WHEREAS, the Taxpayer’s entitlement to the interest deductions for the
taxable years ended December 31, 2000, December 31, 2001, and December 31, 2002
together with additions to tax under I.R.C. section 6662, are at issue in the
Tax Court case bearing Docket No. 19889-06;

 

WHEREAS, the Taxpayer and the United States government have reached a
global basis of settlement (the “Settlement”) in the prosecution of the
District Court case that is intended to resolve the disputed interest
deductions for all taxable years beginning with the taxable year ended December
31, 1993;

 

WHEREAS, pursuant to the Settlement, Taxpayer agreed to pay the United
States $64,423,263 in complete settlement of the Taxpayer’s past, present, and
future federal income taxes, penalties, and interest relating to the Contracts;

 

WHEREAS, pursuant to the Settlement, the Taxpayer’s required payment of
$64,423,263 was reduced to $32,193,194 to reflect a credit in the amount of
$32,230,069 for amounts paid, or deemed to have been paid by the Taxpayer with
respect to its liabilities for federal income tax and interest generated by the
disallowed deductions for the taxable years ended December 31, 1993 and
December 31, 1994;

 

WHEREAS, pursuant to the Settlement, on October 31, 2007, the Taxpayer
paid $32,193,194 to the Commissioner;

 

WHEREAS, pursuant to the Settlement, the parties have resolved their
United States District Court case by agreeing that for the tax years ended
December 31, 1993 and December 31, 1994, no interest paid or accrued on loans secured
by the Contracts shall be allowable to the Taxpayer as deduction under any
provision of the Internal Revenue Code;

 

2

 

Closing Agreement with Xcel Energy, Inc. and
Subsidiaries (EIN: 84-0296600)

 

WHEREAS, pursuant to the settlement, the taxpayer paid or was deemed to
have paid the amounts of $32,230,069 in tax and interest for the taxable years
ended December 31, 1993 and December 31, 1994;

 

WHEREAS, pursuant to the settlement, the taxpayer paid or was deemed to
have paid the amounts of $19,119,757 in tax and $13,110,312 in interest for the
taxable years ended December 31, 1993 and December 31, 1994;

 

WHEREAS, the correct federal tax treatment of the interest amounts
deemed to have been paid by the taxpayer pursuant to this settlement is not
determined under this Closing Agreement, and the Commissioner is not precluded
from challenging the taxpayer’s federal tax treatment of such amounts;

 

WHEREAS, pursuant to the Settlement, for the taxable year ended December
31, 1993, the Taxpayer is liable for a penalty and interest on that penalty in
the amounts of $964,619.00 and $1,981,313.58, respectively;

 

WHEREAS, pursuant to the Settlement, for the taxable year ended
December 31, 1994, the Taxpayer is liable for a penalty and interest on that
penalty in the amounts of $1,187,242.00 and $2,154,436.62, respectively;

 

WHEREAS, pursuant to the Settlement, the parties have resolved their
Tax Court case (Docket No. 24264-04) by agreeing that for the tax year ended
December 31, 1995, there is an underpayment of taxpayer’s federal income taxes
in the amount of $10,344,509.57 attributable to the disallowance of
$29,555,741.63 in COLI deductions, that the taxpayer is liable for statutory
interest on that underpayment in the amount of $15,561,073.21, that the
taxpayer is not liable for any penalty for 1995 due to the disallowed COLI
deductions, and that for the tax years ended December 31, 1996 and December 31,
1997, the Taxpayer will be allowed to deduct the interest paid or accrued on
loans secured by the Contracts;

 

WHEREAS, pursuant to the Settlement, the parties have resolved their
Tax Court case (Docket No. 5833-05) by agreeing that for the tax years ended
December 31, 1998 and December 31, 1999, the Taxpayer will be allowed to deduct
the interest paid or accrued on loans secured by the Contracts;

 

WHEREAS, pursuant to the Settlement, the parties have resolved their
Tax Court case (Docket No. 19889-06) by agreeing that for the tax years ended
December 31, 2000, December 31, 2001, and December 31, 2002, the Taxpayer will
be allowed to deduct the interest paid or accrued on loans secured by the
Contracts; and

 

WHEREAS, the Taxpayer and the Commissioner desire to resolve this
matter with finality,

 

3

 

Closing Agreement with Xcel Energy, Inc. and
Subsidiaries (EIN: 84-0296600)

 

NOW IT IS HEREBY DETERMINED AND AGREED FOR
FEDERAL INCOME TAX PURPOSES THAT:

 

1.               For the tax years ended December 31,
2003, December 31, 2004, December 31, 2005, December 31, 2006, and December 31,
2007, the Taxpayer will be allowed as a deduction the interest paid or accrued
on loans secured by the Contracts.

 

2.               The Taxpayer will not be allowed any
deductions for interest paid or accrued on loans secured by the Contracts for
any taxable years beginning after December 31, 2007.

 

3.               None of the cash surrender value
received by, or credited to the benefit of the Taxpayer pursuant its
termination of its policies on            Date shall be included in the Taxpayer’s
gross income.

 

4.               The provisions of the Internal Revenue
Code in effect at the time of death shall determine the Federal income tax
treatment of any and all amounts paid as death benefits on the lives of
individuals who died prior to the surrender of the Contracts.

 

5.               The life insurance contracts that are
subject of this closing agreement will not be reinstated.

 

This agreement is final and conclusive except:

 

1.               the matter it relates to may be reopened
in the event of fraud, malfeasance, or misrepresentation of a material fact;

 

2.               it is subject to the Internal Revenue
Code sections that expressly provide that effect be given to their provisions
(including any stated exception for I.R.C. section 7122) notwithstanding any
other law or rule of law; and

 

3.               if it relates to a tax period ending
after the date of this agreement, it is subject to any law, enacted after the
agreement date, that applies to that contract period.

 

4

 

Closing Agreement with Xcel Energy, Inc. and
Subsidiaries (EIN: 84-0296600)

 

By signing, the above parties certify that
they have read and agreed to the terms of this document.

 

 

	
  XCEL ENERGY, INC. AND SUBSIDIARIES

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Date Signed 

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  
						

 

 

	
  COMMISSIONER OF INTERNAL REVENUE

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Date Signed 

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  
						

 

5

 

[Letterhead of the U.S. Department of Justice
– Tax Division]

 

September 21, 2007

 

Via E-mail and U.S. Mail

 

Steven Z. Kaplan, Esq.

Fredrikson & Byron, P.A.

200 S. 6th St., Ste. 4000

Minneapolis, MN 55402

skaplan@fredlaw.com

 

	
   

  	
  Re:

  	
  Xcel Energy, Inc. v. United States

  
	
   

  	
   

  	
  Case No. 04-CV-1449 (D. Minn.)

  

 

Dear Mr. Kaplan:

 

This letter refers to your revised settlement
offer, dated September 19, 2007, and transmitted on September 20, 2007, in the
above-titled action. This is to advise you that the offer has been accepted on
behalf of the Attorney General. We will advise you on the method for making the
payment by separate correspondence.

 

 

	
   

  	
  Sincerely yours,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RICHARD T. MORRISON

  	
   

  
	
   

  	
  Acting Assistant Attorney General

  	
   

  
	
   

  	
  Tax Division

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Seth G. Heald

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SETH G. HEALD

  	
   

  
	
   

  	
  Chief

  	
   

  
	
   

  	
  Civil Trial Section,

  	
   

  
	
   

  	
  Central Region

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