<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Buckeye Partners, L.P.
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(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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(1) Amount Previously Paid:
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Notes:
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[LOGO OF BUCKEYE BUCKEYE PARTNERS, L.P.
PARTNERS APPEARS 3900 HAMILTON BOULEVARD
HERE] ALLENTOWN, PENNSYLVANIA 18103
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD AUGUST 11, 1997
To the Unitholders of Buckeye Partners, L.P.:
Notice is hereby given that a Special Meeting (the "Meeting") of the holders
(the "Unitholders") of limited partnership interests represented by units ("LP
Units") of Buckeye Partners, L.P. (the "Partnership"), will be held at the
Radnor Hotel, 591 East Lancaster Avenue, St. Davids, Pennsylvania, at 10:00
a.m., local time, on Monday, August 11, 1997, for the following purposes:
1. To consider and vote upon a proposal to issue LP Units in connection with
the ESOP Restructuring as set forth in the Proxy Statement;
2. To consider and vote upon a proposal to amend the Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement") as described
in the Proxy Statement; and
3. To transact such other business as may properly come before the Meeting and
any postponements or adjournments thereof.
Unitholders of record as of the close of business on June 16, 1997, will be
entitled to notice of the Meeting and to vote at the Meeting and any
postponements or adjournments thereof. Those who will not attend and who wish
their LP Units to be voted are requested to sign, date and mail promptly the
attached proxy for which a stamped return envelope is provided. The specific
details of the proposal to issue LP Units in connection with the ESOP
Restructuring and the proposal to amend the Partnership Agreement are fully
described in the accompanying Proxy Statement.
On behalf of Buckeye Partners, L.P.
By Buckeye Management Company,
as General Partner
/s/ Stephen C. Muther
Stephen C. Muther
Secretary
Allentown, Pennsylvania
June 24, 1997
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE URGED TO SIGN,
DATE, AND MAIL PROMPTLY THE ATTACHED PROXY. IF YOU ATTEND THE MEETING, YOU CAN
VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE>
[LETTERHEAD OF BUCKEYE PARTNERS APPEARS HERE]
June 24, 1997
To Our Unitholders:
You are cordially invited to attend a Special Meeting of Unitholders to be
held at the Radnor Hotel, located at 591 East Lancaster Avenue, St. Davids,
Pennsylvania, on August 11, 1997, beginning at 10:00 a.m., local time. At the
Special Meeting, the Unitholders will vote on two proposals in connection with
the restructuring of our employee stock ownership plan (the "ESOP").
We propose to substitute LP Units for the securities presently held by the
ESOP. The details of the proposed ESOP restructuring are described in the
enclosed proxy materials. To assist you in understanding the proposals, a
question and answer section appears on pages 2 and 3. We believe the proposed
ESOP restructuring will provide significant benefits for Buckeye and its
Unitholders as well as the General Partner and its employees.
If the proposals described in the enclosed proxy statement are approved and
assuming no adverse change in Buckeye's business, the Board of Directors
intends to increase from $3.00 to $3.52 per LP Unit the annual rate of cash
distributions paid to Unitholders. The increase in the cash distribution to
$.88 per quarter from the current level of $.75 per quarter would begin with
the quarterly distribution scheduled to be paid at the end of August. Thus, you
will benefit directly by restructuring the ESOP.
A Special Committee of our Board of Directors, acting on behalf of Buckeye
and the Unitholders, negotiated the terms of the ESOP restructuring with the
General Partner and the ESOP Trustee. The Special Committee was advised by
independent legal counsel and by financial advisors who gave the Special
Committee an opinion that the consideration to be received by Buckeye in the
ESOP restructuring is fair from a financial point of view. BASED ON THE
RECOMMENDATION OF THE SPECIAL COMMITTEE, THE BOARD OF DIRECTORS OF THE GENERAL
PARTNER UNANIMOUSLY RECOMMENDS THAT THE UNITHOLDERS VOTE FOR THE ESOP
RESTRUCTURING.
The ESOP restructuring can only occur following approval by a majority of
Unitholders of the two proposals described in the enclosed proxy materials.
YOUR VOTE IS IMPORTANT. Failure to vote by proxy or in person will have the
same effect as a vote against the ESOP restructuring. We encourage you to
review the enclosed proxy materials and to complete, date, sign and mail the
proxy card in the enclosed postage-paid envelope, or forward the enclosed
letter of instruction to your broker or nominee, as soon as possible.
Thank you for your continued support and endorsement of Buckeye. We look
forward to continuing our history of building long-term value for our
Unitholders.
Sincerely,
/s/ A.W. Martinelli
A.W. Martinelli
Chairman and Chief Executive Officer
Buckeye Management Company,
as General Partner
<PAGE>
[LOGO OF BUCKEYE PARTNERS APPEARS HERE]
PROXY STATEMENT
SPECIAL MEETING OF UNITHOLDERS
TO APPROVE
ESOP RESTRUCTURING
This Proxy Statement is being mailed to holders of limited partnership units
(the "Unitholders") of Buckeye Partners, L.P. (the "Partnership") in connection
with a Special Meeting of Unitholders. The purpose of this Proxy Statement is
to solicit your approval of two proposals in connection with the restructuring
(the "ESOP Restructuring") of the BMC Acquisition Company Employee Stock
Ownership Plan (the "ESOP"). The ESOP is a benefit plan for more than 570
officers and employees of the Partnership's general partner, Buckeye Management
Company (the "General Partner"), and its subsidiaries who operate and manage
the Partnership.
The Board of Directors of the General Partner has approved the ESOP
Restructuring. The Board of Directors and the management of the General Partner
believe that the ESOP Restructuring is in the best interests of the Partnership
and Unitholders.
The primary purpose of the ESOP Restructuring is to exchange the securities
now held by the ESOP for limited partnership units of the Partnership ("LP
Units"). The ESOP currently holds preferred stock of the parent corporation of
the General Partner. As a result of the ESOP Restructuring, the ESOP will
beneficially own LP Units. In exchange for issuing these LP Units, the
Partnership would realize substantial financial and other benefits, including
current cash savings described in this Proxy Statement.
The Board of Directors of the General Partner appointed a special committee
of disinterested members of the Board (the "Special Committee") to consider the
ESOP Restructuring on behalf of the Partnership and the Unitholders. The
Special Committee voted unanimously to recommend that the Board of Directors of
the General Partner approve the ESOP Restructuring. The Special Committee
considered many factors in reaching its recommendation, which are described in
detail in this Proxy Statement.
Unitholders will vote on two proposals at the Special Meeting. The issuance
of LP Units to the ESOP requires Unitholder approval. You are also asked to
approve an amendment to the partnership agreement that governs the Partnership
(the "Partnership Agreement"). THE BOARD OF DIRECTORS OF THE GENERAL PARTNER
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO ISSUE LP UNITS AND FOR THE
PROPOSAL TO AMEND THE PARTNERSHIP AGREEMENT.
If you have any questions about the Proxy Statement or the Special Meeting,
please call 1-800-628-8509.
This Proxy Statement is dated June 24, 1997. It is first being mailed to
Unitholders on or about June 27, 1997.
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE ESOP RESTRUCTURING
The definitions of capitalized words used in the following Questions and
Answers appear on the first page of the Proxy Statement in the Summary section
that starts on page 5.
Q. WHAT IS THE ESOP? WHEN WAS IT FORMED? WHO ARE ITS PARTICIPANTS?
A. The ESOP is an employee stock ownership plan. It was formed in March 1996
as part of the acquisition of the General Partner by BAC. The ESOP owns BAC
Preferred Stock. The ESOP is a fringe benefit plan for the officers and
employees of the General Partner and its subsidiaries in connection with
their services on behalf of the Partnership. The Partnership has no
employees. Its business has always been operated by the General Partner's
employees. The Partnership reimburses the General Partner for these
employee costs. As of January 1, 1997, 574 employees participated in the
ESOP.
Q. WHAT IS THE ESOP RESTRUCTURING?
A. The ESOP Restructuring involves substituting the ESOP's current investment
in BAC Preferred Stock with a beneficial ownership interest in LP Units to
be issued by the Partnership. The principal consideration for the issuance
of the LP Units will be the elimination and reduction of certain
Partnership expenses summarized under "What are the Benefits to the
Partnership?"
The ESOP Restructuring also involves an amendment to the Partnership
Agreement regarding the General Partner's capital contributions and the
obligations of any successor general partner with respect to the ESOP
Restructuring. Certain changes in the loan to the ESOP and its related
security arrangements will also be made, but the amount, term and interest
rate will not be changed.
Q. WHAT IS THE SPECIAL COMMITTEE? WHY WAS IT FORMED?
A. The Special Committee is composed of three directors: Messrs. Pierce
(Chairman), Fergenson and Kosnik. The Board of Directors of the General
Partner appointed them to consider, negotiate and approve the ESOP
Restructuring on behalf of the Partnership and the Unitholders. No member
of the Special Committee is a partner of or investor in Glenmoor; a
director, officer or stockholder of BAC; or an officer or employee of the
General Partner or the Manager. The Board appointed the Special Committee
to ensure that the ESOP Restructuring was negotiated by individuals who had
no financial interest in the transaction.
The Special Committee retained independent legal counsel and financial
advisors. The financial advisors provided an opinion that the consideration
to be received by the Partnership in the ESOP Restructuring is fair from a
financial point of view to the Partnership.
Q. WHAT ARE THE BENEFITS TO THE UNITHOLDERS?
A. The Board of Directors of the General Partner has announced its intention
to increase from $3.00 to $3.52 per LP Unit the annual rate of cash
distributions paid by the Partnership to Unitholders if the ESOP
Restructuring is completed. As a result, Unitholders are expected to
realize a direct and immediate financial benefit from the ESOP
Restructuring. Unitholders will also benefit indirectly by (1) simplifying
the ESOP, which is expected to increase its motivational impact on
employees, and (2) linking the amount of compensation to be paid to senior
management directly to the level of cash distributions paid to Unitholders.
Q. WHAT ARE THE BENEFITS TO THE PARTNERSHIP?
A. Management expects the Partnership to realize significant cash savings and
other benefits from the ESOP Restructuring resulting in an increase of the
Partnership's net cash flow, net income and distributable cash. This will
be achieved by the:
(1) elimination of the reimbursement by the Partnership to the General
Partner of certain senior executive compensation costs;
2
<PAGE>
(2) reduction of the General Partner's incentive compensation;
(3) payment of a significant portion of the annual costs of maintaining the
ESOP through distributions on LP Units indirectly owned by the ESOP
rather than through expense reimbursements by the Partnership; and
(4) other changes designed to make the ESOP less expensive for the
Partnership, including the elimination of any Partnership obligation to
repurchase shares held in the ESOP accounts of departing employees.
Q. WHAT ARE THE COSTS TO THE PARTNERSHIP AND THE UNITHOLDERS?
A. The LP Units that the Partnership will issue in the ESOP Restructuring
amount to approximately 11% of the LP Units outstanding. In reviewing the
likely financial impact of the ESOP Restructuring on the Partnership, the
Special Committee concluded that:
(1) there would be no decrease in book value on a per LP Unit basis
initially or in the aggregate over the 15-year period of the ESOP Loan;
(2) any decrease in cash available for distribution on a per LP Unit basis
in 1997 would be immaterial and there would be no decrease in the
aggregate over the 15-year period of the ESOP Loan; and
(3) any decrease in net income on a per LP Unit basis would be immaterial
initially and in the aggregate over the 15-year period of the ESOP
Loan.
The Special Committee also noted that the voting rights of existing
Unitholders would be diluted by approximately 11%.
Management expects the ESOP Restructuring to result in some increase in
taxable income for the Unitholders. The Special Committee noted, however,
that any increase in net taxable income will be immaterial to Unitholders
because the ESOP Restructuring is expected to produce increased cash
distributions on a per LP Unit basis that should more than offset the
additional taxable income.
Q. WHAT ARE THE BENEFITS TO EMPLOYEES?
A. Employees will benefit from the ESOP Restructuring primarily because the LP
Units are a more appropriate employee benefit plan investment than the BAC
Preferred Stock. Publicly traded LP Units provide liquidity to the ESOP and
will allow employees to calculate the value of their share of the ESOP
easily by referring to the trading price of the LP Units on the New York
Stock Exchange.
Presently, the BAC Preferred Stock is valued annually by an independent
appraiser, and the value of the BAC Preferred Stock does not correlate
directly with the value of the LP Units. As a result of the ESOP
Restructuring, a portion of the employees' retirement benefits will depend
on the performance of the LP Units, and therefore, the interests of
Unitholders and employees should be more directly and positively aligned.
Q. WHAT ARE THE BENEFITS TO THE GENERAL PARTNER'S MANAGEMENT?
A. Currently, Management owns 100% of the common stock of BAC (the parent of
the General Partner) and the ESOP owns the BAC Preferred Stock, which is
convertible into approximately 89% of the BAC common stock. As a result of
the ESOP Restructuring, the ESOP will hold a beneficial interest in LP
Units; the BAC Preferred Stock will be eliminated; and Management will
increase its ownership interest in the General Partner to 100%. Due to
reductions in the General Partner's expense reimbursements and the incentive
compensation formula, the net income and net cash flow of the General
Partner is anticipated to be significantly reduced and will be subject to
additional risks. Management will have to depend principally on the level of
cash distributions paid to Unitholders for its own compensation.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................. 5
BACKGROUND............................................................... 13
The Partnership......................................................... 13
The General Partner and the Manager..................................... 13
The 1996 Acquisition.................................................... 13
ESOP RESTRUCTURING....................................................... 15
RECOMMENDATION OF THE SPECIAL COMMITTEE.................................. 16
The Special Committee................................................... 16
Recommendation.......................................................... 16
Proceedings of Special Committee........................................ 16
SPECIAL COMMITTEE CONSIDERATIONS......................................... 17
Financial Considerations................................................ 17
Other Considerations.................................................... 20
Conclusion of the Special Committee..................................... 22
OPINION OF FINANCIAL ADVISOR............................................. 22
Distribution and Interest Rate Scenarios................................ 23
Impact of the Restructuring............................................. 24
Pro Forma Financial Analysis of the ESOP Restructuring.................. 25
Other Analyses.......................................................... 26
BENEFITS OF THE ESOP RESTRUCTURING TO THE GENERAL PARTNER--CONFLICTS OF
INTEREST................................................................ 27
TERMS OF THE ESOP RESTRUCTURING.......................................... 28
Steps to Complete the ESOP Restructuring................................ 28
The Exchange Agreement.................................................. 30
Other Approvals Required for Closing.................................... 30
Certain Litigation...................................................... 31
No Appraisal Rights..................................................... 32
FEDERAL INCOME TAX CONSEQUENCES OF THE ESOP RESTRUCTURING................ 32
Partnership Status...................................................... 32
Increase in Taxable Income Per LP Unit as a Result of the ESOP
Restructuring.......................................................... 33
Repeal of Interest Income Exclusion..................................... 33
Risk of Excise Tax...................................................... 33
THE SPECIAL MEETING OF UNITHOLDERS....................................... 34
PROPOSAL TO ISSUE LP UNITS............................................... 35
General................................................................. 35
Vote Required for Approval.............................................. 35
PROPOSAL TO AMEND THE PARTNERSHIP AGREEMENT.............................. 36
Description of the Proposed Amendment................................... 36
Text of the Proposed Amendment.......................................... 37
Vote Required for Approval of the Proposed Amendment.................... 37
PRICE RANGE OF LP UNITS AND DISTRIBUTIONS................................ 38
DESCRIPTION OF THE LP UNITS.............................................. 38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 40
WHERE YOU CAN FIND MORE INFORMATION...................................... 41
OTHER MATTERS............................................................ 42
LIST OF DEFINED TERMS.................................................... 43
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS.................... F-1
APPENDIX A--Form of LP Unit Subscription Agreement....................... A-1
APPENDIX B--Form of Exchange Agreement................................... B-1
APPENDIX C--Form of Amendment No. 3 to Amended and Restated Agreement of
Limited Partnership..................................................... C-1
APPENDIX D--Amended and Restated Agreement of Limited Partnership........ D-1
APPENDIX E--Opinion of Furman Selz LLC................................... E-1
</TABLE>
4
<PAGE>
SUMMARY
This Summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the ESOP
Restructuring fully and for a more complete description of the specific steps
involved, you should read carefully this entire document (including its
appendices) and the documents that have been incorporated by reference in this
Proxy Statement. See "Where You Can Find More Information." (See page 41).
THE PARTNERSHIP (SEE PAGE 13)
Buckeye Partners, L.P.
3900 Hamilton Boulevard
Allentown, Pennsylvania 18103
(610) 770-4000
The Partnership provides pipeline transportation service for refined
petroleum products. The Partnership owns and operates one of the largest
independent refined petroleum products pipeline systems in the United States,
with approximately 3,500 miles of pipeline serving ten states. The Partnership
also provides bulk storage service through leased facilities with an aggregate
capacity of 257,000 barrels of refined petroleum products.
The Partnership is a publicly traded limited partnership formed in 1986,
which conducts its business through four operating limited partnerships (the
"Operating Partnerships").
THE GENERAL PARTNER AND THE MANAGER (SEE PAGE 13)
The General Partner of the Partnership is Buckeye Management Company. The
general partner and manager of the Operating Partnerships is Buckeye Pipe Line
Company (the "Manager"), which is a wholly-owned subsidiary of the General
Partner.
THE ESOP AND THE 1996 ACQUISITION (SEE PAGE 13)
BMC Acquisition Company ("BAC") acquired the General Partner in March 1996
(the "1996 Acquisition") for $63 million. BAC is owned by the ESOP and the
management of the General Partner. The management of the General Partner formed
Glenmoor Partners, LLP ("Glenmoor") in connection with the 1996 Acquisition.
The partners in Glenmoor include A. W. Martinelli, Chairman and Chief Executive
Officer of the General Partner, and the other senior executives of the General
Partner.
The ESOP was formed as part of the 1996 Acquisition. The participants in the
ESOP are the officers and employees of the General Partner and its
subsidiaries. These employees are responsible for the operations and management
of the Partnership's business. The Partnership itself has no employees. As of
January 1, 1997, this group included 574 employees located in each of the ten
states where the Partnership operates. The trustee of the ESOP is LaSalle
National Bank, which is responsible for managing the ESOP.
The ESOP was funded by a $63 million loan from the General Partner. The funds
loaned by the General Partner were borrowed from Prudential Life Insurance
Company of America and its affiliates. The ESOP used the loan proceeds to
acquire the preferred stock of BAC (the "BAC Preferred Stock"), which is
convertible into approximately 89% of BAC's common stock. BAC used this cash
plus $6 million contributed by Glenmoor and certain managers of the Manager to
acquire all of the outstanding stock of the General Partner and to provide
capital for the General Partner.
5
<PAGE>
THE ESOP RESTRUCTURING (SEE PAGES 15, 28)
Since the 1996 Acquisition, the General Partner has analyzed the structure of
the ESOP with the goal of providing financial and other benefits to the
Partnership, increasing cash available for distribution to Unitholders,
improving the ESOP as a benefit plan for employee-participants, and increasing
incentives for management.
The ESOP Restructuring would replace the ESOP's current investment in BAC
Preferred Stock with a beneficial ownership interest in LP Units. Management
believes that the ESOP will be improved as an employee benefit plan by
substituting an interest in LP Units for the BAC Preferred Stock presently held
by the ESOP. LP Units represent a direct investment in the Partnership. The
publicly traded LP Units are a more appropriate employee benefit plan
investment because employee-participants will own beneficially the same
security as the Unitholders and will be able to calculate the value of their
ownership interest in the ESOP by referring to the trading price of the LP
Units on the New York Stock Exchange.
To accomplish the ESOP Restructuring, the Partnership will issue the LP Units
in exchange for receiving the BAC Preferred Stock. The ESOP will own the LP
Units through a newly-formed corporation that will become the sponsor of the
ESOP.
The Partnership will then exchange the BAC Preferred Stock (after being
converted to Common Stock) with the General Partner for, among other things,
the elimination and reduction of certain Partnership expenses summarized under
"Special Committee Considerations."
A diagram on page 11 depicts the organization of the Partnership and its
affiliates before and after the ESOP Restructuring.
LP UNITS TO BE ISSUED (SEE PAGE 35)
The number of LP Units to be issued in the ESOP Restructuring will be based
on the average closing price on the New York Stock Exchange for an LP Unit for
the ten trading days ending two business days before the ESOP Restructuring
Closing (the "Unit Trading Price").
If the Unit Trading Price is between $36.50 and $41.50, the Partnership will
issue 1,546,988 LP Units at closing. If the Unit Trading Price is more than
$41.50, the Partnership will issue LP Units with an aggregate dollar value of
$64,200,000. If the Unit Trading Price is less than $36.50, the Partnership
will issue LP Units with an aggregate dollar value of $56,465,062.
The number of LP Units to be issued at various Unit Trading Prices is
illustrated in a table on page 35 of this Proxy Statement.
The Partnership's LP Units are listed and traded principally on the New York
Stock Exchange under the symbol "BPL." The closing price of the LP Units on
December 19, 1996, the day before the public announcement of the ESOP
Restructuring, was $38.88. The closing price of the LP Units on June 23, 1997,
the most recently available price prior to mailing this Proxy Statement, was
$43.75. Assuming a Unit Trading Price of $43.75, the Partnership would issue
1,467,429 LP Units in the ESOP Restructuring, representing an aggregate market
value of $64,200,000.
RECOMMENDATION OF THE SPECIAL COMMITTEE THAT THE ESOP RESTRUCTURING BE APPROVED
(SEE PAGE 16)
The Board of Directors of the General Partner formed the Special Committee to
consider the ESOP Restructuring. The Special Committee retained independent
legal and financial advisors.
The Special Committee and management engaged in extensive discussions to
refine the proposed terms of the ESOP Restructuring. AS A RESULT OF SUCH
DISCUSSIONS, THE SPECIAL COMMITTEE DETERMINED THAT THE ESOP RESTRUCTURING IS IN
THE BEST INTERESTS OF THE PARTNERSHIP AND THE UNITHOLDERS AND UNANIMOUSLY
RECOMMENDED APPROVAL OF THE ESOP RESTRUCTURING TO THE BOARD OF DIRECTORS OF THE
GENERAL PARTNER.
6
<PAGE>
SPECIAL COMMITTEE CONSIDERATIONS (SEE PAGE 17)
The Special Committee considered many factors in reaching its favorable
recommendation on the ESOP Restructuring, including the following:
Financial Factors Considered
. the expected increase in the Partnership's net cash flow, net income and
distributable cash;
. an immediate increase of $.52 per LP Unit in the annual rate of
distributions to Unitholders;
. the permanent elimination of the Partnership's obligation to reimburse
the General Partner for certain senior executive compensation costs;
. the reduction in the amount of incentive compensation to be paid by the
Partnership to the General Partner under the Incentive Compensation
Agreement;
. the elimination of any obligation of the Partnership to fund the
redemption obligation of the General Partner to repurchase shares in ESOP
accounts of departing employees;
. the anticipated increase in distributable cash on a per LP Unit basis
occurring after 1997 as a result of the ESOP Restructuring;
. the value of the General Partner's agreement to indemnify the Partnership
for certain tax risks referred to under "Disadvantages Considered;"
. the opinion of Furman Selz LLC to the Special Committee, that the
consideration to be received by the Partnership in the ESOP Restructuring
is fair from a financial point of view;
Other Factors Considered
. the simplification of the ESOP and the expected positive impact of the
ESOP Restructuring on employees' motivation to achieve the Partnership's
financial goals;
. the appropriateness of the LP Units as an employee benefit plan security
relative to the BAC Preferred Stock; and
. the increase in management's motivation to maximize cash distributions to
the Unitholders following completion of the ESOP Restructuring as a
result of the reliance by management on the Incentive Compensation
Agreement as the principal means of generating their compensation and
benefits.
Disadvantages Considered
In addition, the Special Committee identified and discussed various
disadvantages of the ESOP Restructuring, including the following:
. the decrease of net income on a per LP Unit basis, the increase in
taxable income on a per LP Unit basis and the potential decrease in 1997
of distributable cash on a per LP Unit basis;
. the risk that BAC, the General Partner and the Manager will not be able
to fund their forfeiture obligation under the Exchange Agreement if the
General Partner withdrew or was removed as general partner under certain
circumstances; and
. the risk of losing certain favorable tax benefits and the risk of a 10%
excise tax on the ESOP Restructuring, which is partially offset by the
agreement of the General Partner to indemnify the Partnership for one of
these risks, and the opinions of counsel to the General Partner that it
is more likely than not that the Partnership will not incur such risks.
The Special Committee also considered that as a result of the ESOP
Restructuring management would own 100% of the capital stock of the General
Partner. The Special Committee noted, however, that the net income and net
cash flow of the General Partner after the ESOP Restructuring is anticipated
to be significantly reduced. Thus, management will be subject to additional
risk and will have to depend principally on the level of cash distributions to
the Unitholders for its own compensation.
Special Committee Recommendation
After considering both the positive and negative factors of the ESOP
Restructuring, the Special Committee concluded that the ESOP Restructuring was
in the best interests of the Partnership and the Unitholders. To review the
reasons considered by the Special Committee for the ESOP Restructuring in
greater detail, see pages 16 through 22.
7
<PAGE>
PRESENT VALUE OF INCREMENTAL DISTRIBUTABLE CASH
In reaching its recommendation, the Special Committee compared the range of
values of the LP Units to be issued (from approximately $56.5 million to $64.2
million) to the present value of the estimated incremental Distributable Cash
(as defined on page 24) to be realized by the Partnership as a result of the
ESOP Restructuring.
As described in greater detail under "Opinion of Financial Advisor," Furman
Selz LLC prepared present value estimates of the incremental Distributable Cash
to be realized by the Partnership based on the Special Committee's instructions
to analyze eight scenarios resulting from three principal assumptions:
(1) a base case and optimistic case for operating income and
distributions to Unitholders;
(2) with and without reimbursement by the Partnership of the General
Partner's redemption obligation for the ESOP accounts of departing
employees; and
(3) the interest rate on the ESOP loan at its current rate of 7.24% and
at a higher rate of 8.79% if favorable tax benefits were lost as a result
of the ESOP Restructuring and not indemnified by the General Partner.
Furman Selz LLC assumed discount rates of 7.0% to 8.5% based on the weighted
average cost of capital of companies comparable to the Partnership.
The present value of incremental Distributable Cash to be realized by the
Partnership for these eight scenarios ranged from $56.7 million to $114.4
million compared to the range of values of the LP Units to be issued of $56.5
million to $64.2 million.
A table appears on page 25 showing the different estimates of the present
value of the incremental Distributable Cash based on the foregoing assumptions.
The foregoing is a summary of one part of the analysis performed by Furman
Selz LLC in reaching its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of an analysis without considering all
the analyses as a whole could create an incomplete view of the processes
underlying Furman Selz's opinion. See "Opinion of Financial Advisor."
FAIRNESS OPINION OF FINANCIAL ADVISOR (SEE PAGE 22)
Furman Selz LLC delivered a written opinion to the Special Committee that the
consideration to be received by the Partnership in the ESOP Restructuring was
fair, from a financial point of view, to the Partnership.
BENEFITS OF THE ESOP RESTRUCTURING TO THE GENERAL PARTNER--CONFLICTS OF
INTEREST (SEE PAGE 27)
Glenmoor and certain managers of the Manager (the "Management") currently own
100% of the common stock of BAC, the parent of the General Partner, and are
entitled to elect the directors of the General Partner, including its
disinterested directors. As a result of the ESOP Restructuring, the preferred
stock of BAC owned by the ESOP, which is convertible into approximately 89% of
the common stock of BAC, would be exchanged for beneficial ownership of LP
Units and the Management would own 100% of BAC. The Management will continue to
elect the directors of the General Partner, including its disinterested
directors. The voting rights of Unitholders as set forth in the Partnership
Agreement are unchanged by the ESOP Restructuring.
As part of the ESOP Restructuring, the General Partner has agreed that it
will no longer be entitled to reimbursement from the Partnership and the
Operating Partnerships for certain senior executive compensation costs which on
an annualized basis aggregated approximately $2.3 million in 1996. The General
Partner also agreed to a reduced incentive compensation formula on
distributions made by the Partnership on LP Units, and that it would not
receive any incentive compensation on the LP Units to be issued in the ESOP
Restructuring.
CERTAIN LITIGATION (SEE PAGE 31)
A class action lawsuit was filed against the Partnership, the General
Partner, BAC, Glenmoor and the directors of the General Partner relating to
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<PAGE>
the proposed ESOP Restructuring. The lawsuit alleges that the ESOP
Restructuring is unfair and will be dilutive to Unitholders and that the
defendants have engaged in self-dealing and breached their fiduciary duty to
Unitholders.
On June 24, 1997, the parties entered into a stipulation of settlement
setting forth the terms under which the lawsuit would be settled, subject to
the satisfaction of certain conditions and without an admission of liability by
any of the defendants. The principal settlement terms affecting the ESOP
Restructuring are an additional increase in the quarterly cash distribution to
$.88 per LP Unit, a reduction in the maximum dollar value of the LP Units to be
issued, and a further reduction in the formula for the incentive compensation
payable to the General Partner. The ESOP Restructuring, as modified by the
terms of the settlement, has been approved by the Special Committee and the
Board of Directors of the General Partner and by the ESOP Trustee. The terms of
the transaction being presented to the Unitholders in this proxy statement
reflect the terms of the transaction as modified by the proposed settlement.
The settlement is subject to court approval. You are not being asked in this
Proxy Statement to vote or take a position with respect to the proposed
settlement of the litigation. A separate notice of the settlement will be
distributed to all members of the proposed class after the meeting.
FEDERAL INCOME TAX CONSEQUENCES OF THE ESOP RESTRUCTURING (SEE PAGE 32)
Counsel to the General Partner has rendered its opinion that the issuance of
the LP Units to the ESOP and the amendment to the Partnership Agreement would
not cause the Partnership to be treated as a corporation for federal income tax
purposes.
As a result of the ESOP Restructuring, the General Partner expects that
taxable income on a per LP Unit basis will increase modestly from higher net
income and decreased depreciation deductions. This could result in a modest
increase in taxable income per LP Unit. The proposed $.52 annual increase in
cash distributions after the ESOP Restructuring should more than offset any tax
associated with the increased taxable income.
Two additional expenses could arise as a result of the tax consequences of
the ESOP Restructuring. The General Partner has agreed to indemnify the
Partnership for one of these expenses, and the Special Committee may select the
tax consequence to be indemnified at any time. Counsel to the General Partner
has indicated that it is more likely than not that the ESOP Restructuring will
not result in either of these tax consequences being imposed. One expense could
be incurred due to the potential loss of a favorable tax benefit for interest
under the ESOP loan, creating a potential increased interest expense of
approximately $8.4 million over the 15-year term of the loan. The other is a
potential 10% excise tax if the transfer of the BAC stock by the ESOP were
deemed to be a disqualifying distribution by an employee benefit plan, creating
a potential increased cost of approximately $6.3 million. If either tax
consequence occurs, the Partnership Agreement requires the Partnership to pay
the additional expense, but the General Partner will indemnify the Partnership
for the tax consequence selected by the Special Committee.
SPECIAL MEETING OF UNITHOLDERS (SEE PAGE 34)
The Special Meeting of the Unitholders will be held on August 11, 1997, at
the Radnor Hotel, located at 591 East Lancaster Avenue, St. Davids,
Pennsylvania, at 10:00 a.m. (the "Meeting"). The persons eligible to vote at
the Meeting are the Unitholders of the Partnership of record as of the close of
business on June 16, 1997. On that date, there were 12,069,330 LP Units
outstanding. The presence in person or by proxy of Unitholders holding a
majority of the Partnership's outstanding LP Units will constitute a quorum for
the transaction of business at the Meeting.
If your LP Units are held of record by a broker or other nominee, they can be
voted on the ESOP proposals only if you specifically instruct your broker or
nominee as to the manner in which to vote. Failure to vote by proxy or in
person will have the same effect as a vote against the ESOP proposals. To
ensure that your LP Units are voted at the Meeting, please complete, date, sign
and mail the proxy card in the enclosed postage-paid envelope, or forward the
enclosed letter of instruction to your broker or nominee, as soon as
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<PAGE>
possible. If you attend the Meeting, you may revoke your proxy and vote your LP
Units in person. You may revoke your proxy at any time before it is voted at
the Meeting.
The Partnership will bear the cost of soliciting proxies. In addition to
solicitations by mail, officers, directors and employees of the General Partner
and representatives of D.F. King & Co., Inc. may solicit proxies personally or
by telephone, mail, fax, or other means.
PROPOSALS BEFORE UNITHOLDERS
The Board of Directors of the General Partner believes that the ESOP
Restructuring is in your best interests and recommends that you vote FOR the
following two proposals:
(1) Proposal to issue LP Units, and
(2) Proposal to amend the Partnership Agreement.
The ESOP Restructuring will occur only if the holders of a majority of the
outstanding LP Units approve both proposals.
PROPOSAL TO ISSUE LP UNITS (SEE PAGE 35)
To complete the ESOP Restructuring, Unitholders must approve the issuance of
LP Units to the corporation that sponsors the ESOP. The calculation of the
number of LP Units to be issued by the Partnership at the closing of the ESOP
Restructuring is described on page 6 of this Proxy Statement.
PROPOSAL TO AMEND THE PARTNERSHIP AGREEMENT (SEE PAGE 36)
To complete the ESOP Restructuring, Unitholders must also approve Amendment
No. 3 to the Partnership Agreement. Amendment No. 3 makes the following changes
to the Partnership Agreement:
(1) General Partner Capital Contribution Requirement. The Partnership
Agreement will be revised to relieve the General Partner of any obligation
to make an additional capital contribution to the Partnership upon the
issuance of additional LP Units if the General Partner receives a legal
opinion that such additional capital contribution is not required for the
Partnership or any of the Operating Partnerships to avoid being treated as
an association taxable as a corporation for federal income tax purposes;
and
(2) Obligations of a Successor General Partner. The Partnership Agreement
will be revised to bind any successor general partner, upon removal and
replacement of the General Partner by the Unitholders, to the obligations
of the General Partner and its affiliates under the Exchange Agreement and
to consider this obligation in determining the value of the general
partnership interest which might be acquired by a successor general
partner.
The Partnership Agreement requires that the Amendment must be approved by the
holders of a majority of the outstanding LP Units.
NO APPRAISAL RIGHTS
Under Delaware law, you have no right to an appraisal of the value of your LP
Units in connection with the ESOP Restructuring.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, that are
subject to risks and uncertainties. Forward-looking statements include certain
information relating to reimbursement expenses by the Partnership of
compensation and benefit costs by the General Partner, incentive compensation
to the General Partner, expenses of the ESOP as an employee benefit plan, cost
savings as a result of the ESOP Restructuring and the Partnership's net cash
flow, net income and distributable cash on a per LP Unit basis. Forward-looking
statements also include information in this Proxy Statement where statements
are preceded by, followed by or include the words "projects," "estimates,"
"believes," "expects," "assumes," "anticipates" or similar expressions. For
such statements the Partnership claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, those discussed elsewhere in this Proxy
Statement.
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[FLOW CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Before ESOP Restructuring
- ------------ ------
Management ESOP
Group ------
- ------------
11% 89%
-------------
----- Public
BAC Unitholders
----- -------------
100% 99%
---------
General 1% -------------
Partner -------------------------------------- Partnership
--------- -------------
100% 99%
--------------
--------- 1% Operating
Manager -------------------------------------- Partnerships
--------- --------------
After ESOP Restructuring
- ------------ ------ -------------
Management ESOP Public
Group ------ Unitholders
- ------------ -------------
100% 100%
----- -------
BAC Newco
----- -------
100% 11% 88%
- ---------
General 1% -------------
Partner -------------------------------------------------- Partnership
- --------- -------------
100% 99%
--------------
- --------- 1% Operating
Manager -------------------------------------------------- Partnerships
- --------- --------------
- --------------------------------------------------------------------------------
11
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SUMMARY CONSOLIDATED FINANCIAL DATA (SEE PAGE F-1)
The following table sets forth selected historical and pro forma consolidated
financial data of the Partnership for the periods indicated. The historical
consolidated financial data as of and for the year ended December 31, 1996,
have been derived from the consolidated financial statements audited by
Deloitte & Touche LLP, independent accountants, and should be read in
conjunction with and is qualified by reference to such statements and related
notes. The summary historical consolidated financial statement data as of and
for the three months ended March 31, 1997, are unaudited but, in the opinion of
management, include all adjustments necessary to present such data fairly. The
results for this interim period are not necessarily indicative of the results
for the full fiscal year.
The 1996 Acquisition took place and the ESOP was formed on March 22, 1996.
The purpose of the following unaudited consolidated pro forma financial data of
the Partnership, which have been derived from the historical Consolidated
Financial Statements of the Partnership incorporated by reference into this
Proxy Statement, are intended to demonstrate, on a pro forma basis, the effect
of the ESOP Restructuring on the fiscal 1996 and first quarter 1997 results.
The unaudited consolidated pro forma financial data do not purport to represent
what the Partnership's actual financial position or actual results of
operations would have been if the ESOP Restructuring, in fact, had occurred on
such dates or to project the Partnership's financial position or results of
operations for any future date or period. See "Unaudited Consolidated Pro Forma
Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
--------------------- ---------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
--------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Distributable Cash (a)............ $ 50,379 $ 57,913 $ 12,430 $ 14,894
Distributable Cash Per Unit (a)... $ 4.14 $ 4.33(b) $ 1.02 $ 1.08
STATEMENT OF INCOME DATA:
Net Income........................ $ 49,337 $ 52,964 $ 11,526 $ 12,688
Net Income Per Unit............... $ 4.05 $ 3.96 $ 0.95 $ 0.92
BALANCE SHEET DATA (AT PERIOD END):
Total Partners' Capital........... $ 275,979 $ 340,179 $ 278,621 $ 342,821
Total Partners' Capital Per Unit.. $ 22.65 $ 24.78 $ 22.86 $ 24.96
Total Partners' Tangible Capital
Per Unit......................... $ 22.65 $ 20.10 $ 22.86 $ 20.28
</TABLE>
- --------
(a) Distributable Cash is defined as cash provided by operations, plus changes
in temporary investments, less cash used in investing activities, before
reserves.
(b) Management estimates that, assuming a full year impact of the ESOP
Restructuring, Distributable Cash Per Unit would be $4.39 on an annualized
basis for the year ended December 31, 1996.
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<PAGE>
BACKGROUND
THE PARTNERSHIP
The Partnership provides pipeline transportation service for refined
petroleum products. The Partnership owns and operates one of the largest
independent refined petroleum products pipeline systems in the United States,
with approximately 3,500 miles of pipeline serving ten states. The Partnership
also provides bulk storage service through leased facilities with an aggregate
capacity of 257,000 barrels of refined petroleum products. The Partnership
conducts all its operations through four subsidiary limited partnerships (the
"Operating Partnerships"). The Partnership owns a 99% limited partnership
interest in each of the Operating Partnerships.
The Partnership is a Delaware limited partnership formed in 1986 pursuant to
the Amended and Restated Agreement of Limited Partnership, dated as of December
23, 1986, as amended (the "Partnership Agreement"). Limited partnership
interests in the Partnership are represented by publicly traded LP Units (the
"LP Units") and the limited partners are Unitholders (the "Unitholders").
THE GENERAL PARTNER AND THE MANAGER
The sole general partner of the Partnership is Buckeye Management Company
(the "General Partner"). The General Partner owns a 1% general partnership
interest in the Partnership. The General Partner is a wholly-owned subsidiary
of BMC Acquisition Company ("BAC"). A wholly-owned subsidiary of the General
Partner, Buckeye Pipe Line Company (the "Manager"), serves as the sole general
partner and manager of each Operating Partnership. The Manager owns a 1%
general partnership interest in each of the Operating Partnerships.
The General Partner has three sources of revenue: (i) expense reimbursement
from the Partnership and the Operating Partnerships, (ii) cash distributions
attributable to the general partnership interests (approximately 2% of the
equity of the Partnership), and (iii) incentive compensation pursuant to the
Incentive Compensation Agreement. See "Benefits of the ESOP Restructuring to
the General Partner--Conflicts of Interest" and "Certain Relationships and
Related Transactions."
Under the Incentive Compensation Agreement (prior to amendments that would be
made as part of the ESOP Restructuring), 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) 25% of that portion
of the distribution per LP Unit which exceeds the target quarterly amount of
$0.65 but is not more than $0.70, plus (ii) 30% of the amount, if any, by which
the quarterly distribution per LP Unit exceeds $0.70 but is not more than
$0.80, plus (iii) 40% of the amount, if any, by which the quarterly
distribution per LP Unit exceeds $0.80 but is not more than $0.90, plus (iv)
50% of the amount, if any, by which the quarterly distribution per LP Unit
exceeds $0.90. The Partnership paid the General Partner $1,325,912 for the year
ended December 31, 1996 under the Incentive Compensation Agreement. The General
Partner is also entitled to incentive compensation, under a different formula,
in respect of any special cash distributions. No special distributions have
ever been paid by the Partnership, and none are presently contemplated.
THE 1996 ACQUISITION
In late 1995, the parent at that time of the General Partner, American
Financial Group, Inc. (successor to The Penn Central Corporation) ("American
Financial"), determined to sell its interest in the General Partner and
solicited bids from a number of interested parties, including other pipeline
companies, major oil companies, and other potential bidders. The management of
the General Partner formed Glenmoor Partners, LLP ("Glenmoor") to submit a bid
to American Financial to purchase the General Partner. The partners in Glenmoor
include A.W. Martinelli, Chairman of the Board and Chief Executive Officer of
the General Partner, and all of the members of the senior management of the
General Partner. In formulating its bid, Glenmoor believed that the best
interests of the Partnership and its Unitholders would be served by ensuring
continuity in the management and operation of the Partnership.
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<PAGE>
American Financial selected Glenmoor's bid to acquire all the common stock of
the General Partner, and the transaction was consummated on March 22, 1996 (the
"1996 Acquisition"). Under the terms of the Partnership Agreement, Unitholder
approval was not required for the 1996 Acquisition. To complete the
acquisition, Glenmoor formed BAC, and BAC formed the BMC Acquisition Company
Employee Stock Ownership Plan (the "ESOP") for the benefit of the officers and
employees of the General Partner. The employees of the Manager and Glenmoor are
responsible for the operation and management of the Partnership's business. As
of January 1, 1997, a total of 574 employees, located in each of the ten states
where the Partnership maintains operations, were participants in the ESOP.
Glenmoor used the ESOP structure to make the 1996 Acquisition because it
provided attractive financing and cost benefits to BAC and the Partnership. In
addition, Management believed that providing the employees who operate the
Partnership's business with an ownership interest in the General Partner would
motivate its employees to maximize Partnership operations and thereby have a
positive impact on the cash available for distribution to Unitholders.
To finance the 1996 Acquisition, the General Partner borrowed $63 million
pursuant to a 15-year term loan at an annual interest rate of 7.24% ("ESOP
Loan") from Prudential Life Insurance Company of America and its affiliates
(the "ESOP Lender") and loaned the proceeds of the ESOP Loan under the same
terms to the ESOP to purchase the Series A Convertible Preferred Stock of BAC
(the "BAC Preferred Stock"). The General Partner secured the ESOP Loan with a
security interest in its assets, and the Manager and BAC guaranteed the ESOP
Loan and granted a security interest in their respective assets. The ESOP
structure provides the Partnership with benefits in connection with the ESOP
Loan because (i) certain tax advantages in connection with loans to employee
stock ownership plans permitted the General Partner to obtain a favorable
interest rate on the ESOP Loan which lowered the Partnership's reimbursement
obligation to the General Partner in connection with the ESOP, (ii) the
Partnership was not required to guarantee to the ESOP Loan, and (iii) the
Partnership was not required to use any of its assets to secure the ESOP Loan.
Glenmoor and the individual common stockholders of BAC also pledged their BAC
common stock to secure the ESOP Loan and the ESOP pledged the BAC Preferred
Stock.
The BAC Preferred Stock has a liquidation value of $63 million, receives a 7
1/2% cumulative preferred dividend, participates proportionately in common
stock dividends above 7 1/2%, and is convertible into approximately 89% of the
common stock of BAC. BAC used the $63 million in proceeds from the sale of the
BAC Preferred Stock to the ESOP, plus a $6 million capital contribution from
Glenmoor and certain individual managers of the Manager, to pay the acquisition
purchase price of $63 million to American Financial and to provide capital for
the General Partner.
The ESOP is a fringe benefit plan for the officers and employees of the
General Partner in connection with their services on behalf of the Partnership.
The Partnership Agreement does not require Unitholder approval to establish
employee benefit plans. The costs of these plans are reimbursable by the
Partnership and the Operating Partnerships under the applicable limited
partnership agreements. In the case of the ESOP, these costs are equivalent to
the principal and interest on the ESOP Loan and the administrative costs and
expenses of maintaining the ESOP. The Partnership does not make any payments
directly under the ESOP Loan. Under the present structure, the total ESOP costs
reimbursable by the Partnership are approximately $7 million per year.
The BAC Preferred Stock is credited to employee accounts in the same
proportion as current payments of principal and interest on the ESOP Loan bear
to the total of all principal and interest payments due under the ESOP Loan.
Individual employees are allocated shares based upon the ratio of their
eligible compensation to total eligible compensation. Eligible compensation
generally includes base salary, overtime payments and certain bonuses, subject
to an overall maximum of $150,000 per year per person.
Because the ESOP represents an employee benefit expense reimbursable by the
Partnership, the Board of Directors of the General Partner conditioned the
adoption of the ESOP on the modification of other employee
14
<PAGE>
benefit plans and the implementation of an extensive cost-cutting program
designed to offset substantially all of the costs of the ESOP to be borne by
the Partnership and to ensure that cash available for distribution to the
Unitholders would not be adversely affected. The General Partner implemented
these benefit reduction and cost-cutting programs in the second quarter of
1996. Management estimates that these benefit reduction and cost-cutting
programs will save in excess of $8 million per year. Approximately $5.1 million
of these savings are estimated salary reductions and position eliminations;
approximately $2.1 million are estimated reductions in or eliminations of
employee benefit programs; and the balance of approximately $0.8 million are
estimated reductions in planned expenditures in connection with the
Partnership's pipeline operations. While Management projects that these cost
savings will be permanent, the need to add personnel or increase benefits in
order to maintain the appropriate employee complement to conduct efficiently
the Partnership's pipeline business in the future could result in a lessening
of the benefits of the cost reduction program.
ESOP RESTRUCTURING
Since the 1996 Acquisition, the General Partner has had an opportunity to
consider various issues relating to the structure of the ESOP. As a result of
this analysis, the General Partner developed a proposal to restructure the
ESOP. The goals of the proposal are to provide financial and other benefits to
the Partnership, increase cash available for distribution to Unitholders,
increase incentives for management and improve the ESOP as a benefit plan for
employee-participants. See "Terms of the ESOP Restructuring."
The General Partner desires to restructure the ESOP by replacing the ESOP's
current investment in BAC Preferred Stock with a beneficial ownership interest
in LP Units issued by the Partnership. Pursuant to the LP Unit Subscription
Agreement (the "LP Unit Subscription Agreement"), the Partnership will issue
the LP Units in consideration for receiving the BAC Preferred Stock currently
owned by the ESOP. The ESOP will own the LP Units through Buckeye Pipe Line
Services Company, a newly formed, single purpose corporation ("Newco"), that
will become the sponsor of the ESOP.
Pursuant to an Exchange Agreement (the "Exchange Agreement"), the BAC
Preferred Stock (after being converted to Common Stock) will be exchanged for,
among other things, (i) the permanent release of the Partnership's obligation
to reimburse the General Partner for certain senior executive compensation
costs, and (ii) the reduction of the General Partner's incentive compensation
to be paid under the incentive compensation agreement.
In connection with the ESOP Restructuring, the ESOP Loan will be restructured
with the ESOP Lender. The amount, term and interest rate applicable to the ESOP
Loan will not be changed, but the ESOP will become the direct borrower under
the ESOP Loan rather than the General Partner. The ESOP will secure the ESOP
Loan with an indirect pledge of the LP Units held by the ESOP, rather than the
shares of BAC Preferred Stock. The ESOP Loan will continue to be guaranteed by
BAC and the Manager, and the General Partner and Newco will also guarantee the
ESOP Loan. The guarantees will be secured by a security interest in the assets
of each guarantor and, in the case of the General Partner and the Manager, by a
pledge of their general partnership interests in the Partnership and the
Operating Partnerships, respectively. Glenmoor and the other stockholders of
BAC will pledge their stock in BAC as additional security for the ESOP Loan.
Following the ESOP Restructuring, employees' ESOP accounts will receive
allocations of Newco shares (which directly correlate to LP Units owned by
Newco) instead of BAC Preferred Stock. The distributions on the LP Units held
by Newco will be used to pay the principal and interest on the ESOP Loan. The
General Partner will make an additional contribution to Newco (the "top-up
contribution"), if necessary, to pay any balance due under the ESOP Loan. The
top-up contribution would be reimbursed by the Partnership to the extent it
exceeds certain reserves established by the General Partner for that purpose
under the Exchange Agreement.
If the ESOP Restructuring is completed, the Board of Directors of the General
Partner has announced its intention to increase from $3.00 to $3.52 per LP Unit
the annual rate of cash distributions paid by the
15
<PAGE>
Partnership to Unitholders. The amount of cash available for distribution to
the Unitholders by the Partnership is determined quarterly by the Board of
Directors of the General Partner based upon numerous factors, including
profitability of operations, fluctuations in working capital, capital
expenditures, prevailing economic conditions and financial, business and other
factors.
The diagram on page 11 depicts the organization of the Partnership and its
affiliates before and after the ESOP Restructuring.
RECOMMENDATION OF THE SPECIAL COMMITTEE
THE SPECIAL COMMITTEE
On August 12, 1996, the Board of Directors of the General Partner appointed
the Special Committee to consider the ESOP Restructuring on behalf of the
Partnership and the Unitholders. The Special Committee is composed of the
following disinterested directors: A. Leon Fergenson, Edward F. Kosnik and
William C. Pierce. The Board delegated to the Special Committee the power and
authority to consider, negotiate and approve the ESOP Restructuring. The Board
designated Mr. Pierce as the Chairman of the Special Committee. The Board
further authorized the Special Committee to engage such legal, financial and
other professional advisors as the Special Committee deemed appropriate. The
Special Committee retained Drinker Biddle & Reath as independent counsel to
advise it in connection with the ESOP Restructuring.
None of the members of the Special Committee are partners of or investors in
Glenmoor; directors, officers or stockholders of BAC; or officers or employees
of the General Partner, the Manager or any of their affiliates. All the members
of the Special Committee are members of the Board of Directors of the General
Partner and, as a consequence, were elected to the Board of Directors by BAC,
which is the sole stockholder of the General Partner. All the common stock of
BAC is owned by Glenmoor, its individual partners and certain managers of the
Manager, and all the BAC Preferred Stock is currently owned by the ESOP.
RECOMMENDATION
THE SPECIAL COMMITTEE VOTED UNANIMOUSLY TO RECOMMEND THAT THE BOARD OF
DIRECTORS OF THE GENERAL PARTNER APPROVE THE ESOP RESTRUCTURING.
PROCEEDINGS OF SPECIAL COMMITTEE
On September 24, 1996, management presented its formal proposal regarding the
ESOP Restructuring to the Special Committee and its independent legal counsel.
The proposal was considered in depth by the Special Committee at its September
meeting, after which the Special Committee requested certain additional
information from management. The Special Committee also voted at its September
meeting to engage Furman Selz LLC ("Furman Selz") as its financial advisor.
The Special Committee then met with its legal and financial advisors on
numerous occasions during October, November and December of 1996 to discuss
management's proposal. After determining that certain modifications to
management's original proposal were appropriate, the Special Committee and its
advisors also met with management on several occasions to discuss and negotiate
the structure and terms of the ESOP Restructuring. As a result of the Special
Committee's negotiations with management, the terms of the ESOP Restructuring
originally proposed by management were modified in a number of significant
respects, which are described below under "Special Committee Considerations."
At a December 18, 1996 meeting, the Special Committee unanimously approved
the proposed ESOP Restructuring containing revisions proposed by the Special
Committee, subject to the following conditions: (1) approval of the ESOP
Restructuring by the Unitholders; (2) approval of the restructuring by the ESOP
trustee; (3) that the financial terms of the ESOP Loan after the ESOP
Restructuring would not be different from the terms of the loan before the ESOP
Restructuring; and (4) review and approval by the Special Committee of the
definitive transaction documents and supporting legal opinions for the ESOP
Restructuring.
16
<PAGE>
On February 11, 1997, the Special Committee unanimously approved the
transaction documents and supporting legal opinions for the ESOP Restructuring.
On February 19, 1997, the Special Committee determined that the financial terms
of the ESOP Loan after the ESOP Restructuring are not different than the terms
of the loan before the ESOP Restructuring. On February 12, 1997, the Board of
Directors of the General Partner unanimously approved the ESOP Restructuring
based upon the Special Committee's recommendation.
On June 16, 1997, the Special Committee unanimously approved revised terms of
the ESOP Restructuring reflecting the terms of the class action settlement (see
"Terms of the ESOP Restructuring--Certain Litigation"), and unanimously
approved certain related changes to the transaction documents for the ESOP
Restructuring. At that time, Furman Selz provided the Special Committee with an
updated opinion which incorporated the terms of the class action settlement and
reflected the Partnership's first quarter performance.
SPECIAL COMMITTEE CONSIDERATIONS
In reaching its determination that the ESOP Restructuring is in the best
interest of the Partnership and the Unitholders, the Special Committee
considered many factors including, but not limited to those described below. In
view of the variety of factors considered in its evaluation of the ESOP
Restructuring, the Special Committee did not find it practicable to and did not
quantify or otherwise assign relative weight to the specific factors in
reaching its favorable determination. In addition, individual members of the
Special Committee may have assigned different weights to different factors.
FINANCIAL CONSIDERATIONS
THE EXPECTED INCREASE IN THE PARTNERSHIP'S NET INCOME, NET CASH FLOW AND
DISTRIBUTABLE CASH AS A RESULT OF THE ESOP RESTRUCTURING. The Special Committee
expects that as a result of the ESOP Restructuring the Partnership will
recognize increased net cash flow, net income and distributable cash per LP
Unit. This would be achieved by paying substantially all of the annual costs of
maintaining the ESOP through distributions on LP Units indirectly owned by the
ESOP rather than by expense reimbursement by the Partnership; eliminating
reimbursement by the Partnership to the General Partner of certain senior
executive compensation costs; reducing the formula under which the Partnership
pays the General Partner incentive compensation based on the cash distributions
paid on LP Units; and by other changes designed to make the ESOP less expensive
for the Partnership, including the elimination of any obligation by the
Partnership to reimburse the General Partner for the cost of redeeming the ESOP
accounts of departing employees.
THE $.52 PER LP UNIT INCREASE IN THE ANNUAL RATE OF DISTRIBUTIONS BY THE
PARTNERSHIP. The Board of Directors has announced that if the ESOP
Restructuring is approved by the Unitholders, it intends to increase the cash
distributions to Unitholders by $0.52 per LP Unit per year, provided that there
has been no adverse change in the business of the Partnership. Thus, the
Unitholders will realize a direct and immediate financial benefit from the ESOP
Restructuring. The Special Committee noted that the level of cash distributions
to Unitholders are subject to future operations of the Partnership's business
and may be increased or decreased from time to time in the judgment of the
Board of Directors of the General Partner.
THE PERMANENT RELEASE OF THE PARTNERSHIP FROM ITS OBLIGATION TO REIMBURSE THE
GENERAL PARTNER FOR CERTAIN SENIOR EXECUTIVE COMPENSATION EXPENSES. Pursuant to
the terms and upon approval of the ESOP Restructuring, the General Partner has
agreed that after the ESOP Restructuring neither the General Partner nor the
Manager will be entitled to be reimbursed by the Partnership for compensation
costs (including fringe benefits) paid to six of its senior executives for
services performed for the benefit of the Partnership with respect to the
functions of operations, finance, legal, marketing and business development,
and treasury, as well as the President of the Manager. The persons presently
occupying these positions are C. Richard Wilson, Chairman of the Board,
President, Chief Operating Officer, Director of the Manager and President and a
Director of the General Partner; Stephen C. Muther, Senior Vice President--
Administration, General Counsel and Secretary of the General Partner and the
Manager; Steven C. Ramsey, Senior Vice President and Chief
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Financial Officer of the General Partner and the Manager; Michael P. Epperly,
Senior Vice President--Operations of the General Partner and the Manager;
William H. Shea, Jr., Vice President--Marketing of the General Partner and the
Manager; and David J. Martinelli, Vice President and Treasurer of the General
Partner and the Manager. The total compensation (including fringe benefits)
paid for these services on an annualized basis in 1996 was $2.3 million. As a
result of the Special Committee's negotiations with management, the General
Partner has agreed that the executive level duties performed after the closing
of the ESOP Restructuring will be satisfactory to the Board of Directors of the
General Partner and will be of a quality, scope and nature no less
comprehensive than the executive services currently performed.
THE REDUCTION IN THE INCENTIVE COMPENSATION PAID TO THE GENERAL PARTNER UNDER
THE INCENTIVE COMPENSATION AGREEMENT. Pursuant to the Amended and Restated
Incentive Compensation Agreement, dated as of March 22, 1996 between the
General Partner and the Partnership (the "Incentive Compensation Agreement"),
the General Partner is entitled to receive incentive compensation from the
Partnership if the Partnership's cash distributions to Unitholders exceed
certain levels. See "Background" and "Benefits of the ESOP Restructuring to the
General Partner--Conflicts of Interest." As part of the negotiations between
management and the Special Committee, management agreed that no incentive
compensation would be paid to the General Partner on the LP Units issued by the
Partnership in connection with the ESOP Restructuring. This amount would have
been $461,002 each year at a projected annual distribution level of $3.52 per
LP Unit based upon 1,546,988 LP Units. Management also agreed as part of the
negotiations with the Special Committee, as modified by the terms of the
litigation settlement (see "Terms of the ESOP Restructuring--Certain
Litigation"), to reduce the level of incentive compensation on quarterly cash
distributions per LP Unit to (i) 15% of that portion of the distribution per LP
Unit which exceeds the target quarterly amount of $0.65 but is not more than
$0.70, plus (ii) 25% of that portion of the quarterly distribution per LP Unit
which exceeds $0.70 but is not more than $0.75, plus (iii) 30% of that portion
of the quarterly distribution per LP Unit which exceeds $0.75 but is not more
than $0.80, plus (iv) 35% of that portion of the quarterly distribution per LP
Unit which exceeds $0.80 but is not more than $0.85, plus (v) 40% of that
portion of the quarterly distribution per LP Unit which exceeds $0.85 but is
not more than $1.05, plus (vi) 45% of that portion of the quarterly
distribution per LP Unit which exceeds $1.05. This schedule would reduce
aggregate incentive compensation by $482,773 each year at an annual
distribution level of $3.52 per LP Unit.
THE ELIMINATION OF ANY PARTNERSHIP OBLIGATION TO FUND THE REDEMPTION
OBLIGATIONS OF THE ESOP WITH RESPECT TO DEPARTING EMPLOYEES. Under the existing
structure of the ESOP, a departing employee who is a participant in the ESOP is
entitled to receive a cash payment from the ESOP representing his proportionate
interest in the BAC Preferred Stock held by the ESOP. Because there is no
market for the BAC Preferred Stock, the ESOP cannot sell shares of the BAC
Preferred Stock to fund its obligation to make a cash payment to a departing
employee. Instead, the General Partner must fund such payments by purchasing
BAC Preferred Stock from the ESOP. Following such purchase, the General Partner
could retire the BAC Preferred Stock. Alternatively, the General Partner could
recontribute the BAC Preferred Stock to the ESOP in order to continue the ESOP
as an employee benefit. The management of the General Partner advised the
Special Committee that in most cases it would have recontributed the BAC
Preferred Stock to the ESOP and then sought reimbursement from the Partnership
for the cost of purchasing the BAC Preferred Stock as an employee benefit
expense.
Management also advised the Special Committee that this potential obligation
of the Partnership could be significant and would be even more substantial if
the price of BAC Preferred Stock were to appreciate. Management estimated this
obligation at approximately $30 million over 15 years, which would increase
should the value of the BAC Preferred Stock appreciate. To estimate this
amount, Management determined the number of shares of BAC Preferred Stock that
would have been repurchased from the accounts of retiring and departing
employees over 15 years based on an actuarial study of the employee population
prepared by an employee benefits consulting firm. Management assumed for this
calculation that the aggregate value of the BAC Preferred Stock remained
constant at $63 million. The Special Committee instructed Furman Selz to
analyze the present value of the estimated incremental distributable cash as a
result of the ESOP Restructuring
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assuming that the redemption obligation was not a reimbursable expense by the
Partnership, which is characterized the "Non-perpetual" ESOP case, and assuming
that the redemption obligation was an obligation of the General Partner
reimbursable by the Partnership, which is characterized as the "Perpetual" ESOP
case. See "Opinion of Financial Advisor."
After the ESOP Restructuring, the corporation that sponsors the ESOP will be
able to sell LP Units on the open market to fund its obligation to make cash
payments to departing employees and the Partnership would no longer have a
potential obligation to fund such redemptions. Consequently, the only costs
associated with the ESOP that would be passed through to the Partnership after
the ESOP Restructuring would be the principal and interest payments on the ESOP
Loan, any taxes incurred by the sponsor of the ESOP, including income taxes
incurred on the sale of LP Units to satisfy redemption obligations, and routine
administrative charges and expenses common to employee benefit plans.
Furthermore, these costs would only be passed through to the Partnership to the
extent that such costs are not covered by the cash distributions paid by the
Partnership on the LP Units held by Newco.
THE DILUTION OF NET INCOME AND VOTING RIGHTS AS A RESULT OF THE ISSUANCE OF
ADDITIONAL LP UNITS. The ESOP Restructuring will require the Partnership to
issue 1,546,988 additional LP Units, subject to adjustment as described under
"Proposal to Issue LP Units." The Special Committee considered the effect on
the Partnership's financial results of the issuance of the additional LP Units.
The Special Committee concluded that there would be no decrease of book value
per LP Unit initially or in the aggregate over the 15-year period of the ESOP
Loan; that any decrease in cash available for distribution per LP Unit in 1997
would be immaterial and that there would be no decrease in the aggregate over
the 15-year period of the ESOP Loan; and that any decrease in net income per LP
Unit would be immaterial initially and in the aggregate over the 15-year period
of the ESOP Loan.
The Special Committee noted that the voting rights of the existing
Unitholders would be diluted by approximately 11%. However, there was no
suggestion that the LP Units beneficially owned by the ESOP would be voted by
the ESOP participants (in the case of allocated shares) or by the ESOP Trustee
(in the case of unallocated shares) in any manner adverse to the interests of
other Unitholders. Moreover, the Unitholders have limited voting rights under
the Partnership Agreement. Therefore, the dilution of the voting rights of the
existing Unitholders was considered immaterial.
THE INCREASE IN TAXABLE INCOME FOR THE UNITHOLDERS AS A RESULT OF THE ESOP
RESTRUCTURING. For tax purposes, the contribution of $63 million of BAC
Preferred Stock in exchange for newly issued LP Units is treated as a partial
sale by each existing partner of his or her pro rata share of the underlying
Partnership properties. See "Federal Income Tax Consequences of the ESOP
Restructuring." The taxable gain (the difference between the new assets
contributed and the tax basis of the existing Partnership assets) is recognized
over time in the form of decreased depreciation deductions. The impact is a net
reduction in tax depreciation allocated to the Unitholders. In addition,
anticipated higher net income to the Partnership as a result of the ESOP
Restructuring will result in increased taxable income allocable to the
Unitholders. The Special Committee believes, however, that any increase in net
taxable income due to higher net income and lower depreciation deductions will
not be material to Unitholders because the ESOP Restructuring is expected to
produce increased cash flow per LP Unit that more than offsets the additional
taxable income per LP Unit.
THE FAIRNESS OPINION OF FURMAN SELZ. Set forth in the next section of this
Proxy Statement is a description of the opinion of Furman Selz that the
consideration to be received by the Partnership in the ESOP Restructuring is
fair to the Partnership from a financial point of view.
The Special Committee reviewed as part of its deliberations the present value
of incremental distributable cash projected for the Partnership as a result of
the ESOP Restructuring under twelve cases analyzed by Furman Selz. See "Opinion
of Financial Advisor." In reviewing these cases, the Special Committee gave
greater weight to the Non-perpetual case as compared to the Non-
perpetual/Higher Interest Rate case based upon the advice of the General
Partner's counsel that it is more likely than not that the ESOP Lender would
retain the benefit of the interest income exclusion under Section 133 of the
Internal Revenue Code of 1986, as amended (the "Code"), after the ESOP
Restructuring.
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OTHER CONSIDERATIONS
THE SIMPLIFICATION OF THE ESOP AND THE EXPECTED INCREASE IN ITS MOTIVATIONAL
IMPACT RESULTING THEREFROM. Management advised the Special Committee that it
believed that the current ESOP structure was complex and difficult for
employees to understand for a variety of reasons. The concepts of preferred
stock and convertibility can be confusing and difficult to explain because the
BAC Preferred Stock held by the ESOP is not a publicly-traded equity security
and is not the same equity security held by Unitholders of the Partnership. In
addition, the relationship between the General Partner and the Partnership, and
the relationship between the Partnership's financial performance and the value
of BAC Preferred Stock, is difficult to understand. The role of an independent
appraisal firm, which values the BAC Preferred Stock held by the ESOP each
year, is a further complication. In valuing the BAC Preferred Stock, the
independent appraiser considers interest rates, illiquidity discounts and other
factors that do not directly relate to the Partnership's financial performance.
As a result, there may be only a limited connection between the financial
results of the Partnership and the value of the BAC Preferred Stock held by the
ESOP. Accordingly, Management advised the Special Committee that it believed
that the alignment of interests between employees and the Unitholders may not
be as strong as in a conventional corporate employee stock ownership plan. The
present structure, therefore, may undercut the fundamental motivational factor
found in most employee stock ownership plans; namely, the direct and positive
alignment of employees and Unitholders through ownership of the same security.
The Special Committee believes that the substitution of the LP Units for the
BAC Preferred Stock currently held by the ESOP will eliminate the concerns with
the ESOP identified by management. Employees will be able to track the value of
their interest in the ESOP by reviewing the market price of the publicly traded
LP Units on a daily basis. The value of the stock in the corporation formed by
the ESOP to own the LP Units will equal the value of those LP Units. The
confusing aspects of preferred stock, convertibility, dividend participation
and the workings of an independent appraisal firm will be eliminated. Employees
will be able to relate more easily the publicly reported financial results of
the Partnership to the value of their ESOP account, and the alignment of
interests between the Unitholders and the employees will be direct and clear.
THE APPROPRIATENESS OF THE LP UNITS AS AN EMPLOYEE BENEFIT PLAN SECURITY
RELATIVE TO THE BAC PREFERRED STOCK. The value of the BAC Preferred Stock may
be subject to potentially significant swings in value based upon different
valuation factors at different points in time. Moreover, in addition to being
more volatile than LP Units, the BAC Preferred Stock may present the ESOP
participants with greater downside risks than beneficial ownership of the LP
Units. The Special Committee believes that the LP Units, on the other hand, may
be more stable in value, and, therefore, may be a more appropriate investment
for an employee benefit plan.
THE POTENTIAL INCREASE IN MANAGEMENT'S MOTIVATION TO MAXIMIZE DISTRIBUTIONS
TO THE UNITHOLDERS AS A RESULT OF THE ELIMINATION OF THE PARTNERSHIP'S
OBLIGATION TO REIMBURSE CERTAIN SENIOR EXECUTIVE COMPENSATION COSTS. Because
the General Partner and the Manager will no longer be reimbursed for certain
senior executive compensation and fringe benefit expenses, Management will have
to rely principally on the Incentive Compensation Agreement to generate cash to
pay compensation and fringe benefits. Because payments under the Incentive
Compensation Agreement are based on cash distributions by the Partnership, the
Special Committee believes that the General Partner's motivation to maximize
cash distributions to Unitholders by the Partnership will be increased as a
result of the ESOP Restructuring.
THE RISK THAT BAC, THE GENERAL PARTNER AND THE MANAGER WILL NOT BE ABLE TO
FUND THE FORFEITURE OBLIGATION UNDER THE EXCHANGE AGREEMENT. The Exchange
Agreement provides that if the General Partner withdraws or is removed as the
general partner of the Partnership for any reason or the Manager withdraws or
is removed as the general partner of the Operating Partnerships for any reason,
BAC, the General Partner and the Manager shall be jointly and severally
obligated to make a substantial forfeiture payment to the Partnership, unless,
in certain cases, the successor general partner assumes the liabilities and
obligations of BAC, the General Partner and the Manager under the Exchange
Agreement. See "Terms of the ESOP Restructuring--The Exchange Agreement." The
Special Committee considered the risk that BAC, the General Partner and the
Manager would not be able to fund this obligation in the event that it were to
become due. One situation where
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this could occur would be if the ESOP were in default on the ESOP Loan, the
Partnership's right to receive the forfeiture payment would be subordinate to
the guarantees that the General Partner, BAC and the Manager have provided to
the ESOP Lender. On balance, the Special Committee did not believe that this
risk was significant enough to outweigh the advantages of the ESOP
Restructuring.
THE RISK OF LOSING THE FAVORABLE TAX TREATMENT FOR THE LOAN USED TO FUND THE
ESOP AND THE CORRESPONDING INCREASE IN THE INTEREST RATE ON SUCH LOAN IF SUCH
FAVORABLE TAX TREATMENT IS LOST. As discussed under "Federal Income Tax
Consequences of the ESOP Restructuring--Repeal of Interest Exclusion," the 50%
interest exclusion previously enjoyed by lenders on certain loans made to
employee stock ownership plans has been repealed. However, loans made prior to
the repeal, and certain refinancings of such loans, are able to continue to
enjoy favorable tax treatment under a transition rule. The Special Committee
considered whether the proposed restructuring of the ESOP would qualify as a
"refinancing" under the transition rule and, therefore, be entitled to continue
to receive favorable tax treatment. If the restructured ESOP Loan were not to
qualify as a refinancing under the transition rule, the interest rate on such
loan would automatically be increased so that after taxes the ESOP Lender would
receive the same interest income from the loan as it currently receives. Such
an increase in the interest rate on the ESOP Loan would increase the cost to
the Partnership of maintaining the ESOP. Based in part on the legal opinion of
counsel to the General Partner, the Special Committee concluded that the risk
that the restructuring of the ESOP Loan would not qualify as a "refinancing"
under the transition rule was not significant enough to outweigh the benefits
derived from the ESOP Restructuring.
THE RISK OF A 10% EXCISE TAX ON SALE BY THE ESOP OF THE BAC PREFERRED
STOCK. As discussed under "Federal Income Tax Consequences of the ESOP
Restructuring--Risk of Excise Tax," the exchange of the BAC Preferred Stock by
the ESOP may trigger a 10% excise tax unless certain conditions are satisfied.
Based in part on the legal opinion of counsel to the General Partner, the
Special Committee concluded that the risk the excise tax would be imposed was
not significant enough to outweigh the benefits derived from the ESOP
Restructuring.
Because of the lack of certainty that the tax risks will be completely
avoided, the Special Committee requested and Management agreed that the General
Partner would assume one of the two tax risks associated with the ESOP
Restructuring and would not ultimately pass any expense associated with bearing
that risk through to the Partnership. The disinterested directors of the
General Partner were given the right to select at any time which tax risk would
be borne solely by the General Partner.
THE RESULTING OWNERSHIP BY MANAGEMENT OF 100% OF THE CAPITAL STOCK OF THE
GENERAL PARTNER AS A RESULT OF THE ESOP RESTRUCTURING. The Special Committee
considered the fact that the ESOP Restructuring would result in management
owning 100% of the capital stock of the General Partner, and, consequently,
receiving indirectly 100% of the benefit of any incentive compensation paid
after the ESOP Restructuring to the General Partner by the Partnership. In
light of the benefits Management would receive as a result of the ESOP
Restructuring, the Special Committee requested and Management agreed that (i)
the release by the General Partner of the Partnership's obligation to reimburse
the General Partner for certain senior executive compensation costs would be
permanent rather than for a 15-year term as originally proposed by Management,
(ii) the payments under the Incentive Compensation Agreement would be reduced
as described above, (iii) no special distributions will be declared out of the
proceeds of any refinancing of the Partnership's debt without the approval of
the disinterested directors of the Board of Directors of the General Partner;
and (iv) Mr. Martinelli and certain trusts established for the benefit of his
family members, Glenmoor and BAC would not sell their direct or indirect
interest in the General Partner or the Partnership for a period of at least
five years.
The Special Committee noted that the net income and net cash flow of the
General Partner after the ESOP Restructuring was anticipated to be
significantly reduced as a result of the senior executive compensation expenses
and other costs and liabilities being assumed by the General Partner and the
reduction in the incentive compensation formula. Thus, Management will be
subject to additional risk and will have to depend principally on increases in
the level of cash distributions paid to Unitholders for its own compensation.
In the judgment of the Special Committee, any potential benefits of the ESOP
Restructuring to the General Partner did not outweigh the anticipated benefits
to the Partnership and the Unitholders.
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CONCLUSION OF THE SPECIAL COMMITTEE
In light of the commitments made by Management and the benefits the ESOP
Restructuring are expected to provide to the Partnership and the Unitholders,
the Special Committee concluded unanimously that the ESOP Restructuring is in
the best interest of the Partnership and the Unitholders.
OPINION OF FINANCIAL ADVISOR
The Special Committee retained Furman Selz on September 24, 1996, in
connection with the transactions contemplated by the ESOP Restructuring. Furman
Selz was retained by the Special Committee as its financial advisor because of
its familiarity with the Partnership and Furman Selz's qualifications and
expertise in securities valuation in general, as well as its reputation as an
internationally recognized investment banking firm. Furman Selz previously
represented American Financial in the 1996 Acquisition.
On December 18, 1996, Furman Selz delivered a written opinion to the Special
Committee to the effect that, based upon and subject to the matters set forth
in its written opinion, as of such date, the consideration to be received by
the Partnership in the ESOP Restructuring was fair, from a financial point of
view, to the Partnership. On June 16, 1997, Furman Selz provided the Special
Committee with an updated written opinion. The full text of the written opinion
of Furman Selz, dated as of June 16, 1997, is set forth as Appendix E to this
Proxy Statement and describes the assumptions made, matters considered and
limits on the review undertaken. Unitholders are urged to read the opinion in
its entirety.
Furman Selz's opinion addresses only the fairness of the consideration to be
received in the ESOP Restructuring from a financial point of view to the
Partnership and does not constitute a recommendation to any Unitholder of the
Partnership as to how such Unitholder should vote with respect to the proposed
ESOP Restructuring.
In connection with rendering its opinion, Furman Selz: (i) reviewed the
Partnership's Annual Reports on Form 10-K for the fiscal years ended December
31, 1995, 1994 and 1993, and Quarterly Reports on Form 10-Q for the fiscal
quarters ended September 30, 1996 and September 30, 1995; (ii) reviewed certain
other publicly available information concerning the Partnership and the trading
market for the LP Units; (iii) reviewed certain internal, non-public
information relating to the Partnership provided by Management, including
forecasts and projections prepared by Management based on assumptions believed
by it to be reasonable; (iv) reviewed certain publicly available information
concerning certain other companies engaged in businesses which Furman Selz
believes to be comparable to the Partnership ("Buckeye Comparable Companies")
and the trading markets for certain of such other companies' securities; (v)
reviewed documentation from the 1996 Acquisition; (vi) reviewed excerpts
supplied to Furman Selz by Management of an independent actuarial analysis of
the ESOP, dated April 23, 1996 and modifications made by Management to such
actuarial analysis; (vii) met with representatives of Management and other
employees of the General Partner concerning its business and operations,
assets, present condition and future prospects; and (viii) performed such other
analyses, examinations and procedures, reviewed such other agreements and
documents, and considered such other factors, as Furman Selz deemed, in its
sole judgment, to be necessary, appropriate or relevant to render its opinion.
In addition, in rendering its updated opinion, Furman Selz: (i) reviewed the
Partnership's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1997 and March 31, 1996; (ii) reviewed certain other publicly available
information concerning the Partnership and the recent trading market for the LP
Units; and (iii) reviewed the terms of the litigation settlement as they relate
to the terms of the ESOP Restructuring (see "Terms of the ESOP Restructuring--
Certain Litigation").
In rendering its opinion, Furman Selz visited but did not conduct a physical
inspection of the properties and facilities of the Partnership, nor did Furman
Selz make or obtain any independent evaluation or appraisal of such properties
and facilities or of the assets or liabilities of the Partnership or assume any
obligation to do so. Furman Selz assumed and relied, with the Special
Committee's approval, upon the accuracy and completeness
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of the financial and other information provided to Furman Selz in arriving at
its opinion and has not attempted independently to verify such information. In
addition, Furman Selz assumed that Management's projections for the Partnership
represent the best current judgment of Management as to the future financial
condition and results of operations of the Partnership, and assumed that the
projections were reasonably prepared based on such current judgment. Furman
Selz has assumed no responsibility for and has expressed no view as to such
projections or the assumptions on which they are based.
Furman Selz assumed, at the instruction of the Special Committee and its
legal counsel, that the original ESOP transaction and the actions taken by the
parties as part of the 1996 Acquisition, were legal and permissible under the
applicable provisions of the Employee Retirement Income Security Act of 1974
and the Code. Furman Selz was also instructed by the Special Committee and its
legal counsel to assume that (i) the ESOP Restructuring will not result in a
non-exempt prohibited transaction under the fiduciary provisions of ERISA and
(ii) the ESOP is a qualified plan under Section 401(a) of the Code both before
and after the ESOP Restructuring. Furman Selz has assumed and relied upon the
foregoing assumptions and has not attempted independently to verify such
information.
Furman Selz also relied upon advice from the General Partner's counsel (which
Furman Selz understands will be embodied in written opinion letters to be
delivered at closing) with respect to certain tax issues and has not attempted
independently to verify such information. The Partnership has been given the
option as part of the ESOP Restructuring to be indemnified by the General
Partner from either one of two potential tax risks. These risks are that (i)
the ESOP Loan will not continue to be grandfathered under the recently repealed
Section 133 of the Code, which excluded from income tax 50% of the interest
paid to a lender by an employee stock ownership plan pursuant to a qualified
plan and (ii) the risk that a 10% excise tax will be imposed under Section
4978B of the Code as a result of the ESOP Restructuring. If the ESOP Loan is
not grandfathered under Section 133, the interest rate on the ESOP Loan will
increase to 8.79% from 7.24%. Counsel to the General Partner has given advice
that it is more likely than not that the ESOP Lender would retain the benefit
of the Section 133 interest exclusion and advice that it is more likely than
not that the ESOP Restructuring will not result in the imposition of an excise
tax under Section 4978B of the Code (Furman Selz understands that this advice
will be embodied in written opinion letters to be delivered at closing). As
stated above, the disinterested directors of the General Partner have been
given the right to select which tax risk will be borne by the General Partner.
In its analysis, Furman Selz has assumed such disinterested directors would
elect to cause the Partnership to be indemnified from the risk of the
imposition of the 10% excise tax.
In arriving at its opinion, Furman Selz was instructed by the Special
Committee to assume that the only expenses related to the ESOP which the
Partnership is currently responsible for are interest and debt amortization of
the ESOP Loan (the "Non-perpetual" ESOP case). However, Management's
projections also include an additional annual expense to the Partnership of
repurchasing the BAC Preferred Stock of those employees who either retire,
diversify or leave each year. In arriving at its opinion, Furman Selz also
analyzed this BAC Preferred Stock redemption obligation as if it was an
obligation of the General Partner which in turn was reimbursable by the
Partnership and the BAC Preferred Stock was recontributed to the ESOP (the
"Perpetual" ESOP case).
In arriving at its opinion, Furman Selz also took into account its assessment
of general economic, market and financial conditions and its experience in
similar transactions, as well as its experience in securities valuation in
general. Furman Selz's opinion necessarily is based upon market, business and
other conditions as of June 16, 1997, and can only be evaluated as of such
date, and does not represent an opinion as to the value of the LP Units or the
impact of the ESOP Restructuring or its announcement on the trading price of
the LP Units.
DISTRIBUTION AND INTEREST RATE SCENARIOS
Furman Selz performed and reviewed analyses of two pre-ESOP Restructuring
distribution/operating income scenarios provided to Furman Selz by Management.
Scenario I assumes flat operating income and distributions per LP Unit of $3.00
in 1996 increasing to $3.20 in 1998, $3.40 in 2000, $3.60 in 2002 and $3.80
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in 2008. Management assigned a probability of this scenario occurring pre-ESOP
Restructuring of greater than or equal to 50%. Scenario II assumes annual
operating income growth of approximately 0.5% and distributions per LP Unit of
$3.00 in 1996 increasing to $3.20 in 1998, $3.40 in 2000, $3.60 in 2002, $3.80
in 2004, $4.00 in 2006 and $4.20 in 2010. Management assigned a probability of
this scenario occurring pre-ESOP Restructuring of less than or equal to 50%.
Furman Selz also analyzed a third pre-ESOP Restructuring distribution/operating
income scenario that assumed flat operating income and distributions per LP
Unit of $3.00 per year over the 15-year period. Management provided this
scenario early in the analysis for illustrative purposes to demonstrate the
effects of the ESOP Restructuring on the Partnership in a flat cash
distribution scenario. While Management has agreed to recommend and the Board
of Directors of Buckeye Management Company has agreed to implement a $0.52
increase in the annual distribution level subsequent to the ESOP Restructuring,
provided that there has been no adverse change in the business of the
Partnership, Furman Selz has disregarded this increase for purposes of
comparability analysis. Utilizing higher distribution levels subsequent to the
ESOP Restructuring would adversely affect the financial results of the
Partnership because the Partnership would be generating substantially less
interest income and therefore net income due to the use of excess cash to pay
the higher distribution levels. Any positive effects of increased cash flow on
the Partnership due to the ESOP Restructuring would therefore be negated by
paying out that excess cash flow in the form of higher distributions.
Comparisons of like distribution levels, on the other hand, better illustrate
the change in the Partnership's ability to pay the projected distributions.
Furman Selz also performed and reviewed analyses of the ESOP Restructuring
assuming two interest rate scenarios for the ESOP Loan. The first scenario
assumes that the current interest rate of 7.24% is maintained subsequent to the
ESOP Restructuring. The second scenario assumes that the current interest rate
increases to 8.79% subsequent to the ESOP Restructuring due to the possible
loss of the Partnership's grandfathering under the recently repealed Section
133 of the Code. While the higher interest rate scenario was analyzed, Furman
Selz gave greater weight to advice (which Furman Selz understands will be
embodied in a written opinion at closing) from the General Partner's counsel
stating that it is more likely than not that the current interest rate will be
maintained.
Furman Selz analyzed eight cases based on the Special Committee's previously
mentioned instruction regarding consideration of the Non-perpetual and
Perpetual ESOP cases. For each distribution scenario provided by management
(Scenarios I and II), the ESOP Restructuring was analyzed in the following
cases: (i) Perpetual ESOP with a 7.24% interest rate on the ESOP Loan
("Perpetual"); (ii) Perpetual ESOP with a 8.79% interest rate on the ESOP Loan
("Perpetual/Higher Interest Rate"); (iii) Non-perpetual ESOP with a 7.24%
interest rate on the ESOP Loan ("Non-perpetual"); and (iv) Non-perpetual ESOP
with a 8.79% interest rate on the ESOP Loan ("Non-perpetual/Higher Interest
Rate").
The following is a summary of the analyses performed by Furman Selz in
connection with its written opinion dated December 18, 1996, as updated on June
16, 1997.
IMPACT OF THE RESTRUCTURING
Furman Selz reviewed and analyzed the value of the LP Units to be issued to
Newco in the ESOP Restructuring in comparison to the value of the incremental
distributable cash accruing to the Partnership over a 15-year period (the
amortization period over which the Partnership cedes the BAC common stock to
the General Partner). Furman Selz calculated the range of value of the LP Units
issued based on 1,546,988 LP Units issued between the LP Unit price collar of
$36.50 and $41.50 (outside the collar, the number of LP Units decreases or
increases to maintain the aggregate value computed by the high and low LP Unit
prices of the collar). This yielded a range of value for the LP Units to be
issued in the ESOP Restructuring of $56.5 million to $64.2 million. This range
of LP Unit values was compared to a discounted cash flow analysis of the
incremental distributable cash projected for the Partnership due to the ESOP
Restructuring. "Distributable Cash" is defined as the beginning of year excess
cash balance (cash above that needed for working capital) plus cash from
operating, investing and financing activities but before cash distributions to
Unitholders and
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<PAGE>
associated incentive compensation payments to the General Partner. (Furman Selz
noted that the restructuring of the incentive compensation agreement resulted
in an incremental benefit to Unitholders in Scenarios I and II over time
because of lower incentive payments to the General Partner.) The incremental
Distributable Cash was discounted to present value using rates ranging from
7.0% to 8.5% based on a weighted average cost of capital analysis of the
Buckeye Comparable Companies. The Buckeye Comparable Companies included Kinder
Morgan, L.P., EOTT Energy Partners, L.P., Kaneb Pipe Line Partners, L.P.,
Lakehead Pipe Line Partners, L.P., Leviathan Gas Pipeline Partners, L.P.,
Northern Border Partners, L.P., Santa Fe Pacific Pipeline Partners, L.P. and
TEPPCO Partners, L.P. The present value of the discounted incremental
Distributable Cash was calculated under Scenarios I and II for the Perpetual,
Perpetual/Higher Interest Rate, Non-perpetual and Non-perpetual/Higher Interest
Rate cases. Such discounted incremental distributable cash analysis derived an
implied range of values to the Partnership of $94.7 million to $114.4 million
in the Perpetual cases, $86.6 million to $105.4 million in the Perpetual/Higher
Interest Rate cases, $64.7 million to $73.1 million in the Non-perpetual cases
and $56.7 million to $64.0 million in the Non-perpetual/Higher Interest Rate
cases. In six of the eight cases analyzed, the present value to the Partnership
of the discounted Distributable Cash was above $64.2 million, the upper limit
of the value of the LP Units to be issued by the Partnership in the ESOP
Restructuring. Furman Selz took into consideration management's advice that
there was a 50% or more probability that distribution Scenario I would occur
and that there was an up to a 50% probability that distribution Scenario II
would occur. Furman Selz also took into consideration the advice of counsel to
the General Partner that it is more likely than not that the ESOP Lender would
retain the benefit of the Section 133 interest income exclusion (Furman Selz
understands that this advice will be embodied in a written opinion letter to be
delivered at closing). As a result, less weight was given to the higher
interest rate cases. The following table shows the high and low values for each
of Scenario I and Scenario II for each case. The high value is based on a
discount rate of 7.0% and the low value is based on a discount rate of 8.5%.
PRESENT VALUE OF INCREMENTAL DISTRIBUTABLE CASH
(IN MILLIONS)
<TABLE>
<CAPTION>
NON-PERPETUAL/
PERPETUAL/HIGHER HIGHER INTEREST
PERPETUAL INTEREST RATE NON-PERPETUAL RATE
--------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Scenario I High $106.3 $ 97.3 $71.6 $62.7
(Management's base case) Low $ 94.7 $ 86.6 $64.7 $56.7
Scenario II High $114.4 $105.4 $73.1 $64.0
(Management's optimistic Low $101.7 $ 93.6 $66.1 $57.9
case)
</TABLE>
In addition, Furman Selz analyzed, on the same basis as Scenarios I and II, a
third distribution scenario that assumed a flat $3.00 distribution per LP Unit
per year over the 15-year period. The discounted incremental distributable cash
analysis derived an implied range of values to the Partnership of $50.0 million
to $80.9 million. Furman Selz placed less weight on these cases because
Management assigned a substantially lower probability of these cases occurring
than either Scenarios I or II.
PRO FORMA FINANCIAL ANALYSIS OF THE ESOP RESTRUCTURING
Furman Selz analyzed the accretion/(dilution) of the ESOP Restructuring to
earnings per unit, Distributable Cash per unit, and after-tax Distributable
Cash per unit for each of the cases mentioned above. While the ESOP
Restructuring was projected to be dilutive to earnings per unit in both 1997
and 1998 in all cases, Furman Selz placed less weight on the
accretion/(dilution) to earnings per unit because in its experience
partnerships of this nature trade more on the basis of yield (annual
distribution divided by unit price). For this reason, Distributable Cash per
unit and after-tax Distributable Cash per unit were considered by Furman Selz
to be better measures of the Partnership's ability to increase the yield to
Unitholders. For all scenarios the ESOP Restructuring's effect on Distributable
Cash and after-tax Distributable Cash per unit was projected to be dilutive in
1997 and accretive in 1998 (except for Non-perpetual Higher Interest Rate Case
Scenario II where after-tax Distributable Cash per unit was neither accretive
nor dilutive in 1998). For the accretion/(dilution)
25
<PAGE>
analysis, Furman Selz took into consideration the advice of counsel to the
General Partner that it is more likely than not that the ESOP Lender would
retain the benefit of the Section 133 interest income exclusion (Furman Selz
understands that this advice will be embodied in a written opinion letter to be
delivered at closing). As a result, less weight was given to the higher
interest rate cases. "Accretion" means an increase or growth per unit as
opposed to a dilution per unit.
OTHER ANALYSES
Furman Selz conducted such other analyses as it deemed necessary, including
reviewing historical and projected financial and operating data for the
Partnership and the Buckeye Comparable Companies and selected investment
research reports on each. While there are a number of factors which influence
the current price of an LP Unit, Furman Selz did take into consideration in its
opinion that, as a yield-based investment, Unitholders should benefit from the
implementation of the $0.52 annual increase in the distribution per LP Unit as
part of the ESOP Restructuring.
The foregoing is a summary of the financial analyses used by Furman Selz in
connection with rendering its opinion. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or of the summary set
forth above, without considering the analyses as a whole, could create an
incomplete view of the processes underlying Furman Selz's opinion. In arriving
at its opinion, Furman Selz considered the results of all such analyses. The
analyses were prepared solely for the purposes of Furman Selz providing its
opinion as to the fairness of the consideration to be received in the ESOP
Restructuring by the Partnership and do not purport to be appraisals or
necessarily reflect the prices at which securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than those suggested by such analyses. Furman Selz's opinion was one of many
factors taken into consideration by the Special Committee in making its
determination to approve the ESOP Restructuring. The foregoing summary does not
purport to be a complete description of the analyses performed by Furman Selz,
but is a summary of the material analyses in the opinion.
The opinion was rendered for the use and benefit of the Special Committee in
its consideration of the ESOP Restructuring. The opinion is not intended to be
and does not constitute a recommendation to any Unitholder or the ESOP and its
fiduciaries as to how such party should vote with respect to the proposed ESOP
Restructuring. Furman Selz was not requested to opine as to, and the opinion
does not in any manner address, the Partnership's underlying business decision
to proceed with or effect the ESOP Restructuring, or the relative merits of the
ESOP Restructuring as compared to any alternative business strategies which
might exist for the Partnership or the effect of any other transaction in which
the Partnership might engage.
The General Partner, on behalf of the Special Committee, paid to Furman Selz
(i) an initial cash retainer fee of $250,000 payable in equal installments in
September, October and November 1996, (ii) an additional cash fee of $250,000
upon Furman Selz delivering its opinion to the Special Committee on December
18, 1996, and (iii) an additional cash fee of $25,000 upon Furman Selz
delivering its updated opinion to the Special Committee on June 16, 1997. The
General Partner further agreed to pay Furman Selz a cash fee of $250,000 upon
the consummation of the proposed ESOP Restructuring.
The General Partner has agreed to reimburse Furman Selz for all of its
reasonable out-of-pocket expenses, including legal fees and disbursements, in
connection with this engagement, without regard to whether the transaction is
consummated. Furthermore, the General Partner and the Partnership, jointly and
severally, agreed to indemnify and hold Furman Selz harmless from and against
any losses, claims, damages or liabilities (or actions, including
securityholder actions, in respect thereof) related to or arising out of Furman
Selz's engagement or its role in connection with the ESOP Restructuring. The
Partnership will reimburse the General Partner for all payments to Furman Selz
in connection with the ESOP Restructuring.
26
<PAGE>
BENEFITS OF THE ESOP RESTRUCTURING
TO THE GENERAL PARTNER--CONFLICTS OF INTEREST
The General Partner is a wholly owned subsidiary of BAC. Glenmoor, a
partnership whose partners are the executive officers and certain directors of
the General Partner, currently owns 57,000 shares of BAC Common Stock.
Individual partners of Glenmoor and certain managers of the Manager own in the
aggregate 3,000 shares of BAC Common Stock. Following the ESOP Restructuring,
the Management will own all of the outstanding BAC Common Stock and there will
be no outstanding securities convertible into BAC Common Stock. Prior to the
ESOP Restructuring, the ESOP owns approximately 89% of the BAC Common Stock on
a fully converted basis. After the ESOP Restructuring, Management will continue
to elect the directors of the General Partner, including its disinterested
directors, the General Partner will make all decisions relating to the
management of the Partnership subject to the terms of the Partnership
Agreement, and the Manager will make all decisions relating to the management
of the Operating Partnerships subject to the terms of the Operating Partnership
Agreements. The voting rights of the Unitholders as set forth in the
Partnership Agreement are unaffected by the ESOP Restructuring.
The General Partner and the Manager have three sources of revenue: (i)
expense reimbursement, (ii) cash distributions attributable to the general
partnership interests (approximately 2% of the equity of the Partnership), and
(iii) incentive compensation under the Incentive Compensation Agreement.
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 incurred by them related to the business activities of the
Partnership and the Operating Partnerships. These costs and expenses include
insurance, 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. These costs and expenses reimbursed by the Partnership totaled $61.1
million in 1996. Of that amount, approximately $2.3 million on an annualized
basis was for reimbursement of the compensation costs of the General Partner's
senior executive officers which will no longer be reimbursable following the
ESOP Restructuring.
The General Partner owns a 1% general partnership interest in the
Partnership, and the Manager owns a 1% general partnership interest in each
Operating Partnership. Therefore, the General Partner and its affiliates have
an approximate 2% aggregate economic interest in the Partnership and are
entitled to approximately 2% of all Partnership distributions. Distributions
paid by the Partnership and the Operating Partnerships to the General Partner
and the Manager totaled $739,853 in 1996.
Under the Incentive Compensation Agreement, as proposed to be amended as part
of the ESOP Restructuring, 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% of that portion of the
distribution per LP Unit which exceeds the target quarterly amount of $0.65 but
is not more than $0.70; plus (ii) 25% of the amount, if any, by which the
quarterly distribution per LP Unit exceeds $0.70 but is not more than $0.75;
plus (iii) 30% of the amount, if any, by which the quarterly distribution per
LP Unit exceeds $0.75 but is not more than $0.80; (iv) 35% of the amount, if
any, by which the quarterly distribution per LP Unit exceeds $0.80 but is not
more than $0.85; (v) 40% of the amount, if any, by which the quarterly
distribution per LP Unit exceeds $0.85 but is not more than $1.05; and (vi) 45%
of the amount, if any, by which the quarterly distribution per LP Unit exceeds
$1.05. The General Partner also agreed not to receive any incentive
compensation on distributions on the LP Units issued pursuant to the ESOP
Restructuring. The General Partner would be entitled to receive approximately
$3.1 million on an annualized basis if cash distributions to Unitholders are
$3.52 per year, as contemplated by the ESOP Restructuring.
The proposed amendment to the Incentive Compensation Agreement represents a
reduction in the formula for the current and any increased level of cash
distributions on LP Units. The current formula is set forth under "Background--
The General Partner and the Manager." This reduction in the incentive
compensation payable to the General Partner will have a significant negative
effect on the net cash flow of the General Partner
27
<PAGE>
depending on the level of cash distributions. The following is a comparison of
the amounts of incentive compensation that would be earned annually by the
General Partner at various distribution levels on LP Units under the current
formula and the revised formula approved by the Special Committee as part of
the ESOP Restructuring. (All calculations are based on 12,069,330 LP Units, the
number of LP Units outstanding as of June 16, 1997.)
<TABLE>
<CAPTION>
INCENTIVE COMPENSATION
ANNUAL -------------------------------------------------------------
DISTRIBUTION CURRENT REVISED
PER LP UNIT FORMULA(1) FORMULA DIFFERENCE
------------ ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
$2.80 $ 681 $ 362 $ (319)
3.00 1,498 966 (532)
3.20 2,315 1,690 (625)
3.40 3,404 2,535 (869)
3.60 4,493 3,500 (993)
3.80 5,855 4,466 (1,389)
</TABLE>
- --------
(1) Includes incentive compensation on the LP Units to be issued as part of the
ESOP Restructuring, which is assumed to be 1,546,988 LP Units.
The General Partner is also entitled to incentive compensation, under a
different 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% per annum,
would equal $20.00 (the initial public offering price of the LP Units)
compounded quarterly at 13% per annum from the date of the closing of the
initial public offering on December 23, 1986. No special distributions have
ever been paid by the Partnership, and none are presently contemplated.
In connection with the 1996 Acquisition, the General Partner entered into a
Management Agreement with Glenmoor, whereby Glenmoor agreed to provide certain
management functions to the General Partner. Under the Agreement, Glenmoor
receives an annual management fee, which includes a Senior Administrative
Charge of not less than $975,000 per annum, reimbursement for compensation
costs and expenses of Glenmoor employees who provide services to the General
Partner, including the cost of participation in the ESOP and other employee
benefit plans, and reimbursement of all other costs and expenses incurred by
Glenmoor relating to the business of the Partnership. The management fee is
approved annually by a committee of disinterested directors of the General
Partner. The Partnership reimburses the General Partner for the annual
management fee paid to Glenmoor and will continue to do so after the ESOP
Restructuring, except that there will be no reimbursement of the compensation
costs of the General Partner's senior executive officers after the ESOP
Restructuring. The Partnership reimbursed the General Partner for $3.3 million
paid to Glenmoor in 1996, including senior executive compensation costs of $1.2
million and a prorated Senior Administrative Charge of $0.8 million.
Following the ESOP Restructuring, the aggregate compensation to the
Management will depend to a greater extent on the level of cash distributions
paid to the Unitholders (reflected in both incentive compensation and
distributions on GP Units). Although Management will own 100% of the General
Partner following the ESOP Restructuring, the General Partner's net cash flow
is anticipated to be significantly reduced because it will not be entitled to
reimbursement of certain senior executive compensation costs and the incentive
compensation formula will be reduced. See also "Certain Relationships and
Related Transactions."
TERMS OF THE ESOP RESTRUCTURING
STEPS TO COMPLETE THE ESOP RESTRUCTURING
The ESOP Restructuring will be accomplished through a number of steps that
will occur as part of a contemporaneous closing, subject to Unitholder approval
of the two proposals, as follows:
Step 1. BAC will form Buckeye Pipe Line Services Company, a single-purpose
corporation ("Newco"). The initial board of directors of Newco will be
A.W. Martinelli, the Chairman and Chief Executive
28
<PAGE>
Officer of the General Partner, three executive officers of the General
Partner and the Manager, C. Richard Wilson, Stephen C. Muther and
Steven C. Ramsey; and one disinterested director, Neil M. Hahl.
Step 2. Newco will employ all of the employees previously employed by the
Manager and will become the sponsor of all of the employee benefit
plans previously maintained by the Manager, including the ESOP. Newco
will also enter into a Services Agreement with the General Partner and
the Manager to provide services to the Partnership and the Operating
Partnerships over a 15-year term. Newco will be reimbursed by the
General Partner or the Manager for its direct and indirect expenses in
providing such services. The Partnership and Operating Partnerships
will in turn reimburse the General Partner and the Manager for
reimbursements they make to Newco under the Services Agreement
(although, as set forth below, certain senior executive compensation
costs will not be reimbursed by the Partnership after the ESOP
Restructuring). All services performed under the Services Agreement by
Newco will be provided under the direct supervision of the officers of
the General Partner or the Manager.
Step 3. The ESOP Loan documents will be amended to provide for the ESOP to be
the direct borrower under the ESOP Loan; BAC, the General Partner, the
Manager and Newco will become guarantors of the ESOP Loan, secured by
each such guarantor's assets, including its interest in the Partnership
and the Operating Partnerships; and Glenmoor and the individual
stockholders of BAC will pledge their interest in BAC to secure the
payment of the ESOP Loan.
Step 4. The ESOP will exchange its 63,000 shares of BAC Preferred Stock with
Newco for shares of common stock of Newco, and BAC will assign its
initial share of common stock of Newco to the ESOP.
Step 5. Pursuant to the LP Unit Subscription Agreement, a copy of which is
attached as Appendix A to this Proxy Statement, Newco will exchange the
BAC Preferred Stock with the Partnership for LP Units. The number of LP
Units to be issued is based on a formula set forth under the
description of the proposal to issue LP Units below. The number of LP
Units to be issued at various Unit Trading Prices is illustrated in a
table on page 35 of this Proxy Statement. See "Proposal to Issue LP
Units" below.
Step 6. The Partnership will convert the 63,000 shares of BAC Preferred Stock
into 484,615 shares of BAC Common Stock.
Step 7. The Partnership will contribute the BAC Common Stock to the Operating
Partnerships.
Step 8. The Partnership and the Operating Partnerships will enter into the
Exchange Agreement with the General Partner, the Manager and BAC, a
copy of which is attached as Appendix B to this Proxy Statement. The
Operating Partnerships will exchange the BAC Common Stock with the
Manager for the consideration set forth in the Exchange Agreement,
subject to certain forfeiture provisions. See "--The Exchange
Agreement" below.
Step 9. The Manager will transfer by dividend to the General Partner, which
will transfer by dividend to BAC, the BAC Common Stock obtained in the
Exchange Agreement, subject to the same forfeiture provisions.
As a result of the foregoing actions the ESOP will beneficially own the LP
Units issued in the ESOP Restructuring, and Glenmoor, its individual partners
and certain managers of the Manager will own all of the outstanding capital
stock of BAC, the parent of the General Partner.
Under the terms of the LP Unit Subscription Agreement, the Partnership will
issue the LP Units to Newco. The Partnership has agreed to register the LP
Units with the Securities and Exchange Commission ("SEC") on Form S-3 or other
appropriate form to permit their resale by Newco and to maintain the
effectiveness of such registration for as long as Newco continues to hold LP
Units which are not freely tradeable in the absence of such registration.
29
<PAGE>
The ESOP Restructuring is a complicated, multi-party transaction that was
structured to comply with the terms of the Partnership Agreement and applicable
laws. Because the individual steps are part of an integrated transaction and
occur contemporaneously at a single closing, the ESOP Restructuring should be
considered in its entirety. In analyzing the impact of the ESOP Restructuring
on the Partnership and the Unitholders, the Special Committee, Furman Selz, and
the Board of Directors of the General Partner have all analyzed the ESOP
Restructuring in its entirety, and have not separately analyzed each of the
individual steps.
THE EXCHANGE AGREEMENT
Under the terms of the Exchange Agreement, the Operating Partnerships will
exchange (the "Exchange") the BAC Common Stock with the Manager in return for
the General Partner and the Manager releasing the Partnership and the Operating
Partnerships from their obligation to reimburse the Manager for certain
compensation and fringe benefit costs relating to the Manager's six senior
executive officers and certain other covenants. As a result of the Exchange,
the Partnership will only be required to reimburse the General Partner or the
Manager with respect to contributions to the ESOP for (1) cash contributions
made by Newco to the ESOP necessary to pay debt service to the ESOP Lender on
the ESOP Loan, (2) any taxes incurred by Newco, including income taxes incurred
on the sale of LP Units made to satisfy employee redemption obligations, and
(3) routine administrative charges and expenses common to employee stock
ownership plans, in each case, to the extent distributions on LP Units owned by
Newco are not sufficient to make all such payments.
The Exchange Agreement provides that the Exchange is subject to a substantial
risk of forfeiture over the remainder of the 15-year amortization period of the
ESOP Loan (i.e. 1/15th of the consideration received by the Manager will be
forfeited for each year that the General Partner or its successor ceases to
serve as general partner of the Partnership or the Manager ceases to serve as
general partner of the Operating Partnerships prior to the payment in full of
the ESOP Loan). The forfeiture will be in the form of a cash obligation of BAC,
the General Partner and the Manager to pay the Operating Partnerships an amount
equal to the product of (A) the greater of (i) the fair market value of the LP
Units issued by the Partnership to Newco at the closing of the ESOP
Restructuring, or (ii) the fair market value of the BAC Common Stock at the
time of forfeiture, multiplied by (B) the fraction, the numerator of which is
the number of years remaining before the scheduled amortization of the ESOP
Loan (the "ESOP Period"), and the denominator of which is 15. The forfeiture
payment will not be an expense reimbursable by the Partnership. The forfeiture
obligation operates in the event the General Partner withdraws or is removed as
general partner, but not in the event of the liquidation of the Partnership
approved by two-thirds vote of the Unitholders as provided in the Partnership
Agreement.
It is proposed that the Partnership Agreement be amended to provide that in
the event that the General Partner is removed as general partner of the
Partnership during the term of the Exchange Agreement, the successor general
partner will be obligated to continue to provide certain executive management
services without reimbursement. The assumption of this obligation by a
successor general partner would negate the General Partner's forfeiture
obligation under the Exchange Agreement. The assumption of this obligation by
the successor general partner would, however, be taken into account in
determining the value of the general partnership interest represented by GP
Units to be purchased by the successor general partner pursuant to Section 13.2
of the Partnership Agreement. See "Proposal to Amend the Partnership
Agreement--Description of the Proposed Amendment--Obligations of a Successor
General Partner." The General Partner has previously agreed to continue to
serve as general partner of the Partnership until the later of December 23,
2011, or the payment in full of the ESOP Loan; however, if the General Partner
withdraws as general partner of the Partnership prior to the ESOP Period, the
General Partner will be obligated to make a cash forfeiture payment to the
Partnership.
If no forfeiture occurs prior to the expiration of the ESOP Period, BAC can
retire the treasury stock, and Glenmoor, its individual partners and certain
managers of the Manager will own 100% of the capital stock of BAC. See
"Benefits of the ESOP Restructuring to the General Partner--Conflicts of
Interest."
OTHER APPROVALS REQUIRED FOR CLOSING
In addition to the approval of Unitholders, the following approvals must be
or have been obtained prior to the closing of the ESOP Restructuring.
30
<PAGE>
ESOP Approval. The ESOP Trustee has determined that the ESOP Restructuring is
in the best interests of the ESOP, and that it would be appropriate to
substitute beneficial ownership of LP Units for the BAC Preferred Stock
presently held by the ESOP, subject to receipt at the closing of the ESOP
Restructuring of an opinion from its financial advisor that the LP Units to be
received by the ESOP are adequate consideration for the exchange of the BAC
Preferred Stock and that the ESOP Restructuring is fair to the ESOP
participants from a financial point of view.
ESOP Lender Consent. The ESOP Lender has indicated its consent, subject to
the satisfaction of certain conditions, to the modifications in the ESOP Loan
relating to the ESOP Restructuring. The Partnership has agreed to pay the ESOP
Lender a $250,000 fee plus reimbursement of expenses in connection with the
transaction.
CERTAIN LITIGATION
On December 30, 1996, a putative class action complaint (Shakerdge v.
Martinelli, et. al.) ("Class Action") was filed in the Delaware Court of
Chancery against the Partnership, the General Partner, BAC, Glenmoor and the
directors of the General Partner. The complaint alleged that the terms of the
proposed ESOP Restructuring, as negotiated by Management and the Special
Committee, were unfair and would be dilutive to Unitholders; that the
defendants have engaged in conduct constituting self-dealing; and that the
defendants have breached their fiduciary and other common law duties to the
plaintiff. Plaintiff seeks, among other things, an injunction prohibiting the
consummation of the transaction on the terms proposed; requiring defendants to
take all steps to ensure that the transaction reflects an arms length
transaction; and requiring full disclosure of all material facts.
The General Partner and the other defendants deny the allegations of the
complaint, but in order to avoid the distraction, burden and expense of further
litigation and to avoid any further delay in providing the Unitholders with the
opportunity to vote on the ESOP Restructuring at the Meeting, and without any
party admitting liability, the parties have entered into a stipulation of
settlement to resolve the Class Action. The settlement would modify the terms
of the ESOP Restructuring in certain respects. Unitholders are not being asked
in this Proxy Statement to vote or take a position with respect to the proposed
settlement of the litigation.
The principal terms of the settlement affecting the ESOP Restructuring are
(i) a reduction in the upper limit of the aggregate dollar value of the LP
Units to be issued to the ESOP from $67,038,478 to $64,200,000; (ii) an
increase in the level of quarterly cash distributions per LP Unit from $0.85 to
$0.88 (an increase in the projected annual distribution level from $3.40 to
$3.52 per year) beginning with the first quarterly distribution after the
Meeting provided that the ESOP Restructuring is approved by the Unitholders and
there has been no adverse change in the business of the Partnership; and (iii)
further revisions in the incentive compensation formula negotiated between
Management and the Special Committee to reduce the amount of incentive
compensation payable to the General Partner by at least $121,000 per year at
annual distribution levels below $4.20, and to increase incentive compensation
at annual distribution levels above $4.40. The litigation settlement changed
the level of incentive compensation on quarterly cash distributions per LP
Unit, from the level negotiated before the settlement, to (i) 15%, from 25%, of
that portion of the distribution per LP Unit which exceeds the target quarterly
amount of $0.65 but is not more than $0.70, plus (ii) 25%, from 30%, of that
portion of the quarterly distribution per LP Unit which exceeds $0.70 but is
not more than $0.75, plus (iii) 30%, from 15%, of that portion of the quarterly
distribution per LP Unit which exceeds $0.75 but is not more than $0.80, plus
(iv) 35%, from 40%, of that portion of the quarterly distribution per LP Unit
which exceeds $0.80 but is not more than $0.85, plus (v) 40%, unchanged, of
that portion of the quarterly distribution per LP Unit which exceeds $0.85 but
is not more than $1.05, plus (vi) 45%, from 40%, of that portion of the
quarterly distribution per LP Unit which exceeds $1.05.
The settlement is subject to a number of conditions and to court approval.
The settlement will expressly provide for the dismissal of all claims with
prejudice and without cost to any party except as described below. The
settlement will also provide for (i) certification, for settlement purposes
only, of a class consisting of all persons (other than defendants) who owned LP
Units on December 20, 1996, and their successors and
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<PAGE>
transferees, through and including the date of consummation of the ESOP
Restructuring; (ii) that the defendants deny any violations of law and are
entering into the settlement to eliminate the distraction, burden and expense
of further litigation and to avoid further delay in providing the Unitholders
with an opportunity to vote on the ESOP Restructuring; (iii) a release of all
claims of the Unitholders against defendants and certain affiliated and related
entities arising out of the complaint, the negotiation and consideration of the
ESOP Restructuring and alleged fiduciary and disclosure obligations of
defendants with respect to the foregoing; (iv) pending final approval of the
settlement and if approved and ordered by the Court of Chancery, an order
prohibiting plaintiff or any members of the class from initiating, prosecuting
or participating in the commencement of any litigation with respect to the
subject matter of the complaint or the ESOP Restructuring against any of the
persons or entities to be released; and (v) that plaintiff's counsel, having
made a thorough investigation of the facts, believe that the proposed
settlement is fair, reasonable, adequate and in the best interests of plaintiff
and members of the proposed class. If the two proposals to be considered by the
Unitholders at the Meeting are approved, the settlement permits the ESOP
Restructuring to be consummated prior to final court approval.
The stipulation of settlement provides that plaintiff's counsel will apply to
the court for an award of counsel fees and expenses in an amount not exceeding
$1.5 million in the aggregate. Defendants have agreed not to object to an
application by plaintiff's counsel which does not exceed such amount. A
separate Notice of Pendency of Class Action, Proposed Settlement of Class
Action and Settlement Hearing will be distributed to members of the proposed
class after the Meeting. Any expenses relating to the settlement, including any
award of counsel fees and expenses to plaintiff's counsel and the cost of
distributing notice of the proposed settlement, will be paid or reimbursed by
the Partnership after court approval and dismissal of the complaint.
NO APPRAISAL RIGHTS
Under Delaware law, Unitholders have no right to an appraisal of the value of
their LP Units in connection with the ESOP Restructuring.
FEDERAL INCOME TAX CONSEQUENCES OF THE ESOP RESTRUCTURING
PARTNERSHIP STATUS
At the time of the original issuance of the LP Units, and based upon certain
representations of the General Partner, counsel to the Partnership rendered its
opinion that under then current law and regulations, which are subject to
change, the Partnership and each Operating Partnership would be classified as
partnerships for federal income tax purposes. At the closing of the ESOP
Restructuring, based upon certain representations of the General Partner,
Morgan, Lewis & Bockius LLP, counsel to the General Partner ("Counsel"), will
deliver an opinion to the Partnership that the amendments to the Partnership
Agreement and the issuance of the LP Units (without any additional capital
contribution to the Partnership by the General Partner) contemplated by the
ESOP Restructuring will not result in the Partnership or any Operating
Partnership being treated as an association taxable as a corporation for
federal income tax purposes. However, no advance ruling from the Internal
Revenue Service ("IRS") as to such status has been or will be requested and the
opinion of Counsel is not binding on the IRS. An IRS challenge to the federal
income tax status of the Partnership or any Operating Partnership could result
in an audit of an LP Unitholder's tax return and an adjustment to items on that
return unrelated to the ownership of LP Units. In addition, each Unitholder
would bear the cost of any expenses incurred in connection with an examination
of his or her personal tax return.
If the Partnership were treated as a corporation in any taxable year, its
income, gains, losses, deductions and credits would be reflected only on its
tax return rather than being passed through to Unitholders, and its net income
would be taxed at corporate rates. In addition, distributions made to
Unitholders would be treated as dividend income (to the extent of current and
accumulated earnings and profits) and, in the absence of earnings and profits,
as a nontaxable return of capital (to the extent of the Unitholder's basis in
his or her LP Units), or as capital gain (after the Unitholder's basis in his
or her LP Units is reduced to zero). Furthermore, losses realized by the
Partnership would not flow through to Unitholders.
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<PAGE>
INCREASE IN TAXABLE INCOME PER LP UNIT AS A RESULT OF THE ESOP RESTRUCTURING
A Unitholder is required to pay federal income tax and, in certain cases,
state and local income taxes on his or her allocable share of the Partnership's
income, whether or not such Unitholder receives cash distributions from the
Partnership. As a result of the ESOP Restructuring, taxable income per LP Unit
is expected to increase modestly. No assurance can be given that Unitholders
will receive cash distributions equal to their allocable share of taxable
income from the Partnership; however, the General Partner presently intends to
increase cash distributions per LP Unit by $.52 per unit annually after the
ESOP Restructuring, provided that there has been no adverse change in the
business of the Partnership. This increase should more than offset any tax
associated with an increase in taxable income resulting from the ESOP
Restructuring.
REPEAL OF INTEREST INCOME EXCLUSION
The Small Business Job Protection Act of 1996 (the "SBJPA Act"), signed into
law by President Clinton on August 20, 1996, repealed the 50% interest
exclusion provisions for ESOP loans previously contained in Code Section 133.
The SBJPA Act, however, provides a transition rule (the "Grandfathering Rule")
under which the repeal would be effective only for loans made after the date of
the enactment of the SBJPA Act. In addition, under the Grandfathering Rule, the
repeal does not apply to any post-enactment date refinancing of an ESOP loan
that was made on or before the date of the enactment of the SBJPA Act, provided
that (i) the refinancing loan otherwise meets the requirements of Code Section
133 as in effect before the repeal, (ii) the outstanding principal amount of
the loan is not increased, and (iii) the term of the refinancing loan does not
extend beyond the term of the original loan.
Based upon legislative history in connection with an amendment to Rule 133
made in 1989, Counsel will deliver an opinion to the Partnership that it is
more likely than not that the ESOP Restructuring will preserve Section 133
treatment for the ESOP Loan, although there is no provision in the SBJPA Act or
its legislative history which covers the specific facts of the ESOP
Restructuring. If the IRS successfully were to challenge the applicability of
Section 133 to the restructured ESOP Loan, the Partnership would be obligated
to indemnify the ESOP Lender for having to include 100% of the interest on such
loan in its tax returns, and the interest rate on the ESOP Loan would
automatically increase by 1.55% per annum (from 7.24% to 8.79%) to reflect the
inability of the ESOP Lender to claim such an exclusion going forward. Under
the terms of the Partnership Agreement, the Partnership would reimburse the
General Partner for this additional expense.
RISK OF EXCISE TAX
Section 4978B of the Code imposes a 10% excise tax on any disposition of
employer securities by an ESOP within three years after the ESOP acquired
Section 133 securities, with certain exceptions. The excise tax is to be paid
by the employer. Since the ESOP Restructuring will involve an exchange of the
BAC stock for the Newco common stock by the ESOP, an issue arises as to whether
this exchange of stock will result in a 10% excise tax to the Manager or Newco,
which would be reimbursed by the Partnership.
Based in part upon a Treasury Regulation promulgated under a related Code
section (Section 4978), which is cross-referenced regarding the coordination of
the taxes under the two sections, Counsel will deliver an opinion to the
Partnership that it is more likely than not that the ESOP Restructuring will
not result in an excise tax being due. If the IRS were successfully to
challenge this conclusion and an excise tax were imposed, the excise tax
liability would range between $5.7 million and $6.4 million depending upon the
value of the LP Units at the closing of the ESOP Restructuring. Under the terms
of the Partnership Agreement, the Partnership would reimburse the General
Partner for this additional expense.
Pursuant to the Exchange Agreement, the General Partner and the Manager have
agreed to indemnify the Partnership and the Operating Partnerships for one of
the following tax risks ("Tax Risks"): (1) the failure of the ESOP Lender to
qualify, pursuant to Section 133, for the interest-received exclusion in
connection with the ESOP Loan solely as a result of the ESOP Restructuring or
(2) any excise tax imposed as a result of the ESOP Restructuring. The
independent directors of the Board of Directors of the General Partner will
determine the
33
<PAGE>
Tax Risk for which the Partnership and the Operating Partnerships will be
indemnified. The Partnership and Operating Partnerships will bear the
responsibility for the tax liability not indemnified. In the event the General
Partner and the Manager become obligated to indemnify the Partnership or
Operating Partnerships for taxes owed, the Partnership will pay the tax and the
General Partner will issue the Partnership an interest bearing promissory note
for the amount of such indemnification which will be repaid from amounts
subsequently becoming due to the General Partner under the Amended and Restated
Incentive Compensation Agreement.
THE SPECIAL MEETING OF UNITHOLDERS
At the Meeting, Unitholders will be asked to approve two proposals: the
proposal to issue LP Units in connection with the proposed ESOP Restructuring,
and the proposal to amend the Partnership Agreement.
Approval of the proposals to issue LP Units and to amend the Partnership
Agreement and any other matters that may properly be brought before the Meeting
require the affirmative vote of Unitholders holding a majority of the
outstanding LP Units. The persons eligible to vote at the Meeting are the
Unitholders of the Partnership as of the close of business on June 16, 1997,
which is the record date. On that date, there were 12,069,330 LP Units
outstanding. The presence in person or by proxy of Unitholders holding a
majority of the Partnership's outstanding LP Units will constitute a quorum for
the transaction of business at the Meeting.
The Partnership will pay the cost of soliciting proxies. In addition to
solicitations by mail, officers, directors and employees of the General Partner
and the Manager and representatives of D.F. King & Co., Inc. may solicit
proxies personally or by telephone, mail, fax or other means. D.F. King & Co.
will receive a fee of approximately $10,000 and will be reimbursed for
reasonable out-of-pocket expenses. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of LP Units held
of record by such persons, and the Partnership will reimburse such persons for
their reasonable out-of-pocket and clerical expenses.
LP Units cannot be voted at the Meeting unless the holder of record is
present in person or by proxy. The enclosed proxy is a means by which a
Unitholder may authorize the voting of his or her LP Units at the Meeting.
Proxies may be revoked at any time prior to the time that the vote is taken on
the proposals at the Meeting. Proxies may be revoked by filing with the General
Partner's secretary a written notice of revocation or another form of proxy
bearing a date later than the date of the proxy previously furnished. A proxy
may also be revoked by attending the Meeting and voting in person. Attendance
at the Meeting will not in and of itself constitute revocation of a proxy.
Subject to any such revocation, all LP Units represented by properly executed
proxies will be voted in accordance with specifications on the enclosed proxy.
Abstentions will be considered present and entitled to vote at the Meeting, but
will not be counted as votes cast in the affirmative. Abstentions and broker
nonvotes will have the same effect as a negative vote because these proposals
require the affirmative vote of Unitholders holding a majority of the
Partnership's outstanding LP Units. If no specifications on the proxy are made,
such proxies will be voted in favor of the proposal to issue LP Units and the
proposal to amend the Partnership Agreement and, in the discretion of the proxy
holders, on such other matters as may properly come before the Meeting.
Pursuant to Section 16.3 of the Partnership Agreement, the General Partner
will have full power and authority concerning the manner of conducting the
Meeting, including, without limitation, the determination of any controversies,
votes, or challenges arising in connection with or during the Meeting.
YOUR PROXY VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO COMPLETE, SIGN
AND RETURN THE ACCOMPANYING PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING.
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<PAGE>
PROPOSAL TO ISSUE LP UNITS
GENERAL
This proposal seeks Unitholder approval for the issuance of LP Units to Newco
in the ESOP Restructuring as provided in the LP Unit Subscription Agreement.
The number of LP Units to be issued at the closing of the ESOP Restructuring
is based on the average closing price on the New York Stock Exchange for an LP
Unit for the 10 trading days ending two business days before closing (the "Unit
Trading Price"). The formula works as follows:
. If the Unit Trading Price is between $36.50 and $41.50, the Partnership
will issue 1,546,988 LP Units at closing.
. Upper Limit. If the Unit Trading Price is more than $41.50, the
Partnership will issue fewer LP Units. The exact number of LP Units
issued at closing will be equal to $64,200,000 divided by the Unit
Trading Price, rounded to the nearest whole LP Unit. This upper limit
sets a ceiling of $64,200,000 on the aggregate dollar value of the LP
Units issued at $41.50 per LP Unit even though the Unit Trading Price
exceeds that amount.
. Lower Limit. If the Unit Trading Price is less than $36.50, the
Partnership will issue more LP Units. The exact number of LP Units issued
at closing will be equal to $56,465,062 divided by the Unit Trading
Price, rounded to the nearest whole LP Unit. This lower limit sets a
floor of $56,465,060 on the aggregate dollar value of the LP Units issued
at $36.50 per LP Unit even though the Unit Trading Price falls below that
amount.
The number of LP Units to be issued in the proposed transaction at various
Unit Trading Prices is illustrated in the following table:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SAMPLE UNIT LP UNITS SAMPLE UNIT LP UNITS SAMPLE UNIT LP UNITS
TRADING PRICE TO BE ISSUED TRADING PRICE TO BE ISSUED TRADING PRICE TO BE ISSUED
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
$46.00.......... 1,395,652 $43.00.......... 1,493,023 $36.00.......... 1,568,474
$45.50.......... 1,410,989 $42.50.......... 1,510,588 $35.50.......... 1,590,565
$45.00.......... 1,426,667 $42.00.......... 1,528,571 $35.00.......... 1,613,287
$44.50.......... 1,442,697 $41.50.......... 1,546,988 $34.50.......... 1,636,668
$44.00.......... 1,459,091 $41.50-$36.50... 1,546,988 $34.00.......... 1,660,737
$43.50.......... 1,475,863 $36.50.......... 1,546,988
</TABLE>
The closing price of the LP Units on the New York Stock Exchange on June 23,
1997, the most recently available price prior to mailing this Proxy Statement,
was $43.75.
The Partnership intends to register the LP Units issued to Newco with the SEC
on Form S-3 or other appropriate form under the Securities Act of 1933, as
amended. Each LP Unit issued to Newco will have the same rights and privileges
as the LP Units presently issued and outstanding. Unitholders have no
preemptive rights to receive or purchase any of the LP Units issued pursuant to
this proposal. See "Description of LP Units" for additional information with
respect to the LP Units.
If the proposal to issue LP Units is rejected by the Unitholders, the ESOP
Restructuring will not take place.
VOTE REQUIRED FOR APPROVAL
Section 17.1(b) of the Partnership Agreement provides that the General
Partner will not cause the Partnership to issue LP Units to the General Partner
or its Affiliates (which would include the ESOP and Newco) unless (i) the LP
Units are of a class which is, prior to such issuance, listed on a National
Securities Exchange and the fair market value of property contributed as
determined by the General Partner using such reasonable method of valuation as
it may adopt ("Agreed Value"), in exchange for the LP Units, is at least equal
to the number of LP Units issued multiplied by the LP Unit price on such
National Securities Exchange,
35
<PAGE>
or (ii) such issuance is approved by Unitholders holding an aggregate of more
than 50% of the outstanding LP Units. Although the General Partner believes
that the total value of the consideration being received by the Partnership is
at least equal to the value of the LP Units to be issued, the General Partner
has chosen, nevertheless, to obtain Unitholder approval pursuant to Section
17.1(b)(ii).
The proposal to issue LP Units will become effective if approved by the
holders of a majority of the outstanding LP Units. The Board of Directors of
the General Partner recommends a vote FOR the proposal.
PROPOSAL TO AMEND THE PARTNERSHIP AGREEMENT
DESCRIPTION OF THE PROPOSED AMENDMENT
Unitholders are asked to consider and vote on a proposal to amend the
Partnership Agreement as part of the ESOP Restructuring.
General Partner Capital Contribution Requirement
Section 4.1(b) of the Partnership Agreement will be amended to relieve the
General Partner of its obligation to make an additional contribution of capital
to the Partnership upon the issuance of additional LP Units if the General
Partner receives an opinion of counsel that the failure to make such additional
capital contribution would not result in the Partnership or any of the
Operating Partnerships being treated as an association taxable as a corporation
for federal income tax purposes. The primary purpose of the capital
contribution requirement in Section 4.1(b) was to preserve the federal income
tax treatment of the Partnership.
Counsel has indicated to the General Partner that the failure of the General
Partner to make an additional capital contribution to the Partnership in
connection with the ESOP Restructuring will not result in the Partnership or
any of the Operating Partnerships being treated as an association taxable as a
corporation for federal income tax purposes, and Counsel will deliver an
opinion to such effect at the closing of the ESOP Restructuring.
Obligations of a Successor General Partner
Section 13.1(b) and Section 13.2 of the Partnership Agreement will be amended
to bind a successor general partner, upon removal and replacement of the
General Partner by the Unitholders, to the obligations of the General Partner
and its affiliates under the Exchange Agreement and to consider this obligation
in determining the value of the general partnership interest which would be
acquired by such successor general partner.
Section 13.1(b) will be amended to provide that any successor general partner
must assume the obligation of the General Partner and its affiliates under the
Exchange Agreement and agree to indemnify and hold harmless the General Partner
and its affiliates from any liability or obligation (including loan guarantees)
under fringe benefit plans sponsored by the General Partner or any of its
affiliates in connection with the business of the Partnership.
Section 13.2 will be amended to provide that if a successor general partner
is approved pursuant to the terms of the Partnership Agreement, then the
successor general partner must purchase the GP Units from the General Partner
at the fair market value thereof, determined to include the value of the rights
associated with being the General Partner and reduced by the value of the
assumption of the obligations of the General Partner and its affiliates
pursuant to Section 13.1(b).
Conforming Changes
Certain additional changes will be required to conform the Partnership
Agreement and related documents to the foregoing amendments.
36
<PAGE>
The definition of "Affiliate" in Article 1 of the Partnership Agreement will
be amended to include Newco as an affiliate of the General Partner.
Article 1 of the Partnership Agreement will be amended to provide for a
definition of the Exchange Agreement.
Section 7.4(a) of the Partnership Agreement will be amended to provide that
the General Partner will not be entitled to be reimbursed for the senior
executive compensation costs released under the Exchange Agreement.
Conforming changes will also be made in the limited partnership agreements of
the Operating Partnerships and the management agreements between the Manager
and each Operating Partnership.
It is the good faith opinion of the General Partner that the conforming
changes do not adversely affect the Unitholders in any material respect, and
thus pursuant to Section 15.1 of the Partnership Agreement, the General Partner
may make any or all of these conforming changes without the consent of
Unitholders.
If the proposal to amend the Partnership Agreement is rejected by
Unitholders, the ESOP Restructuring will not take place.
TEXT OF THE PROPOSED AMENDMENT
Amendment No. 3 to the Partnership Agreement is attached to this Proxy
Statement as Appendix C. The full text of the Partnership Agreement, as amended
and restated to include Amendments No. 1 and 2, is attached as Appendix D to
this Proxy Statement. The statements made in this Proxy Statement with respect
to the proposed Amendment should be read in conjunction with, and are qualified
in their entirety by reference to, Appendix C to this Proxy Statement and the
full text of the Partnership Agreement attached as Appendix D to this Proxy
Statement.
VOTE REQUIRED FOR APPROVAL OF THE PROPOSED AMENDMENT
Section 15.2 of the Partnership Agreement requires that the Amendment
proposed above (except for the conforming changes) be approved by the holders
of a majority of the outstanding LP Units. Pursuant to Section 15.3 of the
Partnership Agreement, Counsel will provide the Partnership with an opinion
that the Amendment will not result in the loss of limited liability of any
Unitholder or result in the Partnership or any Operating Partnership being
taxable as a corporation for federal income tax purposes.
The Amendment will become effective if approved by the holders of a majority
of the outstanding LP Units. The Board of Directors of the General Partner
recommends a vote FOR approval of the Amendment.
37
<PAGE>
PRICE RANGE OF LP UNITS AND DISTRIBUTIONS
The LP Units of the Partnership are listed and traded principally on the New
York Stock Exchange under the symbol "BPL." The following table presents for
the periods indicated the cash distributions declared on LP Units and the high
and low sales prices of the LP Units, as reported on the New York Stock
Exchange Composite Tape.
<TABLE>
<CAPTION>
PRICE RANGE
---------------
HIGH LOW CASH DISTRIBUTIONS
------- ------- ------------------
<S> <C> <C> <C>
1994:
First quarter............................... $41 $35 1/2 $0.70
Second quarter.............................. 39 1/4 35 1/4 0.70
Third quarter............................... 37 3/4 35 1/2 0.70
Fourth quarter.............................. 37 1/2 30 7/8 0.70
1995:
First quarter............................... $37 $32 $0.70
Second quarter.............................. 36 30 0.70
Third quarter............................... 36 1/4 33 7/8 0.70
Fourth quarter.............................. 36 3/4 33 5/8 0.70
1996:
First quarter............................... $39 3/4 $34 1/4 $0.75
Second quarter.............................. 38 7/8 37 1/4 0.75
Third quarter............................... 39 5/8 37 5/8 0.75
Fourth quarter.............................. 42 7/8 38 3/8 0.75
1997:
First quarter............................... $44 7/8 $40 1/4 $0.75
Second quarter (through June 23, 1997)...... 44 1/8 41 1/2 0.75
</TABLE>
The closing price of the LP Units on the New York Stock Exchange on December
19, 1996, the day before the public announcement of the ESOP Restructuring, was
$38 7/8 per LP Unit. The closing price of the LP Units on June 23, 1997, the
most recent available price prior to mailing this Proxy Statement, was $43 3/4
per LP Unit.
In general, the Partnership makes quarterly cash distributions of
substantially all of its available cash less permitted retentions. On May 6,
1997, the Partnership declared a regular quarterly cash distribution of $0.75
per LP Unit payable on May 30, 1997. Based in part on the savings available to
the Partnership from the ESOP Restructuring, the Board of Directors of the
General Partner announced its intention to increase the regular quarterly cash
distribution by $0.13, to $0.88, per LP Unit, provided that the ESOP
Restructuring is approved by Unitholders and there has been no adverse change
in the business of the Partnership.
DESCRIPTION OF THE LP UNITS
As of June 16, 1997, there are issued and outstanding 12,069,330 LP Units
representing an aggregate 99% limited partnership interest in the Partnership.
The LP Units and the 121,912 GP Units generally participate pro rata in the
Partnership's income, gains, losses, deductions, credits and distributions.
The General Partner has the authority to issue additional LP Units, subject
to certain restrictions set forth in the Partnership Agreement, which is
attached as Appendix D to this Proxy Statement. Issuance of additional LP Units
will dilute a Unitholder's interest in the Partnership. The Partnership has a
Unit Option and Distribution Equivalent Plan which authorizes the granting of
options to purchase up to 360,000 LP Units to selected employees of the General
Partner and the Manager. At June 16, 1997, there were 89,520 LP Units issuable
upon the exercise of options granted under this plan.
38
<PAGE>
In the event of a liquidation, dissolution and winding up of the Partnership,
the LP Units, along with the GP Units, will be entitled to receive pro rata, to
the extent of positive balances in their respective capital accounts, any
assets remaining after satisfaction of Partnership liabilities and
establishment of reasonable reserves.
The LP Units are registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Partnership is subject to the reporting
and proxy solicitation requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
The Partnership has issued certificates ("LP Certificates") to evidence LP
Units. The LP Units are freely transferable by assignment of LP Certificates
except as restricted by federal or state securities laws. The Partnership is
entitled to treat the record holder of the LP Certificates as the owner for all
purposes.
No person is entitled to preemptive rights in respect of issuances of
securities by the Partnership.
The transfer agent and registrar for the LP Units is First Chicago Trust
Company of New York.
For additional description of the rights of Unitholders, see Amendment No. 3
to the Partnership Agreement attached as Appendix C to this Proxy Statement and
the full text of the Partnership Agreement, as amended and restated to include
Amendments No. 1 and 2, attached as Appendix D to this Proxy Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
No person or group is known to be the beneficial owner of more than 5% of the
LP Units as of June 16, 1997.
The following table sets forth certain information, as of June 16, 1997,
concerning the beneficial ownership of LP Units by each director and executive
officer of the General Partner, 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 April 1, 1997, more
than 1% of any class of equity securities of the Partnership or any of its
subsidiaries outstanding at that date. In addition, neither Glenmoor, the ESOP
or BAC directly own any class of equity securities of the Partnership.
<TABLE>
<CAPTION>
NAME NUMBER OF LP UNITS(1)
---- ---------------------
<S> <C>
Brian F. Billings................................... 7,500(2)
Michael P. Epperly.................................. 140(2)
A. Leon Fergenson................................... 200
Edward F. Kosnik.................................... 5,000(2)
Alfred W. Martinelli................................ 4,500(2)
Stephen C. Muther................................... 3,600
William C. Pierce................................... 800(2)
Steven C. Ramsey.................................... 800(2)
William H. Shea, Jr................................. 2,100(2)
Ernest R. Varalli................................... 6,500(2)
C. Richard Wilson................................... 2,500
Robert H. Young..................................... 2,500
All directors and executive officers as a group
(consisting of 13 persons, including those named
above)............................................. 36,140
</TABLE>
- --------
(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 the persons indicated have shared voting and
investment power with their respective spouses.
39
<PAGE>
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 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").
On March 22, 1996, BAC acquired all of the common stock of the General
Partner from a subsidiary of American Financial for $63 million in the 1996
Acquisition. The common stock of BAC is owned by Glenmoor, its individual
partners and certain managers of the Manager. Glenmoor is a limited liability
partnership whose partners consist primarily of members of senior management of
the General Partner and the Manager, including A. W. Martinelli, Chairman of
the Board, Chief Executive Officer, Director of the General Partner, and a
Director of the Manager; Ernest R. Varalli, Director of the General Partner and
a Director of the Manager; C. Richard Wilson, Chairman of the Board, President,
Chief Operating Officer, Director of the Manager and President and a Director
of the General Partner; Stephen C. Muther, Senior Vice President--
Administration, General Counsel and Secretary of the General Partner and the
Manager; Steven C. Ramsey, Senior Vice President and Chief Financial Officer of
the General Partner and the Manager; Michael P. Epperly, Senior Vice
President--Operations of the General Partner and the Manager; William H. Shea,
Jr., Vice President-Marketing of the General Partner and the Manager; and David
J. Martinelli; Vice President and Treasurer of the General Partner and the
Manager. Messrs. A. Martinelli, Varalli and Wilson are also directors of the
General Partner and the Manager. Messrs. A. Martinelli, Wilson, Ramsey and
Muther are the directors of BAC. All of the outstanding BAC Preferred Stock is
owned by the ESOP.
In connection with the 1996 Acquisition, the General Partner borrowed $63
million pursuant to the 15-year ESOP Loan from the ESOP Lender. The General
Partner then loaned $63 million to the ESOP, which used the proceeds to
purchase the BAC Preferred Stock. BAC used the $63 million proceeds of the sale
of the BAC Preferred Stock to the ESOP plus $6 million of proceeds from the
sale of BAC Common Stock to Glenmoor and certain managers of the Manager to pay
the 1996 Acquisition purchase price and to provide capital for the General
Partner.
In connection with the 1996 Acquisition, the General Partner amended the
Partnership Agreement to (a) extend the period under which the General Partner
would agree to act as a general partner of the Partnership until the later of
(i) December 23, 2011, or (ii) the date the ESOP Loan is paid in full, (b)
clarify that fair market value of the GP Units includes the value of the right
to receive incentive compensation for purposes of determining the amount
required to be paid to the General Partner by any successor general partner of
the Partnership, and (c) reduce the threshold for payment of Restricted
Payments by the General Partner or the Manager from $23 million to $5 million.
The Partnership received an opinion of counsel that the execution of the
amendment of the Partnership Agreement would not (a) result in the loss of
limited liability of any Unitholder or (b) result in the Partnership or any
Operating Partnership being treated as an association taxable as a corporation
for federal income tax purposes.
In connection with the 1996 Acquisition, the General Partner amended and
restated the Incentive Compensation Agreement to (a) delete American Financial
as a party to the agreement, (b) eliminate certain provisions relating to
distribution support obligations which expired in 1991, and (c) clarify that
the Incentive Compensation Agreement terminates as to the General Partner if
the General Partner is removed as general partner of the Partnership. The
amended and restated agreement was approved on behalf of the Partnership by a
special committee of disinterested directors of the Partnership comprised of
William C. Pierce, A. Leon Fergenson and Edward F. Kosnik (the "Disinterested
Director Committee").
In connection with the 1996 Acquisition, the General Partner entered into a
Management Agreement with Glenmoor pursuant to which Glenmoor provides certain
management functions to the General Partner for an annual management fee
described under "Benefits of the ESOP Restructuring to the General Partner--
Conflicts
40
<PAGE>
of Interest." The Glenmoor Management Agreement was approved by the
Disinterested Director Committee. The Partnership reimburses the General
Partner for annual management fees paid to Glenmoor and will continue to do so
after the ESOP Restructuring, except that there will be no reimbursement of the
compensation costs of the General Partner's senior executive officers after the
ESOP Restructuring. The Partnership reimbursed the General Partner for $3.3
million paid to Glenmoor in 1996, including senior executive compensation costs
of $1.2 million and a prorated Senior Administrative Charge of $0.8 million.
The Incentive Compensation Agreement, provides that, 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 under a formula set forth
under "Background--The General Partner and the Manager." The General Partner is
also entitled to incentive compensation in respect of special cash
distributions exceeding a target special distribution amount per LP Unit. The
formula for a special distribution is also set forth under "Background--The
General Partner and the Manager." Incentive compensation paid by the
Partnership to the General Partner totaled $481,000 in 1995 and $1,325,912 in
1996. If the ESOP Restructuring is completed, the Incentive Compensation
Agreement will be amended to reduce the incentive compensation formula as set
forth under "Benefits of the ESOP Restructuring to the General Partner--
Conflicts of Interest."
WHERE YOU CAN FIND MORE INFORMATION
The Partnership files annual, quarterly and special reports and other
information with the SEC. These filings are also available to the public at the
SEC, from commercial document retrieval services and at the web site maintained
by the SEC at "http://www.sec.gov."
The SEC allows the Partnership to "incorporate by reference," which means
that important information may be disclosed to you by referring you to another
document filed separately by the Partnership with the SEC. The information
incorporated by reference is considered to be part of this Proxy Statement,
except for any information superseded by information in this Proxy Statement.
This Proxy Statement incorporates by reference the documents set forth below
that the Partnership has previously filed with the SEC. These documents contain
important information about the Partnership and its finances.
<TABLE>
<CAPTION>
SEC FILING PERIOD
---------- ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1996
Quarterly Report on Form 10-Q Three months ended March 31, 1997
</TABLE>
The Partnership is also incorporating by reference additional documents that
are filed with the SEC between the date of this Proxy Statement and the date of
the Meeting of Unitholders.
If you are a Unitholder, the Partnership may have already sent you some of
the documents incorporated by reference, but you can obtain any of them through
the Partnership or the SEC. A Unitholder may obtain documents incorporated by
reference without charge by calling or writing to the attention of Stephen C.
Muther, Esq., Secretary at the following address:
Buckeye Pipe Line Company
3900 Hamilton Boulevard
Allentown, PA 18103
Tel: (610) 770-4000
If you would like to request documents from the Partnership, please do so by
July 25, 1997, to receive them before the Meeting.
41
<PAGE>
OTHER MATTERS
The General Partner knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy to vote the LP Units in their
discretion.
By Order of the Board of Directors
of the General Partner,
/s/ Stephen C. Muther
Stephen C. Muther
Secretary
June 24, 1997
42
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1996 Acquisition......................................................... 5, 14
Agreed Value............................................................. 35
American Financial....................................................... 13
BAC...................................................................... 5
BAC Preferred Stock...................................................... 5, 14
Buckeye Comparable Companies............................................. 22
Class Action............................................................. 31
Code..................................................................... 19
Counsel.................................................................. 32
Disinterested Directors Committee........................................ 40
Distributable Cash....................................................... 24
ESOP..................................................................... 1, 14
ESOP Lender.............................................................. 14
ESOP Loan................................................................ 14
ESOP Period.............................................................. 30
ESOP Restructuring....................................................... 1
Exchange................................................................. 30
Exchange Act............................................................. 39
Exchange Agreement....................................................... 15
Furman Selz.............................................................. 16
General Partner.......................................................... 1, 13
Glenmoor................................................................. 5, 13
Grandfathering Rule...................................................... 33
Incentive Compensation Agreement......................................... 18
IRS...................................................................... 32
LP Certificates.......................................................... 39
LP Unit Subscription Agreement........................................... 15
LP Units................................................................. 1, 13
Management............................................................... 8
Management Agreements.................................................... 40
Manager.................................................................. 5, 13
Meeting.................................................................. 9
Newco.................................................................... 15, 28
Operating Partnership Agreements......................................... 40
Operating Partnerships................................................... 5, 13
Partnership.............................................................. 1
Partnership Agreement.................................................... 1, 13
SBJPA Act................................................................ 32
SEC...................................................................... 29
Special Committee........................................................ 1
Tax Risks................................................................ 33
Unit Trading Price....................................................... 6, 35
Unitholders.............................................................. 1
</TABLE>
43
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following unaudited consolidated pro forma financial statements (the "Pro
Forma Financial Statements") of the Partnership are based on the Consolidated
Financial Statements of the Partnership incorporated by reference into this
Proxy Statement, as adjusted to give effect to the ESOP Restructuring.
The Pro Forma Balance Sheet gives effect to the ESOP Restructuring as if it
had occurred as of March 31, 1997. The Pro Forma Statements of Income and Cash
Flows give effect to the ESOP Restructuring as if it had occurred on March 22,
1996 (the inception date of the current ESOP structure). The pro forma
adjustments are based upon available information and upon certain assumptions
management believes are reasonable under the circumstances. The Pro Forma
Financial Statements and accompanying notes should be read in conjunction with
the historical consolidated financial statements of the Partnership, including
notes thereto incorporated by reference into this Proxy Statement. The Pro
Forma Financial Statements do not purport to represent what the Partnership's
actual results would have been if the ESOP Restructuring had in fact occurred
on such dates or to project the Partnership's results of operations or
financial position for any future period or date. The Pro Forma Financial
Statements do not give effect to any transactions other than the ESOP
Restructuring and those transactions discussed in the Notes to the Unaudited
Consolidated Pro Forma Financial Statements set forth below.
F-1
<PAGE>
BUCKEYE PARTNERS, L.P.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL(A) ADJUSTMENTS(B) PRO FORMA
------------- -------------- ---------
<S> <C> <C> <C>
Revenue............................... $43,815 $43,815
------- -------
Costs and expenses
Operating expenses.................. 20,885 $(1,247)(c) 19,638
Depreciation and amortization....... 2,851 2,851
General and administrative
expenses........................... 3,235 175 (d) 3,410
------- ------- -------
Total costs and expenses.......... 26,971 (1,072) 25,899
------- ------- -------
Operating income...................... 16,844 1,072 17,916
------- ------- -------
Other income (expenses)
Interest income..................... 549 549
Interest and debt expense........... (5,415) (5,415)
Minority interests and other........ (452) 90 (e) (362)
------- ------- -------
Total other income (expenses)..... (5,318) 90 (5,228)
------- ------- -------
Net income............................ $11,526 $ 1,162 $12,688
======= ======= =======
GP and LP Units outstanding (weighted
average in thousands)................ 12,186 1,547 13,733
Net income per Unit................... $0.95 $0.92
</TABLE>
See notes to unaudited consolidated pro forma statements of income.
F-2
<PAGE>
BUCKEYE PARTNERS, L.P.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS(B) PRO FORMA
---------- -------------- ---------
<S> <C> <C> <C>
Revenue.................................. $182,955 $182,955
-------- --------
Costs and expenses
Operating expenses..................... 87,855 $(3,849)(c) 84,006
Depreciation and amortization.......... 11,333 11,333
General and administrative expenses.... 14,983 493 (d) 15,476
-------- ------- --------
Total costs and expenses............. 114,171 (3,356) 110,815
-------- ------- --------
Operating income......................... 68,784 3,356 72,140
-------- ------- --------
Other income (expenses)
Interest income........................ 1,589 1,589
Interest and debt expense.............. (21,854) (21,854)
Minority interests and other........... 818 271 (e) 1,089
-------- ------- --------
Total other income (expenses)........ (19,447) 271 (19,176)
-------- ------- --------
Net income............................... $ 49,337 $ 3,627 $ 52,964
======== ======= ========
GP and LP Units outstanding (weighted
average in thousands)................... 12,173 1,205 13,378
Net income per Unit...................... $4.05 $3.96
</TABLE>
See notes to unaudited consolidated pro forma statements of income.
F-3
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(a) In the opinion of management, the historical statement of income of Buckeye
Partners, L.P. (the "Partnership") for the three months ended March 31,
1997, which is unaudited, includes all adjustments necessary to present
fairly the Partnership's results of operations for the three months ended
March 31, 1997.
(b) Adjustments assume the Partnership issues 1,546,988 LP Units (1,204,622
weighted average LP Units for 1996) at $41.50 per Unit. The price of $41.50
per LP Unit reflects management's best estimate of the most conservative
and likely trading values of the LP Units since the announcement of the
proposal to restructure the ESOP. The exact number of LP Units issued for
the benefit of the ESOP will be determined at the closing of the ESOP
Restructuring. The Partnership will issue 1,546,988 LP Units subject to the
following adjustment (the "Pricing Adjustment") at closing: (i) if the
average per unit closing price of an LP Unit for the 10 trading days ending
two business days before closing exceeds $41.50, then the number of LP
Units to be issued will be proportionately reduced to be equal to
$64,200,000 in the aggregate, and (ii) if the average per unit closing
price of an LP Unit for the 10 trading days ending two business days before
closing is below $36.50, then the number of LP Units to be issued will be
proportionately increased to be equal to $56,465,062 in the aggregate.
(c) The operating expenses adjustment (in thousands) is as follows:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
12/31/96 3/31/97
---------- ------------
<S> <C> <C>
Charge to the Partnership for interest expense on
indirect ESOP loan to be eliminated under the ESOP
Restructuring..................................... $(3,150) $(1,031)
Charge to the Partnership for expense relating to
the release of shares by the ESOP to be eliminated
under the ESOP Restructuring...................... (1,800) (572)
Executive compensation expenses to be eliminated as
a result of the ESOP Restructuring................ (547) (186)
Amortization of prepaid consideration over the term
of the Exchange Agreement or 15 years related to
the release of the Partnership's obligation to
fund certain executive compensation expenses and
the principal and interest on the indirect ESOP
loan, as well as a reduction in the incentive
compensation paid under the Incentive Compensation
Agreement......................................... 1,027 332
Recognition of accrued "top-up" contribution
amortized on the straight-line basis over the 15-
year term of the ESOP loan; total of $13,939
represents the estimated shortfall between the
probable future distributions on the LP units to
be issued and the total future ESOP debt costs;
the expected rate of distributions on the LP Units
is based on the Partnership's historical
distribution pattern projected over the term of
the ESOP loan; management will annually reevaluate
the accrued "top-up" contribution, with any
changes to be amortized over the remaining term of
the ESOP loan as a change in estimate............. 621 210
------- -------
$(3,849) $(1,247)
======= =======
</TABLE>
F-4
<PAGE>
(d) The general and administrative operating expenses adjustment (in thousands)
is as follows:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
12/31/96 3/31/97
--------- ------------
<S> <C> <C>
Charge to the Partnership for interest expense on
indirect ESOP loan to be eliminated under the ESOP
Restructuring...................................... $ (385) $(109)
Charge to the Partnership for expense relating to
the release of shares by the ESOP to be eliminated
under the ESOP Restructuring....................... (220) (61)
Executive compensation expenses to be eliminated as
a result of the ESOP Restructuring................. (1,161) (415)
Amortization of prepaid consideration over the term
of the Exchange Agreement or 15 years related to
the release of the Partnership's obligation to fund
certain executive compensation expenses and the
principal and interest on the indirect ESOP loan,
as well as a reduction in the incentive
compensation paid under the Incentive Compensation
Agreement.......................................... 2,183 738
Recognition of accrued "top-up" contribution
amortized on the straight-line basis over the 15-
year term of the ESOP loan; total of $13,939
represents the estimated shortfall between the
probable future distributions on the LP units to be
issued and the total future ESOP debt costs; the
expected rate of distributions on the LP Units is
based on the Partnership's historical distribution
pattern projected over the term of the ESOP loan;
management will annually reevaluate the accrued
"top-up" contribution, with any changes to be
amortized over the remaining term of the ESOP loan
as a change in estimate............................ 76 22
------- -----
$ 493 $ 175
======= =====
(e) Other income (expense) adjustment (in thousands) is as follows:
Reduced incentive compensation payments to the
General Partner under the Incentive Compensation
Agreement as a result of the ESOP Restructuring.... $ 271 $ 90
======= =====
</TABLE>
F-5
<PAGE>
BUCKEYE PARTNERS, L.P.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL(A) ADJUSTMENTS(B) PRO FORMA
------------- -------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..... $ 19,522 $ 19,522
Temporary investments......... 12,993 12,993
Trade receivables............. 8,244 8,244
Inventories................... 1,752 1,752
Prepaid and other current
assets....................... 6,926 $ 4,280(c) 11,206
-------- ------- --------
Total current assets........ 49,437 4,280 53,717
Property, plant and equipment,
net............................ 512,471 512,471
Other non-current assets........ 2,184 59,920(c) 62,104
-------- ------- --------
Total assets................ $564,092 $64,200 $628,292
======== ======= ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current portion of long-term
debt......................... $ 13,150 $ 13,150
Accounts payable.............. 390 390
Accrued and other current
liabilities.................. 24,574 24,574
-------- ------- --------
Total current liabilities... 38,114 38,114
Long-term debt.................. 197,875 197,875
Minority interests.............. 2,938 2,938
Other non-current liabilities... 46,544 46,544
Commitments and contingent
liabilities.................... -- --
-------- ------- --------
Total liabilities........... 285,471 285,471
-------- ------- --------
Partners' capital
General Partner............... 2,786 2,786
Limited Partners.............. 275,835 $64,200(c) 340,035
-------- ------- --------
Total partners' capital..... 278,621 64,200 342,821
-------- ------- --------
Total liabilities and
partners' capital.......... $564,092 $64,200 $628,292
======== ======= ========
GP and LP Units outstanding..... 12,189 1,547 13,736
Total Partners' Capital per
Unit........................... $ 22.86 $ 24.96
Total Partners' Tangible Capital
per Unit....................... $ 22.86 $ 20.28
</TABLE>
See notes to unaudited consolidated pro forma balance sheet.
F-6
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
(a) In the opinion of management, the historical balance sheet of the
Partnership as of March 31, 1997, which is unaudited, includes all
adjustments necessary to present fairly the Partnership's financial
position as of March 31, 1997.
(b) Adjustments assume the Partnership issues 1,546,988 LP Units at $41.50 per
Unit. The price of $41.50 per LP Unit reflects management's best estimate
of the most conservative and likely trading values of the LP Units since
the announcement of the proposal to restructure the ESOP. The exact number
of LP Units issued for the benefit of the ESOP will be determined at the
closing of the ESOP Restructuring. The Partnership will issue 1,546,988 LP
Units subject to the following adjustment (the "Pricing Adjustment") at
closing: (i) if the average per unit closing price of an LP Unit for the 10
trading days ending two business days before closing exceeds $41.50, then
the number of LP Units to be issued will be proportionately reduced to be
equal to $64,200,000 in the aggregate, and (ii) if the average per unit
closing price of an LP Unit for the 10 trading days ending two business
days before closing is below $36.50, then the number of LP Units to be
issued will be proportionately increased to be equal to $56,465,062 in the
aggregate.
(c) Pro forma adjustments (in thousands) to the Unaudited Consolidated Pro
Forma Balance Sheet are summarized in the following table:
<TABLE>
<CAPTION>
ISSUANCE OF
LP UNITS(1)
-----------
<S> <C>
Prepaid and other current assets................................. $ 4,280
Other non-current assets......................................... 59,920
Partners' capital
General Partner................................................ 0
Limited Partners............................................... (64,200)
</TABLE>
--------
(1) As part of the ESOP Restructuring, it is assumed the Partnership will
issue LP Units at fair market value totaling $64,200,000 (1,546,988 LP
Units at $41.50 per Unit) in exchange for the release of the
Partnership's obligation to fund certain executive compensation
expenses and the principal and interest on the indirect ESOP loan, as
well as a reduction in the incentive compensation paid under the
Incentive Compensation Agreement. The prepaid compensation created as a
result of this transfer will be amortized over the term of the Exchange
Agreement, or 15 years.
F-7
<PAGE>
BUCKEYE PARTNERS, L.P.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(A) ADJUSTMENTS(B) PRO FORMA
------------- -------------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income............................ $ 11,526 $ 1,162 (c) $ 12,688
-------- ------- --------
Adjustments to reconcile income to net
cash provided by operating
activities:
Depreciation and amortization....... 2,851 2,851
Minority interests.................. 121 121
Distributions to minority
interests.......................... (96) (96)
Change in assets and liabilities:
Temporary investments.............. 1,535 1,535
Trade receivables.................. 4,292 4,292
Inventories........................ (20) (20)
Prepaid and other current assets... 789 789
Accounts payable................... (3,889) (3,889)
Accrued and other current
liabilities....................... 486 486
Other non-current assets........... 80 1,070 (d) 1,150
Other non-current liabilities...... (34) 232 (e) 198
-------- ------- --------
Total adjustments................. 6,115 1,302 7,417
-------- ------- --------
Net cash provided by operating
activities....................... 17,641 2,464 20,105
-------- ------- --------
Cash flows from investing activities:
Capital expenditures.................. (3,670) (3,670)
Expenditures for disposal of property,
plant and equipment.................. (6) (6)
-------- ------- --------
Net cash used in investing
activities....................... (3,676) (3,676)
-------- ------- --------
Cash flows from financing activities:
Capital contribution.................. 3 3
Proceeds from exercise of unit
options.............................. 254 254
Payment of long-term debt............. (2,975) (2,975)
Distributions to Unitholders.......... (9,141) (1,160)(f) (10,301)
-------- ------- --------
Net cash used in financing
activities....................... (11,859) (1,160) (13,019)
-------- ------- --------
Net increase in cash and cash
equivalents............................ 2,106 1,304 3,410
Cash and cash equivalents at beginning
of period.............................. 17,416 17,416
-------- ------- --------
Cash and cash equivalents at end of
period................................. $ 19,522 $ 1,304 $ 20,826
======== ======= ========
Supplemental cash flow information:(g)
Noncash change in prepaid and other
current assets....................... $ 4,280 $ 4,280
Noncash change in other non-current
assets............................... 59,920 59,920
Noncash change in partners capital.... 64,200 64,200
</TABLE>
See notes to unaudited consolidated pro forma statements of cash flows.
F-8
<PAGE>
BUCKEYE PARTNERS, L.P.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS(B) FORMA
---------- -------------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income.................................. $49,337 $ 3,627 (c) $52,964
------- ------- -------
Adjustments to reconcile income to net
cash provided by operating activities:
Gain on sale of property, plant and
equipment.............................. (2,651) (2,651)
Depreciation and amortization .......... 11,333 11,333
Minority interests...................... 506 506
Distributions to minority interests..... (374) (374)
Change in assets and liabilities:
Temporary investments.................. (13,633) (13,633)
Trade receivables...................... 3,759 3,759
Inventories............................ (171) (171)
Prepaid and other current assets....... (443) (443)
Accounts payable....................... 1,873 1,873
Accrued and other current liabilities.. 1,072 1,072
Other non-current assets............... (1,798) 3,210 (d) 1,412
Other non-current liabilities.......... (1,680) 697 (e) (983)
------- ------- -------
Total adjustments..................... (2,207) 3,907 1,700
------- ------- -------
Net cash provided by operating
activities........................... 47,130 7,534 54,664
------- ------- -------
Cash flows from investing activities:
Capital expenditures...................... (14,881) (14,881)
Net proceeds from disposal of property,
plant and equipment...................... 4,497 4,497
------- ------- -------
Net cash used in investing activities... (10,384) (10,384)
------- ------- -------
Cash flows from financing activities:
Capital contribution...................... 10 10
Proceeds from exercise of unit options.... 974 974
Distributions to Unitholders.............. (36,527) (3,481)(f) (40,008)
------- ------- -------
Net cash used in financing activities... (35,543) (3,481) (39,024)
------- ------- -------
Net increase in cash and cash equivalents... 1,203 4,053 5,256
Cash and cash equivalents at beginning of
year....................................... 16,213 16,213
------- ------- -------
Cash and cash equivalents at end of year.... $17,416 $ 4,053 $21,469
======= ======= =======
Supplemental cash flow information: (g)
Noncash change in prepaid and other current
assets..................................... $ 4,280 $ 4,280
Noncash change in other non-current assets.. 59,920 59,920
Noncash change in partners capital.......... 64,200 64,200
</TABLE>
See notes to unaudited consolidated pro forma statements of cash flows.
F-9
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF CASH FLOWS
(a) In the opinion of management, the historical statement of cash flows of the
Partnership for the three months ended March 31, 1997, which is unaudited,
includes all adjustments necessary to present fairly the Partnership's cash
flows for the three months ended March 31, 1997.
(b) Adjustments assume the Partnership issues 1,546,988 LP Units (1,204,622
weighted average LP Units for 1996) at $41.50 per Unit. The price of $41.50
per LP Unit reflects management's best estimate of the most conservative
and likely trading values of the LP Units since the announcement of the
proposal to restructure the ESOP. The exact number of LP Units issued for
the benefit of the ESOP will be determined at the closing of the ESOP
Restructuring. The Partnership will issue 1,546,988 LP Units subject to the
following adjustment (the "Pricing Adjustment") at closing: (i) if the
average per unit closing price of an LP Unit for the 10 trading days ending
two business days before closing exceeds $41.50, then the number of LP
Units to be issued will be proportionately reduced to be equal to
$64,200,000 in the aggregate, and (ii) if the average per unit closing
price of an LP Unit for the 10 trading days ending two business days before
closing is below $36.50, then the number of LP Units to be issued will be
proportionately increased to be equal to $56,465,062 in the aggregate.
(c) The adjustments to expenses (in thousands) are as follows:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
12/31/96 3/31/97
--------- ------------
<S> <C> <C>
Charge to the Partnership for interest expense on
indirect ESOP loan to be eliminated under the ESOP
Restructuring....................................... $3,535 $1,140
Charge to the Partnership for expense relating to the
release of shares by the ESOP to be eliminated under
the ESOP Restructuring.............................. 2,020 633
Executive compensation expenses to be eliminated as a
result of the ESOP Restructuring.................... 1,708 601
Amortization of prepaid consideration over the term
of the Exchange Agreement or 15 years related to the
release of the Partnership's obligation to fund
certain executive compensation expenses and the
principal and interest on the indirect ESOP loan, as
well as a reduction in the incentive compensation
paid under the Incentive Compensation Agreement..... (3,210) (1,070)
Recognition of accrued "top-up" contribution
amortized on the straight-line basis over the 15-
year term of the ESOP loan; total of $13,939
represents the estimated shortfall between the
probable future distributions on the LP units to be
issued and the total future ESOP debt costs; the
expected rate of distributions on the LP Units is
based on the Partnership's historical distribution
pattern projected over the term of the ESOP loan;
management will annually reevaluate the accrued
"top-up" contribution, with any changes to be
amortized over the remaining term of the ESOP loan
as a change in estimate............................. (697) (232)
Reduced incentive compensation payments to the
General Partner under the Incentive Compensation
Agreement as a result of the ESOP Restructuring..... 271 90
------ ------
$3,627 $1,162
====== ======
</TABLE>
(d) Pro forma net income includes the amortization of prepaid consideration
related to the release of the Partnership's obligation to fund certain
executive compensation expenses and the principal and interest on the
indirect ESOP loan, as well as a reduction in the incentive compensation
paid under the Incentive Compensation Agreement.
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(e) Pro forma net income includes the recognition of accrued "top-up"
contribution amortized on the straight-line basis over the 15-year term of
the ESOP loan; total of $13,939 represents the estimated shortfall between
the probable future distributions on the LP units to be issued and the
total future ESOP debt costs; the expected rate of distributions on the LP
Units is based on the Partnership's historical distribution pattern
projected over the term of the ESOP loan; management will annually
reevaluate the accrued "top-up" contribution, with any changes to be
amortized over the remaining term of the ESOP loan as a change in estimate.
(f) Pro forma distributions to Unitholders include an increase in distributions
related to the issuance of 1,546,988 LP Units in connection with the ESOP
Restructuring.
(g) The pro forma supplemental cash flow information includes the effect of the
exchange of BAC Common Stock for the release of the Partnership's
obligation to fund certain executive compensation expenses and the
principal and interest on the indirect ESOP loan, as well as a reduction in
the incentive compensation paid under the Incentive Compensation Agreement.
F-11
<PAGE>
APPENDIX A
FORM OF LP UNIT SUBSCRIPTION AGREEMENT
This LP Unit Subscription Agreement (this "Agreement"), dated as of ,
1997, is entered into between BUCKEYE PARTNERS, L.P., a Delaware limited
partnership (the "Partnership"), and BUCKEYE PIPE LINE SERVICES COMPANY, a
Pennsylvania corporation (the "Company").
WITNESSETH:
Whereas, the BMC Acquisition Company Employee Stock Ownership Plan (the
"ESOP") owns all of the outstanding shares of the Company;
Whereas, the Company owns 63,000 shares of preferred stock, stated value
$1,000 per share (the "Preferred Stock"), of BMC Acquisition Company, a
Delaware corporation ("BAC"), previously contributed to the Company by the
ESOP;
Whereas, LaSalle National Bank, successor to Comerica Bank--Illinois, the
trustee of the ESOP (the "Trustee"), has determined that it is in the best
interests of the ESOP for the Company to exchange the Preferred Stock for
limited partnership units of the Partnership ("LP Units") in accordance with
the terms and conditions of this Agreement;
Whereas, a special committee of disinterested directors of the board of
directors of Buckeye Management Company, a Delaware corporation and general
partner of the Partnership (the "General Partner"), has determined that the
issuance of the LP Units in exchange for the Preferred Stock and the immediate
exchange of the Preferred Stock for the release of certain obligations of the
Partnership and its subsidiary operating partnerships in accordance with the
Exchange Agreement of even date herewith in connection with the restructuring
of the ESOP (collectively, the "Restructuring") is in the best interest of the
Partnership; and
Whereas, pursuant to Section 17.1(b) of the Amended and Restated Agreement of
Limited Partnership dated as of December 23, 1986, as amended, of the
Partnership (the "Partnership Agreement"), the holders of a majority of the LP
Units have approved the issuance of the LP Units in connection with the
Restructuring; and
Whereas, it is a condition of the Partnership's, the General Partner's and
the Trustee's willingness to go forward with the Restructuring that this
Agreement be entered into and fully performed.
Now, Therefore, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I
The Transaction
1.01 Exchange of Preferred Stock for LP Units. On and as of the date of this
Agreement (the "Closing Date") and as an integral step in the Restructuring,
the Company will assign and transfer, of record and beneficially, 63,000 shares
of Preferred Stock owned by the Company to the Partnership, and the Partnership
will issue LP Units to the Company. Upon the issuance of such LP Units to
the Company, the Company shall be admitted as a Limited Partner of the
Partnership pursuant to the terms of the Partnership Agreement.
1.02 Closing.
(a) The closing for the transactions contemplated hereby (the "Closing")
shall be held at the offices of Morgan, Lewis & Bockius LLP in Philadelphia
contemporaneously with the execution of this Agreement;
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(b) At the Closing, the Company shall deliver to the Partnership certificates
representing the Preferred Stock, duly endorsed for transfer to the Partnership
or with separate stock transfer powers attached thereto and signed in blank;
and
(c) At the Closing, the Partnership shall deliver to the Company certificates
representing the LP Units.
ARTICLE II
Representations, Warranties and Covenants of the Partnership
The Partnership hereby represents, warrants and covenants to the Company as
follows:
2.01 Organization of the Partnership. The Partnership is a limited
partnership duly formed, validly existing and in good standing under the laws
of the State of Delaware. The Partnership has full partnership power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby, including
without limitation to issue the LP Units pursuant to this Agreement.
2.02 Authority. The execution and delivery by the Partnership of this
Agreement, and the performance by the Partnership of its obligations hereunder,
have been duly and validly authorized by all necessary partnership action on
the part of the Partnership. This Agreement has been duly and validly executed
and delivered by the Partnership and constitutes a legal, valid and binding
obligation of the Partnership enforceable against the Partnership in accordance
with its terms.
2.03 LP Units. When issued for the consideration described herein, the LP
Units will be validly issued pursuant to the terms of the Partnership Agreement
and under applicable law. The delivery of the certificates at the Closing
representing the LP Units in the manner provided in Section 1.02 will transfer
to the Company good and valid title to the LP Units, free and clear of any
lien, security interest or other defect of title of any kind, subject to the
imposition immediately following the issuance of the LP Units of a security
interest in favor of The Prudential Insurance Company of America and Pruco Life
Insurance Company (the "ESOP Lenders") as contemplated by an Amended and
Restated Note Agreement (the "Note Agreement") dated as of , 1997 between
the ESOP and the ESOP Lenders. The LP Units have been listed with the New York
Stock Exchange.
2.04 No Conflicts. The execution and delivery by the Partnership of this
Agreement do not, and the performance by the Partnership of its obligations
under this Agreement and the consummation of the transactions contemplated
hereby will not:
(a) conflict with or result in a violation of any of the terms,
conditions or provisions of the Partnership Agreement;
(b) conflict with or result in a violation or breach of any term or
provision of any law or governmental order applicable to the Partnership;
or
(c) conflict with or result in a violation or breach of, constitute a
default under, or require the Partnership or any of its affiliated
operating partnerships to obtain any consent of any third party under any
contract to which the Partnership or any such operating partnership is
bound.
2.05 Governmental Approvals and Filings. No consent, approval or action of,
filing with or notice to any governmental or regulatory authority on the part
of the Partnership is required in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
2.06 Buckeye SEC Reports. The Partnership's (i) Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission ("SEC"), and the (ii) Quarterly Reports on 10-Q and Current
Reports on 8-K as filed with the SEC subsequently thereto, do not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or
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<PAGE>
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except any statement or omission which
has been subsequently corrected or otherwise disclosed in a subsequent SEC
filing.
2.07 Tax Status of the Partnership. The Partnership is, and, following the
transactions contemplated by this Agreement will continue to be, taxable as a
partnership for Federal income tax purposes.
2.08 Registration of LP Units. Immediately following the Closing, the
Partnership shall use commercially reasonable efforts to (i) register with the
SEC the LP Units on Form S-3 under the Securities Act of 1933, as amended, or
other appropriate form, and (ii) shall maintain the effectiveness of such
registration statement for as long as the Company continues to hold LP Units
which are not freely tradeable in the absence of such registration statement.
2.09 Investment Intent. The Partnership hereby represents and warrants to the
Company that the Partnership is acquiring the BAC Preferred Stock for the
Partnership's own account for investment and not with a view to the
distribution thereof or with any present intention of selling any thereof to
the public. The Partnership acknowledges that it has been informed by the
Company that the BAC Preferred Stock has not been registered under the
Securities Act and that the BAC Preferred Stock must be held indefinitely
unless subsequently registered under the Securities Act or an exemption from
such registration is available. The Partnership also acknowledges that it is
fully aware of the restrictions on disposing of the BAC Preferred Stock
resulting from the provisions of the Securities Act and the General Rules and
Regulations of the Securities and Exchange Commission thereunder (including,
without limitation, Rule 144). The Company and the Partnership acknowledge that
the sale, assignment or transfer of the BAC Preferred Stock to BAC or any of
its affiliates (including, without limitation, the subsidiary operating
partnerships of the Partnership, Buckeye Management Company and Buckeye Pipe
Line Company) shall not violate this Section 2.09.
ARTICLE III
Representations and Warranties of the Company
The Company hereby represents and warrants to the Partnership as follows:
3.01 Organization of the Company. The Company is a corporation duly
organized, validly subsisting and in good standing under the laws of the
Commonwealth of Pennsylvania. The Company has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby, including,
without limitation, to own, hold, sell and transfer (pursuant to this
Agreement) the Preferred Stock.
3.02 Authority. The execution and delivery by the Company of this Agreement,
and the performance by the Company of its obligations hereunder, have been duly
and validly authorized by the Board of Directors of the Company and no other
action on the part of the Company is necessary. This Agreement has been duly
and validly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
3.03 Preferred Stock. The delivery of the certificates at the Closing
representing the Preferred Stock in the manner provided in Section 1.02 will
transfer to the Partnership good and valid title to the Preferred Stock, free
and clear of any lien, security interest or other defect of title of any kind,
except as contemplated by the Note Agreement.
3.04 No Conflicts. The execution and delivery by the Company of this
Agreement do not, and the performance by the Company of its obligations under
this Agreement and the consummation of the transactions contemplated hereby
will not:
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<PAGE>
(a) conflict with or result in a violation of any of the terms,
conditions or provisions of the charter or bylaws of the Company;
(b) conflict with or result in a violation or breach of any term or
provision of any law or governmental order applicable to the Company; or
(c) conflict with or result in a violation or breach of, constitute a
default under or require the Company to obtain any consent of any third
party under any contract to which the Company is bound.
3.05 Governmental Approvals and Filings. No consent, approval or action of,
filing with or notice to any governmental or regulatory authority on the part
of the Company is required in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, except as may be required under the applicable securities
laws to disclose the Company's ownership of the LP Units.
ARTICLE IV
General Provisions
4.01 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, sent by telecopier, by first class mail or by a nationally
recognized overnight courier, postage prepaid. All such notices, requests,
demands and other communications shall be addressed to the respective parties
at the addresses set forth below, or to such other address or person as any
party may designate by notice to the other parties in accordance herewith:
If to the Partnership: Buckeye Management Company
Five Radnor Corporate Center
Suite 445
100 Matsonford Road
Radnor, PA 19087
Attn: Chairman
Telecopier No.: (610) 971-9296
With a copy to: Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attn: Howard L. Meyers, Esq.
Telecopier No.: (215) 963-5299
If to the Company: Buckeye Pipe Line Services Company
3900 Hamilton Boulevard
Allentown, PA 18103
Attn: President
Telecopier No.: (610) 770-4549
With copies to: LaSalle National Bank
135 South LaSalle Street
Chicago, IL 60674
Attn: Corporate Trust Department
Telecopier No.: (312) 904-2446
and
McBride, Baker & Coles
500 West Madison Street
40th Floor
Chicago, IL 60661
Attn: David Ackerman, Esq.
Telecopier No.: (312) 993-9350
A-4
<PAGE>
4.02 Entire Agreement. This Agreement supersedes all prior discussions and
agreements among the parties hereto with respect to the subject matter hereof
and contains the sole and entire agreement among the parties hereto with
respect to the subject matter hereof.
4.03 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
4.04 Waiver and Amendment. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or of any other covenant, duty,
agreement or condition. Any amendment to this Agreement shall be effective only
if in a writing signed by each of the parties hereto.
4.05 Severability. If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof, or of such provision in
other respects, shall not be affected thereby.
4.06 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
4.07 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be signed
by its officer duly authorized as of the date first above written.
Buckeye Partners, L.P.
By: Buckeye Management Company
By: _________________________________
Name:
Title:
Buckeye Pipe Line Services Company
By: _________________________________
Name:
Title:
A-5
<PAGE>
APPENDIX B
FORM OF EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement"), dated as of , 1997, is
entered into among BUCKEYE MANAGEMENT COMPANY, a Delaware corporation (the
"General Partner"), BUCKEYE PARTNERS, L.P., a Delaware limited partnership (the
"Partnership"), BUCKEYE PIPE LINE COMPANY, a Delaware corporation (the
"Manager"), and BUCKEYE PIPE LINE COMPANY, L.P., a Delaware limited
partnership, BUCKEYE PIPE LINE COMPANY OF MICHIGAN, L.P., a Delaware limited
partnership, LAUREL PIPE LINE COMPANY, L.P., a Delaware limited partnership,
EVERGLADES PIPE LINE COMPANY, L.P., a Delaware limited partnership and BUCKEYE
TANK TERMINALS COMPANY, L.P., a Delaware limited partnership (together, the
"Operating Partnerships") and BMC ACQUISITION COMPANY, a Delaware corporation
and owner of all of the outstanding common stock of the General Partner ("BAC")
.
WITNESSETH:
WHEREAS, the Partnership is a publicly traded limited partnership in which
the General Partner is the general partner;
WHEREAS, the Operating Partnerships are owned 99% by the Partnership, and 1%
by the Manager, which acts as general partner of the Operating Partnerships
(except Buckeye Pipe Line Company of Michigan, L.P., which is owned 98.01% by
the Partnership and 1.99% by the Manager);
WHEREAS, the Partnership is governed pursuant to an Amended and Restated
Agreement of Limited Partnership (the "Master Partnership Agreement"), dated as
of December 23, 1986, as amended, between the General Partner and the limited
partners of the Partnership (the "Limited Partners"); the Operating
Partnerships, other than Laurel, are governed pursuant to similar Amended and
Restated Agreements of Limited Partnership, each dated as of December 23, 1986,
as amended, between the Manager and the Partnership; and Laurel is governed
pursuant to an Amended and Restated Agreement of Limited Partnership dated
October 21, 1992, between the Manager and the Partnership (collectively, the
"Operating Partnership Agreements");
WHEREAS, a special committee (the "Special Committee") of disinterested
directors of the General Partner has determined that it is in the best
interests of the Partnership (i) to issue limited partnership units of the
Partnership ("LP Units") to Buckeye Pipe Line Services Company, a Pennsylvania
corporation (the "Company") whose shares of capital stock are owned by the BMC
Acquisition Company Employee Stock Ownership Plan (the "ESOP"), in exchange for
63,000 shares of BMC Acquisition Company Series A Convertible Preferred Stock,
stated value $1,000 per share (the "BAC Preferred Stock"), (ii) to have the
Partnership convert the BAC Preferred Stock into BMC Acquisition Company Common
Stock ("BAC Common Stock"), and (iii) to contribute the BAC Common Stock to the
Operating Partnerships (collectively, the "Restructuring");
WHEREAS, pursuant to the LP Unit Subscription Agreement dated
contemporaneously herewith (the "LP Unit Subscription Agreement"), the
Partnership has issued LP Units to the Company in exchange for the BAC
Preferred Stock;
WHEREAS, pursuant to a notice to BAC of even date herewith, the Partnership
has converted the BAC Preferred Stock received pursuant to the LP Unit
Subscription Agreement into 484,615 shares of BAC Common Stock (the "Exchange
Shares");
WHEREAS, the Partnership has contributed an undivided interest in the
Exchange Shares to the Operating Partnerships; and
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<PAGE>
WHEREAS, the Operating Partnerships desire to transfer and assign the
Exchange Shares to the Manager in exchange for the release of certain
obligations that the Partnership has to the General Partner and the Operating
Partnerships have to the Manager, and BAC, the General Partner and the Manager
wish for the Manager to receive the Exchange Shares and to release such
obligations of the Partnership and the Operating Partnerships, and for the
Exchange Shares to be transferred by the Manager to the General Partner and by
the General Partner to BAC, which shall thereafter hold the Exchange Shares as
treasury stock.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I
The Exchange
Upon the terms and subject to the conditions of this Agreement, the Operating
Partnerships hereby agree to transfer and assign the Exchange Shares to the
Manager in exchange for the release of certain obligations of the Partnership
to the General Partner and of the Operating Partnerships to the Manager, as set
forth in Article II below.
ARTICLE II
Release of Obligations
2.01 Obligations to Reimburse for Executive Compensation. (a) Upon the terms
and subject to the conditions of this Agreement, BAC, the General Partner and
the Manager, for themselves and their affiliates, successors and assigns,
hereby and irrevocably release, relinquish and discharge the Partnership and
the Operating Partnerships from any and all liability, obligation, claim,
demand, action or suit of any kind or nature, in law or in equity, whatsoever,
known or unknown, which may be asserted for or on account of or arising out of
or in any manner relating to the Partnership's and/or the Operating
Partnerships' obligations pursuant to Section 7.4(b) of the Master Partnership
Agreement and the Operating Partnership Agreements or otherwise to reimburse
BAC, the General Partner or the Manager for total compensation paid for
executive level duties performed for the General Partner or the Manager with
respect to the functions of operations, finance, legal, marketing and business
development, and treasury, as well as President of the Manager following the
date hereof. The parties hereto acknowledge that the individuals who presently
perform these executive level functions are: Michael P. Epperly, Steven C.
Ramsey, Stephen C. Muther, William H. Shea, Jr., David J. Martinelli and C.
Richard Wilson, respectively, and their total compensation in all forms on a
pro forma annualized basis for 1996 was $2,300,000. Nothing in this Section
2.01(a) shall be deemed to waive the obligations of the Partnership and the
Operating Partnerships to reimburse the General Partner and the Manager for (i)
employee fringe benefits and retirement benefits for their executives relating
to services performed prior to the date hereof, (ii) obligations under
severance agreements with their executives to the extent currently reimbursible
under the Master Partnership Agreement or (iii) any obligations in respect of
their executives which are not related to compensation, including, without
limitation, indemnification obligations.
(b) BAC, the General Partner and the Manager agree, unless the General
Partner is removed as general partner of the Partnership, to perform the
executive level functions referred to in Section 2.01(a) for the benefit of the
Partnership and the Operating Partnerships in a manner satisfactory to the
board of directors of the General Partner, which shall be of a quality, scope
and nature equivalent to the executive level functions currently performed by
the Manager.
2.02 ESOP Contributions Generally. (a) From the date of this Agreement until
all principal, interest and premium is paid in full under the Amended and
Restated Note Agreement of even date herewith among the ESOP, The Prudential
Insurance Company of America and Pruco Life Insurance Company (the "Note
Agreement") (the "ESOP Period"), and only following the exhaustion of the "Top
Up Reserve Fund" provided for in paragraph (b) below, the Partnership and the
Operating Partnerships shall reimburse the General
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Partner and the Manager, respectively, for (i) cash contributions made by the
Company to the ESOP pursuant to the terms thereof, as necessary for the ESOP to
make all payments of principal, interest (including additional interest payable
as the result of an interest rate increase under paragraph 7 of the Note
Agreement) and premium due under the Note Agreement (excluding, however, the
accelerated portion of any payments which have become due and payable upon
acceleration of such indebtedness as the result of a default under the Note
Agreement), (ii) any income taxes incurred by the Company on the sale of LP
Units made to satisfy the redemption obligations described in Section 2.03
below, and (iii) routine administrative charges and expenses common to employee
stock ownership plans incurred in connection with the operation of the ESOP, in
each case, to the extent distributions from LP Units owned by the Company are
not sufficient to make all such payments. Following the ESOP Period, the
Partnership and the Operating Partnerships shall have no further obligations to
reimburse the General Partner or the Manager for contributions to the ESOP.
(b) Top Up Reserve Fund. For purposes of this Agreement, the "Top Up Reserve
Fund" shall mean the amount set forth on a statement delivered by the General
Partner to the Partnership on the date hereof which is equal to the amount of
all reimbursements associated with the ESOP made to the General Partner by the
Partnership prior to the date hereof, minus the actual cash payments by the
ESOP for principal and interest payments and routine administrative charges and
expenses actually incurred by the ESOP.
2.03 No ESOP Contributions for Departing Employees. The General Partner and
the Manager acknowledge that neither the Partnership nor the Operating
Partnerships shall be obligated to reimburse BAC, the General Partner or the
Manager for obligations to redeem the ESOP accounts of departing employees upon
the termination of their employment with the Company, or for any other costs or
expenses of or relating to the operation of the ESOP other than those specified
in Section 2.02(a) above.
2.04 Representations and Warranties. BAC, the General Partner and the Manager
hereby represent and warrant to the Partnership and the Operating Partnerships
that (a) neither the Company nor any entity treated as a single employer with
the Company under Sections 414(b), 414(c), 414(m), or 414(o) of the Internal
Revenue Code of 1986, as amended (the "Code"), or Section 4001(b) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), has
incurred any liability under any provision of ERISA or other applicable law
relating to the ESOP; (b) the ESOP has been administered, in all material
respects, in compliance with its terms and complies, both in form and
operation, with the applicable provisions of ERISA (including, without
limitation, the funding and prohibited transactions provisions thereof), the
Code and other applicable laws; (c) the ESOP has been determined by the
Internal Revenue Service to be qualified within the meaning of Section 401 of
the Code, and neither BAC, the General Partner nor the Manager is aware of any
fact or circumstances which would adversely affect the qualified status of the
ESOP; and (d) the restructuring of the ESOP contemplated by this agreement does
not constitute a "prohibited transaction" under ERISA.
2.05 Certain Agreements. (a) The parties acknowledge that nothing in the
Services Agreement (the "Services Agreement") of even date herewith among the
General Partner, the Manager and the Company shall be deemed to enlarge the
obligation of the Partnership to reimburse the General Partner under the Master
Partnership Agreement or the obligation of the Operating Partnerships to
reimburse the Manager under the Operating Partnership Agreements. Furthermore,
the Partnership and the Operating Partnerships shall have no obligation to
reimburse the General Partner or the Manager for the amounts paid to the
Company pursuant to Article V of the Services Agreement unless such amounts
were paid as reimbursement for costs and expenses for which the General Partner
or the Manager would be entitled to reimbursement under the Master Partnership
Agreement or the Operating Partnership Agreements, as such agreements are
modified by the terms hereof, if the General Partner or the Manager had
incurred such costs and expenses directly. In addition, the Partnership and the
Operating Partnerships shall have no obligation to reimburse the General
Partner or the Manager for amounts paid to the Company pursuant to Article VI
of the Services Agreement unless such amounts were paid as indemnification for
damages and expenses for which the General Partner or the Manager would be
entitled to indemnification under the Master Partnership Agreement or the
Operating Partnership Agreements if the General Partner or the Manager had
incurred such damages or expenses directly.
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(b) The Partnership and each of the Operating Partnerships hereby waive any
right of offset or counterclaim or similar right it may have against the
General Partner or the Manager (including, without limitation, as a result of
any Forfeiture Payment (as hereinafter defined) due from the General Partner
and the Manager pursuant to Section 3.01), with respect to their respective
obligations to reimburse the General Partner or the Manager, as the case may
be, for contributions to the ESOP pursuant to Section 2.02 hereof.
(c) The parties acknowledge that the Partnership and the Operating
Partnerships are not obligated to reimburse the General Partner or the Manager
if any tax is owed by BAC, the General Partner or the Manager pursuant to
Section 83 of the Internal Revenue Code as a result of the Restructuring.
ARTICLE III
Forfeiture
3.01 Failure to Act as General Partner Over the ESOP Period. Except to the
extent this obligation is assumed by a successor general partner pursuant to
Section 3.02, if, prior to the end of the ESOP Period, the General Partner
ceases to be the general partner of the Partnership or the Manager ceases to be
the general partner of all of the Operating Partnerships (the "Termination
Date") for any reason other than in connection with the dissolution of the
Partnership under Section 14.1(d) of the Master Partnership Agreement, BAC, the
General Partner and the Manager shall jointly and severally be obligated to pay
to the Operating Partnerships in cash in a lump sum payment an aggregate amount
(the "Forfeiture Payment") equal to the product of (A) the greater of (i) $
[market value of LP Units issued to the Company] or (ii) the fair market value
(as determined by an independent appraiser selected by the Partnership) of the
Exchange Shares, which shall be held by BAC as treasury stock until the end of
the ESOP Period on the Termination Date (before giving effect to the
termination) multiplied by (B) the fraction, the numerator of which is the
amount of time (expressed in whole years) before the expiration of the
scheduled amortization of the ESOP loan, and the denominator of which is 15.
Any payment made pursuant to this Section 3.01 by BAC, the General Partner or
the Manager will not be reimbursable by the Partnership or the Operating
Partnerships.
3.02 Assumption of Forfeiture Obligation by a Successor General Partner. If
the General Partner is removed as general partner of the Partnership or the
Manager is removed as general partner of one or more of the Operating
Partnerships during the ESOP Period (but not if the General Partner or the
Manager voluntarily withdraws as general partner) pursuant to Section 13.1(b)
of the Master Partnership Agreement, the General Partner may cause the
successor general partner of the Partnership and the Manager may cause the
successor general partner of the Operating Partnerships to assume their
respective obligations, liabilities and duties under this Agreement.
3.03 ESOP Loan Secured. The Partnership and the Operating Partnerships
acknowledge that BAC, the General Partner and the Manager have each executed
and delivered a Guaranty Agreement pursuant to which each has guaranteed the
payment and performance of all obligations under the Note Agreement and related
documents (the "Note Obligations"), that such guaranty obligations are secured
by substantially all assets of BAC, the General Partner and the Manager and,
that, as a result, all claims of the Partnership and the Operating Partnerships
against BAC, the General Partner and the Manager in respect of the Forfeiture
Payment will effectively be subordinated to the Note Obligations.
ARTICLE IV
Tax Indemnity Agreement
4.01 Indemnification by the General Partner and the Manager. BAC, the General
Partner and the Manager shall, jointly and severally, reimburse and indemnify
and hold the Partnership and each Operating
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Partnership harmless against and in respect of any and all damage, loss,
liability, deficiency, settlement payments, interest (including any increase in
the rate of interest paid on any loan to the ESOP), penalties, obligations,
levies or expenses (including without limitation reasonable legal fees and
expenses) (collectively, "Damages") in connection with, resulting from or
relating to one of (i) the failure of the lenders to the ESOP to qualify
pursuant to Section 133 of the Internal Revenue Code for the interest received
exclusion in connection with the loan to the ESOP as a result of the
Restructuring or (ii) any excise tax imposed as a result of the Restructuring
(each, a "Tax Risk"). The Partnership and the Operating Partnerships shall pay
to the ESOP or the lenders to the ESOP (in the case of the Tax Risk described
above in clause (i) of this Section 4.01), or to the appropriate taxing
authority or other third party (in the case of the Tax Risk described above in
clause (ii) of this Section 4.01) any Damages in the event that a Tax Risk is
incurred, subject to the foregoing reimbursement obligation. Neither BAC, the
General Partner, the Manager nor their affiliates shall be entitled to
reimbursement from the Partnership or any Operating Partnership for any
indemnification payment made pursuant to this Article IV.
4.02 Selection of Tax Risk. The disinterested directors of the board of
directors of the General Partner shall determine the Tax Risk for which the
Partnership and the Operating Partnerships shall be entitled to indemnification
from BAC, the General Partner and the Manager and such directors may make such
determination at any time. Such determination shall be communicated to the
entire board of directors in writing and once so communicated may not be
modified or revoked.
4.03 Loan From Partnership. Subject to Section 7.7(g) of the Master
Partnership Agreement, in the event that a Tax Risk is incurred, and the
Partnership or the Operating Partnerships incur the Damages associated
therewith, the General Partner shall issue to the Partnership a promissory note
(the "Note") for the amount of the Damages, with interest calculated at the
rate (including points or other financing charges or fees) that the General
Partner would be charged by an unrelated lender on a comparable loan. The Note
shall be payable by right of offset of the amounts due to the General Partner
under the Amended and Restated Incentive Compensation Agreement dated as of
March 22, 1996, as amended from time to time, until the Note is paid in full.
ARTICLE V
The Closing
5.01 Date and Time. The closing for the transactions contemplated hereby (the
"Closing") shall be held at the offices of Morgan, Lewis & Bockius LLP in
Philadelphia contemporaneously with the execution of this Agreement.
5.02 Economic Effect. The parties desire to give economic effect to the
transactions contemplated by this Agreement as of 11:59 p.m. on the date of
Closing.
5.03 Closing Deliveries. At the Closing, the Operating Partnerships shall
deliver to the Manager certificates representing the Exchange Shares, duly
endorsed for transfer to the Manager or with separate stock transfer powers
attached thereto and signed in blank.
ARTICLE VI
General Provisions
6.01 Entire Agreement. This Agreement supersedes all prior discussions and
agreements among the parties hereto with respect to the subject matter hereof
and contains the sole and entire agreement among the parties hereto with
respect to the subject matter hereof.
6.02 Headings. The heading used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
B-5
<PAGE>
6.03 Waiver and Amendment. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or of any other covenant, duty,
agreement or condition. Any amendment to this Agreement shall be effective only
if in a writing signed by each of the parties hereto.
6.04 Severability. If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof, or of such provision in
other respects, shall not be affected thereby.
6.05 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
6.06 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be signed
by its officer duly authorized as of the date first above written.
Buckeye Management Company
By: _________________________________
Name:
Title:
Buckeye Partners, L.P.
By: Buckeye Management Company
as General Partner
By: _________________________________
Name:
Title:
Buckeye Pipe Line Company
By: _________________________________
Name:
Title:
Buckeye Pipe Line Company
of Michigan, L.P.
By: Buckeye Pipe Line Company,
as General Partner
By: _________________________________
Name:
Title:
B-6
<PAGE>
Laurel Pipe Line Company, L.P.
By: Buckeye Pipe Line Company,
as General Partner
By: _________________________________
Name:
Title:
Everglades Pipe Line Company, L.P.
By: Buckeye Pipe Line Company,
as General Partner
By: _________________________________
Name:
Title:
Buckeye Tank Terminals
Company, L.P.
By: Buckeye Pipe Line Company,
as General Partner
By: _________________________________
Name:
Title:
Buckeye Pipe Line Company, L.P.
By: Buckeye Pipe Line Company,
as General Partner
By: _________________________________
Name:
Title:
BMC Acquisition Company
By: _________________________________
Name:
Title:
B-7
<PAGE>
APPENDIX C
FORM OF AMENDMENT NO. 3 TO AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF BUCKEYE PARTNERS, L.P.
THIS AMENDMENT is made as of , 1997 by Buckeye Management Company, a
Delaware corporation ("BMC" or the "General Partner").
WHEREAS, BMC is the general partner of Buckeye Partners, L.P., a Delaware
limited partnership (the "Partnership");
WHEREAS, the Partnership is governed under an Amended and Restated Agreement
of Limited Partnership, dated as of December 23, 1986, as amended by Amendment
No. 1 dated as of July 18, 1995, and Amendment No. 2 dated as of March 22, 1996
(the "Partnership Agreement");
WHEREAS, Section 15.1 of the Partnership Agreement provides that the General
Partner may amend any provision of the Partnership Agreement without the
consent of the limited partners of the Partnership to reflect any change that
in the good faith opinion of the General Partner does not adversely affect the
limited partners of the Partnership in any material respect;
WHEREAS, the limited partners of the Partnership have approved this Amendment
pursuant to Section 15.2 of the Partnership Agreement at a meeting held on
, 1997; and
WHEREAS, the Partnership has received an opinion of counsel of Morgan, Lewis
& Bockius LLP that this Amendment will not result in the loss of limited
liability of any limited partner of the Partnership or result in the
Partnership or any Operating Partnership (as defined in the Partnership
Agreement) being treated as an association taxable as a corporation for federal
income tax purposes.
NOW THEREFORE, intending to be legally bound, the Partnership Agreement is
hereby amended as follows:
1. All terms used in this Amendment but not otherwise defined in this
Amendment shall have the meaning set forth for such terms in the
Partnership Agreement.
2. The definition of "Affiliate" in Article 1 of the Partnership
Agreement is hereby amended to add the following sentence:
For purposes of this Agreement, Buckeye Pipe Line Services Company, a
Pennsylvania corporation which provides services to the General Partner
and the Manager, shall be deemed an Affiliate of the General Partner.
3. The definition of "Designated Expenses" in Article 1 of the
Partnership Agreement is hereby amended and restated in its entirety to
read as follows:
"Designated Expenses" mean all costs and expenses (direct or indirect)
incurred by the General Partner which are directly or indirectly
related to the formation, capitalization, business or activities of the
Partnership and the Operating Partnerships (including, without
limitations, expenses, direct or indirect, reasonably allocated to the
General Partner by its Affiliates); provided, however, that Designated
Expenses shall not include (a) any cost or expense for which the
General Partner is not entitled to be reimbursed by reason of the
proviso at the end of Section 7.11(b), (b) severance costs not
permitted to be reimbursed pursuant to the Management Agreements in
connection with the withdrawal of the Manager, (c) any amounts which
the General Partner receives as incentive compensation under the
Incentive Compensation Agreement and pays over to officers or employees
of the Manager or (d) any cost or expense for which the General Partner
and its Affiliates are not entitled to be reimbursed pursuant to the
terms of the Exchange Agreement.
C-1
<PAGE>
4. The definition of "Distribution Support Agreement" in Article 1 of the
Partnership Agreement is hereby amended to read "Incentive Compensation
Agreement" to reflect the changes in that agreement set forth in the
Amended and Restated Incentive Compensation Agreement dated as of March 22,
1996, as amended, and all references to "Distribution Support Agreement"
are hereby changed to "Incentive Compensation Agreement."
5. The definition of "ESOP" in Article 1 of the Partnership Agreement is
hereby amended to be the Buckeye Pipe Line Services Company Employee Stock
Ownership Plan, as amended.
6. Article 1 of the Partnership Agreement is hereby amended to add the
following definition:
"Exchange Agreement" means the Exchange Agreement, dated as of ,
1997 among the General Partner, the Manager, the Partnership and each
of the Operating Partnerships and BMC Acquisition Company.
7. The following phrase is hereby added to the end of Section 4.1(b) of
the Partnership Agreement:
, unless the General Partner receives an Opinion of Counsel that the
failure to make such additional Capital Contribution would not result
in the Partnership or any of the Operating Partnerships being treated
as an association taxable as a corporation for federal income tax
purposes.
8. A new Section 12.4 shall be added to the Partnership Agreement to read
as follows:
12.4 Admission of Buckeye Pipe Line Services Company as an Additional
Limited Partner. Buckeye Pipe Line Services Company shall automatically
be admitted as a Limited Partner at the time (i) the Partnership and
Buckeye Pipe Line Services Company execute and deliver an LP Unit
Subscription Agreement and (ii) the General Partner lists Buckeye Pipe
Line Services Company as a limited partner of the Partnership in the
records of the Partnership.
9. Section 13.1(a) of the Partnership Agreement is hereby amended in its
entirety as follows:
13.1 Withdrawal or Removal of the General Partner. (a) BMC agrees to
act as General Partner of the Partnership until the later of (i) the
date which is twenty-five years after the Time of Delivery or (ii) the
date the ESOP loan is paid in full, subject to its right to transfer
all of its GP Units pursuant to Section 11.1. At any time after the
later of (i) date which is twenty-five years after the Time of Delivery
or (ii) the date the ESOP loan is paid in full, the General Partner may
withdraw from the Partnership effective upon at least 90 days' advance
written notice to the Limited Partners, such withdrawal to take effect
on the date specified in such notice, provided that such withdrawal is
approved by an Eighty Percent Interest or the Partnership has received
an Opinion of Counsel that such withdrawal would not result in the loss
of limited liability of any Limited Partner or result in the
Partnership or any Operating Partnership being treated as an
association taxable as a corporation for federal income tax purposes.
Any such withdrawal shall also constitute the withdrawal of the Manager
from the Operating Partnerships, as provided in the Operating
Partnership Agreements. If the General Partner gives a notice of
withdrawal, a Majority Interest may, prior to the effective date of
such withdrawal, approve a successor General Partner. The Person so
approved (or its designated Affiliates) shall become the successor
general partner or partners of the Operating Partnerships, as provided
in the Operating Partnership Agreements. If no successor General
Partner is so approved, the Partnership shall be dissolved pursuant to
Section 14.1. BMC further agrees that it shall not permit the Manager
to withdraw as general partner of any Operating Partnership, except in
connection with the withdrawal of BMC as General Partner.
10. Section 13.1(b) of the Partnership Agreement is amended and restated
in its entirety to read as follows:
(b) The General Partner may be removed only by an Eighty Percent
Interest, and only if (i) in connection therewith, a successor General
Partner is approved by a Majority Interest, (ii) the Partnership shall
have received an Opinion of Counsel that the removal of the General
Partner and the approval of a successor General Partner will not result
in the loss of limited liability of any Limited Partner or cause the
Partnership or any of the Operating Partnerships to be treated as an
association taxable as a corporation for federal income tax purposes,
(iii) the successor General
C-2
<PAGE>
Partner or an Affiliate thereof assumes the liabilities and obligations
of the General Partner and its Affiliates under the Exchange Agreement
and agrees to indemnify and hold harmless the General Partner and its
Affiliates from any liability or obligation arising out of, or causes
the General Partner and its Affiliates to be released from, any and all
liabilities and obligations (including loan guarantees) under fringe
benefit plans sponsored by the General Partner or any of its Affiliates
in connection with the business of the Partnership or any of the
Operating Partnerships, except as otherwise prohibited by this
Agreement, and (iv) all required regulatory approvals for removal of
the Manager shall have been obtained. Such removal shall be effective
upon the admission of the successor General Partner pursuant to Section
12.3. The Person so approved (or its designated Affiliates) shall
become the successor general partner or partners of the Operating
Partnerships, as provided in the Operating Partnership Agreements.
11. Section 13.2 of the Partnership Agreement is amended and restated in
its entirety to read as follows:
13.2 Sale of Former General Partner's Interest. If a successor General
Partner is approved pursuant to Section 13.1 or 14.2 or the proviso to
Section 14.1, such successor shall purchase the GP Units of the former
General Partner for an amount in cash equal to the fair market value
thereof, determined as of the date the successor General Partner is
admitted pursuant to Section 12.3. The fair market value of the GP
Units shall include the value of all rights associated with being the
General Partner, including, without limitation, the General Partner's
pro rata interest in the Partnership, the right to receive incentive
compensation pursuant to the Incentive Compensation Agreement or
compensation under any other agreement between the Partnership and the
General Partner in effect on the date the successor General Partner is
so admitted, and shall be reduced by the value of the assumption by the
successor General Partner or its Affiliate of the obligations of the
General Partner and its Affiliates pursuant to Section 13.1(b)(iii).
Such fair market value shall be determined by agreement between the
former General Partner and its successor or, failing agreement within
30 days after the date the successor General Partner is so admitted, by
a firm of independent appraisers jointly selected by the former General
Partner and its successor (or, if the former General Partner and its
successor cannot agree on the selection of such a firm within 45 days
after the date the successor General Partner is so admitted, by a firm
of independent appraisers selected by two firms, one of which will be
selected by the former General Partner and the other of which will be
selected by the successor).
12. Any provision of the Partnership Agreement which is inconsistent with
the provisions of this Amendment shall be deemed amended to effectuate the
intention expressed herein. Every other provision of the Partnership
Agreement shall remain unchanged and in full force and effect.
13 The General Partner and the Manager may amend any provision of the
Operating Partnership Agreements and the Management Agreements without the
consent of the Limited Partners which the General Partner in its sole
discretion believes is necessary or desirable to conform such agreements to
the provisions of this Amendment.
14. This Amendment shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
C-3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of the day and year
first above written.
Buckeye Management Company,
as General Partner
By: _________________________________
Name:
Title:
LIMITED PARTNERS,
All Limited Partners now or
hereafter admitted as limited
partners of the Partnership,
pursuant to a power of attorney or
authorization executed in favor of,
and delivered to, the General
Partner.
By: Buckeye Management Company,
as General Partner
By: _________________________________
Name:
Title:
C-4
<PAGE>
APPENDIX D
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
BUCKEYE PARTNERS, L.P.
DECEMBER 23, 1986
(AS AMENDED AND RESTATED THROUGH MARCH 22, 1996)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BUCKEYE PARTNERS, L.P.
TABLE OF CONTENTS
ARTICLE I
Definitions
<TABLE>
<S> <C>
"APU"....................................................................... D-1
"APU Capital Account"....................................................... D-1
"Affiliate"................................................................. D-1
"Agent"..................................................................... D-1
"Agreed Value".............................................................. D-1
"Agreement"................................................................. D-1
"BMC"....................................................................... D-1
"Business Day".............................................................. D-1
"Capital Accounts".......................................................... D-1
"Capital Contribution"...................................................... D-1
"Carrying Value"............................................................ D-1
"Certificate of Limited Partnership"........................................ D-2
"Code"...................................................................... D-2
"Contributed Property"...................................................... D-2
"Contributing Partner"...................................................... D-2
"Credit Support Agreement".................................................. D-2
"Delaware Act".............................................................. D-2
"Designated Expenses"....................................................... D-2
"Distribution Support Agreement"............................................ D-2
"Eighty Percent Interest"................................................... D-2
"Exchange Act".............................................................. D-2
"First Mortgage Notes"...................................................... D-2
"First Tier Operating Partnerships"......................................... D-2
"General Partner"........................................................... D-2
"GP Unit"................................................................... D-3
"Indemnitee"................................................................ D-3
"Issue Price"............................................................... D-3
"Limited Partner"........................................................... D-3
"Liquidator"................................................................ D-3
"LP Certificate"............................................................ D-3
"LP Unit"................................................................... D-3
"Majority Interest"......................................................... D-3
"Management Agreements"..................................................... D-3
"Manager"................................................................... D-3
"Mortgage Note Indenture"................................................... D-3
"NASDAQ".................................................................... D-3
"National Securities Exchange".............................................. D-3
"Net Agreed Value".......................................................... D-3
"Operating Partnership Agreements".......................................... D-3
"Operating Partnerships".................................................... D-3
"Opinion of Counsel"........................................................ D-3
"Organizational Limited Partner"............................................ D-4
"Partner"................................................................... D-4
"Partnership"............................................................... D-4
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
"Partnership Interest"...................................................... D-4
"Penn Central".............................................................. D-4
"Percentage Interest"....................................................... D-4
"Person".................................................................... D-4
"Pipe Line"................................................................. D-4
"Purchase Agreements"....................................................... D-4
"Recapture Income".......................................................... D-4
"Record Date"............................................................... D-4
"Record Holder" or "Holder"................................................. D-4
"Registration Statement".................................................... D-4
"Restricted Payment"........................................................ D-4
"Securities Act"............................................................ D-4
"Time of Delivery".......................................................... D-4
"Transfer Agent"............................................................ D-4
"Two-Thirds Interest"....................................................... D-5
"Underwriters".............................................................. D-5
"Underwriting Agreement".................................................... D-5
"Unit"...................................................................... D-5
"Unit Price"................................................................ D-5
"Units Register"............................................................ D-5
"Unrealized Gain"........................................................... D-5
"Unrealized Loss"........................................................... D-5
</TABLE>
ARTICLE II
Organizational Matters
<TABLE>
<S> <C>
2.1 Formation.............................................................. D-5
2.2 Name................................................................... D-5
2.3 Principal Office; Registered Office.................................... D-6
2.4 Power of Attorney...................................................... D-6
2.5 Term................................................................... D-7
2.6 Organizational Limited Partner......................................... D-7
2.7 Organizational Certificate............................................. D-7
ARTICLE III
Purpose
3.1 Purpose................................................................ D-7
ARTICLE IV
Capital Contributions; Purchases Pursuant to Purchase Agreements; Additional
Issuances
4.1 General Partner Contributions.......................................... D-7
4.2 Limited Partner Contributions.......................................... D-7
4.3 Purchases Pursuant to Purchase Agreement............................... D-8
4.4 Issuances of Additional LP Units, APUs and Other Securities............ D-8
4.5 No Preemptive Rights................................................... D-8
4.6 No Interest............................................................ D-8
4.7 Loans from Partners.................................................... D-8
</TABLE>
ii
<PAGE>
ARTICLE V
Capital Accounts and APU Capital Account; Distributions
<TABLE>
<S> <C>
5.1 Capital Accounts and APU Capital Account............................ D-8
5.2 Distributions in Respect of Units; Redemption of APUs............... D-10
ARTICLE VI
Income Tax Matters
6.1 Tax Allocations..................................................... D-10
6.2 Preparation of Tax Returns.......................................... D-11
6.3 Tax Elections....................................................... D-11
6.4 Tax Controversies................................................... D-11
6.5 Withholding......................................................... D-11
ARTICLE VII
Management and Operation of Business; Indemnification
7.1 Powers of General Partner........................................... D-11
7.2 Duties of General Partner........................................... D-12
7.3 Reliance by Third Parties........................................... D-13
7.4 Compensation and Reimbursement of the General Partner............... D-13
7.5 Purchase or Sale of LP Units........................................ D-13
7.6 Partnership Funds................................................... D-13
7.7 Outside Activities; Contracts with Affiliates; Loans to or from Af-
filiates......................................................... D-13
7.8 Tax Basis and Value Determinations.................................. D-14
7.9 Resolution of Conflicts of Interest; Standard of Care............... D-14
7.10 Other Matters Concerning the General Partner........................ D-15
7.11 Limited Liability; Indemnification.................................. D-15
ARTICLE VIII
Rights and Obligations of Limited Partners
8.1 Limitation of Liability............................................. D-16
8.2 Management of Business.............................................. D-16
8.3 Outside Activities.................................................. D-16
8.4 Return of Capital................................................... D-16
8.5 Rights of Limited Partners Relating to the Partnership.............. D-16
ARTICLE IX
Books, Records, Accounting and Reports
9.1 Books, Records and Accounting....................................... D-17
9.2 Fiscal Year......................................................... D-17
9.3 Reports............................................................. D-17
</TABLE>
iii
<PAGE>
ARTICLE X
Issuance of LP Certificates; Transfer and Exchange of LP Units
<TABLE>
<S> <C>
10.1 Initial Issuance of LP Certificates................................... D-18
10.2 Registration, Registration of Transfer and Exchange................... D-18
10.3 Mutilated, Destroyed, Lost or Stolen LP Certificates.................. D-18
10.4 Persons Deemed Owners................................................. D-19
ARTICLE XI
Transfer of Gp Units
11.1 Transfer of GP Units.................................................. D-19
11.2 Successor General Partner............................................. D-19
ARTICLE XII
Admission of Initial and Substituted Limited Partners and Successor General
Partner
12.1 Admission of Initial Limited Partners................................. D-19
12.2 Admission of Substituted Limited Partners............................. D-19
12.3 Admission of Successor General Partner................................ D-19
ARTICLE XIII
Withdrawal or Removal of the General Partner
13.1 Withdrawal or Removal of the General Partner.......................... D-19
13.2 Sale of Former General Partner's Interest............................. D-20
ARTICLE XIV
Dissolution and Liquidation
14.1 Dissolution........................................................... D-20
14.2 Reconstitution........................................................ D-21
14.3 Liquidation........................................................... D-21
14.4 Distribution in Kind.................................................. D-22
14.5 Cancellation of Certificate of Limited Partnership.................... D-22
14.6 Return of Capital..................................................... D-22
14.7 Waiver of Partition................................................... D-22
ARTICLE XV
Amendment of Partnership Agreement
15.1 Amendments Which May be Adopted Solely by the General Partner......... D-22
15.2 Other Amendments...................................................... D-23
15.3 Amendment Requirements................................................ D-23
</TABLE>
iv
<PAGE>
ARTICLE XVI
Meetings
<TABLE>
<S> <C>
16.1 Meetings.............................................................. D-23
16.2 Record Date........................................................... D-24
16.3 Conduct of Meeting.................................................... D-24
16.4 Action Without a Meeting.............................................. D-24
ARTICLE XVII
Certain Restrictions
17.1 Additional Units...................................................... D-24
17.2 Additional Indebtedness............................................... D-24
17.3 Capital Expenditures.................................................. D-25
17.4 Certain Amendments.................................................... D-25
17.5 Sale of Assets........................................................ D-25
17.6 Restricted Payments by General Partner or Manager..................... D-25
ARTICLE XVIII
Right to Purchase Units
18.1 Right to Purchase Units............................................... D-25
18.2 Notice of Election to Purchase........................................ D-26
18.3 Purchase and Transfer of Units........................................ D-26
ARTICLE XIX
General Provisions
19.1 Opinions Regarding Taxation as a Partnership.......................... D-26
19.2 Personal Property..................................................... D-26
19.3 Addresses and Notices................................................. D-26
19.4 Headings.............................................................. D-27
19.5 Binding Effect........................................................ D-27
19.6 Integration........................................................... D-27
19.7 Waiver................................................................ D-27
19.8 Counterparts.......................................................... D-27
19.9 Severability.......................................................... D-27
19.10 Applicable Law........................................................ D-27
</TABLE>
v
<PAGE>
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
BUCKEYE PARTNERS, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of
December 23, 1986 (as amended and restated through March 22, 1996), is entered
into by and among BUCKEYE MANAGEMENT COMPANY, a Delaware corporation, and
PENNSYLVANIA COMPANY, a Delaware corporation, together with the additional
Persons that become Partners of the Partnership as provided herein.
ARTICLE I
Definitions
The following definitions shall for all purposes, unless otherwise clearly
indicated to the contrary, apply to the terms used in this Agreement.
"APU" means a Partnership Interest issued pursuant to the Credit Support
Agreement or the Distribution Support Agreement.
"APU Capital Account" means the capital account maintained with respect to
APUs pursuant to Section 5.1(b).
"Affiliate" means, with respect to any Person, any other Person that directly
or indirectly controls, is controlled by, or is under common control with the
Person in question; provided, however, that, for purposes of the restrictive
provisions of Sections 7.6, 7.7 and 7.9, neither the Partnership nor any of the
Operating Partnerships nor any of their respective subsidiaries shall be deemed
to be affiliates of the General Partner. As used herein, the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"Agent" has the meaning specified in Section 2.4
"Agreed Value" of any Contributed Property means the fair market value of
such property as of the time of contribution (or, in the case of cash, the
amount thereof), as determined by the General Partner using such reasonable
method of valuation as it may adopt.
"Agreement" means this amended and restated agreement of limited partnership,
as amended or restated from time to time.
"BMC" means Buckeye Management Company, a Delaware corporation.
"Business Day" means any day other than a Saturday, a Sunday, or a legal
holiday recognized as such by the Government of the United States or the State
of New York.
"Capital Accounts" mean the capital accounts maintained with respect to Units
pursuant to Section 5.1(a).
"Capital Contribution" means any Contributed Property which a Partner
contributes to the Partnership.
"Carrying Value" means (a) with respect to Contributed Property, the Agreed
Value of such property reduced as of the time of determination (but not below
zero) by (i) all depreciation, cost recovery and
D-1
<PAGE>
amortization deductions charged to the Capital Accounts pursuant to Section
5.1(a) with respect to such property and (ii) an appropriate amount to reflect
any sales, retirements and other dispositions of assets included in such
property, and (b) with respect to any other property, the adjusted basis of
such property for federal income tax purposes as of the time of determination,
in any case as may be adjusted from time to time pursuant to Section 5.1(f).
"Certificate of Limited Partnership" means the Amended and Restated
Certificate of Limited Partnership filed with the Secretary of State of the
State of Delaware as described in the first sentence of Section 2.7, as amended
or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Contributed Property" means any cash, property or other consideration (in
such form as may be permitted under the Delaware Act) contributed to the
Partnership.
"Contributing Partner" means any Partner contributing Contributed Property to
the Partnership in exchange for Units (or any transferee of such Units).
"Credit Support Agreement" means the credit support agreement, dated as of
the date hereof, among BMC, the Partnership, Pipe Line and Penn Central, as
amended or restated from time to time.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act, as
amended from time to time, and any successor to such Act.
"Designated Expenses" mean all costs and expenses (direct or indirect)
incurred by the General Partner which are directly or indirectly related to the
formation, capitalization, business or activities of the Partnership and the
Operating Partnerships (including, without limitation, expenses, direct or
indirect, reasonably allocated to the General Partner by its Affiliates);
provided, however, that Designated Expenses shall not include (a) any cost or
expense for which the General Partner is not entitled to be reimbursed by
reason of the proviso at the end of Section 7.11(b), (b) severance costs not
permitted to be reimbursed pursuant to the Management Agreements in connection
with the withdrawal of the Manager or (c) any amounts which the General Partner
receives as incentive compensation under the Distribution Support Agreement and
pays over to officers or employees of the Manager.
"Distribution Support Agreement" means the distribution support, incentive
compensation and APU redemption agreement, dated as of the date hereof, among
BMC, the Partnership and Penn Central, as amended or restated from time to
time.
"Eighty Percent Interest" means Limited Partners holding an aggregate of at
least 80% of the outstanding LP Units.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor to such statute.
"First Mortgage Notes" mean the $300 million aggregate principal amount of
First Mortgage Notes due serially from 1988 to 2006 to be issued by Buckeye
Pipe Line Company, L.P., a Delaware limited partnership, at or around the Time
of Delivery.
"First Tier Operating Partnerships" mean the Operating Partnerships other
than Buckeye Pipe Line Company of Michigan, L.P.
"General Partner" means BMC, in its capacity as the general partner of the
Partnership, and any successor to BMC as such general partner.
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"GP Unit" means a Partnership Interest issued pursuant to Section 4.1 and
representing a general partner's interest in the Partnership.
"Indemnitee" means the General Partner, any Affiliate of the General Partner,
any Person who is or was a director, officer, employee or agent of the General
Partner or any such Affiliate, or any Person who is or was serving at the
request of the General Partner or any such Affiliate as a director, officer,
partner, trustee, employee or agent of another Person.
"Issue Price" means the price at which a Unit or an APU is purchased from the
Partnership.
"Limited Partner" means any limited partner of the Partnership.
"Liquidator" has the meaning specified in Section 14.3.
"LP Certificate" means a certificate issued by the Partnership, substantially
in the form of Annex A to this Agreement, evidencing ownership of one or more
LP Units.
"LP Unit" means a Partnership Interest issued pursuant to Section 4.2 or 4.4
and representing a limited partner's interest in the Partnership.
"Majority Interest" means Limited Partners holding an aggregate of more than
50% of the outstanding LP Units.
"Management Agreements" mean the management agreements, dated as of November
18, 1986, pursuant to which the Manager will manage the Operating Partnerships,
in each case as amended or restated from time to time.
"Manager" means Pipe Line, in its capacity as the general partner and manager
of the Operating Partnerships, and any successor to Pipe Line as such general
partner and manager.
"Mortgage Note Indenture" means the indenture pursuant to which the First
Mortgage Notes will be issued.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
"Net Agreed Value" means (a) in the case of any Contributed Property, the
Agreed Value of such Contributed Property reduced by any indebtedness either
assumed by the Partnership upon contribution of such Contributed Property or to
which such Contributed Property is subject when contributed, (b) in the case of
any property distributed to a Partner Pursuant to Section 5.2, 14.3 or 14.4,
the fair market value of such property at the time of such distribution reduced
by any indebtedness either assumed by such Partner upon such distribution or to
which such property is subject at the time of distribution.
"Operating Partnership Agreements" mean the amended and restated agreements
of limited partnership, dated as of the date hereof, governing the rights and
obligations of the partners of the Operating Partnerships and certain related
matters, as amended or restated from time to time.
"Operating Partnerships" mean Buckeye Pipe Line Company, L.P., Buckeye Pipe
Line Company of Michigan, L.P., Buckeye Tank Terminals Company, L.P.,
Everglades Pipe Line Company, L.P., and Laurel Pipe Line Company, L.P., each a
Delaware limited partnership.
"Opinion of Counsel" means a written opinion of counsel (who may be regular
counsel of the General Partner or any of its Affiliates) acceptable to the
General Partner.
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"Organizational Limited Partner" means Pennsylvania Company, a Delaware
corporation, acting as the organizational limited partner pursuant to this
Agreement.
"Partner" means the General Partner or a Limited Partner.
"Partnership" means Buckeye Partners, L.P., a Delaware limited partnership.
"Partnership Interest" means a general partner's or limited partner's
interest in the Partnership.
"Penn Central" means The Penn Central Corporation, a Pennsylvania
corporation.
"Percentage Interest" means, with respect to any Partner, the number of Units
held by such Partner divided by the number of Units outstanding.
"Person" means an individual, a corporation, a partnership, a trust, an
unincorporated organization, an association or any other entity.
"Pipe Line" means Buckeye Pipe Line Company, a Delaware corporation.
"Purchase Agreements" mean the purchase agreement dated the date hereof,
between the Partnership and Marathon Energy Holdings, Inc. and the purchase
agreement, dated the date hereof, between Pennsylvania Company and LE Holdings,
Inc., relating to the purchase by the Partnership of limited partnership
interests in the First Tier Operating Partnerships and the purchase by LE
Holdings, Inc. of stock in Laurel Pipe Line Company.
"Recapture Income" means any gain recognized by the Partnership upon the
disposition of any asset of the Partnership that is not a capital gain due to
the recapture of certain deductions previously taken with respect to such
asset.
"Record Date" means the date established by the General Partner for
determining the identity of Limited Partners entitled (a) to notice of or to
vote at any meeting of Limited Partners, to vote by ballot or approve
Partnership action in writing without a meeting or to exercise rights in
respect of any other lawful action of Limited Partners, or (b) to receive any
report or distribution.
"Record Holder" or "Holder" of (a) any LP Unit means the Person in whose name
such Unit is registered in the Units Register or (b) any GP Unit means the
General Partner.
"Registration Statement" means the registration statement on Form S-1 (No.
33-9800), as amended from time to time, registering the offering and sale of LP
Units under the Securities Act as contemplated by Section 4.2.
"Restricted Payment" means any dividend, distribution or other payment in
respect of the capital stock of the General Partner or the Manager, as the case
may be.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor to such statute.
"Time of Delivery" has the meaning specified in the Underwriting Agreement.
"Transfer Agent" means Morgan Shareholder Services Trust Company, as transfer
agent and registrar for LP Units, or any bank, trust company or other Person
appointed by the Partnership to act as successor transfer agent and registrar
for LP Units.
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"Two-Thirds Interest" means Limited Partners holding an aggregate of at least
two-thirds of the outstanding LP Units.
"Underwriters" means those underwriting firms listed as underwriters in a
schedule to the Underwriting Agreement.
"Underwriting Agreement" means the underwriting agreement, dated as of
December , 1986, among the Partnership, BMC, Penn Central and the
Underwriters, relating to the purchase of certain LP Units by the Underwriters,
as contemplated by Section 4.2.
"Unit" means a GP Unit or an LP Unit.
"Unit Price" of a Unit means, as of any date of determination, (a) if such
Unit is one of a class of Units listed or admitted to trading on a National
Securities Exchange, the average of the last reported sales prices per Unit
regular way or, in case no such reported sale takes place on any such day, the
average of the last reported bid and asked prices per Unit regular way, in
either case on the principal National Securities Exchange on which such class
of Units is listed or admitted to trading (or, if such class of Units is listed
or admitted to trading on the New York Stock Exchange, on the New York Stock
Exchange Composite Tape), for the five trading days immediately preceding the
date of determination; (b) if such Unit is not of a class of Units listed or
admitted to trading on a National Securities Exchange but is of a class quoted
by NASDAQ, the average of the last reported sales prices per Unit or, in case
no such reported sale takes place on any such day or in case last reported
sales prices are not quoted by NASDAQ, the average of the last bid and asked
prices per Unit, for the five trading days immediately preceding such date of
determination, as furnished by the National Quotation Bureau Incorporated or
such other nationally recognized quotation service as may be selected by the
General Partner for such purpose, if said Bureau is not at the time furnishing
quotations; or (c) if such Unit is not of a class of Units listed for trading
on a National Securities Exchange or quoted by NASDAQ, an amount equal to the
fair market value of such Unit as of such date of determination, as determined
by the General Partner using any reasonable method of valuation it may select.
"Units Register" has the meaning specified in Section 10.2.
"Unrealized Gain" attributable to a Partnership property means, as of any
date of determination, the excess, if any, of the fair market value of such
property as of such date of determination over the Carrying Value of such
property as of such date of determination (prior to any adjustment to be made
Pursuant to Section 5.1(f) as of such date).
"Unrealized Loss" attributable to a Partnership property means, as of any
date of determination, the excess, if any, of the Carrying Value of such
property as of such date of determination (prior to any adjustment to be made
pursuant to Section 5.1(f) as of such date) over the fair market value of such
property as of such date of determination.
ARTICLE II
Organizational Matters
2.1 Formation. Subject to the provisions of this Agreement, the General
Partner and the Organizational Limited Partner have formed the Partnership as a
limited partnership pursuant to the provisions of the Delaware Act. The General
Partner and the Organizational Limited Partner hereby enter into this Agreement
to set forth the rights and obligations of the Partners and certain matters
related thereto. Except as expressly provided herein to the contrary, the
rights and obligations of the Partners and the administration, dissolution and
termination of the Partnership shall be governed by the Delaware Act.
2.2 Name. The name of the Partnership shall be, and the business of the
Partnership shall be conducted under the name of, "Buckeye Partners, L.P.";
provided, however, that (a) the Partnership's business may be
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conducted under any other name or names deemed advisable by the General
Partner, (b) the General Partner in its sole discretion may change the name of
the Partnership at any time and from time to time and (c) the name under which
the Partnership conducts business shall include "Ltd." or "Limited Partnership"
(or similar words or letters) where necessary for purposes of maintaining the
limited liability status of each Limited Partner or otherwise complying with
the laws of any jurisdiction that so requires.
2.3 Principal Office; Registered Office. (a) The principal office of the
Partnership shall be 100 Buckeye Road, Emmaus, Pennsylvania 18049, or such
other place as the General Partner may from time to time designate. The
Partnership may maintain offices at such other places as the General Partner
deems advisable.
(b) The address of the Partnership's registered office in the State of
Delaware shall be Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801, and the name of the
Partnership's registered agent for service of process at such address shall be
The Corporation Trust Company.
2.4 Power of Attorney. (a) Each Limited Partner hereby constitutes and
appoints the General Partner or, if a Liquidator shall have been selected
pursuant to Section 14.3, the Liquidator, with full power of substitution, as
such Limited Partner's true and lawful agent and attorney-in-fact ("Agent"),
with full power and authority in such Limited Partner's name, place and stead
to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate of Limited Partnership and any amendments or restatements
thereof) which the Agent deems appropriate or necessary to form or qualify,
or continue the existence or qualification of, the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) under the laws of any state or jurisdiction; (B) all
certificates, documents and other instruments which the Agent deems
appropriate or necessary to reflect any amendments, changes or
modifications of this Agreement in accordance with its terms; (C) all
conveyances and other documents or instruments which the Agent deems
appropriate or necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement; (D) all certificates,
documents and other instruments relating to the admission, substitution,
withdrawal or removal of any Partner pursuant to Article XII, XIII or XIV
and other events described in Article XII, XIII or XIV; and (E) all
certificates, documents and other instruments (including, without
limitation, this Agreement and the Certificate of Limited Partnership and
any amendments or restatements thereof) relating to the determination of
the rights, preferences and privileges of any class or series of Units
issued pursuant to Section 4.4; and
(ii) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates, documents and other instruments which the
Agent deems appropriate or necessary in order to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other action
which is made or given by the Partners hereunder, is deemed to be made or
given by the Partners hereunder, is consistent with the terms of this
Agreement or is deemed by the Agent to be appropriate or necessary to
effectuate the terms or intent of this Agreement or the purposes of the
Partnership; provided, however, that, if any vote or approval of Limited
Partners is specifically required for an action by any provision of this
Agreement, the Agent may exercise the power of attorney made in this
subsection (ii) to take such action only after such vote or approval is
obtained.
(b) The foregoing power of attorney is hereby declared to be irrevocable and
a power coupled with an interest, and it shall survive and not be affected by
the subsequent death, incompetency, disability, incapacity, dissolution,
bankruptcy or termination of any Limited Partner and the transfer of all or any
portion of such Limited Partner's Units and shall extend to such Limited
Partner's heirs, transferees, successors, assigns and personal representatives.
Each Limited Partner hereby agrees to be bound by any representations made by
the Agent acting in good faith pursuant to such power of attorney; and each
Limited Partner hereby waives any and all defenses which may be available to
contest, negate or disaffirm the action of the Agent taken in good faith
pursuant to such power of attorney. Each Limited Partner shall execute and
deliver to the Agent, within fifteen
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days after receipt of the Agent's request therefor, such further designations,
powers of attorney and other instruments as the Agent deems appropriate or
necessary to effectuate the terms or intent of this Agreement or the purposes
of the Partnership.
2.5 Term. The Partnership shall continue in existence until the close of
Partnership business on December 31, 2036 or until the earlier termination of
the Partnership in accordance with the provisions of Article XIV.
2.6 Organizational Limited Partner. At and as of the Time of Delivery, the
Partnership interest of the Organizational Limited Partner shall be terminated
and the Partnership Interest of BMC shall be as described in Section 4.1.
2.7 Organizational Certificate. An Amended and Restated Certificate of
Limited Partnership of the Partnership has been filed with the Secretary of
State of the State of Delaware as required by the Delaware Act. The General
Partner shall cause to be filed such other certificates or documents as may be
required for the formation, operation and qualification of a limited
partnership in Delaware and any other state in which the Partnership may elect
to do business. The General Partner shall thereafter file any necessary
amendments to the Certificate of Limited Partnership and any such other
certificates and documents and do all things requisite to the maintenance of
the Partnership as a limited partnership (or as a partnership in which the
Limited Partners have limited liability) under the laws of Delaware and any
other state in which the Partnership may elect to do business. Subject to
applicable law, the General Partner may omit from the Certificate of Limited
Partnership and any such other certificates and documents, and from all
amendments thereto, the names and addresses of the Limited Partners and
information relating to the Capital Contributions and shares of profits and
compensation of the Limited Partners, or state such information in the
aggregate rather than with respect to each individual Limited Partner.
ARTICLE III
Purpose
3.1 Purpose. The purpose and business of the Partnership shall be to engage
in any lawful activity for which limited partnerships may be organized under
the Delaware Act.
ARTICLE IV
Capital Contributions; Purchases Pursuant
to Purchase Agreements; Additional Issuances
4.1 General Partner Contributions. (a) At and as of the Time of Delivery, the
General Partner shall contribute to the Partnership, in exchange for 121,212 GP
Units (i.e., a 1% Percentage Interest), an amount equal to $2,424,240.
(b) Following the Time of Delivery, whenever a Limited Partner makes a
Capital Contribution to the Partnership pursuant to Section 4.4, the General
Partner shall contribute to the Partnership, in exchange for a number of GP
Units equal to 1/99th of the total number of LP Units then being purchased,
Contributed Property (which may include LP Units) having a Net Agreed Value
equal to 1/99th of the aggregate Net Agreed Value of all Capital Contributions
to the Partnership then being made pursuant to Section 4.4.
4.2 Limited Partner Contributions. At and as of the Time of Delivery, and as
required by the Underwriting Agreement, each Underwriter shall contribute to
the Partnership, in exchange for the number of LP Units specified in the
Underwriting Agreement to be purchased by such Underwriter, an amount in cash
equal to the Issue Price for such LP Units (as specified in the Underwriting
Agreement) multiplied by such number of LP Units being so purchased.
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4.3 Purchases Pursuant to Purchase Agreement. At or around the Time of
Delivery, the Partnership will purchase interests in each First Tier Operating
Partnership and will cause LE Holdings, Inc. to purchase stock of Laurel Pipe
Line Company pursuant to the Purchase Agreements.
4.4 Issuances of Additional LP Units, APUs and Other Securities. (a) The
General Partner is hereby authorized to cause the Partnership to issue, in
addition to the LP Units issued pursuant to Section 4.2, additional LP Units,
or classes or series thereof, or options, rights, warrants or appreciation
rights relating thereto, or APUs, or any other type of security that the
Partnership may lawfully issue, for any Partnership purpose, at any time or
from time to time, to Partners or to other Persons (including, without
limitation, to employee benefit plans sponsored by the General Partner, the
Partnership, any of the Operating Partnerships, the Manager or any of their
respective Affiliates), for such consideration and on such terms and
conditions, and entitling the holders thereof to such relative rights and
powers, as shall be established by the General Partner in its sole discretion,
all without the approval of any Limited Partners, except as provided in Section
17.1 or 17.2.
(b) The General Partner is hereby authorized and directed to do all acts
which it deems appropriate or necessary in connection with each issuance of
Units, APUs or other securities by the Partnership and to amend this Agreement
in any manner which it deems appropriate or necessary to provide for each such
issuance, to admit additional limited partners in connection therewith and to
specify the relative rights, powers and duties of the holders of the Units,
APUs or other securities being so issued, all without the approval of any
Limited Partners, except as provided in Section 17.1 or 17.2.
4.5 No Preemptive Rights. No Partner shall have any preemptive right with
respect to the issuance or sale of Units, APUs or other securities that may be
issued by the Partnership.
4.6 No Interest. No interest shall be paid by the Partnership on Capital
Contributions.
4.7 Loans from Partners. Loans or other advances by a Partner to or for the
account of the Partnership shall not be considered Capital Contributions.
ARTICLE V
Capital Accounts and APU Capital Account; Distributions
5.1 Capital Accounts and APU Capital Account. (a) The Partnership shall
maintain for each Partner a separate Capital Account with respect to Units in
accordance with the regulations issued pursuant to Section 704 of the Code. The
Capital Account of any Partner shall be credited with (i) the Net Agreed Value
of all Capital Contributions made by such Partner in exchange for Units and
(ii) all items of income and gain computed in accordance with Section 5.1 (c)
and allocated to such Partner pursuant to Section 5.1(d) and debited by (iii)
the Net Agreed Value of all distributions of cash or property made to such
Partner with respect to Units and (iv) all items of deduction and loss computed
in accordance with Section 5.1(c) and allocated to such Partner pursuant to
Section 5.1(d).
(b) The Partnership shall maintain an APU Capital Account which shall be
credited with the Net Agreed Value of any Capital Contributions made in
exchange for APUs and debited by the Net Agreed Value of any amounts
distributed by the Partnership to redeem APUs pursuant to the Distribution
Support Agreement and Section 5.2 (c).
(c) For purposes of computing the amount of each item of income, gain, loss
or deduction to be reflected in the Capital Accounts, the determination,
recognition and classification of such item shall be the same as its
determination, recognition and classification for federal income tax purposes,
provided that:
(i) Any deductions for depreciation, cost recovery or amortization
attributable to any Partnership property shall be determined as if the
adjusted basis of such property was equal to the Carrying Value of
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such property. Upon an adjustment to the Carrying Value of any Partnership
property subject to depreciation, cost recovery or amortization pursuant to
Section 5.1(f) or 7.8, any further deductions for such depreciation, cost
recovery or amortization attributable to such property shall be determined
as if the adjusted basis of such property was equal to the Carrying Value
of such property immediately following such adjustment.
(ii) If the Partnership's adjusted basis in property subject to
depreciation, cost recovery or amortization is reduced for federal income
tax purposes pursuant to Section 48(q) (1) of the Code, the amount of such
reduction shall be deemed to be an additional item of deduction in the year
such property is placed in service. Any restoration of such basis pursuant
to Section 48(q) (2) of the Code shall be deemed to be an additional item
of income in the year of restoration.
(iii) Any income, gain or loss attributable to the taxable disposition of
any Partnership property shall be determined by the Partnership as if the
adjusted basis of such property as of such date of disposition was equal in
amount to the Carrying Value of such property as of such date.
(iv) All fees and other expenses incurred by the Partnership to promote
the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code shall be treated as
items of deduction.
(v) The computation of all items of income, gain, loss and deduction
shall be made without regard to any election under Section 754 of the Code
which may be made by the Partnership and, as to those items described in
Section 705(a)(1)(B) or Section 705(a)(2)(B) of the Code, without regard to
the fact that such items are not includible in gross income or are neither
currently deductible nor capitalizable for federal income tax purposes.
(d) (i) For purposes of maintaining the Capital Accounts and except as
otherwise provided in this Section 5.1 (d), each item of income, gain, loss and
deduction (computed in accordance with Section 5.1 (c)) shall be allocated to
the Partners in accordance with their respective Percentage Interests.
(ii) If any Partner unexpectedly receives any adjustment allocation or
distribution described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership
income and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate a deficit in its Capital Account created by such
adjustment, allocation or distribution as quickly as possible.
(iii) To preserve uniformity of Units, the General Partner shall have sole
discretion pursuant to Section 6.1(c) to make special allocations of income or
deduction that do not have a material adverse effect on the Limited Partners
and are consistent with the principles of Section 704 of the Code.
(iv) If there is a net decrease in Partnership minimum gain, within the
meaning of Treasury Regulation Section 1.704-1(b) (4) (iv), during a
Partnership taxable year, all Partners with deficit balances in their Capital
Accounts, computed as described in Treasury Regulation Section 1.704-
1(b)(4)(iv)(c) at the end of such year, will be allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in the
amounts and in the proportions needed to eliminate such deficits as quickly as
possible, before any other allocations are made under Section 704(b) of the
Code.
(e) (i) Except as otherwise provided in this Section 5.1(e), a transferee of
LP Units shall, upon becoming a Limited Partner, succeed to the portion of the
transferor's Capital Account maintained with respect to the Units transferred.
(ii) If a transfer of Units causes a termination of the Partnership under
Section 708(b)(1)(B) of the Code, the Partnership properties shall be deemed to
have been distributed in liquidation of the Partnership to the Partners
(including the transferee of the Units) pursuant to Sections 14.4 and 14.5 and
recontributed by such Partners and transferees in reconstitution of the
Partnership. The Capital Accounts of such reconstituted Partnership shall be
maintained in accordance with this Article V.
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(f) If any additional LP Units are to be issued pursuant to Section 4.4, or
if any Partnership Property is to be distributed, the Capital Accounts of the
Partners (and the Carrying Values of all Partnership properties) shall,
immediately prior to such issuance or distribution, be adjusted (consistent
with the provisions hereof and of Section 704(b) of the Code) upwards or
downwards to reflect any Unrealized Gain or Unrealized Loss attributable to all
Partnership properties (as if such Unrealized Gain or Unrealized Loss had been
recognized upon an actual sale of such properties immediately prior to such
issuance). In determining such Unrealized Gain or Unrealized Loss, the fair
market value of Partnership properties, as of any date of determination, (i)
shall, in the case of the issuance of additional LP Units, be deemed to be
equal to (A) the number of Units outstanding, as of the date of determination,
times the Issue Price for which such additional LP Units are so issued, plus
(B) the amount of any Partnership indebtedness outstanding as of the date of
determination, plus (C) the balance in the APU Capital Account, and (ii) shall,
in the case of the distribution of Partnership property, be determined in the
manner provided in Section 14.3.
5.2 Distributions in Respect of Units; Redemption of APUs. (a) From time to
time, not less often than quarterly, the General Partner shall review the
Partnership's accounts to determine whether distributions are appropriate. The
General Partner may make such cash distributions as it, in its sole discretion,
may determine, without being limited to current or accumulated income or gains,
from any Partnership funds, including, without limitation, Partnership
revenues, Capital Contributions or borrowed funds. In its sole discretion, the
General Partner may also distribute to the Partners other Partnership property,
additional Units or other securities of the Partnership or other entities.
All distributions in respect of Units shall be made concurrently to all
Record Holders on the Record Date set for purposes of such distribution and
shall be prorated in accordance with such Record Holders' respective Percentage
Interests as of such Record Date.
(b) Amounts paid pursuant to Section 7.4, any Management Agreement, any
Operating Partnership Agreement or the Incentive Compensation Agreement shall
not be deemed to be distributions for purposes of this Agreement.
(c) The General Partner shall not be entitled to any distributions in respect
of APUs, other than distributions upon redemption of APUs as provided in the
succeeding sentence and distributions in liquidation as provided in Section
14.3. The General Partner is hereby authorized to require the Partnership to
redeem APUs to the extent permitted by the terms of the Distribution Support
Agreement, at a price equal to the Issue Price therefor. Any APUs so redeemed
shall be deemed canceled and of no further effect.
ARTICLE VI
Income Tax Matters
6.1 Tax Allocations. (a) For federal income tax purposes, each item of
income, gain, loss, deduction and credit of the Partnership shall be allocated
among the Partners in accordance with their Percentage Interests except that
the General Partner shall have the authority to make such other allocations as
are necessary and appropriate to comply with Section 704 of the Code and the
regulations issued pursuant thereto. The General Partner shall not be allocated
any item of income, gain, loss, deduction or credit in respect of APUs.
(b) Gain resulting from the sale or other taxable disposition of Partnership
assets and allocated to (or recognized by) a Partner (or its successor in
interest) for federal income tax purposes shall be deemed to be Recapture
Income to the extent such Partner has been allocated or has claimed any
deduction directly or indirectly giving rise to the treatment of such gain as
Recapture Income.
(c) To preserve uniformity of LP Units, the General Partner shall have sole
discretion to (i) adopt such conventions as it deems appropriate or necessary
in determining the amount of depreciation and cost recovery deductions; (ii)
make special allocations of income or deduction and (iii) amend the provisions
of this
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Agreement as appropriate (x) to reflect the proposal or promulgation of
regulations under Section 704(c) of the Code or (y) otherwise to preserve the
uniformity of Units issued or sold from time to time. The General Partner may
adopt such conventions and make such allocations and amendments only if they
would not have a material adverse effect on the Limited Partners and are
consistent with the principles of Section 704 of the Code.
(d) Items of Partnership income, gain, loss, deduction and credit shall, for
federal income tax purposes, be determined on a monthly basis (or other basis,
as required or permitted by Section 706 of the Code) and shall be allocated to
the Persons who are Record Holders of Units as of the close of business on the
first day of such month or, for the month in which the Underwriters acquire the
LP Units, to the Underwriters; provided, however, that gain or loss on a sale
or other disposition of all or a substantial portion of the assets of the
Partnership shall be allocated to the Persons who are Record Holders of Units
as of the close of business on the date of sale.
(e) Pursuant to Section 704(c) of the Code, items of income, gain, loss,
deduction and credit attributable to Contributed Property shall be allocated in
such a manner as to take into account the variation between the basis of such
property to the Partnership and its Carrying Value.
6.2 Preparation of Tax Returns. The General Partner shall arrange for the
preparation and timely filing of all returns of Partnership income, gains,
losses, deductions, credits and other items necessary for federal and state
income tax purposes and shall use all reasonable efforts to furnish to the
Limited Partners within 90 days after the close of the taxable year the tax
information reasonably required for federal and state income tax reporting
purposes. The classification, realization and recognition of income, gains,
losses, deductions, credits and other items shall be on the accrual method of
accounting for federal income tax purposes, unless the General Partner shall
determine otherwise in its sole discretion.
6.3 Tax Elections. Except as otherwise provided herein, the General Partner
shall, in its sole discretion, determine whether to make any available
election. The General Partner shall elect under Section 754 of the Code to
cause the basis of Partnership property to be adjusted for federal income tax
purposes as provided by Sections 734 and 743 of the Code, but the General
Partner may seek to revoke this election if the General Partner determines that
such revocation is in the best interests of the Limited Partners.
6.4 Tax Controversies. Subject to the provisions hereof, the General Partner
is designated as the Tax Matters Partner (as defined in Section 6231 of the
Code) and is authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of the Partnership's
affairs by tax authorities, including resulting administrative and judicial
proceedings, and to expend Partnership funds for professional services and
costs associated therewith. Each Limited Partner agrees to cooperate with the
General Partner and to do or refrain from doing any and all things reasonably
required by the General Partner to conduct such proceedings.
6.5 Withholding. The General Partner is authorized to take any action
necessary to comply with any withholding requirements established by applicable
law with regard to (a) the sale of United States real property interests, (b)
the distributions of cash or property to any Partner which is a foreign person
or (c) the transfer of Units.
ARTICLE VII
Management and Operation of Business; Indemnification
7.1 Powers of General Partner. Except as otherwise expressly provided in this
Agreement, all powers to control and manage the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no Limited
Partner shall have any power to control or manage the business and affairs of
the Partnership.
In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provisions of this Agreement, the
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General Partner is hereby authorized and empowered, in the name of and on
behalf of the Partnership, to do and perform any and all acts and things which
it deems appropriate or necessary in the conduct of the business and affairs
of the Partnership, including, without limitation, the following:
(a) to lend or borrow money, to assume, guarantee or otherwise become
liable for indebtedness and other liabilities and to issue evidences of
indebtedness;
(b) to buy, lease (as lessor or lessee), sell, mortgage, encumber or
otherwise acquire or dispose of any or all of the assets of the
Partnership;
(c) to own, use and invest the assets of the Partnership;
(d) to purchase or sell products, services and supplies;
(e) to make tax, regulatory and other filings, and to render periodic and
other reports, to governmental agencies or bodies having jurisdiction over
the assets or business of the Partnership;
(f) to open, maintain and close bank accounts and to draw checks and
other orders for the payment of money;
(g) to negotiate, execute and perform any contracts, conveyances or other
instruments;
(h) to distribute Partnership cash;
(i) to utilize the services of officers and employees of the General
Partner or of any other Persons and to select and dismiss employees (if
any) and outside attorneys, accountants, consultants and contractors;
(j) to maintain insurance for the benefit of the Partnership and the
Partners;
(k) to form, participate in or contribute or loan cash or property to
limited or general partnerships, joint ventures, corporations or similar
arrangements;
(1) to expand the business activities in which the Partnership is engaged
or engage in new business activities by acquisition or internal
development;
(m) to conduct litigation and incur legal expenses and otherwise deal
with or settle claims or disputes; and
(n) to purchase, sell or otherwise acquire or dispose of Units and APUs;
in each case at such times and upon such terms and conditions as the General
Partner deems appropriate or necessary, and subject to any express
restrictions contained elsewhere in this Agreement.
7.2 Duties of General Partner. The General Partner shall manage the business
and affairs of the Partnership in the manner the General Partner deems
appropriate or necessary. Without limiting the generality of the foregoing,
the General Partner's duties shall include the following:
(a) to take possession of the assets of the Partnership;
(b) to staff and operate the business of the Partnership with the
officers and employees of the General Partner or of other Persons;
(c) to render or cause to be rendered engineering, environmental and
other technical services and perform or cause to be performed financial,
accounting, logistical and other administrative functions for the
Partnership;
(d) to render such reports and make such periodic and other filings as
may be required under applicable federal, state and local laws, rules and
regulations;
(e) to provide or cause to be provided purchasing, procurement, repair
and other services for the Partnership; and
(f) to conduct the business of the Partnership in accordance with this
Agreement and all applicable laws, rules and regulations;
in each case in such a manner as the General Partner deems appropriate or
necessary.
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7.3 Reliance by Third Parties. Notwithstanding anything to the contrary in
this Agreement, any Person dealing with the Partnership shall be entitled to
assume that the General Partner has full power and authority to encumber, sell
or otherwise use in any manner any and all assets of the Partnership and to
enter into any contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner as if it were the Partnership's sole
party in interest, both legally and beneficially. Each Limited Partner hereby
waives any and all defenses or other remedies which may be available against
such Person to contest, negate or disaffirm any action of the General Partner
in connection with any such dealing. In no event shall any Person dealing with
the General Partner or its representatives be obligated to ascertain that the
terms of this Agreement have been complied with or to inquire into the
necessity or expedience of any act or action of the General Partner or its
representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution
and delivery of such certificate, document or instrument, this Agreement was in
full force and effect, (b) the Person executing and delivering such
certificate, document or instrument was duly authorized and empowered to do so
for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
7.4 Compensation and Reimbursement of the General Partner. (a) Except as
provided in this Section 7.4 or elsewhere in this Agreement, the Distribution
Support Agreement or any other agreement contemplated or permitted hereby or
thereby, the General Partner shall not be compensated for its services as
General Partner to the Partnership.
(b) The General Partner shall be promptly reimbursed for all Designated
Expenses, in addition to any reimbursement as a result of indemnification in
accordance with Section 7.11. The General Partner shall determine such
Designated Expenses in any reasonable manner determined by it.
(c) The General Partner may propose and adopt without the approval of the
Limited Partners fringe benefit plans, including, without limitation, plans
comparable to those that covered employees employed by the predecessors to the
Operating Partnerships and plans involving the issuance of Units, for the
benefit of employees of the General Partner, Partnership, any of the Operating
Partnerships, the Manager or any of their respective Affiliates in respect of
services performed, or obligated to be performed, directly or indirectly, for
the benefit of the Partnership or any of the Operating Partnerships.
7.5 Purchase or Sale of LP Units. The General Partner may, on behalf of the
Partnership, purchase or otherwise acquire or sell or otherwise dispose of LP
Units. As long as LP Units are held by the Partnership or any of the Operating
Partnerships, such LP Units shall not be considered outstanding for any
purpose. The General Partner or any of its Affiliates may also purchase or
otherwise acquire or sell or otherwise dispose of LP Units for its own account.
7.6 Partnership Funds. The funds of the Partnership shall be deposited in
such account or accounts as shall be designated by the General Partner, and
shall not be commingled with the funds of the General Partner or any of its
Affiliates. All withdrawals from or charges against such accounts shall be made
by the General Partner or by its agents, which agents may be Affiliates of the
General Partner. Funds of the Partnership may be invested as determined by the
General Partner.
7.7 Outside Activities; Contracts with Affiliates; Loans to or from
Affiliates. (a) The General Partner shall not have or permit the Manager to
have any business interests or engage in any business activities except for
those relating to the Partnership and the Operating Partnerships.
(b) Any Affiliate of the General Partner (other than the Manager) and any
director, officer, partner or employee of the General Partner or any of its
Affiliates shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and
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activities in direct competition with the Partnership and the Operating
Partnerships, for their own account and for the account of others, without
having or incurring any obligation to offer any interest in such businesses or
activities to the Partnership, the Operating Partnerships or any Partner.
Neither the Partnership, the Operating Partnerships nor any of the Partners
shall have any rights by virtue of this Agreement or the partnership
relationship governed hereby in any such business interests.
(c) Each of the Limited Partners hereby approves, ratifies and confirms the
execution, delivery and performance of the Underwriting Agreement, the Purchase
Agreement, the Operating Partnership Agreements, the Distribution Support
Agreement, the Credit Support Agreement and the Management Agreements and
agrees that the General Partner is authorized to execute, deliver and perform
the other agreements, acts, transactions and matters described in the
Registration Statement on behalf of the Partnership without the approval or
vote of any Limited Partners, notwithstanding any other provision of this
Agreement or the Operating Partnership Agreements.
(d) Subject to the provisions of Section 7.4(a), the General Partner and its
Affiliates may enter into contracts with, or render services to, the
Partnership or any of the Operating Partnerships, provided that such contracts
or services are on terms that are fair and reasonable to the Partnership. The
contracts and services approved, ratified or confined pursuant to Section
7.7(c) shall be deemed to satisfy the terms of this Section 7.7(d).
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey property to, or purchase property from, the Partnership,
directly or indirectly, except pursuant to transactions that are fair and
reasonable to the Partnership. The purchases of interests in the First Tier
Operating Partnerships and stock of Laurel Pipe Line Company pursuant to the
Purchase Agreements shall be deemed to satisfy the terms of this Section
7.7(e).
(f) The General Partner or any of its Affiliates may lend to the Partnership
funds needed by the Partnership for such periods of time as the General Partner
may determine; provided, however, that the General Partner or an Affiliate may
not charge the Partnership interest greater than the rate (including points or
other financing charges or fees) that would be charged to the Partnership by
unrelated lenders on comparable loans. The Partnership shall reimburse the
General Partner or its Affiliate, as the case may be, for any costs incurred by
the General Partner or Affiliate in connection with the borrowing of funds
obtained by such General Partner or Affiliate and loaned to the Partnership.
(g) The Partnership may lend funds to the General Partner or any of its
Affiliates; provided, however, that the Partnership may not lend funds to the
General Partner or an Affiliate unless such funds consist of funds available
after provision for working capital and such reserves as the General Partner
deems appropriate and such loan shall bear interest at the rate (including
points or other financing charges or fees) that the General Partner would be
charged by unrelated lenders on comparable loans.
7.8 Tax Basis and Value Determinations. To the extent that the General
Partner is required pursuant to the provisions of this Agreement to establish
fair market values or allocate amounts realized, tax basis, Agreed Values or
Net Agreed Values, the General Partner shall establish such values and make
such allocations in a manner that is reasonable and fair to the Limited
Partners, taking into account all applicable laws, governmental regulations,
rulings and decisions. The General Partner may, in its sole discretion, modify
or revise such allocations in order to comply with such laws, governmental
regulations, rulings or decisions or to the extent it otherwise deems such
modification or revision appropriate or necessary. The General Partner is
authorized, to the extent deemed by it to be appropriate or necessary, to
utilize the services of an independent appraiser in establishing such values or
allocations and the General Partner shall in such cases be entitled to rely on
the values or allocations established by such independent appraiser.
7.9 Resolution of Conflicts of Interest; Standard of Care. (a) Unless
otherwise expressly provided in this Agreement or any other agreement
contemplated hereby, (i) whenever a conflict of interest exists or arises
between the General Partner or any of its Affiliates, on the one hand, and the
Partnership or any Limited Partner, on the other hand, or (ii) whenever this
Agreement or any other agreement contemplated hereby
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provides that the General Partner or any of its Affiliates shall act in a
manner which is, or provide terms which are, fair and/or reasonable to the
Partnership, any Operating Partnership or any Limited Partner, the General
Partner or such Affiliate shall resolve such conflict of interest, take such
action or Provide such terms considering, in each case, the relative interests
of each Party to such conflict, agreement, transaction or situation and the
benefits and burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted accounting or
engineering practices or principles, and in the absence of bad faith by the
General Partner or such Affiliate, the resolution, action or terms so made,
taken or provided by the General Partner or such Affiliate shall not constitute
a breach of this agreement or any other agreement contemplated hereby or a
breach of any standard of care or duty imposed hereby or under the Delaware Act
or any other applicable law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "discretion" or under a grant of similar
authority or latitude, the General Partner or such Affiliate shall be entitled,
to the extent permitted by applicable law, to consider only such interests and
factors as it desires and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Partnership or the
Limited Partners, or (ii) in its "good faith" or under another express
standard, the General Partner or such Affiliate shall act under such express
standard and, except as required by applicable law, shall not be subject to any
other or different standards imposed by this Agreement, any other agreement
contemplated hereby or applicable law.
7.10 Other Matters Concerning the General Partner. (a) The General Partner
may rely and shall be protected in acting or refraining from acting upon any
certificate, document or other instrument believed by it to be genuine and to
have been signed or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisors selected by it and any opinion or advice of any such Person as to
matters which the General Partner believes to be within such Person's
professional or expert competence shall be full and complete authorization and
protection with respect to any action taken or suffered or omitted by the
General Partner hereunder in good faith and in accordance with such opinion or
advice.
(c) The General Partner may exercise any of the powers granted to it by this
Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
7.11 Limited Liability; Indemnification. (a) Notwithstanding anything to the
contrary in this Agreement, and except to the extent required by applicable
law, no Indemnitee shall be liable to the Partnership or any Partner for any
action taken or omitted to be taken by such Indemnitee, provided that such
Indemnitee acted in good faith and such action or omission does not involve the
gross negligence or willful misconduct of such Indemnitee. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere, or its equivalent, shall not, of itself, create
a presumption that an Indemnitee did not act in good faith or that an action or
omission involves gross negligence or willful misconduct.
(b) The Partnership shall, to the extent permitted by applicable law,
indemnify each Indemnitee against expenses (including legal fees and expenses),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by such Indemnitee, in connection with any threatened, pending or
completed claim, demand, action, suit or proceeding to which such Indemnitee
was or is a party or is threatened to be made a party, by reason of (i) such
Indemnitee's status as a General Partner, any Affiliate of the General Partner,
any Person who is or was a director, officer, employee or agent of the General
Partner or any such Affiliate, or any Person who is or was serving at the
request of the General Partner or any such Affiliate as a director, officer,
partner, trustee, employee or agent of another Person or (ii) any action taken
or omitted to be taken by such Indemnitee in any capacity referred to in clause
(i) of this Section 7.11(b), relating to this Agreement or the property,
business, affairs or management of the Partnership or any of the Operating
Partnerships (provided the
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Indemnitee acted in good faith and the act or omission which is the basis of
such claim, demand, action, suit or proceeding does not involve the gross
negligence or willful misconduct of such Indemnitee).
(c) Expenses (including legal fees and expenses) incurred in defending any
claim, demand, action, suit or proceeding subject to Section 7.11(b) shall be
paid by the Partnership in advance of the final disposition of such claim,
demand, action, suit or proceeding upon receipt of an undertaking (which need
not be secured) by or on behalf of the Indemnitee to repay such amount if it
shall ultimately be determined, by a court of competent jurisdiction, that the
Indemnitee is not entitled to be indemnified by the Partnership as authorized
hereunder.
(d) The Indemnification provided by Section 7.11(b) shall be in addition to
any other rights to which an Indemnitee may be entitled, and shall continue as
to an Indemnitee who has ceased to serve in a capacity for which the Indemnitee
is entitled to indemnification and shall inure to the benefit of the heirs,
successors, assigns, administrators and personal representatives of the
Indemnitee.
(e) To the extent commercially reasonable, the Partnership shall purchase and
maintain insurance on behalf of the Indemnitees against any liability which may
be asserted against or expense which may be incurred by an Indemnitee in
connection with the Partnership's activities, whether or not the Partnership
would have the power to indemnify an Indemnitee against such liability under
the provisions of this Agreement.
(f) An Indemnitee shall not be denied indemnification in whole or in part
under Section 7.11(b) because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 7.11 are for the benefit of the
Indemnitees and the heirs, successors, assigns, administrators and personal
representatives of the Indemnitees and shall not be deemed to create any rights
for the benefit of any other Persons.
ARTICLE VII
Rights and Obligations of Limited Partners
8.1 Limitation of Liability. The Limited Partners shall have no liability
under this Agreement (including, without limitation, liability under Section
7.11).
8.2 Management of Business. No Limited Partner shall, in its capacity as a
Limited Partner, take part in the operation, management or control (within the
meaning of the Delaware Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by a
director, officer, employee or agent of a General Partner or an Affiliate of
the General Partner in such Person's capacity as such (whether or not such
Person is also a Limited Partner) shall not affect, impair or eliminate the
limitations on the liability of the Limited Partners under this Agreement.
8.3 Outside Activities. Limited Partners shall be entitled to and may have
business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities in
direct competition with the Partnership or the Operating Partnerships. Neither
the Partnership, the Operating Partnerships nor any of the other Partners shall
have any rights by virtue of this Agreement or the partnership relationship
created hereby in any business ventures of any Limited Partner.
8.4 Return of Capital. No Limited Partner shall be entitled to the withdrawal
or return of its Capital Contribution, except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement.
8.5 Rights of Limited Partners Relating to the Partnership. In addition to
other rights provided by this Agreement or by applicable law, each Limited
Partner shall have the right for a proper purpose reasonably
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related to such Limited Partner's interest in the Partnership, upon reasonable
demand and at such Limited Partner's own expense:
(a) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(b) promptly after becoming available, to obtain a copy of the
Partnership's federal and state income tax returns for each year;
(c) to obtain a current list of the name and address of each Partner as
set forth in the Units Register;
(d) to obtain a description and statement of the Net Agreed Value of any
Capital Contribution made or agreed to be made by each Partner, and the
date on which such Partner became a Partner;
(e) to obtain a copy of this Agreement and the Certificate of Limited
Partnership and all amendments thereto, together with executed copies of
any powers of attorney pursuant to which this Agreement, the Certificate of
Limited Partnership and all amendments thereto have been executed; and
(f) to obtain such other information regarding the affairs of the
Partnership as may be just and reasonable;
provided, however, that the General Partner may keep confidential from the
Limited Partners, for such period of time as the General Partner deems
reasonable, any information which the General Partner reasonably believes to be
in the nature of trade secrets or other information the disclosure of which the
General Partner in good faith believes could damage the Partnership or its
business or be in violation of applicable law, including, without limitation,
federal securities law, or which the Partnership is required by agreements with
third parties to keep confidential.
ARTICLE IX
Books, Records, Accounting and Reports
9.1 Books, Records and Accounting. The General Partner shall keep or cause to
be kept books and records with respect to the Partnership's business, which
books and records shall at all times be kept at the principal office of the
Partnership. Any books and records maintained by the Partnership in the regular
course of its business, including the Units Register, books of account and
records of Partnership proceedings, may be kept on, or be in the form of, punch
cards, disks, magnetic tape, photographs, micrographics or any other
information storage device, provided that the records so kept are convertible
into clearly legible written form within a reasonable period of time. The books
of the Partnership shall be maintained, for financial reporting purposes, on
the accrual basis, or on a cash basis adjusted periodically to an accrual
basis, as the General Partner shall determine in its sole discretion, in
accordance with generally accepted accounting principles and applicable law.
9.2 Fiscal Year. The fiscal year of the Partnership for financial reporting
purposes shall be the calendar year, unless the General Partner shall determine
otherwise in its sole discretion.
9.3 Reports. (a) As soon as practicable, but in no event later than 90 days
after the close of each fiscal year, the General Partner shall cause to be
mailed to each Record Holder of LP Units as of the last day of that fiscal year
reports containing financial statements of the Partnership for the fiscal year,
presented in accordance with generally accepted accounting principles,
including a balance sheet, statement of income, statement of Partners' capital
and statement of changes in financial position, such statements to be audited
by a nationally recognized firm of independent public accountants selected by
the General Partner.
(b) As soon as practicable, but in no event later than 45 days after the
close of each calendar quarter, except the last calendar quarter of each fiscal
year, the General Partner shall cause to be mailed to each Record Holder of LP
Units as of the last day of that calendar quarter a quarterly report for the
calendar quarter containing such financial and other information as the General
Partner deems appropriate.
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ARTICLE X
Issuance of LP Certificates; Transfer and Exchange of LP Units
10.1 Initial Issuance of LP Certificates. Upon the issuance of LP Units to
any Person, the Partnership will issue one or more LP Certificates in the name
of such Person evidencing the number of such LP Units being so issued. LP
Certificates shall be executed on behalf of the Partnership by the General
Partner. No LP Certificate shall be valid for any purpose until manually
countersigned by the Transfer Agent.
10.2 Registration, Registration of Transfer and Exchange. (a) The Partnership
will cause to be kept a register (the "Units Register") in which, subject to
such reasonable regulations as it may prescribe and subject to the provisions
of Section 10.2(b), the Partnership will provide for the registration of LP
Units and of transfers of such LP Units. The Transfer Agent is hereby appointed
registrar for the purpose of registering LP Units and transfers of such LP
Units as herein provided.
Upon surrender for registration of transfer or exchange of any LP
Certificate, and subject to the provisions of Section 10.2(b), the General
Partner on behalf of the Partnership will execute, and the Transfer Agent will
countersign and deliver, in the name of the holder or the designated transferee
or transferees, as required pursuant to the holder's instructions, one or more
new LP Certificates evidencing the same aggregate number of LP Units as did the
LP Certificate so surrendered.
(b) Every LP Certificate surrendered for registration of transfer or exchange
shall be duly endorsed on the reverse side thereof, or be accompanied by a
written instrument of transfer in form satisfactory to the General Partner or
the Transfer Agent, as the case may be, duly executed, in either case by the
holder thereof or such holder's attorney duly authorized in writing. Every LP
Certificate surrendered for registration of transfer shall be duly accepted on
the reverse side thereof, or be accompanied by a written instrument of
acceptance to the same effect in form satisfactory to the General Partner or
the Transfer Agent, as the case may be, duly executed, in either case by the
transferee or such transferee's attorney duly authorized in writing. As a
condition to the issuance of any new LP Certificate under this Section 10.2,
the General Partner may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto.
10.3 Mutilated, Destroyed, Lost or Stolen LP Certificates. (a) If any
mutilated LP Certificate is surrendered to the Transfer Agent, the General
Partner on behalf of the Partnership shall execute and the Transfer Agent shall
countersign and deliver in exchange therefor a new LP Certificate evidencing
the same number of LP Units as did the LP Certificate so surrendered.
(b) If there shall be delivered to the General Partner and the Transfer Agent
(i) evidence to their satisfaction of the destruction, loss or theft of any LP
Certificate and (ii) such security or indemnity as may be required by them to
save each of them and any of their agents harmless, then, in the absence of
notice to the General Partner or the Transfer Agent that such LP Certificate
has been acquired by a bona fide Purchaser, the General Partner on behalf of
the Partnership shall execute and upon its request the Transfer Agent shall
countersign and deliver, in lieu of any such destroyed, lost or stolen
Certificate, a new LP Certificate evidencing the same number of LP Units as did
the LP Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new LP Certificate under this
Section 10.3, the General Partner may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Transfer
Agent) connected therewith.
(d) Every new LP Certificate issued pursuant to this Section 10.3 in lieu of
any destroyed, lost or stolen LP Certificate shall evidence an original
additional Partnership Interest in the Partnership, whether or not the
destroyed lost or stolen LP Certificate shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Agreement equally and
proportionately with any and all other LP Units duly issued hereunder.
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10.4 Persons Deemed Owners. Prior to due presentment of an LP Certificate for
registration of transfer and satisfaction of the requirements of Section
10.2(b) with respect thereto, (a) the Partnership, the General Partner, the
Transfer Agent and any agent of any of the foregoing may deem and treat the
Record Holder as the absolute owner thereof and of the LP Units evidenced
thereby for all purposes whatsoever and (b) a transferee shall not be entitled
to distributions or allocations or any other rights in respect of the LP Units
evidenced thereby other than the right to further transfer such LP Units.
ARTICLE XI
Transfer of Gp Units
11.1 Transfer of GP Units. The General Partner may not transfer any GP Units
unless (a) all of its GP Units are being transferred and the transferee assumes
all of the rights and obligations of the General Partner hereunder, (b) the
transfer is to an Affiliate of the General Partner or is in connection with the
General Partner's merger or consolidation with, or a transfer of all or
substantially all of the General Partner's assets to, another Person, or the
transfer is approved by a Majority Interest, and (c) the Partnership receives
an Opinion of Counsel that such transfer would not result in the loss of
limited liability of any Limited Partner or cause the Partnership or any of the
Operating Partnerships to be treated as an association taxable as a corporation
for federal income tax purposes.
11.2 Successor General Partner. Any transferee of GP Units pursuant to
Section 11.1 shall automatically be admitted to the Partnership as the
successor General Partner, and the transferor of such GP Units shall
automatically cease to be the General Partner, effective at the time provided
in Section 12.3. No such transfer shall be deemed a withdrawal pursuant to
Article XIII.
ARTICLE XII
Admission of Initial and Substituted
Limited Partners and Successor General Partner
12.1 Admission of Initial Limited Partners. At and as of the Time of
Delivery, the initial Record Holders of LP Units purchased pursuant to Section
4.2 shall automatically become Limited Partners and the Organizational Limited
Partner shall automatically cease to be a Limited Partner.
12.2 Admission of Substituted Limited Partners. A transferee of LP Units
shall automatically be admitted to the Partnership as a Limited Partner (and
the transferor of such LP Units shall, if such transferor is assigning all of
such transferor's LP Units, automatically cease to be a Limited Partner) at and
as of the time the transfer is registered on the Units Register pursuant to
Section 10.2.
12.3 Admission of Successor General Partner. A successor General Partner
approved pursuant to Section 13.1 or the proviso to Section 14.1 or the
transferee of all of the GP Units pursuant to Section 11.1 shall be admitted to
the Partnership as the successor General Partner, effective as of the date an
amendment or restatement of the Certificate of Limited Partnership is filed
with the Secretary of State of the State of Delaware affecting such
substitution; provided, however, that no such successor shall be so admitted to
the Partnership until it has agreed in writing to assume the former General
Partner's obligations hereunder. This Agreement and the Certificate of Limited
Partnership shall be amended as appropriate to reflect the termination of the
former General Partner as a general partner and the admission of the successor
General Partner.
ARTICLE XIII
Withdrawal or Removal of the General Partner
13.1 Withdrawal or Removal of the General Partner. (a) BMC agrees to continue
to act as General Partner of the Partnership until the later of (i) the date
which is twenty-five years after the Time of Delivery or
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(ii) the date the ESOP Loan is paid in full, subject to BMC's right to transfer
all of its GP Units pursuant to Section 11.1. At any time after the date which
is ten years after the Time of Delivery, the General Partner may withdraw from
the Partnership effective upon at least 90 days' advance written notice to the
Limited Partners, such withdrawal to take effect on the date specified in such
notice, provided that such withdrawal is approved by an Eighty Percent Interest
or the Partnership has received an Opinion of Counsel that such withdrawal
would not result in the loss of limited liability of any Limited Partner or
result in the Partnership or any Operating Partnership being treated as an
association taxable as a corporation for federal income tax purposes. Any such
withdrawal shall also constitute the withdrawal of the Manager from the
Operating Partnerships, as provided in the Operating Partnership Agreements. If
the General Partner gives a notice of withdrawal, a Majority Interest may,
prior to the effective date of such withdrawal, approve a successor General
Partner. The Person so approved (or its designated Affiliates) shall become the
successor general partner or partners of the Operating Partnerships, as
provided in the Operating Partnership Agreements. If no successor General
Partner is so approved, the Partnership shall be dissolved pursuant to Section
14.1.
BMC further agrees that it shall not permit the Manager to withdraw as
general partner of any Operating Partnership, except in connection with the
withdrawal of BMC as General Partner.
(b) The General Partner may be removed only by an Eighty Percent Interest,
and only if (i) in connection therewith, a successor General Partner is
approved by a Majority Interest, (ii) the Partnership shall have received an
Opinion of Counsel that the removal of the General Partner and the approval of
a successor General Partner will not result in the loss of limited liability of
any Limited Partner or cause the Partnership or any of the Operating
Partnerships to be treated as an association taxable as a corporation for
federal income tax purposes and (iii) all required regulatory approvals for
removal of the Manager shall have been obtained. Such removal shall be
effective upon the admission of the successor General Partner pursuant to
Section 12.3. The Person so approved (or its designated Affiliates) shall
become the successor general partner or partners of the Operating Partnerships,
as provided in the Operating Partnership Agreements.
13.2 Sale of Former General Partner's Interest. If a successor General
Partner is approved pursuant to Section 13.1 or 14.2 or the proviso to Section
14.1, such successor shall purchase the GP Units of the former General Partner
for an amount in cash equal to the fair market value thereof, determined as of
the date the successor General Partner is admitted pursuant to Section 12.3.
The fair market value of the GP Units shall include the value of the right to
receive incentive compensation pursuant to the Distribution Support Agreement
or any other agreement between the Partnership and the General Partner in
effect on the date the successor General Partner is so admitted. Such fair
market value shall be determined by agreement between the former General
Partner and its successor or, failing agreement within 30 days after the date
the successor General Partner is so admitted, by a firm of independent
appraisers jointly selected by the former General Partner and its successor
(or, if the former General Partner and its successor cannot agree on the
selection of such a firm within 45 days after the date the successor General
Partner is so admitted, by a firm of independent appraisers selected by two
firms, one of which will be selected by the former General Partner and the
other of which will be selected by the successor).
ARTICLE XIV
Dissolution and Liquidation
14.1 Dissolution. The Partnership shall be dissolved, and its affairs shall
be wound up, upon:
(a) expiration of the term as provided in Section 2.5;
(b) withdrawal of the General Partner pursuant to Section 13.1 (unless a
Person becomes a successor General Partner prior to or on the effective
date of such withdrawal);
(c) bankruptcy or dissolution of the General Partner, or any other event
that results in the General Partner ceasing to be a general partner in the
Partnership (other than by reason of a withdrawal or removal pursuant to
Section 13.1 or a transfer pursuant to Section 11.1); or
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(d) an election by the General Partner to dissolve the Partnership which
is approved by a Two-Thirds Interest;
provided, however, that the Partnership shall not be dissolved upon an event
described in Section 14.1(b) if, within 90 days of such event, all Partners
agree in writing to continue the business of the Partnership and to the
appointment of a successor General Partner.
For purposes of this Section 14.1, bankruptcy of the General Partner shall be
deemed to have occurred when (i) it commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (ii) it seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for it or
for all or any substantial part of its properties, (iii) it is adjudged a
bankrupt or insolvent, or has entered against it a final and nonappealable
order for relief, under any bankruptcy, insolvency or similar law now or
hereafter in effect, (iv) it executes and delivers a general assignment for the
benefit of its creditors, (v) it files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against it in
any involuntary proceeding of the nature described in clause (i) above, or (vi)
(1) any involuntary proceeding of the nature described in clause (i) above has
not been dismissed 120 days after the commencement thereof or (2) the
appointment without its consent or acquiescence of a trustee, receiver or
liquidator for it or for all or any substantial part of its properties has not
been vacated or stayed within 90 days of such appointment, or (3) such
appointment has been stayed but is not vacated within 90 days after the
expiration of any such stay.
14.2 Reconstitution. Upon dissolution of the Partnership in accordance with
Section 14.1(b) or (c), and a failure of all Partners to agree to continue the
business of the Partnership and to the appointment of a successor General
Partner as provided in the proviso to Section 14.1, then within 180 days after
the event described in Section 14.1(b) or (c), a Majority Interest may elect to
reconstitute the Partnership and continue its business by forming a new
partnership on terms identical to those set forth in this Agreement and having
as a general partner a Person approved by a Majority Interest. Upon any such
election by a Majority Interest, all Partners shall be bound thereby and shall
be deemed to have consented thereto. Unless such an election is made within
such 180-day period, the Partnership shall conduct only activities necessary to
wind up its affairs. If such an election is made within such 180-day period,
then (a) the reconstituted partnership shall continue until the end of the term
set forth in Section 2.5 unless earlier dissolved in accordance with this
Article XIV and (b) all necessary steps shall be taken to cancel this Agreement
and the Certificate of Limited Partnership and to enter into a new partnership
agreement and certificate of limited partnership, and the successor general
partner may for this purpose exercise the powers of attorney granted the
General Partner pursuant to this Agreement; provided that the right of a
Majority Interest to reconstitute and to continue the business of the
Partnership shall not exist and may not be exercised unless the Partnership has
received an Opinion of Counsel that (i) the exercise of the right would not
result in the loss of limited liability of any Limited Partner and (ii) neither
the Partnership nor the reconstituted partnership would be treated as an
association taxable as a corporation for federal income tax purposes.
14.3 Liquidation. Upon dissolution of the Partnership, unless the Partnership
is reconstituted pursuant to Section 14.2, the General Partner, or in the event
the General Partner has withdrawn from the Partnership, been removed or
dissolved or become bankrupt (as defined in Section 14.1), a liquidator or
liquidating committee approved by a Majority Interest shall be the liquidator
of the Partnership (the "Liquidator"). The Liquidator (if other than the
General Partner) shall be entitled to receive such compensation for its
services as may be approved by a Majority Interest. The Liquidator shall agree
not to resign at any time without 15 days' prior written notice and (if other
than the General Partner) may be removed at any time, with or without cause, by
notice of removal approved by a Majority Interest upon dissolution, resignation
or removal of the Liquidator, a successor and substitute Liquidator (who shall
have and succeed to all rights, powers and obligations of the original
Liquidator) shall, within 30 days thereafter, be approved by a Majority
Interest. Except as expressly provided in this Article XIV, the Liquidator
approved in the manner provided herein shall have and may exercise, without
further authorization or approval of any of the parties hereto, all of the
powers
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conferred upon the General Partner under the terms of this Agreement (but
subject to all of the applicable limitations, contractual and otherwise, upon
the exercise of such powers, other than the restrictions set forth in Article
XVII) to the extent appropriate or necessary in the good faith judgment of the
Liquidator to carry out the duties and functions of the Liquidator hereunder
for and during such period of time as shall be reasonably required in the good
faith judgment of the Liquidator to complete the winding-up and liquidation of
the Partnership as provided for herein. The Liquidator shall liquidate the
assets of the Partnership and apply and distribute the proceeds of such
liquidation in the following order of priority, unless otherwise required by
mandatory provisions of applicable law:
(a) to creditors of the Partnership (including Partners); and
(b) to the Partners, in proportion to and to the extent of the positive
balances in their respective Capital Accounts and APU Capital Account;
provided, however, that the Liquidator may place in escrow a reserve of cash
or other assets of the Partnership for contingent liabilities in an amount
determined by the Liquidator to be appropriate for such purposes.
14.4 Distribution in Kind. Notwithstanding the provisions of Section 14.3
requiring the liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if on dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole discretion, defer for a reasonable
time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership and may, in its sole discretion, distribute to
the Partners, or to specific classes of Partners, as tenants in common, in
lieu of cash, and as their interests may appear in accordance with the
Provisions of Section 14.3(b), undivided interests in such Partnership assets
as the Liquidator deems not suitable for liquidation. Any distributions in
kind shall be subject to such conditions relating to the disposition and
management thereof as the Liquidator deems reasonable and equitable and to any
joint ownership agreements or other agreements governing the ownership and
operation of such properties at such time. The Liquidator shall determine the
fair market value of any property distributed in kind using such reasonable
method of valuation as it may adopt.
14.5 Cancellation of Certificate of Limited Partnership. Upon the completion
of the distribution of Partnership property pursuant to Sections 14.3 and
14.4, the Partnership shall be terminated, and the Liquidator (or the Limited
Partners if necessary) shall cause the cancellation of the Certificate of
Limited Partnership and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware and
shall take such other actions as may be necessary to terminate the
Partnership.
14.6 Return of Capital. The General Partner shall not be personally liable
for the return of the Capital Contributions of the Limited Partners, or any
portion thereof, it being expressly understood that any such return shall be
made solely from Partnership assets.
14.7 Waiver of Partition. Each Partner hereby waives any rights to partition
of the Partnership property.
ARTICLE XV
Amendment of Partnership Agreement
15.1 Amendments Which May be Adopted Solely by the General Partner. Subject
to Section 15.3, the General Partner may amend any provision of this Agreement
without the consent of any Limited Partner, and may execute, swear to,
acknowledge, deliver, file and record whatever documents may be required in
connection therewith, to reflect:
(a) a change in the name of the Partnership, in the location of the
principal place of business of the Partnership or in the registered office
or registered agent of the Partnership;
(b) a change that the General Partner deems appropriate or necessary to
(i) qualify, or continue the qualification of, the Partnership as a limited
partnership (or a partnership in which the Limited Partners
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have limited liability) under the laws of any state or jurisdiction or (ii)
ensure that neither the Partnership nor any of the Operating Partnerships
will be treated as an association taxable as a corporation for federal
income tax purposes;
(c) a change to divide outstanding Units into a greater number of Units,
to combine outstanding Units into a smaller number of Units or to
reclassify Units in a manner that in the good faith opinion of the General
Partner, does not adversely affect any class of Limited Partners in any
material respect;
(d) a change that the General Partner in its sole discretion deems
appropriate or necessary to (i) satisfy any requirements, conditions or
guidelines contained in any order, rule or regulation of any federal or
state agency or contained in any federal or state statute or (ii)
facilitate the trading of any Units or comply with any rule, regulation,
requirement, condition or guideline of any National Securities Exchange on
which any Units are or will be listed or admitted to trading, or NASDAQ if
any Units are or will be quoted on NASDAQ;
(e) a change that is appropriate or necessary, as stated in an Opinion of
Counsel, to prevent the Partnership, the Operating Partnerships, the
General Partner, its Affiliates and their respective directors and officers
from in any manner being subjected to the provisions of the Investment
Company Act of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, whether or not substantially
similar to plan asset regulations currently applied or proposed by the
United States Department of Labor;
(f) a change that is required or contemplated by any provision of this
Agreement, including, without limitation, Sections 4.4 and 12.3;
(g) a change that in the good faith opinion of the General Partner does
not adversely affect the Limited Partners in any material respect; or
(h) any changes or events similar to the foregoing.
15.2 Other Amendments. Amendments to this Agreement may be proposed only by
the General Partner. Subject to Section 15.3, a proposed amendment (other than
amendments adopted pursuant to Section 15.1) shall be effective only when
approved by a Majority Interest. The General Partner shall notify all Limited
Partners upon final adoption of any proposed amendment.
15.3 Amendment Requirements. Notwithstanding the provisions of Sections 15.1
and 15.2, (i) the approval of an Eighty Percent Interest shall be required for
any amendment unless the Partnership has received an Opinion of Counsel that
such amendment would not result in the loss of limited liability of any Limited
Partner or result in the Partnership or any Operating Partnership being treated
as an association taxable as a corporation for federal income tax purposes,
(ii) no provision of this Agreement which establishes a percentage of the
Limited Partners required to take or approve any action shall be amended in any
respect which would have the affect of reducing the voting requirement, unless
such amendment is approved by at least such percentage of Limited Partners and
(iii) this Section 15.3 shall be amended only with the approval of an Eighty
Percent Interest.
ARTICLE XVI
Meetings
16.1 Meetings. Meetings of Limited Partners may be called by the General
Partner or by Limited Partners holding an aggregate of at least 20% of the
outstanding LP Units. Within 60 days after receipt by the General Partner of a
written proposal to call a meeting signed by Limited Partners holding the
requisite number of LP Units and indicating the purpose for which the meeting
is to be called (or such longer period as shall be reasonably required by the
General Partner in order to prepare documents required therefor), the General
Partner shall cause a notice of the meeting to be given to each Limited
Partner. A meeting shall be held at a time and place determined by the General
Partner within 60 days after the giving of notice of the meeting. A Majority
Interest represented in person or by proxy shall constitute a quorum at a
meeting of the Partners.
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16.2 Record Date. For purposes of determining the Limited Partners entitled
to notice of or to vote at any meeting or to give approvals without a meeting
as provided in Section 16.4, the General Partner may set a Record Date, which
date for purposes of notice of a meeting shall not be less than 10 days nor
more than 60 days before the date of the meeting.
16.3 Conduct of Meeting. (a) The General Partner shall have full power and
authority concerning the manner of conducting any meeting of Limited Partners
or the solicitation of proxies or consents in writing, including, without
limitation, the determination of Persons entitled to vote, the existence of a
quorum, the conduct of voting, the validity and effect of any proxies, and the
determination of any controversies, votes or challenges arising in connection
with or during the meeting or voting. The General Partner shall designate an
individual to serve as chairman of any meeting and shall further designate an
individual to take the minutes of any meeting, which individuals may be
directors or officers of the General Partner. All minutes shall be kept with
the records of the Partnership maintained by the General Partner.
(b) The General Partner may vote its LP Units in such manner as it in its
sole discretion may determine.
16.4 Action Without a Meeting. Any action that may be taken at a meeting of
the Limited Partners may be taken without a meeting if approvals in writing
setting forth the action so taken are signed by Limited Partners holding in the
aggregate at least the minimum number of LP Units that would be necessary to
authorize or take such action at a meeting at which all the Limited Partners
were present and voted. Prompt notice of the taking of action without a meeting
shall be given to the Limited Partners who have not approved in writing. If
approvals to the taking of any action by the Limited Partners is solicited by
any Person other than by or on behalf of the General Partner, the approvals
shall have no force and effect unless and until (a) they are deposited with the
Partnership in care of the General Partner, (b) approvals sufficient to take
the action proposed are dated as of a date not more than 90 days prior to the
date sufficient consents are deposited with the Partnership, and (c) the
Partnership receives an Opinion of Counsel that giving effect to such approvals
would not result in the loss of limited liability of any Limited Partner or
cause the Partnership or any of the Operating Partnerships to be treated as an
association taxable as a corporation for federal income tax purposes.
ARTICLE XVI
Certain Restrictions
17.1 Additional Units. (a) Without the prior approval of a Two-Thirds
Interest the General Partner shall not cause the Partnership to (i) issue more
than 2,400,000 additional LP Units during the first five years after the Time
of Delivery, (ii) issue more than 4,800,000 additional LP Units at any time
after the Time of Delivery or (iii) issue any class or series of LP Units
having preferences or other special or senior rights over the LP Units being
issued pursuant to Section 4.2.
(b) The General Partner shall not cause the Partnership to issue Units to the
General Partner or any of its Affiliates (other than pursuant to Section 4.1)
unless (i) the Units are of a class which is, prior to such issuance, listed or
admitted to trading on a National Securities Exchange or quoted by NASDAQ and
the Net Agreed Value of the Contributed Property being contributed in exchange
for such Units is at least equal to the number of Units being so issued times
the Unit Price of such Units or (ii) such issuance is approved by a Majority
Interest.
17.2 Additional Indebtedness. Without the prior approval of a Two-Thirds
Interest, the General Partner shall not permit the Partnership or the Operating
Partnerships to incur any indebtedness for borrowed money except for (a) the
First Mortgage Notes, (b) any additional indebtedness of the Operating
Partnerships permitted by the Mortgage Note Indenture, (c) indebtedness owing
to the Partnership, any Operating Partnership or any subsidiary of the
Partnership or any Operating Partnership and (d) additional indebtedness not
described in any of the foregoing clauses in an aggregate consolidated
principal amount not to exceed $25 million plus the aggregate proceeds from the
sale of additional Partnership Interests (other than APUs) after the Time of
Delivery.
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17.3 Capital Expenditures. (a) Subject to Section 17.3 (c), the General
Partner shall not permit the Partnership or the Operating Partnerships to make
combined capital expenditures during any calendar year in excess of 20% of the
sum of the Partnership's consolidated operating income and depreciation and
amortization for such year, except to the extent that, in the good faith
opinion of the General Partner, capital expenditures in excess of such limit
are required to sustain or improve existing operations of the Partnership and
the Operating Partnerships.
(b) In the event that capital expenditures in excess of the limit referred to
in Section 17.3(a) are incurred for any year (because such expenditures are
required to sustain or improve existing operations or otherwise), the General
Partner shall use its best efforts to finance at least the amount of such
excess within six months after its incurrence through the issuance of
additional Partnership Interests (other than APUs) not prohibited by Section
17.1, borrowings not prohibited by Section 17.2 or both.
(c) The Provisions of Sections 17.3 (a) and (b) may be waived as to
particular capital expenditures by the approval of a Majority Interest.
17.4 Certain Amendments. (a) Without the prior approval of a Two-Thirds
Interest, the General Partner shall not amend the Distribution Support
Agreement or permit the Partnership or any Operating Partnership to amend any
compensation arrangement for the General Partner or the Manager, unless, in any
case, such amendment does not, in the good faith opinion of the General
Partner, adversely affect the Limited Partners in any material respect.
(b) The General Partner shall not cause the Partnership to approve any
amendment to an Operating Partnership Agreement pursuant to Section 13.2
thereof unless such amendment is approved by a Majority Interest.
17.5 Sale of Assets. Without the prior approval of a Two-Thirds Interest, the
General Partner shall not permit the sale or other disposition of all or
substantially all of the consolidated assets owned by the Partnership and the
Operating Partnerships.
17.6 Restricted Payments by General Partner or Manager. (a) The General
Partner shall not declare or make any Restricted Payment unless (i) after
giving effect thereto, the General Partner's assets that can be reached by
creditors (excluding its Partnership Interest and any notes receivable from or
payable to the Partnership) would have a fair market value (using such
reasonable method of valuation as the General Partner may adopt) equal to or
greater than $5,000,000, (ii) the Partnership has received an Opinion of
Counsel that such Restricted Payment would not result in the Partnership or any
Operating Partnership being treated as an association taxable as a corporation
for federal income tax purposes or (iii) such Restricted Payment is approved by
an Eighty Percent Interest.
(b) The General Partner shall not permit the Manager to declare or make any
Restricted Payment unless (i) after giving effect thereto, the Manager's assets
that can be reached by creditors (excluding its partnership interest in any
Operating Partnership and any notes receivable from or payable to such
Operating Partnership) would have a fair market value (using such reasonable
method of calculation as the General Partner may adopt) equal to or greater
than $5,000,000, (ii) the Partnership has received an Opinion of Counsel that
such Restricted Payment would not result in the Partnership or any Operating
Partnership being treated as an association taxable as a corporation for
federal income tax purposes or (iii) such Restricted Payment is approved by an
Eighty Percent Interest.
ARTICLE XVIII
Right to Purchase Units
18.1 Right to Purchase Units. At any time after December 31, 1991, if fewer
than 10% of the outstanding LP Units are held by Persons other than the General
Partner and its Affiliates, the General Partner
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shall have the right, which it may assign to the Partnership or any Affiliate,
to purchase all, but not less than all, of the LP Units that remain outstanding
and are held by Persons other than the General Partner and its Affiliates. Any
such purchase shall be at a price per LP Unit in cash (the "Purchase Price")
equal to the greater of the Unit Price on the date of purchase (the "Purchase
Date") or the Issue Price for such LP Units, in either case multiplied by (a)
1.3, if the Purchase Date is on or prior to December 31, 1996, (b) 1.2, if the
Purchase Date is after December 31, 1996 and on or prior to December 31, 2001,
(c) 1.1, if the Purchase Date is after December 31, 2001 and on or prior to
December 31, 2006, or (d) 1.0, if the Purchase Date is after December 31, 2006.
18.2 Notice of Election to Purchase. In the event the General Partner, any
Affiliate of the General Partner or the Partnership elects to exercise such
right to purchase LP Units pursuant to Section 18.1, the General Partner shall
cause the Transfer Agent to give written notice of such election to Purchase
(the "Notice of Election to Purchase") to the Record Holders at least 10, but
not more than 60, days prior to the Purchase Date. Such Notice of Election to
Purchase shall also be published in daily newspapers of general circulation
printed in the English language and published in the Borough of Manhattan, New
York. The Notice of Election to Purchase shall specify the Purchase Date and
the Purchase Price and state that the General Partner, its Affiliate or the
Partnership, as the case may be, has elected to purchase such LP Units, upon
surrender thereof in exchange for payment, and at such place as specified. Any
such Notice of Election to Purchase mailed to a Record Holder of LP Units at
his address as reflected in the Units Register shall be conclusively presumed
to have been given whether or not the owner receives such notice.
18.3 Purchase and Transfer of Units. On or prior to the Purchase Date, the
General Partner, its Affiliate or the Partnership, as the case may be, shall
deposit with the Transfer Agent cash in an amount equal to the amount required
to purchase all outstanding LP Units held by Persons other than the General
Partner or its Affiliates. If the Notice of Election to Purchase shall have
been duly given as aforesaid and if on or prior to the Purchase Date the cash
shall have been deposited with the Transfer Agent in trust for the benefit of
the holders of LP Units subject to purchase as provided herein, then from and
after the Purchase Date, whether or not any LP Units shall have been
surrendered for purchase, all rights of the holders of such LP Units
(including, without limitation, any rights pursuant to Articles V, VI and XIV)
shall thereupon cease, except the right to receive the Purchase Price therefor,
without interest, upon surrender to the Transfer Agent of the LP Certificates
representing such LP Units, and such LP Units shall thereupon be transferred to
the General Partner, its Affiliate or the Partnership, as the case may be, on
the Units Register, and the General Partner, its Affiliate or the Partnership,
as the case may be, shall be deemed to be the owner of all such LP Units from
and after the Purchase Date and shall have all rights as the owner of such LP
Units.
ARTICLE XIX
General Provisions
19.1 Opinions Regarding Taxation as a Partnership. Notwithstanding any other
provisions of this Agreement, the requirement, as a condition to any action
proposed to be taken under this Agreement, that the Partnership receive an
Opinion of Counsel that the proposed action would not result in the Partnership
or any of the Operating Partnerships being treated as an association taxable as
a corporation for federal income tax purposes (a) shall not be applicable to
the extent that the Partnership or any of the Operating Partnerships is at such
time treated in all material respects as an association taxable as a
corporation for federal income tax purposes and (b) shall be deemed satisfied
by an Opinion of Counsel containing conditions, limitations and qualifications
which are acceptable to the General Partner in its sole discretion.
19.2 Personal Property. The Partnership Interest of any Partner shall be
personal property for all purposes.
19.3 Addresses and Notices. Any notice, demand, request, payment or report
required or permitted to be given or made to a Limited Partner under this
Agreement shall be in writing and shall be deemed given or
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made when delivered in person or when sent by first class mail or by other
means of written communication to the Limited Partner at such Limited Partner's
address as shown on the Units Register. Any notice to the Partnership or the
General Partner shall be deemed given if received in writing by the General
Partner at the principal office of the Partnership designated pursuant to
Section 2.3.
19.4 Headings. All article or section headings in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any of the provisions hereof.
19.5 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto (including the additional Persons that become
Limited Partners as provided herein) and their heirs, executors,
administrators, successors, legal representatives and assigns.
19.6 Integration. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
19.7 Waiver. No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any such breach or of any other covenant, duty, agreement or condition.
19.8 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto (including the additional Persons that become Limited
Partners as provided herein).
19.9 Severability. If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof, or of such provision in
other respects, shall not be affected thereby.
19.10 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
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In Witness Whereof, this Agreement has been duly executed by the General
Partner and the Organizational Limited Partner as of the date first above
written.
Buckeye Management Company, as
General Partner
By /s/ Edward F. Kosnik
----------------------------------
Executive Vice President
Pennsylvania Company, as
Organizational Limited Partner
By /s/ Alfred W. Martinelli
----------------------------------
President
Limited Partners,
All Limited Partners now or
hereafter admitted as limited
partners of the Partnership,
pursuant to powers of attorney now
or hereafter executed in favor of,
and delivered to, the General
Partner.
By Buckeye Management Company,
as General Partner
By /s/ Edward F. Kosnik
----------------------------------
Executive Vice President
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APPENDIX E
[LETTERHEAD OF FURMAN SELZ APPEARS HERE]
June 16, 1997
Special Committee of the Board of Directors
of Buckeye Management Company
100 Matsonford Road
Building 5, Suite 445
Radnor, PA 19087
Gentlemen:
We understand that Buckeye Management Company (the "General Partner"), the
general partner of Buckeye Partners, L.P. (the "Partnership"), has proposed
exchanging BMC Acquisition Company ("BAC") Preferred Stock owned by the BAC
Employee Stock Ownership Plan (the "ESOP") for all of the Common Stock of a new
company ("Newco") that will own 1,546,988 limited partnership units ("L.P.
Units") in the Partnership assuming the average L.P. Unit price for the ten
trading days ending two business days prior to the closing of the transaction
(the "average unit price") is between $36.50 and $41.50 per L.P. Unit./1/ The
Partnership will then convert the BAC Preferred Stock into BAC Common Stock and
contribute the BAC Common Stock to its subsidiary operating partnerships (the
"Operating Partnerships"). The Operating Partnerships will then transfer and
assign the BAC Common Stock to their general partner, Buckeye Pipe Line
Company, a wholly-owned subsidiary of the General Partner, pursuant to an
agreement under which the General Partner will release the Partnership and the
Operating Partnerships from certain economic obligations. The economic
obligations from which the Partnership will be released are: (i) reimbursement
for compensation of six executive officers employed by the General Partner
($2.5 million estimated in 1997); (ii) funding the portion of interest and
principal on the loan to the ESOP (the "ESOP Loan") to the extent covered by
cash distributions on the new L.P. Units issued to Newco, which will become the
sponsor of the ESOP; (iii) reimbursing the General Partner for the cost to
redeem shares of departing employees of the ESOP; and (iv) certain obligations
under the existing incentive compensation structure. (The foregoing
transactions are referred to collectively as the "ESOP Restructuring")
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to the Partnership, of the consideration to be
received by the Partnership in the ESOP Restructuring.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) the Partnership's Annual Reports on Form 10-K for the fiscal years
ended December 31, 1996, 1995, 1994 and 1993 and Quarterly Reports on Form
10-Q for the fiscal quarters ended March 31, 1997 and March 31, 1996;
(ii) certain other publicly available information concerning the
Partnership and the trading market for the L.P. Units;
- --------
/1/ Above $41.50 per unit, the number of L.P. Units will decrease to an amount
calculated by multiplying $41.50 by 1,546,988 and dividing this number by
the average unit price. Below $36.50 per unit, the number of L.P. Units will
increase to an amount calculated by multiplying $36.50 by 1,546,988 and
dividing this number by the average unit price.
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<PAGE>
[LOGO OF FURMAN SELZ APPEARS HERE]
Special Committee of the Board of Directors
of Buckeye Management Company
June 16, 1997
Page Two
(iii) certain internal information relating to the Partnership, including
forecasts and projections, provided to us by management of the Partnership;
(iv) certain publicly available information concerning certain other
companies engaged in businesses which we believe to be comparable to the
Partnership and the trading markets for certain of such other companies'
securities;
(v) documentation from the March 22, 1996 transaction in which BAC
acquired the General Partner;
(vi) excerpts supplied to us by management of an actuarial analysis dated
April 23, 1996 and modifications made by management to such actuarial
analysis; and
(vii) the terms of the draft Memorandum of Understanding dated June 9,
1997 of the proposed settlement of Shakerdge v. Martinelli, et al. pending
in the Court of Chancery of the State of Delaware as they impact the terms
of the ESOP Restructuring.
We have also met with certain officers and employees of the General Partner
concerning its business and operations, assets, present condition and future
prospects and undertook such other studies, analyses and investigations as we
deemed appropriate.
In arriving at our opinion, we have visited but have not conducted a physical
inspection of the properties and facilities of the Partnership, nor have we
made or obtained any independent evaluation or appraisal of such properties and
facilities or assumed any obligation to do so. We have assumed and relied upon
the accuracy and completeness of the financial and other information provided
to us in arriving at our opinion and have not attempted independently to verify
such information. In addition, we have assumed that management's projections
for the Partnership represent the best current judgment of the Partnership's
management as to the future financial condition and results of operations of
the Partnership, and have assumed that the projections have been reasonably
prepared based on such current judgment.
In arriving at our opinion, we have been directed by the Special Committee
and its legal counsel to assume that the original ESOP transaction and the
actions taken by the parties as part of the March 22, 1996 acquisition of the
General Partner by BAC, were legal and permissible under the applicable
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") and
the Internal Revenue Code of 1986, as amended (the "Code"). We have also been
directed to assume that (i) the ESOP Restructuring will not result in a non-
exempt prohibited transaction under the fiduciary provisions of ERISA and (ii)
the ESOP is a qualified plan under Section 401(a) of the Code both before and
after the ESOP Restructuring. We have also relied upon oral advice from the
General Partner's counsel (which we understand will be embodied in written
opinion letters to be delivered at closing) with respect to certain tax issues.
For our analysis, we have been instructed by the Special Committee to assume
that the only expenses related to the ESOP which the Partnership is responsible
for are interest expense and debt amortization on the ESOP Loan. However,
management's projections also include an additional annual expense to the
Partnership of repurchasing the BAC Preferred Stock of those employees who
either retire, diversify or leave each year. In arriving at our opinion, we
also analyzed this BAC Preferred Stock redemption obligation as if it was an
obligation of the General Partner which in turn was reimbursable by the
Partnership and the BAC Preferred Stock was recontributed to the ESOP.
In our analysis, we have considered such financial and other factors as we
have deemed appropriate and feasible under the circumstances including, among
others, the following: (i) the current and historical financial position and
results of operations of the Partnership, including revenues, earnings history,
profit margins,
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<PAGE>
[LOGO OF FURMAN SELZ APPEARS HERE]
Special Committee of the Board of Directors
of Buckeye Management Company
June 16, 1997
Page Three
dividend record, net worth, return on investment and capitalization; (ii) the
financial and business prospects for the Partnerships and the industry segments
in which it operates; and (iii) the current and historical trading markets for
the L.P. Units, including prices, price-earnings ratios and dividend yield, and
for the equity securities of certain companies that we believe to be comparable
to the Partnership. As part of the ESOP Restructuring, management has agreed to
recommend, and the Board of Directors of Buckeye Management Company has agreed
to implement, a $.52 increase in the annual cash distribution per L.P. Unit,
which we have taken note of. We are also mindful of the possible benefits to
the Partnership of senior management's increased ownership in the General
Partner. We have also taken into account our assessment of general economic,
market and financial conditions and our experience in similar transactions, as
well as our experience in securities valuation in general. Our opinion
necessarily is based upon conditions as they exist and can be evaluated on the
date hereof.
As you are aware, we represented American Financial Group, Inc. in the sale
of the General Partner to BAC in March 1996. Moreover, in the ordinary course
of our business, we may actively trade in the L.P. Units for our own account
and for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such L.P. Units.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the consideration to be received by the Partnership in the ESOP
Restructuring is fair, from a financial point of view.
This Opinion is for the use and benefit of the Special Committee in its
consideration of the ESOP Restructuring. This Opinion is not intended to be and
does not constitute a recommendation to any holder of an L.P. Unit as to how
such holder should vote with respect to the ESOP Restructuring. This Opinion
may be included in its entirety in any proxy statement with respect to the ESOP
Restructuring, but may not be summarized, excerpted from, or otherwise publicly
referred to, without our prior written consent.
Very truly yours,
Furman Selz LLC
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<PAGE>
PROXY
BUCKEYE PARTNERS, L.P.
Special Meeting of Unitholders to be Held August 11, 1997
This Proxy is solicited on behalf of Buckeye Management Company in its capacity
as the general partner (the "General Partner") of Buckeye Partners, L.P. (the
"Partnership"). The undersigned hereby appoints Stephen C. Muther and Steven C.
Ramsey or either of them acting alone in the absence of the other, the
attorneys, agents and proxies of the undersigned, with full powers of
substitution (the "Proxies"), to attend and act as proxy or proxies of the
undersigned at the Special Meeting of Unitholders (the "Special Meeting") of
Buckeye Partners, L.P. to be held at the Radnor Hotel, located at 591 East
Lancaster Avenue, St. Davids, Pennsylvania, on August 11, 1997 at 10:00 a.m.
local time, or any adjournment thereof, and to vote as specified herein the
number of limited partnership units which the undersigned, if personally
present, would be entitled to vote.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
SEE REVERSE
SIDE
<PAGE>
[X] Please mark your votes as in this example
The Board of Directors of the General Partner recommends a Vote FOR Proposals
No. 1 and 2.
FOR AGAINST ABSTAIN
1. Approval and adoption of the Proposal
to Issue LP Units. [_] [_] [_]
Approval and adoption of the Proposal
to issue LP Units in connection with
the ESOP Restructuring.
FOR AGAINST ABSTAIN
2. Approval and Adoption of Amendment No. 3
to the Partnership Agreement. [_] [_] [_]
Approval and adoption of Amendment No. 3
to the Partnership's Amended and Restated
Agreement of Limited Partnership attached
as Appendix C to the Proxy Statement.
3. Other Business. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Special Meeting.
This Proxy when properly executed will be voted as specified. If no instruction
is specified with respect to the matter to be acted upon, the units represented
by the Proxy will be voted "FOR" the approval and adoption of the proposal to
issue LP Units in connection with the ESOP Restructuring and "FOR" the approval
and adoption of Amendment No. 3 to the Partnership Agreement. If any other
business is properly presented at the Special Meeting, this Proxy confers
authority to and shall be voted in accordance with the recommendations of the
Board of Directors of the General Partner. This Proxy is solicited on behalf of
the General Partner, and may be revoked prior to its exercise by filing with the
Secretary of the General Partner a duly executed proxy bearing a later date or
an instrument revoking this Proxy, or by attending the meeting and electing to
vote in person.
SIGNATURE(S)_______________________________________ DATE____________________
Please sign exactly as name or names appear on this Proxy. If stock is held
jointly, each holder should sign. If signing as attorney, trustee, executor,
administrator, custodian or corporate officer, please give full title.
