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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9356
BUCKEYE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2432497
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3900 HAMILTON BOULEVARD
ALLENTOWN, PENNSYLVANIA 18103
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 820-8300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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LP Units representing
limited partnership in-
terests................ New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
At March 3, 1994, the aggregate market value of the registrant's LP Units
held by non-affiliates was $460 million. The calculation of such market value
should not be construed as an admission or conclusion by the registrant that
any person is in fact an affiliate of the registrant.
LP Units outstanding as of March 3, 1994: 12,000,000
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS.................................................................... 1
ITEM 2. PROPERTIES.................................................................. 11
ITEM 3. LEGAL PROCEEDINGS........................................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S LP UNITS AND RELATED UNITHOLDER MATTERS......... 14
ITEM 6. SELECTED FINANCIAL DATA .................................................... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................. 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................................................. 38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 38
ITEM 11. EXECUTIVE COMPENSATION ..................................................... 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............ 48
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Buckeye Partners, L.P. (the "Partnership"), the Registrant, is a limited
partnership organized in 1986 under the laws of the State of Delaware.
The Partnership conducts all its operations through subsidiary entities.
These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"),
Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P.
("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"), each of which
is 99 percent owned. (Each of Buckeye, Laurel, Everglades and BTT is referred
to as an "Operating Partnership" and collectively as the "Operating
Partnerships"). Through Laurel, the Partnership owns a 98.01 percent limited
partnership interest in Buckeye Pipe Line Company of Michigan, L.P. ("BPL
Michigan"), which discontinued operations in 1993. See "--Other Business
Activities" below.
Buckeye is one of the largest independent pipeline common carriers of refined
petroleum products in the United States, with 3,387 miles of pipeline serving
10 states. Laurel owns a 346-mile common carrier refined products pipeline
located principally in Pennsylvania. Everglades owns 37 miles of refined
products pipeline in Florida. Buckeye, Laurel and Everglades conduct the
Partnership's refined products pipeline business. BTT provides bulk storage
service through leased facilities with an aggregate capacity of 305,000 barrels
of refined petroleum products.
The Partnership acquired its interests in the Operating Partnerships from The
Penn Central Corporation ("Penn Central") on December 23, 1986 (the
"Acquisition"). The Operating Partnerships (other than Laurel) had been
organized by Penn Central for purposes of the Acquisition and succeeded to the
operations of predecessor companies owned by Penn Central, including Buckeye
Pipe Line Company (an Ohio corporation) and its subsidiaries ("Pipe Line"), in
November 1986. Laurel was formed in October 1992 and succeeded to the
operations of Laurel Pipe Line Company ("Laurel Corp") (an Ohio corporation)
which was a majority owned corporate subsidiary of the Partnership until the
minority interest was acquired in December 1991.
Buckeye Management Company (the "General Partner"), a wholly owned subsidiary
of Penn Central formed in 1986, owns a 1 percent general partnership interest
in, and serves as sole general partner of, the Partnership. A corporate
subsidiary of the General Partner, Buckeye Pipe Line Company (a Delaware
corporation) (the "Manager"), owns a 1 percent general partnership interest in,
and serves as sole general partner and manager of, each Operating Partnership.
REFINED PRODUCTS BUSINESS
The Partnership receives petroleum products from refineries, connecting
pipelines and marine terminals, and transports those products to other
locations. In 1993, refined products accounted for substantially all of the
Partnership's consolidated revenues, consolidated operating income and
consolidated property, plant and equipment.
The Partnership transported an average of approximately 981,100 barrels per
day of refined products in 1993. The following table shows the volume and
percentage of refined products transported over the last three years.
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VOLUME AND PERCENTAGE OF REFINED PRODUCTS TRANSPORTED(1)(2)
(VOLUME IN THOUSANDS OF BARRELS PER DAY)
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YEAR ENDED DECEMBER 31,
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1993 1992 1991
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VOLUME PERCENT VOLUME PERCENT VOLUME PERCENT
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Gasoline........................... 503.6 51% 458.0 50% 442.7 51%
Jet Fuels.......................... 234.1 24 227.7 25 218.6 25
Middle Distillates (3)............. 223.0 23 205.4 23 192.6 22
Other Products..................... 20.4 2 21.4 2 17.1 2
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Total.............................. 981.1 100% 912.5 100% 871.0 100%
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(1) Excludes crude oil volumes of 2.2 and 0.7 thousand barrels per day for the
years ended December 31, 1991 and 1992, respectively. No crude oil volumes
were transported during 1993.
(2) Excludes local product transfers.
(3) Includes diesel fuel, heating oil, kerosene and other middle distillates.
The Partnership provides service in the following states: Pennsylvania, New
York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut,
Massachusetts, Washington and Florida.
Pennsylvania--New York--New Jersey
Buckeye serves major population centers in the states of Pennsylvania, New
York and New Jersey through 1,170 miles of pipeline. Refined products are
received at Linden, New Jersey. Products are then transported through two lines
from Linden, New Jersey to Allentown, Pennsylvania. From Allentown, the
pipeline continues west to Pittsburgh, Pennsylvania (serving Reading,
Harrisburg, Altoona/Johnstown and Pittsburgh) and north through eastern
Pennsylvania into New York State (serving Scranton/Wilkes-Barre, Binghamton,
Syracuse, Utica and Rochester and, via a connecting carrier, Buffalo). Products
received at Linden, New Jersey are also transported through two lines to John
F. Kennedy International and LaGuardia Airports and to commercial bulk
terminals at Long Island City and Inwood, New York. The pipeline presently
supplies Kennedy, LaGuardia and Newark International airports with
substantially all of each airport's jet fuel requirements.
Laurel transports refined products through a 346-mile pipeline extending
westward from five refineries in the Philadelphia area to Pittsburgh,
Pennsylvania.
Indiana--Ohio--Michigan--Illinois
Buckeye transports refined products through 2,092 miles of pipeline (of which
246 miles are jointly owned with other pipeline companies) in southern
Illinois, central Indiana, eastern Michigan, western and northern Ohio and
western Pennsylvania. A number of receiving lines and delivery lines connect to
a central corridor which runs from Lima, Ohio, through Toledo, Ohio to Detroit,
Michigan. Products are received at East Chicago, Indiana; Robinson, Illinois
and at the corridor connection points of Detroit, Toledo and Lima. Major areas
served include Huntington/Fort Wayne, Indiana; Bay City, Detroit and Flint,
Michigan; Cleveland, Columbus, Lima and Toledo, Ohio; and Pittsburgh,
Pennsylvania.
Other Refined Products Pipelines
Buckeye serves Connecticut and Massachusetts through 111 miles of pipeline
that carry refined products from New Haven, Connecticut to Hartford,
Connecticut and Springfield, Massachusetts.
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Everglades carries primarily jet fuel on a 37-mile pipeline from Port
Everglades, Florida to Hollywood-Ft. Lauderdale International Airport and Miami
International Airport.
Buckeye carries jet fuel on a 14-mile pipeline from Tacoma, Washington to
McChord Air Force Base.
OTHER BUSINESS ACTIVITIES
Crude oil transportation services provided by BPL Michigan using 126 miles of
16-inch pipeline between Marysville (Port Huron), Michigan and Toledo, Ohio
terminated on February 1, 1993 upon the sale of this pipeline to Sun Pipe Line
Company. The remaining 38 miles of pipeline and all remaining property, plant
and equipment which had been owned by BPL Michigan was transferred to Buckeye
on June 1, 1993. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Discontinued Operations."
BTT provides bulk storage services through leased facilities located in
Pittsburgh, Pennsylvania and Bay City, Michigan, which have the capacity to
store up to an aggregate of approximately 305,000 barrels of refined petroleum
products. Each facility is served by Buckeye and provides bulk storage and
loading facilities for shippers or other customers.
COMPETITION AND OTHER BUSINESS CONSIDERATIONS
The Operating Partnerships do business without the benefit of exclusive
franchises from government entities. In addition, the Operating Partnerships
generally operate as common carriers, providing transportation services at
posted tariffs and without long-term contracts. As providers of such service,
the Operating Partnerships do not own the products they transport. Demand for
such service arises, ultimately, from demand for petroleum products in the
regions served and the ability and willingness of refiners, marketers and end-
users to supply such demand by deliveries through the Partnership's pipelines.
Demand for refined petroleum products is primarily a function of price,
prevailing economic conditions and weather. The Operating Partnerships'
businesses are, therefore, subject to a variety of factors partially or
entirely beyond their control. Multiple sources of pipeline entry and multiple
points of delivery, however, have historically helped maintain stable total
volumes even when volumes at particular source or destination points have
changed.
The Partnership's business may in the future be affected by changing prices
or demand for oil and for other fuels. The Partnership may also be affected by
energy conservation, changing sources of supply, structural changes in the oil
industry and new energy technologies. The General Partner is unable to predict
the effect of such factors.
A substantial portion of the refined petroleum products transported by the
Partnership's pipelines are ultimately used as fuel for motor vehicles and
aircraft. Changes in transportation and travel patterns in the areas served by
the Partnership's pipelines could adversely affect the Partnership's results of
operations.
In 1993, the Operating Partnerships had approximately 120 customers, most of
which were either major integrated oil companies or smaller marketing
companies. The largest two customers accounted for 7.2 percent and 6.5 percent,
respectively, of consolidated revenues, while the 20 largest customers
accounted for 74.2 percent of consolidated revenues.
Generally, pipelines are the lowest cost method for long-haul overland
movement of refined petroleum products. Therefore, the Operating Partnership's
most significant competitors for large
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volume shipments are other pipelines, many of which are owned and operated by
major integrated oil companies. Although it is unlikely that a pipeline system
comparable in size and scope to the Operating Partnership's will be built in
the foreseeable future, new pipelines (including pipeline segments that connect
with existing pipeline systems) could be built to effectively compete with the
Operating Partnerships in particular locations.
In some areas, the Operating Partnerships compete with marine transportation.
Tankers and barges on the Great Lakes account for some of the volume to certain
Michigan, Ohio and upstate New York locations during the approximately eight
non-winter months of the year. Barges are presently a competitive factor for
deliveries to the New York City area, the Pittsburgh area, Connecticut and
Ohio.
Trucks competitively deliver product in a number of areas served by the
Operating Partnerships. While their costs may not be competitive for longer
hauls or large volume shipments, trucks compete effectively with the Operating
Partnerships in many areas. The availability of truck transportation places a
significant competitive constraint on the ability of the Operating Partnerships
to increase their tariff rates.
Privately arranged exchanges of product between marketers in different
locations are an increasing but unquantified form of competition. Generally,
such exchanges reduce both parties' costs by eliminating or reducing
transportation charges.
In recent years, a large quantity of domestic refining capacity has been
temporarily or permanently shut down. To date, the aggregate impact of these
shut-downs has affected the Operating Partnerships' volumes favorably, as these
shut-downs have resulted in the transportation of product over longer distances
to certain locations. Because the Operating Partnerships' pipelines have
numerous source points, the General Partner does not believe that the shut-down
of any particular refinery would have a material adverse effect on the
Partnership. However, the General Partner is unable to determine whether
additional shut-downs will occur or what their effects might be.
The Operating Partnerships' mix of products transported tends to vary
seasonally. Declines in demand for heating oil during the summer months are, to
a certain extent, offset by increased demand for gasoline and jet fuels.
Overall, operations have been only moderately seasonal, with somewhat lower
than average volume being transported during March, April and May as compared
to the rest of the year.
Neither the Partnership nor any of the Operating Partnerships have any
employees. All of the operations of the Operating Partnerships are managed and
operated by employees of the Manager. At December 31, 1993, the Manager had 611
full-time employees, 161 of whom were represented by two labor unions. The
collective bargaining agreement with each of these unions is subject to renewal
in 1996. The Operating Partnerships (and their predecessors) have never
experienced any significant work stoppages or other significant labor problems.
CAPITAL EXPENDITURES
The General Partner anticipates that the Partnership will continue to make
ongoing capital expenditures to maintain and enhance its assets and properties,
including improvements to meet customers' needs and those required to satisfy
new environmental and safety standards. In 1993, total capital expenditures
were $13.3 million. Projected capital expenditures for 1994 amount to $12.8
million. Planned capital expenditures in 1994 include, among other things,
renewal and replacement
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of pipe, construction of containment facilities, new valves, metering systems,
field instrumentation, communications facilities and testing equipment. Capital
expenditures are expected to increase over time primarily in response to
increasingly rigorous governmental safety and environmental requirements as
well as industry standards. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
REGULATION
General
Two of the Operating Partnerships (Buckeye and Laurel) are interstate common
carriers (the "FERC Carriers") subject to the regulatory jurisdiction of the
Federal Energy Regulatory Commission ("FERC") under the Interstate Commerce Act
and the Department of Energy Organization Act. FERC regulation requires that
interstate oil pipeline rates be posted publicly and that these rates be "just
and reasonable" and non-discriminatory. FERC regulation also enforces common
carrier obligations and specifies a uniform system of accounts. In addition,
the FERC Carriers are subject to the jurisdiction of certain other federal
agencies with respect to environmental and pipeline safety matters.
The Interstate Commerce Act permits challenges to proposed new or changed
rates and to rates that are already effective by protest or complaint by an
interested party or upon FERC's own motion, and upon an appropriate showing, a
complainant may obtain reparations for damages sustained for a period of up to
two years prior to the filing of a complaint and a reduction of rates in the
future.
The FERC Carriers are also subject to the jurisdiction of various state and
local agencies, including, in some states, public utility commissions which
have jurisdiction over, among other things, intrastate tariffs, the issuance of
debt and equity securities, transfers of assets and pipeline safety.
Tariffs
FERC has jurisdiction over the FERC Carriers' interstate tariffs. In July
1988, in the midst of a rate proceeding involving Buckeye, FERC issued an order
that provided Buckeye with the opportunity to qualify for an unspecified
alternative form of "light-handed" rate regulation if Buckeye could establish
that it lacked significant market power. On December 31, 1990, after extensive
testimony and hearings, FERC issued an opinion which found that in most of its
relevant market areas, Buckeye operated in a competitive environment in which
it could not exercise significant market power and that Buckeye's tariff rates
in those markets were just and reasonable. Based on these findings, FERC
permitted Buckeye to implement a "light-handed" rate regulation program on an
experimental basis for three years beginning in March 1991. Under the program,
in markets where Buckeye does not have significant market power, individual
rate increases: (a) will not exceed a real (i.e., exclusive of inflation)
increase of 15 percent over any two-year period (the "rate cap"), and (b) will
be allowed to become effective without suspension or investigation if they do
not exceed a "trigger" equal to the change in the GNP implicit price deflator
since the date on which the individual rate was last increased, plus 2 percent.
Individual rate decreases will be presumptively valid upon a showing that the
proposed rate exceeds marginal costs. In markets where Buckeye was found to
have significant market power and in certain markets where no market power
finding was made: (i) individual rate increases cannot exceed the volume
weighted average rate increase in markets where Buckeye does not have
significant market power since the date on which the individual rate was last
increased, and (ii) any volume weighted average rate decrease in markets where
Buckeye does not have significant market power must be accompanied by a
corresponding decrease in all of Buckeye's rates in markets where it does have
significant market power. Shippers
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retain the right to file complaints or protests following notice of a rate
increase, but are required to show that the proposed rates violate or have not
been adequately justified under the experimental program, that the proposed
rates are unduly discriminatory, or that Buckeye has acquired significant
market power in markets previously found to be competitive.
The Buckeye "light-handed" rate regulation program is subject to review by
FERC after three years of operation, which will be in early 1994. On February
22, 1994, Buckeye filed a tariff seeking to continue its rate regulation
program on a permanent basis. The filing is presently under consideration by
FERC. At this time, the General Partner cannot predict whether the program will
be extended, modified or terminated, or the effect of any such action on the
Partnership.
In October 1992, the Energy Policy Act of 1992 (the "Policy Act") was
enacted. Title XVIII of the Policy Act, "Oil Pipeline Regulatory Reform,"
provides, among other things, that certain tariff rates that were in effect on
October 25, 1991 are deemed "just and reasonable, " and that FERC is directed
by October 24, 1993 to promulgate a rule establishing a simplified and
generally applicable ratemaking methodology for oil pipelines. FERC was also
directed to issue a rule streamlining certain procedural aspects of its
proceedings.
On October 22, 1993, FERC issued a final rule pursuant to the Policy Act with
respect to rate regulation of oil pipelines. The rule relies primarily on an
index methodology, whereby a pipeline would be allowed to change its rates in
accordance with an index that FERC believes reflects cost changes appropriate
for application to pipeline rates. In the alternative, a pipeline is allowed to
charge market-based rates if the pipeline establishes that it does not possess
significant market power in a particular market. In addition, the rule provides
for the rights of both pipelines and shippers to demonstrate that the index
should not apply to an individual pipeline's rates in light of the pipeline's
costs. Requests for rehearing of the rule are pending with FERC. Subject to any
modifications resulting from the requests for rehearing, the final rule will
become effective on January 1, 1995. Concurrently, with the promulgation of the
final rule, FERC also commenced an inquiry into its market-based rate policy,
seeking comments on whether market-based rates should be allowed and how they
should be implemented and supported. FERC intends to issue a new rule in this
regard by January 1, 1995.
At this time, the General Partner cannot predict the impact, if any, that any
new rule promulgated by FERC may have on Buckeye's current "light-handed"
regulatory program or on Buckeye's tariff rates generally. Independent of
regulatory considerations, it is expected that tariff rates will continue to be
constrained by competition and other market factors.
In June 1993, Buckeye filed changes in certain FERC tariff rates applying the
principles of the experimental "light-handed" rate regulation program. Such
changes represented an average increase of 1.4 percent for the rates involved
and were projected to generate approximately $1.5 million in additional
revenues per year. The new tariff rates became effective on August 1, 1993,
without investigation or suspension.
Environmental Matters
The Operating Partnerships are subject to federal and state laws and
regulations relating to the protection of the environment. Although the General
Partner believes that the operations of the Operating Partnerships comply in
all material respects with applicable environmental regulations, risks of
substantial liabilities are inherent in pipeline operations, and there can be
no assurance that material environmental liabilities will not be incurred.
Moreover, it is possible that other developments, such as increasingly rigorous
environmental laws, regulations and enforcement
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policies thereunder, and claims for damages to property or persons resulting
from the operations of the Operating Partnerships, could result in substantial
costs and liabilities to the Partnership. See "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Environmental Matters."
The Oil Pollution Act of 1990 ("OPA") amends certain provisions of the
federal Water Pollution Control Act of 1972, commonly referred to as the Clean
Water Act ("CWA") and other statutes as they pertain to the prevention of and
response to oil spills into navigable waters. The OPA subjects owners of
facilities to strict joint and several liability for all containment and
clean-up costs and certain other damages arising from a spill. The CWA
provides penalties for any discharges of petroleum products in reportable
quantities and imposes substantial liability for the costs of removing a
spill. State laws for the control of water pollution also provide varying
civil and criminal penalties and liabilities in the case of releases of
petroleum or its derivatives into surface waters or into the ground.
Regulations are currently being developed under OPA and state laws which may
impose additional regulatory burdens on the Partnership.
Contamination resulting from spills or releases of refined petroleum
products are not unusual in the petroleum pipeline industry. The Partnership's
pipelines cross numerous navigable rivers and streams. Although the General
Partner believes that the Operating Partnerships comply in all material
respects with the spill prevention, control and countermeasure requirements of
federal laws, any spill or other release of petroleum products into navigable
waters may result in material costs and liabilities to the Partnership.
The Resource Conservation and Recovery Act ("RCRA"), as amended, establishes
a comprehensive program of regulation of "hazardous wastes." Hazardous waste
generators, transporters, and owners or operators of treatment, storage and
disposal facilities must comply with regulations designed to ensure detailed
tracking, handling and monitoring of these wastes. RCRA also regulates the
disposal of certain non-hazardous wastes. As a result of recently issued
regulations, many previously non-hazardous wastes generated by pipeline
operations have become "hazardous wastes" which are subject to more rigorous
and costly disposal requirements.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), also known as "Superfund," governs the release or threat of
release of a "hazardous substance." Disposal of a hazardous substance, whether
on or off-site, may subject the generator of that substance to liability under
CERCLA for the costs of clean-up and other remedial action. Pipeline
maintenance and other activities in the ordinary course of business could
subject the Operating Partnerships to the requirements of these statutes. As a
result, to the extent hydrocarbons or other petroleum waste may have been
released or disposed of in the past, the Operating Partnerships may in the
future be required to remediate contaminated property. Governmental
authorities such as the Environmental Protection Agency ("EPA"), and in some
instances third parties, are authorized under CERCLA to seek to recover
remediation and other costs from responsible persons, without regard to fault
or the legality of the original disposal. In addition to its potential
liability as a generator of a "hazardous substance," the property or right-of-
way of the Operating Partnerships may be adjacent to or in the immediate
vicinity of Superfund and other hazardous waste sites. Accordingly, the
Operating Partnerships may be responsible under CERCLA for all or part of the
costs required to cleanup such sites, which costs could be material.
The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the
"Amendments"), imposes controls on the emission of pollutants into the air.
The Operating Partnerships may be affected in several ways by the Amendments,
including required changes in operating procedures and increased capital
expenditures. The Amendments require states to develop permitting programs
over the next several years to comply with new federal programs. Existing
operating and air-emission permits like
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those held by the Operating Partnerships will have to be reviewed to determine
compliance with the new programs. It is possible that new or more stringent
controls will be imposed upon the Operating Partnerships through this permit
review. In addition, the Amendments impose new requirements on the composition
of fuels transported by the Operating Partnerships. While the principal impact
of these new requirements will be on refiners and marketers of such fuels, the
Operating Partnerships may have to institute additional quality control
procedures and provide additional tankage in order to satisfy customer needs
for segregated storage of these reformulated fuels.
The Operating Partnerships are also subject to environmental laws and
regulations adopted by the various states in which they operate. In certain
instances, the regulatory standards adopted by the states are more stringent
than applicable federal laws.
In connection with the Acquisition, Pipe Line obtained an Administrative
Consent Order ("ACO") from the New Jersey Department of Environmental
Protection and Energy ("NJDEPE") under the New Jersey Environmental Cleanup
Responsibility Act of 1983 ("ECRA") for all six of Pipe Line's facilities in
New Jersey. The ACO permitted the Acquisition to be completed prior to full
compliance with ECRA, but required Pipe Line to conduct in a timely manner a
sampling plan for environmental contamination at the New Jersey facilities and
to implement any required clean-up plan. Sampling continues in an effort to
identify areas of contamination at the New Jersey facilities, while clean-up
operations have begun at certain of the sites. The obligations of Pipe Line
were not assumed by the Partnership, and the costs of compliance will be paid
by Penn Central. Through December 1993, Buckeye's costs of approximately
$2,286,000 have been funded by Penn Central.
Safety Matters
The Operating Partnerships are subject to regulation by the United States
Department of Transportation ("DOT") under the Hazardous Liquid Pipeline
Safety Act of 1979 ("HLPSA") relating to the design, installation, testing,
construction, operation, replacement and management of their pipeline
facilities. HLPSA covers petroleum and petroleum products and requires any
entity which owns or operates pipeline facilities to comply with applicable
safety standards, to establish and maintain a plan of inspection and
maintenance and to comply with such plans.
The Pipeline Safety Reauthorization Act of 1988 required increased
coordination of safety regulation between federal and state agencies, testing
and certification of pipeline personnel, and authorization of safety-related
feasibility studies. During 1990, the Manager initiated a random drug testing
program to comply with the regulations promulgated by the Office of Pipeline
Safety, DOT. Federal legislation enacted in October 1991 contained a provision
requiring alcohol testing for workers with certain safety-sensitive duties in
various transportation industries. Regulations issued pursuant to the
legislation, effective January 1, 1995, provide that pipeline personnel, in
certain circumstances, will be subject to alcohol testing requirements. The
regulations also require alcohol testing, in certain circumstances, of
pipeline personnel who maintain commercial drivers' licenses. The Manager
intends to institute an alcohol testing program for covered employees in
accordance with the regulations.
In October 1992, HLPSA was amended by the Pipeline Safety Act of 1992 to
provide, among other things, that the Secretary of Transportation shall
consider the need for the protection of the environment in issuing federal
safety standards for the transportation of hazardous liquids by pipeline. The
amended legislation also requires the Secretary of Transportation to issue
regulations concerning, among other things, the identification by pipeline
operators of environmentally sensitive areas; the circumstances under which
emergency flow restricting devices should be required on
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pipelines; training and qualification standards for personnel involved in
maintenance and operation of pipelines; and the periodic integrity testing of
pipelines in environmentally sensitive and high-density population areas by
internal inspection devices or by hydrostatic testing. Significant expenses
would be incurred if, for instance, additional valves were required or if leak
detection standards exceeded the current control system capabilities of the
Operating Partnerships. The General Partner believes that the Operating
Partnerships' operations comply in all material respects with HLPSA, but the
industry, including the Partnership, could be required to incur substantial
additional capital expenditures and increased operating costs depending upon
the requirements of final regulations issued by DOT pursuant to HLPSA, as
amended.
The Operating Partnerships are also subject to the requirements of the
Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The General Partner believes that the Operating Partnerships'
operations comply in all material respects with OSHA requirements, including
general industry standards, recordkeeping, hazard communication requirements
and monitoring of occupational exposure to benzene and other regulated
substances.
The General Partner cannot predict whether or in what form any new
legislation or regulatory requirements might be enacted or adopted or the costs
of compliance. In general, any such new regulations would increase operating
costs and impose additional capital expenditure requirements on the
Partnership, but the General Partner does not presently expect that such costs
or capital expenditure requirements would have a material adverse effect on the
Partnership.
TAX TREATMENT OF PUBLICLY TRADED PARTNERSHIPS UNDER THE INTERNAL REVENUE CODE
The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
limitations on the current deductibility of losses attributable to investments
in publicly traded partnerships and treats certain publicly traded partnerships
as corporations for federal income tax purposes. The following discussion
briefly describes certain aspects of the Code that apply to individuals who are
citizens or residents of the United States without commenting on all of the
federal income tax matters affecting the Partnership or its unitholders (the
"Unitholders"), and is qualified in its entirety by reference to the Code.
UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR ABOUT THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE
PARTNERSHIP.
Characterization of the Partnership for Tax Purposes
The Code treats a publicly traded partnership that existed on December 17,
1987, such as the Partnership, as a corporation for federal income tax purposes
beginning in the earlier of (i) 1998 or (ii) the year in which it adds a
substantial new line of business unless, for each taxable year of the
Partnership beginning in the earlier of such years, 90 percent or more of its
gross income consists of qualifying income. Qualifying income includes
interest, dividends, real property rents, gains from the sale or disposition of
real property, income and gains derived from the exploration, development,
mining or production, processing, refining, transportation (including pipelines
transporting gas, oil or products thereof), or the marketing of any mineral or
natural resource (including fertilizer, geothermal energy and timber), and gain
from the sale or disposition of capital assets that produced such income.
Because the Partnership is engaged primarily in the refined products pipeline
transportation business, the General Partner believes that 90 percent or more
of the Partnership's gross income has been qualifying income. If this continues
to be true and no subsequent legislation amends this provision, the Partnership
would continue to be classified as a partnership and not as a corporation for
federal income tax purposes.
9
<PAGE>
Passive Activity Loss Rules
The Code provides that an individual, estate, trust or personal service
corporation generally may not deduct losses from passive business activities,
to the extent they exceed income from all such passive activities, against
other income. Income which may not be offset by passive activity "losses"
includes not only salary and active business income, but also portfolio income
such as interest, dividends or royalties or gain from the sale of property that
produces portfolio income. Credits from passive activities are also limited to
the tax attributable to any income from passive activities. The passive
activity loss rules are applied after other applicable limitations on
deductions, such as the at-risk rules and the basis limitation. Certain closely
held corporations are subject to slightly different rules, which can also limit
their ability to offset passive losses against certain types of income.
Under the Code, net income from publicly traded partnerships is not treated
as passive income for purposes of the passive loss rule, but is treated as
portfolio income. Net losses and credits attributable to an interest in a
publicly traded partnership are not allowed to offset a partner's other income.
Thus, a Unitholder's proportionate share of the Partnership's net losses may be
used to offset only Partnership net income from its trade or business in
succeeding taxable years or, upon a complete disposition of a Unitholder's
interest in the Partnership to an unrelated person in a fully taxable
transaction, may be used to (i) offset gain recognized upon the disposition,
and (ii) then against all other income of the Unitholder. In effect, net losses
are suspended and carried forward indefinitely until utilized to offset net
income of the Partnership from its trade or business or allowed upon the
complete disposition to an unrelated person in a fully taxable transaction of a
Unitholder's interest in the Partnership. A Unitholder's share of Partnership
net income may not be offset by passive activity losses generated by other
passive activities. In addition, a Unitholder's proportionate share of the
Partnership's portfolio income, including portfolio income arising from the
investment of the Partnership's working capital, is not treated as income from
a passive activity and may not be offset by such Unitholder's share of net
losses of the Partnership.
Deductibility of Interest Expense
The Code generally provides that investment interest expense is deductible
only to the extent of a non-corporate taxpayer's net investment income. In
general, net investment income for purposes of this limitation includes gross
income from property held for investment, gain attributable to the disposition
of property held for investment (except for net capital gains for which the
taxpayer has elected to be taxed at a maximum rate of 28 percent) and portfolio
income (determined pursuant to the passive loss rules) reduced by certain
expenses (other than interest) which are directly connected with the production
of such income. Property subject to the passive loss rules is not treated as
property held for investment. However, the IRS has issued a Notice which
provides that net income from a publicly traded partnership (not otherwise
treated as a corporation) may be included in net investment income for purposes
of the limitation on the deductibility of investment interest. A Unitholder's
investment income attributable to its interest in the Partnership will include
both its allocable share of the Partnership's portfolio income and trade or
business income. A Unitholder's investment interest expense will include its
allocable share of the Partnership's interest expense attributable to portfolio
investments.
Unrelated Business Taxable Income
Certain entities otherwise exempt from federal income taxes (such as
individual retirement accounts, pension plans and charitable organizations) are
nevertheless subject to federal income tax on net unrelated business taxable
income in excess of $1,000, and each such entity must file a tax return for
each year in which it has more than $1,000 of gross income included in
computing unrelated business taxable income. The General Partner believes that
substantially all of the Partnership's gross income will be treated as derived
from an unrelated trade or business and taxable to such
10
<PAGE>
entities. The tax-exempt entity's share of the Partnership's deductions are
allowed in computing the entity's taxable unrelated business income.
ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS
INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE
ADVISABLE.
State Tax Treatment
The Partnership owns property or does business in the states of Pennsylvania,
New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut,
Massachusetts, Washington and Florida. A Unitholder will likely be required to
file state income tax returns and to pay applicable state income taxes in many
of these states and may be subject to penalties for failure to comply with such
requirements. Some of the states have proposed that the Partnership withhold a
percentage of income attributable to Partnership operations within the state
for Unitholders who are non-residents of the state. In the event that amounts
are required to be withheld (which may be greater or less than a particular
Unitholder's income tax liability to the state), such withholding would
generally not relieve the non-resident Unitholder from the obligation to file a
state income tax return.
ITEM 2. PROPERTIES
As of December 31, 1993, the principal facilities of the Operating
Partnerships included 3,770 miles of 6-inch to 24-inch diameter pipeline, 44
pumping stations, 104 delivery points and various sized tanks having an
aggregate capacity of approximately 10.1 million barrels.
The Operating Partnerships own substantially all of their facilities subject,
in the case of Buckeye, to a mortgage and security interest granted to secure
payment of the outstanding balance of Buckeye's First Mortgage Notes due
serially through 2009. See Note 7 to Consolidated Financial Statements of
Buckeye Partners, L.P. In addition, certain portions of Buckeye's pipeline in
Connecticut and Massachusetts are subject to security interests in favor of the
owners of the right-of-way to secure future lease payments.
In general, the Operating Partnerships' pipelines are located on land owned
by others pursuant to rights granted under easements, leases, licenses and
permits from railroads, utilities, governmental entities and private parties.
Like other pipelines, certain of the Operating Partnerships' rights are
revocable at the election of the grantor or are subject to renewal at various
intervals, and some require periodic payments. The Operating Partnerships have
not experienced any revocations or lapses of such rights which were material to
its business or operations, and the General Partner has no reason to expect any
such revocation or lapse in the foreseeable future. Most pumping stations and
terminal facilities are located on land owned by the Operating Partnerships.
The General Partner believes that the Operating Partnerships have sufficient
title to their material assets and properties, possess all material
authorizations and franchises from state and local governmental and regulatory
authorities and have all other material rights necessary to conduct their
business substantially in accordance with past practice. Although in certain
cases the Operating Partnerships' title to assets and properties or their other
rights, including their rights to occupy the land of others under easements,
leases, licenses and permits, may be subject to encumbrances, restrictions and
other imperfections, none of such imperfections are expected by the General
Partner to interfere materially with the conduct of the Operating Partnerships'
businesses.
ITEM 3. LEGAL PROCEEDINGS
The Partnership, in the ordinary course of business, is involved in various
claims and legal proceedings, some of which are covered in whole or in part by
insurance. The General Partner is unable to predict the timing or outcome of
these claims and proceedings. Although it is possible that one or more of these
claims or proceedings, if adversely determined, could, depending on the
relative
11
<PAGE>
amounts involved, have a material effect on the Partnership's results of
operations for a future period, the General Partner does not believe that their
outcome will have a material effect on the Partnership's consolidated financial
condition.
FREEPORT LANDSLIDE
On March 30, 1990, a landslide near Freeport, Pennsylvania caused a rupture
to one of the Partnership's pipelines which resulted in the release of
approximately 58,000 gallons of petroleum products. Undetermined amounts of
petroleum products saturated the soils surrounding the landslide area and
flowed into Knapp Run and eventually into the Allegheny River. Buckeye promptly
conducted extensive emergency response and remediation efforts.
Following the release, various agencies and departments of both the federal
and state governments, including the United States Department of Justice, the
Pennsylvania Office of Attorney General, the Pennsylvania Department of
Environmental Resources ("DER"), the Pennsylvania Department of Transportation,
EPA, the National Transportation Safety Board, and DOT, commenced
investigations into the circumstances of the pipeline rupture. The U.S. Justice
Department and the Pennsylvania Attorney General's Office have instituted
criminal investigations, but Buckeye has not been formally advised that it is a
target of those investigations. The other investigations are civil in nature.
As a result of the foregoing investigations, Buckeye may be subject to claims
or charges seeking civil or criminal fines, penalties or assessments from one
or more governmental agencies. At this time, Buckeye has not been charged with
any violations of federal or state law, and it is impossible to predict whether
there will be any such actions brought against Buckeye, the amount of any
fines, penalties or assessments sought to be imposed or the outcome of any such
actions.
After the emergency phase of the clean-up was complete, Buckeye and DER
reached an agreement on remediation and erosion and sedimentation control at
the site. Under this agreement, Buckeye is collecting and treating surface
runoff water from the site and has instituted further erosion and sedimentation
control measures under a DER-approved plan.
In addition to the above governmental investigations, eight civil class
actions against the Partnership, Buckeye and certain affiliates were filed in
four Pennsylvania counties. Plaintiffs in these lawsuits seek both injunctive
and monetary relief, including punitive damages and attorneys' fees, based on a
number of legal theories. The parties have consolidated these actions in a
single class action in the Court of Common Pleas for Allegheny County,
Pennsylvania, but the proposed class has not yet been certified and there has
been no significant activity in the case. At this time, it is not possible to
predict the likely outcome of such actions.
Buckeye maintains insurance in amounts believed by the General Partner to be
adequate covering certain liabilities and claims arising out of pipeline
accidents above a self-insured retention amount. The insurance is written
generally on an indemnity basis, which requires Buckeye to seek reimbursement
from its carriers for covered claims after paying such claims directly. Various
entities that allegedly incurred costs or damages as a result of this incident
have filed claims with Buckeye's insurance adjusters. Certain claims have been
paid by Buckeye and other claims remain outstanding. The insurance carriers are
reimbursing Buckeye for covered claims subject to the terms of the policy.
For the reasons set forth above, Buckeye is unable to estimate the total
amount of environmental clean-up and other costs and liabilities that may be
incurred in connection with this incident. However, based on information
currently available to it, Buckeye believes that its net expense after
insurance recoveries will not be material to its financial condition or results
of operations.
12
<PAGE>
OTHER ENVIRONMENTAL PROCEEDINGS
With respect to other environmental litigation, certain Operating
Partnerships (or their predecessors) have been named as a defendant in several
lawsuits or have been notified by federal or state authorities that they are a
potentially responsible party ("PRP") under federal laws or a respondent under
state laws relating to the generation, disposal or release of hazardous
substances into the environment. Typically, an Operating Partnership is one of
many PRPs for a particular site and its contribution of total waste at the site
is minimal. However, because CERCLA and similar statutes impose liability
without regard to fault and on a joint and several basis, the liability of the
Operating Partnerships in connection with these proceedings could be material.
Potentially material proceedings affecting the Operating Partnerships are
described below.
In July 1986, Buckeye was named as one of several PRPs for the Whitmoyer
Laboratories site in Myerstown, Pennsylvania. Buckeye previously owned part of
the site and sold it to a purchaser now believed to be primarily responsible
for the reported substantial chemical contamination at the site. Without
knowledge of the contamination, Buckeye subsequently repurchased a small
portion of the site on which it constructed a pumping station. After completion
of a remedial investigation and feasibility study and consideration of proposed
remediation plans, EPA issued two Records of Decision in December 1990
proposing a clean-up estimated to cost approximately $125 million. In 1992, EPA
entered into an agreement with the estate of one of the PRPs to recover a
portion of EPA's past costs. In addition, EPA entered into a Consent Decree
with the two PRPs that were former owners of Whitmoyer Laboratories. These PRPs
agreed to assume the cost of clean-up at the site, and to reimburse EPA for
future response costs and a portion of its past response costs. These two PRPs
have instituted suit against each other to determine their relative
responsibility for the Whitmoyer Laboratories site clean-up. One of the PRPs
served a third-party complaint against Buckeye for the stated purpose of
tolling the statute of limitations to preserve its rights, if any, against
Buckeye. Buckeye subsequently settled the third-party complaint that had been
filed against it. In consideration of mutual releases and the PRP's agreement
to cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster
pump station, to reroute its pipeline around the site and to reimburse the PRP
for the cost of removing the original pipeline, if such removal is required by
EPA. Buckeye estimates at this time that the costs of complying with the terms
of the settlement agreement will be between $1 million and $2 million. Buckeye
has not entered into any agreements with the EPA or the other PRP involved at
the site, and Buckeye has not waived any rights to recover for any claim
arising out of the PRP's activities at the site or any claims brought by any
governmental agency or third party based upon environmental conditions at the
site. In the event that claims were asserted by any party in connection with
the site, Buckeye believes that it would have meritorious defenses, but its
potential liability, if any, related to such claims, cannot be estimated at
this time.
In July 1987, the NJDEPE ordered Buckeye and 27 other parties to provide site
security and conduct a preliminary clean-up at the Borne Chemical site located
in Elizabeth, New Jersey. Twenty of the parties (including Buckeye) agreed to
provide security and to remove certain materials from the site. Buckeye agreed
to pay approximately $64,000 of the $4 million estimated cost of this activity.
This removal work has been completed. The NJDEPE is requiring that all parties
(including Buckeye) which are alleged to have contributed hazardous substances
to the site, conduct a remedial investigation/feasibility study to determine
the scope of additional contamination, if any, that may exist at the site.
Buckeye's involvement with this site is based on allegations that a small
amount of Buckeye's waste was stored at this site pending its ultimate disposal
elsewhere. Buckeye believes that it has meritorious defenses, but its potential
liability, if any, for future costs cannot be estimated at this time.
In March 1989, the NJDEPE issued a directive to Buckeye and 113 other parties
demanding payment of approximately $9.2 million in remediation costs incurred
by NJDEPE at the Bridgeport Rental & Oil Services Site in Logan Township, New
Jersey. This site is subject to a remediation being
13
<PAGE>
conducted by EPA under CERCLA. In March 1992, an action was commenced by
Rollins Environmental Services (NJ), Inc., and others, against the United
States of America and certain additional private parties seeking reimbursement
for remediation expenses incurred by plaintiffs in connection with the site.
In June 1992, the United States of America brought an action against Rollins
Environmental Services (NJ), Inc., and additional private parties, seeking
reimbursement of approximately $29 million for response costs incurred by EPA
at the site. Buckeye has not been designated by EPA as a PRP with respect to
the site, and has not been named as a defendant in any litigation connected
with the site. Buckeye believes that it is, at most, a de minimis contributor
of waste to this site. Although EPA has estimated remediation costs at the
site to be over $100 million, Buckeye expects that its liability, if any, will
not be material.
In May 1993, Buckeye was notified by EPA that EPA had reason to believe that
Buckeye was a PRP under CERCLA regarding certain hazardous substances located
at a former waste processing/management facility located in Niagara Falls, New
York known as the Frontier Chemical Superfund Site. Buckeye is one of several
hundred parties that have been informed by EPA that they are potential PRPs in
connection with the site. In its notification letter, EPA requested the PRPs
to refund approximately $376,000 in costs already incurred by EPA in
connection with the management of the site, and to fund the clean-up and
removal of certain alleged hazardous materials contained in drums and liquid
waste holding tanks at the site. The estimated cost of the removal activity
has been estimated by EPA at approximately $4,700,000. In addition, EPA noted
that certain subsequent clean-up activities may be required at the site, but
that such work would be the subject of a future letter to the PRPs and would
be addressed under a separate administrative order. Buckeye has entered into a
PRP Group Participation Agreement with other PRPs in order to facilitate a
joint approach to EPA and to the clean-up of the site. Buckeye believes that
it is, at most, a de minimis contributor of waste to the site. Although the
cost of the ultimate remediation of the site cannot be determined at this
time, Buckeye expects that its liability, if any, will not be material.
Additional claims for the cost of cleaning up releases of hazardous
substances and for damage to the environment resulting from the activities of
the Operating Partnerships or their predecessors may be asserted in the future
under various federal and state laws, but the amount of such claims or the
potential liability, if any, cannot be estimated. See "Business--Regulation--
Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the holders of LP Units during the
fourth quarter of the fiscal year ended December 31, 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S LP UNITS AND RELATED UNITHOLDER MATTERS
The LP Units of the Partnership are listed and traded principally on the New
York Stock Exchange. The high and low sales prices of the LP Units in 1993 and
1992, as reported on the New York Stock Exchange Composite Tape, were as
follows:
<TABLE>
<CAPTION>
1993 1992
------------- -------------
QUARTER HIGH LOW HIGH LOW
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First............................................... 35 1/2 28 3/4 28 7/8 25 7/8
Second.............................................. 36 7/8 32 1/4 28 1/2 26 7/8
Third............................................... 38 33 1/8 32 1/8 28
Fourth.............................................. 41 5/8 36 1/2 31 5/8 28
</TABLE>
During the months of December 1993 and January 1994, the Partnership
gathered tax information from its known LP Unitholders and from
brokers/nominees. Based on the information collected, the Partnership
estimates its number of beneficial LP Unitholders to be approximately 18,000.
14
<PAGE>
Cash distributions paid quarterly during 1992 and 1993 were as follows:
<TABLE>
<CAPTION>
RECORD DATE PAYMENT DATE AMOUNT PER UNIT
- ----------- ------------ ---------------
<S> <C> <C>
February 7, 1992............................. February 28, 1992 $0.65
May 8, 1992.................................. May 29, 1992 $0.65
August 7, 1992............................... August 31, 1992 $0.65
November 6, 1992............................. November 30, 1992 $0.65
February 23, 1993............................ February 26, 1993 $0.65
May 7, 1993.................................. May 28, 1993 $0.65
August 6, 1993............................... August 31, 1993 $0.65
November 8, 1993............................. November 30, 1993 $0.65
</TABLE>
In general, the Partnership makes quarterly cash distributions of
substantially all of its available cash less such retentions for working
capital, anticipated expenditures and contingencies as the General Partner
deems appropriate.
On January 28, 1994, the Partnership announced a quarterly distribution of
$0.70 per LP Unit payable on February 28, 1994.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, for the period and at the dates indicated,
the Partnership's income statement and balance sheet data for the years ended
December 31, 1993, 1992, 1991, 1990 and 1989. Income statement and balance
sheet data for the year ended December 31, 1989 has been restated to reflect
results of continuing operations. The tables should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue......................... $175,495 $163,064 $151,828 $159,253 $158,094
Depreciation and amortization... 11,002 10,745 10,092 9,971 10,187
Operating income................ 66,851 63,236 58,452 63,863 66,602
Interest and debt expense....... 25,871 27,452 27,502 28,767 29,448
Income from continuing opera-
tions before extraordinary
charge and cumulative effect of
change in accounting principle. 41,654 34,546 30,465 34,312 36,178
Net income...................... 39,366 9,002 30,465 15,200 35,580
Income per Unit from continuing
operations before extraordinary
charge and cumulative effect of
change in accounting principle. 3.44 2.85 2.51 2.83 2.99
Net income per Unit............. 3.25 0.74 2.51 1.25 2.94
Distributions per Unit.......... 2.60 2.60 2.60 2.60 2.45
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets..................... $543,493 $533,143 $545,281 $551,888 $577,696
Long-term debt................... 224,000 225,000 242,500 260,000 275,000
General Partner's capital........ 2,338 2,259 2,521 2,531 2,694
Limited Partners' capital........ 231,357 223,585 249,533 250,573 266,725
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the liquidity and capital resources and the
results of operations of the Partnership for the periods indicated below.
Amounts in the Management's Discussion and Analysis of Financial Condition and
Results of Operations relate to continuing operations unless otherwise
indicated. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto, which are included elsewhere in this
Report.
Change in Accounting Principle
In December 1992, the Partnership adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106") effective as of January 1, 1992. As a result, the
Partnership recorded a one-time, non-cash charge of $25.5 million as of the
first quarter of 1992 to reflect the cumulative effect of the change in
accounting principle for periods prior to 1992. In addition, quarterly results
for 1992 were restated to reflect an additional $1.5 million, or approximately
$0.4 million per quarter, in related operating expenses throughout the year.
16
<PAGE>
RESULTS OF OPERATIONS
Through its Operating Partnerships, the Partnership is principally engaged in
the transportation of refined petroleum products including gasoline, jet fuel,
diesel fuel, heating oil and kerosene. The Partnership's revenues are
principally a function of the volumes of refined petroleum products transported
by the Partnership, which are in turn a function of the demand for refined
petroleum products in the regions served by the Partnership's pipelines and the
tariffs or transportation fees charged for such transportation. Results of
operations are affected by factors which include competitive conditions, demand
for products transported, seasonality and regulation. See "Business--
Competition and Other Business Considerations."
1993 Compared With 1992
Revenue for the year ended December 31, 1993 was $175.5 million, $12.5
million, or 7.7 percent greater than revenue of $163.0 million for 1992. Volume
delivered during 1993 averaged 981,100 barrels per day, 67,900 barrels per day
or 7.4 percent greater than volume of 913,200 barrels per day delivered in
1992. Greater revenue in 1993 was related to increased gasoline, distillate and
turbine fuel deliveries and to the effect of tariff rate increases implemented
in July 1992 and August 1993. Gasoline and distillate volume increases were due
primarily to higher end-use demand in response to moderate economic recovery
and a return to normal winter temperatures. In addition, 1993 volume improved
as a result of new business captured from barge and other pipelines, a decline
in Canadian imports to upstate New York and extended refinery maintenance
activities that required transportation of additional refined products into the
Partnership's service areas. Increased turbine fuel volume was due to a
moderate improvement in domestic and international air travel and continued
growth in air cargo business.
Costs and expenses during 1993 were $108.6 million, $8.8 million or 8.8
percent greater than costs and expenses of $99.8 million during 1992.
Categories of increased expenses included payroll and employee benefits,
maintenance services and power and supplies. A significant portion of these
increased expenses were directly related to the transportation of additional
volume and related maintenance activities.
Other income (expenses) consist of interest income, interest and debt
expense, and minority interests and other. Interest and debt expense of $25.9
million in 1993 was $1.6 million less than interest and debt expense of $27.5
million in 1992 reflecting lower debt outstanding following payment of $16.3
million of Series E First Mortgage Notes in December 1992.
1992 Compared With 1991
Revenue for the year ended December 31, 1992 was $163.0 million, $11.2
million, or 7.4 percent greater than revenue of $151.8 million for 1991. Volume
delivered during 1992 averaged 913,200 barrels per day, 40,000 barrels per day
or 4.6 percent greater than volume of 873,200 barrels per day delivered in
1991. Volume increased in all of the Partnership's product grades. Increased
gasoline volume was primarily related to new business from a reactivated
Midwest refinery and shifts from barge and truck to pipeline delivery following
capital investment during 1991 and early 1992. Distillate volume improved due
to increased heating oil demand resulting from colder weather in the Northeast
compared to 1991. Turbine fuel volume improved in response to increased air
travel, expanding air cargo business and new business due to shifts from barge
to pipeline delivery. Greater revenue in 1992 was also attributable to tariff
rate increases which were implemented in July of 1991 and 1992.
Costs and expenses during 1992 were $99.8 million, $6.4 million or 6.9
percent greater than costs and expenses of $93.4 million during 1991. Greater
costs and expenses during 1992 were primarily
17
<PAGE>
due to property and other taxes which increased compared to 1991 due to the
effect of favorable settlements recorded in 1991. Cost and expenses in 1992
were also affected by increased power, supplies and maintenance costs
reflecting improved volume. Depreciation charges increased during 1992
principally due to net additions to Partnership's property, plant and
equipment. Costs and expenses were favorably impacted by reduced rents,
employee benefits and environmental related expenses.
Interest income of $1.0 million during 1992 was $0.9 million less than
interest income during 1991 due to continuing lower interest rates and lower
average invested balances. Interest and debt expense of $27.5 million in 1992
was nearly equal to interest and debt expense in 1991. Lower capitalized
interest and additional commitment and other fees associated with a credit
facility largely offset a reduction in interest following debt repayments.
Minority interests and other was lower in 1992 primarily due to the acquisition
of the remaining stock interest in Laurel Corp in December 1991 and the impact
on minority interest upon adoption of SFAS 106.
Tariff Changes
In July 1993, June 1992 and June 1991, Buckeye filed proposed changes in
certain tariff rates that represented, on average, increases of 1.4 percent,
3.0 percent and 3.7 percent for the rates involved, respectively. The July
1993, June 1992 and June 1991 changes were projected to generate approximately
$1.5 million, $4.0 million and $5.0 million in additional revenue per year,
respectively. Each of these proposed changes became effective during the month
after they were filed.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's financial condition at December 31, 1993, 1992 and 1991 is
highlighted in the following comparative summary:
Liquidity and Capital Indicators
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Current ratio..................................... 1.1 to 1 0.9 to 1 0.9 to 1
Ratio of cash and temporary investments and trade
receivables to current liabilities............... 1.0 to 1 0.8 to 1 0.7 to 1
Working capital (deficiency) (in thousands)....... $ 5,709 $ (4,548) $ (2,877)
Ratio of total debt to total capital.............. .50 to 1 .51 to 1 .50 to 1
Book value (per Unit)............................. $ 19.28 $ 18.63 $ 20.79
</TABLE>
Cash Provided by Operations
During 1993, cash provided by operations of $53.2 million was derived
principally from income from continuing operations before an extraordinary
charge of $41.7 million, depreciation of $11.0 million and operating working
capital changes of $3.9 million. Operating working capital changes relate to a
decrease in trade receivables and an increase in accrued and other current
liabilities. Remaining cash uses, totaling $3.4 million, were related to
extraordinary charges on early extinguishment of debt of $2.2 million and
distributions to minority interests and changes in other non-current
liabilities.
During 1992, cash provided by operations of $52.2 million was derived
principally from income from continuing operations before the cumulative effect
of a change in accounting principle of $34.5 million, depreciation of $10.7
million and changes in operating working capital of $3.5 million. Other
18
<PAGE>
net cash sources, totaling $3.5 million, were largely provided by discontinued
operations and an increase in other non-current liabilities.
During 1991, cash provided by operations of $42.2 million was derived
principally from income from continuing operations of $30.5 million and
depreciation of $10.1 million. Other net cash sources, totaling $1.6 million,
were provided by discontinued operations and an increase in non-current
liabilities which were offset by changes in operating working capital. The
decrease in working capital during 1991 was primarily due to the increase in
the current portion of long-term debt and a decrease in cash position resulting
from lower earnings from continuing operations and the acquisition of a
minority interest.
Debt Obligation and Credit Facilities
At December 31, 1993, the Partnership had $240.0 million in outstanding
current and long-term debt representing the First Mortgage Notes of Buckeye.
The First Mortgage Notes are collateralized by substantially all of Buckeye's
property, plant and equipment. The $240.0 million of debt outstanding at 1993
year end includes $35 million of additional First Mortgage Notes (Series K, L
and M) bearing interest rates from 7.11 percent to 7.19 percent which were
issued on January 7, 1994 in accordance with an agreement entered into on
December 31, 1993 and excludes $20 million of 9.50 percent First Mortgage Notes
(Series H) due December 1995 that were defeased in-substance with a portion of
the proceeds from such additional First Mortgage Notes. During 1993, the
Partnership paid $17.5 million of principal on the First Mortgage Notes (Series
F) that became due in December 1993. In addition, Buckeye entered into an
agreement with the purchaser of the $35 million of additional First Mortgage
Notes which permits Buckeye, under certain circumstances, to issue up to $40
million of additional First Mortgage Notes to such purchaser. Any issuance of
the additional First Mortgage Notes will require the prior approval by the
holders of the First Mortgage Notes to an amendment to the Mortgage Note
Indenture. Buckeye is currently in the process of seeking such approval.
At December 31, 1992, the Partnership had $242.5 million in outstanding
current and long-term debt representing the First Mortgage Notes of Buckeye.
During 1992, the Partnership paid $16.2 million of remaining principal on the
First Mortgage Notes (Series E) that became due in December 1992. At December
31, 1991, the Partnership had $258.8 million in outstanding current and long-
term debt representing the First Mortgage Notes. During 1991, the Partnership
paid $5.0 million of remaining principal on the First Mortgage Notes (Series D)
that became due in December 1991 and irrevocably deposited $1.3 million in
partial payment of principal on the $17.5 million First Mortgage Notes (Series
E) that became due in December 1992.
The Partnership maintains a $15 million unsecured revolving credit facility
with a commercial bank. This facility, which has options to extend borrowings
up to six years, is available to the Partnership for general purposes including
capital expenditures and working capital. In addition, Buckeye has a $10
million short-term line of credit secured by accounts receivable. Laurel has an
unsecured $1 million line of credit. At December 31, 1993, 1992 and 1991, there
were no outstanding borrowings under these facilities.
The ratio of total debt to total capital was 50 percent, 51 percent, and 50
percent at December 31, 1993, 1992 and 1991, respectively. For purposes of the
calculation of this ratio, total capital consists of current and long-term
debt, minority interests and partners' capital.
Capital Expenditures
At December 31, 1993, property, plant and equipment was approximately 92
percent of total consolidated assets. This compares to 93 percent and 91
percent for the years ended December 31, 1992 and 1991, respectively. Capital
expenditures are generally for expansion of the Operating Partnerships' service
capabilities and sustaining the Operating Partnerships' existing assets.
19
<PAGE>
Capital expenditures by the Partnership were $13.3 million, $10.8 million and
$10.9 million for 1993, 1992 and 1991, respectively. Projected capital
expenditures for 1994 amount to $12.8 million. Planned capital expenditures
include, among other things, renewal and replacement of pipe, construction of
containment facilities, new valves, metering systems, field instrumentation,
communication facilities and testing equipment. Capital expenditures are
expected to increase over time primarily in response to increasingly rigorous
governmental safety and environmental requirements as well as industry
standards.
Discontinued Operations
In the fourth quarter of 1990, the Partnership recorded a non-cash charge to
earnings of $19.1 million, net of estimated earnings during phase-out, relating
to the Partnership's decision to discontinue its 16-inch crude oil pipeline and
a refined products terminal. The Partnership closed the sale of the 16-inch
crude oil pipeline, together with associated real and personal property to Sun
Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2
million. Remaining discontinued operations consisting of petroleum facilities
at a refined products terminal were dismantled and removed during the first
quarter 1993. Disposal of these discontinued operations resulted in a loss of
$127,000.
Environmental Matters
The Operating Partnerships are subject to federal and state laws and
regulations relating to the protection of the environment. These regulations,
as well as the Partnership's own standards relating to protection of the
environment, cause the Operating Partnerships to incur current and ongoing
operating and capital expenditures. During 1993, the Operating Partnerships
incurred operating expenses of $3.0 million and capital expenditures of $4.5
million related to environmental matters. Capital expenditures of $3.2 million
for environmental related projects are included in the Partnership's plans for
1994. Expenditures, both capital and operating, relating to environmental
matters are expected to increase due to the Partnership's commitment to
maintain high environmental standards and to increasingly rigorous
environmental laws.
Certain Operating Partnerships (or their predecessors) have been named as a
defendant in lawsuits or have been notified by federal or state authorities
that they are a PRP under federal laws or a respondent under state laws
relating to the generation, disposal, or release of hazardous substances into
the environment. These proceedings generally relate to potential liability for
clean-up costs. The total potential remediation costs to be borne by the
Operating Partnerships relating to these clean-up sites cannot be reasonably
estimated and could be material. With respect to each site, however, the
Operating Partnership involved is one of several or as many as several hundred
PRPs that would share in the total costs of clean-up under the principle of
joint and several liability. The General Partner believes that the generation,
handling and disposal of hazardous substances by the Operating Partnerships and
their predecessors have been in material compliance with applicable
environmental and regulatory requirements.
At the Whitmoyer Laboratories site in Myerstown, Pennsylvania, Buckeye is one
of several PRPs for a clean-up estimated to cost approximately $125 million.
However, in 1992, EPA entered into an agreement with the estate of one of the
PRPs to recover a portion of EPA's past costs and a Consent Decree with the two
PRPs that were former owners of Whitmoyer Laboratories to assume the cost of
clean-up at the site and to reimburse EPA for future response costs and a
portion of its past response costs. These two PRPs have instituted suit against
each other to determine their relative responsibility for the Whitmoyer
Laboratories site clean-up. One of the PRPs served a third-party complaint
against Buckeye for the stated purpose of tolling the statute of limitations to
preserve its rights, if any, against Buckeye. Buckeye subsequently settled the
third-party complaint that had been filed against it. In consideration of
mutual releases and the PRP's agreement to
20
<PAGE>
cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster
pump station, to reroute its pipeline around the site and to reimburse the PRP
for the cost of removing the original pipeline, if such removal is required by
EPA. Buckeye has not entered into any agreements with the EPA or the other PRP
involved at the site, and Buckeye has not waived any rights to recover for any
claim arising out of the PRP's activities at the site or any claims brought by
any governmental agency or third party based upon environmental conditions at
the site. Although the exact costs of the settlement are not known, Buckeye
estimates at this time that the costs of complying with the terms of the
settlement agreement will be between $1 million and $2 million.
As previously reported, in March 1990, a landslide near Freeport,
Pennsylvania caused a rupture to one of Buckeye's pipelines which resulted in
the release of approximately 58,000 gallons of petroleum products. During 1993,
Buckeye paid claims and other charges related to this incident in the amount of
$0.3 million. Substantially all of this amount has been reimbursed by Buckeye's
insurance carriers. Buckeye is unable to estimate the total amount of
environmental clean-up and other costs and liabilities that may be incurred in
connection with this incident. However, based on information currently
available to it, Buckeye believes that its net expense after insurance
recoveries will not be material to its financial condition or results of
operations. See "Legal Proceedings--Freeport Landslide".
Various claims for the cost of cleaning up releases of hazardous substances
and for damage to the environment resulting from the activities of the
Operating Partnerships or their predecessors have been asserted and may be
asserted in the future under various federal and state laws. Although the
Partnership has made a provision for certain legal expenses relating to these
matters, the General Partner is unable to determine the timing or outcome of
any pending proceedings or of any future claims and proceedings. See
"Business--Regulation--Environmental Matters" and "Legal Proceedings".
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BUCKEYE PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Financial Statements and Independent Auditors' Report:
Independent Auditors' Report..................................... 23
Consolidated Statements of Income--For the years ended December
31, 1993, 1992 and 1991......................................... 24
Consolidated Balance Sheets--December 31, 1993 and 1992.......... 25
Consolidated Statements of Cash Flows--For the years ended Decem-
ber 31, 1993, 1992 and 1991..................................... 26
Notes to Consolidated Financial Statements....................... 27
Financial Statement Schedules and Independent Auditors' Report:
Independent Auditors' Report..................................... S-1
Schedule II--Amounts Receivable from Related Parties and Under-
writers, Promoters and Employees other than Related Parties..... S-2
Schedule III--Registrant's Condensed Financial Statements........ S-3
Schedule V--Consolidated Property, Plant and Equipment--For the
years ended December 31, 1993, 1992 and 1991.................... S-4
Schedule VI--Consolidated Accumulated Depreciation and Amortiza-
tion of Property, Plant and Equipment--For the years ended De-
cember 31, 1993, 1992 and 1991.................................. S-5
Schedule VIII--Valuation and Qualifying Accounts--For the years
ended December 31, 1993, 1992 and 1991.......................... S-6
Schedule X--Supplementary Consolidated Income Statement Informa-
tion--For the years ended December 31, 1993, 1992 and 1991...... S-7
</TABLE>
Schedules other than those listed above are omitted because they are either
not applicable or not required or the information required is included in the
consolidated financial statements or notes thereto.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the accompanying consolidated balance sheets of Buckeye
Partners, L.P. and its subsidiaries (the "Partnership") as of December 31, 1993
and 1992, and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Partnership as of December 31, 1993 and 1992, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1993 in conformity with generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, in 1992 the
Partnership changed its method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards
Number 106.
Deloitte & Touche
Philadelphia, Pennsylvania
February 14, 1994
23
<PAGE>
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
NOTES 1993 1992 1991
----- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue.................................... 2 $175,495 $163,064 $151,828
-------- -------- --------
Costs and expenses
Operating expenses....................... 3,13 87,029 79,111 72,955
Depreciation and amortization............ 2 11,002 10,745 10,092
General and administrative expenses...... 13 10,613 9,972 10,329
-------- -------- --------
Total costs and expenses............... 108,644 99,828 93,376
-------- -------- --------
Operating income........................... 66,851 63,236 58,452
-------- -------- --------
Other income (expenses)
Interest income.......................... 919 960 1,891
Interest and debt expense................ (25,871) (27,452) (27,502)
Minority interests and other............. (245) (129) (1,107)
-------- -------- --------
Total other income (expenses).......... (25,197) (26,621) (26,718)
-------- -------- --------
Income from continuing operations before
income taxes.............................. 41,654 36,615 31,734
Provision for income taxes................. 2 -- (2,069) (1,269)
-------- -------- --------
Income from continuing operations before
extraordinary charge and cumulative effect
of change in accounting principle......... 41,654 34,546 30,465
Loss from discontinued operations.......... 5 (127) -- --
Extraordinary charge on early
extinguishment of debt.................... 11 (2,161) -- --
Cumulative effect of change in accounting
principle................................. 10 -- (25,544) --
-------- -------- --------
Net income................................. $ 39,366 $ 9,002 $ 30,465
======== ======== ========
Net income allocated to General Partner.... 14 $ 394 $ 90 $ 305
Net income allocated to Limited Partners... 14 $ 38,972 $ 8,912 $ 30,160
Income allocated to General and Limited
Partners per Partnership Unit:
Income from continuing operations
before extraordinary charge and
cumulative effect of change in
accounting principle.................. $ 3.44 $ 2.85 $ 2.51
Loss from discontinued operations...... (.01) -- --
Extraordinary charge on early
extinguishment of debt................ (.18) -- --
Cumulative effect of change in
accounting principle.................. -- (2.11) --
-------- -------- --------
Net income............................. $ 3.25 $ 0.74 $ 2.51
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
BUCKEYE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
NOTES 1993 1992
----- -------- --------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents..................... 2 $ 22,748 $ 9,753
Temporary investments......................... 250 --
Trade receivables............................. 2 15,341 16,838
Inventories................................... 2 1,174 1,021
Prepaids and other current assets............. 4,445 3,256
-------- --------
Total current assets........................ 43,958 30,868
Property, plant and equipment, net.............. 2,4 499,075 495,541
Other non-current assets........................ 460 460
Net assets of discontinued operations........... 2,5 -- 6,274
-------- --------
Total assets................................ $543,493 $533,143
======== ========
Liabilities and partners' capital
Current liabilities
Current portion of long-term debt............. 7 $ 16,000 $ 17,500
Accounts payable.............................. 2,562 1,184
Income taxes payable.......................... 219 977
Accrued and other current liabilities......... 3,6,9,10,13 19,468 15,755
-------- --------
Total current liabilities................... 38,249 35,416
Long-term debt.................................. 7,11 224,000 225,000
Minority interests.............................. 2,492 2,879
Other non-current liabilities................... 3,8,9,10,13 45,057 44,004
Commitments and contingent liabilities.......... 3 -- --
-------- --------
Total liabilities........................... 309,798 307,299
-------- --------
Partners' capital................................. 14
General Partner................................. 2,338 2,259
Limited Partners................................ 231,357 223,585
-------- --------
Total partners' capital..................... 233,695 225,844
-------- --------
Total liabilities and partners' capital..... $543,493 $533,143
======== ========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
BUCKEYE PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
NOTES 1993 1992 1991
----- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations before
extraordinary charge and cumulative ef-
fect of change in accounting principle... $ 41,654 $ 34,546 $ 30,465
-------- -------- --------
Adjustments to reconcile income to net
cash provided by operating activities:
Extraordinary charge on early extin-
guishment of debt...................... (2,161) -- --
Depreciation and amortization........... 11,002 10,745 10,092
Minority interests...................... 145 29 657
Distributions to minority interests..... (532) (345) (755)
Change in assets and liabilities:
Trade receivables...................... 1,497 (1,834) 134
Inventories............................ (153) 333 (43)
Prepaids and other current assets...... (1,189) 2,894 (2,328)
Accounts payable....................... 1,378 203 (1,064)
Income taxes payable (a)............... (242) (1,076) (594)
Accrued and other current liabilities
(b)................................... 2,636 2,939 2,376
Other non-current assets............... -- (200) --
Other non-current liabilities (b)...... (1,043) 1,313 758
-------- -------- --------
Total adjustments provided by
continuing operating activities....... 11,338 15,001 9,233
-------- -------- --------
Net cash provided by continuing operat-
ing activities......................... 52,992 49,547 39,698
Net cash provided by discontinued opera-
tions (c).............................. 5 206 2,660 2,471
-------- -------- --------
Net cash provided by operating activi-
ties.................................. 53,198 52,207 42,169
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................... (13,328) (10,789) (10,853)
Acquisitions.............................. -- -- (4,850)
Proceeds from sale of net assets of dis-
continued operations..................... 5 9,200 -- --
Net proceeds from (expenditures for) dis-
posal of property, plant and equipment... (1,810) 713 24
Sales (purchases) of temporary invest-
ments.................................... (250) -- 10,364
Other, net................................ -- -- 92
-------- -------- --------
Net cash used in investing activities.. (6,188) (10,076) (5,223)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.. 7 35,000 -- --
Payment of long-term debt................. 7 (37,500) (16,250) (6,250)
Distributions to Unitholders.............. 14,15 (31,515) (31,515) (31,515)
Increase in minority interests............ -- 555 264
-------- -------- --------
Net cash used in financing activities.. (34,015) (47,210) (37,501)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 2 12,995 (5,079) (555)
Cash and cash equivalents at beginning of
year...................................... 2 9,753 14,832 15,387
-------- -------- --------
Cash and cash equivalents at end of year... $ 22,748 $ 9,753 $ 14,832
======== ======== ========
Supplemental cash flow information:
Cash paid during year for:
Interest (net of amount capitalized)..... $ 26,169 $ 27,398 $ 27,541
Income taxes............................. 242 2,632 1,965
Non-cash effect of change in accounting
principle................................ 10 -- 25,544 --
Non-cash changes in property, plant and
equipment................................ 602 -- --
(a) Non-cash changes in income taxes pay-
able...................................... 516 1,160 --
(b) Non-cash changes in accrued and other
liabilities............................... 2,657 9,277 --
(c) Non-cash changes in discontinued opera-
tions..................................... 3,259 2,537 --
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1992 AND
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. ORGANIZATION
Buckeye Partners, L.P. (the "Partnership") is a limited partnership organized
in 1986 under the laws of the state of Delaware. The Partnership owns 99
percent limited partnership interests in Buckeye Pipe Line Company, L.P.
("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line
Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT").
The foregoing entities are hereinafter referred to as the "Operating
Partnerships." Laurel owns a 98.01 percent limited partnership interest in
Buckeye Pipe Line Company of Michigan, L.P. ("BPL Michigan") which discontinued
operations in 1993 (see Note 5).
During December 1986, the Partnership sold 12,000,000 limited partnership
units ("LP Units") in a public offering representing an aggregate 99 percent
limited partnership interest in the Partnership. Concurrently, the Partnership
sold 121,212 units representing a 1 percent general partnership interest in the
Partnership ("GP Units") to Buckeye Management Company (the "General Partner"),
a wholly owned subsidiary of The Penn Central Corporation ("Penn Central"). The
Partnership used the proceeds from such sales to purchase from subsidiaries of
Penn Central the 99 percent limited partnership interests in the then existing
Operating Partnerships and an 83 percent stock interest in Laurel Pipe Line
Company ("Laurel Corp"). In December 1991, the Partnership acquired the
minority interest in Laurel Corp. Laurel was formed in October 1992 and
succeeded to the operations of Laurel Corp.
A subsidiary of the General Partner, Buckeye Pipe Line Company (the
"Manager"), owns a 1 percent general partnership interest in, and serves as
sole general partner and manager of, each Operating Partnership. The Manager
also owns a 1 percent general partnership interest and a 0.99 percent limited
partnership interest in BPL Michigan.
The Partnership maintains its accounts in accordance with the Uniform System
of Accounts for Pipeline Companies, as prescribed by the Federal Energy
Regulatory Commission ("FERC"). Reports to FERC differ from the accompanying
consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles, generally in that such reports
calculate depreciation over estimated useful lives of the assets as prescribed
by FERC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Partnership have been prepared
using the purchase method of accounting. An allocation of the purchase price to
the net assets acquired was made on their relative fair market values as
appraised. The financial statements include the accounts of the Operating
Partnerships on a consolidated basis. All significant intercompany transactions
have been eliminated in consolidation.
Financial Instruments
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. Unless otherwise
disclosed, the fair values of financial instruments approximate their recorded
values.
27
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
All highly liquid debt instruments purchased with a maturity of three months
or less are classified as cash equivalents.
Revenue Recognition
Substantially all revenue is derived from interstate and intrastate
transportation of petroleum products. Such revenue is recognized as products
are delivered to customers. Such customers are major integrated oil companies,
major refiners and large regional marketing companies. While the consolidated
Partnership's continuing customer base numbers approximately 120, no customer
during 1993 contributed more than 10 percent of total revenue. The Partnership
does not maintain an allowance for doubtful accounts.
Inventories
Inventories, consisting of materials and supplies, are carried at cost which
does not exceed realizable value.
Property, Plant and Equipment
Property, plant and equipment consist primarily of pipeline and related
transportation facilities and equipment. For financial reporting purposes,
depreciation is calculated primarily using the straight-line method over the
estimated useful life of 50 years. Additions and betterments are capitalized
and maintenance and repairs are charged to income as incurred. Generally, upon
normal retirement or replacement, the cost of property (less salvage) is
charged to the depreciation reserve, which has no effect on income.
Net Assets of Discontinued Operations
Net assets of discontinued operations represented certain assets less
liabilities of operations which were divested by the Partnership and consisted
primarily of property, plant and equipment.
Income Taxes
For federal and state income tax purposes, the Partnership and Operating
Partnerships are not taxable entities. Accordingly, the taxable income or loss
of the Partnership and Operating Partnerships, which may vary substantially
from income or loss reported for financial reporting purposes, is generally
includable in the federal and state income tax returns of the individual
partners. In October 1992 (see Note 1), Laurel Corp and its parent LE Holdings,
Inc. ("LEH") were merged into Laurel. Laurel Corp and its parent, LEH, as
corporations, had been separate taxpaying entities whose taxable income was
included in a consolidated federal income tax return. As a result of the
reorganization, the then existing deferred income taxes of $3,697,000 were
charged directly to the Partnership's capital accounts. The provision for
federal income taxes on operations of Laurel Corp and LEH prior to the
reorganization approximates the statutory tax rate applied to the pretax
accounting income.
Environmental Expenditures
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past
28
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
operations, and do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments and/or clean-
ups are probable, and the costs can be reasonably estimated. Generally, the
timing of these accruals coincides with the Partnership's commitment to a
formal plan of action.
Pensions
The Manager maintains a defined contribution plan and a defined benefit plan
(see Note 9) which provide retirement benefits to substantially all of its
regular full-time employees. Certain hourly employees of the Manager are
covered by a defined contribution plan under a union agreement.
Postretirement Benefits Other Than Pensions
The Manager provides postretirement health care and life insurance benefits
for certain of its retirees. In 1992, the Manager adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") (see Note 10) to
account for the cost of these plans. Certain other retired employees are
covered by a health and welfare plan under a union agreement.
3. CONTINGENCIES
The Partnership, and the Operating Partnerships, in the ordinary course of
business, are involved in various claims and legal proceedings, some of which
are covered in whole or in part by insurance. The General Partner is unable to
predict the timing or outcome of these claims and proceedings. Although it is
possible that one or more of these claims or proceedings, if adversely
determined, could, depending on the relative amounts involved, have a material
effect on the Partnership's results of operations for a future period, the
General Partner does not believe that their outcome will have a material effect
on the Partnership's consolidated financial condition.
Environmental
In accordance with its accounting policy on environmental expenditures, the
Partnership recorded expenses of $3.0 million, $3.1 million and $4.2 million
for 1993, 1992 and 1991, respectively, which were related to the environment.
Expenditures, both capital and operating, relating to environmental matters are
expected to increase due to the Partnership's commitment to maintain high
environmental standards and to increasingly strict environmental laws and
government enforcement policies.
In addition, certain Operating Partnerships (or their predecessors) have been
named as a defendant in lawsuits or have been notified by federal or state
authorities that they are a potentially responsible party ("PRP") under federal
laws or a respondent under state laws relating to the generation, disposal, or
release of hazardous substances into the environment. These proceedings
generally relate to potential liability for clean-up costs. The total potential
remediation costs relating to these clean-up sites cannot be reasonably
estimated. With respect to each site, however, the Operating Partnership
involved is one of several or as many as several hundred PRPs that would share
in the total costs of clean-up under the principle of joint and several
liability. The General Partner believes that the generation, handling and
disposal of hazardous substances by the Operating Partnerships and their
predecessors have been in material compliance with applicable environmental and
regulatory requirements. Additional claims for the cost of cleaning up releases
of hazardous substances and for damage to the environment resulting from the
activities of the
29
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Operating Partnerships or their predecessors may be asserted in the future
under various federal and state laws. Although the Partnership has made a
provision for certain legal expenses relating to these matters, the General
Partner is unable to determine the timing or outcome of any pending proceedings
or of any future claims and proceedings.
Guaranteed Investment Contract
The Buckeye Pipe Line Company Retirement and Savings Plan (the "Plan") holds
a guaranteed investment contract ("GIC") issued by Executive Life Insurance
Company ("Executive Life"), which entered conservatorship proceedings in the
State of California in April 1991. The GIC was purchased in July 1989, with an
initial principal investment of $7.4 million earning interest at an effective
rate per annum of 8.98 percent through June 30, 1992. As a result of the
conservatorship proceedings, no payment of principal or interest was made on
the maturity date. A Plan of Rehabilitation was approved by the Superior Court
of the State of California, and the Rehabilitation Plan was consummated on
September 3, 1993. Various policy holders and creditors have, however, appealed
certain aspects of the Plan of Rehabilitation, including the priority status of
entities such as the Plan which purchased GICs subsequent to January 1, 1989.
Pursuant to the Plan of Rehabilitation, the Plan will receive an interest only
contract from Aurora National Life Assurance Company in substitution for its
Executive Life GIC. The contract provides for semi-annual interest payments
through the date of maturity of the contract which will be September 1998. In
addition, the Plan is to receive certain additional cash payments, the amounts
of which cannot be accurately estimated at this time, over the next five years
pursuant to the Plan of Rehabilitation. The timing and amount of payment with
respect to the GIC is dependent upon the outcome of the pending appeals as well
as clarification of various provisions of the Rehabilitation Plan. In May 1991,
the General Partner, in order to safeguard the basic retirement and savings
benefits of its employees, announced its intention to enter an arrangement with
the Plan that would guarantee that the Plan would receive at least its initial
principal investment of $7.4 million plus interest at an effective rate per
annum of 5 percent from July 1, 1989. The General Partner intends to effectuate
its commitment through an agreement with the Plan that would provide, under
certain circumstances and subject to Department of Labor approval, for its
purchase of the Plan's rights with respect to the GIC. The costs and expenses
of the General Partner's employee benefit plans are reimbursable by the
Partnership under the applicable limited partnership and management agreements.
The General Partner believes that an adequate provision has been made for costs
which may be incurred by the Partnership in connection with the above mentioned
guarantee.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 9,978 $ 10,018
Buildings and leasehold improvements...................... 23,667 23,279
Machinery, equipment and office furnishings............... 511,590 500,389
Construction in progress.................................. 2,735 3,185
-------- --------
547,970 536,871
Less accumulated depreciation........................... 48,895 41,330
-------- --------
Total................................................... $499,075 $495,541
======== ========
</TABLE>
30
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. DISCONTINUED OPERATIONS
In the fourth quarter of 1990, the Partnership recorded a non-cash charge to
earnings of $19.1 million, net of estimated earnings during phase-out, relating
to the Partnership's decision to discontinue its 16-inch crude oil pipeline and
a refined products terminal. The Partnership closed the sale of the 16-inch
crude oil pipeline, together with associated real and personal property to Sun
Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2
million. Remaining discontinued operations consisting of petroleum facilities
at the refined products terminal were dismantled and removed during the first
quarter 1993. Disposal of these discontinued operations resulted in a loss of
$127,000.
6. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Taxes -- other than income.................................. $ 7,011 $ 6,793
Accrued charges due Manager................................. 6,037 2,987
Environmental liabilities................................... 2,069 1,719
Interest.................................................... 958 1,256
Other....................................................... 3,393 3,000
------- -------
Total..................................................... $19,468 $15,755
======= =======
</TABLE>
7. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt (excluding current maturities) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
First Mortgage Notes
9.33% Series G due December 15, 1994................... $ -- $ 16,000
9.50% Series H due December 15, 1995 (see Note 11)..... -- 20,000
9.72% Series I due December 15, 1996................... 20,000 20,000
11.18% Series J due December 15, 2006 (Subject to $16.9
million annual sinking fund requirement commencing
December 15, 1997) 169,000 169,000
7.11% Series K due December 15, 2007................... 11,000 --
7.15% Series L due December 15, 2008................... 11,000 --
7.19% Series M due December 15, 2009................... 13,000 --
-------- --------
Total................................................ $224,000 $225,000
======== ========
</TABLE>
Maturities of debt outstanding at December 31, 1993 are as follows:
$16,000,000 in 1994 (included in current liabilities); none in 1995;
$20,000,000 in 1996; $16,900,000 in 1997; $16,900,000 in 1998 and a total of
$170,200,000 in the period 1999 through 2009.
The fair value of the Partnership's debt is estimated to be $285 million and
$272 million as of December 31, 1993 and 1992, respectively. These values were
calculated using interest rates currently available to the Partnership for
issuance of debt with similar terms and remaining maturities.
31
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The First Mortgage Notes are collateralized by a mortgage on and a security
interest in substantially all of the currently existing and after-acquired
property, plant and equipment (the "Mortgaged Property") of Buckeye.
The indenture pursuant to which the First Mortgage Notes were issued (the
"Mortgage Note Indenture"), as amended by First, Second and Third Supplemental
Indentures, contains covenants which generally (a) limit the outstanding
indebtedness of Buckeye under the Mortgage Note Indenture to the amount of
First Mortgage Notes currently outstanding plus up to $15 million of short-term
borrowings for working capital purposes and additional debt under the Mortgage
Note Indenture incurred in connection with capitalized additions, repairs and
improvements to the Mortgaged Property, (b) prohibit Buckeye from creating or
incurring additional liens on its property, (c) prohibit Buckeye from disposing
of substantially all of its property or business to another party and (d)
prohibit Buckeye from disposing of any part of the Mortgaged Property unless
the proceeds in excess of $1 million in a fiscal year are available for
reinvestment in assets subject to the lien of the Mortgage Note Indenture.
On December 31, 1993, Buckeye entered into an agreement to issue $35 million
of additional First Mortgage Notes in accordance with provisions under a Third
Supplemental Indenture and as permitted under the Mortgage Note Indenture.
These additional First Mortgage Notes, which were issued on January 7, 1994,
mature from 2007 to 2009 and bear interest at rates from 7.11 percent to 7.19
percent. A portion of the proceeds of these notes was used to complete an in-
substance defeasance of principal and interest with respect to Buckeye's $20
million, 9.50 percent First Mortgage Notes (Series H) due December 1995 (see
Note 11). Remaining proceeds of the additional notes are available for working
capital purposes. In addition, Buckeye entered into an agreement with the
purchaser of the $35 million of additional First Mortgage Notes which permits
Buckeye, under certain circumstances, to issue up to $40 million of additional
First Mortgage Notes to such purchaser. Any issuance of the additional First
Mortgage Notes will require the prior approval of the holders of the First
Mortgage Notes to an amendment to the Mortgage Note Indenture. Buckeye is
currently in the process of seeking such approval.
The Amended and Restated Agreement of Limited Partnership of the Partnership
(the "Partnership Agreement") contains certain restrictions which limit the
incurrence of any debt by the Partnership or any Operating Partnership to the
First Mortgage Notes, any additional debt of Buckeye permitted by the Mortgage
Note Indenture and other debt not in excess of an aggregate consolidated
principal amount of $25 million plus the aggregate proceeds from the sale of
additional partnership interests.
The Partnership maintains a $15 million unsecured revolving credit facility
with a commercial bank which is available to the Partnership for general
purposes including capital expenditures and working capital. Interest on any
borrowings under this facility is calculated on the bank's Alternate Base Rate
("ABR") or LIBOR plus one percent. ABR is defined as the highest of the bank's
prime rate, the three month secondary CD rate plus one percent, and the Federal
Funds Rate plus one-half of one percent. At December 31, 1993, there was no
amount outstanding under this facility.
Buckeye has a line of credit from two commercial banks (the "Working Capital
Facility") which permits short-term borrowings of up to $10 million outstanding
at any time. Borrowings under the Working Capital Facility bear interest at
each bank's prime rate and are secured by the accounts receivable of Buckeye.
The Mortgage Note Indenture contains covenants requiring that, for a period of
45 consecutive days during any year, no indebtedness be outstanding under the
Working Capital Facility. In addition, Laurel has an unsecured line of credit
from a commercial bank which permits short-term borrowings of up to $1 million
outstanding at any time. Borrowings bear interest at the bank's prime rate.
Laurel's unsecured line of credit contains covenants requiring that, for a
period
32
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of 30 consecutive days during any year, no indebtedness be outstanding under
this facility. At December 31, 1993, there were no amounts outstanding under
either of these facilities.
8. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued employee benefit liabilities........................ $33,094 $32,386
Accrued charges due Manager................................. -- 4,719
Other....................................................... 11,963 6,899
------- -------
Total..................................................... $45,057 $44,004
======= =======
</TABLE>
9. PENSION PLANS
The Manager provides retirement benefits, primarily through noncontributory
pension plans, for substantially all of its regular full-time employees, except
those covered by certain labor contracts, under which the Manager contributes 5
percent of each covered employee's salary, and a retirement income guarantee
plan (a defined benefit plan) which generally guarantees employees hired before
January 1, 1986 a retirement benefit at least equal to the benefit they would
have received under a previously terminated defined benefit plan. The Manager's
policy is to fund amounts as are necessary to at least meet the minimum funding
requirements of ERISA. All of these plans were assumed by the Manager. Net
pension expense (benefit) for 1993, 1992 and 1991 for the defined benefit plans
included the following components:
<TABLE>
<CAPTION>
1993 1992 1991
------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................... $ 431 $ 346 $ 373
Interest cost on projected benefit obligation......... 784 664 687
Actual return on assets............................... (1,142) (655) (1,087)
Net amortization and deferral......................... 229 (389) 77
------ ----- ------
Net pension expense (benefit)....................... $ 302 $ (34) $ 50
====== ===== ======
</TABLE>
The pension expense for the defined contribution plan included in the
consolidated statements of income approximated $1,403,000, $1,342,000 and
$1,310,000 for 1993, 1992 and 1991, respectively.
The following table sets forth the funded status of the Manager's defined
benefit plans and amounts recognized in the Partnership's consolidated balance
sheets at December 31, 1993 and 1992 related to those plans.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligations.............................. $ (4,977) $(3,859)
======== =======
Accumulated benefit obligations......................... $ (6,235) $(4,621)
======== =======
Projected benefit obligation............................ $(12,621) $(9,806)
Plan assets at fair value................................. 8,467 7,917
-------- -------
Projected benefit obligation in excess of plan assets..... (4,154) (1,889)
Unrecognized net loss (gain).............................. 78 (1,725)
Unrecognized net asset.................................... (1,582) (1,742)
-------- -------
Pension liability recognized in the balance sheet......... $ (5,658) $(5,356)
======== =======
</TABLE>
33
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1993, approximately 29.1 percent of plan assets were
invested in debt securities, 58.9 percent in equity securities and 12.0 percent
in cash equivalents.
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.25 percent and 5.5 percent, respectively.
The expected long-term rate of return on assets was 9.5 percent as of January
1, 1993 and 8.5 percent as of January 1, 1994.
The Manager also participates in a multi-employer retirement income plan
which provides benefits to employees covered by certain labor contracts.
Pension expense for the plan was $156,000, $137,000 and $131,000 for 1993, 1992
and 1991, respectively.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1992, the Partnership adopted SFAS 106. This statement
requires that the cost of postretirement benefits other than pensions be
accrued over the employee's years of service. Prior to the adoption of SFAS
106, the cost of these postretirement benefits was expensed on a "pay as you
go" basis.
The Manager provides postretirement health care and life insurance benefits
to certain of its retirees. To be eligible for these benefits an employee had
to be hired prior to January 1, 1991 and has to meet certain service
requirements. The Manager does not prefund this postretirement benefit
obligation. On January 1, 1992, the accumulated postretirement benefit
obligation ("APBO") amounted to $25,544,000. The Manager chose to recognize
immediately the APBO as expense in 1992 for financial reporting purposes.
Postretirement benefit costs for 1993 and 1992 included the following
components:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost............................................... $ 442 $ 548
Interest cost on accumulated postretirement benefit
obligation................................................ 1,673 2,003
Net amortization and deferral.............................. (580) --
------- -------
Net postretirement expense................................. $ 1,535 $ 2,551
======= =======
</TABLE>
The following table sets forth the amounts related to postretirement benefit
obligations recognized in the Partnership's consolidated balance sheets as of
December 31, 1993 and 1992:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefits
Retirees and dependents............................. $(12,373) $(10,147)
Employees eligible to retire........................ (3,998) (3,348)
Employees ineligible to retire...................... (7,589) (5,892)
-------- --------
Accumulated postretirement benefit obligation....... (23,960) (19,387)
Unamortized gain due to plan amendment................ (5,796) (7,694)
Unrecognized net loss................................. 2,320 51
-------- --------
Postretirement liability recognized in the balance
sheet................................................ $(27,436) $(27,030)
======== ========
</TABLE>
34
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average discount rate used in determining the APBO was 7.25
percent. The assumed rate for plan cost increases in 1993 was 13.1 percent and
10.7 percent for non-Medicare eligible and Medicare eligible retirees,
respectively. The assumed annual rates of cost increase decline each year
through 2005 to a rate of 5.0 percent, and remain at 5.0 percent thereafter for
both non-Medicare eligible and Medicare eligible retirees. The effect of a 1
percent increase in the health care cost trend rate for each future year would
have increased the aggregate of service and interest cost components by
$402,000 in 1993 and the APBO would have increased by $3,953,000 as of December
31, 1993.
The Manager also contributes to a multi-employer postretirement benefit plan
which provides health care and life insurance benefits to employees covered by
certain labor contracts. The cost of providing these benefits was approximately
$123,000, $112,000 and $99,000 for 1993, 1992 and 1991, respectively.
11. EARLY EXTINGUISHMENT OF DEBT
On December 31, 1993, Buckeye entered into an agreement to issue $35 million
of additional First Mortgage Notes (Series K, L and M) bearing interest rates
from 7.11 percent to 7.19 percent (see Note 7). A portion of the proceeds from
the issuance of these First Mortgage Notes were used to purchase approximately
$22.2 million of U.S. Government securities. These securities were deposited
into an irrevocable trust to complete an in-substance defeasance of Buckeye's
9.50 percent, Series H, First Mortgage Notes. The funds in the trust will be
used solely to satisfy the interest due and principle amount of $20,000,000 due
at maturity in December 1995. Accordingly, such U.S. Government securities and
the 9.50 percent, Series H, First Mortgage Notes have been excluded from the
1993 balance sheet. The debt extinguishment resulted in an extraordinary charge
of $2,161,000.
12. LEASES
The Operating Partnerships lease certain land and rights-of-way. Minimum
future lease payments for these leases as of December 31, 1993 are
approximately $2.7 million for each of the next five years. Substantially all
of these lease payments, however, can be cancelled at any time should they not
be required for operations.
The Manager leases space in an office building and certain copying equipment
and Buckeye leases certain computing equipment and automobiles. The rent on
such leases is charged to the Operating Partnerships. Future minimum lease
payments under these noncancellable operating leases at December 31, 1993 were
as follows: $832,000 for 1994, $824,000 for 1995, $611,000 for 1996, $317,000
for 1997, $196,000 for 1998, and $209,000 thereafter.
Rent expense for all operating leases was $4,890,000, $4,417,000 and
$4,496,000 for 1993, 1992 and 1991, respectively.
13. RELATED PARTY TRANSACTIONS
The Partnership and the Operating Partnerships are managed and controlled by
the General Partner and the Manager. Under certain partnership agreements and
management agreements, the General Partner, the Manager, and certain related
parties are entitled to reimbursement of all direct and indirect costs related
to the business activities of the Partnership and the Operating Partnerships.
These costs, which totaled $52.7 million, $46.3 million and $46.1 million in
1993, 1992 and 1991, respectively, include insurance fees, consulting fees,
general and administrative costs, compensation and benefits payable to officers
and employees of the General Partner and Manager, tax information and reporting
costs, legal and audit fees and an allocable portion of overhead expenses.
35
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1986, Buckeye's predecessor (then owned by Penn Central) obtained an
administrative consent order ("ACO") from the New Jersey Department of
Environmental Protection and Energy under the New Jersey Environmental Cleanup
Responsibility Act of 1983 for all six of its facilities in New Jersey. The ACO
required that a sampling plan for environmental contamination be conducted at
the New Jersey facilities and that any required clean-up plan be implemented.
Penn Central has agreed to fund the cost of the sampling plan and any costs of
compliance. Through December 1993, Buckeye's costs of $2,286,000 have been
funded by Penn Central.
14. PARTNERS' CAPITAL
Changes in partners' capital for the years ended December 31, 1991, 1992, and
1993 were as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------------------- -----------
(IN THOUSANDS, EXCEPT FOR UNITS)
<S> <C> <C> <C>
Partners' capital at December 31, 1990..... $2,531 $250,573 $253,104
Net income............................... 305 30,160 30,465
Distributions............................ (315) (31,200) (31,515)
-------- ----------- -----------
Partners' capital at December 31, 1991..... 2,521 249,533 252,054
Net income............................... 90 8,912 9,002
Distributions............................ (315) (31,200) (31,515)
Reversal of corporate deferred income
taxes................................... (37) (3,660) (3,697)
-------- ----------- -----------
Partners' capital at December 31, 1992..... 2,259 223,585 225,844
Net income............................... 394 38,972 39,366
Distributions............................ (315) (31,200) (31,515)
-------- ----------- -----------
Partners' capital at December 31, 1993..... $2,338 $231,357 $233,695
======== =========== ===========
Units outstanding at December 31, 1993,
1992, and 1991............................ 121,212 12,000,000 12,121,212
======== =========== ===========
</TABLE>
The net income per unit for 1993, 1992 and 1991 was calculated using
12,121,212 outstanding units which include 121,212 of outstanding GP Units.
The Partnership Agreement provides that without prior approval of limited
partners of the Partnership holding an aggregate of at least two-thirds of the
outstanding LP Units, the Partnership cannot issue more than 4,800,000
additional LP Units, or issue any additional LP Units of a class or series
having preferences or other special or senior rights over the LP Units.
15. CASH DISTRIBUTIONS
The Mortgage Note Indenture covenants permit cash distributions by Buckeye to
the Partnership so long as no default exists under the Mortgage Note Indenture
and provided that such distributions do not exceed Net Cash Available to
Partners (generally defined to equal net income plus depreciation and
amortization less (a) capital expenditures, (b) payments of principal of debt
and (c) certain other amounts, all on a cumulative basis since the formation of
the Partnership). The maximum amount available for distribution by Buckeye to
the Partnership under the formula as of December 31, 1993 amounted to $18.5
million. The Partnership is also entitled to receive cash distributions from
Everglades, BTT and Laurel.
36
<PAGE>
BUCKEYE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership makes quarterly cash distributions to Unitholders of
substantially all of its available cash, generally defined as consolidated cash
receipts less consolidated cash expenditures and such retentions for working
capital, anticipated cash expenditures and contingencies as the General Partner
deems appropriate or as are required by the terms of the Mortgage Note
Indenture. In each of 1993, 1992 and 1991, quarterly distributions of $0.65 per
GP and LP Unit paid in February, May, August and November aggregated
$31,515,000. All such distributions were paid on 12,121,212 GP and LP Units
outstanding.
On January 28, 1994, the General Partner announced a quarterly distribution
of $0.70 per GP and LP Unit payable on February 28, 1994.
16. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN
The Partnership has a Unit Option and Distribution Equivalent Plan (the
"Option Plan"), which was approved by the Board of Directors of the General
Partner on April 25, 1991 and by holders of the LP Units on October 22, 1991.
The Option Plan authorizes the granting of options (the "Options") to acquire
LP Units to selected key employees (the "Optionees") of the General Partner or
any subsidiary, not to exceed 360,000 LP Units in the aggregate. The price at
which each LP Unit may be purchased pursuant to an Option granted under the
Option Plan is generally equal to the market value on the date of the grant.
Options may be granted with a feature that allows Optionees to apply accrued
credit balances (the "Distribution Equivalents") as an adjustment to the
aggregate purchase price of such Options. The Distribution Equivalents shall be
an amount equal to (i) the Partnership's per LP Unit regular quarterly
distribution, multiplied by (ii) the number of LP Units subject to such Options
that have not vested. Vesting in the Options is determined by the number of
anniversaries the Optionee has remained in the employ of the General Partner or
a subsidiary following the date of the grant of the Option. Options become
vested in varying amounts beginning generally three years after the date of
grant and remain exercisable for a period of five years. At December 31, 1993,
there were 65,650 Options outstanding. Options granted during 1993, 1992 and
1991 aggregated 23,500 units, 22,250 units and 20,100 units, respectively with
a purchase price of $32.75, $27.688 and $25.875, respectively. All such Options
were granted with Distribution Equivalents. As of December 31, 1993, none of
these Options were exercisable and none of these Options had been exercised.
17. QUARTERLY FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
Summarized quarterly financial data for 1993 and 1992 are set forth below.
Quarterly results were influenced by seasonal factors inherent in the
Partnership's business. Quarterly financial data for 1992 was previously
restated to reflect adoption of SFAS 106 effective as of January 1, 1992.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
---------------- --------------- --------------- --------------- -----------------
1993 1992 1993 1992 1993 1992 1993 1992 1993 1992
------- -------- ------- ------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $41,429 $ 37,183 $42,152 $40,153 $44,394 $41,646 $47,520 $44,082 $175,495 $163,064
Operating income........ 15,734 12,822 15,773 14,669 17,627 16,362 17,717 19,383 66,851 63,236
Income from continuing
operations*............ 9,338 5,754 9,765 7,582 11,190 8,834 11,361 12,376 41,654 34,546
Net income (loss)....... 9,211 (19,790) 9,765 7,582 11,190 8,834 9,200 12,376 39,366 9,002
Income per Unit from
continuing operations*. 0.77 0.47 0.81 0.63 0.92 0.73 0.94 1.02 3.44 2.85
Net income (loss) per
Unit................... 0.76 (1.63) 0.81 0.63 0.92 0.73 0.76 1.02 3.25 0.74
</TABLE>
- --------
* Before extraordinary charge and cumulative effect of change in accounting
principle.
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have directors or officers. The directors and
officers of the General Partner and the Manager perform all management
functions. Directors and officers of the General Partner and the Manager are
selected by Penn Central.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
Set forth below is certain information concerning the directors and executive
officers of the General Partner. All of such persons were elected to their
present positions with the General Partner in October 1986, except as noted
below.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH GENERAL BUSINESS EXPERIENCE DURING
PARTNER PAST FIVE YEARS
--------------------- ---------------------------
<S> <C>
Alfred W. Martinelli, 66 Mr. Martinelli has been Chairman of the Board and
Chairman of the Board, Chief Executive Officer of the General Partner for
Chief Executive Officer more than five years. He served as President of the
and Director* General Partner from February 1991 to February 1992.
Mr. Martinelli has been Chairman and Chief Executive
Officer of Penn Central Energy Management Company
("PCEM") for more than five years. He is also Vice
Chairman and a director of Penn Central and a direc-
tor of American Annuity Group, Inc.
Neil M. Hahl, 45 Mr. Hahl was elected President of the General Part-
President and ner in February 1992. He has been a director of the
Director General Partner since February 1989. Mr. Hahl was
elected a director of Penn Central in December 1992
and has been Senior Vice President of Penn Central
for more than five years.
Ernest R. Varalli, 63 Mr. Varalli was elected to his present position in
Executive Vice President, July 1987. He is also Executive Vice President,
Chief Financial Officer, Chief Financial Officer and Treasurer of PCEM. Mr.
Treasurer and Director* Varalli has been a consultant to Penn Central for
more than five years.
Brian F. Billings, 55 Mr. Billings served as President of the General
Director* Partner from October 1986 to December 1990. He was
elected Chairman of the Manager in February 1991.
Mr. Billings was President of the Manager from July
1987 to December 1990. Mr. Billings has been Presi-
dent of PCEM for more than five years.
A. Leon Fergenson, 81 Mr. Fergenson has been a director of the General
Director Partner since December 1986. He is also a director
of American Annuity Group, Inc., Sequa Corporation,
National Benefit Life Insurance Company and various
mutual funds sponsored by Neuberger & Berman.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH GENERAL BUSINESS EXPERIENCE DURING
PARTNER PAST FIVE YEARS
- --------------------- ---------------------------
<S> <C>
Edward F. Kosnik, 49 Mr. Kosnik has been Chairman of the Board, President
Director and Chief Executive Officer of JWP, Inc. since May
1993. He was Executive Vice President and Chief Fi-
nancial Officer of JWP, Inc. from December 1992 to
April 1993. Mr. Kosnik was President of Sprague
Technologies, Inc. from May 1992 to June 1992 and
President and Chief Executive Officer of Sprague
Technologies, Inc. from July 1987 to May 1992.
William C. Pierce, 53 Mr. Pierce has been a director of the General Part-
Director ner since February 1987. He has been Executive Vice
President and Group Executive of Chemical Bank and
Chemical Banking Corporation since November 1992.
Mr. Pierce was Executive Vice President and Chief
Risk Policy Officer of Chemical Bank and Chemical
Banking Corporation from December 1991 to November
1992. He was Chief Credit Officer of Chemical Bank
and Chemical Banking Corporation from January 1988
to December 1991.
Robert H. Young, 72 Mr. Young has been a director of the General Partner
Director since July 1987. He was Secretary of the General
Partner from July 1987 through October 1991. Since
October 1991, Mr. Young has been Counsel to the law
firm of Morgan, Lewis & Bockius. Prior to October
1991, he was a Senior Partner with that firm for
more than five years. Mr. Young is also Chairman of
the Board of Directors of Independence Blue Cross.
</TABLE>
- --------
* Also a director of the Manager.
The General Partner has an Audit Committee, which currently consists of three
directors: A. Leon Fergenson, William C. Pierce and Robert H. Young. Messrs.
Fergenson, Pierce and Young are neither officers nor employees of the General
Partner or any of its affiliates.
The General Partner also has a Compensation Committee, which currently
consists of four directors: Alfred W. Martinelli, Brian F. Billings, Ernest R.
Varalli and Robert H. Young. The Compensation Committee is concerned primarily
with establishing executive compensation policies for officers of the Manager
and administering of the Partnership's Option Plan. See "Executive
Compensation--Compensation Committee Interlocks and Insider Participation in
Compensation Decisions."
39
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGER
Set forth below is certain information concerning the directors and executive
officers of the Manager. Mr. Billings was elected Chairman of the Manager in
February 1991, Messrs. Billings and Martinelli were elected as directors of the
Manager in March 1987, and Mr. Varalli was elected as a director in July 1987.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT BUSINESS EXPERIENCE DURING
POSITION WITH THE MANAGER PAST FIVE YEARS
- ------------------------- --------------------------
<S> <C>
C. Richard Wilson, 49 Mr. Wilson was named President and Chief Operating
President, Chief Operat- Officer in February 1991. He was Executive Vice
ing Officer President and Chief Operating Officer from July 1987
and Director to February 1991. Mr. Wilson has been a director of
the Manager since October 1986.
Michael P. Epperly, 50 Mr. Epperly was named Senior Vice President--Opera-
Senior Vice President-- tions in March 1990. He was Vice President--Opera-
Operations tions from October 1986 to February 1990.
Stephen C. Muther, 44 Mr. Muther joined the Manager as General Counsel,
General Counsel, Vice Vice President--Administration and Secretary in May
President-- 1990. From July 1985 to April 1990 Mr. Muther was
Administration and Sec- Associate Litigation and Antitrust Counsel for Gen-
retary* eral Electric Company.
Steven C. Ramsey, 39 Mr. Ramsey was named Vice President and Treasurer in
Vice President and Trea- February 1991. He was elected Treasurer in June
surer 1989. Prior to June 1989, Mr. Ramsey served in vari-
ous positions in the marketing and engineering de-
partments of the Manager.
</TABLE>
- --------
* Also Secretary of the General Partner since February 1992.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned by the Chief
Executive Officer of the General Partner and the four most highly compensated
executive officers of the General Partner and the Manager for services rendered
to the Partnership, the General Partner or the Manager for the fiscal year
ended December 31, 1993, as well as the total compensation earned by such
individuals for the two previous fiscal years. Alfred W. Martinelli, Chairman
of the Board, Chief Executive Officer and Director of the General Partner, did
not receive any cash compensation for serving as an officer of the General
Partner in 1993, but received fees for serving as a Director of the General
Partner. See "Director Compensation" below. Executive officers of the Manager,
including Messrs. Wilson, Epperly, Muther and Ramsey, are compensated by the
Manager and, pursuant to management agreements with each of the Operating
Partnerships, such compensation is reimbursed by the Operating Partnerships in
accordance with an allocation formula based upon the results of the prior
year's operations.
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ---------- ----------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND BONUS(1) COMPEN- OPTIONS(2) PAYOUTS(3) COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) ($) SATION($) (#) ($) SATION ($)
------------------ ---- ---------- -------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Alfred W. Martinelli... 1993 0 0 5,539(5) 0 0 22,500(7)
Chairman of the Board 1992 218,750(4) 0 (6) 0 0 9,500(7)
and Chief Executive 1991 375,000(4) 0 (6) 0 0
Officer of the General
Partner
C. Richard Wilson...... 1993 206,667 105,000 (6) 7,500 37,050 20,977(8)
President and Chief 1992 188,333 73,101 (6) 7,500 40,400 31,469(8)
Operating Officer of 1991 172,500 52,802 (6) 5,850 39,556
the Manager
Michael P. Epperly..... 1993 143,333 60,000 (6) 3,750 30,729 19,901(8)
Senior Vice 1992 135,833 37,595 (6) 3,750 29,556 17,929(8)
President--Operations 1991 126,250 27,155 (6) 3,750 28,278
of the Manager
Stephen C. Muther...... 1993 144,167 45,000 (6) 3,000 20,000 17,550(8)
General Counsel, Vice 1992 126,667 31,329 (6) 3,000 20,000 14,930(8)
President-- 1991 119,167 22,629 (6) 3,000 15,000
Administration and
Secretary of the
Manager
Steven C. Ramsey....... 1993 126,667 45,000 (6) 2,500 20,377 15,800(8)
Vice President and 1992 108,667 31,329 (6) 2,500 15,750 13,130(8)
Treasurer of the 1991 94,000 22,629 (6) 2,500 5,875
Manager
</TABLE>
- --------
(1) Represents amounts awarded by the Compensation Committee as cash bonuses
earned under the Manager's Annual Incentive Compensation Plan ("AIC Plan").
Under the AIC Plan, individual awards are granted to participants based
upon satisfaction of such participant's target award opportunities and such
awards are paid to participants as soon as practicable after they are
granted.
(2) Represents options granted under the Partnership's Unit Option and
Distribution Equivalent Plan (the "Option Plan"). See "Long Term
Compensation--Option Plan" below. Certain officers of the Manager are also
eligible to participate in the Penn Central Stock Option Plan (the "Penn
Central Option Plan"). No cost or expense relating to the Penn Central
Option Plan is borne by the Partnership. No options were awarded in 1992 or
1993 under the Penn Central Option Plan to the Chief Executive Officer of
the General Partner or the four most highly compensated executive officers
of the General Partner and Manager. After taking into account the spinoff
of General Cable Corporation ("General Cable") to Penn Central's
stockholders in June 1992, Mr. Muther received, in 1991, options to
purchase 2,727 shares of Penn Central and 625 shares of General Cable.
(3) Represents payments received during the applicable year under the Manager's
Long Term Incentive Compensation Plans (the "LTIC Plans"). See "Long Term
Compensation--Long Term Incentive Plans" below.
(4) Represents consulting fees paid by PCEM and reimbursed by the Partnership
prior to the termination of Mr. Martinelli's consulting arrangement in July
1992.
(5) Represents lease payments made by the Partnership for an automobile used by
Mr. Martinelli.
(6) During the year indicated, no perquisites or non-cash compensation exceeded
the lesser of $50,000 or an amount equal to 10 percent of such person's
salary and bonus.
41
<PAGE>
(7) Represents director fees which commenced in July 1992. See "Director
Compensation" below.
(8) Represents the amount contributed by the Manager to the Manager's defined
contribution retirement plan (the "New Retirement Plan") and Manager's
matching contributions under Manager's Savings Plan and, for Mr. Wilson and
Mr. Epperly an additional $733 and $379, respectively, under the Manager's
Benefit Equalization Plan for 1993. For 1992, Mr. Wilson received an
additional $10,748 under the Manager's Benefit Equalization Plan. In
addition to participation in the New Retirement Plan, Messrs. Wilson,
Epperly and Ramsey are guaranteed certain defined benefits upon retirement
under the Manager's retirement income guarantee plan. See "Retirement and
Savings Plans" below.
LONG TERM COMPENSATION
Option Plan
The following table sets forth additional information regarding options
granted under the Option Plan to the Chief Executive Officer of the General
Partner and the four most highly compensated executive officers of the General
Partner and Manager during 1993.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF LP UNIT
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------ --------------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED (1) IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/UNIT) DATE 5% ($) (2) 10% ($) (2)
---- ----------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alfred W. Martinelli.... 0 -- -- -- -- --
C. Richard Wilson....... 7,500 31.9% 32.750 2/3/2003 154,500 391,500
Michael P. Epperly...... 3,750 16.0% 32.750 2/3/2003 77,200 195,700
Stephen C. Muther....... 3,000 12.8% 32.750 2/3/2003 61,800 156,600
Steven C. Ramsey........ 2,500 10.6% 32.750 2/3/2003 51,500 130,500
</TABLE>
- --------
(1) Represents LP Unit options granted under the Option Plan. Options shown in
the table were granted with a feature that allows optionees to apply
accrued credit balances (the "Distribution Equivalents") as a reduction to
the aggregate purchase price of such options. The Distribution Equivalents
are equal to (i) the Partnership's per LP Unit regular quarterly
distribution as declared from time to time by the Board of Directors of the
General Partner, multiplied by (ii) the number of LP Units subject to
options that have not vested. Vesting in the options is determined by the
number of anniversaries the optionee has remained in the employ of the
General Partner or a subsidiary following the date of the grant of the
option. Vesting shall be at the rate of 0 percent if the number of
anniversaries are less than three, 60 percent if the number of
anniversaries are three but less than four, 80 percent if the number of
anniversaries are four but less than five and 100 percent if the number of
anniversaries are five or more. In addition, the optionee may become fully
vested upon death, retirement, disability or a determination by the Board
of Directors of the General Partner or the Compensation Committee that
acceleration of the vesting in the option would be desirable for the
Partnership. Up to 95 percent of the LP Unit purchase price and up to 100
percent of any taxes required to be withheld in connection with the
purchase of the LP Units pursuant to such options may be financed through a
loan program established by the General Partner.
42
<PAGE>
(2) The dollar amounts under these columns are the values of options (not
including accrual of any Distribution Equivalents) at the 5 percent and 10
percent rates set by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of the
price of LP Units. No alternative formula for a grant date valuation was
used, as the General Partner is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
The following table sets forth information regarding options exercised in
1993 and values of unexercised options as of December 31, 1993 for the Chief
Executive Officer of the General Partner and the four most highly compensated
executive officers of the General Partner and the Manager.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1993 (#) DECEMBER 31,1993 ($)(1)
--------------------- -----------------------
LP UNITS ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ----------------- ------------------ --------------------- -----------------------
<S> <C> <C> <C> <C>
Alfred W. Martinelli.... 0 -- 0/0 --
C. Richard Wilson....... 0 -- 0/20,850 0/216,300
Michael P. Epperly...... 0 -- 0/11,250 0/119,300
Stephen C. Muther....... 0 -- 0/9,000 0/95,400
Steven C. Ramsey........ 0 -- 0/7,500 0/79,500
</TABLE>
- --------
(1) The values of the unexercised options do not include any accrual for
Distribution Equivalents.
In 1993, Messrs. Wilson, Epperly and Muther exercised options to purchase
11,294 shares, 1,636 shares and 1,090 shares of Penn Central, respectively,
acquired pursuant to the Penn Central Option Plan with a net value realized of
$63,559, $22,141 and $8,916, respectively. No cost or expense relating to the
exercise of these options was incurred by the Partnership.
Long-Term Incentive Plans
Prior to 1991 when the Option Plan went into effect, the Manager created an
LTIC Plan each year which permitted the Board of Directors of the General
Partner or the Compensation Committee to grant cash awards to certain
significant employees of the Manager for performance during three-year periods.
Although cash award payments continue under these LTIC Plans through 1994, no
new LTIC plans were established for the period 1991 through 1993, 1992 through
1994 or 1993 through 1995. In addition to the LTIC Plans, the Manager created a
transition plan which grants to each participant an additional cash award in an
amount equal to the difference between the target amount under the 1990-1992
LTIC Plan and the sum of (i) amounts received pursuant to LTIC Plans and (ii)
the value of Distribution Equivalents vested under the Option Plan for each
year from 1992 through 1995.
Awards under LTIC Plans are based on achievement of certain long-term
financial performance goals for the Partnership and may not exceed 150 percent
of the target award opportunity established by the Board of Directors of the
General Partner or the Compensation Committee at the beginning of such period
(or as soon as practicable thereafter) for such period. A participant's target
43
<PAGE>
award opportunity under the LTIC Plans may not exceed 25 percent of such
participant's aggregate base salary earned during the three-year period. If the
Partnership meets or exceeds the interim financial performance goals under the
LTIC Plans, cash payments up to the full amount of the target award are made in
the following installments: 10 percent in the second year of the award period,
30 percent in the third year of the award period and 60 percent in the first
year following the award period. Any cash award in excess of the target award
is paid in the second year following the award period with 10 percent simple
interest.
RETIREMENT AND SAVINGS PLANS
Effective December 31, 1985, Pipe Line terminated its defined benefit
retirement plan (the "Retirement Plan") and adopted a new defined contribution
plan (the "New Retirement Program"). Those employees hired prior to January 1,
1986 are covered by a retirement income guarantee plan (the "RIGP"). These
plans were assumed by the Manager.
The Operating Partnerships reimburse the Manager for payments made to
employees pursuant to the New Retirement Program, the RIGP, the Equalization
Plan (described below) and the Savings Plan (described below).
Under the New Retirement Program, the Manager makes contributions equal to 5
percent of an employee's covered compensation, which includes base salary plus
overtime, annual cash bonuses and any periodic salary continuance payments but
does not include extraordinary cash bonuses, deferred awards, other forms of
deferred compensation, lump-sum severance pay, fees or any other kind of
special or extra compensation. Employees may elect to have the Manager's
contributions invested in any of five investment funds.
The RIGP generally provides for an additional retirement benefit equal to the
amount, if any, by which the aggregate of the annuity equivalent of the
employee's accrued benefit under the former Retirement Plan at December 31,
1985 plus the annuity equivalent of the vested portion of employer
contributions under the New Retirement Program for the account of such employee
(plus or minus aggregate investment gains or losses thereon) is less than the
retirement benefit that the employee would have received if the former
Retirement Plan had continued. The vesting formula for the New Retirement
Program and the RIGP provides for 100 percent vesting after 5 years of service.
Service under the former Retirement Plan is carried over to the new plans. The
minimum retirement benefit guaranteed under the RIGP is based on the highest
average compensation during any five consecutive calendar years of employment
within the last ten years of employment preceding retirement ("Highest Average
Compensation"). For purposes of the RIGP, compensation is defined to include
the same components as under the New Retirement Program, except that periodic
salary continuance payments are not included. The former Retirement Plan
benefit, which the RIGP was established to guarantee, provides for a retirement
benefit equal to 1.75 percent per year of service (maximum of 60 percent) of
the Highest Average Compensation, reduced by 1.46 percent for each year of
service (with a maximum offset of 50 percent) of the estimated primary
insurance amount that an employee is entitled to receive upon retirement, other
termination of employment or, if earlier, attainment of age 65 under the Social
Security Act.
The Manager also assumed Pipe Line's Benefit Equalization Plan (the
"Equalization Plan"), which generally makes up the reductions caused by
Internal Revenue Code limitations in the annual retirement benefit determined
pursuant to the RIGP and in the Manager's contributions on behalf of an
employee pursuant to the New Retirement Program and the Savings Plan. Those
amounts not payable under the RIGP (or under affiliated company retirement
plans and employee transfer policies), the New Retirement Program or the
Savings Plan are payable under the Equalization Plan.
44
<PAGE>
Estimated annual benefits under the RIGP and the Equalization Plan,
calculated under the single life annuity option form of pension, payable to
participants at the normal retirement age of 65, are illustrated in the
following table.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFIT
AVERAGE OF 5 -------------------------------------------
HIGHEST ANNUAL YEARS OF SERVICE
COMPENSATION -------------------------------------------
LEVELS 15 20 25 30 35
-------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000........................ $23,236 $ 30,981 $ 38,726 $ 46,471 $ 53,117
150,000........................ 36,361 48,481 60,601 72,721 83,121
200,000........................ 49,486 65,981 82,476 98,971 113,124
250,000........................ 62,611 83,481 104,351 125,221 143,128
300,000........................ 75,736 100,981 126,226 151,471 173,132
350,000........................ 88,861 118,481 148,101 177,721 203,136
400,000........................ 101,986 135,981 169,976 203,971 233,140
</TABLE>
The amounts shown in the above table have been reduced by the percentage
equal to 1.46 percent for each year of service of the estimated maximum annual
benefits payable under the Social Security Act in respect of each category. The
amounts shown in the table would be further reduced, as described above, by the
accrued benefit under the former Retirement Plan as of December 31, 1985, as
well as by the aggregate amount of vested employer contributions under the New
Retirement Program (plus or minus aggregate investment gains or losses
thereon).
Messrs. Wilson, Epperly and Ramsey have 19, 28 and 12 full credited years of
service with the Manager and its affiliates, respectively, under the New
Retirement Program, the RIGP and the Equalization Plan. Each of them is 100
percent vested under such plans. Mr. Muther has three full years of credited
service with the Manager. He is not covered under the RIGP and is currently
vested under the New Retirement Program.
Officers of the Manager are also eligible to participate on a voluntary basis
in the Manager's Savings Plan (the "Savings Plan"). An employee may elect to
contribute to the Savings Plan annually a specified percentage of his pay,
subject to certain limitations. The Manager will contribute to the Savings
Plan, out of its current or accumulated profits, for the benefit of each
participating employee, an amount equal to his contributions up to a maximum of
5 percent of his pay (6 percent of pay if the employee has completed 20 or more
years of service). Employees may elect to have the Manager's contributions
invested in any of four investment funds. The Manager's contributions vest
immediately for the first 2 percent of the employee's pay and at the rate of 20
percent per year of service (excluding the first year of service) for the
remainder, with 100 percent vesting upon death, disability, retirement or
attainment of age 65. Benefits are payable, at the election of the employee, in
a lump-sum cash distribution after termination of employment or as an annuity
upon retirement or a combination of the two.
DIRECTOR COMPENSATION
The fee schedule for directors of the General Partner other than Messrs.
Martinelli and Hahl is as follows: annual fee, $10,000; attendance fee for each
Board of Directors meeting, $750; and attendance fee for each committee
meeting, $500. Directors' fees paid by the General Partner in 1993 to such
directors amounted to $94,583.
Mr. Martinelli, Chairman of the Board, Chief Executive Officer and Director
of the General Partner is entitled to receive the following fees as Chairman of
the Board of Directors: annual fee $15,000; attendance fee for each Board of
Directors meeting, $1,000; and attendance fee for each committee meeting, $750.
Director's fees paid by the General Partner in 1993 to Mr. Martinelli amounted
to $22,500.
45
<PAGE>
Mr. Hahl, President and Director of the General Partner, is an employee of
Penn Central and devotes substantially all of his time to Penn Central rather
than to the General Partner or the Partnership. Consequently, no compensation
or other benefits payable to Mr. Hahl is paid or reimbursed by the Partnership
for Mr. Hahl's services as a director of the General Partner.
Members of the Board of Directors of the Manager were not compensated for
their services as directors, and it is not currently anticipated that any such
compensation will be paid in the future to directors of the Manager who are
full-time employees of the Manager or any of its affiliates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee consists of Messrs. Martinelli, Varalli, Billings
and Young. Messrs. Martinelli and Varalli are executive officers of the General
Partner and Mr. Billings is a former executive officer of the General Partner.
Mr. Martinelli is on the Penn Central Compensation Committee. The members of
the Board of Directors of the General Partner are chosen by Penn Central, as
beneficial owner of all outstanding capital stock of the General Partner. See
"Certain Relationships and Related Transactions." Mr. Hahl, the President and
Director of the General Partner, also serves as Senior Vice President and
Director of Penn Central, although he does not serve on the Compensation
Committee. Mr. Young, who is also a member of the Compensation Committee, is
counsel to the law firm of Morgan, Lewis and Bockius, which supplies legal
services to the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known to be the beneficial owner of more than 5 percent
of the LP Units as of February 1, 1994.
On May 25, 1993, Penn Central, the beneficial owner of the General Partner,
sold 2,308,900 LP Units representing all of its interest in LP Units of the
Partnership.
The following table sets forth certain information, as of February 1, 1994,
concerning the beneficial ownership of LP Units by each director of the General
Partner, the Chief Executive Officer of the General Partner, the four most
highly compensated officers of the General Partner and the Manager and by all
directors and executive officers of the General Partner and the Manager as a
group. Such information is based on data furnished by the persons named. Based
on information furnished to the General Partner by such persons, no director or
executive officer of the General Partner or the Manager owned beneficially, as
of February 1, 1994, more than 1 percent of any class of equity securities of
the Partnership or any of its subsidiaries outstanding at that date.
<TABLE>
<CAPTION>
NAME NUMBER OF LP UNITS (1)
---- ----------------------
<S> <C>
Brian F. Billings................................... 7,500
Michael P. Epperly.................................. 25(2)
A. Leon Fergenson................................... 200
Neil M. Hahl........................................ 2,500
Edward F. Kosnik.................................... 5,000
Alfred W. Martinelli................................ 4,500
William C. Pierce................................... 800(2)
Steven C. Ramsey.................................... 300(2)
Ernest R. Varalli................................... 6,500
C. Richard Wilson................................... 1,500
Robert H. Young..................................... 2,500
All directors and executive officers as a group
(consisting of 12 persons, including those named
above)............................................. 31,325(2)
</TABLE>
46
<PAGE>
- --------
(1) Unless otherwise indicated, the persons named above have sole voting and
investment power over the LP Units reported.
(2) The LP Units owned by Messrs Epperly, Pierce and Ramsey have shared voting
and investment power with their respective spouses.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership and the Operating Partnerships are managed and controlled by
the General Partner and the Manager, respectively, pursuant to the Amended and
Restated Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement"), the several Amended and Restated Agreements of Limited Partnership
of the Operating Partnerships (the "Operating Partnership Agreements") and the
several Management Agreements between the Manager and the Operating
Partnerships (the "Management Agreements").
Under the Partnership Agreement and the Operating Partnership Agreements, as
well as the Management Agreements, the General Partner, the Manager and certain
related parties are entitled to reimbursement of all direct and indirect costs
and expenses related to the business activities of the Partnership and the
Operating Partnerships. These costs and expenses include insurance fees,
consulting fees, general and administrative costs, compensation and benefits
payable to officers and other employees of the General Partner and Manager, tax
information and reporting costs, legal and audit fees and an allocable portion
of overhead expenses. Such reimbursed amounts constitute a substantial portion
of the revenues of the General Partner and the Manager. These costs and
expenses reimbursed by the Partnership totaled $52.3 million in 1993.
The Partnership receives management consulting services from PCEM. The cost
of this management consulting service allocated to the Partnership in 1993
totaled $385,900. See "Executive Compensation--Summary Compensation and
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions."
The Partnership and the General Partner have entered into incentive
compensation arrangements which provide for incentive compensation payable to
the General Partner in the event quarterly or special distributions to
Unitholders exceed certain specified targets. In general, subject to certain
limitations and adjustments, if a quarterly cash distribution exceeds a target
of $0.65 per LP Unit, the Partnership will pay the General Partner, in respect
of each outstanding LP Unit, incentive compensation equal to (i) 15 percent of
that portion of the distribution per LP Unit which exceeds the target quarterly
amount of $0.65 but is not more than $0.75 plus (ii) 25 percent of the amount,
if any, by which the quarterly distribution per LP Unit exceeds $0.75. The
General Partner is also entitled to incentive compensation, under a comparable
formula, in respect of special cash distributions exceeding a target special
distribution amount per LP Unit. The target special distribution amount
generally means the amount which, together with all amounts distributed per LP
Unit prior to the special distribution compounded quarterly at 13 percent per
annum, would equal $20.00 (the initial public offering price of the LP Units)
compounded quarterly at 13 percent per annum from the date of the closing of
the initial public offering.
On January 28, 1994, the General Partner announced a quarterly distribution
of $0.70 per GP and LP Unit payable on February 28, 1994. As such distribution
exceeds a target of $0.65 per LP Unit, the Partnership will pay the General
Partner incentive compensation aggregating $90,000 as a result of this
distribution.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) and (2) Financial Statements and Financial Statement Schedules--see
Index to Financial Statements and Financial Statement Schedules appearing
on page 22.
(3) Exhibits, including those incorporated by reference. The following is
a list of exhibits filed as part of this Annual Report on Form 10-K. Where
so indicated by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parentheses.
<TABLE>
<CAPTION>
EXHIBIT NUMBER
(REFERENCED TO
ITEM 601 OF
REGULATION S-K)
---------------
<C> <S>
3.1 --Amended and Restated Agreement of Limited Partnership of the
Partnership, dated as of December 23, 1986.(1) (Exhibit 3.1)
3.2 --Amended and Restated Certificate of Limited Partnership of
the Partnership, dated as of November 18, 1986.(1) (Exhibit
3.1)
4.1 --Indenture of Mortgage and Deed of Trust and Security Agree-
ment, dated as of December 15, 1986, by Buckeye to Pittsburgh
National Bank and J. G. Routh, as Trustees.(1) (Exhibit 4.1)
4.2 --Note Purchase Agreement, dated as of December 15, 1986,
among Buckeye and the several purchasers named therein relat-
ing to $300,000,000 of First Mortgage Notes.(1) (Exhibit 4.2)
4.3 --First Supplemental Indenture of Mortgage and Deed of Trust
and Security Agreement, dated as of December 1, 1987, by
Buckeye Pipe Line Company, L.P., to Pittsburgh National Bank
and J. G. Routh, as Trustees.(2) (Exhibit 4.4)
4.4 --Second Supplemental Indenture and Deed of Trust and Security
Agreement, dated as of November 30, 1992 by Buckeye Pipe Line
Company, L.P. to Pittsburgh National Bank and J. G. Routh, as
Trustees.(3) (Exhibit 4.5)
*4.5 --Third Supplemental Indenture and Deed of Trust and Security
Agreement, dated as of December 31, 1993, by Buckeye Pipe
Line Company, L.P. to Pittsburgh National Bank and J. G.
Routh, as Trustees.
*4.6 --Note Purchase and Private Shelf Agreement, dated as of De-
cember 31, 1993 between Buckeye Pipe Line Company, L.P. and
The Prudential Insurance Company of America.
4.7 --Certain instruments with respect to long-term debt of the
Operating Partnerships which relate to debt that does not ex-
ceed 10 percent of the total assets of the Partnership and
its consolidated subsidiaries are omitted pursuant to Item
601(b) (4) (iii) (A) of Regulation S-K, 17 C.F.R. (S)229.601.
The Partnership hereby agrees to furnish supplementally to
the Securities and Exchange Commission a copy of each such
instrument upon request.
10.1 --Amended and Restated Agreement of Limited Partnership of
Buckeye, dated as of December 23, 1986.(1)(4) (Exhibit 10.1)
10.2 --Purchase Agreement, dated December 23, 1986, between the
Partnership and Marathon Energy Holdings, Inc. providing for
the purchase by the Partnership of the 99 percent limited
partnership interests in Buckeye, BTT and Everglades.(1) (Ex-
hibit 10.2)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
(REFERENCED TO
ITEM 601 OF
REGULATION S-K)
---------------
<C> <S>
10.3 --Purchase Agreement, dated December 23, 1986, between LEH and
Pennsylvania Company providing for the purchase by LEH of the
83 percent stock interest in Laurel.(1) (Exhibit 10.3)
10.4 --Management Agreement, dated November 18, 1986, between the
Manager and Buckeye.(1)(5) (Exhibit 10.4)
10.5 --Distribution Support, Incentive Compensation and APU Redemp-
tion Agreement, dated as of December 15, 1986, among the Gen-
eral Partner, the Partnership and Penn Central.(1) (Exhibit
10.6)
10.6 --Annual Incentive Compensation Plan for key employees of the
Manager.(1)(6) (Exhibit 10.8)
10.7 --Form of Long-Term Incentive Compensation Plan for key em-
ployees of the Manager.(1)(6) (Exhibit 10.9)
10.8 --Unit Option and Distribution Equivalent Plan of Buckeye
Partners, L.P.(6)(7) (Exhibit 10.10)
10.9 --Buckeye Management Company Unit Option Loan Program.(6)(7)
(Exhibit 10.11)
10.10 --Buckeye Pipe Line Company Benefit Equalization Plan.(3)(6)
(Exhibit 10.10)
*11.1 --Computation of earnings per Unit.
*21.1 --List of subsidiaries of the Partnership.
</TABLE>
- --------
(1) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1986.
(2) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter
ended March 31, 1988.
(3) Previously filed with the Securities and Exchange Commission as the Exhibit
to Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1992.
(4) The Amended and Restated Agreements of Limited Partnership of the other
Operating Partnerships are not filed because they are identical to Exhibit
10.1 except for the identity of the partnership.
(5) The Management Agreements of the other Operating Partnerships are not filed
because they are identical to Exhibit 10.4 except for the identity of the
partnership.
(6) Represents management contract or compensatory plan or arrangement.
(7) Previously filed with the Securities and Exchange Commission as the Exhibit
to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991.
* Filed herewith
(b) Reports on Form 8-K filed during the quarter ended December 31, 1993:
None
49
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Buckeye Partners, L.P.
(Registrant)
By: Buckeye Management Company,
as General Partner
/s/ Alfred W. Martinelli
Dated: March 15, 1994 By: _________________________________
Alfred W. Martinelli
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ Brian F. Billings
Dated: March 15, 1994 By: _________________________________
Brian F. Billings
Director
/s/ A. Leon Fergenson
Dated: March 15, 1994 By: _________________________________
A. Leon Fergenson
Director
/s/ Neil M. Hahl
Dated: March 15, 1994 By: _________________________________
Neil M. Hahl
President and Director
/s/ Edward F. Kosnik
Dated: March 15, 1994 By: _________________________________
Edward F. Kosnik
Director
/s/ Alfred W. Martinelli
Dated: March 15, 1994 By: _________________________________
Alfred W. Martinelli
Chairman of the Board and
Director
(Principal Executive Officer)
/s/ William C. Pierce
Dated: March 15, 1994 By: _________________________________
William C. Pierce
Director
/s/ Ernest R. Varalli
Dated: March 15, 1994 By: _________________________________
Ernest R. Varalli
Executive Vice President,
Chief Financial Officer,
Treasurer and Director
(Principal Accounting and
Financial Officer)
/s/ Robert H. Young
Dated: March 15, 1994 By: _________________________________
Robert H. Young
Director
50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Buckeye Partners, L.P.:
We have audited the consolidated financial statements of Buckeye Partners,
L.P. and its subsidiaries as of December 31, 1993 and 1992, and for each of the
three years in the period ended December 31, 1993, and have issued our report
thereon dated February 14, 1994; such report is included elsewhere in this Form
10-K. Our audits also included the consolidated financial statement schedules
of Buckeye Partners, L.P. and subsidiaries referred to in Item 14. These
consolidated financial statement schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
Deloitte & Touche
Philadelphia, Pennsylvania
February 14, 1994
S-1
<PAGE>
SCHEDULE II
BUCKEYE PARTNERS, L.P.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS
AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
DEDUCTIONS END OF PERIOD
BALANCE AT --------------------------- ------------------
BEGINNING OF AMOUNTS AMOUNTS
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF OTHER CURRENT NONCURRENT
-------------- ------------ --------- --------- ----------- ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Penn Central Corpo-
ration
Year ended December
31, 1993............. $207 $127 $282 -- -- $ 52 --
Year ended December
31, 1992............. 234 460 487 -- -- 207 --
Year ended December
31, 1991............. 165 448 379 -- -- 234 --
</TABLE>
S-2
<PAGE>
SCHEDULE III
BUCKEYE PARTNERS, L.P.
REGISTRANT'S CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents................................. $ 1,412 $ 40
Temporary investments.................................. 250 --
Other current assets...................................... 18 360
-------- --------
Total current assets.................................... 1,680 400
Investments in and advances to subsidiaries (at equity)..... 233,707 225,849
-------- --------
Total assets............................................ $235,387 $226,249
======== ========
Liabilities and partners' capital
Current liabilities......................................... $ 1,692 $ 405
-------- --------
Partners' capital
General Partner........................................... 2,338 2,259
Limited Partners.......................................... 231,357 223,585
-------- --------
Total partners' capital................................. 233,695 225,844
-------- --------
Total liabilities and partners' capital................. $235,387 $226,249
======== ========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Equity in income of subsidiaries................. $ 39,462 $ 8,484 $ 29,290
Operating expenses............................... (10) (135) (54)
Interest income.................................. -- 780 1,232
Interest and debt expense........................ (86) (127) (3)
-------- -------- --------
Net income................................. $ 39,366 $ 9,002 $ 30,465
======== ======== ========
STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 39,366 $ 9,002 $ 30,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries....... (7,858) 22,403 (576)
Change in assets and liabilities:
Other current assets....................... 342 (359) 134
Current liabilities........................ 1,287 (693) (15,228)
-------- -------- --------
Net cash provided by operating activities.. 33,137 30,353 14,795
-------- -------- --------
Cash flows from investing activities:
Sales (purchases) of temporary investments..... (250) 1,139 9,225
-------- -------- --------
Cash flows from financing activities:
Distributions to Unitholders................... (31,515) (31,515) (31,515)
-------- -------- --------
Net increase (decrease) in cash and cash equiv-
alents........................................ 1,372 (23) (7,495)
Cash and cash equivalents at beginning of peri-
od............................................ 40 63 7,558
-------- -------- --------
Cash and cash equivalents at end of period..... $ 1,412 $ 40 $ 63
======== ======== ========
</TABLE>
See footnotes to consolidated financial statements of Buckeye Partners, L.P.
S-3
<PAGE>
SCHEDULE V
BUCKEYE PARTNERS, L.P.
CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT OTHER BALANCE
BEGINNING ADDITIONS CHANGES AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD(DEDUCT) OF PERIOD
- -------------- ---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Land..................... $ 10,018 $ -- $ (40) $ -- $ 9,978
Buildings and leasehold
improvements............ 23,279 1,106 (179) (539) 23,667
Machinery, equipment and
office furnishings...... 500,389 12,672 (2,010) 539 511,590
Construction in progress. 3,185 (450) -- -- 2,735
-------- --------- --------- ------ --------
$536,871 $ 13,328 $ (2,229) $ 0 $547,970
======== ========= ========= ====== ========
Year ended December 31,
1992
Land..................... $ 10,018 $ -- $ -- $ -- $ 10,018
Buildings and leasehold
improvements............ 22,554 780 (54) (1) 23,279
Machinery, equipment and
office furnishings...... 489,338 17,151 (6,101) 1 500,389
Construction in progress. 10,327 (7,142) -- -- 3,185
-------- --------- --------- ------ --------
$532,237 $ 10,789 $ (6,155) $ 0 $536,871
======== ========= ========= ====== ========
Year ended December 31,
1991
Land..................... $ 9,992 $ -- $ (7) $ 33 $ 10,018
Buildings and leasehold
improvements............ 22,466 57 (86) 117 22,554
Machinery, equipment and
office furnishings...... 481,965 5,023 (1,401) 3,751 489,338
Construction in progress. 4,554 5,773 -- -- 10,327
-------- --------- --------- ------ --------
$518,977 $ 10,853 $ (1,494) $3,901 (a) $532,237
======== ========= ========= ====== ========
</TABLE>
- --------
(a) Increase in property, plant, and equipment upon acquisition of minority
interest in Laurel Corp.
S-4
<PAGE>
SCHEDULE VI
BUCKEYE PARTNERS, L.P.
CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT OTHER BALANCE
BEGINNING ADDITIONS CHANGES AT END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD(DEDUCT) OF PERIOD
- -------------- ---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Buildings and leasehold
improvements............ $ 1,674 $ 457 $ (180) $ (48) $ 1,903
Machinery, equipment and
office furnishings...... 39,656 10,545 (1,447) (1,762) 46,992
------- ------- ------- ------- -------
$41,330 $11,002 $(1,627) $(1,810) (a) $48,895
======= ======= ======= ======= =======
Year ended December 31,
1992
Buildings and leasehold
improvements............ $ 1,276 $ 452 $ (54) $ -- $ 1,674
Machinery, equipment and
office furnishings...... 34,751 10,293 (6,101) 713 39,656
------- ------- ------- ------- -------
$36,027 $10,745 $(6,155) $ 713 (b) $41,330
======= ======= ======= ======= =======
Year ended December 31,
1991
Buildings and leasehold
improvements............ $ 830 $ 448 $ (86) $ 84 $ 1,276
Machinery, equipment and
office furnishings...... 26,575 9,644 (1,401) (67) 34,751
------- ------- ------- ------- -------
$27,405 $10,092 $(1,487) $ 17 $36,027
======= ======= ======= ======= =======
</TABLE>
- --------
(a)Represents proceeds from sales of property of $88,000 offset by removal
costs of $1,898,000.
(b)Represents proceeds from sales of property of $905,000 offset by removal
costs of $192,000.
S-5
<PAGE>
SCHEDULE VIII
BUCKEYE PARTNERS, L.P.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES, NET ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Reserve for discontinued
operations............. $21,768 $127 $ -- $21,895(a) $ --
======= ==== ====== ======= =======
Year ended December 31,
1992
Reserve for discontinued
operations............. $19,231 $-- $2,537(b) $ -- $21,768
======= ==== ====== ======= =======
Year ended December 31,
1991
Reserve for discontinued
operations............. $19,231 $-- $ -- $ -- $19,231
======= ==== ====== ======= =======
</TABLE>
- --------
(a) Represents disposition of discontinued operations upon sale of net assets
of discontinued operations during 1993.
(b) Reversal of corporate deferred income taxes.
S-6
<PAGE>
SCHEDULE X
BUCKEYE PARTNERS, L.P.
SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT INFORMATION
(IN THOUSANDS)
The following have been charged to income:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1993 1992 1991
------- ------ -------
<S> <C> <C> <C>
1. Maintenance and repairs.............................. $11,481 $9,982 $10,400
2. Depreciation and amortization of intangible assets,
preoperating costs and similar deferrals.............. * * *
3. Taxes, other than payroll and income taxes: Property
and
other................................................. $8,019 $8,717 $ 3,126
4. Advertising costs.................................... * * *
5. Research and development costs....................... None None None
</TABLE>
- --------
* Indicates less than one percent of revenue.
S-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
4.6 Third Supplemental Indenture and Deed of Trust and Security Agreement, dated
as of December 31, 1993, by Buckeye Pipe Line Company, L.P. to Pittsburgh
National Bank and J.G. Routh, as Trustees.
4.7 Note Purchase and Private Shelf Agreement, dated as of December 31, 1993
between Buckeye Pipe Line Company, L.P. and The Prudential Insurance Company
of America.
11.1 Computation of earnings per Unit.
21.1 List of subsidiaries of the Partnership.
</TABLE>
<PAGE>
EXHIBIT 4.5
SUPPLEMENTAL INDENTURE
Third Supplemental Indenture of Mortgage and Deed of Trust and Security
Agreement, dated as of December 31, 1993 (this "Third Supplement"), made by and
among Buckeye Pipe Line Company, L.P., a Delaware limited partnership (the
"Company"), and PNC Bank, National Association, formerly Pittsburgh National
Bank, a national banking association, having its principal corporate trust
office at One Oliver Plaza, Pittsburgh, Pennsylvania 15265 (the "Trustee"), and
J.G. Routh, residing at 308 Depot Street, Jamestown, Pennsylvania 16134 (the
"Individual Trustee"), as Trustees (together, the "Trustees") under the
Indenture of Mortgage and Deed of Trust and Security Agreement, dated as of
December 15, 1986 (the "Indenture"), by and among the Company and each of the
Trustees, and recorded on the date and in the location shown on Schedule 1
attached hereto and made a part hereof, as amended by the First Supplemental
Indenture dated as of December 1, 1987 ("First Supplement") and the Second
Supplemental Indenture dated as of November 30, 1992 ("Second Supplement").
Exhibit A attached hereto and made a part hereof sets forth the jurisdictions in
which the Company has fee-owned real property or rights-of-way. The First
Supplement is attached hereto as Schedule 2 and made a part hereof. The Second
Supplement is attached hereto as Schedule 3 and made a part hereof.
PRELIMINARY STATEMENT
Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to them in the Indenture.
The Company has entered into the Indenture with the Trustees. The Company
and the Trustees are entering into this Third Supplement in accordance with the
provisions of Article Twelve of the Indenture in order to set forth, as
permitted and provided by Sections 3.01, 3.03(d) and 12.01(f) of the Indenture,
the terms of three series of Additional Notes under the Indenture. Such
Additional Notes are the Company's First Mortgage Pipe Line Notes, aggregating
$35,000,000 principal amount, consisting of the following series: (i)
$11,000,000 principal amount of 7.11% Series K Notes due December 15, 2007; (ii)
$11,000,000 principal amount of 7.15% Series L Notes due December 15, 2008; and
(iii) $13,000,000 principal amount of 7.19% Series M Notes due December 15,
2009. Pursuant to Article Twelve of the Indenture, all other acts and things
necessary to make this Third Supplement a valid instrument have been done and
performed. All covenants and agreements made by the Company
This instrument prepared by:
James H. Carroll, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
___________________________
<PAGE>
herein are for the benefit and security of the Noteholders and the Trustees.
The Company is entering into this Third Supplement, and the Trustees are
accepting this Third Supplement, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged.
The Company represents that this Third Supplement does not encumber real
property improved or to be improved by one or more structures containing in the
aggregate not more than six residential dwelling units, each having its own
cooking facilities.
1. Amendment to the Recitals of the Indenture. The language set forth
------------------------------------------
below shall be added on page 6 of the Indenture after the paragraph beginning
with the word "WHEREAS" and immediately before the paragraph beginning with the
words "NOW, THEREFORE":
WHEREAS, all necessary action has been duly taken by the Company to
authorize the execution and delivery of a Third Supplemental Indenture and the
issue and sale hereunder of certain Additional Notes herein defined as the "1993
Notes", consisting of three series, the Notes of such series being designated
and referred to in the Indenture as set forth in (S) 2.13 and having the
aggregate principal amount, maturing at the date, and bearing interest, payable
semi-annually on June 15 and December 15 in each year, at the annual rate set
forth in (S) 2.13, and being subject to optional redemption pursuant to the
provisions of (S) 2.13; and
WHEREAS, the 1993 Notes are to be substantially in the forms following
respectively with changes only as to series designations and interest rates:
[Form of Note of Series K through M]
BUCKEYE PIPE LINE COMPANY, L.P.
(A limited partnership organized under
the laws of the State of Delaware)
First Mortgage Pipe Line Note, __ % Series __ Due ____
No._________ $_____________
Buckeye Pipe Line Company, L.P., a limited partnership organized and
existing under the laws of the State of Delaware (the "Company"), for value
received, hereby promises to pay to ___________________________ or registered
assigns, on December 15, ____, the sum of $_______________ Dollars in any coin
or currency of the United States of America which at the time of payment is
legal tender for public and private debts and to pay interest thereon in like
coin or currency (i) from the interest payment date next preceding the date of
this Note until payment of the principal hereof becomes due and payable, at the
rate of ___% per annum, payable semi-annually, on the fifteenth day of June and
-2-
<PAGE>
December in each year and (ii) on any overdue payment of principal (and to the
extent permitted by law, on any overdue payment of premium or interest thereon),
payable semi-annually as aforesaid (or at the option of the holder hereof, on
demand) at a rate per annum from time to time equal to the greater of (x)
[insert rate equal to one percent over the above rate] or (y) the rate of
interest publicly announced by Morgan Guaranty Trust Company of New York from
time to time in New York City as its prime rate, as shall be determined by the
Trustee. In accordance with Section 15.05 of the "Indenture" referred to below,
principal of, and interest on, and any premium payable with respect to, this
Note are payable at the principal corporate trust office of the Trustee
hereinafter mentioned or any successor as Trustee under such Indenture.
This Note is one of a series designated as the "First Mortgage Pipe Line
Notes, ___% Series __ due ____" of the Company, limited in aggregate principal
amount to $____________ and issued under and secured by an Indenture of Mortgage
and Deed of Trust and Security Agreement, dated as of December 15, 1986 (as
amended by the First Supplemental Indenture dated as of December 1, 1987, the
Second Supplemental Indenture dated as of November 30, 1992, and the Third
Supplemental Indenture dated as of December 31, 1993 and as amended and
supplemented from time to time hereafter, the "Indenture"), from the Company to
PNC Bank, National Association, formerly Pittsburgh National Bank (the
"Trustee"), and J.G. Routh (the "Individual Trustee"), as Trustees (together,
the "Trustees"). Contemporaneously with the issuance of the Notes of this
series, the Company is issuing Notes under the Indenture of two other series
which, together with the Notes of this series (collectively, the "1993 Notes"),
are in the aggregate principal amount of $35,000,000. Reference is made to that
certain Note Purchase and Private Shelf Agreement dated as of December 31, 1993
(as amended from time to time, the "Note Agreement") between the Company and The
Prudential Insurance Company of America and each "Prudential Affiliate" (as
defined in the Note Agreement) which becomes a party thereto for a further
statement of the terms applicable to the 1993 Notes. The 1993 Notes constitute
Additional Notes under the Indenture and together with the "1986 Notes" (as
defined in the Indenture) and any Additional Notes issued after the date hereof,
are secured equally and ratably by the Lien of the Indenture. The 1993 Notes,
1986 Notes and any Additional Notes are collectively referred to herein as the
"Notes". Reference is made to the Indenture and all Indentures Supplemental
thereto for a description of the properties mortgaged and pledged, the nature
and extent of the security, the rights of the Holders of the Notes and of the
Trustees in respect thereof, and the terms and conditions upon which the Notes
are, and are to be, secured. The Notes of the several series issued and to be
issued under the Indenture from time to time may vary in aggregate principal
amount, may mature at different times, may bear interest at
-3-
<PAGE>
different rates and may otherwise differ as in the Indenture provided.
As provided in the Indenture, the 1993 Notes are subject to mandatory and
optional redemption on the terms specified in the Indenture.
To the extent permitted by, and as provided in, the Indenture,
modifications or alterations of the Indenture, or of any Indenture
Supplemental thereto, and of the rights and obligations with respect to the
Indenture of the Company and of the Holders of the Notes may be made with the
consent of the Company upon the written consent of the Holders of not less
than 66 2/3% in aggregate principal amount of the Notes entitled to vote
thereon then Outstanding, or by an affirmative vote of the Holders of not less
than 66 2/3% in aggregate principal amount of the Notes entitled to vote
thereon then Outstanding, at a meeting of Noteholders called and held as
provided in the Indenture or as otherwise provided in the Indenture; provided,
however, that no such modification or alteration shall be made without the
consent of the Holder hereof which will (a) affect the right of such Holder to
receive payment of principal, or interest or premium (if any) on, this Note,
or to institute suit for the enforcement of such payment on or after the
respective due dates expressed herein, or (b) otherwise than as permitted by
the Indenture, permit the creation of any lien ranking prior to, or on a
parity with, the Lien of the Indenture with respect to any property covered
thereby, or (c) reduce the percentage of the aggregate principal amount of
Notes required to authorize any such modification or alteration.
In case an Event of Default, as defined in the Indenture, shall occur and
be continuing, the principal of all the Notes at any such time Outstanding under
the Indenture may be declared or may become due and payable upon the conditions
and in the manner and with the effect provided in the Indenture. The Indenture
provides that such declaration may in certain events be rescinded by the Holders
of 66 2/3% in aggregate principal amount of the Notes then Outstanding.
This Note is transferable by the Holder hereof, in person or by duly
authorized attorney, on books of the Company to be kept for that purpose at the
principal corporate trust office of the Trustee, upon surrender and cancellation
of this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes of the same series, of the same
aggregate principal amount and in authorized denominations, will be issued to
the transferee or transferees in exchange theretofore; and this Note, with or
without others of the same series, may in like manner be exchanged for one or
more new Notes of the same series of other authorized denominations but of the
same aggregate principal amount; all upon payment of
-4-
<PAGE>
the charges and subject to the terms and conditions set forth in the Indenture.
The Company and the Trustees may deem and treat the Person in whose name
this Note is registered as the absolute owner hereof for the purpose of
receiving payment of, or on account of, the principal hereof and interest due
hereon, and for all other purposes, and neither the Company nor the Trustees
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of, or the
interest or premium (if any) on, this Note, or for any claim based hereon or on
the Indenture or any Indenture Supplemental thereto, against any partner, past,
present or future, of the Company (including the General Partner), or of any
predecessor or successor, heir or assignee of any such partner as such, or any
stockholder, director, officer or employee of any such partner, either directly
or through the Company or any such predecessor or successor, whether by virtue
of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability, whether at common law,
in equity, by any constitution, statute or otherwise, being released by every
owner hereof by the acceptance of this Note and as part of the consideration for
the issue hereof, and being likewise released by the terms of the Indenture.
This Note shall not be entitled to any benefit under the Indenture or any
Indenture Supplemental thereto, or become valid or obligatory for any purpose,
until PNC Bank, National Association, formerly Pittsburgh National Bank, the
Trustee under the Indenture, or a successor Trustee thereto under the Indenture,
shall have signed the form of certificate imprinted hereon.
THIS NOTE IS BEING DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE
OF NEW YORK, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF
SUCH STATE.
-5-
<PAGE>
IN WITNESS WHEREOF, Buckeye Pipe Line Company, L.P., has caused this Note
to be signed in its name by its General Partner.
Dated BUCKEYE PIPE LINE COMPANY, L.P.
By Buckeye Pipe Line Company,
a Delaware Corporation
as General Partner
By............................
[Vice] President
(Corporate Seal)
Attest:
............................
[Assistant] Secretary of
Buckeye Pipe Line
Company, a Delaware
Corporation
[FORM OF TRUSTEE'S CERTIFICATE]
This Note is one of the 1993 Notes, of the series designated therein,
described in the within-mentioned Indenture.
PNC BANK, NATIONAL ASSOCIATION
formerly Pittsburgh National
Bank
Trustee,
By............................
Authorized Signatory
; and
WHEREAS, all the requirements of law and the Partnership Agreement have
been fully complied with and all other acts and things necessary to make the
1993 Notes, when executed by the Company, authenticated and delivered by the
Trustee and duly issued, the valid and legally binding obligations of the
Company, and to constitute the Indenture a valid, binding and legal instrument
for the security of the Notes, have been done and performed;
-6-
<PAGE>
2. Amendments to Article One of the Indenture.
------------------------------------------
(a) The definition of the term "Called Principal" set forth in
Article One of the Indenture is hereby amended in its entirety to read as
follows:
"Called Principal" shall mean, with respect to any 1986 Note or
1993 Note, the principal of such Note that is to be redeemed pursuant
to (S) 2.12 hereof or (S) 2.13 hereof, respectively, or is declared to
be immediately due and payable pursuant to Article Eight.
(b) The definition of the term "Discounted Value" set forth in
Article One of the Indenture is hereby amended in its entirety to read as
follows:
"Discounted Value" shall mean, with respect to the Called
Principal of any 1986 Note or 1993 Note, the amount calculated by
discounting all Remaining Scheduled Payments with respect to such
Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance
with accepted financial practice and at a discount factor (applied on
a semiannual basis) equal to the Reinvestment Yield with respect to
such Called Principal.
(c) Definitions of two new defined terms in the Indenture shall
be inserted into Article One of the Indenture as follows:
"1993 Notes" shall have the meaning set forth in (S) 2.13.
"1993 Note Purchase Agreement" shall mean the Note Purchase and
Private Shelf Agreement dated as of December 31, 1993 between the
Company and each of the purchasers of the 1993 Notes.
(d) The definition of the term "Note Purchase Agreements" set
forth in Article One of the Indenture is hereby amended in its entirety to read
as follows:
"Note Purchase Agreements" shall mean, collectively (i) the
several Note Purchase Agreements as of December 15, 1986 between the
Company and each of the purchasers of the 1986 Notes named in the
Schedule of Purchasers attached thereto, and (ii) the 1993 Note
Purchase Agreement.
-7-
<PAGE>
(e) The definition of the term "Reinvestment Yield" set forth in
Article One of the Indenture is hereby amended in its entirety to read as
follows:
"Reinvestment Yield" shall mean, with respect to the Called
Principal of any 1986 Note, the yield to maturity implied by the
Treasury Constant Maturity Series yields reported (for the latest day
for which such yields shall have been so reported at the commencement
of business on the Business Day next preceding the Settlement Date
with respect to such Called Principal or, in the case of a redemption
pursuant to (S) 2.12(b), the Business Day next preceding the date of
the notice with respect to such Called Principal mailed to Holders of
1986 Notes pursuant to (S) 5.01) in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity
equal to the remaining weighted average life to final maturity
(calculated in accordance with accepted financial practice) of such
Called Principal as of such Settlement Date. Such implied yield shall
be determined (a) by calculating the remaining weighted average life
to final maturity of such Called Principal rounded to the nearest
quarter-year and (b) if necessary, by interpolating linearly between
Treasury Constant Maturity Series yields.
With respect to the Called Principal of any 1993 Note,
"Reinvestment Yield" shall mean the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New York City local time) on
the Business Day next preceding the Settlement Date with respect to
such Called Principal, on the display designated as "Page 678" on the
Telerate Service (or such other display as may replace Page 678 on the
Telerate Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or if such yields shall not be
reported as of such time or the yields reported as of such time shall
not be ascertainable, (ii) the Treasury Constant Maturity Series
yields reported, for the latest day for which such yields shall have
been so reported as of the Business Day next preceding the Settlement
Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield shall be
determined, if necessary, by (a) converting U.S.
-8-
<PAGE>
Treasury bill quotations to bond-equivalent yield in accordance with
accepted financial practice and (b) interpolating linearly between
yields reported for various maturities.
(f) A definition of a new defined term in the Indenture shall be
inserted into Article One of the Indenture as follows:
"Remaining Average Life" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into
(ii) the sum of the products obtained by multiplying (a) each
Remaining Scheduled Payment of such Called Principal (but not of
interest thereon) by (b) the number of years (calculated to the
nearest one-twelfth year) which will elapse between the Settlement
Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
(g) The definition of the term "Settlement Date" set forth in
Article One of the Indenture is hereby amended in its entirety to read as
follows:
"Settlement Date" shall mean, with respect to the Called
Principal of any Note, the date on which such Called Principal is to
be redeemed pursuant to (S) 2.12 or (S) 2.13, as appropriate, or is
declared to be immediately due and payable pursuant to Article Eight.
(h) The definition of the term "Yield-Maintenance Premium" set
forth in Article One of the Indenture is hereby amended in its entirety to read
as follows:
"Yield-Maintenance Premium" shall mean, with respect to any 1986
Note, Series K Note before December 15, 2001, Series L Note or Series
M Note, a premium equal to the excess, if any, of the Discounted Value
of the Called Principal of such Note over the sum of such Called
Principal plus interest accrued thereon as of (including interest due
on) the Settlement Date with respect to such Called Principal. With
respect to any Series K Note on or after December 15, 2001, "Yield-
Maintenance Premium" shall mean the amount determined in accordance
with the following schedule with respect to each Series K Note so
redeemed:
-9-
<PAGE>
<TABLE>
<CAPTION>
============================================================================
Yield Maintenance Premium
Expressed as Percentage of the
Date of Redemption Principal Amount Redeemed
- ----------------------------------------------------------------------------
<S> <C>
After December 14, 2001 and on
or before December 14, 2002 7.11%
- ----------------------------------------------------------------------------
After December 14, 2002 and on
or before December 14, 2003 5.93%
- ----------------------------------------------------------------------------
After December 14, 2003 and on
or before December 14, 2004 4.74%
- ----------------------------------------------------------------------------
After December 14, 2004 and on
or before December 14, 2005 3.56%
- ----------------------------------------------------------------------------
After December 14, 2005 and on
or before December 14, 2006 2.37%
- ----------------------------------------------------------------------------
After December 14, 2006 and on
or before December 14, 2007 1.19%
- ----------------------------------------------------------------------------
After December 14, 2007 0%
============================================================================
</TABLE>
The Yield Maintenance Premium shall in no event be less than
zero.
3. Amendment to Article Two of the Indenture. Article Two of the
-----------------------------------------
Indenture is hereby amended by adding a new Section 2.13 to read as follows:
(S) 2.13. The first three series of Additional Notes to be
executed, authenticated and delivered under and secured by this
Indenture shall be the Series K through M Notes, aggregating
$35,000,000 principal amount (collectively, the "1993 Notes"), each
series designated as set forth in the following table:
-10-
<PAGE>
<TABLE>
<CAPTION>
Maximum
Annual Aggregate
Referred to Interest Principal
Designation herein as Maturity Rate Amount*
----------- ------------ -------- -------- ---------
<S> <C> <C> <C> <C>
First Mortgage Pipe Line Series K Notes December 15, 2007 7.11% $11,000,000
Notes, Series K due 2007
First Mortgage Pipe Line Series L Notes December 15, 2008 7.15% $11,000,000
Notes, Series L due 2008
First Mortgage Pipe Line Series M Notes December 15, 2009 7.19% $13,000,000
Notes, Series M due 2009
</TABLE>
- -------------
*Except as expressly provided in (S) 2.04, (S) 2.07, and (S) 2.10 of the
Indenture.
and the Notes of each such series shall be issuable in denominations
of $1,000 and any integral multiple thereof, shall be substantially in
the form set forth in the recitals hereto, shall be executed,
authenticated and delivered in accordance with, and subject to, all of
the terms, conditions and covenants of this Indenture, and shall have
the following further terms and provisions:
(a) Interest on the principal amount of each of the 1993 Notes
from the date of original issue until due and payable, shall be paid,
at the rate specified in the Note, semi-annually on June 15 and
December 15 in each year and on any overdue payment of principal or
(to the extent not prohibited by law) premium or interest thereon on
the dates specified above or, at the option of the Noteholders, on
demand at the greater of (i) 1% over the rate specified above or (ii)
the rate of interest publicly announced by Morgan Guaranty Trust
Company of New York, from time to time in New York City, as its prime
rate, as shall be determined by the Trustee.
(b) Subject to the limitations set forth below, the Notes of
each series of the 1993 Notes shall be subject to redemption, in whole
at any time or from time to time in part (in $100,000 increments and
not less than $5,000,000 per occurrence), at the option of the
Company, upon notice given to the holders of the 1993 Notes to be
redeemed in the manner provided in the Indenture, at a redemption
price equal to 100% of the principal amount so redeemed plus all
interest accrued and unpaid at the redemption date plus (to the extent
not prohibited by law) the Yield-Maintenance Premium, if any, with
respect to each Note so redeemed.
-11-
<PAGE>
Notwithstanding the foregoing, no redemption of the Series K Notes may
be made on or after December 15, 2001 pursuant to this paragraph
2.13(b).
(c) Subject to the limitations set forth below, the Series K
Notes shall be subject to redemption subsequent to December 15, 2001,
in whole or from time to time in part (in $100,000 increments and not
less than $5,000,000 per occurrence), at the option of the Company,
upon notice given to the holders of the Series K Notes to be redeemed
in the manner provided in the Indenture, at a redemption price equal
to 100% of the principal amount so redeemed plus all interest accrued
and unpaid at the redemption date plus (to the extent not prohibited
by law) the Yield Maintenance Premium determined in accordance with
the following schedule with respect to each Series K Note so redeemed:
<TABLE>
<CAPTION>
============================================================================
Yield Maintenance Premium
Expressed as Percentage of the
Date of Redemption Principal Amount Redeemed
- ----------------------------------------------------------------------------
<S> <C>
After December 14, 2001 and on
or before December 14, 2002 7.11%
- ----------------------------------------------------------------------------
After December 14, 2002 and on
or before December 14, 2003 5.93%
- ----------------------------------------------------------------------------
After December 14, 2003 and on
or before December 14, 2004 4.74%
- ----------------------------------------------------------------------------
After December 14, 2004 and on
or before December 14, 2005 3.56%
- ----------------------------------------------------------------------------
After December 14, 2005 and on
or before December 14, 2006 2.37%
- ----------------------------------------------------------------------------
After December 14, 2006 and on
or before December 14, 2007 1.19%
- ----------------------------------------------------------------------------
After December 14, 2007 0%
============================================================================
</TABLE>
(d) The 1993 Notes are also subject to redemption in the
circumstances set forth in (S) 7.01(c).
The principal amount of any series of Notes to be redeemed
pursuant to the provisions of (S) 2.13(b) or 2.13(c) and the principal
amount of any Notes to be redeemed pursuant to (S) 7.01(c) shall be
pro-rated among the Holders of the Notes of said series in the
proportion that their respective holdings bear to the aggregate
principal amount of Notes of said series
-12-
<PAGE>
Outstanding on the date of selection. The Trustee shall make such
adjustments in the principal amount of the Notes of each Holder to be
redeemed so that such amount shall, in every case, be $1,000 or an
integral multiple thereof.
4. Amendments to Article Five of the Indenture. Section 5.01 of the
-------------------------------------------
Indenture is hereby amended by adding a new paragraph to such Section as its
third paragraph to read as follows:
With respect to 1993 Notes, the Company's notice of redemption
shall also specify whether the optional redemption is being made
pursuant to (S)2.13(b) or (S)2.13(c) hereof. Once notice of
redemption has been given as hereinabove provided, the principal
amount of the 1993 Notes specified in such notice, together with (to
the extent not prohibited by law) the Yield-Maintenance Premium (if
any) with respect thereto shall become due and payable on the
redemption date and, as to principal, applied to required payments
thereon in the inverse order of their scheduled due dates.
5. This Third Supplement may be executed in several counterparts,
each of which shall constitute an original, but all of which together shall
constitute one and the same instrument.
-13-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Third Supplement to be
executed on its behalf by its General Partner, by the President or one of the
Vice President of the General Partner, and the corporate seal of the General
Partner to be hereto affixed and said seal and this Indenture to be attested by
the General Partner's Secretary or one of its Assistant Secretaries; and the
Trustee has caused this Third Supplement to be executed on its behalf by one of
its Vice Presidents, and its corporate seal to be hereto affixed and said seal
and this Indenture to be attested by one of its Assistant Secretaries; and the
Individual Trustee has affixed his hand and seal hereto; all as of the 31st day
of December, one thousand nine hundred and ninety-three.
Witness BUCKEYE PIPE LINE COMPANY, L.P.
/s/ James H. Carroll By: BUCKEYE PIPE LINE COMPANY,
- ---------------------------- a Delaware corporation, as
James H. Carroll general partner
- ----------------------------
Witness By: /s/ Steven C. Ramsey
-------------------------------
/s/ C. Richard Wilson Name: Steven C. Ramsey
- ---------------------------- Title: Vice President
C. Richard Wilson (Corporate Seal)
- ----------------------------
Attest:
/s/ Arthur Rosenblatt
----------------------------------
Name: Arthur Rosenblatt
Title: Assistant Secretary
Witness PNC BANK, NATIONAL ASSOCIATION,
formerly Pittsburgh National Bank,
as Trustee
/s/ Kathy DiPasquale
- ---------------------------- By: /s/ F.J. Deramo
Kathy DiPasquale -------------------------------
- ---------------------------- Name: F.J. Deramo
Title: Vice President
Witness
/s/ Sherri Locke
- ---------------------------- (Corporate Seal)
Sherri Locke Attest:
- ----------------------------
/s/ Amy R. Howeroft
-----------------------------------
Name: Amy R. Howeroft
Title: Assistant Vice President
-14-
<PAGE>
Witness J.G. ROUTH, as Individual Trustee
/s/ Sherri Locke By: /s/ J.G. Routh
- ---------------------------- --------------------------------
Sherri Locke Name: J.G. Routh
- ---------------------------- Title: Vice President
Witness
/s/ Kathy DiPasquale
- ----------------------------
Kathy DiPasquale
- ----------------------------
I hereby certify that the correct address
of the Trustee is:
One Oliver Plaza
Pittsburgh, PA 15265
By: /s/
---------------------
For Trustee
I hereby certify that the correct address
of the Individual Trustee is:
308 Depot Street
Jamestown, PA 16134
By: /s/
---------------------
For Trustee
This instrument prepared by:
James H. Carroll, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
-15-
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF LEHIGH )
On the 31st day of December, 1993, before me personally came Steven C. Ramsey,
to me known, who, being by me duly sworn, did depose and say that he resides at
No. 598 Bair Road, Berwyn, Pennsylvania 19312; that he is the Vice President of
Buckeye Pipe Line Company, the corporation described in and which executed the
foregoing instrument; which corporation is a general partner of Buckeye Pipe
Line Company, L.P., the Delaware limited partnership described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/ Ruth E. Synder
------------------------------
Notary Public
-----------------------------------
NOTARIAL SEAL
RUTH E. SYNDER, Notary Public
Allentown, Lehigh County, PA
My Commission Expires July 25, 1994
-----------------------------------
-16-
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF ALLEGHENY )
On the 3rd day of January, 1994, before me personally came F.J. Deramo, to me
known, who, being by me duly sworn, did depose and say that (s)he resides at
No. 217 Chesnut Road, Sewickly, PA 15143; that (s)he is the Vice President of
PNC Bank, National Association, the corporation described in and which
executed the foregoing instrument; that (s)he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that (s)he signed his/her name thereto by like order.
/s/ Mark C. Baker
------------------------------
Notary Public
-----------------------------------
NOTARIAL SEAL
Mark C. Baker, Notary Public
Pittsburgh, Allegheny County
My Commission Expires July 13, 1996
-----------------------------------
Member, Pennsylvania Association of
Notaries
-17-
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF ALLEGHENY )
On the 3rd day of January, 1994, before me personally came J. G. Routh, to me
known to be the individual described in and who executed the foregoing
instrument in the capacity therein stated, and acknowledged that he executed the
same.
/s/ Mark C. Baker
------------------------------
Notary Public
-----------------------------------
NOTARIAL SEAL
Mark C. Baker, Notary Public
Pittsburgh, Allegheny County
My Commission Expires July 13, 1996
-----------------------------------
Member, Pennsylvania Association of
Notaries
-18-
<PAGE>
SCHEDULE 1
The Indenture of Mortgage and Deed of Trust and Security Agreement,
dated as of December 15, 1986, was recorded on ______________________, 198__ in
the land records in and for the [Town] [County] of ____________________, State
of __________________ at Mortgage Book (Folio) _____________, Page
_______________.
-19-
<PAGE>
EXHIBIT 4.6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BUCKEYE PIPE LINE COMPANY, L.P.
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
$11,000,000 7.11% Series K First Mortgage Notes
Due December 15, 2007
$11,000,000 7.15% Series L First Mortgage Notes
Due December 15, 2008
$13,000,000 7.19% Series M First Mortgage Notes
Due December 15, 2009
$40,000,000 Maximum Aggregate Principal Amount
Private Shelf Facility
Dated as of December 31, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. AUTHORIZATION OF ISSUE OF NOTES..................................... 1
2. PURCHASE AND SALE OF NOTES.......................................... 3
3. CONDITIONS OF CLOSING............................................... 9
4. REDEMPTION.......................................................... 13
5. REPRESENTATIONS, COVENANTS AND WARRANTIES........................... 15
6. REPRESENTATIONS OF THE PURCHASERS................................... 24
7. DEFINITIONS......................................................... 24
8. MISCELLANEOUS....................................................... 30
</TABLE>
2
<PAGE>
LIST OF ATTACHMENTS
-------------------
<TABLE>
<S> <C>
PURCHASER SCHEDULE
INFORMATION SCHEDULE
EXHIBIT A -- FORM OF FIRST MORTGAGE NOTE
EXHIBIT B -- FORM OF REQUEST FOR PURCHASE
EXHIBIT C -- FORM OF CONFIRMATION OF ACCEPTANCE
EXHIBIT D-1 -- FORM OF OPINION OF COMPANY'S SPECIAL COUNSEL
(Series K, L and M Notes Closing)
EXHIBIT D-2 -- FORM OF OPINION OF TRUSTEE'S COUNSEL
(Series K, L and M Notes Closing)
EXHIBIT D-3 -- FORM OF OPINION OF COMPANY'S SPECIAL COUNSEL
(Private Shelf Closing)
EXHIBIT D-4 -- FORM OF OPINION OF TRUSTEE'S COUNSEL
(Private Shelf Closing)
EXHIBIT E -- INDENTURE
EXHIBIT F -- THIRD SUPPLEMENTAL INDENTURE
SCHEDULE I -- PENDING ACTIONS
SCHEDULE II -- ERISA MATTERS
</TABLE>
3
<PAGE>
BUCKEYE PIPE LINE COMPANY, L.P.
3900 Hamilton Boulevard
Allentown, Pennsylvania 18103
As of December 31, 1993
To: The Prudential Insurance Company
of America (herein called "Prudential")
Each Prudential Affiliate which becomes
bound by this Agreement as hereinafter
provided (together with Prudential
the "Purchasers")
Ladies and Gentlemen:
The undersigned, Buckeye Pipe Line Company, L.P., a Delaware limited
partnership (herein called the "Partnership"), hereby agrees with you as set
forth below. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Indenture of Mortgage and Deed
of Trust and Security Agreement attached hereto as Exhibit E. Reference is made
---------
to paragraph 7 hereof for definitions of certain capitalized terms used herein.
1. AUTHORIZATION OF ISSUE OF NOTES.
1A. Authorization of Issue of Initial Notes. The Partnership will
authorize the issue of the following (herein called the "Initial Notes"):
(i) its first mortgage notes in the aggregate principal amount of
$11,000,000 (herein called the "Series K Notes"), to be dated the date of
issue thereof, to mature on December 15, 2007, to bear interest on the
unpaid balance thereof from the date thereof until the principal thereof
shall have become due and payable at the rate of 7.11% per annum and on
overdue principal, Yield-Maintenance Premium (to the extent not prohibited
by applicable law) and interest at the rate specified therein, to be
entitled to the benefits of the Indenture and to be substantially in the
form of Exhibit A attached hereto. The terms "Series K Note" and "Series K
---------
Notes" as used herein shall include each Series K Note delivered pursuant
to any provision of this
4
<PAGE>
Agreement and each Series K Note delivered in substitution or exchange for
any such Series K Note pursuant to any such provision;
(ii) its first mortgage notes in the aggregate principal amount of
$11,000,000 (herein called the "Series L Notes"), to be dated the date of
issue thereof, to mature on December 15, 2008, to bear interest on the
unpaid balance thereof from the date thereof until the principal thereof
shall have become due and payable at the rate of 7.15% per annum and on
overdue principal, Yield-Maintenance Premium (to the extent not prohibited
by applicable law) and interest at the rate specified therein, to be
entitled to the benefits of the Indenture and to be substantially in the
form of Exhibit A attached hereto. The terms "Series L Note" and "Series L
---------
Notes" as used herein shall include each Series L Note delivered pursuant
to any provision of this Agreement and each Series L Note delivered in
substitution or exchange for any such Series L Note pursuant to any such
provision; and
(iii) its first mortgage notes in the aggregate principal amount of
$13,000,000 (herein called the "Series M Notes"), to be dated the date of
issue thereof, to mature on December 15, 2009, to bear interest on the
unpaid balance thereof from the date thereof until the principal thereof
shall have become due and payable at the rate of 7.19% per annum and on
overdue principal, Yield-Maintenance Premium (to the extent not prohibited
by applicable law) and interest at the rate specified therein, to be
entitled to the benefits of the Indenture and to be substantially in the
form of Exhibit A attached hereto. The terms "Series M Note" and "Series
---------
M Notes" as used herein shall include each Series M Note delivered pursuant
to any provision of this Agreement and each Series M Note delivered in
substitution or exchange for any such Series M Note pursuant to any such
provision.
1B. Authorization of Issue of Private Shelf Notes. The Partnership will
authorize the issue of (but, except as provided in paragraph 2B(5), shall not be
obligated to issue) its additional first mortgage notes (herein called the
"Private Shelf Notes") in the aggregate principal amount of $40,000,000, to be
dated the date of issue thereof, to mature, in the case of each Private Shelf
Note so issued, no later than December 15, 2013, to have an average life of not
more than seventeen (17) years, to bear interest on the unpaid balance thereof
from the date thereof at the rate per annum (and to have such other particular
terms)
5
<PAGE>
as shall be set forth in the Confirmation of Acceptance with respect to such
Private Shelf Note delivered pursuant to paragraph 2B(5), and to be
substantially in the form of Exhibit A attached hereto. The terms "Private
---------
Shelf Note" and "Private Shelf Notes" as used herein shall include each Private
Shelf Note delivered pursuant to any provision of this Agreement and each
Private Shelf Note delivered in substitution or exchange for any such Private
Shelf Note pursuant to any such provision. The terms "Note" or "Notes" as used
herein shall include each Initial Note and each Private Shelf Note (whether
designated a Series N Note, Series O Note, Series P Note, Series Q Note, Series
R Note, Series S Note or Series T Note, etc.) delivered pursuant to any
provision of this Agreement and each Note delivered in substitution or exchange
for any such Note pursuant to any such provision. Notes issued hereunder which
have (i) the same final maturity, (ii) the same mandatory redemption dates,
(iii) the same mandatory redemption amounts (as a percentage of the original
principal amount of each Note), (iv) the same interest rate, (v) the same
interest payment periods, and (vi) which are otherwise designated a "Series"
hereunder or in the Confirmation of Acceptance whether or not the foregoing
conditions are satisfied, are herein called a "Series" of Notes.
1C. Security and Financial Assurances. The Notes shall be issued under,
entitled to the benefits of, and shall be secured by, the Indenture, which
Indenture constitutes a mortgage lien on and security interest in the Trust
Estate. The Notes shall constitute Additional Notes under the Indenture.
2. PURCHASE AND SALE OF NOTES.
2A. Purchase and Sale of Initial Notes. The Partnership hereby agrees to
sell to Prudential and, subject to the terms and conditions herein set forth,
Prudential agrees to purchase from the Partnership the aggregate principal
amount of Initial Notes set forth opposite its name in the Purchaser Schedule
attached hereto at 100% of such aggregate principal amount. The Partnership
will deliver to Prudential at the offices of Morgan, Lewis & Bockius, 101 Park
Avenue, New York, New York, one or more Initial Notes registered in its name,
evidencing the aggregate principal amount of Initial Notes to be purchased by
Prudential and in the series and denomination or denominations specified with
respect to Prudential in the Purchaser Schedule attached hereto, against payment
of the purchase price thereof by transfer of immediately available funds for
credit to the Partnership's account # 324-005091 at Chemical Bank, New York, New
York, ABA Routing Number 0210-0012-8, on the date of closing, which shall be
January 7, 1994 or any other date on or before February 1,
6
<PAGE>
1994 upon which the Partnership and the Purchasers of the Initial Notes may
mutually agree (herein called the "Initial Notes Closing Day").
2B. Purchase and Sale of Private Shelf Notes.
2B(1). Facility. Prudential is willing to consider, in its sole
discretion and within limits which may be authorized for purchase by Prudential
and the Prudential Affiliates from time to time, the purchase of Private Shelf
Notes pursuant to this Agreement. The willingness of Prudential to consider
such purchase of Private Shelf Notes is herein called the "Facility". At any
time, the aggregate principal amount of Private Shelf Notes stated in paragraph
1B, minus the aggregate principal amount of Private Shelf Notes purchased and
sold pursuant to this Agreement prior to such time, minus the aggregate
principal amount of Accepted Notes (as hereinafter defined) which have not yet
been purchased and sold hereunder prior to such time is herein called the
"Available Facility Amount" at such time. NOTWITHSTANDING THE WILLINGNESS OF
PRUDENTIAL TO CONSIDER PURCHASES OF PRIVATE SHELF NOTES, THIS AGREEMENT IS
ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY
PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE
PRIVATE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO
SPECIFIC PURCHASES OF PRIVATE SHELF NOTES, AND (EXCEPT AS PROVIDED IN
PARAGRAPH 2B(5) RELATING TO ACCEPTED NOTES) THE FACILITY SHALL IN NO WAY BE
CONSTRUED AS A CAPITAL COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.
2B(2). Issuance Period. Private Shelf Notes may be issued and sold
pursuant to this Agreement until the earlier of (i) (a) in the event the
Facility shall not have been extended in accordance with the last sentence of
this paragraph 2B(2), the date which is the second anniversary date of the
Initial Notes Closing Day or (b) in the event that the Facility shall have been
extended in accordance with the last sentence of this paragraph 2B(2), the date
which is the fourth anniversary date of the Initial Notes Closing Day and (ii)
the thirtieth day after Prudential shall have given to the Partnership, or the
Partnership shall have given to Prudential, a notice stating that it elects to
terminate the issuance and sale of Private Shelf Notes pursuant to this
Agreement (or if such thirtieth day is not a Business Day, the Business Day next
preceding such thirtieth day). The period during which Private Shelf Notes may
be issued and sold pursuant to this Agreement is herein called the "Issuance
Period". Unless the Facility shall have been terminated in accordance with the
terms hereof, the Partnership may, at its option, extend the stated expiration
date of the
7
<PAGE>
Facility from the date which is the second anniversary date of the Initial Notes
Closing Day to the date which is the fourth anniversary date of the Initial
Notes Closing Day upon written notice to Prudential and the payment of a fee
(the "Renewal Fee") to Prudential which shall be equal to the greater of (a)
$25,000 or (b) an amount equal to 0.125% of the Available Facility Amount on
January 7, 1996.
2B(3). Request for Purchase. The Partnership may from time to time during
the Issuance Period make requests for purchases of Private Shelf Notes (each
such request being herein called a "Request for Purchase"). Each Request for
Purchase shall be made to Prudential by telecopier and confirmed by nationwide
overnight delivery service, and shall (i) specify the aggregate principal amount
of Private Shelf Notes covered thereby, which shall not be less than $10,000,000
and shall not be greater than the Available Facility Amount at the time such
Request for Purchase is made, (ii) specify the principal amounts, final
maturities (not later than December 15, 2013 and to have an average life not to
exceed seventeen (17) years), principal payment dates and amounts and interest
payment periods (semi-annually in arrears) of the Private Shelf Notes covered
thereby, (iii) specify the use of proceeds of such Private Shelf Notes, (iv)
specify the proposed day for the closing of the purchase and sale of such
Private Shelf Notes, which shall be a Business Day during the Issuance Period
not less than five (5) Business Days and not more than thirty (30) days after
the making of such Request for Purchase, (v) specify the number of the account
and the name and address of the depository institution to which the purchase
prices of such Private Shelf Notes are to be transferred on the Private Shelf
Closing Day for such purchase and sale, (vi) certify that the representations,
covenants and warranties contained in paragraph 5 hereof are true on and as of
the date of such Request for Purchase except to the extent of changes caused by
the transac-tions herein contemplated and that there exists on the date of such
Request for Purchase no Event of Default or Default (and that no Event of
Default or Default shall arise as the result of the purchase and sale of such
Private Shelf Notes), and (vii) be substantially in the form of Exhibit B
---------
attached hereto. Each Request for Purchase shall be in writing and shall be
deemed made when received by Prudential.
2B(4). Rate Quotes. Not later than five (5) Business Days after the
Partnership shall have given Prudential a Request for Purchase pursuant to
paragraph 2B(3), Prudential may provide (by telephone and promptly thereafter
confirmed by telecopier, in each case no earlier than 9:30 A.M. and no later
than 1:00 P.M. New York City local time) interest rate quotes for the several
8
<PAGE>
principal amounts, maturities, mandatory redemption schedules and interest
payment periods of Private Shelf Notes specified in such Request for Purchase.
Each quote shall represent the interest rate per annum payable on the
outstanding principal balance of such Private Shelf Notes until such balance
shall have become due and payable, at which Prudential or a Prudential Affiliate
would be willing to purchase such Private Shelf Notes at 100% of the principal
amount thereof.
2B(5). Acceptance. Within thirty (30) minutes after Prudential shall have
provided any interest rate quotes pursuant to paragraph 2B(4) or such shorter
period as Prudential may specify to the Partnership (such period herein called
the "Acceptance Window"), the Partnership may, subject to the terms of paragraph
2B(6), elect to accept such interest rate quotes as to not less than $10,000,000
aggregate principal amount of the Private Shelf Notes specified in the
applicable Request for Purchase. Such election shall be made by an Authorized
Officer of the Partnership notifying Prudential by telephone or telecopier
within the Acceptance Window (but not earlier than 9:30 A.M. or later than 1:30
P.M., New York City local time) that the Partnership elects to accept such
interest rate quotes, specifying the Private Shelf Notes (each such Private
Shelf Note being herein called an "Accepted Note") as to which such accep-tance
(herein called an "Acceptance") relates. The day the Partnership notifies
Prudential of an Acceptance with respect to any Accepted Notes is herein called
the "Acceptance Day" for such Accepted Notes. Any interest rate quotes as to
which Prudential does not receive an Acceptance within the Acceptance Window
shall expire, and no purchase or sale of Private Shelf Notes hereunder shall be
made based on such expired interest rate quotes. Subject to paragraph 2B(6) and
the other terms and conditions hereof, the Partnership agrees to sell to
Prudential or a Prudential Affiliate, and Prudential agrees to purchase, or to
cause the purchase by a Prudential Affiliate of, the Accepted Notes at 100% of
the principal amount of such Notes. Prior to the close of business on the
Business Day next following the Acceptance Day, the Partnership, Prudential and
each Prudential Affiliate which is to purchase any such Accepted Notes will
execute a confirmation of such Acceptance substantially in the form of Exhibit C
---------
attached hereto (herein called a "Confirmation of Acceptance").
2B(6). Market Disruption. Notwithstanding the provisions of paragraph
2B(5), if Prudential shall have provided interest rate quotes pursuant to
paragraph 2B(5) and thereafter, prior to the time an Acceptance with respect to
such quotes shall have been notified to Prudential in accordance with paragraph
2B(5),
9
<PAGE>
there shall occur a general suspension, material limitation, or significant
disruption of trading in securities generally on the New York Stock Exchange or
in the market for U.S. Treasury securities and other financial instruments, then
such interest rate quotes shall expire, and no purchase or sale of Private Shelf
Notes hereunder shall be made based on such expired interest rate quotes. If
the Partnership thereafter notifies Prudential of the Acceptance of any such
interest rate quotes, such Acceptance shall be ineffective for all purposes of
this Agreement, and Prudential shall promptly notify the Partnership that the
provisions of this paragraph 2B(6) are applicable with respect to such
Acceptance.
2B(7). Private Shelf Closing. Not later than 11:30 A.M. (New York City
local time) on the Private Shelf Closing Day for any Accepted Notes, the
Partnership will deliver to each Purchaser listed in the Confirmation of
Acceptance relating thereto at the place of closing designated in the
Confirmation of Acceptance, the Private Shelf Notes to be purchased by such
Purchaser in the form of a single Accepted Note for the Accepted Notes which
have exactly the same terms (or such greater number of Notes in authorized
denominations as such Purchaser may request) dated the Private Shelf Closing Day
and registered in such Purchaser's name (or in the name of its nominee), against
payment of the purchase price thereof by transfer of immediately available funds
for credit to the Partnership's account specified in the Request for Purchase of
such Private Shelf Notes. If the Partnership fails to tender to any Purchaser
the Accepted Notes to be purchased by such Purchaser on the scheduled Private
Shelf Closing Day for such Accepted Notes as provided above in this paragraph
2B(7), or any of the conditions specified in paragraph 3 shall not have been
fulfilled by the time required on such scheduled Private Shelf Closing Day, the
Partnership shall, prior to 1:00 P.M., New York City local time, on such
scheduled Private Shelf Closing Day notify such Purchaser in writing whether (x)
such closing is to be rescheduled (such rescheduled date to be a Business Day
during the Issuance Period not less than one Business Day and not more than
thirty (30) Business Days after such scheduled Private Shelf Closing Day (the
"Rescheduled Closing Day")) and certify to such Purchaser that the Partnership
reasonably believes that it will be able to comply with the conditions set forth
in paragraph 3 on such Rescheduled Closing Day and that the Partnership will pay
the Delayed Delivery Fee, if any, in accordance with paragraph 2B(8)(ii) or (y)
such closing is to be cancelled as provided in paragraph 2B(8)(iii). In the
event that the Partnership shall fail to give such notice referred to in the
preceding sentence, such Purchaser may at its election, at any time after 1:00
P.M., New York City local time,
10
<PAGE>
on such scheduled Private Shelf Closing Day, notify the Partnership in writing
that such closing is to be cancelled as provided in paragraph 2B(8)(iii).
2B(8). Fees.
2B(8)(i) Facility Fee. The Partnership will pay to Prudential in
immediately available funds a fee (herein called the "Facility Fee") on each
Private Shelf Closing Day which occurs after March 31, 1994 in an amount equal
to 0.125% of the aggregate principal amount of Notes sold on such Private Shelf
Closing Day.
2B(8)(ii) Delayed Delivery Fee. If the closing of the purchase and sale
of any Accepted Note is delayed for any reason beyond the original Closing Day
for such Accepted Note, the Partnership will pay to Prudential on the last
Business Day of each calendar month, commencing with the first such day to occur
more than thirty (30) days after the Acceptance Day for such Accepted Note and
ending with the last such day to occur prior to the Cancellation Date or the
actual closing date of such purchase and sale, and on the Cancellation Date or
actual closing date of such purchase and sale (if such Cancellation Date or
closing date occurs more than thirty (30) days after the Acceptance Day for such
Accepted Note), a fee (herein called the "Delayed Delivery Fee") calculated as
follows:
(BEY - MMY) X DTS/360 X Full Price
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note; "MMY" means Money Market Yield, i.e., the yield per
annum on an alternative investment selected by Prudential on the date Prudential
receives notice of the delay in the closing for such Accepted Notes having a
maturity date or dates the same as, or closest to, the Rescheduled Closing Day
or Rescheduled Closing Days (a new alternative investment being selected by
Prudential each time such closing is delayed); "DTS" means Days to Settlement,
i.e., the number of actual days elapsed from and including the thirty-first
(31st) day after the Acceptance Day of such Accepted Note (in the case of the
first such payment with respect to such Accepted Note) or from and including the
date of the immediately preceding payment (in the case of any subsequent delayed
delivery fee payment with respect to such Accepted Note) to but excluding the
date of such payment; and "Full Price" means the principal amount, i.e., the
principal amount of the Accepted Note for which such calculation is being made.
In no case shall the Delayed Delivery Fee be less than zero. Nothing contained
herein shall
11
<PAGE>
obligate any Purchaser to purchase any Accepted Note on any day other than the
Closing Day for such Accepted Note, as the same may be rescheduled from time to
time in compliance with paragraph 2B(7).
2B(8)(iii) Cancellation Fee. If the Partnership at any time notifies the
Purchaser in writing that the Partnership is canceling the closing of the
purchase and sale of any Accepted Note, or if the Purchaser notifies the
Partnership in writing under the circumstances set forth in the last sentence of
paragraph 2B(7) that the closing of the purchase and sale of such Accepted Note
is to be canceled, or if the closing of the purchase and sale of such Accepted
Note is not consummated on or prior to the last day of the Issuance Period (the
date of any such notification, or the last day of the Issuance Period, as the
case may be, being herein called the "Cancellation Date"), the Partnership will
pay Prudential in immediately available funds an amount (the "Cancellation Fee")
calculated as follows:
PI X Full Price
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as determined by
Prudential in its reasonable discretion) of the Hedge Treasury Note(s) on the
Cancellation Date over the bid price (as determined by Prudential in its
reasonable discretion) of the Hedge Treasury Note(s) on the Acceptance Day for
such Accepted Note by (b) such bid price; and "Full Price" has the meaning set
forth in paragraph 2B(8)(ii), above. The foregoing bid and ask prices shall be
as reported by Telerate Systems, Inc. (or, if such data for any reason ceases to
be available through Telerate Systems, Inc., any publicly available source of
similar market data selected by Prudential). Each price shall be based on a
U.S. Treasury security having a par value of $100.00 and shall be rounded to the
second decimal place. In no case shall the Cancellation Fee be less than zero.
2B(8)(iv) Renewal Fee. In the event that the Partnership elects to extend
the stated expiration date of the Facility pursuant to paragraph 2B(2), the
Partnership shall pay the Renewal Fee to Prudential on or before January 7,
1996.
3. CONDITIONS OF CLOSING. Prudential's obligation to purchase the
Initial Notes, and the obligation of any Purchaser to purchase and pay for any
Private Shelf Notes, is subject in each case to the satisfaction, on or before
the applicable Closing Day for such Notes, of the following conditions as
applicable:
12
<PAGE>
3A(1). Opinion of Partnership's Counsel. On the Initial Notes Closing
Day, the Purchasers shall have received from Morgan, Lewis & Bockius, special
counsel for the Partnership, a favorable opinion satisfactory to the Purchasers
and substantially in the form of Exhibit D-1 attached hereto.
-----------
3A(2). Opinion of Trustee's Counsel. On the Initial Notes Closing Day,
the Purchasers shall have received from Eckert Seamans Cherin & Mellott, special
counsel for the Trustee, a favorable opinion satisfactory to the Purchasers and
substantially in the form of Exhibit D-2 attached hereto.
-----------
3A(3). Opinion of Partnership's Counsel. On each Private Shelf Closing
Day, each Purchaser shall have received from special counsel to the Partnership
(which counsel shall be Morgan, Lewis & Bockius, or other counsel reasonably
acceptable to the Purchasers), a favorable opinion satisfactory to the
Purchasers and substantially in the form of Exhibit D-3 attached hereto. To the
-----------
extent the opinion of the Partnership's special counsel relies upon the opinion
of local or other counsel, then any such opinion so relied upon shall be in form
and substance acceptable to the Purchasers.
3A(4). Opinion of Trustee's Counsel. On each Private Shelf Closing Day,
each Purchaser shall have received from special counsel to the Trustee (which
counsel shall be Eckert Seamans Cherin & Mellott, or other counsel reasonably
acceptable to the Purchasers), a favorable opinion satisfactory to the
Purchasers and substantially in the form of Exhibit D-4 attached hereto.
-----------
3B. Representations and Warranties of the Partnership; No Default;
Compliance. Each of the representations and warranties of the Partnership
contained in paragraph 5 of this Agreement shall be true on and as of the
Closing Day with the same effect as though such representations and warranties
had been made on and as of the applicable Closing Day; there shall exist on the
applicable Closing Day no Event of Default or Default and the Partnership shall
be in compliance with all of its covenants and undertakings set forth in the
Indenture and in this Agreement; on the applicable Closing Day all agreements to
be performed by the Partnership shall have been performed in all material
respects on or before the applicable Closing Day; all conditions to be satisfied
hereunder shall have been satisfied in all material respects on or before the
applicable Closing Day; there shall have been no material adverse change in the
business or condition, financial or otherwise, of the Partnership or any
condition, event or act which would materially adversely affect the
Partnership's ability to perform its obligations under this
13
<PAGE>
Agreement, the Indenture and any supplement thereto or the Notes; and the
Partnership shall have delivered to you an Officers' Certificate, dated the
applicable Closing Day, to all such effects.
3C. Fees. On or before the Initial Notes Closing Day, the Partnership
shall have paid to Prudential (i) a structuring fee in the amount of $100,000,
(ii) a closing fee in the amount of $69,100 and (iii) any Delayed Delivery Fee
required to be paid pursuant to the commitment letter dated December 8, 1993
("Commitment Letter") between the Partnership and Prudential relating to the
transactions contemplated by this Agreement. Prudential acknowledges receipt of
$50,000 of the structuring fee paid on December 8, 1993, the balance of the fees
($119,100 plus any Delayed Delivery Fees) shall be due and payable on the
Initial Notes Closing Day. On or before each Private Shelf Closing Day, the
Partnership shall have paid in full to Prudential any fee required by paragraph
2B(8).
3D. The Indenture. The Indenture (including any supplement relating
thereto contemplated hereunder or contemplated by any Confirmation of
Acceptance) shall be in full force and effect. The conditions set forth in
Section 3.03 of the Indenture shall have been satisfied in a manner acceptable
to the Purchasers. The Notes to be issued on the applicable Closing Day shall
be entitled to the benefits of the Indenture.
3E. Partnership Agreement. The Purchasers shall have received a true and
correct copy of the Partnership Agreement to be in effect as of and immediately
following the applicable Closing Day which shall be satisfactory to the
Purchasers and their counsel. Prior to the applicable Closing Day, no term of
such Partnership Agreement shall have been amended, supplemented or otherwise
modified, except with the prior consent of the Purchasers. The Partnership
shall have delivered to you an Officers' Certificate to the foregoing effects.
3F. Transactional Litigation. On the applicable Closing Day, there shall
not be threatened or pending any suit, action, proceeding or investigation,
whether at law, in equity or otherwise, before any court, arbitrator,
administrative agency or other regulatory or governmental authority of any
jurisdiction which (a) brings into question, or involves the question of, the
authenticity, validity or enforceability, in any respect material to the
Partnership as a whole of (i) any transaction contemplated by this Agreement or
(ii) the certificates, permits, policies, appraisals, authorizations and other
documents and instruments referred to in this Agreement, or (b) makes a material
challenge
14
<PAGE>
to the ownership or operation by the Partnership of the BP Pipeline System, or
the validity or enforceability of the Lien of the Indenture with respect to any
material portion of the BP Pipeline System.
3G. Possession of Franchises, Permits, etc. On the applicable Closing
Day, the Partnership shall possess all franchises, rights, certificates,
variances, licenses and permits, Federal, state or local, and all other
authorizations, consents and approvals from administrative, regulatory or
governmental bodies, necessary for the use, occupancy, ownership and maintenance
of the BP Pipeline System and the operation of the business of the Partnership
(except such as are of a routine nature not customarily obtained, effected or
made prior to transactions such as those contemplated hereby or are of an
administrative nature expected to be obtained in the ordinary course of business
subsequent to the applicable Closing Day, or if not obtained, effected or made,
would not have a Material Adverse Effect), and the Partnership shall have
delivered to the Purchasers an Officers' Certificate, dated the applicable
Closing Day, to such effect.
3H. Equipment and Personal Property Not Damaged or Destroyed. At the
applicable Closing Day the Partnership shall be operating the BP Pipeline System
in the ordinary course of business; the BP Pipeline System shall not have been
materially injured or damaged by fire or other casualty, and the Purchasers
shall have received an Officers' Certificate from the Partnership to such
effect.
3I. Recordation, Taxes, etc. Except as the Purchasers may otherwise
approve at or prior to the applicable Closing Day, the Supplemental Indenture
with respect to the Notes to be issued and any necessary documents relating
thereto (including Uniform Commercial Code financing statements) shall have been
filed for recording or shall have been delivered to a title company or companies
that shall have been instructed by instructions satisfactory to the Purchasers
and their counsel or local counsel to record and file the same in all public
offices and which such recordation or filing is necessary in order to provide
constructive notice that the Notes to be issued are entitled to the benefits of
the Lien of the Indenture under applicable recording laws to third parties and
in order to provide that the Lien of the Indenture shall secure the obligations
represented by the Notes to be issued; and payment in full of, or arrangements
for the payment in full of, all taxes, fees and other charges payable in
connection with the execution, delivery, recording, publishing and filing of
such instruments, agreements and
15
<PAGE>
documents and the offer, issue, sale and delivery of the Notes to be delivered
on the applicable Closing Day, shall have been made by the Partnership.
3J. Evidence of Insurance. The Partnership shall have delivered to the
Purchasers a certificate of an insurance broker satisfactory to the Purchasers,
dated not more than five (5) days prior to the applicable Closing Day, setting
forth the particulars of all insurance maintained by the Partnership in respect
of the BP Assets, and specifying that the same is in full force and effect and
will continue to be in full force and effect on and after the applicable Closing
Day, and an Officers' Certificate from the Partnership to the effect that such
insurance complies with the requirements of the Indenture and that all premiums
then due thereon have been paid in full.
3K. Legality of Investment. At the date of purchase thereof, each Note
purchased by each Purchaser pursuant to this Agreement shall be a permitted
investment under the laws and regulations of the state in which such Purchaser
is incorporated; and the Partnership shall have delivered to each Purchaser such
certificates or other evidence as it may request to establish compliance with
this condition.
3L. Purchase Permitted By Applicable Laws. The purchase of and payment
for each Note to be purchased by a Purchaser on the applicable Closing Day on
the terms and conditions provided herein (including the use of the proceeds of
each of the Notes by the Partnership) shall not be prohibited by any then
applicable law or governmental regulation (including, without limitation,
Regulations G, T and X of the Board of Governors of the Federal Reserve System)
and shall not subject any Purchaser on issuance to any tax, penalty, liability
or other condition under or pursuant to any then applicable law or governmental
regulation, and each Purchaser shall have received such certificates or other
evidence as it may request to establish compliance with this condition.
3M. Sale of Notes of Same Series to Other Purchasers. The Partnership
shall have sold to the other Purchasers (if any) the Notes of the same Series to
be purchased by them at the closing and shall have received payment in full
therefor.
3N. Proceedings and Documents. All opinions, certificates, and other
instruments and all proceedings in connection with the transactions contemplated
by this Agreement shall be satisfactory in form and substance to the Purchasers
and their counsel. The Purchasers shall have received copies of all instruments
and
16
<PAGE>
other evidence as they may reasonably request, in form and substance
satisfactory to the Purchasers and their counsel, with respect to such
transactions and the taking of all corporate proceedings in connection
therewith. If any provision of this Agreement shall require the certification
of the existence or non-existence of any particular fact or impose as a
condition the existence or non-existence of such fact, then the Purchasers shall
be free to establish to their satisfaction the existence or non-existence of
such fact.
4. REDEMPTION. The Initial Notes shall be subject to redemption and
prepayment only with respect to the optional redemption permitted by paragraph
4B and under the circumstances set forth in subsection 7.01(c) of the Indenture.
The Private Shelf Notes shall be subject to redemption and prepayment only under
the circumstances specified in paragraph 4A and optional redemption as may be
set forth in the applicable Confirmation of Acceptance.
4A. Required Redemption of Private Shelf Notes. Until each respective
Series of Private Shelf Notes shall be paid in full, each respective Series of
Private Shelf Notes shall be subject to such mandatory redemption, if any, as
are specified for such Series of Private Shelf Notes in accordance with the
provisions of paragraph 2B(3) hereof and under the circumstances set forth in
subsection 7.01(c) of the Indenture. Any redemption made by the Partnership
pursuant to subsection 7.01(c) of the Indenture or any other provision of this
paragraph 4 shall not reduce or otherwise affect its obligation to make any
redemption as specified in the respective Series of Private Shelf Notes.
4B(1). Optional Redemption with Yield-Maintenance Premium. Subject to the
limitations set forth below and only to the extent permitted by the Indenture,
the Notes of each Series shall be subject to redemption, in whole at any time or
from time to time in part (in $100,000 increments and not less than $5,000,000
per occurrence), at the option of the Partnership, at 100% of the principal
amount so redeemed plus interest thereon to the redemption date and the Yield-
Maintenance Premium (to the extent not prohibited by applicable law), if any,
with respect to each Note so redeemed. Notwithstanding the foregoing, no
redemption of the Series K Notes may be made on or after December 15, 2001,
pursuant to this paragraph 4B(1).
4B(2). Optional Redemption of Series K Notes Subsequent to December 14,
2001. Subject to the limitations set forth below and only to the extent
permitted by the Indenture, the Series K Notes shall be subject to redemption
subsequent to December 14,
17
<PAGE>
2001, in whole or from time to time in part (in $100,000 increments and not less
than $5,000,000 per occurrence), at the option of the Partnership, at 100% of
the principal amount so redeemed plus interest thereon to the redemption date,
and a Yield-Maintenance Premium (to the extent not prohibited by applicable law)
determined in accordance with the following schedule with respect to each Series
K Note so redeemed:
<TABLE>
<CAPTION>
===============================================================================
Yield-Maintenance Premium
Expressed as Percentage of the
Date of Redemption Principal Amount Redeemed
- -------------------------------------------------------------------------------
<S> <C>
After December 14, 2001 and on
or before December 14, 2002 7.11%
- -------------------------------------------------------------------------------
After December 14, 2002 and on
or before December 14, 2003 5.93%
- -------------------------------------------------------------------------------
After December 14, 2003 and on
or before December 14, 2004 4.74%
- -------------------------------------------------------------------------------
After December 14, 2004 and on
or before December 14, 2005 3.56%
- -------------------------------------------------------------------------------
After December 14, 2005 and on
or before December 14, 2006 2.37%
- -------------------------------------------------------------------------------
After December 14, 2006 and on
or before December 14, 2007 1.19%
- -------------------------------------------------------------------------------
After December 14, 2007 0%
===============================================================================
</TABLE>
4C. Notice of Optional Redemption. The Partnership shall give to the
holder of each Note of a Series irrevocable written notice of any optional
redemption pursuant to paragraph 4B with respect to such Series not more than
sixty (60) days or less than ten (10) Business Days prior to the redemption
date, specifying (i) such redemption date, (ii) the aggregate principal amount
of the Notes of such Series to be redeemed on such date, (iii) the principal
amount of the Notes of such holder to be redeemed on that date, and (iv) stating
that such optional redemption is to be made pursuant to paragraph 4B(1) or
4B(2), as the case may be. Notice of optional redemption having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the redemption date and together with the Yield-
Maintenance Premium (to the extent not prohibited by applicable law) (if any)
with respect thereto, shall become due and payable on such redemption date and,
as to principal, applied to required payments thereon in the inverse order of
their scheduled due dates.
4D. Partial Payments Pro Rata. In the case of each redemption pursuant to
paragraphs 4A or 4B of less than the
18
<PAGE>
entire unpaid principal amount of all outstanding Notes of any Series, the
amount to be redeemed shall be applied pro rata to all outstanding Notes of such
Series according to the respective unpaid principal amounts thereof.
4E. Retirement of Notes. The Partnership shall not, and shall not permit
any of its Subsidiaries or Affiliates to, redeem, prepay or otherwise retire in
whole or in part prior to their stated final maturity (other than (i) by
redemption by the Partnership pursuant to paragraphs 4A or 4B or (ii) upon
acceleration of such final maturity pursuant to Article 8 of the Indenture), or
purchase or otherwise acquire, directly or indirectly, Notes held by any holder.
5. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Partnership
represents, covenants and warrants with and to the Purchasers and the holders of
the Notes as follows:
5A. Organization and Qualification. The Partnership is a partnership duly
organized and existing under the laws of the State of Delaware; the Partnership
has the partnership power and authority to own its property and to carry on its
business as now being conducted; and the Partnership is duly qualified to
transact business in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except in such jurisdictions
in which, in the aggregate, the failure of the Partnership to be so qualified
will not subject it to any liability or disability which could have a Material
Adverse Effect.
5B. Valid and Binding Obligations. The Partnership has the partnership
power and authority to enter into this Agreement, to issue the Notes and to
perform its obligations under this Agreement, the Indenture and the Notes; this
Agreement and the Indenture constitute and the Notes upon execution,
authentication and delivery, will constitute, the Partnership's valid and
binding obligations, enforceable in accordance with their respective terms
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
5C. Litigation. Except as set forth in Schedule I hereto, there is
----------
no action, suit, investigation or proceeding pending or, to the knowledge of the
Partnership, threatened against the Partnership or any properties or rights of
the Partnership, by or before any court, arbitrator or administrative or
governmental body, which could, in the reasonable judgment of the Partnership,
have a Material Adverse Effect, or which in any manner questions the validity of
this Agreement, the Indenture or the Notes, or any of the transactions
contemplated thereby or in connection
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<PAGE>
therewith, and there is no basis known to the Partnership for any such action,
suit, investigation or proceeding.
5D. Title to Pipeline Assets; Lien of Indenture. The Partnership has not
caused any title search to be made in connection with this Agreement; however,
based on, among other things, the operating history of the BP Pipeline System
and such investigation conducted from time to time in the past of the
instruments conveying to the Partnership or otherwise evidencing the ownership
or lease of, easement over, on or under, right to use, or other interest in, any
of the BP Assets for the purpose of determining what action would be required to
perfect the interest of the Partnership therein, the Partnership is not aware of
any defect in or challenge to its ownership of or rights or other interests in
any of the BP Assets (other than defects or challenges which will not have a
Material Adverse Effect), and (i) the Partnership will at the applicable Closing
Day and at all times thereafter have sufficient title to its properties and
possess all authorizations, rights and franchises from state and local
governmental and regulatory authorities necessary to conduct its business
substantially in accordance with past practice, subject only to Permitted Liens,
encumbrances, restrictions and other imperfections and other than
authorizations, rights and franchises which in the aggregate are expected not to
have a Material Adverse Effect, and (ii) the Lien of the Indenture will be valid
and enforceable in accordance with its terms on all the Partnership's right,
title and interest to and in the BP Assets (other than Excepted Property),
subject only to Permitted Liens and to the encumbrances, restrictions and other
imperfections noted above.
5E(1). Historic Financial Statements. The Partnership has furnished each
Purchaser of Initial Notes and any Accepted Notes with the following financial
statements: (i) consolidated balance sheets of the Partnership and its
subsidiaries as at the last day in each of the five fiscal years of the
Partnership most recently completed prior to the date as of which this
representation is made or repeated to such Purchaser (other than fiscal years
completed within 120 days prior to such date for which audited financial
statements have not been released) and consolidated statements of income and
cash flows of the Partnership and its subsidiaries for each such year, reported
on by independent public accountants of recognized national standing; and (ii)
consolidated balance sheets of the Partnership and its subsidiaries as at the
end of the quarterly period (if any) most recently completed prior to such date
and after the end of such fiscal year (other than quarterly periods completed
within 60 days prior to such date for which financial statements have not been
released) and the comparable quarterly period in the preceding fiscal year and
consolidated statements of income and statements of cash flows for the periods
from the beginning of
20
<PAGE>
the fiscal years in which such quarterly periods are included to the end of such
quarterly periods, prepared by the Partnership. Such financial statements
(including any related schedules and/or notes) are true and correct in all
material respects (subject, as to interim statements, to changes resulting from
audits and year-end adjustments), have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods involved and show all liabilities, direct and contingent, of the
Partnership and its subsidiaries required to be shown in accordance with such
principles. The balance sheets fairly present the financial position of the
Partnership and its subsidiaries as at the dates thereof, and the statements of
income and statements of cash flows fairly present in all material respects the
results of the operations and cash flows of the Partnership and its subsidiaries
for the periods indicated.
5E(2). Financial Statements and Other Reports. The Partnership will file
with the Trustee and deliver to each of the holders of the Notes:
(i) as soon as practicable and in any event within 120 days after the
end of each fiscal year, a statement of income and retained earnings and
changes in financial position of the Partnership and its subsidiaries on a
consolidating and consolidated basis, for such year, and a balance sheet of
the Partnership and its subsidiaries on a consolidating and consolidated
basis, as of the end of such year, setting forth, in the case of the
consolidated statements, in comparative form, which need be shown only on a
consolidated basis, corresponding figures for the period covered by the
preceding annual audit, all in reasonable detail, satisfactory (in the
reasonable exercise of discretion) in scope to the Holders of 66 2/3% of
the aggregate principal amount of the First Mortgage Notes then
Outstanding (to the extent that such Holders shall have notified the
General Partner of any requests or concerns at least 45 days prior to the
end of the fiscal year to which such financial statements relate, it
being understood that such other additional information as any holder of
a Note may reasonably request shall be made available pursuant to
paragraph 5E(2)(iv)), prepared in accordance with generally accepted
accounting principles applied on a consistent basis from period to
period, and certified by independent public accountants of recognized
national standing selected by the Partnership;
(ii) as soon as practicable and in any event within 60 days after the
end of the first three quarterly periods in each fiscal year, a statement
of income and retained earnings and changes in financial position of the
Partnership and its subsidiaries on a consolidated basis and
21
<PAGE>
a balance sheet of the Partnership and its subsidiaries on a consolidating
and consolidated basis, as at the end of such quarter, setting forth in the
case of consolidated statements, in comparative form, which need be shown
only on a consolidated basis, figures for the corresponding periods in the
preceding fiscal year and for the current year's business plan, all in
reasonable detail and satisfactory (in the reasonable exercise of
discretion) in scope to the Holders of 66 2/3% of the aggregate principal
amount of the First Mortgage Notes then Outstanding (to the extent that
such Holders shall have notified the General Partner of any requests or
concerns at least 30 days prior to the end of the fiscal quarter to which
such financial statements relate, it being understood that such other
additional information as any holder of a Note may reasonably request shall
be made available pursuant to paragraph 5E(2)(iv)), accompanied by a
certificate of the Chief Financial Officer, Chief Accounting Officer or
Treasurer of the General Partner, subject to changes resulting from audit
and year-end adjustments;
(iii) promptly upon receipt thereof, a copy of each other report
submitted to the Partnership by independent accountants in connection with
any annual, interim or special audit made by them of the books of the
Partnership, including, without limitation, any final comment letter
submitted by such accountants to management in connection with the
Partnership's annual audit, and a copy of each report submitted to the
Partnership by such accountants concerning their respective accounting
practices and systems; and
(iv) promptly, from time to time, such other information regarding the
operations, business, affairs and financial condition of the Partnership
and its Subsidiaries and Owned Entities as the holders of the Notes may
reasonably request.
Each Purchaser and each Transferee is hereby authorized to deliver a copy of any
financial statement, certificate, report or information delivered to it pursuant
to this paragraph 5 to any regulatory body having jurisdiction over it.
5F. Conflicting Agreements and Other Matters. Except for this Agreement
and the Indenture and the transactions contemplated thereby, the Partnership is
not a party to any contract or agreement or subject to any charter or other
restriction which, either individually or in the aggregate, materially adversely
affects its business, property or assets, or financial condition. Neither
execution or delivery of this Agreement, any supplement to the Indenture or any
of the Notes,
22
<PAGE>
nor the offering, issuance and sale of the Notes, nor fulfillment of nor
compliance with the terms and provisions of this Agreement, any supplement to
the Indenture and the Notes will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any lien other than the Lien of
the Indenture, upon any of the properties or assets of the Partnership pursuant
to, the Partnership Agreement, or any award of any arbitrator or any other
agreement (including any agreement with general or limited partners of the
Partnership), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Partnership is subject (other than conflicts, breaches,
defaults, violations or liens which will not have a Material Adverse Effect).
Except for this Agreement, the Commitment Letter, the Indenture and the
Revolving Credit Agreement and the instruments relating thereto, the Partnership
is not a party to, or otherwise subject to any provision contained in, any
instrument evidencing indebtedness of the Partnership, any agreement relating
thereto or any other contract or agreement which limits the amount of, or
otherwise imposes restrictions on the incurring of, indebtedness.
5G. Offering of Notes. Neither the Partnership nor any agent acting on
its behalf has, directly or indirectly, offered any of the Notes or any similar
security of the Partnership for sale to, or solicited any offers to buy any of
the Notes or any similar security of the Partnership from, or otherwise
approached or negotiated with respect thereto with, any Person other than
Institutional Investors or entities acting on behalf of Institutional Investors,
and, assuming the accuracy of the representations contained in paragraph 6 of
this Agreement, neither the Partnership nor any agent acting on its behalf has
taken or will take any action which would subject the offering, issuance or sale
of any of the Notes to the provisions of Section 5 of the Securities Act of
1933, as amended, or to the provisions of any securities or Blue Sky law of any
applicable jurisdiction.
5H. Regulation G, etc. Neither the Partnership nor any Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System (herein called "margin stock"). The proceeds of sale of the Initial
Notes will be used for purposes of permanently financing Capital Improvements as
permitted by the Indenture and as specifically contemplated by Section
3.03(f)(1) thereof and the proceeds of the sale of any Private Shelf Notes will
be used for the purposes stated in the relevant Request for Purchase. None of
the proceeds of sale of the Notes to you will be used by the Partnership,
directly or indirectly, for the purpose of purchasing or carrying any margin
stock or for the purpose of maintaining, reducing or retiring any indebtedness
which was
23
<PAGE>
originally incurred to purchase or carry a margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
said Regulation G. Neither the Partnership nor any agent acting on its behalf
has taken or will take any action which might cause this Agreement, the
Indenture or any of the Notes to violate Regulation G, Regulation T, Regulation
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Exchange Act of 1934, in each case as in
effect now or as the same may hereinafter be in effect.
5I. Governmental Consent. Neither the execution and delivery of this
Agreement or any supplement to the Indenture, nor the offer, issue, sale or
delivery of any of the Notes or fulfillment of or compliance with the terms and
provisions of this Agreement, the Indenture or any of the Notes, is such as to
require any consent, approval or other action by or any notice to or filing with
any court or administrative or governmental body (other than consents,
approvals, other actions, notices or filings which (a) have been, or prior to
the applicable Closing Day, will be, obtained, effected or made, (b) are of a
routine nature not customarily obtained, effected or made prior to transactions
such as those contemplated hereby or are of an administrative nature expected to
be obtained in the ordinary course of business subsequent to the applicable
Closing Day, or (c) if not obtained, effected or made, would not, individually
or in the aggregate, have a Material Adverse Effect).
5J. Holding Company and Investment Company Status. The Partnership is not
a "holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", or a "public utility", within the meaning of
the Public Utility Holding Company Act of 1935, as amended, or a "public
utility" within the meaning of the Federal Power Act, as amended. The
Partnership is not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or an "investment adviser" within the meaning
of the Investment Advisers Act of 1940, as amended.
5K. No Conflicting Requirements. The Partnership is not in violation of
or in default under any term or provision of any charter, by-law, partnership
agreement, mortgage, indenture, agreement, instrument, statute, rule,
regulation, judgment, decree, order, writ or injunction applicable to it, such
that such violations or defaults might materially and adversely affect the
ability of the Partnership to perform its obligations under this Agreement, the
Indenture or the Notes or the satisfaction of any of the conditions to your
obligation to purchase the Notes to be purchased by you on any applicable
Closing Day.
5L. Compliance with Laws. The Partnership and each of its
24
<PAGE>
Subsidiaries is in compliance with all applicable laws, rules and regulations
(including environmental protection laws and regulations), other than such laws,
rules or regulations the validity or applicability of which it is contesting in
good faith by appropriate proceedings, or the noncompliance with which would not
have a Material Adverse Effect.
5M. Accuracy of Certificates, etc. Neither (i) this Agreement nor (ii)
taken as a whole, all other documents, certificates and written statements
furnished to you by or on behalf of the Partnership in connection with the
execution and delivery of this Agreement or pursuant thereto (other than
financial projections), contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which they were made,
not misleading, in either case which has not been corrected, supplemented or
remedied by subsequent documents furnished or statements made in writing to you.
5N. ERISA Matters. Schedule II lists all employee benefit plans, as
-----------
defined in Section 3(3) of ERISA, maintained for the Partnership or to which the
Partnership contributes. The Partnership covenants that as soon as practicable
after, and in any event within 30 days after, the Partnership knows or has
reason to know of any of the following events: (i) the occurrence of any
Reportable Event with respect to any Single Employer Plan or (ii) the
institution of proceedings or the taking or expected taking of any other action
of PBGC or the Partnership to terminate, withdraw or partially withdraw from any
Plan and, with respect to a Multiemployer Plan, the reorganization or insolvency
of the Plan, the Partnership shall, in addition to any other notice required to
be delivered hereunder, deliver to you so long as you shall hold any of the
Notes and to each other holder of a Note whichever of the following may be
applicable: (A) an Officers' Certificate of the Partnership setting forth
details as to such Reportable Event and the action that the Partnership proposes
to take with respect thereto, together with a copy of any notice that may be
required to be filed with PBGC, or (B) any notice delivered by PBGC evidencing
its intent to institute such proceedings or any notice to PBGC that such Plan is
to be terminated, as the case may be. The execution and delivery of this
Agreement and the issuance and sale of the Notes will be exempt from, or will
not involve any transaction which is subject to the prohibitions of, section 406
of ERISA and will not involve any transaction in connection with which a penalty
could be imposed under section 502(i) of ERISA or a tax could be imposed
pursuant to section 4975 of the Code. The representation by the Partnership in
the immediately preceding sentence is made in reliance upon and subject to the
accuracy of each Purchaser's representation in paragraph 6B. For all purposes
of this
25
<PAGE>
paragraph 5N, the Partnership shall be deemed to have all knowledge, including
knowledge of all facts, attributable to the administrator of such Plan. At
December 31, 1992, the aggregate unfunded past services liability of the
Partnership under all employees benefit plans was $15,737,219. For purposes of
this paragraph 5N, Reportable Event, Single Employer Plan, PBGC, Multiemployer
Plan and Plan shall have the meanings ascribed to them in ERISA.
5O. Hostile Tender Offers. None of the proceeds of the sale of any Notes
will be used to finance a Hostile Tender Offer.
5P. Certain Additional Covenants.
(1) The Partnership will at any and all times upon the written
request of the Trustee and in any event in December of each calendar year,
beginning with the year 1994, furnish to the Trustee and to the Holders of
the Notes an Officers' Certificate stating in substance that the
Partnership has complied with all the terms and conditions of subsections
4.05(a) and (b) of the Indenture and containing a detailed statement of the
insurance then outstanding and in force provided for under subsection
4.05(a) of the Indenture, including the amounts thereof, the names of the
insurers, and the property, hazards and risks covered thereby.
(2) The Partnership shall permit any Person designated by the Trustee
or the holders of the Notes to visit and inspect any of the properties,
books or financial records of the Partnership and General Partner and to
discuss the affairs, finances and accounts of the Partnership and the
General Partner with the officers of the General Partner and
representatives of Deloitte & Touche (or any other firm of independent
public accountants employed by the Partnership), at such reasonable times
and as often as may reasonably be requested.
(3) Provided that the Partnership shall have been given reasonably
sufficient time to comply, the Partnership shall deliver to the holders of
the Notes with each delivery of financial reports and statements required
by subsections 4.07(b)(1) and (2) of the Indenture an Officers' Certificate
regarding such financial and other matters as the holders of the Notes may
reasonably request.
(4) In the event that the Indenture shall have been qualified under
the Trust Indenture Act of 1939, as amended, the Partnership will file with
the holders of the Notes, copies of all information, documents and reports
with respect to compliance by the Partnership with the conditions and
covenants provided for in the Indenture as it may be
26
<PAGE>
required to file with the Securities and Exchange Commission in accordance
with the rules and regulations prescribed from time to time by the
Securities and Exchange Commission.
(5) The Partnership will not permit any of its Subsidiaries and Owned
Entities to, so long as any of the Notes are Outstanding, declare or
otherwise authorize, or make any payment or distribution of property, other
assets or cash in respect of partnership interests to the Partnership's
partners, except that, so long as there shall not, on the date of any such
distribution occur or be continuing any Default or Event of Default, the
Partnership may make cash distributions to its partners from time to time;
provided that, at the time of declaration of each such distribution, which
shall not precede the date of payment by more than 45 days (and after
giving effect to such distribution), the aggregate amount of all such
distributions shall not exceed the Net Cash Available to Partners at such
time.
(6) The Partnership covenants and agrees to use its best efforts to
promptly amend the Indenture to delete the reference to the "1986 Notes"
appearing in Section 6.06 of the Indenture and in the definitions of "Owned
Entities" and "Subsidiaries" and to substitute therefor a reference to the
"Notes" (as defined in the Indenture).
6. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
6A. Nature of Purchase. Such Purchaser is not acquiring the Notes to be
purchased by it hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
disposition of such Purchaser's property shall at all times be and remain within
its control.
6B. Source of Funds. No part of the funds used by such Purchaser to pay
the purchase price of the Notes being purchased by such Purchaser hereunder
constitutes assets allocated to any separate account maintained by such
Purchaser in which any employee benefit plan, other than employee benefit plans
identified on a list which has been furnished by such Purchaser to the
Partnership, participates to the extent of 10% or more. For the purpose of this
paragraph 6B, the terms "separate account" and "employee benefit plan" shall
have the respective meanings specified in section 3 of ERISA.
7. DEFINITIONS. For the purpose of this Agreement, the terms defined in
paragraphs 1 and 2 shall have the respective
27
<PAGE>
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below:
7A. Yield-Maintenance Terms.
"Called Principal" shall mean, with respect to any Note, the principal of
such Note that is to be redeemed pursuant to paragraph 4B(1) or is declared to
be immediately due and payable pursuant to Article 8 of the Indenture as the
context requires.
"Discounted Value" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on a semiannual
basis) equal to the Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" shall mean, with respect to the Called Principal of
any Note, the yield to maturity implied by (i) the yields reported, as of 10:00
A.M. (New York City local time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "Page 678" on the Telerate Service (or such other display as may replace Page
678 on the Telerate Service) for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such Called Principal as of
such Settlement Date, or if such yields shall not be reported as of such time or
the yields reported as of such time shall not be ascertainable, (ii) the
Treasury Constant Maturity Series yields reported, for the latest day for which
such yields shall have been so reported as of the Business Day next preceding
the Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield shall be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between yields reported for
various maturities.
"Remaining Average Life" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (b) the number of years (calculated
to the nearest one-twelfth year) which will elapse between the Settlement Date
with respect to such Called
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Principal and the scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B(1) or is declared to be immediately due and payable pursuant to
Article 8 of the Indenture as the context requires.
"Yield-Maintenance Premium" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. With respect to any Series K Note on or after December
15, 2001, "Yield-Maintenance Premium" shall mean the amount determined in
accordance with the following schedule with respect to each Series K Note so
redeemed:
<TABLE>
<CAPTION>
===============================================================================
Yield-Maintenance Premium
Expressed as Percentage of the
Date of Redemption Principal Amount Redeemed
- -------------------------------------------------------------------------------
<S> <C>
After December 14, 2001 and on 7.11%
or before December 14, 2002
- -------------------------------------------------------------------------------
After December 14, 2002 and on 5.93%
or before December 14, 2003
- -------------------------------------------------------------------------------
After December 14, 2003 and on 4.74%
or before December 14, 2004
- -------------------------------------------------------------------------------
After December 14, 2004 and on 3.56%
or before December 14, 2005
- -------------------------------------------------------------------------------
After December 14, 2005 and on 2.37%
or before December 14, 2006
- -------------------------------------------------------------------------------
After December 14, 2006 and on 1.19%
or before December 14, 2007
- -------------------------------------------------------------------------------
After December 14, 2007 0%
==============================================================================
</TABLE>
The Yield-Maintenance Premium shall in no event be less than zero.
29
<PAGE>
7B. Other Terms.
"Acceptance" shall have the meaning specified in paragraph 2B(5).
"Acceptance Day" shall have the meaning specified in paragraph 2B(5).
"Acceptance Window" shall have the meaning specified in paragraph 2B(5).
"Accepted Note" shall have the meaning specified in paragraph 2B(5).
"Authorized Officer" shall mean (i) in the case of the Partnership, the
chief executive officer, the chief operating officer, the chief financial
officer, the chief accounting officer, the Vice President-Finance, the Treasurer
and any vice president of the General Partner designated as an "Authorized
Officer" of the Partnership for the purpose of this Agreement in an Officer's
Certificate executed by the General Partner's chief operating officer or chief
financial officer and delivered to Prudential, and (ii) in the case of
Prudential, any officer of Prudential designated as its "Authorized Officer" in
the Information Schedule or any officer designated as its "Authorized Officer"
for the purpose of this Agreement in a certificate executed by one of its
Authorized Officers or a member of its law department. Any action taken under
this Agreement on behalf of the Partnership by any individual who on or after
the date of this Agreement shall have been an Authorized Officer of the
Partnership and whom Prudential in good faith believes to be an Authorized
Officer of the Partnership at the time of such action shall be binding on the
Partnership even though such individual shall have ceased to be an Authorized
Officer of the Partnership, and any action taken under this Agreement on behalf
of Prudential by any individual who on or after the date of this Agreement shall
have been an Authorized Officer of Prudential and whom the Partnership in good
faith believes to be an Authorized Officer of Prudential at the time of such
action shall be binding on Prudential even though such individual shall have
ceased to be an Authorized Officer of Prudential.
"Available Facility Amount" shall have the meaning specified in paragraph
2B(1).
"Business Day" shall mean any day other than (i) a Saturday or a Sunday,
(ii) a day on which commercial banks in New York City are required or authorized
to be closed and (iii) for purposes of paragraph 2B(2) hereof only, a day on
which The Prudential Insurance Company of America is not open for business.
30
<PAGE>
"Cancellation Date" shall have the meaning specified in paragraph
2B(8)(iii).
"Cancellation Fee" shall have the meaning specified in paragraph
2B(8)(iii).
"Closing Day" shall mean the Initial Notes Closing Day or a Private Shelf
Closing Day, as the case may be.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commitment Letter" shall have the meaning specified in paragraph 3C.
"Confirmation of Acceptance" shall have the meaning specified in paragraph
2B(5).
"Delayed Delivery Fee" shall have the meaning specified in paragraph
2B(8)(ii).
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Facility" shall have the meaning specified in paragraph 2B(1).
"Facility Fee" shall have the meaning specified in paragraph 2B(8)(i).
"First Mortgage Notes" shall mean and include the Notes and any other notes
issued prior to the date hereof and from time to time under the Indenture.
"Hedge Treasury Note(s)" shall mean, with respect to any Accepted Note, the
United States Treasury Note or Notes whose duration (as determined by Prudential
in its reasonable discretion) most closely matches the duration of such Accepted
Note.
"Hostile Tender Offer" shall mean, with respect to the use of proceeds of
any Note, any offer to purchase, or any purchase of, shares of capital stock of
any corporation or equity interests in any other entity, or securities
convertible into or representing the beneficial ownership of, or rights to
acquire, any such shares or equity interests, if such shares, equity interests,
securities or rights are of a class which is publicly traded on any securities
exchange or in any over-the-counter
31
<PAGE>
market, other than purchases of such shares, equity interests, securities or
rights representing less than 5% of the equity interests or beneficial ownership
of such corporation or other entity for portfolio investment purposes, and such
offer or purchase has not been duly approved by the board of directors of such
corporation or the equivalent governing body of such other entity prior to the
date on which the Partnership makes the Request for Purchase of such Note.
"Indenture" shall mean that certain Indenture of Mortgage and Deed of Trust
and Security Agreement attached hereto as Exhibit E as amended, supplemented and
---------
otherwise modified from time to time in accordance with its terms.
"Initial Notes" shall have the meaning specified in paragraph 1A.
"Institutional Investor" shall mean Prudential, any Prudential Affiliate or
any bank, bank affiliate, financial institution, insurance company, pension
fund, endowment or other organization which regularly acquires debt instruments
for investment.
"Issuance Period" shall have the meaning specified in paragraph 2B(2).
"Notes" shall have the meaning specified in paragraph 1B.
"Officer's Certificate" shall mean a certificate signed in the name of the
Partnership by an Authorized Officer of the General Partner.
"Partnership" shall mean Buckeye Pipe Line Company, L.P., a limited
partnership organized under the laws of Delaware.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Private Shelf Closing Day" for any Accepted Note shall mean the Business
Day specified for the closing of the purchase and sale of such Private Shelf
Note in the Request for Purchase of such Private Shelf Note, provided that (i)
if the Acceptance Day for such Accepted Note is less than five Business Days
after the Partnership shall have made such Request for Purchase and the
Partnership and the Purchaser which is obligated to purchase such Private Shelf
Note agree on an earlier Business Day for such closing, the "Private Shelf
Closing Day" for such Accepted Note shall be such earlier Business Day, and (ii)
if the closing of the purchase and sale of such Accepted Note is rescheduled
32
<PAGE>
pursuant to paragraph 2B(7), the Private Shelf Closing Day for such Accepted
Note, for all purposes of this Agreement except paragraph 2B(8)(iii), shall mean
the Rescheduled Closing Day with respect to such Closing.
"Private Shelf Note" and "Private Shelf Notes" shall have the meaning
specified in paragraph 1B.
"Prudential" shall mean The Prudential Insurance Company of America.
"Prudential Affiliate" shall mean any corporation or other entity all of
the Voting Stock (or equivalent voting securities or interests) of which is
owned by Prudential either directly or through Prudential Affiliates.
"Purchasers" shall mean Prudential as purchaser of the Initial Notes and,
with respect to any Accepted Notes, Prudential or a Prudential Affiliate
purchasing such Accepted Notes.
"Renewal Fee" shall have the meaning specified in paragraph 2B(2).
"Request for Purchase" shall have the meaning specified in paragraph 2B(3).
"Rescheduled Closing Day" shall have the meaning specified in paragraph
2B(7).
"Responsible Officer" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
General Partner or any other officer of the General Partner involved principally
in the Partnership's financial administration or its controllership function.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series" shall have the meaning specified in paragraph 1B.
"Supplemental Indenture" shall mean the Third Supplemental Indenture of
Mortgage and Deed of Trust and Security Agreement dated as of December 31, 1993
among the Partnership and PNC Bank, National Association, formerly known as
Pittsburgh National Bank, and J.G. Routh, as trustees, in the form of Exhibit F
---------
attached hereto with such changes thereto as may be acceptable to the Purchasers
of the Initial Notes.
"Transferee" shall mean any direct or indirect transferee of all or any
part of any Note purchased by any Purchaser under this
33
<PAGE>
Agreement.
"Unused Facility Amount" shall have the meaning specified in paragraph
2B(8)(i).
"Voting Stock" shall mean, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
8. MISCELLANEOUS.
8A. Note Payments. The Partnership agrees that, so long as any Purchaser
shall hold any Note, it will make payments of principal of, interest on and any
Yield-Maintenance Premium payable with respect to such Note, which comply with
the terms of this Agreement, by wire transfer of immediately available funds for
credit (not later than 12:00 noon, New York City time, on the date due) to (i)
such Purchaser's account or accounts as specified in the Purchaser Schedule
attached hereto (in the case of the Initial Notes), (ii) the account or accounts
specified in the applicable Confirmation of Acceptance (in the case of any
Private Shelf Note) or (iii) such other account or accounts in the United States
as such Purchaser may designate in writing, notwithstanding any contrary
provision herein, in the Indenture or in any Note with respect to the place of
payment. Each Purchaser agrees that, before disposing of any Note, such
Purchaser will make a notation thereon (or on a schedule attached thereto) of
all principal payments previously made thereon and of the date to which interest
thereon has been paid. The Partnership agrees to afford the benefits of this
paragraph 8A to any Institutional Noteholder which is the direct or indirect
transferee of any Note purchased by you hereunder.
8B. Expenses. The Partnership agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential, each
Purchaser and any Transferee harmless against liability for the payment of, all
out-of-pocket expenses arising in connection with such transactions, including
without limitation all stamp and other taxes (including any intangible personal
property tax) due on the issuance of the Notes, together in each case with
interest and penalties, if any, which may be payable in respect of the execution
and delivery of this Agreement, the execution and delivery and recording and
filing of any supplement to the Indenture or the execution and delivery of any
Note issued under or pursuant to this Agreement, all costs and expenses in
connection with the mortgaging of and creating a security interest in the Trust
Estate pursuant to the Indenture, all printing costs, all fees and expenses of
the Trustee
34
<PAGE>
(including the fees and expenses of its special counsel and all local counsel
engaged by such special counsel) in connection with this transaction and the
fees and expenses of your special counsel (including all local counsel) in
connection with this Agreement, the Indenture and the Notes, any modification
hereof or thereof or any waiver hereunder or thereunder. Notwithstanding the
foregoing, the Partnership shall have no obligation under this paragraph 8B to
reimburse any Purchaser for out-of-pocket costs and expenses (including
attorneys fees and expenses but excluding any applicable Delayed Delivery Fee or
Cancellation Fee) of such Purchaser incurred in connection with the negotiation
and closing of this Agreement or the closing of any draw made under the Facility
unless the Partnership agrees in writing to reimburse such Purchaser for any
such expenses. The obligations of the Partnership under this paragraph 8B shall
survive the transfer of any Note or portion thereof or interest therein by any
Purchaser or any Transferee and the payment of any Note.
8C. Consent to Amendments. Except as provided in (S)13.06 of the
Indenture, this Agreement may be amended, and the Partnership may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, if the Partnership shall obtain the written consent to such
amendment, action or omission to act, of at least 66 2/3% of the principal
amount of the Notes Outstanding at the time except that (i) with the written
consent of Prudential (and not without the written consent of Prudential) the
provisions of paragraph 2 may be amended or waived (except insofar as any such
amendment or waiver would affect any rights or obligations with respect to the
purchase and sale of Notes which shall have become Accepted Notes prior to
such amendment or waiver), and (ii) with the written consent of all of the
Purchasers which shall have become obligated to purchase Accepted Notes of any
Series (and not without the written consent of all such Purchasers), any of
the provisions of paragraphs 2 and 3 may be amended or waived insofar as such
amendment or waiver would affect only rights or obligations with respect to
the purchase and sale of the Accepted Notes of such Series or the terms and
provisions of such Accepted Notes. Each holder of any Note at the time or
thereafter Outstanding shall be bound by any consent authorized by this
paragraph 8C, whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may contain a reference or bear a
notation referring to any such consent. No course of dealing between the
Partnership and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note. As used herein and in the Notes, the term "this
Agreement" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
35
<PAGE>
8D. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by the Partnership in connection
herewith shall survive the execution and delivery of this Agreement and the
Notes, the transfer by any Purchaser of any Note and the payment of any Note,
regardless of any investigation made at any time by or on behalf of any
Purchaser or any Transferee.
8E. Successors and Assigns. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
8F. Notices. All written communications provided for hereunder (other
than communications provided for under paragraph 2B) shall be sent by first
class mail or nationwide overnight delivery service (with charges prepaid) (i)
if to any Purchaser, addressed to such Purchaser at the address specified for
such communications in the Purchaser Schedule attached hereto (in the case of
the Initial Notes) or in the Confirmation of Acceptance (in the case of any
Private Shelf Notes), or at such other address as any Purchaser shall have
specified in writing to the Partnership, and (ii) if to any other holder of any
Note, addressed to such other holder at such address as such other holder shall
have specified in writing to the Partnership or, if any such other holder shall
not have so specified an address to the Partnership, then addressed to such
other holder in care of the last holder of such Note which shall have so
specified an address to the Partnership, and (iii) if to the Partnership,
addressed to the Partnership c/o Buckeye Pipe Line Company, 3900 Hamilton
Boulevard, Allentown, Pennsylvania 18103, Attention: President, or at such other
address as the Partnership shall have specified to the holder of each Note in
writing. Any communication pursuant to paragraph 2B shall be made by the method
specified for such communication in paragraph 2B, and shall be effective to
create any rights or obligations under this Agreement only if, in the case of a
telephone communication, an Authorized Officer of the party conveying the
information and of the party receiving the information are parties to the
telephone call, and in the case of a telecopier communication, the communication
is signed by an Authorized Officer of the party conveying the information,
addressed to the attention of an Authorized Officer of the party receiving the
information, and in fact received at the telecopier terminal the number of which
is listed for the party receiving the communication in the Information Schedule
or at such other telecopier terminal as the party receiving the information
shall have specified in writing to the party sending such information.
36
<PAGE>
8G. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
8H. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any Purchaser or to any holder of Notes, the
determination of such satisfaction shall be made by such Purchaser or such
holder, as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
8I. GOVERNING LAW. THIS AGREEMENT IS BEING DELIVERED AND IS INTENDED TO
BE PERFORMED IN THE STATE OF NEW YORK, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
SUCH STATE. This Agreement may not be changed orally, but (subject to the
provisions of subparagraph 8C of this Agreement) only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
8J. Reproduction and Counterparts. This Agreement and all documents
relating hereto, including, without limitation (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by you
and the other Purchasers at the closing (except the Notes themselves), and (c)
financial statements, certificates and other information previously or
hereafter furnished to you and the other Purchasers, may be reproduced by you
and the other Purchasers by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process and may destroy any
original document so reproduced. The Partnership agrees and stipulates that,
to the extent permitted by applicable law, any such reproduction shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not originals are in existence) and that
any enlargement, facsimile or further reproduction shall likewise be
admissible in evidence. This Agreement may be signed in counterparts, each of
which would be deemed an original and all of which together shall constitute
but one instrument.
37
<PAGE>
Very truly yours,
BUCKEYE PIPE LINE COMPANY, L.P.
BY BUCKEYE PIPE LINE COMPANY,
a Delaware corporation, as
General Partner
By: /s/
-----------------------------
Name:
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/
-----------------------------
Vice President
38
<PAGE>
LIST OF ATTACHMENTS TO THE AGREEMENT
------------------------------------
<TABLE>
<S> <C>
PURCHASER SCHEDULE
INFORMATION SCHEDULE
EXHIBIT A -- FORM OF FIRST MORTGAGE NOTE
EXHIBIT B -- FORM OF REQUEST FOR PURCHASE
EXHIBIT C -- FORM OF CONFIRMATION OF ACCEPTANCE
EXHIBIT D-1 -- FORM OF OPINION OF COMPANY'S SPECIAL COUNSEL
(Series K, L and M Notes Closing)
EXHIBIT D-2 -- FORM OF OPINION OF TRUSTEE'S COUNSEL
(Series K, L and M Notes Closing)
EXHIBIT D-3 -- FORM OF OPINION OF COMPANY'S SPECIAL COUNSEL
(Private Shelf Closing)
EXHIBIT D-4 -- FORM OF OPINION OF TRUSTEE'S COUNSEL
(Private Shelf Closing)
EXHIBIT E -- INDENTURE
EXHIBIT F -- THIRD SUPPLEMENTAL INDENTURE
SCHEDULE I -- PENDING ACTIONS
SCHEDULE II -- ERISA MATTERS
</TABLE>
LIST OF ATTACHMENTS TO THIS FILING
----------------------------------
EXHIBIT A -- FORM OF FIRST MORTGAGE NOTE
The remaining Exhibits and Schedules do not contain information which is
material and not otherwise disclosed in the agreement. Buckeye Partners, L.P.
agrees to furnish supplementally to the Commission a copy of any omitted
Exhibits and Schedules upon request.
39
<PAGE>
EXHIBIT A
---------
[FORM OF FIRST MORTGAGE NOTES]
BUCKEYE PIPE LINE COMPANY, L.P.
(A limited partnership organized under
the laws of the State of Delaware)
FIRST MORTGAGE PIPE LINE NOTE, ____% SERIES ___ DUE _______, ____
NO. ____ $_____________
BUCKEYE PIPE LINE COMPANY, L.P., a limited partnership organized and
existing under the laws of the State of Delaware (the "Company"), for value
received, hereby promises to pay to ___________________________ or registered
assigns, on December 15, _____, the sum of __________________ Dollars in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts and to pay interest thereon in like
coin or currency (i) from the date hereof until payment of the principal hereof
becomes due and payable, at the rate of _____% per annum, payable semi-annually,
on the fifteenth day of June and December in each year and (ii) on any overdue
payment of principal (and to the extent permitted by law, on any overdue payment
of premium or interest thereon), payable semi-annually as aforesaid (or at the
option of the holder hereof, on demand) at a rate per annum from time to time
equal to the greater of (x) [insert rate equal to one percent over the above
rate] or (y) the rate of interest publicly announced by Morgan Guaranty Trust
Company of New York from time to time in New York City as its prime rate, as
shall be determined by the Trustee. In accordance with Section 15.05 of the
"Indenture" referred to below, principal of, and interest on, and any premium
payable with respect to, this Note are payable at the principal corporate trust
office of the Trustee or any successor as Trustee under such Indenture.
This Note is one of a series designated as the "First Mortgage Pipe
Line Notes, _____% Series _____ due ___________" of the Company, limited in
aggregate principal amount to $__________ and issued under and secured by an
Indenture of Mortgage and Deed of Trust and Security Agreement, dated as of
December 15, 1986 (as amended by the First Supplemental Indenture dated as of
December 1, 1987, the Second Supplemental Indenture dated as of November 30,
1992, and the Third Supplemental Indenture dated as of December 31, 1993 and as
amended and supplemented from time to time hereafter, the "Indenture"), from the
Company to PNC Bank,
A-40
<PAGE>
National Association, formerly Pittsburgh National Bank (the "Trustee"), and
J.G. Routh (the "Individual Trustee"), as Trustees (together, the "Trustees").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings set forth in the Indenture. Contemporaneously with the issuance of the
Notes of this series, the Company is issuing Notes under the Indenture of two
other series which, together with the Notes of this series (collectively, the
"1993 Notes"), are in the aggregate principal amount of $35,000,000. Reference
is made to that certain Note Purchase and Private Shelf Agreement dated as of
December 31, 1993 (as amended from time to time, the "Note Agreement") between
the Company and The Prudential Insurance Company of America and each "Prudential
Affiliate" (as defined in the Note Agreement) which becomes a party thereto for
a further statement of the terms applicable to the 1993 Notes. The 1993 Notes
constitute Additional Notes under the Indenture and together with the "1986
Notes" (as defined in the Indenture) and any Additional Notes issued after the
date hereof, are secured equally and ratably by the Lien of the Indenture. The
1993 Notes, 1986 Notes and any Additional Notes are collectively referred to
herein as, the "Notes". Reference is made to the Indenture and all Indentures
Supplemental thereto for a description of the properties mortgaged and pledged,
the nature and extent of the security, the rights of the Holders of the Notes
and of the Trustees in respect thereof, and the terms and conditions upon which
the Notes are, and are to be, secured. The Notes of the several series issued
and to be issued under the Indenture from time to time may vary in aggregate
principal amount, may mature at different times, may bear interest at different
rates and may otherwise differ as in the Indenture provided.
As provided in the Indenture, the 1993 Notes are subject to mandatory and
optional redemption on the terms specified in the Indenture.
To the extent permitted by, and as provided in, the Indenture,
modifications or alterations of the Indenture, or of any Indenture
Supplemental thereto, and of the rights and obligations with respect to the
Indenture of the Company and of the Holders of the Notes may be made with the
consent of the Company upon the written consent of the Holders of not less
than 66 2/3% in aggregate principal amount of the Notes then Outstanding, or by
an affirmative vote of the Holders of not less than 66 2/3% in aggregate
principal amount of the Notes entitled to vote thereon then Outstanding, at a
meeting of Noteholders called and held as provided in the Indenture or as
otherwise provided in the Indenture; provided, however, that no such
modification or alteration shall be made without the consent of the Holder
hereof which will (a) affect the right of such Holder to receive payment of
principal of, or interest or premium (if any) on, this Note, or to institute
suit for the enforcement of such payment on or after the respective due dates
expressed herein, or (b) otherwise
A-41
<PAGE>
than as permitted by the Indenture, permit the creation of any lien ranking
prior to, or on a parity with, the Lien of the Indenture with respect to any
property covered thereby, or (c) reduce the percentage of the aggregate
principal amount of Notes required to authorize any such modification or
alteration.
In case an Event of Default, as defined in the Indenture, shall occur and
be continuing, the principal of all the Notes at any such time Outstanding
under the Indenture may be declared or may become due and payable upon the
conditions and in the manner and with the effect provided in the Indenture.
The Indenture provides that such declaration may in certain events be
rescinded by the Holders of 66 2/3% in aggregate principal amount of the Notes
then Outstanding.
This Note is transferable by the Holder hereof, in person or by duly
authorized attorney, on books of the Company to be kept for that purpose at the
principal corporate trust office of the Trustee, upon surrender and cancellation
of this Note and on presentation of a duly executed written instrument of
transfer, and thereupon a new Note or Notes of the same series, of the same
aggregate principal amount and in authorized denominations, will be issued to
the transferee or transferees in exchange theretofore; and this Note, with or
without others of the same series, may in like manner be exchanged for one or
more new Notes of the same series of other authorized denominations but of the
same aggregate principal amount; all upon payment of the charges and subject to
the terms and conditions set forth in the Indenture.
The Company and the Trustees may deem and treat the Person in whose
name this Note is registered as the absolute owner hereof for the purpose of
receiving payment of, or on account of, the principal hereof and interest due
hereon, and for all other purposes, and neither the Company nor the Trustees
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of, or the
interest or premium (if any) on, this Note, or for any claim based hereon or on
the Indenture or any Indenture Supplemental thereto, against any partner, past,
present or future, of the Company (including the General Partner), or of any
predecessor or successor, heir or assignee of any such partner as such, or any
stockholder, director, officer or employee of any such partner, either directly
or through the Company or any such predecessor or successor, whether by virtue
of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability, whether at common law,
in equity, by any constitution, statute or otherwise, being released by every
owner hereof by the acceptance of this Note and as part of the consideration for
the issue hereof, and being likewise released by the terms of the Indenture.
A-42
<PAGE>
This Note shall not be entitled to any benefit under the Indenture or
any Indenture Supplemental thereto, or become valid or obligatory for any
purpose, until Pittsburgh National Bank, the Trustee under the Indenture, or a
successor Trustee thereto under the Indenture, shall have signed the form of
certificate imprinted hereon.
THIS NOTE IS BEING DELIVERED AND IS INTENDED TO BE PERFORMED IN THE
STATE OF NEW YORK, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAW OF SUCH STATE.
IN WITNESS WHEREOF, Buckeye Pipe Line Company, L.P., has caused this
Note to be signed in its name by its General Partner.
Dated BUCKEYE PIPE LINE COMPANY, L.P.
By: Buckeye Pipe Line Company,
a Delaware Corporation,
as General Partner
By:
-------------------------------
[Vice] President
(Corporate Seal)
Attest:
- ----------------------------
[Assistant] Secretary of
Buckeye Pipe Line
Company, a Delaware
corporation
[FORM OF TRUSTEE'S CERTIFICATE]
This Note is one of the 1993 Notes, of the series designated therein,
described in the within-mentioned Indenture.
PNC BANK, NATIONAL ASSOCIATION
formerly Pittsburgh National
Bank, Trustee
By:
-----------------------------
Authorized Signatory
A-43
<PAGE>
EXHIBIT 11.1
BUCKEYE PARTNERS, L.P.
COMPUTATION OF EARNINGS PER UNIT
(IN THOUSANDS, EXCEPT FOR UNITS AND PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Income from continuing operations before
extraordinary charge and cumulative effect
of change in accounting principle.......... $41,654 $ 34,546 $30,465
Loss from disposal of discontinued
operations................................. (127) -- --
Extraordinary charge on early extinguishment
of debt.................................... (2,161) -- --
Cumulative effect of change in accounting
principle.................................. -- (25,544) --
---------- ---------- ----------
Net income.................................. $39,366 $ 9,002 $30,465
========== ========== ==========
Primary earnings per Unit:
Income from continuing operations before
extraordinary charge and cumulative
effect of change in accounting principle. $ 3.43 $ 2.85 $ 2.51
Loss from disposal of discontinued
operations............................... (0.01) -- --
Extraordinary charge on early
extinguishment of debt................... (0.18) -- --
Cumulative effect of change in accounting
principle................................ -- (2.11) --
---------- ---------- ----------
Net income................................ $ 3.24 $ 0.74 $ 2.51
========== ========== ==========
Fully-diluted earnings per Unit:
Income from continuing operations before
extraordinary charge and cumulative
effect of change in accounting principle. $ 3.43 $ 2.85 $ 2.51
Loss from disposal of discontinued
operations............................... (0.01) -- --
Extraordinary charge on early
extinguishment of debt................... (0.18) -- --
Cumulative effect of change in accounting
principle................................ -- (2.11) --
---------- ---------- ----------
Net income................................ $ 3.24 $ 0.74 $ 2.51
========== ========== ==========
Average number of Units outstanding:
Units outstanding at December 31,......... 12,121,212 12,121,212 12,121,212
Exercise of Options reduced by the number
of Units purchased with proceeds (Prima-
ry)...................................... 18,945 6,566 477
---------- ---------- ----------
Total Units outstanding--Primary.......... 12,140,157 12,127,778 12,121,689
========== ========== ==========
Units outstanding at December 31,......... 12,121,212 12,121,212 12,121,212
Exercise of Options reduced by the number
of Units purchased with proceeds (Fully-
diluted)................................. 25,589 8,612 637
---------- ---------- ----------
Total Units outstanding--Fully-diluted.... 12,146,801 12,129,824 12,121,849
========== ========== ==========
</TABLE>
- --------
Although not required to be presented in the income statement under provisions
of APB Opinion No. 15, this calculation is submitted in accordance with
Regulations S-K item 601(b)(11).
<PAGE>
EXHIBIT 21.1
BUCKEYE PARTNERS, L.P.
SUBSIDIARIES OF THE REGISTRANT
The following table lists each significant subsidiary of Buckeye Partners,
L.P. and its jurisdiction of organization.
<TABLE>
<CAPTION>
JURISDICTION
OF
SUBSIDIARY ORGANIZATION
---------- ------------
<S> <C>
Buckeye Pipe Line Company, L.P. (99% owned)..................... Delaware
Buckeye Tank Terminals Company, L.P. (99% owned)................ Delaware
Everglades Pipe Line Company, L.P. (99% owned).................. Delaware
Laurel Pipe Line Company, L.P. (99% owned)...................... Delaware
</TABLE>
