<PAGE>
As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------
BUCKEYE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 23-2432497
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Radnor Corporate Center, Suite 500
100 Matsonford Road
Radnor, PA 19087
(610) 770-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------------
Stephen C. Muther, Esquire
Senior Vice President, Administration,
General Counsel and Secretary
Buckeye Pipe Line Company
5 Radnor Corporate Center, Suite 500
100 Matsonford Road
Radnor, PA 19087
(610) 770-4000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-----------------------
Copies to:
Howard L. Meyers, Esquire
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
(215) 963-5000
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------------
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of Each Class of Securities Amount to be Proposed Maximum Offering Proposed Maximum Amount of
to be Registered Registered Price Per Unit(1) Aggregate Offering Price(2) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Limited Partnership Units(3)(5)....... -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Debt Securities(4)(5)................. -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total(6).............................. $300,000,000 -- $300,000,000 $83,400
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The proposed maximum offering price per unit will be determined by us in
connection with the issuance of the securities.
(2) We have estimated the proposed maximum aggregate offering price solely to
calculate the registration fee under Rule 457(0).
(3) Subject to note 6 below, we are registering an indeterminate number of
limited partnership units.
(4) Subject to note 6 below, we are registering an indeterminate principal
amount of debt securities. If any debt securities are issued at an original
issue discount, then the offering price shall be in such greater principal
amount as shall result in an aggregate initial offering price not to exceed
$300,000,000 less the dollar amount of any securities previously issued.
(5) Not applicable under General Instruction II.D. of Form S-3.
(6) In no event will the aggregate initial offering price of all securities
issued exceed $300,000,000. The aggregate amount of limited partnership
units registered is further limited to that which is permissible under Rule
415(a)(4) under the Securities Act. The registered securities may be sold
separately or as units with other registered securities.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
(SUBJECT TO COMPLETION, ISSUED JULY 2, 1999)
$300,000,000
BUCKEYE PARTNERS, L.P.
Limited Partnership Units
Debt Securities
We, Buckeye Partners, L.P., may offer from time to time limited
partnership units and debt securities. This prospectus describes the general
terms of these securities and the general manner in which we will offer the
securities. The specific terms of any securities we offer will be included in a
supplement to this prospectus. The prospectus supplement will also describe the
specific manner in which we will offer the securities.
The limited partnership units are listed on the New York Stock Exchange
under the symbol "BPL." On June 30, 1999, the closing price of the limited
partnership units on the New York Stock Exchange was $27-1/2 per unit.
---------------
Investing in the securities involves risks. See "Risk Factors"
beginning on page 6.
---------------
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------
The date of this Prospectus is _______, 1999
<PAGE>
TABLE OF CONTENTS
Page
Number
------
Where You Can Find More Information....................................... 4
Forward-Looking Statements................................................ 5
Risk Factors.............................................................. 6
The Partnership...........................................................10
Use of Proceeds...........................................................10
Ratio of Earnings to Fixed Charges........................................11
Description of Debt Securities............................................12
Description of Limited Partnership Units..................................23
Tax Considerations........................................................25
Plan of Distribution......................................................39
Legal Matters.............................................................40
Experts...................................................................40
3
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read our SEC filings over the Internet
at the SEC's website at http:\\www.sec.gov. You may also read and copy documents
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms.
We also provide information to the New York Stock Exchange because the
units are traded on the New York Stock Exchange. You may obtain reports and
other information at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10002.
We provide an annual report to unitholders of record within 90 days
after the close of each calendar year. The annual report contains audited
financial statements and a related report by our independent public accountants.
We will also provide you with tax information within 90 days after the close of
each taxable year.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose to you important information
contained in other documents filed with the SEC by referring you to those
documents. The information incorporated by reference is an important part of
this prospectus. Information we later file with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below:
o annual report on Form 10-K for the year ended December 31, 1998;
o quarterly report on Form 10-Q for the quarter ended March 31,
1999;
o current report on Form 8-K dated January 4, 1999; and
o all documents filed under Section 13(e), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 between the date of this
prospectus and the termination of the Registration Statement.
If information in incorporated documents conflicts with information in
this prospectus you should rely on the most recent information. If information
in an incorporated document conflicts with information in another incorporated
document, you should rely on the most recent incorporated document.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Buckeye Partners, L.P.
5 Radnor Corporate Center
Suite 500
100 Matsonford Road
Radnor, PA 19087
(610) 770-4000
You should rely only on the information contained or incorporated by
reference in this prospectus and any accompanying prospectus supplement. We have
not authorized anyone to provide you with information different from that
contained in this prospectus and the accompanying prospectus supplement. We are
offering to sell the securities, and seeking offers to buy the securities, only
in jurisdictions where offers and sales are permitted. The information contained
in this prospectus and the accompanying prospectus supplement is accurate only
as of the date of this prospectus and the date of the accompanying prospectus
supplement, regardless of the time of delivery of this prospectus and any
accompanying prospectus supplement or any sales of the securities. In this
prospectus and any accompanying prospectus supplement, the terms "Partnership,"
"we," "us" and "our" refer to Buckeye Partners, L.P.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
Some information in this prospectus or any prospectus supplement may
contain forward-looking statements. Such statements use forward-looking words
such as "anticipate," "continue," "estimate," "expect," "may," "will," or other
similar words. These statements discuss future expectations or contain
projections. Specific factors which could cause actual results to differ from
those in the forward-looking statements, include:
o price trends and overall demand for refined petroleum products in
the United States. Economic activity, weather, alternative energy
sources, conservation and technological advances may affect price
trends and demands;
o changes, if any, in FERC regulation of our tariff rates;
o potential liability for environmental claims;
o our ability to successfully identify and complete strategic
acquisitions and make cost saving changes in operations;
o our ability to integrate any acquired operations into our existing
operations; and
o shut-downs or cutbacks at major refineries that use our services.
When considering forward-looking statements, you should keep in mind
the risk factors referred to elsewhere in this prospectus. The risk factors
could cause our actual results to differ materially from those contained in any
forward-looking statement. We disclaim any obligation to update the above list
or to announce publicly the result of any revisions to any of the
forward-looking statements to reflect future events or developments.
You should consider the above information when reading any
forward-looking statements in:
o this prospectus;
o documents incorporated in this prospectus by reference;
o reports filed with the SEC;
o press releases; or
o oral statements made by us or any of our officers or other persons
acting on our behalf.
5
<PAGE>
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus, any prospectus supplement and the documents we have incorporated by
reference into this document before purchasing our securities.
If any of the following risks actually occur, then our business,
financial condition or results of operations could be materially adversely
affected. In that event, we may be unable to make distributions to our
unitholders or pay interest on, or the principal of, any debt securities, the
trading price of our limited partnership units could decline, and/or you may
lose all or part of your investment.
Risks Inherent to our Business
Changes in petroleum demand and distribution may adversely affect our
business
Demand for the service provided by our operating partnerships depends
upon the demand for petroleum, products in the regions served. Prevailing
economic conditions, price and weather affect the demand for petroleum products.
Changes in transportation and travel patterns in the areas served by our
pipelines also affect the demand for petroleum products because a substantial
portion of the refined petroleum products transported by our pipelines is
ultimately used as fuel for motor vehicles and aircraft. If these factors result
in a decline in demand for petroleum products, the business of our operating
partnerships would be particularly susceptible to adverse effects because they
operate without the benefit of either exclusive franchises from government
entities or long term contracts.
Energy conservation, changing sources of supply, structural changes in
the oil industry and new energy technologies also could adversely affect our
business. We cannot predict or control the effect of each of these factors on us
or our operating partnerships.
Our operating partnership's rate structure is subject to regulation and
change by the Federal Energy Regulatory Commission
Buckeye Pipe Line Company, L.P., one of our operating partnerships, is
an interstate common carrier regulated by the Federal Energy Regulatory
Commission under the Interstate Commerce Act and the Department of Energy
Organization Act. Buckeye Pipe Line Company, L.P. presently is authorized to
charge rates set by market forces, subject to limitations, rather than by
reference to costs historically incurred by the pipeline, in fifteen regions and
metropolitan areas.
The Buckeye program is an exception to the generic oil pipeline
regulations the FERC issued under the Energy Policy Act of 1992. The generic
rules rely primarily on an index methodology that allows a pipeline to change
its rates in accordance with an index that the FERC believes reflects cost
changes appropriate for application to pipeline rates. In the alternative, a
pipeline is allowed to charge market-based rates if the pipeline establishes
that it does not possess significant market power in a particular market.
The Buckeye rate program will be subject to reevaluation by the FERC
in or about July 2000. At this time, we cannot predict the impact, if any, that
a change in the FERC's method of regulating Buckeye Pipe Line Company, L.P.
would have on operations, financial condition or results of operations.
Environmental regulation may impose significant costs and liabilities
on us
Our operating partnerships are subject to federal, state and local laws
and regulations relating to the protection of the environment. Risks of
substantial liabilities are inherent in pipeline operations, and we cannot
assure you that the operating partnerships will not incur material environmental
liabilities. Additionally, our costs could increase significantly and we could
face substantial liabilities, if, among other developments:
o environmental laws, regulations and enforcement policies become more
rigorous; or
6
<PAGE>
o claims for property damage or personal injury resulting from the
operations of the operating partnerships are filed.
We are a holding company and depend entirely on our operating
partnerships' distributions to service our debt obligations and pay cash
distributions to our unitholders
We are a holding company with no material operations. If we cannot
receive cash distributions from our operating partnerships, we will not be able
to meet our debt service obligations or to make cash distributions to our
unitholders. Among other things, this would adversely affect the market price of
our limited partnership interests. One of our operating partnerships, Buckeye
Pipe Line Company, L.P., currently is bound by the terms of a revolving credit
facility which prohibit it from making a distribution to us if a default exists
or would result from the distribution. Our operating partnerships may from time
to time incur additional indebtedness under agreements that contain restrictions
which could further limit each operating partnership's ability to make
distributions to us.
The debt securities are junior to our operating partnerships' debt
The debt securities will be issued by the parent partnership and will
be structurally subordinated to the claims of our operating partnerships'
creditors. Holders of the debt securities will not be creditors of our operating
partnerships. The claims to the assets of our operating partnerships derive from
our own partnership interests in those operating partnerships. Claims of our
operating partnerships' creditors will generally have priority as to the assets
of our operating partnerships over our own partnership interest claims and will
therefore have priority over the holders of our debt, including the debt
securities. Our operating partnerships' creditors may include:
o general creditors;
o trade creditors;
o secured creditors;
o taxing authorities; and
o creditors holding guarantees.
As of March 31, 1999, Buckeye Pipe Line Company, L.P. had debt of $240
million outstanding under its senior notes and $26 million outstanding under its
revolving credit facility, with $74 million available to borrow under that
facility. The debt under both agreements is senior to the debt securities.
We may not be successful in growing through acquisitions or integrating
acquired businesses
Part of our business strategy includes acquiring additional businesses
that will allow us to increase distributions to unitholders. We believe that we
can profitably combine the operations of acquired businesses with our existing
operations. However, unexpected costs or challenges may arise whenever
businesses with different operations and management are combined. Successful
business combinations require management and other personnel to devote
significant amounts of time to integrating the acquired business with existing
operations. These efforts may temporarily distract their attention from
day-to-day business, the development or acquisition of new properties and other
business opportunities. We cannot guarantee that we will be able to identify
attractive acquisition candidates in the future, or that we will be able to
acquire such businesses on economically acceptable terms or successfully
integrate them into our existing operations and make cost saving changes.
Risks Relating to Partnership Structure
We may sell additional limited partnership interests, diluting existing
interests of unitholders
Our partnership agreement allows us to issue additional limited
partnership units and other equity securities without unitholder approval. There
is no limit on the total number of limited partnership units and other equity
securities we may issue. When we issue additional limited partnership units or
other equity securities, the proportionate partnership interest of our existing
unitholders will decrease. The issuance could negatively affect the amount of
cash distributed to unitholders and the market price of limited partnership
units. Issuance of additional units will also diminish the relative voting
strength of the previously outstanding units.
7
<PAGE>
Our general partner and its affiliates may have conflicts with our
partnership
The directors and officers of the general partner and its affiliates
have fiduciary duties to manage the general partner in a manner that is
beneficial to its stockholder. At the same time, the general partner has
fiduciary duties to manage our partnership in a manner that is beneficial to our
partnership. Therefore, the general partner's duties to us may conflict with the
duties of its officers and directors to its stockholder.
Such conflicts may include, among others, the following:
o decisions of our general partner regarding the amount and timing
of cash expenditures, borrowings and issuances of additional
limited partnership units or other securities can affect the
amount of incentive compensation payments we make to our general
partner;
o under our partnership agreement we reimburse the general partner
for the costs of managing and operating the partnership; and
o under our partnership agreement, it is not a breach of our general
partner's fiduciary duties for affiliates of our general partner
to engage in activities that compete with us.
Unitholders have limited voting rights and control of management
Our general partner manages and controls our activities and the
activities of our operating partnerships. Unitholders have no right to elect the
general partner or the directors of the general partner on an annual or other
ongoing basis. However, if the general partner resigns or is removed, its
successor may be elected by holders of a majority of the limited partnership
units. Unitholders may remove the general partner only by a vote of the holders
of at least 80% of the limited partnership units and only after receiving state
regulatory approvals required for the transfer of control of a public utility.
As a result, unitholders will have limited influence on matters affecting our
operations, and third parties may find it difficult to gain control of us or
influence our actions.
Our partnership agreement limits the liability of our general partner
Our general partner owes fiduciary duties to the unitholders.
Provisions of our partnership agreement and the partnership agreements for each
of the operating partnerships, however, contain language limiting the liability
of the general partner to the unitholders for actions or omissions taken in good
faith which do not involve gross negligence or willful misconduct. In addition,
the partnership agreements grant broad rights of indemnification to the general
partner and its directors, officers, employees and affiliates.
Unitholders may not have limited liability in some circumstances
The limitations on the liability of holders of limited partnership
interests for the obligations of a limited partnership have not been clearly
established in some states. If it were determined that we had been conducting
business in any state without compliance with the applicable limited partnership
statute, or that the unitholders as a group took any action pursuant to our
partnership agreement that constituted participation in the "control" of our
business, then the unitholders could be held liable under some circumstances for
our obligations to the same extent as a general partner.
8
<PAGE>
Tax Risks
Tax treatment is dependent on partnership status
The availability to a unitholder of the federal income tax benefits of
an investment in the limited partnership units depends, in large part, on our
classification as a partnership for federal income tax purposes. Under current
law, in order to continue to be classified as a partnership for federal income
tax purposes, at least 90% of our gross income for each taxable year must be
"qualifying income" within the meaning of Section 7704 of the Internal Revenue
Code. Whether we will continue to be classified as a partnership in part depends
on our ability to meet this qualifying income test in the future.
If we were classified as a corporation for federal income tax purposes,
we would pay tax on our income at corporate rates (currently a 35% federal
rate), distributions would generally be taxed a second time in the hands of the
unitholders as corporate distributions, and no income, gains, losses or
deductions would flow through to the unitholders. Our treatment as a taxable
entity would result in a material reduction in the anticipated cash flow and
after-tax return to the unitholders, and this would likely result in a
substantial reduction in the value of the limited partnership units.
We cannot assure you that the law will not be changed so as to cause us
to be treated as an association taxable as a corporation for federal income tax
purposes or otherwise to be subject to entity-level taxation.
Unitholders may have negative tax consequences if we default on our
debt or sell assets
If we default on any of our debt, the lenders will have the right to
sue us for non-payment. Such an action could cause an investment loss and
negative tax consequences for unitholders through the realization of taxable
income by unitholders without a corresponding cash distribution. Likewise, if we
were to dispose of assets and realize a taxable gain while there is substantial
debt outstanding and proceeds of the sale were applied to the debt, unitholders
could have increased taxable income without a corresponding cash distribution.
Ownership of limited partnership units raises issues for tax-exempt
entities and other investors
An investment in our limited partnership units by tax-exempt entities
(including employee benefit plans, individual retirement accounts, Keogh plans
and other retirement plans), regulated investment companies and foreign persons
raises issues unique to them. Virtually all of the income derived from limited
partnership units by a tax-exempt entity will be unrelated business taxable
income. This income will be taxable to the tax-exempt entity. Additionally, no
significant part of our gross income will be considered qualifying income for
purposes of determining whether a unitholder will qualify as a regulated
investment company. Further, a unitholder who is a nonresident alien, a foreign
corporation or other foreign person will be required to file federal income tax
returns and to pay taxes on his share of our taxable income because he will be
regarded as being engaged in a trade or business in the United States as a
result of his ownership of a limited partnership unit.
A unitholder's tax liability could exceed cash distributions on his
units
A unitholder will be required to pay federal income taxes and, in some
cases, state and local income taxes on his allocable share of our income, even
if he receives no cash distributions from us. We cannot guarantee that a
unitholder will receive cash distributions equal to his allocable share of our
taxable income. Further, a unitholder will recognize a gain or loss equal to the
difference between the amount realized by him on the sale and his tax basis for
the limited partnership units sold. Both the amount realized by a unitholder on
a sale and his tax basis will include his share of our nonrecourse debt. All or
a portion of the consideration realized by the unitholder, whether or not it
represents gain, may be ordinary income. A unitholder will incur an expense to
the extent that his tax liability exceeds the amount distributed to him or the
amount he receives on the sale or other disposition of his limited partnership
units.
<PAGE>
Because we are a registered tax shelter, a unitholder may face an
increased risk of an IRS audit resulting in taxes payable on our income as well
as income not related to us
We are registered with the Secretary of the Treasury as a "tax
shelter." We cannot assure unitholders that we will not be audited by the IRS or
that adjustments to our income or losses will not be made. Any unitholder owning
less than a 1% profit interest in us has very limited rights to participate in
the income tax and audit process. Further, any adjustments in our tax returns
will lead to adjustments in the unitholders' tax returns and may lead to audits
of unitholders' tax returns and adjustments of items unrelated to us. Each
unitholder is responsible for any tax owed as the result of an examination of
his or her personal tax return.
We treat a purchaser of limited partnership units as having the same
tax benefits as the seller; the IRS may challenge this treatment which could
adversely affect the value of the limited partnership units
Because we cannot match transferors and transferees of units and
because of other reasons, we have adopted depreciation and amortization
conventions that do not conform with all aspects of specified proposed and final
Treasury Regulations. A successful IRS challenge to those conventions could
adversely affect the amount of tax benefits available to a purchaser of units
and could have a negative impact on the value of the units.
9
<PAGE>
THE PARTNERSHIP
We provide pipeline transportation service for refined petroleum
products. We own and operate one of the largest independent refined petroleum
products pipeline systems in the United States in terms of volume delivered,
with approximately 3,500 miles of pipeline serving ten states. We also process
pipeline transmix into refined petroleum products at two facilities and provide
bulk storage service of petroleum products. We conduct all of our operations
through four subsidiary operating limited partnerships. We own approximately a
99% limited partnership interest in each of the operating partnerships. As part
of our business strategy, we are pursuing acquisitions of additional businesses
that will increase cash flow in order to increase distributions to unitholders.
We are a Delaware limited partnership formed in 1986. Limited
partnership interests in Buckeye Partners are represented by publicly traded
limited partnership units and the limited partners are unitholders.
Our sole general partner and the sole general partner and manager of
each of the operating partnerships is Buckeye Pipe Line Company. Buckeye Pipe
Line Company owns approximately a 1% general partnership interest in each of our
operating partnerships and in Buckeye Partners.
Our principal executive offices are located at 5 Radnor Corporate
Center, Suite 500, 100 Matsonford Road, Radnor, PA 19087, telephone (610)
770-4000.
USE OF PROCEEDS
We will use the net proceeds from the sale of the securities for
general business purposes, including debt repayment, future acquisitions,
capital expenditures and working capital. We may change the potential uses of
the net proceeds in a prospectus supplement.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
Three Months
Twelve Months Ended December 31, Ended March 31,
--------------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
2.69 2.94 2.93 2.90 3.45 3.06 3.55
</TABLE>
These computations include us and our operating partnerships and
subsidiaries. For these ratios, "earnings" is the amount resulting from adding
the following items:
o income from continuing operations;
o portion of rents representative of the interest factor; and
o interest on indebtedness.
The term "fixed charges" means the sum of the following:
o interest on indebtedness;
o capitalized interest; and
o a portion of rents representative of the interest factor
11
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be:
o our direct unsecured general obligations;
o either senior debt securities or subordinated debt securities;
and
o issued under one or more separate indentures between us and a
trustee to be named in the prospectus supplement.
Senior Debt Securities will be issued under a Senior Indenture and
Subordinated Debt Securities will be issued under a Subordinated Indenture.
Together the Senior Indentures and the Subordinated Indentures are called
Indentures.
We have summarized selected provisions of the Indentures below. The
forms of the Indentures have been filed as exhibits to the registration
statement. You should read the Indentures for provisions that may be important
to you, because the Indentures, and not this description, govern your rights as
a holder of Debt Securities. In the summary below, we have included references
to section numbers of the applicable Indentures so that you can easily locate
these provisions. Capitalized terms used in the summary have the meanings
specified in the Indentures.
Specific Terms of Each Series of Debt Securities in the Prospectus Supplement
A prospectus supplement and a supplemental indenture relating to any
series of Debt Securities being offered will include specific terms relating to
the offering. These terms will include some or all of the following:
o the form and title of the Debt Securities;
o the total principal amount of the Debt Securities;
o the portion of the principal amount which will be payable if the
maturity of the Debt Securities is accelerated;
o any right we may have to defer payments of interest by extending
the dates payments are due and whether interest on those deferred
amounts will be payable as well;
o the dates on which the principal of the Debt Securities will be
payable;
o the interest rate which the Debt Securities will bear and the
interest payment dates for the Debt Securities;
o any optional redemption provisions;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the Debt Securities;
o any changes to or additional Events of Default or covenants; and
o any other terms of the Debt Securities.
No Limitation on Amount of Debt Securities
Neither of the Indentures limits the amount of Debt Securities that may
be issued. Each Indenture allows Debt Securities to be issued up to the
principal amount that may be authorized by us and may be in any currency or
currency unit designated by us.
12
<PAGE>
Registration of Notes
Debt Securities of a series may be issued in certificated or global
form. (Sections 201 & 202)
Denominations
The prospectus supplement for each issuance of Debt Securities will
state whether the securities will be issued in other amounts than $1,000 each or
multiples thereof.
No Personal Liability of General Partner
Our general partner and its directors, officers, employees and
stockholder will not have any liability for our obligations under the Indentures
or the Debt Securities. Each holder of Debt Securities by accepting a Debt
Security waives and releases our general partner and its directors, officers,
employees and stockholder from all such liability. (Section 115) The waiver and
release are part of the consideration for the issuance of the Debt Securities.
Consolidation, Merger or Sale
We will only consolidate or merge with or into any other partnership or
corporation or sell, lease or transfer all or substantially all of our assets
according to the terms and conditions of the Indentures, which include the
following requirements:
o the remaining or acquiring partnership or corporation is organized
under the laws of the United States, any state or the District of
Columbia;
o the remaining or acquiring partnership or corporation assumes our
obligations under the Indentures; and
o immediately after giving effect to the transaction no Default or
Event of Default exists.
The remaining or acquiring partnership or corporation will be
substituted for us in the Indentures with the same effect as if it had been an
original party to the Indenture. Thereafter, the successor may exercise our
rights and powers under any Indenture, in our name or in its own name. Any act
or proceeding required or permitted to be done by our Board of Directors or any
of our officers may be done by the board of directors or officers of the
successor. If we sell or transfer all or substantially all of our assets, we
will be released from all of our liabilities and obligations under any Indenture
and under the Debt Securities. If we lease all or substantially all of our
assets, we will not be released from our obligations under the Indentures.
(Sections 801 & 802)
Modification of Indentures
Under each Indenture, generally our rights and obligations, and the
rights of the holders may be modified with the consent of the holders of a
majority in aggregate principal amount of the outstanding Debt Securities of
each series affected by the modification. No modification of the principal or
interest payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent. Buckeye
Partners, L.P. and the Trustee may amend the Indentures without the consent of
any holder of the Debt Securities to make technical changes, such as:
o correcting errors;
o providing for a successor trustee;
o qualifying the Indentures under the Trust Indenture Act; or
o adding provisions relating to a particular series of Debt
Securities. (Sections 901 & 902)
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Events of Default
"Event of Default" when used in an Indenture, will mean any of the
following:
o failure to pay the principal of or any premium on any Debt
Security when due;
o failure to pay interest on any Debt Security for 30 days;
o failure to perform any other covenant in the Indenture that
continues for 60 days after being given written notice;
o failure to pay when due principal of or interest on debt greater
than $10 million of the Partnership or any Subsidiary or
acceleration of such debt;
o specific events in bankruptcy, insolvency or reorganization of the
Partnership or its subsidiaries; or
o any other Event of Default included in any Indenture or
supplemental indenture. (Section 501)
An Event of Default for a particular series of Debt Securities does not
necessarily constitute an Event of Default for any other series of Debt
Securities issued under an Indenture. The Trustee may withhold notice to the
holders of Debt Securities of any default (except in the payment of principal or
interest) if it considers such withholding of notice to be in the interests of
the holders. (Section 602)
If an Event of Default for any series of Debt Securities occurs and
continues, the Trustee or the holders of at least 25% in aggregate principal
amount of the Debt Securities of that series may declare the entire principal of
all the Debt Securities of that series to be due and payable immediately. If
this happens, subject to specific conditions, the holders of a majority of the
aggregate principal amount of the Debt Securities of that series can void the
declaration. (Section 502)
Other than its duties in case of a default, a Trustee is not obligated
to exercise any of its rights or powers under any Indenture at the request,
order or direction of any holders, unless the holders offer the Trustee
reasonable indemnity. (Section 601) If they provide this reasonable
indemnification, the holders of a majority in principal amount of any series of
Debt Securities may direct the time, method and place of conducting any
proceeding or any remedy available to the Trustee, or exercising any power
conferred upon the Trustee, for any series of Debt Securities. (Section 512)
Payment and Transfer
Principal, interest and any premium on fully registered securities will
be paid at designated places. Payment will be made by check mailed to the
persons in whose names the Debt Securities are registered on days specified in
the Indentures or any prospectus supplement. Other forms of payment relating to
the Debt Securities will be paid at a place designated by us and specified in a
prospectus supplement. (Section 307)
Fully registered securities may be transferred or exchanged at the
corporate trust office of the Trustee or at any other office or agency
maintained by us for such purposes, without the payment of any service charge
except for any tax or governmental charge. (Section 305)
Discharging Our Obligations
We may choose to either discharge our obligations on the Debt
Securities of any series in a legal defeasance, or to release ourselves from our
covenant restrictions on the Debt Securities of any series in a covenant
defeasance. We may do so at any time on the 91st day after we deposit with the
Trustee sufficient cash or government securities to pay the principal, interest,
any premium and any other sums due to the stated maturity date or a redemption
date of the Debt Securities of the series. If we choose the legal defeasance
option, the holders of the Debt Securities of the series will not be entitled to
the benefits of the Indenture except for registration of transfer
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and exchange of Debt Securities, replacement of lost, stolen, destroyed or
mutilated Debt Securities, conversion or exchange of Debt Securities, sinking
fund payments and receipt of principal and interest on the original stated due
dates or specified redemption dates. (Section 1302)
We may discharge our obligations under the Indentures or release
ourselves from covenant restrictions only if, in addition to making the deposit
with the Trustee, we meet some specific requirements. Among other things:
o we must deliver an opinion of our legal counsel that the discharge
will not result in holders having to recognize taxable income or
loss or subject them to different tax treatment. In the case of
legal defeasance, this opinion must be based on either an IRS
letter ruling or change in federal tax law;
o we may not have a default on the Debt Securities discharged on the
date of deposit;
o the discharge may not violate any of our agreements; and
o the discharge may not result in our becoming an investment company
in violation of the Investment Company Act of 1940. (Section 1303)
Provisions Only in the Senior Indenture
General. The Senior Indenture contains provisions that limit our
ability to:
o put liens on our principal assets; and
o sell or transfer our principal assets and then lease back those
assets. (Sections 1006 & 1007)
The Subordinated Indenture does not contain any similar provisions.
We have described below these provisions and some of the defined terms
used in them. In this section, references to the Partnership relate only to
Buckeye Partners, L.P., the issuer of the Debt Securities, and not to our
Subsidiaries.
Limitations on Liens. The Senior Indenture provides that the
Partnership will not, nor will it permit any Subsidiary to, create, assume,
incur or suffer to exist any lien upon any Principal Property (as defined below)
or upon any shares of capital stock of any Subsidiary owning or leasing any
Principal Property, whether owned or leased on the date of the Senior Indenture
or thereafter acquired, to secure any debt of the Partnership or any other
person (other than the Senior Debt Securities issued thereunder), without in any
such case making effective provision whereby all of the Senior Debt Securities
outstanding thereunder shall be secured equally and ratably with, or prior to,
such debt so long as such debt shall be so secured. The following are excluded
from this restriction:
(1) Permitted Liens (as defined below);
(2) any lien upon any property or assets created at the
time of acquisition of such property or assets by the
Partnership or any Subsidiary or within one year
after such time to secure all or a portion of the
purchase price for such property or assets or debt
incurred to finance such purchase price, whether such
debt was incurred prior to, at the time of or within
one year after the date of such acquisition;
(3) any lien upon any property or assets to secure all or
part of the cost of construction, development, repair
or improvements thereon or to secure debt incurred
prior to, at the time of, or within one year after
completion of such construction, development, repair
or improvements or the commencement of full
operations thereof (whichever is later), to provide
funds for any such purpose;
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(4) any lien upon any property or assets existing thereon at the
time of the acquisition thereof by the Partnership or any
Subsidiary (whether or not the obligations secured thereby are
assumed by the Partnership or any Subsidiary); provided,
however, that such lien only encumbers the property or assets
so acquired;
(5) any lien upon any property or assets of a person existing
thereon at the time such person becomes a Subsidiary by
acquisition, merger or otherwise; provided, however, that such
lien only encumbers the property or assets of such person at
the time such person becomes a Subsidiary;
(6) any lien upon any property or assets of the Partnership or any
Subsidiary in existence on the Issue Date or provided for
pursuant to agreements existing on the Issue Date;
(7) Liens imposed by law or order as a result of any proceeding
before any court or regulatory body that is being contested in
good faith, and liens which secure a judgment or other
court-ordered award or settlement as to which the Partnership
or the applicable Subsidiary has not exhausted its appellate
rights;
(8) any extension, renewal, refinancing, refunding or replacement,
or successive extensions, renewals, refinancings, refundings
or replacements of liens, in whole or in part, referred to in
clauses (1) through (7) above; provided, however, that any
such extension, renewal, refinancing, refunding or replacement
lien shall be limited to the property or assets covered by the
lien extended, renewed, refinanced, refunded or replaced and
that the obligations secured by any such extension,renewal,
refinancing, refunding or replacement lien shall be in an
amount not greater than the amount of the obligations secured
by the lien extended, renewed, refinanced, refunded or
replaced and any expenses of the Partnership and its
Subsidiaries (including any premium) incurred in connection
with such extension, renewal, refinancing, refunding or
replacement; or
(9) any lien resulting from the deposit of moneys or evidence of
indebtedness in trust for the purpose of defeasing debt of the
Partnership or any Subsidiary.
Notwithstanding the foregoing, under the Senior Indenture, the
Partnership may, and may permit any Subsidiary to, create, assume, incur, or
suffer to exist any lien upon any Principal Property to secure debt of the
Partnership or any person other than the Senior Debt Securities, that is not
excepted by clauses (1) through (9), inclusive, above without securing the
Senior Debt Securities issued under the Senior Indenture, provided that the
aggregate principal amount of all debt then outstanding secured by such lien and
all similar liens, together with all net sale proceeds from Sale-Leaseback
Transactions, excluding Sale-Leaseback Transactions permitted by clauses (1)
through (4), inclusive, of the first paragraph of the restriction on
sale-leasebacks covenant described below, does not exceed 10% of Consolidated
Net Tangible Assets (as defined below). (Section 1006)
"Consolidated Net Tangible Assets" means, at any date of determination,
the total amount of assets after deducting therefrom:
(1) all current liabilities excluding:
o any current liabilities that by their terms are extendible
or renewable at the option of the obligor thereon to a time
more than 12 months after the time as of which the amount
thereof is being computed; and
o current maturities of long-term debt.
and
(2) the value, net of any applicable reserves, of all goodwill,
trade names, trademarks, patents and other like intangible
assets, all as set forth, or on a pro-forma basis would be set
forth, on the consolidated balance sheet of the Partnership
and its consolidated subsidiaries for the Partnership's most
recently completed fiscal quarter, prepared in accordance with
generally accepted accounting principles.
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"Issue Date" means with respect to any series of Debt Securities issued
under either Indenture the date on which Debt Securities of that series are
initially issued under that Indenture.
"Permitted Liens" means:
(1) liens upon rights-of-way for pipeline purposes;
(2) any statutory or governmental lien or lien arising by
operation of law, or any mechanics', repairmen's,
materialmen's, suppliers', carriers', landlords',
warehousemen's or similar lien incurred in the ordinary course
of business which is not yet due or which is being contested
in good faith by appropriate proceedings and any undetermined
lien which is incidental to construction, development,
improvement or repair;
(3) the right reserved to, or vested in, any municipality or
public authority by the terms of any right, power, franchise,
grant, license, permit or by any provision of law, to purchase
or recapture or to designate a purchaser of, any property;
(4) liens of taxes and assessments which are:
o for the then current year,
o not at the time delinquent, or
o delinquent but the validity of which is being contested
at the time by the Partnership or any Subsidiary in good
faith;
(5) liens of, or to secure performance of, leases, other than
capital leases;
(6) any lien upon, or deposits of, any assets in favor of any
surety company or clerk of court for the purpose of obtaining
indemnity or stay of judicial proceedings;
(7) any lien upon property or assets acquired or sold by the
Partnership or any Subsidiary resulting from the exercise of
any rights arising out of defaults on receivables;
(8) any lien incurred in the ordinary course of business in
connection with workmen's compensation, unemployment
insurance, temporary disability, social security, retiree
health or similar laws or regulations or to secure obligations
imposed by statute or governmental regulations;
(9) any lien in favor of the Partnership or any Subsidiary;
(10) any lien in favor of the United States of America or any state
thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any
state thereof, to secure partial, progress, advance, or other
payments pursuant to any contract or statute, or any debt
incurred by the Partnership or any Subsidiary for the purpose
of financing all or any part of the purchase price of, or the
cost of constructing, developing, repairing or improving, the
property or assets subject to such lien;
(11) any lien securing industrial development, pollution control or
similar revenue bonds;
(12) any lien securing debt of the Partnership or any Subsidiary,
all or a portion of the net proceeds of which are used,
substantially concurrent with the funding thereof (and for
purposes of determining such "substantial concurrence," taking
into consideration, among other things, required notices to be
given to holders of outstanding securities under the Indenture
(including the Debt Securities) in connection with such
refunding, refinancing or repurchase, and the required
corresponding durations thereof), to refinance, refund or
repurchase all outstanding securities under the Indenture
(including the Debt Securities), including the amount of all
accrued interest thereon and
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reasonable fees and expenses and premium, if any, incurred by
the Partnership or any Subsidiary in connection therewith;
(13) liens in favor of any Person to secure obligations under the
provisions of any letters of credit, bank guarantees, bonds or
surety obligations required or requested by any governmental
authority in connection with any contract or statute; or
(14) any lien upon or deposits of any assets to secure performance
of bids, trade contracts, leases or statutory obligations.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, other
entity, unincorporated organization or government or any agency or political
subdivision thereof.
"Principal Property" means, whether owned or leased on the date of the
Senior Indenture or thereafter acquired:
(1) any pipeline assets of the Partnership or any Subsidiary, including
any related facilities employed in the transportation, distribution, storage or
marketing of refined petroleum products, that are located in the United States
of America or any territory or political subdivision thereof; and
(2) any processing or manufacturing plant or terminal owned or leased
by the Partnership or any Subsidiary that is located in the United States or any
territory or political subdivision thereof, except, in the case of either of the
foregoing clauses (1) or (2):
o any such assets consisting of inventories, furniture,
office fixtures and equipment, including data processing
equipment, vehicles and equipment used on, or useful with,
vehicles, and
o any such assets, plant or terminal which, in the good
faith opinion of the Board of Directors, is not material
in relation to the activities of the Partnership or of the
Partnership and its Subsidiaries, taken as a whole.
"Sale-Leaseback Transaction" means the sale or transfer by the
Partnership or any Subsidiary of any Principal Property to a Person (other than
the Partnership or a Subsidiary) and the taking back by the Partnership or any
Subsidiary, as the case may be, of a lease of such Principal Property.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of equity interests entitled,
without regard to the occurrence of any contingency, to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of such Person or combination thereof; or
(2) in the case of a partnership, more than 50% of the partners' equity
interests, considering all partners' equity interests as a single class is at
the time owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of such Person or combination thereof.
Limitations on Sale-Leasebacks. The Senior Indenture provides that the
Partnership will not, and will not permit any Subsidiary to, engage in a
Sale-Leaseback Transaction, unless:
(1) such Sale-Leaseback Transaction occurs within one year from
the date of completion of the acquisition of the Principal
Property subject thereto or the date of the completion of
construction, development or substantial repair or
improvement, or commencement of full operations on such
Principal Property, whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a period,
including renewals, of not more than three years;
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(3) the Attributable Debt from that Sale-Leaseback transaction is
an amount equal to or less than the amount the Partnership or
such Subsidiary would be allowed to incur as debt secured by a
lien on the Principal Property subject thereto without equally
and ratably securing the Senior Debt Securities; or
(4) the Partnership or such Subsidiary, within a one-year period
after such Sale-Leaseback Transaction, applies or causes to be
applied an amount not less than the net sale proceeds from
such Sale-Leaseback Transaction to (A) the prepayment,
repayment, redemption, reduction or retirement of any Pari
Passu Debt of the Partnership or any Subsidiary, or (B) the
expenditure or expenditures for Principal Property used or to
be used in the ordinary course of business of the Partnership
or its Subsidiaries.
Notwithstanding the foregoing, under the Senior Indenture the
Partnership may, and may permit any Subsidiary to, effect any Sale-Leaseback
Transaction that is not excepted by clauses (1) through (4), inclusive, of the
above paragraph, provided that the Attributable Indebtedness from such
Sale-Leaseback Transaction, together with the aggregate principal amount of then
outstanding Debt (other than the Senior Debt Securities) secured by liens upon
Principal Properties not excepted by clauses (1) through (9), inclusive, of the
first paragraph of the limitation on liens covenant described above, do not
exceed 10% of the Consolidated Net Tangible Assets. (Section 1007)
"Attributable Indebtedness," when used with respect to any
Sale-Leaseback Transaction, means, as at the time of determination, the present
value, discounted at the rate set forth or implicit in the terms of the lease
included in such transaction of the total obligations of the lessee for rental
payments, other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items that do not constitute payments for property rights during
the remaining term of the lease included in such Sale-Leaseback Transaction
including any period for which such lease has been extended. In the case of any
lease that is terminable by the lessee upon the payment of a penalty or other
termination payment, such amount shall be the lesser of the amount determined
assuming termination upon the first date such lease may be terminated, in which
case the amount shall also include the amount of the penalty or termination
payment, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated, or the amount
determined assuming no such termination.
"Funded Debt" means all debt maturing one year or more from the date of
the creation thereof, all debt directly or indirectly renewable or extendible,
at the option of the debtor, by its terms or by the terms of any instrument or
agreement relating thereto, to a date one year or more from the date of the
creation thereof, and all debt under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more.
"Pari Passu Debt" means any Funded Debt of the Partnership, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Funded Debt, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Funded Debt shall be subordinated in right of payment to the
Debt Securities.
Provisions Only in Subordinated Indenture
Subordination to Senior Debt. The Subordinated Debt Securities will
rank junior in right of payment to all our Senior Debt. "Senior Debt" is defined
to include all notes or other unsecured evidences of indebtedness including
guarantees of the Partnership for money borrowed by the Partnership, not
expressly subordinate or junior in right of payment to any other indebtedness of
the Partnership.
Payment Blockages. Under the Subordinated Indenture, payment of the
principal, interest and any premium on the Subordinated Debt Securities will
generally be junior in right of payment to the prior payment in full of all
Senior Debt. The Subordinated Indenture provides that no payment of principal,
interest and any premium on the Subordinated Debt Securities may be made in the
event:
o we or our property are involved in any voluntary or involuntary
liquidation or bankruptcy; or
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o we fail to pay the principal, interest, any premium or any other
amounts on any Senior Debt when due; or
o we have a nonpayment default on any Senior Debt that imposes a
payment blockage on the Subordinated Debt Securities for a maximum of
179 days at any one time.
(Sections 1401, 1402 & 1403 of the Subordinated Indenture)
No Limit on Senior Debt. The Subordinated Indenture will not limit the
amount of Senior Debt that we may incur.
Book Entry, Delivery and Form
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global certificates that will be deposited with a
depositary identified in a prospectus supplement.
Unless otherwise stated in any prospectus supplement, The Depository
Trust Company, New York, New York ("DTC") will act as depositary. Book-entry
notes of a series will be issued in the form of a global note that will be
deposited with DTC. This means that we will not issue certificates to each
holder. One global note will be issued to DTC who will keep a computerized
record of its participants (for example, your broker) whose clients have
purchased the notes. The participant will then keep a record of its clients who
purchased the notes. Unless it is exchanged in whole or in part for a
certificate note, a global note may not be transferred; except that DTC, its
nominees and their successors may transfer a global note as a whole to one
another.
Beneficial interests in global notes will be shown on, and transfers of
global notes will be made only through, records maintained by DTC and its
participants.
DTC has provided us the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
DTC's management is aware that some computer applications, systems, and
the like for processing data that are dependent upon calendar dates, including
dates before, on and after January 1, 2000, may encounter "Year 2000 problems."
DTC has informed participants and other members of the financial community that
it has developed and is implementing a program so that its systems as they
relate to the timely payment of distributions, including principal and income
payments, to security holders, book-entry deliveries, and settlement of trades
with DTC, continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete.
DTC's ability to perform its services properly is also dependent upon
other parties, including but not limited to:
o issuers and their agents;
o third party vendors from whom DTC licenses software and hardware; and
o third party vendors on whom DTC relies for information or the
provisions of services, including telecommunication and electrical
utility service providers.
DTC has informed the financial community that it is contacting, and
will continue to contact, third party vendors from whom DTC acquires services to
impress upon them the importance of such services being Year 2000
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compliant, and to determine the extent of their efforts for Year 2000
remediation and, as appropriate, testing of their services. In addition, DTC is
in the process of developing contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the financial community for informational purposes only and is
not intended to serve as a representation, warranty or contract modification of
any kind.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
Direct Participant. The rules that apply to DTC and its participants are on file
with the SEC.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., The American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and
the Trustee will treat DTC's nominee as the owner of the global notes for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global notes to owners of
beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal
or interest, to credit Direct Participants' accounts on the payment date
according to their respective holdings of beneficial interests in the global
notes as shown on DTC's records. In addition, it is DTC's current practice to
assign any consenting or voting rights to Direct Participants whose accounts are
credited with notes on a record date, by using an omnibus proxy. Payments by
participants to owners of beneficial interests in the global notes, and voting
by participants, will be governed by the customary practices between the
participants and owners of beneficial interests, as is the case with notes held
for the account of customers registered in "street name." However, payments will
be the responsibility of the participants and not of DTC, the Trustee or us.
Notes represented by a global note will be exchangeable for certificate
notes with the same terms in authorized denominations only if:
o DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered under
applicable law and a successor depositary is not appointed by us
within 90 days; or
o we determine not to require all of the notes of a series to be
represented by a global note and notify the Trustee of our decision.
The Trustee
We will name the trustee for each Indenture in the applicable
prospectus supplement. We anticipate that the same person initially will act as
trustee under the Senior Indenture and the Subordinated Indenture.
Resignation or Removal of Trustee. Under the Indentures and the Trust
Indenture Act of 1939, as amended, governing trustee conflicts of interest, any
uncured Event of Default with respect to any series of Senior Debt Securities
will force the trustee to resign as trustee under either the Subordinated
Indenture or the Senior Indenture. Likewise, any uncured Event of Default with
respect to any series of Subordinated Debt Securities will force the trustee to
resign as trustee under either the Senior Indenture or the Subordinated
Indenture. Any resignation will require the appointment of a successor trustee
under the applicable Indenture in accordance with its terms and conditions.
The trustee may resign or be removed by us with respect to one or more
series of Debt Securities and a successor trustee may be appointed to act with
respect to any such series. The holders of a majority in aggregate principal
amount of the Debt Securities of any series may remove the trustee with respect
to the Debt Securities of such series. (Section 610)
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Limitations on Trustee if it is Our Creditor. Each Indenture contains
limitations on the right of the trustee thereunder, in the event that it becomes
a creditor of the Partnership, to obtain payment of claims in some cases, or to
realize on property received in respect of any such claim as security or
otherwise. (Section 613)
Certificates and Opinions to Be Furnished to Trustee. Each Indenture
provides that, in addition to other certificates or opinions that may be
specifically required by other provisions of an Indenture, every application by
us for action by the Trustee shall be accompanied by an officers' certificate
and an opinion of counsel (who may be our counsel) stating that, in the opinion
of the signers, all conditions precedent to such action have been complied with.
(Section 102)
Report to Holders of Debt Securities. The Trustee is required to submit
an annual report to the holders of the Debt Securities regarding, among other
things, the Trustee's eligibility to serve as such, the priority of the
Trustee's claims regarding advances made by it, and any action taken by the
Trustee materially affecting the Debt Securities.
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DESCRIPTION OF LIMITED PARTNERSHIP UNITS
As of March 31, 1999, there are issued and outstanding 26,757,206
limited partnership units representing an aggregate 99% limited partnership
interest in the Buckeye Partners, L.P. The limited partnership units and the
243,914 general partnership units generally participate pro rata in our income,
gains, losses, deductions, credits and distributions, subject to the Incentive
Compensation Agreement described below.
Buckeye Partners, L.P. currently has a unit option and distribution
equivalent plan which authorizes the granting of options to purchase up to
720,000 limited partnership units to selected employees of Buckeye Pipe Line
Company. At June 16, 1999, there were 199,940 limited partnership units issuable
upon the exercise of options granted under this plan.
Liquidation
In the event of a liquidation, dissolution and winding up of Buckeye
Partners, L.P., the limited partnership units, along with the general
partnership 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 our liabilities and establishment of reasonable reserves.
Voting
Each holder of limited partnership units is entitled to one vote for
each limited partnership unit on all matters submitted to a vote of the
unitholders.
Incentive Compensation
The Incentive Compensation Agreement between us and our general partner
provides that if a quarterly cash distribution exceeds a target of $0.325 per
limited partnership unit, we will pay the general partner, for each outstanding
limited partnership unit, incentive compensation equal to:
(1) 15% of the amount, if any, by which the quarterly distribution
per limited partnership unit exceeds $0.325 but is not more
than $0.35, plus
(2) 25% of the amount, if any, by which the quarterly distribution
per limited partnership unit exceeds $0.35 but is not more
than $0.375, plus
(3) 35% of the amount, if any, by which the quarterly distribution
per limited partnership unit exceeds $0.375 but is not more
than $0.425, plus
(4) 40% of the amount, if any, by which the quarterly distribution
per limited partnership unit exceeds $0.425 but is not more
than $0.525, plus
(5) 45% of the amount, if any, by which the quarterly distribution
per limited partnership unit exceeds $0.525.
The general partner is also entitled to incentive compensation for
special cash distributions exceeding a target special distribution amount per
limited partnership unit. The target special distribution amount generally means
the amount which, together with all amounts distributed per limited partnership
unit prior to the special distribution compounded quarterly at 13% per annum,
would equal $10.00, the initial public offering price of the limited partnership
units split two-for-one, compounded quarterly at 13% per annum from the date of
the closing of the initial public offering in December 1986.
Without the consent of two-thirds interest of the limited partners, the
general partner may not amend the Incentive Compensation Agreement in any
material respect unless the amendment, in the good faith opinion of the general
partner, does not adversely affect the limited partners in any material respect.
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No Preemptive Rights
No person is entitled to preemptive rights in respect of issuances of
securities by Buckeye Partners, L.P.
Transfer Agent and Registrar
The transfer agent and registrar for the limited partnership units is
First Chicago Trust Company of New York. You may contact them at the following
address: 525 Washington Boulevard, Jersey City, New Jersey 07310.
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TAX CONSIDERATIONS
This section is a summary of the material tax considerations that may
be relevant to prospective unitholders who are individual citizens or residents
of the United States and to the extent set forth below under "--Legal Opinions
and Advice," expresses the opinion of Morgan, Lewis & Bockius LLP, counsel to
the general partner and us, insofar as it relates to matters of United States
federal income tax law and legal conclusions with respect thereto. This section
is based upon current provisions of the Internal Revenue Code, existing and
proposed regulations and current administrative rulings and court decisions, all
of which are subject to change. Later changes in these authorities may cause the
tax consequences to vary substantially from the consequences described below.
Unless the context otherwise requires, references in this section to us are
references to both Buckeye Partners and the operating partnerships.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or residents of
the United States and has only limited application to corporations, estates,
trusts, or other unitholders subject to specialized tax treatment, such as
tax-exempt institutions, individual retirement accounts, REITs or mutual funds.
This discussion does not address the tax results to prospective foreign
unitholders. Accordingly, each prospective unitholder should consult, and should
depend on, his or her own tax advisor in analyzing the federal, state, local and
foreign tax consequences to him or her of the ownership or disposition of
limited partnership units.
Legal Opinions and Advice
Counsel is of the opinion that, based on the accuracy of
representations and covenants and subject to the qualifications set forth in the
detailed discussion that follows, for federal income tax purposes:
(1) we, and the operating partnerships, will each be treated as a
partnership; and
(2) owners of limited partnership units, with some exceptions, as
described in "--Tax Treatment of Unitholders--Limited Partner
Status" below, will be treated as partners of us, but not the
operating partnerships.
In addition, all statements as to matters of law and legal conclusions
contained in this section, unless otherwise noted, are the opinion of counsel.
No ruling has been or will be requested from the IRS regarding our
classification as a partnership for federal income tax purposes, whether our
operations generate qualifying income under Section 7704 of the Internal Revenue
Code or any other matter affecting us or prospective unitholders. An opinion of
counsel represents only that counsel's best legal judgment and does not bind the
IRS or the courts. Thus, no assurance can be provided that the opinions and
statements made here would be sustained by a court if contested by the IRS. Any
contest of this sort with the IRS may materially and adversely impact the market
for the limited partnership units and the prices at which limited partnership
units trade. In addition, the costs of any contest with the IRS will be borne
directly or indirectly by the unitholders and the general partner. Furthermore,
no assurance can be given that the treatment of us, or an investment in us, will
not be significantly modified by future legislative or administrative changes or
court decisions. Any modifications may or may not be retroactively applied.
For the reasons described below, counsel has not rendered an opinion
with respect to the following specific federal income tax issues:
(1) the treatment of a unitholder whose limited partnership units
are loaned to a short seller to cover a short sale of limited
partnership units (see "--Tax Treatment of
Unitholders--Treatment of Short Sales"),
(2) whether our monthly convention for allocating taxable income
and losses is permitted by existing Treasury Regulations (see
"--Disposition of Limited Partnership Units--Allocation
Between Transferors and Transferees"), and
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(3) whether our method of depreciating Section 743 adjustments is
sustainable (see "--Disposition of Limited Partnership
Units--Section 754 Election").
Partnership Status
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his or her allocable share of items of income, gain, loss and deduction
of the partnership in computing his or her federal income tax liability,
regardless of whether cash distributions are made. Distributions by a
partnership to a partner are generally not taxable unless the amount of cash
distributed is in excess of the partner's adjusted basis in the partnership
interest.
No ruling has been or will be sought from the IRS and the IRS has made
no determination as to our status, or that of the operating partnerships, as a
partnership for federal income tax purposes. Instead, we have relied on the
opinion of counsel that, based upon the Internal Revenue Code, its regulations,
published revenue rulings and court decisions and our representations described
below, we will be classified as a partnership and the operating partnerships
will be classified as partnerships for federal income tax purposes.
In rendering its opinion, counsel has relied on factual representations
and covenants made by us and the general partner. Counsel's opinion with respect
to periods before 1997 depended on different factual matters, which the general
partner believes are true. The representations and covenants made by us and our
general partner for years beginning after 1996, upon which counsel has relied,
are:
(a) Neither we nor the operating partnerships either have or will
elect to be treated as an association or corporation;
(b) We have been and will be operated in accordance with:
(1) all applicable partnership statutes,
(2) the partnership agreement and
(3) the description of us in this prospectus;
(c) The operating partnerships have been and will be operated in
accordance with
(1) all applicable partnership statutes,
(2) the partnership agreements for the operating partnerships
and
(3) their description in this prospectus;
(d) For each taxable year, more than 90% of our gross income has
been and will be derived from:
(1) the exploration, development, production, processing,
refining, transportation or marketing of any mineral or
natural resource, including oil, gas or products thereof,
or
(2) other items of income as to which counsel has opined or
will opine are "qualifying income" within the meaning of
Section 7704(d) of the Internal Revenue Code.
Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, the qualifying income exception, exists with respect to
publicly-traded partnerships of which 90% or more of the gross income for every
taxable year consists of qualifying income. Qualifying income includes income
and gains derived from the transportation and marketing of crude oil, natural
gas and products thereof. Other types of qualifying income include interest
(from other than a financial business, dividends, gains from the sale of real
property and gains from the sale or other disposition of capital assets held for
the production of income that otherwise constitutes qualifying income. We
estimate that less than 3% of our current income is not qualifying income;
however, this estimate could change from time to time. Based upon and subject to
this estimate, the factual representations made by us and the general partner
and a review of the
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applicable legal authorities, counsel is of the opinion that at least 90% of our
gross income constitutes qualifying income.
If we fail to meet the qualifying income exception, other than a
failure which is determined by the IRS to be inadvertent and which is cured
within a reasonable time after discovery, we will be treated as if we had
transferred all of our assets, subject to liabilities, to a newly formed
corporation, on the first day of the year in which we fail to meet the
qualifying income exception, in return for stock in that corporation, and then
distributed that stock to the partners in liquidation of their interests in us.
This contribution and liquidation should be tax-free to us and the unitholders
so long as we, at that time, do not have liabilities in excess of the tax basis
of our assets. Thereafter, we would be treated as a corporation for federal
income tax purposes.
If we or the operating partnerships were treated as an association
taxable as a corporation in any taxable year, either as a result of a failure to
meet the qualifying income exception or otherwise, our and the operating
partnerships' items of income, gain, loss and deduction would be reflected on
separate tax returns rather than being passed through to the unitholders, and
our and the operating partnerships' net income would be taxed at corporate
rates. In addition, any distribution made to a unitholder would be treated as
either taxable dividend income, to the extent of our current or accumulated
earnings and profits, or, in the absence of earnings and profits, a nontaxable
return of capital, to the extent of the unitholder's tax basis in his or her
limited partnership units, or taxable capital gain, after the unitholder's tax
basis in his or her limited partnership units is reduced to zero. Accordingly,
treatment of either us or the operating partnerships as an association, taxable
as a corporation, would result in a material reduction in a unitholder's cash
flow and after-tax return because being taxed as a corporation would result in a
substantial reduction of the value of the units.
The discussion below is based on the assumption that we will be
classified as a partnership for federal income tax purposes.
Tax Treatment of Unitholders
Limited Partner Status. Unitholders who have become our limited
partners will be treated as our partners for federal income tax purposes.
Counsel is also of the opinion that:
(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited
partners; and
(b) unitholders whose limited partnership units are held in
street name or by a nominee and who have the right to
direct the nominee in the exercise of all substantive
rights attendant to the ownership of their limited
partnership units,
will be treated as our partners for federal income tax purposes. As
there is no direct authority addressing assignees of limited partnership units
who are entitled to execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who fail to execute and
deliver transfer applications, counsel's opinion does not extend to these
persons. Furthermore, a purchaser or other transferee of limited partnership
units who does not execute and deliver a transfer application may not receive
some federal income tax information or reports furnished to record holders of
limited partnership units unless the limited partnership units are held in a
nominee or street name account and the nominee or broker has executed and
delivered a transfer application for those limited partnership units.
Treatment of Short Sales. A unitholder whose units are loaned to a
"short seller" to cover a short sale of units may be considered as having
disposed of ownership of those units. If so, he or she would no longer be a
partner for those units during the period of the loan and may recognize gain or
loss from the disposition. As a result, during this period:
o any of our income, gain, deduction or loss with respect to those
units would not be reportable by the unitholder;
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o any cash distributions received by the unitholder for those units
would be fully taxable; and
o all of these distributions would appear to be treated as ordinary
income.
Unitholders desiring to assure their status as partners and avoid the
risk of gain recognition should modify any applicable brokerage account
agreements to prohibit their brokers from borrowing their units. The IRS has
announced that it is actively studying issues relating to the tax treatment of
short sales of partnership interersts. See also "-Disposition of Limited
Partnership Units-Recognition of Gain or Loss."
Flow-through of Taxable Income. We will not pay any federal income tax
at the entity level. Instead, each unitholder will be required to report on his
or her own income tax return his or her allocable share of our income, gains,
losses and deductions without regard to whether corresponding cash distributions
are received by that unitholder. Consequently, a unitholder may be allocated
income from us even if he or she has not received a cash distribution. Each
unitholder will be required to include in income his or her allocable share of
our income, gain, loss and deduction for our taxable year ending with or within
the taxable year of the unitholder.
Treatment of Distributions. Distributions by us to a unitholder
generally will not be taxable to the unitholder for federal income tax purposes
to the extent of his or her tax basis in his or her limited partnership units
immediately before the distribution. Our cash distributions in excess of a
unitholder's tax basis generally will be considered to be a gain from the sale
or exchange of the limited partnership units, taxable in accordance with the
rules described under "--Disposition of Limited Partnership Units" below. Any
reduction in a unitholder's share of our liabilities for which no partner,
including the general partner, bears the economic risk of loss, known as
"nonrecourse liabilities," will be treated as a distribution of cash to that
unitholder. We do not have, and do not currently expect to incur, any
nonrecourse liabilities. To the extent our distributions cause a unitholder's
"at risk" amount to be less than zero at the end of any taxable year, he or she
must recapture any losses deducted in previous years. See "--Limitations on
Deductibility of Our Losses."
A decrease in a unitholder's percentage interest in us because of our
issuance of additional limited partnership units will decrease his or her share
of our nonrecourse liabilities, and thus will result in a corresponding deemed
distribution of cash. A non-pro rata distribution of money or property may
result in ordinary income to a unitholder, regardless of his or her tax basis in
his or her limited partnership units, if the distribution reduces the
unitholder's share of our unrealized receivables, including depreciation
recapture, and/or substantially appreciated inventory items, both as defined in
Section 751 of the Internal Revenue Code, and collectively section 751 assets.
To that extent, he or she will be treated as having been distributed his or her
proportionate share of the Section 751 Assets and having exchanged those assets
with us in return for the non-pro rata portion of the actual distribution made
to him or her. This latter deemed exchange will generally result in the
unitholder's realization of ordinary income under Section 751(b) of the Internal
Revenue Code. That income will equal the excess of:
(1) the non-pro rata portion of that distribution over
(2) the unitholder's tax basis for the share of such Section 751
Assets deemed relinquished in the exchange.
Alternative Minimum Tax. Although it is not expected that we will
generate significant tax preference items or adjustments, each unitholder will
be required to take into account his or her distributive share of any items of
our income, gain, deduction or loss for purposes of the alternative minimum tax.
Prospective unitholders should consult with their tax advisors as to the impact
of an investment in units on their liability for alternative minimum tax.
Basis of Limited Partnership Units. A unitholder's initial tax basis
for his or her limited partnership units will be the amount he or she paid for
the limited partnership units plus his or her share of our nonrecourse
liabilities. That basis will be increased by his or her share of our income and
by any increases in his or her share of our nonrecourse liabilities. That basis
will be decreased, but not below zero, by distributions from us, by the
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unitholder's share of our losses, by any decrease in his or her share of our
nonrecourse liabilities and by his or her share of our expenditures that are not
deductible in computing taxable income and are not required to be capitalized. A
limited partner will have no share of our debt which is recourse with respect to
the general partner, but will have a share, generally based on his or her share
of profits, of our nonrecourse liabilities. See "--Disposition of Limited
Partnership Units--Recognition of Gain or Loss."
Limitations on Deductibility of Our Losses. The deduction by a
unitholder of his or her share of our losses will be limited to the tax basis in
his or her units and, in the case of an individual unitholder or a corporate
unitholder, if more than 50% of the value of its stock is owned directly or
indirectly by five or fewer individuals or some tax-exempt organizations, to the
amount for which the unitholder is considered to be at risk with respect to our
activities, if that is less than his or her tax basis. A unitholder must
recapture losses deducted in previous years to the extent that distributions
cause his or her at risk amount to be less than zero at the end of any taxable
year. Losses disallowed to a unitholder or recaptured as a result of these
limitations will carry forward and will be allowable to the extent that his or
her tax basis or at risk amount, whichever is the limiting factor, is
subsequently increased. Upon the taxable disposition of a unit, any gain
recognized by a unitholder can be offset by losses that were previously
suspended by the at risk limitation but may not be offset by losses suspended by
the basis limitation. Any excess loss above that gain previously suspended by
the at risk or basis limitation is no longer utilizable.
In general, a unitholder will be at risk to the extent of the tax basis
of his or her units, excluding any portion of that basis attributable to his or
her share of our nonrecourse liabilities, reduced by any amount of money he or
she borrows to acquire or hold his or her units, if the lender of those borrowed
funds owns an interest in us, is related to the unitholder or can look only to
the units for repayment. A unitholder's at risk amount will increase or decrease
as the tax basis of the unitholder's units increases or decreases, other than
tax basis increases or decreases attributable to increases or decreases in his
or her share of our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal service
corporations can deduct losses from passive activities, which are generally
activities in which the taxpayer does not materially participate, only to the
extent of the taxpayer's income from those passive activities. Any passive
losses we generate will only be available to offset our passive income generated
in the future and will not be available to offset income from other passive
activities or investments, including other publicly-traded partnerships, or
salary or active business income. Passive losses that are not deductible because
they exceed a unitholder's income generated by us may be deducted in full when
he or she disposes of his or her entire investment in us in a fully taxable
transaction with an unrelated party. The passive activity loss rules are applied
after other applicable limitations on deductions, including the at risk rules
and the basis limitation.
A unitholder's share of our net income may be offset by any suspended
passive losses, but it may not be offset by any other current or carryover
losses from other passive activities, including those attributable to other
publicly-traded partnerships.
Limitations on Interest Deductions. The deductibility of a
non-corporate taxpayer's investment interest expense is generally limited to the
amount of that taxpayer's net investment income. As noted, a unitholder's share
of our net passive income will be treated as investment income for this purpose.
In addition, the unitholder's share of our portfolio income will be treated as
investment income. Investment interest expense includes:
(1) interest on indebtedness properly allocable to property held
for investment;
(2) our interest expense attributed to portfolio income; and
(3) the portion of interest expense incurred to purchase or carry
interest in a passive activity to the extent attributable to
portfolio income.
The computation of a unitholder's investment interest expense will take
into account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit. Net investment income includes gross income from
property held for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally
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does not include gains attributable to the disposition of property held for
investment. The IRS has announced that Treasury Regulations will be issued that
characterize net passive income from a publicly-traded partnership as investment
income for purposes of the limitations on the deductibility of investment
interest.
Allocation of Income, Gain, Loss and Deduction. In general, if we have
a net profit, our items of income, gain, loss and deduction will be allocated
among the general partner and the unitholders in accordance with their
particular percentage interests in us. At any time that distributions are made
to the limited partnership units and not to the subordinated units, or that
incentive distributions are made to the general partner, gross income will be
allocated to the recipients to the extent of these distributions. If we have a
net loss, items of income, gain, loss and deduction will be allocated first to
the general partner and the unitholders in accordance with their respective
percentage interests to the extent of their positive capital accounts and second
to the general partner.
As required by Section 704(c) of the Internal Revenue Code and as
permitted by regulations, specified items of our income, deduction, gain and
loss will be allocated to account for the difference between the tax basis and
fair market value of property contributed to us by the general partner referred
to in this discussion as contributed property. The effect of these allocations
to a unitholder will be essentially the same as if the tax basis of the
contributed property were equal to its fair market value at the time of
contribution. In addition, specified items of recapture income will be allocated
to the extent possible to the partner who was allocated the deduction giving
rise to the treatment of that gain as recapture income in order to minimize the
recognition of ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of negative capital
accounts, if negative capital accounts nevertheless result, items of our income
will be allocated in an amount and manner sufficient to eliminate the negative
balance as quickly as possible.
Regulations provide that an allocation of items of our income, gain,
loss or deduction, other than an allocation required by Section 704(c) of the
Internal Revenue Code to eliminate the difference between a partner's book
capital account, credited with the fair market value of contributed property,
and tax capital account, credited with the tax basis of contributed property,
referred to as the book-tax disparity, will generally be given effect for
federal income tax purposes in determining a partner's distributive share of an
item of income, gain, loss, or deduction only if the allocation has substantial
economic effect. In any other case, a partner's distributive share of an item
will be determined on the basis of the partner's interest in us, which will be
determined by taking into account all the facts and circumstances, including the
partner's relative contribution to us, the interests of the partners in economic
profits and losses, the interest of the partners in cash flow and other
nonliquidating distributions and rights of the partners to distributions of
capital upon liquidation.
Counsel is of the opinion that, with the exception of the issue
described in "--Disposition of Limited Partnership Units--Section 754 Election"
and "--Disposition of Limited Partnership Units--Allocations Between Transferors
and Transferees," allocations under our partnership agreement will be given
effect for federal income tax purposes in determining a partner's distributive
share of an item of income, gain, loss or deduction.
Entity-Level Collections. If we are required or elect under applicable
law to pay any federal, state or local income tax on behalf of any unitholder or
any general partner or any former unitholder, we are authorized to pay those
taxes from our funds. That payment, if made, will be treated as a distribution
of cash to the partner on whose behalf the payment was made. If the payment is
made on behalf of a person whose identity cannot be determined, we are
authorized to treat the payment as a distribution to all current unitholders. We
are authorized to amend the partnership agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of units and to adjust
later distributions, so that after giving effect to these distributions, the
priority and characterization of distributions otherwise applicable under the
partnership agreement is maintained as nearly as is practicable. Payments by us
as described above could give rise to an overpayment of tax on behalf of an
individual partner in which event the partner could file a claim for credit or
refund.
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations and regulated investment companies raises issues unique to those
investors and, as described below, may have substantially adverse tax
consequences. Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and other
retirement plans, are subject to federal income tax on unrelated business
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taxable income. Virtually all of the taxable income derived by that kind of
organization from the ownership of a unit will be unrelated business taxable
income and thus will be taxable to that unitholder.
A regulated investment company or mutual fund is required to derive 90%
or more of its gross income from interest, dividends and gains from the sale of
stocks or securities or foreign currency or specified related sources. It is not
anticipated that any significant amount of our gross income will include that
type of income. Further, a unitholder who is a nonresident alien, a foreign
corporation or other foreign person will be required to file federal income tax
returns and to pay taxes on his share of our taxable income because he will be
regarded as being engaged in a trade or business in the United States as a
result of his ownership of a unit. The unitholders described above must consult,
and rely upon, their own tax advisors in analyzing the tax consequences of
owning units.
Tax Treatment of Operations
Accounting Method and Taxable Year. We use the year ending December 31
as our taxable year and we have adopted the accrual method of accounting for
federal income tax purposes. Each unitholder will be required to include in
income his or her allocable share of our income, gain, loss and deduction for
our taxable year ending within or with his or her taxable year. A unitholder who
owns units as of the first day of a month will be allocated items of our income,
gain, loss and deduction for such month, even if such unitholder transfers his
or her units before the end of such month. Similarly, a unitholder who owns
units during a month but not on the first day of such month, will not be
allocated such items until the first month during which the unitholder owns
units on the first day. In addition, a unitholder who has a taxable year ending
on a date other than December 31 and who disposes of all of his or her units
following the close of our taxable year but before the close of his or her
taxable year, with the result that he or she will be required to report for his
or her taxable year his or her share of more than one year of income, gain, loss
and deduction. See "--Disposition of Limited Partnership Units--Allocations
Between Transferors and Transferees."
Initial Tax Basis, Depreciation and Amortization. The tax basis of our
assets will be used for purposes of computing depreciation and cost recovery
deductions and, ultimately, gain or loss on the disposition of these assets. The
federal income tax burden associated with the difference between the fair market
value of property contributed and the tax basis established for that property
will be borne by the general partner. See "--Tax Treatment of Unitholders--
Allocation of Income, Gain, Loss and Deduction."
Tax Basis of Assets and Depreciation Method
Upon our formation in 1986, we elected to depreciate most of the
property acquired in our initial formation, including the pipelines, using a
12-year period and the straight-line method, although we were entitled to use a
more accelerated method of depreciation. Accordingly, beginning in 1999, the
amount of depreciation available to us and our unitholders will be reduced
significantly and taxable income will increase, depending on when the units were
purchased. For years beginning in 1988, we have utilized a 15-year period and
the declining balance method to depreciate most of our assets. We will not be
entitled to any amortization deductions with respect to any goodwill conveyed to
us on formation.
If we dispose of depreciable property by sale, foreclosure, or
otherwise, all or a portion of any gain, determined by reference to the amount
of depreciation previously deducted and the nature of the property, may be
subject to the recapture rules and taxed as ordinary income rather than capital
gain. Similarly, a partner who has taken cost recovery or depreciation
deductions with respect to property owned by us may be required to recapture
those deductions as ordinary income upon a sale of his or her interest in us.
See "--Tax Treatment of Unitholders-- Allocation of Income, Gain, Loss and
Deduction" and "--Disposition of Limited Partnership Units--Recognition of Gain
or Loss."
Costs incurred in our organization may be amortized over any period
selected by us not shorter than 60 months. The costs incurred in promoting the
issuance of units (i.e. syndication expenses) must be capitalized and cannot be
deducted currently, ratably or upon our termination. There are uncertainties
regarding the classification of costs as either organization expenses, which may
be amortized, or syndication expenses, which may not be amortized. Under
recently adopted regulations, underwriting discounts and commissions are treated
as a syndication cost.
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Uniformity of Units. Because we cannot match transferors and
transferees of units, uniformity of the economic and tax characteristics of the
units to a purchaser of these units must be maintained. In the absence of
uniformity, compliance with a number of federal income tax requirements, both
statutory and regulatory, could be substantially diminished. A lack of
uniformity can result from a literal application of Treasury Regulation Section
1.167(c)-1(a)(6), Proposed Treasury Regulation Section 1.743-1(j)(4)(i)(B)(1)
and Proposed Treasury Regulation Section 1.197-2(g)(3). Any such non-uniformity
could have a negative impact on the value of the units. See "--Disposition of
Limited Partnership Units-- Section 754 Election."
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We intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of contributed property or
adjusted property, to the extent of any unamortized book-tax disparity, using a
rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the common basis of that
property, or treat that portion as nonamortizable to the extent attributable to
property the common basis of which is not amortizable, but despite its
inconsistency with Treasury Regulation Section 1.167(c)-1(a)(6), Proposed
Treasury Regulation Section 1.743-1(j)(4)(i)(B)(1), and Proposed Treasury
Regulation Section 1.197-2(g)(3). See "--Disposition of Limited Partnership
Units-- Section 754 Election." To the extent that the Section 743(b) adjustment
is attributable to appreciation in value in excess of the unamortized book-tax
disparity, we will apply the rules described in the Regulations and legislative
history. If we determine that this type of position cannot reasonably be taken,
we may adopt a depreciation and amortization convention under which all
purchasers acquiring units in the same month would receive depreciation and
amortization deductions, whether attributable to a common basis or Section
743(b) adjustment, based upon the same applicable rate as if they had purchased
a direct interest in our property. If this kind of an aggregate approach is
adopted, it may result in lower annual depreciation and amortization deductions
than would otherwise be allowable to some unitholders and risk the loss of
depreciation and amortization deductions not taken in the year that these
deductions are otherwise allowable. This convention will not be adopted if we
determine that the loss of depreciation and amortization deductions will have a
material adverse effect on the unitholders. If we choose not to utilize this
aggregate method, we may use any other reasonable depreciation and amortization
convention to preserve the uniformity of the intrinsic tax characteristics of
any units that would not have a material adverse effect on the unitholders. The
IRS may challenge any method of depreciating the Section 743(b) adjustment
described in this paragraph. If this type of challenge were sustained, the
uniformity of units might be affected, and the gain from the sale of units might
be increased without the benefit of additional deductions. See "--Disposition of
Limited Partnership Units--Recognition of Gain or Loss."
Valuation and Tax Basis of Our Properties. The federal income tax
consequences of the ownership and disposition of units will depend in part on
our estimates of the relative fair market values, and determinations of the
initial tax bases, of our assets. Although we may from time to time consult with
professional appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates and
determinations of basis are subject to challenge and will not be binding on the
IRS or the courts. If the estimates of fair market value or determinations of
basis are later found to be incorrect, the character and the amount of items of
income, gain, loss or deductions previously reported by unitholders might
change, and unitholders might be required to adjust their tax liability for
prior years.
Administrative Matters
Information Returns and Audit Procedures. We intend to furnish to each
unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-l, which describes each unitholder's share
of our income, gain, loss and deduction for our preceding taxable year. In
preparing this information, which will generally not be reviewed by counsel, we
will use various accounting and reporting conventions, to determine the
unitholder's share of income, gain, loss and deduction. There is no assurance
that any of those conventions will yield a result that conforms to the
requirements of the Internal Revenue Code, regulations or administrative
interpretations of the IRS. Neither we nor counsel can assure prospective
unitholders that the IRS will not successfully contend in court that those
accounting and reporting conventions are impermissible. Any challenge by the IRS
could negatively affect the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from any audit of this kind may require each unitholder to
adjust a prior year's tax liability, and possibly may result in an audit of that
unitholder's own return. Any audit of a unitholder's return could result in
adjustments not related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership proceeding rather than
in separate proceedings with the partners. The Internal Revenue Code provides
for one partner to be designated as the "Tax Matters Partner" for those
purposes. The partnership agreement appoints the general partner as the Tax
Matters Partner of Buckeye Partners, L.P.
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The Tax Matters Partner will make some elections on our behalf and on
behalf of unitholders. In addition, the Tax Matters Partner can extend the
statute of limitations for assessment of tax deficiencies against unitholders
for items in our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review, by which all the unitholders are bound, of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, judicial review may be sought by any unitholder having at least a 1%
interest in profits and by the unitholders having in the aggregate at least a 5%
profits interest. However, only one action for judicial review will go forward,
and each unitholder with an interest in the outcome may participate. However, if
we elect to be treated as a large partnership, a unitholder will not have the
right to participate in settlement conferences with the IRS or to seek a refund.
We have not elected, and do not currently anticipate electing, to be
treated as a large partnership. If we were to elect to be treated as a large
partnership, each partner would take into account separately his share of
several partnership items, determined at the partnership level, including, for
example, taxable income or loss from passive loss limitation activities and from
other activities, net capital gains allocable to passive loss limitation
activities and other activities, tax-exempt interest, net alternative minimum
tax adjustment separately computed for passive loss limitation activities and
other activities, and other items. It is not expected that we will elect to have
the large partnership provisions apply to us because of the cost of their
application.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is not consistent
with the treatment of the item on our return. Intentional or negligent disregard
of the consistency requirement may subject a unitholder to substantial
penalties. However, if we elect to be treated as a large partnership, the
unitholders would be required to treat all partnership items in a manner
consistent with our return.
Nominee Reporting. Persons who hold an interest in us as a nominee for
another person are required to furnish to us:
(a) the name, address and taxpayer identification number of the
beneficial owner and the nominee;
(b) whether the beneficial owner is
(1) a person that is not a United States person,
(2) a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the
foregoing, or
(3) a tax-exempt entity.
(c) the amount and description of units held, acquired or
transferred for the beneficial owner, and
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(d) specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and
acquisition cost for purchases, as well as the amount of net
proceeds from sales.
The nominee is required to supply the beneficial owner of the units
with the information furnished to us.
Registration as a Tax Shelter.
The general partner registered us as a tax shelter with the IRS when we
were originally formed in the absence of assurance that we would not be subject
to tax shelter registration and in light of the substantial penalties which
might be imposed if registration was required and not undertaken. Our tax
shelter registration number with the IRS is 86280000273. A holder of units must
disclose our tax shelter registration number on any tax return on which any
deduction, loss, credit or other benefit generated by us is claimed or our
income is included. We will provide this number to every unitholder with
year-end tax information.
A unitholder who sells or otherwise transfers a unit in a subsequent
transaction must furnish the registration number to the transferee. The penalty
for failure of the transferor of a unit to furnish such registration number to
the transferee is $100 for each such failure. Form 8271 is used to disclose tax
shelter registration numbers. A unitholder who fails to disclose the tax shelter
registration number on such holder's tax return, without reasonable cause for
such failure, may have to pay a $250 penalty for each such failure. Any
penalties discussed in this prospectus are not deductible for federal income tax
purposes.
Issuance of this registration number does not indicate that an
investment in us or the claimed tax benefits have been reviewed, examined or
approved by the IRS.
Accuracy-related Penalties. An additional tax equal to 20% of the
amount of any portion of an underpayment of tax that is attributable to one or
more specified causes, including negligence or disregard of rules or
regulations, substantial understatements of income tax and substantial valuation
misstatements, as defined in the Code, is imposed by the Internal Revenue Code.
No penalty will be imposed, however, for any portion of an underpayment if it is
shown that there was a reasonable cause for that portion and that the taxpayer
acted in good faith regarding that portion.
The amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on the return:
(1) for which there is, or was, "substantial authority"; or
(2) as to which there is a reasonable basis and the pertinent
facts of that position are disclosed on the return.
More stringent rules apply to tax shelters, a term that in this context
does not appear to include us. If any item of income, gain, loss or deduction
included in the distributive shares of unitholders might result in that kind of
an "understatement" of income for which no "substantial authority" exists, we
must disclose the pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns to avoid liability for this penalty.
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Disposition of Limited Partnership Units
Recognition of Gain or Loss. Gain or loss will be recognized on a sale
of units equal to the difference between the amount realized and the
unitholder's tax basis for the units sold. A unitholder's amount realized will
be measured by the sum of the cash or the fair market value of other property
received plus his or her share of our nonrecourse liabilities. Because the
amount realized includes a unitholder's share of our nonrecourse liabilities,
the gain recognized on the sale of units could result in a tax liability in
excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable income
for a unit that decreased a unitholder's tax basis in that unit will, in effect,
become taxable income if the unit is sold at a price greater than the
unitholder's tax basis in that unit, even if the price is less than his or her
original cost.
Should the IRS successfully contest our convention to amortize only a
portion of the Section 743(b) adjustment, described under "--Disposition of
Limited Partnership Units-- Section 754 Election", attributable to an
amortizable Section 197 intangible after a sale by the general partner of units,
a unitholder could realize additional gain from the sale of units than had our
convention been respected. In that case, the unitholder may have been entitled
to additional deductions against income in prior years but may be unable to
claim them, with the result to him or her of greater overall taxable income than
appropriate. Counsel is unable to opine as to the validity of the convention but
believes a contest by the IRS is unlikely because a successful contest could
result in substantial additional deductions to other unitholders.
Except as noted below, gain or loss recognized by a unitholder, other
than a "dealer" in units, on the sale or exchange of a unit held for more than
one year will generally be taxable as capital gain or loss. Capital gain
recognized by an individual on the sale of units held more than 12 months will
generally be taxed a maximum rate of 20%. A portion of this gain or loss, which
will likely be substantial, however, will be separately computed and taxed as
ordinary income or loss under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" owned by us. The term
"unrealized receivables" includes potential recapture items, including
depreciation recapture. Ordinary income attributable to unrealized receivables,
inventory items and depreciation recapture may exceed net taxable gain realized
upon the sale of the unit and may be recognized even if there is a net taxable
loss realized on the sale of the unit. Thus, a unitholder may recognize both
ordinary income and a capital loss upon a disposition of units, net capital loss
may offset no more than $3,000 of ordinary income in the case of individuals and
may only be used to offset capital gain in the case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those interests and maintain a
single adjusted tax basis. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated to the interests
sold using an equitable apportionment method. The ruling is unclear as to how
the holding period of these interests is determined once they are combined. If
this ruling is applicable to the holders of limited partnership units, a common
unitholder will be unable to select high or low basis limited partnership units
to sell as would be the case with corporate stock. It is not clear whether the
ruling applies to us, because, similar to corporate stock, interests in us are
evidenced by separate certificates. Accordingly, counsel is unable to opine as
to the effect this ruling will have on the unitholders. A unitholder considering
the purchase of additional units or a sale of limited partnership units
purchased in separate transactions should consult his or her tax advisor as to
the possible consequences of this ruling.
Specific provisions of the Internal Revenue Code affect the taxation of
some financial products and securities, including partnership interests, by
treating a taxpayer as having sold an "appreciated" partnership interest, one in
which gain would be recognized if it were sold, assigned or terminated at its
fair market value, if the taxpayer or related persons enter(s) into:
(1) a short sale;
(2) an offsetting notional principal contract; or
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(3) a futures or forward contract with respect to the partnership
interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having sold
that position if the taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of Treasury is also
authorized to issue regulations that treat a taxpayer that enters into
transactions or positions that have substantially the same effect as the
preceding transactions as having constructively sold the financial position.
Allocations Between Transferors and Transferees. In general, our
taxable income and losses will be determined annually, will be prorated on a
monthly basis and will be subsequently apportioned among the unitholders in
proportion to the number of units owned by each of them as of the opening of the
NYSE on the first business day of the month, referred to as the allocation date.
However, gain or loss realized on a sale or other disposition of our assets
other than in the ordinary course of business will be allocated among the
unitholders on the date of the sale. As a result, a unitholder transferring
units in the open market may be allocated income, gain, loss and deduction
accrued after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, counsel is unable to opine on the validity of this
method of allocating income and deductions between the transferors and the
transferees of units. If this method is not allowed under the Treasury
Regulations, or only applies to transfers of less than all of the unitholder's
interest, our taxable income or losses might be reallocated among the
unitholders. We are authorized to revise our method of allocation between
transferors and transferees, as well as among partners whose interests otherwise
vary during a taxable period, to conform to a method permitted under future
Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of these units prior to the record date set for a cash distribution for
that quarter will be allocated items of our income, gain, loss and deductions
attributable to that quarter but will not be entitled to receive that cash
distribution.
Section 754 Election. We have made the election permitted by Section
754 of the Internal Revenue Code. That election is irrevocable without the
consent of the IRS. The election generally permits a purchaser of a unit to
adjust his or her share of the basis in our assets, or inside basis, pursuant to
Section 743(b) of the Internal Revenue Code to fair market value, as reflected
by the purchaser's unit price. The Section 743(b) adjustment is attributed
solely to a purchaser of units and is not added to the bases of our assets. For
purposes of this discussion, a unitholder's inside basis in our assets will be
considered to have two components:
(1) his or her share of our tax basis in our assets, referred to
as common basis, and
(2) his or her Section 743(b) adjustment to that basis.
Proposed Treasury regulations under Section 743 of the Internal Revenue
Code generally require the Section 743(b) adjustment attributable to recovery
property to be depreciated as if it were newly purchased recovery property
placed in service when the transfer occurs. The proposed regulations under
Section 197 indicate that the Section 743(b) adjustment attributable to an
amortizable Section 197 intangible should be treated as a newly-acquired asset
placed in service in the month when the purchaser acquires the unit. Under
Treasury Regulation Section 1.167(c)-1(a)(6), a Section 743(b) adjustment
attributable to property subject to depreciation under Section 167 of the
Internal Revenue Code rather than cost recovery deductions under Section 168 is
generally required to be depreciated using either the straight-line method or
the 150% declining balance method. The depreciation and amortization methods and
useful lives associated with the Section 743(b) adjustment, therefore, may
differ from the methods and useful lives generally used to depreciate the common
basis in these properties. Under our partnership agreement, the general partner
is authorized to adopt a convention to preserve the uniformity of units even if
that convention is not consistent with specified Treasury Regulations. See
"--Tax Treatment of Operations--Uniformity of Units."
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Although counsel is unable to opine as to the validity of this
approach, we intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of contributed property, to
the extent of any unamortized book-tax disparity, using a rate of depreciation
or amortization derived from the depreciation or amortization method and useful
life applied to the common basis of the property, or treat that portion as
non-amortizable to the extent attributable to property the common basis of which
is not amortizable, despite its inconsistency with Treasury Regulation Section
1.167(c)-1(a)(6), Treasury Regulation Section 1.743-1(j)(4)(i)(B)(1), and
Proposed Treasury Regulation Section 1.197-2(g)(3), neither of which is expected
to directly apply to a material portion of our assets. To the extent this
Section 743(b) adjustment is attributable to appreciation in value in excess of
the unamortized book-tax disparity, we will apply the rules described in the
Treasury Regulations and legislative history. If we determine that this position
cannot reasonably be taken, we may adopt a depreciation or amortization
convention under which all purchasers acquiring units in the same month would
receive depreciation or amortization, whether attributable to common basis or
Section 743(b) adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our assets. This kind of aggregate approach may
result in lower annual depreciation or amortization deductions than would
otherwise be allowable to specified unitholders. See "--Tax Treatment of
Operations--Uniformity of Units."
The allocation of the Section 743(b) adjustment among our assets must
be made in accordance with the principles of Section 1060 of the Internal
Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b)
adjustment to goodwill not so allocated by us. Goodwill, as an intangible asset,
is generally amortizable over a longer period of time or under a less
accelerated method than our tangible assets.
A Section 754 election is advantageous if the transferee's tax basis in
his or her units is higher than the unit's share of the aggregate tax basis of
our assets immediately prior to the transfer. In that case, as a result of the
election, the transferee would have a higher tax basis in his or her share of
our assets for purposes of calculating, among other items, his or her
depreciation and depletion deductions and his or her share of any gain or loss
on a sale of our assets. Conversely, a Section 754 election is disadvantageous
if the transferee's tax basis in his or her units is lower than those units'
share of the aggregate tax basis of our assets immediately prior to the
transfer. Thus, the fair market value of the units may be affected either
favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and
we will make them on the basis of assumptions as to the value of our assets and
other matters. There is no assurance that the determinations made by us will not
be successfully challenged by the IRS and that the deductions resulting from
them will not be reduced or disallowed altogether. Should the IRS require a
different basis adjustment to be made, and should, in our opinion, the expense
of compliance exceed the benefit of the election, we may seek permission from
the IRS to revoke our Section 754 election. If permission is granted, a
subsequent purchaser of units may be allocated more income than he would have
been allocated had the election not been revoked.
Notification Requirements. A unitholder who sells or exchanges units is
required to notify us in writing of that sale or exchange within 30 days after
the sale or exchange and in any event by no later than January 15 of the year
following the calendar year in which the sale or exchange occurred. We are
required to notify the IRS of that transaction and to furnish specified
information to the transferor and transferee. However, these reporting
requirements do not apply to a sale by an individual who is a citizen of the
United States and who effects the sale or exchange through a broker.
Additionally, a transferor and a transferee of a unit will be required to
furnish statements to the IRS, filed with their income tax returns for the
taxable year in which the sale or exchange occurred, that describe the amount of
the consideration received for the unit that is allocated to our goodwill or
going concern value. Failure to satisfy these reporting obligations may lead to
the imposition of substantial penalties.
Constructive Termination. We and the operating partnerships will be
considered to have been terminated for tax purposes if there is a sale or
exchange of 50% or more of the total interests in our capital and profits within
a 12-month period. A termination of us will cause a termination of the operating
partnerships and will result in the closing of our taxable year for all
unitholders. In the case of a unitholder reporting on a taxable year other than
a fiscal year ending December 31, the closing of our taxable year may result in
more than 12 months of our taxable income or loss being includable in his or her
taxable income for the year of termination. New tax elections required to be
made by us, including a new election under Section 754 of the Internal Revenue
Code, must be made after a termination, and a termination would result in a
deferral of our deductions for depreciation. A termination could
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also result in penalties if we were unable to determine that the termination had
occurred. Moreover, a termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the termination.
State, Local and Other Tax Considerations
In addition to federal income taxes, you will be subject to other
taxes, including state and local income taxes, unincorporated business taxes,
and estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property. Although an analysis of
those various taxes is not presented here, each prospective unitholder should
consider their potential impact on his or her investment in us. We own property
or do business in Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan,
Illinois, Connecticut, Massachusetts, Texas and Florida. Each of these states,
except Texas and Florida, currently imposes a personal income tax. A unitholder
will be required to file state income tax returns and to pay state income taxes
in some or all of these states in which we do business or own property and may
be subject to penalties for failure to comply with those requirements. In some
states, tax losses may not produce a tax benefit in the year incurred and also
may not be available to offset income in subsequent taxable years. Some of the
states may require us, or we may elect, to withhold a percentage of income from
amounts to be distributed to a unitholder who is not a resident of the state.
Withholding, the amount of which may be greater or less than a particular
unitholder's income tax liability to the state, generally does not relieve a
nonresident unitholder from the obligation to file an income tax return. Amounts
withheld may be treated as if distributed to unitholders for purposes of
determining the amounts distributed by us. See "--Tax Treatment of
Unitholders--Entity-Level Collections." Based on current law and our estimate of
our future operations, the general partner anticipates that any amounts required
to be withheld will not be material. Actions taken by us, such as acquisitions
and joint ventures, may expose unitholders to additional taxes and filing
requirements in states not mentioned above.
It is the responsibility of each unitholder to investigate the legal
and tax consequences, under the laws of pertinent states and localities, of his
or her investment in us. Accordingly, each prospective unitholder should
consult, and must depend upon, his or her own tax counsel or other advisor with
regard to those matters. Further, it is the responsibility of each unitholder to
file all state and local, as well as United States federal tax returns that may
be required of him or her. Counsel has not rendered an opinion on the state or
local tax consequences of an investment in us.
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PLAN OF DISTRIBUTION
We may sell the securities being offered hereby:
o directly to purchasers;
o through agents;
o through underwriters; and
o through dealers.
We, or agents designated by us, may directly solicit, from time to
time, offers to purchase the securities. Any such agent may be deemed to be an
underwriter as that term is defined in the Securities Act of 1933, as amended.
We will name the agents involved in the offer or sale of the securities and
describe any commissions payable by us to these agents in the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, these
agents will be acting on a best efforts basis for the period of their
appointment. The agents may be entitled under agreements which may be entered
into with us to indemnification by us against specific civil liabilities,
including liabilities under the Securities Act. The agents may also be our
customers or may engage in transactions with or perform services for us in the
ordinary course of business.
If any underwriters are utilized in the sale of the securities in
respect of which this prospectus is delivered, we will enter into an
underwriting agreement with those underwriters at the time of sale to them. The
names of these underwriters and the terms of the transaction will be set forth
in the prospectus supplement, which will be used by the underwriters to make
resales of the securities in respect of which this prospectus is delivered to
the public. The underwriters may be entitled, under the relevant underwriting
agreement, to indemnification by us against specific liabilities, including
liabilities under the Securities Act. The underwriters may also be our customers
or may engage in transactions with or perform services for us in the ordinary
course of business.
If a dealer is utilized in the sale of the securities in respect of
which this prospectus is delivered, we will sell those securities to the dealer,
as principal. The dealer may then resell those securities to the public at
varying prices to be determined by the dealer at the time of resale. Dealers may
be entitled to indemnification by us against specific liabilities, including
liabilities under the Securities Act. The dealers may also be our customers or
may engage in transactions with, or perform services for us in the ordinary
course of business.
The place and time of delivery for the securities in respect of which
this prospectus is delivered are set forth in the accompanying prospectus
supplement.
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LEGAL MATTERS
The validity of the limited partnership units and debt securities
offered hereby will be passed upon for us by Morgan, Lewis & Bockius LLP,
Philadelphia, Pennsylvania. Any underwriters will be advised about other issues
relating to any offering by their own legal counsel.
EXPERTS
The financial statements and the related financial statement
schedules incorporated in this prospectus by reference from our Annual Report on
Form 10-K for the year ended December 31, 1998 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
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INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby (all such expenses will be borne
by Buckeye Partners, L.P.):
Securities and Exchange Commission Registration Fee..... $83,400
NASD Filing Fee......................................... *
Printing................................................ *
Legal Fees and Expenses ................................ *
Accounting Fees and Expenses............................ *
Rating Agencies......................................... *
Trustee's Fees and Expenses............................. *
Transfer Agent and Registrar Fee........................ *
Miscellaneous........................................... *
-------
Total................................................. $*
=======
-----------------
*To be filed by amendment
Item 15. Indemnification of Directors and Officers
The amended and restated partnership agreement of Buckeye Partners,
L.P. and the amended and restated agreements of limited partnership of the
operating partnerships (the "Operating Partnership Agreements," and together
with the Partnership Agreement, the "Partnership Agreements") provide that the
Partnership or Operating Partnership, as the case may be, will indemnify (to the
extent permitted by applicable law) certain persons (each, an "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 the Indemnitee is or was an actual or threatened
party and which relates to the Partnership Agreements or the property, business,
affairs or management of Buckeye Partners, L.P. or any operating partnership.
This indemnity is available only if the Indemnitee acted in good faith and the
action 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. Indemnitees include 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 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. Expenses subject to
indemnity will be paid by the applicable partnership to the Indemnitee in
advance, subject to receipt of an undertaking by or on behalf of the Indemnitee
to repay such amount if it is ultimately determined by a court of competent
jurisdiction that the Indemnitee is not entitled to indemnification. Buckeye
Partners, L.P. maintains a liability insurance policy on behalf of the
Indemnitees.
Section 145 of the Delaware General Corporation Law sets forth the
extent to which a person is a director or officer of a Delaware corporation or
serves at the request of Delaware corporation as a director, officer, employee
or agent of any other enterprise may be indemnified against any liabilities they
may incur in their capacity as such. Article VI of the bylaws of the general
partner of Buckeye Partners, L.P. provides for the indemnification
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of directors and officers of the General Partner and such directors and officers
who serve at the request of the general partner as directors, officers,
employees or agents of any other enterprise against certain liabilities under
certain circumstances.
Item 16. Exhibits
The exhibits filed as part of this Registration Statement are as
follows:
Exhibit
Number Description
------- -----------
****1.1 Form of Underwriting Agreement (for limited partnership units)
****1.2 Form of Underwriting Agreement (for debt securities)
**3.1 Amended and Restated Partnership Agreement as amended and
restated as of December 31, 1998 (Exhibit 3.1 to the
Partnership's Annual Report on Form 10-K filed March 22, 1999)
****4.1 Specimen Limited Partnership Unit Certificate
****4.2 Form of Senior Indenture
****4.3 Form of Subordinated Indenture
****5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
****8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters
**10.1 Amended and Restated Incentive Compensation Agreement, dated
as of March 22, 1996 between the General Partner and the
Partnership (Exhibit 10.4 to the Partnership's Annual Report
on Form 10-K filed March 22, 1999)
**10.2 Amendment No. 1 to Amended and Restated Incentive Compensation
Agreement dated as of March 22, 1997 between the General
Partner and the Partnership (Exhibit 10.7 to the Partnership's
Annual Report on Form 10-K filed March 22, 1999)
**10.3 Amendment No. 2 to Amended and Restated Incentive Compensation
Agreement dated as of January 20, 1998 between the General
Partner and the Partnership (Exhibit 10.8 to the Partnership's
Annual Report on Form 10-K filed March 22, 1999)
*12.1 Statement of computation of ratio of earnings to fixed charges
****23.1 Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibits 5.1 and 8.1).
*23.2 Consent of Deloitte & Touche, LLP.
*24.1 Power of Attorney (included on signature pages to this
Registration Statement).
***26.1 Form T-1 Statement of Eligibility and Qualification
---------------
* Filed herewith
** Incorporated by Reference
*** To be filed with a Current Report on Form 8-K or a
post-effective amendment to Registration Statement
**** To be filed by amendment
II-2
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "calculation of
Registration Fee" table in the effective registration statement;
(iii) Include any material information with respect to the plan of
distribution;
Provided, however, that paragraph (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is incorporated
by reference from periodic reports filed by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the end of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate of Incorporation, its Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against a public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Radnor, Commonwealth of Pennsylvania on the 2nd day
of July, 1999.
BUCKEYE PARTNERS, L.P.
By: Buckeye Pipe Line Company,
as General Partner
By: /s/ Alfred W. Martinelli
------------------------
Alfred W. Martinelli
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
EACH PERSON IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS STEVEN C. RAMSEY
AND STEPHEN C. MUTHER, AND EACH OF THEM ACTING ALONE, HIS OR HER TRUE AND LAWFUL
ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO EXECUTE AND CAUSE TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE REQUIREMENTS
OF THE SECURITIES ACT OF 1933, AS AMENDED, ANY AND ALL AMENDMENTS AND POST-
EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, WITH EXHIBITS THERETO AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL
THAT SAID ATTORNEY-IN-FACT OR HIS OR HER SUBSTITUTE OR SUBSTITUTES MAY DO OR
CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Alfred W. Martinelli Chairman of the Board, Chief July 2, 1999
- ------------------------------ Executive Officer and Director
Alfred W. Martinelli (Principal Executive Officer)
/s/ C. Richard Wilson Vice Chairman of the Board July 2, 1999
- ------------------------------
C. Richard Wilson
/s/ Steven C. Ramsey Senior Vice President-Finance and Chief July 2, 1999
- ------------------------------ Financial Officer (Principal Accounting and
Steven C. Ramsey Financial Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Brian F. Billings Director July 2, 1999
- ------------------------------
Brian F. Billings
/s/ Neil M. Hahl Director July 2, 1999
- ------------------------------
Neil M. Hahl
/s/ Edward F. Kosnik Director July 2, 1999
- ------------------------------
Edward F. Kosnik
/s/ Jonathan O'Herron Director July 2, 1999
- ------------------------------
Jonathan O'Herron
/s/ Ernest R. Varalli Director July 2, 1999
- ------------------------------
Ernest R. Varalli
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
------- ----------- -----------
<S> <C> <C>
****1.1 Form of Underwriting Agreement (for limited partnership units)
****1.2 Form of Underwriting Agreement (for debt securities)
**3.1 Amended and Restated Partnership Agreement as amended and
restated as of December 31, 1998 (Exhibit 3.1 to the
Partnership's Annual Report on Form 10-K filed March 22, 1999)
****4.1 Specimen Limited Partnership Unit Certificate
****4.2 Form of Senior Indenture
****4.3 Form of Subordinated Indenture
****5.1 Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
****8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters
**10.1 Amended and Restated Incentive Compensation Agreement, dated
as of March 22, 1996 between the General Partner and the
Partnership (Exhibit 10.4 to the Partnership's Annual Report
on Form 10-K filed March 22, 1999)
**10.2 Amendment No. 1 to Amended and Restated Incentive Compensation
Agreement dated as of March 22, 1997 between the General
Partner and the Partnership (Exhibit 10.7 to the Partnership's
Annual Report on Form 10-K filed March 22, 1999)
**10.3 Amendment No. 2 to Amended and Restated Incentive Compensation
Agreement dated as of January 20, 1998 between the General
Partner and the Partnership (Exhibit 10.8 to the Partnership's
Annual Report on Form 10-K filed March 22, 1999)
*12.1 Statement of computation of ratio of earnings to fixed charges
****23.1 Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibits 5.1 and 8.1).
*23.2 Consent of Deloitte & Touche, LLP.
*24.1 Power of Attorney (included on signature pages to this
Registration Statement).
***26.1 Form T-1 Statement of Eligibility and Qualification
</TABLE>
---------------
* Filed herewith
** Incorporated by Reference
*** To be filed with a Current Report on Form 8-K or a
post-effective amendment to Registration Statement
**** To be filed by amendment
II-6
<PAGE>
Exhibit 12.1
Statement of Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
For the Year Ended December 31, Three Months Ended
March 31,
(dollars in thousands) (dollars in thousands)
------------------------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations $ 48,086 $ 49,840 $ 49,337 $ 48,807 $ 52,007 $ 10,916 $ 14,007
Portion of rents representative
of the interest factor 2,969 3,014 2,950 3,206 3,538 928 977
Interest on indebtedness 25, 265 22,045 22,192 21,535 16,246 4,024 4,147
--------- --------- --------- --------- --------- ---------- ---------
Income as adjusted $ 76,320 $ 74,899 $ 74,479 $ 73,548 $ 71,791 $ 15,868 $ 19,131
========= ========= ========= ========= ========= ========== =========
Interest on indebtedness $ 25,265 $ 22,045 $ 22,192 $ 21,535 $ 16,246 $ 4,024 $ 4,147
Capitalized interest 160 455 319 648 1,055 239 271
Portion of rents representative
of the interest factor 2,969 3,014 2,950 3,206 3,538 928 977
--------- --------- --------- --------- --------- ---------- ---------
Total fixed charges $ 28,394 $ 25,514 $ 25,461 $ 25,389 $ 20,839 $ 5,191 $ 5,395
========= ========= ========= ========= ========= ========== =========
</TABLE>
II-7
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Buckeye Partners, L.P. on Form S-3 of our reports dated January 28,
1999 (March 5, 1999 as to Note 19), appearing in the Annual Report on Form 10-K
of Buckeye Partners, L.P. for the year ended December 31, 1998 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
July 2, 1999
