-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JuM++gI7PPsjgCJ7c2hGQXag+c1fnh6ISZU0E/td9F3N5noWHpZbe9C+lOvhzeaF 9DsFQEPSiu/eeNFT61mMHQ== 0000950116-99-000468.txt : 19990323 0000950116-99-000468.hdr.sgml : 19990323 ACCESSION NUMBER: 0000950116-99-000468 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKEYE PARTNERS L P CENTRAL INDEX KEY: 0000805022 STANDARD INDUSTRIAL CLASSIFICATION: PIPE LINES (NO NATURAL GAS) [4610] IRS NUMBER: 232432497 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09356 FILM NUMBER: 99569663 BUSINESS ADDRESS: STREET 1: 3900 HAMILTON BLVD CITY: ALLENTOWN STATE: PA ZIP: 18103 BUSINESS PHONE: 6107704700 MAIL ADDRESS: STREET 1: 3900 HAMILTON BLVD CITY: ALLENTOWN STATE: PA ZIP: 18103 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 OR / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-9356 Buckeye Partners, L.P. (Exact name of registrant as specified in its charter) Delaware 23-2432497 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification number) 5 Radnor Corporate Center 100 Matsonford Road Radnor, Pennsylvania 19087 (Address of principal executive offies) (Zip Code) Registrant's telephone number, including area code: (610) 770-4000 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class which registered ------------------- ---------------- LP Units representing limited partnership interests ......... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / At March 15, 1999, the aggregate market value of the registrant's LP Units held by non-affiliates was $667 million. The calculation of such market value should not be construed as an admission or conclusion by the registrant that any person is in fact an affiliate of the registrant. LP Units outstanding as of March 15, 1999: 26,757,206 ================================================================================ TABLE OF CONTENTS
Page ----- PART I Item 1. Business .................................................................. 2 Item 2. Properties ................................................................ 11 Item 3. Legal Proceedings ......................................................... 12 Item 4. Submission of Matters to a Vote of Security Holders ....................... 13 PART II Item 5. Market for the Registrant's LP Units and Related Unitholder Matters........ 14 Item 6. Selected Financial Data ................................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 15 Item 8. Financial Statements and Supplementary Data ............................... 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..................................................... 45 PART III Item 10. Directors and Executive Officers of the Registrant ........................ 45 Item 11. Executive Compensation .................................................... 47 Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 48 Item 13. Certain Relationships and Related Transactions ............................ 49 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 52
1 PART I Item 1. Business Introduction Buckeye Partners, L.P. (the "Partnership"), the Registrant, is a limited partnership organized in 1986 under the laws of the state of Delaware. The Partnership conducts all its operations through subsidiary entities. These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"). (Each of Buckeye, Laurel, Everglades and BTT is referred to as an "Operating Partnership" and collectively as the "Operating Partnerships"). The Partnership owns approximately a 99 percent interest in each of the Operating Partnerships. Buckeye is one of the largest independent pipeline common carriers of refined petroleum products in the United States, with 3,105 miles of pipeline serving 9 states. Laurel owns a 345-mile common carrier refined products pipeline located principally in Pennsylvania. Everglades owns 37 miles of refined petroleum products pipeline in Florida. Buckeye, Laurel and Everglades conduct the Partnership's refined products pipeline business. BTT provides bulk storage service through leased facilities with an aggregate capacity of 257,000 barrels of refined petroleum products. The Partnership acquired its interests in the Operating Partnerships from The Penn Central Corporation, now American Financial Group, Inc. ("American Financial"), on December 23, 1986 (the "1986 Acquisition"). The Operating Partnerships (other than Laurel) had been organized by American Financial in November 1986 and succeeded to the operations of predecessor companies owned by American Financial, including Buckeye Pipe Line Company, an Ohio corporation, and its subsidiaries ("Pipe Line"). Laurel was formed in October 1992 and succeeded to the operations of Laurel Pipe Line Company, an Ohio corporation, which was a majority owned corporate subsidiary of the Partnership until the minority interest was acquired in December 1991. During March 1996, BMC Acquisition Company ("BAC"), a Delaware corporation organized in 1996, acquired all of the common stock of BMC for $63 million in cash from a subsidiary of American Financial (the "Acquisition"). BAC, which subsequently changed its name to Glenmoor, Ltd. ("Glenmoor"), is owned by certain directors and officers of BMC and trusts for the benefit of their families and members of senior management of Buckeye Pipe Line Services Company, a Pennsylvania corporation ("Services Company"). Glenmoor currently provides management services to BMC, the General Partner and Services Company. See "Certain Relationships and Related Transactions." On August 12, 1997, as part of a restructuring (the "ESOP Restructuring") of the BMC Acquisition Company Employee Stock Ownership Plan (the "ESOP"), all of the General Partner's employees were transferred to Services Company, which is wholly owned by the ESOP. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Employee Stock Ownership Plan." Services Company also entered into a Services Agreement with BMC and the General Partner to provide services to the Partnership and the Operating Partnerships for a 13.5 year term. Services Company is reimbursed by BMC or the General Partner for its direct and indirect expenses. BMC and the General Partner are in turn reimbursed by the Partnership and the Operating Partnerships for such expenses other than certain executive compensation and fringe benefit costs. See "Certain Relationships and Related Transactions." In connection with an internal restructuring, effective December 31, 1998, Buckeye Management Company ("BMC"), transferred its general partnership interest in the Partnership, as well as certain other assets and liabilities, to its wholly-owned subsidiary, Buckeye Pipe Line 2 Company (the "General Partner"). Buckeye Pipe Line Company will serve as sole general partner of the Partnership and will continue to serve as sole general partner of each Operating Partnership. As of December 31, 1998, the General Partner owned approximately a 1 percent general partnership interest in the Partnership and approximately a 1 percent general partner interest in each Operating Partnership. Refined Products Business The Partnership receives petroleum products from refineries, connecting pipelines and marine terminals, and transports those products to other locations. In 1998, refined petroleum products transportation accounted for substantially all of the Partnership's consolidated revenues and consolidated operating income. Effective for the December 31, 1998 financial statements, the Partnership adopted Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Partnership has one segment, transportation of refined petroleum products. The Partnership transported an average of approximately 1,031,200 barrels per day of refined products in 1998. The following table shows the volume and percentage of refined petroleum products transported over the last three years. Volume and Percentage of Refined Petroleum Products Transported (1) (Volume in thousands of barrels per day)
Year ended December 31, ----------------------------------------------------------------------- 1998 1997 1996 ---------------------- ---------------------- --------------------- Volume Percent Volume Percent Volume Percent ---------- --------- ---------- --------- ---------- -------- Gasoline ....................... 518.8 50% 507.8 50% 497.9 49% Jet Fuels ...................... 257.2 25 255.4 25 244.5 24 Middle Distillates (2) ......... 230.3 23 238.8 23 238.7 24 Other Products ................. 24.9 2 22.0 2 26.0 3 ------- -- ------- -- ------- -- Total .......................... 1,031.2 100% 1,024.0 100% 1,007.1 100% ======= === ======= === ======= ===
- ---------- (1) Excludes local product transfers. (2) Includes diesel fuel, heating oil, kerosene and other middle distillates. The Partnership provides service in the following states: Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut, Massachusetts and Florida. Pennsylvania--New York--New Jersey Buckeye serves major population centers in the states of Pennsylvania, New York and New Jersey through 1,004 miles of pipeline. Refined petroleum products are received at Linden, New Jersey. Products are then transported through two lines from Linden, New Jersey to Allentown, Pennsylvania. From Allentown, the pipeline continues west, through a connection with Laurel, to Pittsburgh, Pennsylvania (serving Reading, Harrisburg, Altoona/Johnstown and Pittsburgh) and north through eastern Pennsylvania into New York (serving Scranton/Wilkes-Barre, Binghamton, Syracuse, Utica and Rochester and, via a connecting carrier, Buffalo). Products received at Linden, New Jersey are also transported through one line to Newark International Airport and through two additional lines to J. F. Kennedy International and LaGuardia airports and to commercial bulk terminals at Long Island City and Inwood, New York. These pipelines presently supply J. F. Kennedy, LaGuardia and Newark airports with substantially all of each airport's turbine fuel requirements. 3 Laurel transports refined petroleum products through a 345-mile pipeline extending westward from five refineries in the Philadelphia area to Pittsburgh, Pennsylvania. Indiana--Ohio--Michigan--Illinois Buckeye transports refined petroleum products through 1,989 miles of pipeline (of which 246 miles are jointly owned with other pipeline companies) in southern Illinois, central Indiana, eastern Michigan, western and northern Ohio and western Pennsylvania. A number of receiving lines and delivery lines connect to a central corridor which runs from Lima, Ohio, through Toledo, Ohio to Detroit, Michigan. Products are received at East Chicago, Indiana; Robinson, Illinois and at the refinery and other pipeline connection points near Detroit, Toledo and Lima. Major market areas served include Huntington/Fort Wayne, Indiana; Bay City, Detroit and Flint, Michigan; Cleveland, Columbus, Lima and Toledo, Ohio; and Pittsburgh, Pennsylvania. Other Refined Products Pipelines Buckeye serves Connecticut and Massachusetts through 112 miles of pipeline that carry refined products from New Haven, Connecticut to Hartford, Connecticut and Springfield, Massachusetts. Everglades carries primarily turbine fuel on a 37-mile pipeline from Port Everglades, Florida to Hollywood-Ft. Lauderdale International Airport and Miami International Airport. Other Business Activities BTT provides bulk storage services through leased facilities located in Pittsburgh, Pennsylvania which have the capacity to store up to an aggregate of approximately 257,000 barrels of refined petroleum products. This facility, which is served by Buckeye and Laurel, provides bulk storage and loading facilities for shippers and other customers. Competition and Other Business Considerations The Operating Partnerships do business without the benefit of exclusive franchises from government entities. In addition, the Operating Partnerships generally operate as common carriers, providing transportation services at posted tariffs and without long-term contracts. The Operating Partnerships do not own the products they transport. Demand for the service provided by the Operating Partnerships derives from demand for petroleum products in the regions served and the ability and willingness of refiners, marketers and end-users to supply such demand by deliveries through the Operating Partnerships' pipelines. Demand for refined petroleum products is primarily a function of price, prevailing general economic conditions and weather. The Operating Partnerships' businesses are, therefore, subject to a variety of factors partially or entirely beyond their control. Multiple sources of pipeline entry and multiple points of delivery, however, have historically helped maintain stable total volumes even when volumes at particular source or destination points have changed. The Partnership's business may in the future be affected by changing oil prices or other factors affecting demand for oil and other fuels. The Partnership's business may also be affected by energy conservation, changing sources of supply, structural changes in the oil industry and new energy technologies. The General Partner is unable to predict the effect of such factors. A substantial portion of the refined petroleum products transported by the Partnership's pipelines are ultimately used as fuel for motor vehicles and aircraft. Changes in transportation and travel patterns in the areas served by the Partnership's pipelines could adversely affect the Partnership's results of operations and financial condition. 4 In 1998, the Operating Partnerships had approximately 97 customers, most of which were either major integrated oil companies or large refined product marketing companies. The largest two customers accounted for 8.1 percent and 6.8 percent, respectively, of consolidated revenues, while the 20 largest customers accounted for 76.2 percent of consolidated revenues. Generally, pipelines are the lowest cost method for long-haul overland movement of refined petroleum products. Therefore, the Operating Partnerships' most significant competitors for large volume shipments are other pipelines, many of which are owned and operated by major integrated oil companies. Although it is unlikely that a pipeline system comparable in size and scope to the Operating Partnerships' pipeline system will be built in the foreseeable future, new pipelines (including pipeline segments that connect with existing pipeline systems) could be built to effectively compete with the Operating Partnerships in particular locations. The Operating Partnerships compete with marine transportation in some areas. Tankers and barges on the Great Lakes account for some of the volume to certain Michigan, Ohio and upstate New York locations during the approximately eight non-winter months of the year. Barges are presently a competitive factor for deliveries to the New York City area, the Pittsburgh area, Connecticut and Ohio. Trucks competitively deliver product in a number of areas served by the Operating Partnerships. While their costs may not be competitive for longer hauls or large volume shipments, trucks compete effectively for incremental and marginal volumes in many areas served by the Operating Partnerships. The availability of truck transportation places a significant competitive constraint on the ability of the Operating Partnerships to increase their tariff rates. Privately arranged exchanges of product between marketers in different locations are an increasing but unquantified form of competition. Generally, such exchanges reduce both parties' costs by eliminating or reducing transportation charges. In addition, consolidation among refiners and marketers that has accelerated in recent years has altered distribution patterns, reducing demand for transportation services in some markets and increasing them in other markets. Distribution of refined petroleum products depends to a large extent upon the location and capacity of refineries. In recent years, domestic refining capacity has both increased and decreased as a result of refinery expansions and shutdowns. Because the Partnership's business is largely driven by the consumption of fuel in its delivery areas and the Operating Partnerships' pipelines have numerous source points, the General Partner does not believe that the expansion or shutdown of any particular refinery would have a material effect on the business of the Partnership. However, the General Partner is unable to determine whether additional expansions or shutdowns will occur or what their specific effect would be. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Competition and Other Business Conditions." The Operating Partnerships' mix of products transported tends to vary seasonally. Declines in demand for heating oil during the summer months are, to a certain extent, offset by increased demand for gasoline and jet fuel. Overall, operations have been only moderately seasonal, with somewhat lower than average volume being transported during March, April and May as compared to the rest of the year. Neither the Partnership nor any of the Operating Partnerships have any employees. All of the operations of the Operating Partnerships are managed and operated by employees of Services Company. In addition, Glenmoor provides certain management services to BMC, the General Partner and Services Company. At December 31, 1998, Services Company had a total of 517 full-time employees, 150 of whom were represented by two labor unions. The Operating Partnerships (and their predecessors) have never experienced any significant work stoppages or other significant labor problems. 5 Capital Expenditures The General Partner anticipates that the Partnership will continue to make ongoing capital expenditures to maintain and enhance its assets and properties, including improvements to meet customers' needs and those required to satisfy new environmental and safety standards. In 1998, total capital expenditures were $22.8 million. Projected capital expenditures for 1999 amount to approximately $22.3 million and are expected to be funded from cash generated by operations and Buckeye's bank line of credit. Planned capital expenditures in 1999 include, among other things, installation of transmix tanks, renewal and replacement of several tank roofs and seals, upgrades to field instrumentation and cathodic protection systems, installation and replacement of mainline pipe and valves, facility automation and various improvements that facilitate increased pipeline volumes. Capital expenditures are expected to remain approximately at this level for the next few years as a result of the General Partner's plan to automate certain facilities in order to more effectively control operating costs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources-Capital Expenditures." Regulation General Buckeye is an interstate common carrier subject to the regulatory jurisdiction of the Federal Energy Regulatory Commission ("FERC") under the Interstate Commerce Act and the Department of Energy Organization Act. FERC regulation requires that interstate oil pipeline rates be posted publicly and that these rates be "just and reasonable" and non-discriminatory. FERC regulation also enforces common carrier obligations and specifies a uniform system of accounts. In addition, Buckeye, and the other Operating Partnerships, are subject to the jurisdiction of certain other federal agencies with respect to environmental and pipeline safety matters. The Operating Partnerships are also subject to the jurisdiction of various state and local agencies, including, in some states, public utility commissions which have jurisdiction over, among other things, intrastate tariffs, the issuance of debt and equity securities, transfers of assets and pipeline safety. FERC Rate Regulation Buckeye's rates are governed by a market-based rate regulation program initially approved by FERC in March 1991 for three years and subsequently extended. Under this program, in markets where Buckeye does not have significant market power, individual rate increases: (a) will not exceed a real (i.e., exclusive of inflation) increase of 15 percent over any two-year period (the "rate cap"), and (b) will be allowed to become effective without suspension or investigation if they do not exceed a "trigger" equal to the change in the Gross Domestic Product implicit price deflator since the date on which the individual rate was last increased, plus 2 percent. Individual rate decreases will be presumptively valid upon a showing that the proposed rate exceeds marginal costs. In markets where Buckeye was found to have significant market power and in certain markets where no market power finding was made: (i) individual rate increases cannot exceed the volume weighted average rate increase in markets where Buckeye does not have significant market power since the date on which the individual rate was last increased, and (ii) any volume weighted average rate decrease in markets where Buckeye does not have significant market power must be accompanied by a corresponding decrease in all of Buckeye's rates in markets where it does have significant market power. Shippers retain the right to file complaints or protests following notice of a rate increase, but are required to show that the proposed rates violate or have not been adequately justified under the market-based rate regulation program, that the proposed rates are unduly discriminatory, or that Buckeye has acquired significant market power in markets previously found to be competitive. 6 The Buckeye program is an exception to the generic oil pipeline regulations issued under the Energy Policy Act of 1992. The generic rules rely primarily on an index methodology, whereby a pipeline is allowed to change its rates in accordance with an index that FERC believes reflects cost changes appropriate for application to pipeline rates. In the alternative, a pipeline is allowed to charge market-based rates if the pipeline establishes that it does not possess significant market power in a particular market. In addition, the rules provide for the rights of both pipelines and shippers to demonstrate that the index should not apply to an individual pipeline's rates in light of the pipeline's costs. The final rules became effective on January 1, 1995. The Buckeye program will be subject to reevaluation at the same time FERC reviews the index selected in the generic oil pipeline regulations, which is anticipated to occur by July 2000. At this time, the General Partner cannot predict the impact, if any, that a change to Buckeye's rate program would have on Buckeye's operations. Independent of regulatory considerations, it is expected that tariff rates will continue to be constrained by competition and other market factors. Environmental Matters The Operating Partnerships are subject to federal, state and local laws and regulations relating to the protection of the environment. Although the General Partner believes that the operations of the Operating Partnerships comply in all material respects with applicable environmental laws and regulations, risks of substantial liabilities are inherent in pipeline operations, and there can be no assurance that material environmental liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly rigorous environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations of the Operating Partnerships, could result in substantial costs and liabilities to the Partnership. See "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Environmental Matters." The Oil Pollution Act of 1990 ("OPA") amended certain provisions of the federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act ("CWA"), and other statutes as they pertain to the prevention of and response to oil spills into navigable waters. The OPA subjects owners of facilities to strict joint and several liability for all containment and clean-up costs and certain other damages arising from a spill. The CWA provides penalties for any discharges of petroleum products in reportable quantities and imposes substantial liability for the costs of removing a spill. State laws for the control of water pollution also provide varying civil and criminal penalties and liabilities in the case of releases of petroleum or its derivatives into surface waters or into the ground. Regulations are currently being developed under OPA and state laws which may impose additional regulatory burdens on the Partnership. Contamination resulting from spills or releases of refined petroleum products are not unusual in the petroleum pipeline industry. The Partnership's pipelines cross numerous navigable rivers and streams. Although the General Partner believes that the Operating Partnerships comply in all material respects with the spill prevention, control and countermeasure requirements of federal laws, any spill or other release of petroleum products into navigable waters may result in material costs and liabilities to the Partnership. The Resource Conservation and Recovery Act ("RCRA"), as amended, establishes a comprehensive program of regulation of "hazardous wastes." Hazardous waste generators, transporters, and owners or operators of treatment, storage and disposal facilities must comply with regulations designed to ensure detailed tracking, handling and monitoring of these wastes. RCRA also regulates the disposal of certain non-hazardous wastes. As a result of these regulations, certain wastes previously generated by pipeline operations are considered "hazardous wastes" which are subject to rigorous disposal requirements. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), also known as "Superfund," governs the release or threat of release of a "hazardous 7 substance." Disposal of a hazardous substance, whether on or off-site, may subject the generator of that substance to liability under CERCLA for the costs of clean-up and other remedial action. Pipeline maintenance and other activities in the ordinary course of business generate "hazardous substances". As a result, to the extent a hazardous substance generated by the Operating Partnerships or their predecessors may have been released or disposed of in the past, the Operating Partnerships may in the future be required to remedy contaminated property. Governmental authorities such as the Environmental Protection Agency, and in some instances third parties, are authorized under CERCLA to seek to recover remediation and other costs from responsible persons, without regard to fault or the legality of the original disposal. In addition to its potential liability as a generator of a "hazardous substance," the property or right-of-way of the Operating Partnerships may be adjacent to or in the immediate vicinity of Superfund and other hazardous waste sites. Accordingly, the Operating Partnerships may be responsible under CERCLA for all or part of the costs required to cleanup such sites, which costs could be material. The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the "Amendments"), imposes controls on the emission of pollutants into the air. The Amendments required states to develop facility-wide permitting programs over the past several years to comply with new federal programs. Existing operating and air-emission requirements like those currently imposed on the Operating Partnerships are being reviewed by appropriate state agencies in connection with the new facility-wide permitting program. It is possible that new or more stringent controls will be imposed upon the Operating Partnerships through this permit review process. The Operating Partnerships are also subject to environmental laws and regulations adopted by the various states in which they operate. In certain instances, the regulatory standards adopted by the states are more stringent than applicable federal laws. In connection with the 1986 Acquisition, Pipe Line entered into an Administrative Consent Order ("ACO") with the New Jersey Department of Environmental Protection and Energy under the New Jersey Environmental Cleanup Responsibility Act of 1983 ("ECRA") relating to all six of Pipe Line's facilities in New Jersey. The ACO permitted the 1986 Acquisition to be completed prior to full compliance with ECRA, but required Pipe Line to conduct in a timely manner a sampling plan for environmental conditions at the New Jersey facilities and to implement any required clean-up plan. Sampling continues in an effort to identify areas of contamination at the New Jersey facilities, while clean-up operations have begun and have been completed at certain of the sites. The obligations of Pipe Line were not assumed by the Partnership or by BAC in the Acquisition, and the costs of compliance have been and will continue to be paid by American Financial. Through December 1998, Buckeye's costs of approximately $2,546,000 have been paid by American Financial. Safety Matters The Operating Partnerships are subject to regulation by the United States Department of Transportation ("DOT") under the Hazardous Liquid Pipeline Safety Act of 1979 ("HLPSA") relating to the design, installation, testing, construction, operation, replacement and management of their pipeline facilities. HLPSA covers petroleum and petroleum products and requires any entity which owns or operates pipeline facilities to comply with applicable safety standards, to establish and maintain a plan of inspection and maintenance and to comply with such plans. The Pipeline Safety Reauthorization Act of 1988 requires coordination of safety regulation between federal and state agencies, testing and certification of pipeline personnel, and authorization of safety-related feasibility studies. The General Partner has initiated drug and alcohol testing programs to comply with the regulations promulgated by the Office of Pipeline Safety and DOT. HLPSA requires, among other things, that the Secretary of Transportation consider the need for the protection of the environment in issuing federal safety standards for the transportation of hazardous liquids by pipeline. The legislation also requires the Secretary of Transportation to issue regulations concerning, among other things, the identification by pipeline operators of 8 environmentally sensitive areas; the circumstances under which emergency flow restricting devices should be required on pipelines; training and qualification standards for personnel involved in maintenance and operation of pipelines; and the periodic integrity testing of pipelines in environmentally sensitive and high-density population areas by internal inspection devices or by hydrostatic testing. Significant expenses would be incurred if, for instance, additional valves were required, if leak detection standards were amended to exceed the current control system capabilities of the Operating Partnerships or additional integrity testing of pipeline facilities were to be required. The General Partner believes that the Operating Partnerships' operations comply in all material respects with HLPSA. However, the industry, including the Partnership, could be required to incur substantial additional capital expenditures and increased operating costs depending upon the requirements of final regulations issued by DOT pursuant to HLPSA, as amended. The Operating Partnerships are also subject to the requirements of the Federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The General Partner believes that the Operating Partnerships' operations comply in all material respects with OSHA requirements, including general industry standards, recordkeeping, hazard communication requirements and monitoring of occupational exposure to benzene and other regulated substances. The General Partner cannot predict whether or in what form any new legislation or regulatory requirements might be enacted or adopted or the costs of compliance. In general, any such new regulations would increase operating costs and impose additional capital expenditure requirements on the Partnership, but the General Partner does not presently expect that such costs or capital expenditure requirements would have a material adverse effect on the Partnership. Tax Treatment of Publicly Traded Partnerships under the Internal Revenue Code The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain limitations on the current deductibility of losses attributable to investments in publicly traded partnerships and treats certain publicly traded partnerships as corporations for federal income tax purposes. The following discussion briefly describes certain aspects of the Code that apply to individuals who are citizens or residents of the United States without commenting on all of the federal income tax matters affecting the Partnership or the holders of LP units ("Unitholders"), and is qualified in its entirety by reference to the Code. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE PARTNERSHIP. Characterization of the Partnership for Tax Purposes The Code treats a publicly traded partnership that existed on December 17, 1987, such as the Partnership, as a corporation for federal income tax purposes, unless, for each taxable year of the Partnership, under Section 7704(d) of the Code, 90 percent or more of its gross income consists of "qualifying income." Qualifying income includes interest, dividends, real property rents, gains from the sale or disposition of real property, income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy and timber), and gain from the sale or disposition of capital assets that produce such income. Because the Partnership is engaged primarily in the refined products pipeline transportation business, the General Partner believes that 90 percent or more of the Partnership's gross income has been qualifying income. If this continues to be true and no subsequent legislation amends that provision, the Partnership will continue to be classified as a partnership and not as a corporation for federal income tax purposes. 9 Passive Activity Loss Rules The Code provides that an individual, estate, trust or personal service corporation generally may not deduct losses from passive business activities, to the extent they exceed income from all such passive activities, against other (active) income. Income which may not be offset by passive activity losses includes not only salary and active business income, but also portfolio income such as interest, dividends or royalties or gain from the sale of property that produces portfolio income. Credits from passive activities are also limited to the tax attributable to any income from passive activities. The passive activity loss rules are applied after other applicable limitations on deductions, such as the at-risk rules and basis limitations. Certain closely held corporations are subject to slightly different rules which can also limit their ability to offset passive losses against certain types of income. Under the Code, net income from publicly traded partnerships is not treated as passive income for purposes of the passive loss rule, but is treated as non-passive income. Net losses and credits attributable to an interest in a publicly traded partnership are not allowed to offset a partner's other income. Thus, a Unitholder's proportionate share of the Partnership's net losses may be used to offset only Partnership net income from its trade or business in succeeding taxable years or, upon a complete disposition of a Unitholder's interest in the Partnership to an unrelated person in a fully taxable transaction, may be used to (i) offset gain recognized upon the disposition, and (ii) then against all other income of the Unitholder. In effect, net losses are suspended and carried forward indefinitely until utilized to offset net income of the Partnership from its trade or business or allowed upon the complete disposition to an unrelated person in a fully taxable transaction of the Unitholder's interest in the Partnership. A Unitholder's share of Partnership net income may not be offset by passive activity losses generated by other passive activities. In addition, a Unitholder's proportionate share of the Partnership's portfolio income, including portfolio income arising from the investment of the Partnership's working capital, is not treated as income from a passive activity and may not be offset by such Unitholder's share of net losses of the Partnership. Deductibility of Interest Expense The Code generally provides that investment interest expense is deductible only to the extent of a non-corporate taxpayer's net investment income. In general, net investment income for purposes of this limitation includes gross income from property held for investment, gain attributable to the disposition of property held for investment (except for net capital gains for which the taxpayer has elected to be taxed at special capital gains rates) and portfolio income (determined pursuant to the passive loss rules) reduced by certain expenses (other than interest) which are directly connected with the production of such income. Property subject to the passive loss rules is not treated as property held for investment. However, the IRS has issued a Notice which provides that net income from a publicly traded partnership (not otherwise treated as a corporation) may be included in net investment income for purposes of the limitation on the deductibility of investment interest. A Unitholder's investment income attributable to its interest in the Partnership will include both its allocable share of the Partnership's portfolio income and trade or business income. A Unitholder's investment interest expense will include its allocable share of the Partnership's interest expense attributable to portfolio investments. Unrelated Business Taxable Income Certain entities otherwise exempt from federal income taxes (such as individual retirement accounts, pension plans and charitable organizations) are nevertheless subject to federal income tax on net unrelated business taxable income and each such entity must file a tax return for each year in which it has more than $1,000 of gross income from unrelated business activities. The General Partner believes that substantially all of the Partnership's gross income will be treated as derived from an unrelated trade or business and taxable to such entities. The tax-exempt entity's share of the Partnership's deductions directly connected with carrying on such unrelated trade or business 10 are allowed in computing the entity's taxable unrelated business income. ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE ADVISABLE. State Tax Treatment During 1998, the Partnership owned property or conducted business in the states of Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut, Massachusetts and Florida. A Unitholder will likely be required to file state income tax returns and to pay applicable state income taxes in many of these states and may be subject to penalties for failure to comply with such requirements. Some of the states have proposed that the Partnership withhold a percentage of income attributable to Partnership operations within the state for Unitholders who are non-residents of the state. In the event that amounts are required to be withheld (which may be greater or less than a particular Unitholder's income tax liability to the state), such withholding would generally not relieve the non-resident Unitholder from the obligation to file a state income tax return. Certain Tax Consequences to Unitholders Upon formation of the Partnership in 1986, the General Partner elected twelve-year straight-line depreciation for tax purposes. For this reason, starting in 1999, the amount of depreciation available to the Partnership will be reduced significantly and taxable income will increase accordingly. Unitholders, however, will continue to offset Partnership income with individual LP Unit depreciation under their IRC section 754 election. Each Unitholder's tax situation will differ depending upon the price paid and when LP Units were purchased. Generally, those who purchased LP Units in the past few years will have adequate depreciation to offset a considerable portion of Partnership income, while those who purchased LP Units more than several years ago will experience the full increase in taxable income. Unitholders are reminded that, in spite of the additional taxable income beginning in 1999, the current level of cash distributions exceed expected tax payments. Furthermore, sale of LP Units will result in ordinary income tax recapture. UNITHOLDERS ARE ENCOURAGED TO CONSULT THEIR PROFESSIONAL TAX ADVISORS REGARDING THE TAX IMPLICATIONS TO THEIR INVESTMENT IN LP UNITS. Certain Amendments to the Partnership Agreement In July 1998, through a consent solicitation approved by more than two-thirds of the LP Unitholders, amendments to the Partnership Agreement were adopted to (i) remove the limitation on the number of LP Units that may be issued without the approval of the Unitholders; (ii) eliminate the restrictions on the amount of debt that can be incurred by the Partnership or its Operating Partnerships and (iii) remove the limitations on the amount of capital expenditures that can be made by the Partnership or the Operating Partnerships in any calendar year. Item 2. Properties As of December 31, 1998, the principal facilities of the Operating Partnerships included 3,487 miles of 6-inch to 24-inch diameter pipeline, 34 pumping stations, 84 delivery points and various sized tanks having an aggregate capacity of approximately 9.2 million barrels. The Operating Partnerships own substantially all of their facilities. In general, the Operating Partnerships' pipelines are located on land owned by others pursuant to rights granted under easements, leases, licenses and permits from railroads, utilities, governmental entities and private parties. Like other pipelines, certain of the Operating Partnerships' rights are revocable at the election of the grantor or are subject to renewal at various intervals, and some require periodic payments. Certain portions of Buckeye's pipeline in Connecticut and 11 Massachusetts are subject to security interests in favor of the owners of the right-of-way to secure future lease payments. The Operating Partnerships have not experienced any revocations or lapses of such rights which were material to its business or operations, and the General Partner has no reason to expect any such revocation or lapse in the foreseeable future. Most pumping stations and terminal facilities are located on land owned by the Operating Partnerships. The General Partner believes that the Operating Partnerships have sufficient title to their material assets and properties, possess all material authorizations and franchises from state and local governmental and regulatory authorities and have all other material rights necessary to conduct their business substantially in accordance with past practice. Although in certain cases the Operating Partnerships' title to assets and properties or their other rights, including their rights to occupy the land of others under easements, leases, licenses and permits, may be subject to encumbrances, restrictions and other imperfections, none of such imperfections are expected by the General Partner to interfere materially with the conduct of the Operating Partnerships' businesses. Item 3. Legal Proceedings The Partnership, in the ordinary course of business, is involved in various claims and legal proceedings, some of which are covered in whole or in part by insurance. The General Partner is unable to predict the timing or outcome of these claims and proceedings. Although it is possible that one or more of these claims or proceedings, if adversely determined, could, depending on the relative amounts involved, have a material effect on the Partnership's results of operations for a future period, the General Partner does not believe that their outcome will have a material effect on the Partnership's consolidated financial condition. With respect to environmental litigation, certain Operating Partnerships (or their predecessors) have been named as defendants in several lawsuits or have been notified by federal or state authorities that they are a potentially responsible party ("PRP") under federal laws or a respondent under state laws relating to the generation, disposal or release of hazardous substances into the environment. Typically, an Operating Partnership is one of many PRPs for a particular site and its contribution of total waste at the site is minimal. However, because CERCLA and similar statutes impose liability without regard to fault and on a joint and several basis, the liability of an Operating Partnership in connection with such proceedings could be material. In July 1994, Buckeye was named as a defendant in an action filed by the Michigan Department of Natural Resources ("MDNR") in Circuit Court, Oakland County, Michigan. The complaint also names three individuals and three other corporations as defendants. The complaint alleges that under the Michigan Environmental Response Act, the Michigan Water Resource Commission Act and the Leaking Underground Storage Tank Act, the defendants are liable to the state of Michigan for remediation expenses in connection with alleged groundwater contamination in the vicinity of Sable Road, Oakland County, Michigan. The complaint asserts that contaminated groundwater has infiltrated drinking water wells in the area. The complaint seeks past response costs in the amount of approximately $2.0 million and a declaratory judgment that the defendants are liable for future response costs and remedial activities at the site. The litigation is presently in the discovery phase. In November 1997, plaintiff, MDNR, filed a motion for summary judgment against all defendants, including Buckeye. In addition, one of Buckeye's co-defendants filed a cross-motion for summary judgment against Buckeye in response to the MDNR summary judgment motion. At a hearing on January 28, 1998, plaintiff's motion for summary judgment was denied. The co-defendant's cross-motion against Buckeye is pending with the Court. Buckeye believes that its pipeline in the vicinity of the contaminated groundwater has not been a source of the contaminants and that Buckeye has no responsibility for past or future clean-up costs at the site. Although the cost of the ultimate remediation cannot be determined at this time, Buckeye expects that its liability, if any, will not be material. 12 Additional claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors may be asserted in the future under various federal and state laws, but the amount of such claims or the potential liability, if any, cannot be estimated. See "Business--Regulation--Environmental Matters." In February 1999, the General Partner entered into a stipulation and order of settlement with the New York State Office of Real Property Services and the City of New York settling various real property tax certiorari proceedings. The Partnership had challenged its real property tax assessments for a number of past tax years on that portion of its pipeline that is located in public right-of-way in New York City. The settlement agreement is expected to result in a gain of approximately $11.0 million for the Partnership in the second quarter of 1999. In addition, based upon the settlement, the Partnership expects that its real property tax expense will be reduced by approximately $1.0 million in 1999, with continued tax savings realized in the years 2000 through 2003. The settlement is contingent upon various conditions set forth in the stipulation and order of settlement. In June 1998, a putative class action complaint (Shakeredge v. Martinelli, et al) was filed in the Delaware Court of Chancery against the Partnership, BMC, Glenmoor and the directors of BMC alleging that the Consent Solicitation Statement relating to various Partnership Agreement amendments was materially false and misleading, because it failed to disclose that the incentive payments made to the General Partner by the Partnership may be affected by an increase in the number of LP Units outstanding; that the elimination of the restrictions contained in the Partnership Agreement will remove the checks and balances imposed on the Partnership and the General Partner; and whether the defendants were planning or considering any specific transactions that would be affected by the removal of the restrictions at the time of the Consent Solicitation Statement. The complaint seeks, among other things, an injunction prohibiting the consummation of the consent solicitation or giving effect to any other proposed amendments to the Partnership Agreement. An answer was filed by the General Partner and the other defendants in July 1998. No other filings or proceedings have occurred in the case. BMC and the other defendants believe that the Consent Solicitation Statement disclosed all material information to the Unitholders and that the complaint is without merit. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the holders of LP Units during the fourth quarter of the fiscal year ended December 31, 1998. 13 PART II Item 5. Market for the Registrant's LP Units and Related Unitholder Matters The LP Units of the Partnership are listed and traded principally on the New York Stock Exchange. In January 1998, the General Partner approved a two-for-one unit split that became effective February 13, 1998. All unit and per unit information contained in this filing, unless otherwise noted, has been adjusted for the two for one split. The high and low sales prices of the LP Units in 1998 and 1997, as reported on the New York Stock Exchange Composite Tape, were as follows:
1998 1997 -------------------------- -------------------------- Quarter High Low High Low - ---------------- ----------- ----------- ----------- ----------- First .......... 30.0625 27.5000 24.9385 20.1250 Second ......... 29.8750 27.0000 22.6250 21.2500 Third .......... 30.2500 26.0000 26.7500 22.5625 Fourth ......... 31.1250 26.0625 30.0000 24.6875
During the months of December 1998 and January 1999, the Partnership gathered tax information from its known LP Unitholders and from brokers/nominees. Based on the information collected, the Partnership estimates its number of beneficial LP Unitholders to be approximately 18,000. Cash distributions paid during 1997 and 1998 were as follows:
Amount Record Date Payment Date Per Unit - --------------------------- ------------------- ----------- February 21, 1997 ......... February 28, 1997 $ 0.375 May 6, 1997 ............... May 30, 1997 $ 0.375 August 22,1997 ............ August 29, 1997 $ 0.440 November 5, 1997 .......... November 28, 1997 $ 0.525 February 23, 1998 ......... February 27, 1998 $ 0.525 May 6, 1998 ............... May 29, 1998 $ 0.525 August 5, 1998 ............ August 31, 1998 $ 0.525 November 4, 1998 .......... November 30, 1998 $ 0.525
In general, the Partnership makes quarterly cash distributions of substantially all of its available cash less such retentions for working capital, anticipated expenditures and contingencies as the General Partner deems appropriate. On February 4, 1999, the Partnership announced a quarterly distribution of $0.525 per LP Unit payable on February 26, 1999 to Unitholders of record on February 16, 1999. Item 6. Selected Financial Data The following tables set forth, for the period and at the dates indicated, the Partnership's income statement and balance sheet data for the years ended December 31, 1998, 1997, 1996, 1995 and 1994. The tables should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Report. 14
Year Ended December 31, ------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------- ------------- ------------- ------------- ------------- (In thousands, except per unit amounts) Income Statement Data: Revenue ................................... $ 184,477 $ 184,981 $ 182,955 $ 183,462 $ 186,338 Depreciation and amortization (1) ......... 16,432 13,177 11,333 11,202 11,203 Operating income .......................... 74,358 72,075 68,784 71,504 72,481 Interest and debt expense (2) ............. 15,886 21,187 21,854 21,710 24,931 Income from continuing operations before extraordinary loss ....................... 52,007 48,807 49,337 49,840 48,086 Net income ................................ 52,007 6,383 49,337 49,840 45,817 Income per unit from continuing opera- tions before extraordinary loss .......... 1.93 1.92 2.03 2.05 1.98 Net income per unit ....................... 1.93 0.25 2.03 2.05 1.89 Distributions per unit .................... 2.10 1.72 1.50 1.40 1.40
December 31, ------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------- ------------- ------------- ------------- ------------- (In thousands) Balance Sheet Data: Total assets .............................. $ 618,099 $ 615,062 $ 567,837 $ 552,646 $ 534,765 Long-term debt ............................ 240,000 240,000 202,100 214,000 214,000 General Partner's capital ................. 2,390 2,432 2,760 2,622 2,460 Limited Partners' capital ................. 296,095 300,346 273,219 259,563 243,516
- --------------- (1) Depreciation and amortization includes $4,698,000 in 1998 and $1,806,000 in 1997 for amortization of a deferred charge related to the ESOP Restructuring. (2) In December 1997 Buckeye issued $240,000,000 of Senior Notes bearing interest ranging from 6.39 percent to 6.98 percent. Concurrently with the issuance of the Senior Notes, Buckeye extinguished $202,100,000 of First Mortgage Notes bearing interest ranging from 7.11 percent to 11.18 percent. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of the liquidity and capital resources and the results of operations of the Partnership for the periods indicated below. This discussion should be read in conjunction with the consolidated financial statements and notes thereto, which are included elsewhere in this Report. Results of Operations Through its Operating Partnerships, the Partnership is principally engaged in the transportation of refined petroleum products including gasoline, aviation turbine fuel, diesel fuel, heating oil and kerosene. The Partnership's revenues are principally a function of the volumes of refined petroleum products transported by the Partnership, which are in turn a function of the demand for refined petroleum products in the regions served by the Partnership's pipelines and the tariffs or transportation fees charged for such transportation. Results of operations are affected by factors which include general economic conditions, weather, competitive conditions, demand for products transported, seasonality and regulation. See "Business--Competition and Other Business Considerations." 15 1998 Compared With 1997 Revenue for the year ended December 31, 1998 was $184.5 million, $0.5 million or 0.3 percent less than revenue of $185.0 million for 1997. Volumes delivered during 1998 averaged 1,031,200 barrels per day, 7,200 barrels per day or 0.7 percent greater than volume of 1,024,000 barrels per day delivered in 1997. The combination of higher volumes and lower revenues in 1998 as compared to 1997 is the result of several factors. In 1998, the Partnership experienced a slight shift in deliveries from longer-haul, higher tariff movements to shorter-haul, lower tariff movements. In addition, certain tariffs designed to recover capital costs expired in 1998 and were replaced by lower tariffs. The Partnership also had greater costs associated with product downgrades resulting from normal operating activities. Gasoline volumes and revenue increased over 1997 levels. New business was gained at Midland, Pennsylvania as a result of a new connection, and market share throughout Pennsylvania continued to grow in 1998. In addition, increased volumes in the Detroit and Flint, Michigan areas added to the favorable variance. Offsetting these increases were declines in volume to the upstate New York area. Distillate volumes and revenue declined over 1997 levels. Demand was weak throughout most areas due to abnormally warm weather primarily during the first quarter of 1998. Turbine fuel volumes increased slightly over 1997 levels although overall revenue declined. Demand was strong at Newark Airport but was offset by declines at Pittsburgh due to reductions in both military and commercial airline activity. LPG volumes and revenue increased over 1997 levels due to the capture of new business in Ohio. Tariff rate increases implemented in 1998 also had a favorable impact on 1998 revenues. See "Tariff Changes". Costs and expenses during 1998 were $110.1 million, $2.8 million or 2.5 percent less than costs and expenses of $112.9 million during 1997. During 1998, as part of a restructuring, the Partnership incurred severance and related expenses of $2.1 million and an additional $1.3 million expense associated with the realignment of senior management. Payroll overhead expenses declined as a result of the ESOP Restructuring in 1997 and a full year effect of the elimination of certain executive compensation costs formerly charged to the Partnership. Such senior executive compensation costs have not been charged to the Partnership since August 12, 1997. See "Executive Compensation". The Partnership also realized cost reductions in outside service expense and incurred less power expense during 1998. Partially offsetting these reductions was the full year effect of amortization of the deferred charge related to the issuance of LP Units under the ESOP restructuring. Other income (expenses) consist of interest income, interest and debt expense, minority interests and other. Total other expenses decreased by $0.9 million. Interest expense declined by $5.3 million due to the early extinguishment of higher interest rate debt with the proceeds of lower interest rate debt during December 1997. Partially offsetting these declines in expenses were increased incentive compensation payments to BMC as a result of greater cash distributions to Unitholders (see "Certain Relationships and Related Transactions") and an increase in minority interest expense related to greater net income. Income from invested cash also declined from 1997 levels. 1997 Compared With 1996 Revenue for the year ended December 31, 1997 was $185.0 million, $2.0 million or 1.1 percent greater than revenue of $183.0 million for 1996. Volumes delivered during 1997 averaged 1,024,000 barrels per day, 16,900 barrels per day or 1.7 percent greater than volume of 1,007,100 barrels per day delivered in 1996. The major portion of this increase was related to increased turbine fuel deliveries to Newark, J. F. Kennedy, Miami and Detroit airports. At Newark, J. F. Kennedy and Miami airports, turbine fuel demand continued to grow at a steady rate, while at Detroit the increases were attributable primarily to the installation of new facilities and the addition of a new shipper. Gasoline volumes also increased over 1996 levels. The increase in gasoline volumes were attributable primarily to market share growth throughout Pennsylvania. The filing of tariff incentives has also led to increased volumes and revenue at various locations. Gasoline revenue overall, however, declined slightly due to the loss of longer-haul, higher tariff volumes particularly to the upstate New York 16 area and certain Midwest locations that are being supplied with shorter-haul, lower tariff volumes. Distillate volumes and revenues in 1997 were comparable to 1996 volumes, while liquefied petroleum gas and other product volumes declined resulting in lower revenues. Tariff rate increases implemented in 1996 also had a favorable impact on 1997 revenues. See "Tariff Changes." Costs and expenses during 1997 were $112.9 million, $1.3 million or 1.1 percent less than costs and expenses of $114.2 million during 1996. Payroll expenses declined as the result of a staff reduction program implemented in 1996 and the non-recurrence of the $2.5 million charge recorded in connection with that program. Payroll and payroll overhead expenses were also lower since certain senior executive compensation costs have not been charged to the Partnership following August 12, 1997, in accordance with the terms of the ESOP Restructuring. Professional fee expenses also declined due to reduced expenses associated with the ESOP Restructuring. Offsetting these decreases to some extent were increases in rental expense and the amortization of deferred charges related to the issuance of LP Units under the ESOP Restructuring. Other income (expenses) consist of interest income, interest and debt expense, and minority interests and other. Total other expenses increased by $3.8 million. A $2.7 million gain on the sale of property in 1996 did not recur in 1997. In addition, increased incentive compensation payments to BMC as a result of greater cash distributions to Unitholders, and the settlement of a lawsuit brought in connection with the ESOP Restructuring, increased expenses. See "Certain Relationships and Related Transactions." Offsetting these increases, to some extent, was a decline in minority interest expense related to the decline in net income. Tariff Changes Effective January 1, 1998 certain of the Operating Partnerships implemented tariff increases that were expected to generate approximately $2.5 million in additional revenue per year. The Operating Partnerships did not increase tariff rates during 1997. In 1996, certain tariffs were increased that, at the time of filing, were expected to generate approximately $2.9 million in additional revenue per year. Competition and Other Business Conditions Several major refiners and marketers of petroleum products announced strategic alliances or mergers in 1997 and 1998. These alliances or mergers have the potential to alter refined product supply and distribution patterns within the Operating Partnerships' market area resulting in both gains and losses of volume and revenue. While the General Partner believes that individual delivery locations within its market area may have significant gains or losses, it is not possible to predict the overall impact these alliances or mergers would have on the Operating Partnerships' business. However, the General Partner does not believe that these alliances or mergers will have a material adverse effect on the Partnership's results of operations or financial condition. 17 Liquidity and Capital Resources The Partnership's financial condition at December 31, 1998, 1997 and 1996 is highlighted in the following comparative summary: Liquidity and Capital Indicators
As of December 31, -------------------------------------------- 1998 1997 1996 ------------ ------------- ------------- Current ratio .................................... 0.8 to 1 1.2 to 1 1.3 to 1 Ratio of cash and temporary investments and trade receivables to current liabilities ............. 0.5 to 1 0.8 to 1 1.1 to 1 Working capital (deficit) (in thousands) ......... ($ 6,266) $5,045 $13,660 Ratio of total debt to total capital ............. .44 to 1 .44 to 1 .43 to 1 Book value (per Unit) ............................ $ 11.06 $ 11.23 $ 11.33
Cash Provided by Operations During 1998, cash provided by operations of $80.6 million was derived principally from $68.4 million of net income before depreciation and amortization. Depreciation and amortization increased by $3.3 million as a result of the amortization for a full year of a deferred charge associated with the ESOP Restructuring and depreciation related to capital additions. Changes in current assets and current liabilities resulted in a net cash source of $12.3 million. The cash source from the change in current assets and liabilities resulted primarily from maturities of temporary investments, the continued improvement in the collection of trade receivables, a reduction in prepaid and other current assets and an increase in current liabilities payable to the General Partner. Distributions paid to Unitholders in 1998 amounted to $56.2 million, an increase of $12.3 million over 1997, and capital expenditures were $22.8 million, an increase of $3.0 million over 1997. During 1997, cash provided by operations of $28.4 million was derived principally from $62.0 million of income before extraordinary loss and depreciation and amortization reduced by an extraordinary loss of $42.4 million on the early extinguishment of debt. Depreciation and amortization increased by $1.8 million as a result of the amortization of a deferred charge associated with the ESOP Restructuring. Changes in current assets and current liabilities resulted in a net cash source of $10.4 million, resulting primarily from the elimination of the current portion of long term debt and continued improvement in the collection of trade receivables, offset by the net payment of $3.0 million of accrued and other current liabilities. Cash and cash equivalents declined by $10.1 million and temporary investments declined by $11.7 million during the year. Distributions paid to Unitholders in 1997 amounted to $44.3 million, an increase of $7.8 million over 1996, and capital expenditures were $19.8 million, an increase of $5.0 million from 1996. Also, during 1997, cash provided from the issuance of $240 million of Senior Notes and an additional $4.5 million provided from operations was used to pay the remaining $202.1 million due under the First Mortgage Notes and $42.4 million in prepayment penalty and related refinancing costs. Changes in non-current assets and liabilities resulted in a net use of cash of $1.6 million, including a decline of minority interests of $0.4 million. During 1996, cash provided by operations of $47.1 million was derived principally from $60.7 million of income from operations before depreciation. Changes in current assets and current liabilities resulted in a net cash use of $7.5 million. This amount is comprised primarily of a $13.6 million use of cash to increase temporary investments offset by sources of cash from declines in outstanding trade receivables and increases in accounts payable and accrued and other current liabilities. During the third quarter 1996, the Partnership began billing on a weekly rather than monthly basis thereby decreasing trade receivables. Remaining changes in cash provided by operations, totaling $6.1 million in uses, resulted from the deduction of a $2.7 million gain on the 18 sale of property included in net income and changes in other non-current assets and liabilities. Distributions paid to Unitholders in 1996 amounted to $36.5 million, an increase of $2.5 million over 1995, and capital expenditures were $14.9 million, a decrease of $2.5 million from 1995. Debt Obligations and Credit Facilities At December 31, 1998, the Partnership had $240.0 million in outstanding long-term debt, all of which was represented by Senior Notes (Series 1997A through 1997D) (the "Senior Notes"). During December 1997, Buckeye issued the Senior Notes which are due 2024 and accrue interest at an average annual rate of 6.94 percent. The proceeds from the issuance of the Senior Notes, plus $4.5 million of additional cash, were used to purchase and retire all of Buckeye's outstanding First Mortgage Notes (the "First Mortgage Notes") which accrued interest at an average annual rate of 10.3 percent. In connection with the purchase of the First Mortgage Notes in 1997, Buckeye was required to pay to the holders of the First Mortgage Notes a prepayment premium equal to the difference between the cash flows under the First Mortgage Notes, discounted at current U. S. Treasury rates, and the book value of the principal due under the First Mortgage Notes. The prepayment premium amounted to $41.4 million. In addition, debt refinancing costs totaling $1.0 million were incurred. The total costs of $42.4 million were recorded on the 1997 income statement as an extraordinary loss. In connection with the issuance of the Senior Notes, the indenture (the "Indenture") pursuant to which the First Mortgage Notes were issued was amended and restated in its entirety to eliminate the collateral requirements and to impose certain financial covenants. The Senior Notes represent all of the Partnership's outstanding long-term debt at December 31, 1997. Prior to the issuance of the Senior Notes, Buckeye paid $11.9 million of principal on its First Mortgage Notes, Series J, that became due in December 1997. The remaining principal of $202.1 million due under the First Mortgage Notes was paid from the proceeds of the Senior Notes. The Indenture, as amended in connection with the issuance of the Senior Notes, contains covenants which affect Buckeye, Laurel and Buckeye Pipe Line Company of Michigan, L.P. (the "Indenture Parties"). Generally, the Indenture (a) limits outstanding indebtedness of Buckeye based upon certain financial ratios of the Indenture Parties, (b) prohibits the Indenture Parties from creating or incurring certain liens on their property, (c) prohibits the Indenture Parties from disposing of property which is material to their operations, and (d) limits consolidation, merger and asset transfers of the Indenture Parties. During December 1998, Buckeye established a line of credit from commercial banks (the "Credit Agreement") which permits borrowings of up to $100 million subject to certain limitations contained in the Credit Agreement. Borrowings bear interest at the bank's base rate or at a rate based on the London interbank rate at the option of Buckeye. The Credit Agreement expires December 16, 2003. At December 31, 1998 there were no borrowings outstanding under the Credit Agreement. The Credit Agreement contains covenants which affect Buckeye and the Partnership. Generally, the Credit Agreement (a) limits outstanding indebtedness of Buckeye based upon certain financial ratios contained in the Credit Agreement, (b) prohibits Buckeye from creating or incurring certain liens on its property, (c) prohibits the Partnership or Buckeye from disposing of property which is material to its operations, and (d) limits consolidation, merger and asset transfers by Buckeye and the Partnership. The ratio of total debt to total capital was 44 percent at December 31, 1998 and 1997 and 43 percent at December 31, 1996. For purposes of the calculation of this ratio, total capital consists of current and long-term debt, minority interests and partners' capital. 19 Capital Expenditures At December 31, 1998, property, plant and equipment was approximately 86 percent of total consolidated assets. This compares to 85 percent and 90 percent for the years ended December 31, 1997 and 1996, respectively. Capital expenditures are generally for expansion of the Operating Partnerships' service capabilities and sustaining the Operating Partnerships' existing operations. Capital expenditures by the Partnership were $22.8 million, $19.8 million and $14.9 million for 1998, 1997 and 1996, respectively. Projected capital expenditures for 1999 are approximately $22.3 million and are expected to be funded from cash generated by operations and Buckeye's bank line of credit. See "Business--Capital Expenditures." Planned capital expenditures include, among other things, installation of transmix tanks, renewal and replacement of several tank roofs and seals, upgrades to field instrumentation and cathodic protection systems, installation and replacement of mainline pipe and valves, facility automation and various facility improvements that facilitate increased pipeline volumes. Capital expenditures are expected to remain at approximately this level for the next few years as a result of the General Partner's plan to automate certain facilities in order to more effectively control operating costs. Environmental Matters The Operating Partnerships are subject to federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations, as well as the Partnership's own standards relating to protection of the environment, cause the Operating Partnerships to incur current and ongoing operating and capital expenditures. During 1998, the Operating Partnerships incurred operating expenses of $1.8 and capital expenditures of $1.7 million for environmental matters. Capital expenditures of $1.2 million for environmental related projects are included in the Partnership's plans for 1999. Expenditures, both capital and operating, relating to environmental matters are expected to continue due to the Partnership's commitment to maintain high environmental standards and to increasingly rigorous environmental laws. Various claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors have been asserted and may be asserted in the future under various federal and state laws. The General Partner believes that the generation, handling and disposal of hazardous substances by the Operating Partnerships and their predecessors have been in material compliance with applicable environmental and regulatory requirements. The total potential remediation costs to be borne by the Operating Partnerships relating to these clean-up sites cannot be reasonably estimated and could be material. With respect to each site, however, the Operating Partnership involved is one of several or as many as several hundred PRPs that would share in the total costs of clean-up under the principle of joint and several liability. Although the Partnership has made a provision for certain legal expenses relating to these matters, the General Partner is unable to determine the timing or outcome of any pending proceedings or of any future claims and proceedings. See "Business--Regulation--Environmental Matters" and "Legal Proceedings." Employee Stock Ownership Plan In connection with the Acquisition, the ESOP was formed for the benefit of employees of BMC, the General Partner and the shareholders of BMC. BMC borrowed $63 million pursuant to a 15-year term loan from a third-party lender. BMC then loaned $63 million to the ESOP, which used the loan proceeds to purchase $63 million of Series A Convertible Preferred Stock of BAC ("BAC Preferred Stock"). The BAC Preferred Stock had a 7.5% cumulative dividend rate and a conversion rate of approximately 7.7 shares of BAC common stock per share of BAC Preferred Stock. In December 1996, the Board of Directors of BMC approved the ESOP Restructuring. The ESOP Restructuring was approved by a majority of the holders of the LP Units at a special meeting 20 held on August 11, 1997. On August 12, 1997, in connection with the ESOP Restructuring, the Partnership issued an additional 2,573,146 LP Units (adjusted for a two-for-one split) which are beneficially owned by the ESOP through Services Company. The market value of the LP Units issued to Services Company was approximately $64.2 million. As a result of the Partnership's issuance of the LP Units, the Partnership's obligation to reimburse BMC for certain executive compensation costs was permanently released, the incentive compensation formula was reduced, and other changes were implemented to make the ESOP a less expensive fringe benefit for the Partnership. The $64.2 million market value of the LP Units issued to Services Company was recorded as a deferred charge relating to the ESOP Restructuring and is being amortized over 13.5 years. As part of the ESOP Restructuring, the $63 million loan from the third party lender became a direct obligation of the ESOP which is secured by the stock of Services Company and guaranteed by BMC and certain of its affiliates. Total ESOP related costs charged to earnings during 1998 were $1.2 million, representing a non-cash accrual of the estimated difference between distributions to be paid on the LP Units and the total debt service requirements under the ESOP loan (the "top-up provision"). Total ESOP related costs charged to earnings through August 12, 1997, the date of the ESOP Restructuring, were $5.0 million, which included $2.8 million of interest expense with respect to the ESOP loan, $2.0 million based upon the value of 1,976 shares of BAC Preferred Stock released and allocated to employees accounts through August 12, 1997, and administrative costs of $0.2 million. Subsequent to August 12, 1997, ESOP related costs charged to the Partnership in 1997 were $0.1 million in administrative costs and an additional $0.4 million for a top-up provision. The 1,976 shares of BAC Preferred Stock that were released and allocated to employees' accounts were exchanged for 40,354 shares of Services Company stock during 1997. Total ESOP related costs charged to earning during 1996 were $5.6 million, which included $3.5 million of interest expense with respect to the ESOP loan and $2.1 million based upon the value of 2,074 shares of BAC Preferred Stock released to employees' accounts. The 2,074 shares of BAC Preferred Stock that were released to employees' accounts in 1996 were exchanged for 42,355 shares of Services Company stock in 1997. As a result of the ESOP Restructuring, the Partnership will not incur any additional charges related to interest expense and shares released to employees' accounts under the ESOP. The Partnership will, however, incur ESOP-related costs to the extent that required contributions to the ESOP are in excess of distributions received on the LP Units owned by Services Company, for taxes associated with the sale of the LP Units and for routine administrative costs. Accounting Statements Not Yet Adopted Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" which established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This standard will be effective for the Partnership's financial statements in the year 2000. The General Partner has not yet assessed the impact of this new standard on the Partnership's financial statements. Information Systems--Year 2000 Compliance In 1998, the Partnership established a comprehensive plan to assess the impact of the Year 2000 issue on the software and hardware utilized by the Partnership's internal operations and 21 pipeline control systems. As part of that assessment, a team is in the process of reviewing and documenting the status of the Partnership's systems for Year 2000 compliance. The key information systems under review include financial systems, pipeline operating systems, and the Partnership's SCADA (Supervisory Control and Data Acquisition) system. In connection with each of these areas, consideration is being given to hardware, operating systems, applications, database management, system interfaces, electronic transmission and outside vendors. The Partnership relies on third-party suppliers for certain systems, products and services including telecommunications. The Partnership has received certain information concerning Year 2000 status from a group of critical suppliers and vendors, and anticipates receiving additional information in the near future that will assist the Partnership in determining the extent to which the Partnership may be vulnerable to those third parties' failure to remediate their year 2000 issues. At this time, the Partnership believes that the total cost for known or anticipated remediation of its information systems to make them Year 2000 compliant will not be material. Management of the Partnership believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. Completion of the plan and testing of replacement or modified systems is anticipated for the third quarter of 1999. Nevertheless, since it is not possible to anticipate all possible future outcomes, especially when third parties are involved, there could be circumstances in which the Partnership would be unable to take customer orders, ship petroleum products, invoice customers or collect payments. The effect on the Partnership's liabilities and revenues due to a failure of its systems or a third-party system cannot be predicted. The Company has contingency plans for some pipeline critical applications, involving manual operations, and is working on additional contingency plans to address unavoided or unavoidable risks associated with Year 2000 issues. Forward-Looking Statements Information contained above in this Management's Discussion and Analysis and elsewhere in this Report on Form 10-K with respect to expected financial results and future events is forward-looking, based on our estimates and assumptions and subject to risk and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) adverse weather conditions resulting in reduced demand; (2) changes in laws and regulations, including safety, tax and accounting matters; (3) competitive pressures from alternative energy sources; (4) liability for environmental claims; (5) improvements in energy efficiency and technology resulting in reduced demand; (6) labor relations; (7) changes in real property tax assessments, (8) regional economic conditions; (9) the success of the Partnership and its suppliers in achieving Year 2000 compliance; and (10) interest rate fluctuations and other capital market conditions. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events. 22 Item 8. Financial Statements and Supplementary Data BUCKEYE PARTNERS, L.P. Index to Financial Statements and Financial Statement Schedules
Page Number -------------- Financial Statements and Independent Auditors' Report: Independent Auditors' Report ...................................... 24 Consolidated Statements of Income--For the years ended December 31, 1998, 1997 and 1996 .............................................. 25 Consolidated Balance Sheets--December 31, 1998 and 1997 ........... 26 Consolidated Statements of Cash Flows--For the years ended December 31, 1998, 1997 and 1996 .......................................... 27 Notes to Consolidated Financial Statements ........................ 28 Financial Statement Schedules and Independent Auditors' Report: Independent Auditors' Report ...................................... S-1 Schedule I--Registrant's Condensed Financial Statements ........... S-2
Schedules other than those listed above are omitted because they are either not applicable or not required or the information required is included in the consolidated financial statements or notes thereto. 23 INDEPENDENT AUDITORS' REPORT To the Partners of Buckeye Partners, L.P.: We have audited the accompanying consolidated balance sheets of Buckeye Partners, L.P. and its subsidiaries (the "Partnership") as of December 31, 1998 and 1997, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1998 and 1997, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania January 28, 1999 (March 5, 1999 as to Note 19) 24 BUCKEYE PARTNERS, LP CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per unit amounts)
Year Ended December 31, --------------------------------------- Notes 1998 1997 1996 ------- ----------- ----------- ----------- Revenue .................................................... 2 $ 184,477 $ 184,981 $ 182,955 --------- --------- --------- Costs and expenses Operating expenses ...................................... 3,14 79,439 86,833 87,855 Depreciation and amortization ........................... 2,5,6 16,432 13,177 11,333 General and administrative expenses ..................... 14 14,248 12,896 14,983 --------- --------- --------- Total costs and expenses ...................... ........ 110,119 112,906 114,171 --------- --------- --------- Operating income ........................................... 74,358 72,075 68,784 --------- --------- --------- Other income (expenses) Interest income ......................................... 251 2,046 1,589 Interest and debt expense ............................... (15,886) (21,187) (21,854) Minority interests and other ............................ 14 (6,716) (4,127) 818 --------- --------- --------- Total other income (expenses) ................. ........ (22,351) (23,268) (19,447) --------- --------- --------- Income before extraordinary loss ........................... 52,007 48,807 49,337 Extraordinary loss on early extinguishment of debt ......... 8 -- (42,424) -- --------- --------- --------- Net income ................................................. $ 52,007 $ 6,383 $ 49,337 ========= ========= ========= Net income allocated to General Partner .................... 15 $ 470 $ 85 $ 493 Net income allocated to Limited Partners ................... 15 $ 51,537 $ 6,298 $ 48,844 Earnings per Partnership Unit Income allocated to General and Limited Partners per Partnership Unit: Income before extraordinary loss ........................ $ 1.93 $ 1.92 $ 2.03 Extraordinary loss on early extinguishment of debt .................................................. -- (1.67) -- --------- --------- --------- Net income ................................................. $ 1.93 $ 0.25 $ 2.03 ========= ========= ========= Earnings per Partnership Unit--assuming dilution Income allocated to General and Limited Partners per Partnership Unit: Income before extraordinary loss ........................ $ 1.92 $ 1.91 $ 2.02 Extraordinary loss on early extinguishment of debt .................................................. -- (1.66) -- --------- --------- --------- Net income ................................................. $ 1.92 $ 0.25 $ 2.02 ========= ========= =========
See notes to consolidated financial statements. 25 BUCKEYE PARTNERS, LP CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, ------------------------- Notes 1998 1997 ----------- ----------- ----------- Assets Current assets Cash and cash equivalents .......................... 2 $ 8,341 $ 7,349 Temporary investments .............................. 2 -- 2,854 Trade receivables .................................. 2 7,578 10,195 Inventories ........................................ 2 2,988 2,087 Prepaid and other current assets ................... 4 5,320 7,297 -------- -------- Total current assets ............................ 24,227 29,782 Property, plant and equipment, net .................. 2, 5 532,696 520,941 Other non-current assets ............................ 6, 12 61,176 64,339 -------- -------- Total assets .................................... $618,099 $615,062 ======== ======== Liabilities and partners' capital Current liabilities Accounts payable ................................... $ 4,369 $ 3,664 Accrued and other current liabilities .............. 3, 7, 15 26,124 21,073 -------- -------- Total current liabilities ....................... 30,493 24,737 Long-term debt ..................................... 8 240,000 240,000 Minority interests ................................. 2,501 2,535 Other non-current liabilities ...................... 9, 10, 14 46,620 45,012 Commitments and contingent liabilities ............. 3 -- -- -------- -------- Total liabilities ............................... 319,614 312,284 -------- -------- Partners' capital ..................................... 15 General Partner .................................... 2,390 2,432 Limited Partners ................................... 296,095 300,346 -------- -------- Total partners' capital ......................... 298,485 302,778 -------- -------- Total liabilities and partners' capital ......... $618,099 $615,062 ======== ========
See notes to consolidated financial statements. 26 BUCKEYE PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (In thousands)
Year Ended December 31, ------------------------------------------ Notes 1998 1997 1996 ------- ------------ ------------ ------------ Cash flows from operating activities: Income before extraordinary loss ...................... $ 52,007 $ 48,807 $ 49,337 --------- ---------- --------- Adjustments to reconcile income to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt ............................................... 8 -- (42,424) -- Gain on sale of property, plant and equipment ........ (195) (11) (2,651) Depreciation and amortization ........................ 5,6 16,432 13,177 11,333 Minority interests ................................... 594 96 506 Distributions to minority interests .................. (628) (474) (374) Change in assets and liabilities: Temporary investments .............................. 2,854 11,674 (13,633) Trade receivables .................................. 2,617 2,341 3,759 Inventories ........................................ (901) (355) (171) Prepaid and other current assets ................... 1,977 418 (443) Accounts payable ................................... 705 (615) 1,873 Accrued and other current liabilities .............. 5,051 (3,015) 1,072 Other non-current assets (1) ....................... (1,535) 319 (1,798) Other non-current liabilities ...................... 1,608 (1,566) (1,680) --------- ---------- --------- Total adjustments from operating activities ....... 28,579 (20,435) (2,207) --------- ---------- --------- Net cash provided by operating activities ......... 80,586 28,372 47,130 --------- ---------- --------- Cash flows from investing activities: Capital expenditures .................................. (22,750) (19,841) (14,881) Net proceeds from (expenditures for) disposal of property, plant and equipment ........................ (544) (814) 4,497 --------- ---------- --------- Net cash used in investing activities ............. (23,294) (20,655) (10,384) --------- ---------- --------- Cash flows from financing activities: Capital contribution .................................. -- 5 10 Proceeds from exercise of unit options ................ 366 516 974 Proceeds from issuance of long-term debt .............. 8 -- 240,000 -- Payment of long-term debt ............................. 8 -- (214,000) -- Distributions to Unitholders .......................... 15,16 (56,666) (44,305) (36,527) --------- ---------- --------- Net cash used in financing activities ............. (56,300) (17,784) (35,543) --------- ---------- --------- Net increase (decrease) in cash and cash equivalents..... 2 992 (10,067) 1,203 Cash and cash equivalents at beginning of year .......... 2 7,349 17,416 16,213 --------- ---------- --------- Cash and cash equivalents at end of year ................ $ 8,341 $ 7,349 $ 17,416 ========= ========== ========= Supplemental cash flow information: Cash paid during the year for interest (net of amount capitalized) .................................. $ 15,918 $ 21,432 $ 21,900 Non-cash change in financing activities: Issuance of LP Units in exchange for BAC stock ........ 12 -- $ 64,200 -- Non-cash change in operating activities: (1) Deferred charge from issuance of LP Units ......... 6,12 -- $ 64,200 --
See notes to consolidated financial statements. 27 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1. ORGANIZATION Buckeye Partners, L.P. (the "Partnership") is a limited partnership organized in 1986 under the laws of the state of Delaware. The Partnership owns approximately 99 percent limited partnership interests in Buckeye Pipe Line Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"). These entities are hereinafter referred to as the "Operating Partnerships." In connection with an internal restructuring, effective December 31, 1998, Buckeye Management Company ("BMC") transferred its general partnership interest in the Partnership, as well as certain other assets and liabilities, to its wholly-owned subsidiary, Buckeye Pipe Line Company (the "General Partner"). Buckeye Pipe Line Company will now serve as sole general partner of the Partnership and will continue to serve as sole general partner of each Operating Partnership. As of December 31, 1998, the General Partner owned approximately a 1 percent general partnership interest in the Partnership and approximately a 1 percent general partnership interest in each Operating Partnership, for an effective 2 percent interest in the Partnership. Buckeye is one of the largest independent pipeline common carriers of refined petroleum products in the United States, with 3,105 miles of pipeline serving 9 states. Laurel owns a 345-mile common carrier refined products pipeline located principally in Pennsylvania. Everglades owns 37 miles of refined products pipeline in Florida. Buckeye, Laurel and Everglades conduct the Partnership's refined products pipeline business. BTT provides bulk storage service through leased facilities with an aggregate capacity of 257,000 barrels of refined petroleum products. During March 1996, BMC Acquisition Corp. ("BAC"), a corporation organized in 1996 under the laws of the state of Delaware, acquired all of the common stock of BMC from a subsidiary of American Financial Group, Inc. ("American Financial") (the "Acquisition"). BAC, which subsequently changed its name to Glenmoor, Ltd. ("Glenmoor"), is owned by certain directors and members of senior management of the General Partner and trusts for the benefit of their families and by certain director-level employees of Buckeye Pipe Line Services Company ("Services Company"). On August 12, 1997, the General Partner's employees were transferred to Services Company, a newly formed corporation wholly owned by the ESOP. Services Company employs all of the employees previously employed by the General Partner and became the sponsor of all of the employee benefit plans previously maintained by the General Partner. Services Company also entered into a Services Agreement with BMC and the General Partner to provide services to the Partnership and the Operating Partnerships for a 13.5 year term. Services Company is reimbursed by BMC or the General Partner for its direct and indirect expenses, which in turn are reimbursed by the Partnership, except for certain executive compensation costs which after August 12, 1997 are no longer reimbursed (See Note 14). The Partnership maintains its accounts in accordance with the Uniform System of Accounts for Pipeline Companies, as prescribed by the Federal Energy Regulatory Commission ("FERC"). Reports to FERC differ from the accompanying consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, generally in that such reports calculate depreciation over estimated useful lives of the assets as prescribed by FERC. 28 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements include the accounts of the Operating Partnerships on a consolidated basis. All significant intercompany transactions have been eliminated in consolidation. Use of Estimates The preparation of the Partnership's consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions. These estimates and assumptions, which may differ from actual results, will affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expense during the reporting period. Financial Instruments The fair values of financial instruments are determined by reference to various market data and other valuation techniques as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their recorded values (see Note 8). Cash and Cash Equivalents All highly liquid debt instruments purchased with a maturity of three months or less are classified as cash equivalents. Temporary Investments The Partnership's temporary investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value as current assets on the balance sheet, with the change in fair value during the period included in earnings. Revenue Recognition Substantially all revenue is derived from interstate and intrastate transportation of petroleum products. Such revenue is recognized as products are delivered to customers. Such customers include major integrated oil companies, major refiners and large regional marketing companies. While the consolidated Partnership's continuing customer base numbers approximately 97, no customer during 1998 contributed more than 10 percent of total revenue. The Partnership does not maintain an allowance for doubtful accounts. Inventories Inventories, consisting of materials and supplies, are carried at cost which does not exceed realizable value. Property, Plant and Equipment Property, plant and equipment consist primarily of pipeline and related transportation facilities and equipment. For financial reporting purposes, depreciation is calculated primarily using the straight-line method over the estimated useful life of 50 years. Additions and betterments are capitalized and maintenance and repairs are charged to income as incurred. Generally, upon normal retirement or replacement, the cost of property (less salvage) is charged to the depreciation reserve, which has no effect on income. 29 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Long-Lived Assets The Partnership regularly assesses the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Income Taxes For federal and state income tax purposes, the Partnership and Operating Partnerships are not taxable entities. Accordingly, the taxable income or loss of the Partnership and Operating Partnerships, which may vary substantially from income or loss reported for financial reporting purposes, is generally includable in the federal and state income tax returns of the individual partners. As of December 31, 1998 and 1997, the Partnership's reported amount of net assets for financial reporting purposes exceeded its tax basis by approximately $285 million and $253 million, respectively. Environmental Expenditures Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the Partnership's commitment to a formal plan of action. In 1997, the Partnership adopted the American Institute of Certified Public Accountants Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities". SOP 96-1 prescribes that accrued environmental remediation related expenses include direct costs of remediation and indirect costs related to the remediation effort. Although the Partnership previously accrued for direct costs of remediation and certain indirect costs, additional indirect costs were required to be accrued by the Partnership at the time of adopting SOP 96-1, such as compensation and benefits for employees directly involved in the remediation activities and fees paid to outside engineering, consulting and law firms. The effect of initially applying the provisions of SOP 96-1 has been treated as a change in accounting estimate and is not material to the accompanying financial statements. Pensions Services Company maintains a defined contribution plan, defined benefit plans (see Note 10) and an employee stock ownership plan (see Note 12) which provide retirement benefits to substantially all of its regular full-time employees. Certain hourly employees of Services Company are covered by a defined contribution plan under a union agreement. Postretirement Benefits Other Than Pensions Services Company provides postretirement health care and life insurance benefits for certain of its retirees (see Note 10). Certain other retired employees are covered by a health and welfare plan under a union agreement. Comprehensive Income The Partnership has not reported comprehensive income due to the absence of items of other comprehensive income in any period presented. Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" which established accounting and reporting 30 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives"), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This standard will be effective for the Partnership's financial statements in the year 2000. The General Partner has not yet assessed the impact of this new standard on the Partnership's financial statements. Segment Reporting and Related Information Effective for the December 31, 1998 financial statements, the Partnership adopted Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Partnership has one reportable segment, transportation of refined petroleum products. 3. CONTINGENCIES The Partnership and the Operating Partnerships in the ordinary course of business are involved in various claims and legal proceedings, some of which are covered in whole or in part by insurance. The General Partner is unable to predict the timing or outcome of these claims and proceedings. Although it is possible that one or more of these claims or proceedings, if adversely determined, could, depending on the relative amounts involved, have a material effect on the Partnership's results of operations for a future period, the General Partner does not believe that their outcome will have a material effect on the Partnership's consolidated financial condition or annual results of operations. Environmental In accordance with its accounting policy on environmental expenditures, the Partnership recorded operating expenses of $1.8 million, $2.7 million and $3.1 million for 1998, 1997 and 1996, respectively, which were related to the environment. Expenditures, both capital and operating, relating to environmental matters are expected to continue due to the Partnership's commitment to maintain high environmental standards and to increasingly strict environmental laws and government enforcement policies. Various claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors have been asserted and may be asserted in the future under various federal and state laws. The General Partner believes that the generation, handling and disposal of hazardous substances by the Operating Partnerships and their predecessors have been in material compliance with applicable environmental and regulatory requirements. The total potential remediation costs to be borne by the Operating Partnerships relating to these clean-up sites cannot be reasonably estimated and could be material. With respect to each site, however, the Operating Partnership involved is one of several or as many as several hundred potentially responsible parties that would share in the total costs of clean-up under the principle of joint and several liability. Although the Partnership has made a provision for certain legal expenses relating to these matters, the General Partner is unable to determine the timing or outcome of any pending proceedings or of any future claims and proceedings. Guaranteed Investment Contract The Buckeye Pipe Line Company Retirement and Savings Plan (the "Plan") held a guaranteed investment contract ("GIC") issued by Executive Life Insurance Company ("Executive Life"), which entered conservatorship proceedings in the state of California in April 1991. The GIC was purchased 31 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) in July 1989, with an initial principal investment of $7.4 million earning interest at an effective rate per annum of 8.98 percent through June 30, 1992. Pursuant to the Executive Life Plan of Rehabilitation, the Plan received an interest only contract from Aurora National Life Assurance Company (the "Aurora GIC") in substitution for its Executive Life GIC. The Aurora GIC provided for semi-annual interest payments at a rate of 5.61 percent per annum through September 1998, the maturity date of the contract. In addition, the Plan has received certain additional cash payments through the maturity date of the contract. The Plan also received a payment of approximately $2 million in March, 1998, from the Pennsylvania Life and Health Insurance Guaranty Association for partial reimbursement of losses of Plan participants who were Pennsylvania residents on December 6, 1991. In May 1991, in order to safeguard the basic retirement and savings benefits of its employees, BMC (as General Partner) entered into an arrangement with the Plan that would guarantee the Plan would receive at least its initial principal investment of $7.4 million plus interest at an effective rate per annum of 5 percent from July 1, 1989. On September 3, 1998, the Aurora GIC matured and BMC has met its guaranty obligation to the Plan. Total costs incurred in connection with the guaranty obligation were approximately $0.4 million and were reimbursed by the Partnership. 4. PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets consist primarily of receivables from third parties for pipeline relocations and other work either completed or in-progress. Prepaid and other current assets also include prepaid insurance, prepaid taxes and other miscellaneous items. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
December 31, ------------------------- 1998 1997 ----------- ----------- (In thousands) Land ................................................ $ 9,498 $ 9,504 Buildings and leasehold improvements ................ 27,569 27,510 Machinery, equipment and office furnishings ......... 533,063 524,735 Construction in progress ............................ 30,676 17,484 -------- -------- 600,806 579,233 Less accumulated depreciation .................... 68,110 58,292 -------- -------- Total ............................................ $532,696 $520,941 ======== ========
Depreciation expense was $11,734,000, $11,371,000 and $11,333,000 for the years 1998, 1997 and 1996, respectively. 6. OTHER NON-CURRENT ASSETS Other non-current assets consist of the following:
December 31, ----------------------- 1998 1997 ---------- ---------- (In thousands) Deferred charge (see Note 12) ......... $57,696 $62,394 Other ................................. 3,480 1,945 ------- ------- Total .............................. $61,176 $64,339 ======= =======
32 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The $64.2 million market value of the LP Units issued in connection with the restructuring of the ESOP in August 1997 (the "ESOP Restructuring") was recorded as a deferred charge and is being amortized on the straight line basis over 13.5 years (See Note 12). Amortization of the deferred charge related to the ESOP Restructuring was $4,698,000 in 1998 and $1,806,000 in 1997. 7. ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities consist of the following:
December 31, --------------------- 1998 1997 --------- --------- (In thousands) Taxes--other than income .................... $ 8,729 $ 9,157 Accrued charges due General Partner ......... 8,724 3,231 Environmental liabilities ................... 2,121 3,141 Interest .................................... 699 732 Accrued operating power ..................... 1,080 819 Accrued outside services .................... 352 365 Other ....................................... 4,419 3,628 ------- ------- Total .................................... $26,124 $21,073 ======= =======
8. LONG-TERM DEBT AND CREDIT FACILITIES Long-term debt consists of the following:
December 31, ------------------------- 1998 1997 ----------- ----------- (In thousands) Senior Notes: 6.98% Series 1997A due December 16, 2024 (subject to $25.0 million annual sinking fund requirement com- mencing December 16, 2020) .......................... $125,000 $125,000 6.89% Series 1997B due December 16, 2024 (subject to $20.0 million annual sinking fund requirement commencing December 16, 2020) ....................... 100,000 100,000 6.95% Series 1997C due December 16, 2024 (subject to $2.0 million annual sinking fund requirement commencing December 16, 2020) ....................... 10,000 10,000 6.96% Series 1997D due December 16, 2024 (subject to $1.0 million annual sinking fund requirement commencing December 16, 2020) ........... 5,000 5,000 -------- -------- Total ............................................... $240,000 $240,000 ======== ========
At December 31, 1998, there are no scheduled maturities of debt within the next five year period. A total of $240,000,000 of debt is scheduled to mature in the period 2020 through 2024. 33 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The fair value of the Partnership's debt is estimated to be $241 million and $240 million as of December 31, 1998 and 1997, respectively. The values at December 31, 1998 and 1997 were calculated using interest rates currently available to the Partnership for issuance of debt with similar terms and remaining maturities. In December 1997, Buckeye entered into an agreement to issue $240.0 million of Senior Notes (Series 1997A through 1997D) bearing interest ranging from 6.89 percent to 6.98 percent (see Note 8). The proceeds from the issuance of the Senior Notes, plus additional amounts approximating $4.5 million, were used to extinguish all of the First Mortgage Notes outstanding, totaling $202.1 million bearing interest ranging from 7.11 percent to 11.18 percent. This debt extinguishment resulted in an extraordinary loss of $42.4 million in 1997 consisting of $41.4 million of prepayment premium and $1.0 million in fees and expenses. The indenture, as amended in connection with the issuance of the Senior Notes (the "Indenture") contains covenants which affect Buckeye, Laurel and Buckeye Pipe Line Company of Michigan, L.P. (the "Indenture Parties"). Generally, the Indenture (a) limits outstanding indebtedness of Buckeye based upon certain financial ratios of the Indenture Parties, (b) prohibits the Indenture Parties from creating or incurring certain liens on their property, (c) prohibits the Indenture Parties from disposing of property which is material to their operations, and (d) limits consolidation, merger and asset transfers of the Indenture Parties. During December 1998, Buckeye established a line of credit from commercial banks (the "Credit Agreement") which permits borrowings of up to $100 million subject to certain limitations contained in the Credit Agreement. Borrowings bear interest at the bank's base rate or at a rate based on the London interbank rate at the option of Buckeye. The Credit Agreement expires December 16, 2003. At December 31, 1998 there were no borrowings outstanding under the Credit Agreement. The Credit Agreement contains certain covenants which affect Buckeye and the Partnership. Generally, the Credit Agreement (a) limits outstanding indebtedness of Buckeye based upon certain financial ratios contained in the Credit Agreement, (b) prohibits Buckeye from creating or incurring certain liens on its property, (c) prohibits the Partnership or Buckeye from disposing of property which is material to its operations, and (d) limits consolidation, merger and asset transfers by Buckeye and the Partnership. 9. OTHER NON-CURRENT LIABILITIES Other non-current liabilities consist of the following:
December 31, ----------------------- 1998 1997 ---------- ---------- (In thousands) Accrued employee benefit liabilities ......... $36,919 $36,319 Accrued top-up reserve ....................... 1,656 460 Accrued non-current taxes .................... 2,450 3,183 Other ........................................ 5,595 5,050 ------- ------- Total ..................................... $46,620 $45,012 ======= =======
10. PENSIONS AND OTHER POSTRETIREMENT BENEFITS Services Company provides retirement benefits, primarily through noncontributory pension plans, for substantially all of its regular full-time employees, except those covered by certain labor 34 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) contracts, under which Services Company contributes 5 percent of each covered employee's salary. Services Company also sponsors a retirement income guarantee plan (a defined benefit plan) which generally guarantees employees hired before January 1, 1986, a retirement benefit at least equal to the benefit they would have received under a previously terminated defined benefit plan. Services Company's policy is to fund amounts as are necessary to at least meet the minimum funding requirements of ERISA. Services Company also provides postretirement health care and life insurance benefits to certain of its retirees. To be eligible for these benefits an employee had to be hired prior to January 1, 1991 and has to meet certain service requirements. Services Company does not pre-fund this postretirement benefit obligation. A reconciliation of the beginning and ending balances of the benefit obligations under the noncontributory pension plans and the postretirement health care and life insurance plan is as follows:
Postretirement Pension Benefits Benefits ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In thousands) Change in benefit obligation Benefit obligation at beginning of year .................................... $ 14,469 $11,764 $ 24,943 $ 23,562 Service cost .............................. 511 291 540 507 Interest cost ............................. 888 819 1,707 1,720 Actuarial (gain) loss ..................... (1,353) (437) 3,317 626 Change in assumptions ..................... 1,229 2,832 -- -- Adjusted benefit payments ................. (622) (800) (1,114) (1,472) -------- ------- -------- -------- Benefit obligation at end of year ......... $ 15,122 $14,469 $ 29,393 $ 24,943 ======== ======= ======== ========
A reconciliation of the beginning and ending balances of the fair value of plan assets under the noncontributory pension plans and the postretirement health care and life insurance plan is as follows:
Postretirement Pension Benefits Benefits -------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ----------- ------------- ------------- (In thousands) Change in plan assets Fair value of plan assets at beginning of year ..................... $ 6,993 $ 6,305 $ -- $ -- Actuarial return on plan assets ......... 1,264 1,278 -- -- Revaluation of asset .................... 951 -- -- -- Employer contribution ................... 270 510 1,114 1,472 Benefits paid ........................... (614) (1,100) (1,114) (1,472) -------- -------- --------- --------- Fair value of plan assets at end of year .................................. $ 8,864 $ 6,993 $ -- $ -- ======== ======== ========= ========= Funded status ........................... $ (6,258) $ (5,043) $ (29,393) $ (24,943) Unrecognized prior service cost ......... (751) (837) (2,898) (3,478) Unrecognized actuarial loss ............. 945 391 1,832 (1,467) Unrecognized net asset at transition ............................ (782) (942) -- -- -------- -------- --------- --------- Accrued benefit cost .................... $ (6,846) $ (6,431) $ (30,459) $ (29,888) ======== ======== ========= =========
35 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The weighted average assumptions used in accounting for the noncontributory pension plans and the postretirement health care and life insurance plan were as follows:
Postretirement Pension Benefits Benefits --------------------- --------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Weighted-average assumptions as of December 31 Discount rate .......................... 6.5% 7.0% 7.0% 7.0% Expected return on plan assets ......... 8.5% 8.5% N/A N/A Rate of compensation increase .......... 4.5% 5.0% N/A N/A
The assumed rate of cost increase in the postretirement health care and life insurance plan in 1998 was 8.0 percent and 9.0 percent for non-Medicare eligible and Medicare eligible retirees, respectively. The assumed annual rates of cost increase decline each year through 2005 to a rate of 4.0 percent, and remain at 4.0 percent thereafter for both non-Medicare eligible and Medicare eligible retirees. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. The effect of a 1 percent change in the health care cost trend rate for each future year would have had the following effects on 1998 results:
1-Percentage 1-Percentage Point Increase Point Decrease ---------------- --------------- (In thousands) Effect on total service cost and interest cost components ........................................ $ 429 $ (346) Effect on postretirement benefit obligation ......... $4,650 $ (3,830)
The components of the net periodic benefit cost recognized for the noncontributory pension plans and the postretirement health care and life insurance plan were as follows:
Pension Benefits Postretirement Benefits ------------------------------- --------------------------------- 1998 1997 1996 1998 1997 1996 --------- --------- --------- ---------- ---------- --------- (In thousands) Components of net periodic benefit cost Service cost ........................... $ 511 $ 291 $ 485 $ 540 $ 507 $ 500 Interest cost .......................... 888 819 889 1,707 1,720 1,651 Expected return on plan assets ......... (656) (531) (694) -- -- -- Amortization of unrecognized transition asset ..................... (160) (160) (160) -- -- -- Amortization of prior service cost ..... (86) (70) (70) (580) (580) (580) Amortization of unrecognized losses ............................... 189 68 67 18 5 11 ------ ------ ------ ------ ------ ------ Net periodic benefit cost .............. $ 686 $ 417 $ 517 $1,685 $1,652 $1,582 ====== ====== ====== ====== ====== ======
Services Company also participates in a multi-employer retirement income plan which provides benefits to employees covered by certain labor contracts. Pension expense for the plan was $126,000, $129,000 and $144,000 for 1998, 1997 and 1996, respectively. 36 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) In addition, Services Company contributes to a multi-employer postretirement benefit plan which provides health care and life insurance benefits to employees covered by certain labor contracts. The cost of providing these benefits was approximately $106,000, $110,000 and $133,000 for 1998, 1997 and 1996, respectively. 11. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN Effective January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which requires expanded disclosures of stock-based compensation arrangements with employees. SFAS 123 encourages, but does not require, compensation cost to be measured based on the fair value of the equity instrument awarded. It allows the Partnership to continue to measure compensation cost for these plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The Partnership has elected to continue to recognize compensation cost based on the intrinsic value of the equity instrument awarded as promulgated in APB 25. The Partnership has a Unit Option and Distribution Equivalent Plan (the "Option Plan"), which was approved by the Board of Directors of the General Partner on April 25, 1991 and by holders of the LP Units on October 22, 1991. The Option Plan was amended and restated on July 14, 1998. The Option Plan authorizes the granting of options (the "Options") to acquire LP Units to selected key employees (the "Optionees") of Services Company not to exceed 720,000 LP Units in the aggregate. The price at which each LP Unit may be purchased pursuant to an Option granted under the Option Plan is generally equal to the market value on the date of the grant. Options granted prior to 1998 were granted with a feature that allows Optionees to apply accrued credit balances (the "Distribution Equivalents") as an adjustment to the aggregate purchase price of such Options. The Distribution Equivalents are an amount equal to (i) the Partnership's per LP Unit regular quarterly distribution, multiplied by (ii) the number of LP Units subject to such Options that have not vested. Options granted after 1997 do not have a Distribution Equivalent feature. Vesting in the Options is determined by the number of anniversaries the Optionee has remained in the employ of Services Company following the date of the grant of the Option. Options granted prior to 1998 vested in varying amounts beginning generally three years after the date of grant. Options granted after 1997 vest in three years. Options granted in 1998 are exercisable for a period of seven years following the date on which they vest. Options granted prior to 1998 are exercisable for a period of five years following the date on which they vest. The Partnership recorded compensation expense related to the Option Plan of $34,000, $179,000 and $283,000 in 1998, 1997 and 1996, respectively. Compensation and benefit costs of executive officers were not charged to the Partnership after August 12, 1997 (See Note 14). If compensation cost for the Option Plan had been determined based on the fair value at the time of the grant dates for awards consistent with SFAS 123, the Partnership's net income and earnings per share would have been as indicated by the pro-forma amounts below:
1998 1997 1996 ------------ ----------- ------------ (In thousands except per Unit amounts) Net income As reported ....................... $ 52,007 $ 6,383 $ 49,337 Pro forma ......................... $ 52,006 $ 6,387 $ 49,318 Basic earnings per unit As reported and Pro forma ......... $ 1.93 $ 0.25 $ 2.03 Diluted earnings per unit As reported and Pro forma ......... $ 1.92 $ 0.25 $ 2.02
37 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Options granted in 1998 vest after 3 years following the date of the grant. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. A portion of each option granted prior to 1998 vests after three, four and five years following the date of the grant. The assumptions used for options granted in 1998, 1997 and 1996 are indicated below.
Risk-free Interest Rate Expected Life (Years) ------------------------------- ------------------------------ Year of Dividend Vesting Period Vesting Period Option Grant Yield Volatility 3 Years 4 Years 5 Years 3 Years 4 Years 5 Years - -------------- ---------- ------------ --------- --------- --------- --------- --------- -------- 1998 7.1% 24.7% 5.5% N/A N/A 3.50 N/A N/A 1997 0% 19.6% 6.4% 6.4% 6.5% 3.25 4.25 5.25 1996 0% 13.0% 6.3% 6.4% 6.5% 3.25 4.25 5.25
Options granted in 1998 assume a dividend yield of 7.1 percent. No dividend yield was assumed on options granted prior to 1998 as the exercise price of the option is adjusted downward during the term of the option to take account of the dividends paid on the underlying stock that the option holder does not receive. A summary of the changes in the LP Unit options outstanding under the Option Plan as of December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996 ------------------------ ------------------------ ------------------------- Weighted Weighted Weighted Units Average Units Average Units Average Under Exercise Under Exercise Under Exercise Option Price Option Price Option Price ------------ ---------- ------------ ---------- ------------ ----------- Outstanding at beginning of year ..... 221,140 $ 15.51 197,340 $ 15.36 186,240 $ 14.18 Granted .............................. 20,300 29.50 51,900 21.07 72,000 19.00 Exercised ............................ (21,000) 11.78 (28,100) 13.74 (60,900) 12.06 ------- ------- ------- Outstanding at end of year ........... 220,440 15.71 221,140 15.51 197,340 15.36 ======= ======= ======= Options exercisable at year-end ...... 49,540 20,140 5,040 Weighted average fair value of options granted during the year ..... $ 3.75 $ 5.62 $ 4.41
The following table summarizes information relating to LP Unit options outstanding under the Option Plan at December 31, 1998:
Options Outstanding Options Exercisable --------------------------------------------------- ------------------------------ Options Weighted Average Weighted Options Weighted Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price - ------------------ ------------- ------------------ ---------------- ------------- --------------- $6.00 to $10.00 8,340 3.2 Years $ 7.48 8,340 $ 7.48 $10.01 to $15.00 128,600 5.8 Years 13.16 29,500 12.62 $15.01 to $20.00 63,200 7.0 Years 17.55 11,700 15.59 $20.01 to $30.00 20,300 9.5 Years 29.50 -- -- ------- ------ Total 220,440 6.4 Years 15.71 49,540 12.45 ======= ======
At December 31, 1998, there were 330,100 LP Units available for future grants under the Option Plan. 38 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 12. EMPLOYEE STOCK OWNERSHIP PLAN In connection with the Acquisition, the ESOP was formed for the benefit of employees of BMC, the General Partner and shareholders of BMC. BMC borrowed $63 million pursuant to a 15-year term loan from a third-party lender. BMC then loaned $63 million to the ESOP, which used the loan proceeds to purchase $63 million of Series A Convertible Preferred Stock of BAC ("BAC Preferred Stock"). The BAC Preferred Stock had a 7.5% cumulative dividend rate and a conversion rate of approximately 7.7 shares of BAC common stock per share of BAC Preferred Stock. In December 1996, the Board of Directors of BMC approved a restructuring of the ESOP (the "ESOP Restructuring"). The ESOP Restructuring was approved by a majority of the holders of the LP Units at a special meeting held on August 11, 1997. On August 12, 1997, in connection with the ESOP Restructuring, the Partnership issued an additional 2,573,146 LP Units which are beneficially owned by the ESOP through Services Company. The market value of the LP Units issued to Services Company was approximately $64.2 million. As a result of the Partnership's issuance of the LP Units, the Partnership's obligation to reimburse BMC for certain executive compensation costs was permanently released, the incentive compensation paid by the Partnership to BMC under the existing incentive compensation agreement was reduced, and other changes were implemented to make the ESOP a less expensive fringe benefit for the Partnership. The $64.2 million market value of the LP Units issued was recorded as a deferred charge relating to the ESOP Restructuring and is being amortized over 13.5 years. As a result of the ESOP Restructuring, the $63 million loan from the third party lender became a direct obligation of the ESOP and is secured by the stock of Services Company and guaranteed by BMC and certain of its affiliates. Total ESOP related costs charged to earnings during 1998 were $1,196,000, representing a non-cash accrual of the current year's portion of the estimated difference between the total distributions to be received on the LP Units and the total debt service requirements under the ESOP loan (the "top-up provision"). Total ESOP related costs charged to earnings during 1997 were $5,241,000 which included $2,805,000 of interest expense with respect to the ESOP loan, $1,976,000 based upon the value of 1,976 shares of BAC Preferred Stock released and allocated to employees accounts through August 12, 1997 and the accrual of a $460,000 top-up provision. The 1,976 shares of BAC Preferred Stock that were released and allocated to employees' accounts were subsequently exchanged for 40,354 shares of Services Company stock during 1997. Total ESOP related costs charged to earnings during 1996 were $5,596,000 which included $3,522,000 of interest expense with respect to the ESOP loan and $2,074,000 based upon the value of 2,074 shares of BAC Preferred Stock released and allocated to employees' accounts. The 2,074 shares of BAC Preferred Stock that were released and allocated to employees' accounts in 1996 were converted to 42,355 shares of Services Company stock in 1997. As a result of the ESOP Restructuring the Partnership will not incur any additional charges related to interest expense and shares released to employees' accounts under the ESOP. The Partnership will, however, incur ESOP-related costs to the extent that required contributions to the ESOP are in excess of distributions received on the LP Units owned by Services Company, for taxes associated with the sale and annual taxable income of the LP Units and for routine administrative costs. 39 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Services Company stock is released to employee accounts in the proportion that current payments of principal and interest on the ESOP loan bear to the total of all principal and interest payments due under the ESOP loan. Individual employees are allocated shares based upon the ratio of their eligible compensation to total eligible compensation. Eligible compensation generally includes base salary, overtime payments and certain bonuses. Services Company stock, allocated to employees, receives stock dividends in lieu of cash, while cash dividends are used to pay principal and interest on the ESOP loan. 13. LEASES AND COMMITMENTS The Operating Partnerships lease certain land and rights-of-way. Minimum future lease payments for these leases as of December 31, 1998 are approximately $2.8 million for each of the next five years. Substantially all of these lease payments can be canceled at any time should they not be required for operations. The General Partner leases space in an office building and certain copying equipment and Buckeye leases certain computing equipment and automobiles. The rent on such leases is charged to the Operating Partnerships. Future minimum lease payments under these noncancelable operating leases at December 31, 1998 were as follows: $610,000 for 1999, $408,000 for 2000, $371,000 for 2001, $359,000 for 2002, $333,000 for 2003 and $954,000 thereafter. Buckeye is party to an energy services agreement in connection with the use of main line pumping equipment and the natural gas requirements to fuel this equipment at its Linden, New Jersey facility. Under the energy services agreement, which is designed to reduce power costs at the Linden facility, Buckeye is required to pay a minimum of $1,743,000 annually over the next thirteen years. This minimum payment is based on an annual minimum usage requirement of the natural gas engines at the rate of $0.049 per kilowatt hour equivalent. In addition to the annual usage requirement, Buckeye is subject to minimum usage requirements during peak and off-peak periods. Rent expense for all operating leases was $7,192,000, $6,606,000 and $5,276,000 for 1998, 1997 and 1996, respectively. 14. RELATED PARTY TRANSACTIONS The Partnership and the Operating Partnerships are managed by the General Partner. Under certain partnership agreements and management agreements, BMC, the General Partner, Services Company and certain related parties are entitled to reimbursement of all direct and indirect costs related to the business activities of the Partnership and the Operating Partnerships. In connection with the Acquisition in March 1996, the Partnership Agreement was amended to (a) extend the period under which the General Partner would agree to act as general partner of the Partnership until the later of (i) December 23, 2011 or (ii) the date the ESOP loan is paid in full, (b) clarify that fair market value of the GP Units includes the value of the right to receive incentive compensation for purposes of determining the amount required to be paid by any successor general partner of the Partnership, and (c) reduce the threshold for payment of Restricted Payments by BMC or the General Partner from $23,000,000 to $5,000,000. The Partnership received an opinion of counsel that the execution of the amendment to the Partnership Agreement would not (a) result in the loss of limited liability of any limited partner or (b) result in the Partnership or any Operating Partnership being treated as an association taxable as a corporation for federal income tax purposes. The amendment to the Partnership Agreement and related opinion of counsel were approved on behalf of the Partnership by a special committee of disinterested directors. 40 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) In March 1996, the Incentive Compensation Agreement was amended and restated to delete American Financial as a party to the agreement and clarify that the Incentive Compensation Agreement terminates if the General Partner is removed as general partner of the Partnership. The amended Incentive Compensation Agreement was approved on behalf of the Partnership by a special committee of disinterested directors. In connection with the ESOP Restructuring in August 1997, the Unitholders approved an amendment to the Partnership Agreement to (i) relieve the General Partner of any obligation to make an additional capital contribution to the Partnership upon the issuance of additional LP Units if the General Partner receives a legal opinion that such additional capital contribution is not required for the Partnership or any of its Operating Partnerships to avoid being treated as an association taxable as a corporation for federal income tax purposes and (ii) obligated any successor general partner, upon removal and replacement of the General Partner by the holders of the LP Units, to the obligations of the General Partner and its affiliates under the Exchange Agreement and to consider this obligation in determining the value of the general partnership interest which must be acquired by a successor general partner. Also in connection with the ESOP Restructuring, the General Partner's employees were transferred to Services Company. Services Company employs all of the employees previously employed by the General Partner and has become the sponsor of all of the employee benefit plans previously maintained by the General Partner. Services Company also entered into a Services Agreement with BMC and the General Partner to provide services to the Partnership and the Operating Partnerships over a 13.5 year term. Services Company is reimbursed by BMC or the General Partner for its direct and indirect expenses, other than as described below with respect to certain executive compensation. BMC and the General Partner are reimbursed by the Partnership and the Operating Partnerships. Costs reimbursed to BMC, the General Partner or Services Company by the Partnership and the Operating Partnerships totaled $54.4 million, $57.2 million and $61.1 million in 1998, 1997 and 1996, respectively. The reimbursable costs include insurance, general and administrative costs, compensation and benefits payable to officers and employees of BMC, the General Partner and Services Company, tax information and reporting costs, legal and audit fees and an allocable portion of overhead expenses. Compensation and benefit costs of the executive officers of BMC were not charged to the Partnership after August 12, 1997 pursuant to the Exchange Agreement entered into among BMC, the Partnership and the Operating Partnerships. Services Company, which is beneficially owned by the ESOP, owns 2,573,146 LP Units (approximately 9.6 percent of the LP Units outstanding). Distributions received by Services Company on such LP Units are used to fund obligations of the ESOP. Distributions paid to Services Company totaled $5,390,000 during 1998 and $2,483,000 for the period August 12, 1997 through December 31, 1997. In August 1997, the Incentive Compensation Agreement was further amended to exclude the LP Units held by Services Company from the incentive compensation calculation and to reduce the amount of incentive compensation payable to the General Partner by at least $121,000 per year at annual distribution levels below $2.10 and to increase incentive compensation at annual distribution levels above $2.20. Included in minority interests and other expenses are incentive compensation payments of $6.4 million, $3.0 million and $1.3 million in 1998, 1997 and 1996, respectively. The management agreements between the General Partner and the Operating Partnerships were amended in August 1997 to include the provisions of the Exchange Agreement dated August 12, 1997 among the Partnership, the General Partner and certain of their affiliates. The amended and restated agreements of limited partnership of each of the Operating Partnerships were also amended as of August 12, 1997 to exclude from the definition of reimbursable costs, any cost or expense for which BMC and its affiliates are not entitled to be reimbursed pursuant to the terms of the Exchange Agreement. 41 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) In July 1998, through a consent solicitation approved by more than two-thirds of the LP Unitholders, amendments to the Partnership Agreement were adopted to (i) remove the limitation on the number of limited partnership units of the Partnership that may be issued without the approval of the Unitholders; (ii) eliminate the restrictions on the amount of debt that can be incurred by the Partnership or its Operating Partnerships and (iii) remove the limitations on the amount of capital expenditures that can be made by the Partnership or the Operating Partnerships in any calendar year. In December 1998, the Partnership Agreement was amended and restated to reflect the transfer of the general partnership interest in the Partnership from BMC to the General Partner. 15. PARTNERS' CAPITAL Changes in partners' capital for the years ended December 31, 1996, 1997, and 1998 were as follows:
General Limited Partner Partners Total ----------- -------------- -------------- (In thousands, except for Units) Partners' capital at January 1, 1996 ........... $ 2,622 $ 259,563 $ 262,185 Net income ..................................... 493 48,844 49,337 Distributions .................................. (365) (36,162) (36,527) Proceeds from exercise of unit options and capital contributions ........................ 10 974 984 -------- ----------- ----------- Partners' capital at December 31, 1996 ......... 2,760 273,219 275,979 Net income ..................................... 85 6,298 6,383 Distributions .................................. (418) (43,887) (44,305) Value of Units issued in connection with ESOP Restructuring ........................... -- 64,200 64,200 Proceeds from exercise of unit options and capital contributions ........................ 5 516 521 -------- ----------- ----------- Partners' capital at December 31, 1997 ......... 2,432 300,346 302,778 Net Income ..................................... 470 51,537 52,007 Distributions .................................. (512) (56,154) (56,666) Proceeds from exercise of unit options ......... -- 366 366 -------- ----------- ----------- Partners capital December 31, 1998 ............. $ 2,390 $ 296,095 $ 298,485 ======== =========== =========== Units outstanding at January 1, 1996 ........... 243,024 24,059,460 24,302,484 Units issued pursuant to the unit option and distribution equivalent plan and capital contributions ................................ 616 60,900 61,516 -------- ----------- ----------- Units outstanding at December 31, 1996 ......... 243,640 24,120,360 24,364,000 Units issued in connection with ESOP Restructuring ................................ -- 2,573,146 2,573,146 Units issued pursuant to the unit option and distribution equivalent plan and capital contributions ................................ 274 28,100 28,374 -------- ----------- ----------- Units outstanding at December 31, 1997 ......... 243,914 26,721,606 26,965,520 Units issued pursuant to the unit option and distribution equivalent plan ................. -- 21,000 21,000 -------- ----------- ----------- Units outstanding at December 31, 1998 ......... 243,914 26,742,606 26,986,520 ======== =========== ===========
42 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Historical Partnership Unit information has been restated to reflect a two-for-one unit split approved effective February 13, 1998. The net income per unit for 1998, 1997 and 1996 was calculated using the weighted average outstanding units of 26,982,099, 25,385,042 and 24,346,706, respectively. The Partnership Agreement provides that without prior approval of limited partners of the Partnership holding an aggregate of at least two-thirds of the outstanding LP Units, the Partnership cannot issue any additional LP Units of a class or series having preferences or other special or senior rights over the LP Units. 16. CASH DISTRIBUTIONS The Partnership makes quarterly cash distributions to Unitholders of substantially all of its available cash, generally defined as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as the General Partner deems appropriate. In 1998, quarterly distributions of $0.525 per GP and LP Unit were paid in February, May, August and November. In 1997, quarterly distributions of $0.375 in February and May, $0.44 in August and $0.525 in November were paid per GP and LP Unit. In 1996, quarterly distributions of $0.375 per GP and LP Unit were paid in February, May, August and November. All such distributions were paid on the then outstanding GP and LP Units. Cash distributions aggregated $56,666,000 in 1998, $44,305,000 in 1997 and $36,527,000 in 1996. 17. QUARTERLY FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT) Summarized quarterly financial data for 1998 and 1997 are set forth below. Quarterly results were influenced by seasonal factors inherent in the Partnership's business.
1st 2nd 3rd Quarter Quarter Quarter -------------------------- -------------------------- -------------------------- 1998 1997 1998 1997 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ (In thousands, except per unit amounts) Revenue .................... $ 43,048 $ 43,815 $ 47,034 $ 46,398 $ 47,716 $ 47,333 Operating income ........... 16,361 16,844 18,863 16,646 20,088 18,593 Income before extraordinary loss ........ 10,916 11,526 13,446 11,381 14,436 12,730 Net income ................. 10,916 11,526 13,446 11,381 14,436 12,730 Earnings per Partnership Unit: Income before extraordinary loss ........ 0.40 0.47 0.50 0.47 0.53 0.49 Net income per Unit ........ 0.40 0.47 0.50 0.47 0.53 0.49 Earnings per Partnership Unit-assuming dilution: Income before extraordinary loss ........ 0.40 0.47 0.50 0.47 0.53 0.49 Net income ................. 0.40 0.47 0.50 0.47 0.53 0.49 4th Quarter Total -------------------------- ---------------------------- 1998 1997 1998 1997 ------------ ------------ ------------- ------------- (In thousands, except per unit amounts) Revenue .................... $ 46,679 $ 47,435 $ 184,477 $ 184,981 Operating income ........... 19,046 19,992 74,358 72,075 Income before extraordinary loss ........ 13,209 13,170 52,007 48,807 Net income ................. 13,209 (29,254) 52,007 6,383 Earnings per Partnership Unit: Income before extraordinary loss ........ 0.49 0.49 1.93 1.92 Net income per Unit ........ 0.49 (1.08) 1.93 0.25 Earnings per Partnership Unit-assuming dilution: Income before extraordinary loss ........ 0.49 0.49 1.92 1.91 Net income ................. 0.49 (1.08) 1.92 0.25
The earnings per Partnership Unit presented above reflect a two-for-one unit split effective February 13, 1998. 43 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 18. EARNINGS PER UNIT The following is a reconciliation of basic and dilutive income before extraordinary loss per Partnership Unit for the years ended December 31, 1998, 1997 and 1996:
Income Units Per Income Units Per Income Units Per (Numer- (Denomi- Unit (Numer- (Denomi- Unit (Numer- (Denomi- Unit ator) nator) Amount ator) nator) Amount ator) nator) Amount --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- (In thousands, except per unit amounts) Income before extraordinary loss ..... $52,007 $48,807 $49,337 ------- ------- ------- Basic earnings per Partnership Unit ....... 52,007 26,982 $ 1.93 48,807 25,385 $ 1.92 49,337 24,347 $ 2.03 ====== ====== ====== Effect of dilutive securities--options..... -- 104 -- 107 -- 62 ------- ------ ------- ------ ------- ------ Diluted earnings per Partnership Unit ....... $52,007 27,086 $ 1.92 $48,807 25,492 $ 1.91 $49,337 24,409 $ 2.02 ======= ====== ====== ======= ====== ====== ======= ====== ======
Options reported as dilutive securities are related to unexercised options outstanding under the Option Plan (see Note 11). 19. SUBSEQUENT EVENTS In February 1999, the General Partner entered into a stipulation and order of settlement with the New York State Office of Real Property Services and the City of New York settling various real property tax certiorari proceedings. The Partnership had challenged its real property tax assessments for a number of past tax years on that portion of its pipeline that is located in public right-of-way in New York City. The settlement agreement is expected to result in a gain of approximately $11.0 million for the Partnership in the second quarter of 1999. The settlement is contingent upon various conditions set forth in the stipulation and order of settlement. In March 1999, the Partnership acquired the fuels division of American Refining Group, Inc. ("ARG") for cash consideration of $12.6 million. The assets acquired by the Partnership from ARG include a refined petroleum products terminal and a transmix processing facility located in Indianola, Pennsylvania, a transmix processing facility located in Hartford, Illinois and related assets, including inventories and accounts receivable. The Partnership will operate such business under the name of Buckeye Refining Company, LLC. 44 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The Partnership does not have directors or officers. The executive officers of the General Partner perform all management functions for the Partnership and the Operating Partnerships in their capacities as officers and directors of the General Partner and Services Company. Directors and officers of the General Partner are selected by BMC. See "Certain Relationships and Related Transactions." Directors of the General Partner Set forth below is certain information concerning the directors of the General Partner.
Name, Age and Present Business Experience During Position with General Partner Past Five Years - ------------------------------- --------------------------------------------------------------- Alfred W. Martinelli, 71 Mr. Martinelli has been Chairman of the Board and Chief Chairman of the Board, Executive Officer of the General Partner and BMC for more Chief Executive Officer than five years. He has been a Director of BMC since October and Director* 1986. Mr. Martinelli served as President of BMC from February 1991 to February 1992. He was Chairman and Chief Executive Officer of Penn Central Energy Management Company ("PCEM"), for more than five years, until his resignation in March 1996. Mr. Martinelli was also Vice Chairman and a direc- tor of American Financial and a director of American Annuity Group, Inc., for more than five years until his resignation in March 1996. C. Richard Wilson, 54 Mr. Wilson became Vice Chairman of the Board of the General Vice Chairman Partner on December 31, 1998. He has been a director of the Director* General Partner for more than five years. Mr. Wilson was Chief Operating Officer of the General Partner from July 1987 until July 1998 and President from February 1991 until July 1998. He was elected Vice Chairman of the Board of BMC in July 1998, Chief Operating Officer of BMC in January 1997 and President of BMC in March 1996. Mr. Wilson has been a director of BMC since February 1995. Brian F. Billings, 60 Mr. Billings became a director of the General Partner on Director December 31, 1998. Mr. Billings has been a director of BMC since October 1986. He served as Chairman of the General Part- ner until February 1995. Mr. Billings was President of PCEM from December 1986 to 1995.
45
Name, Age and Present Business Experience During Position with General Partner Past Five Years - ------------------------------- ---------------------------------------------------------------- Neil M. Hahl, 50 Mr. Hahl became a director of the General Partner and BMC in Director* September 1997. He is President of The Weitling Group, a busi- ness consulting firm and a Director of American Capital Strate- gies, Ltd., a specialty finance firm. Mr. Hahl was previously a director of BMC from February 1989 until March, 1996 and served as President of BMC from February 1992 until March 1996. From January 1993 to August 1996, he was a Senior Vice President of American Financial Group and its predecessor, The Penn Central Corporation. Edward F. Kosnik, 54 Mr. Kosnik became a director of the General Partner on Decem- Director ber 31, 1998. Mr. Kosnik has been a director of BMC since October 1986. Since June 1997, he has been President of Ber- wind Corporation, a diversified company. Mr. Kosnik was Senior Executive Vice President and Chief Operating Officer of Alexander & Alexander Services, Inc. from May 1996 until Janu- ary 1997. He was Executive Vice President and Chief Financial Officer of Alexander & Alexander Services, Inc. from August 1994 to April 1996. Mr. Kosnik was Chairman of the Board, President and Chief Executive Officer of JWP, Inc. from May 1993 through April 1994. Jonathan O'Herron, 69 Mr. O'Herron became a director of the General Partner on Director December 31, 1998. Mr. O'Herron has been a director of BMC since September 1997. He had been Managing Director of Laz- ard Freres & Company, LLC for more than five years. William C. Pierce, 58 Mr. Pierce became a director of the General Partner on Decem- Director ber 31, 1998. Mr. Pierce had been a director of BMC since Feb- ruary 1987. He was Executive Vice President and Group Execu- tive of Chemical Bank and Chemical Banking Corporation from November 1992 until his retirement in July 1994. Ernest R. Varalli, 68 Mr. Varalli has been a director of the General Partner and BMC Director* since July 1987. He was Executive Vice President, Chief Finan- cial Officer and Treasurer for more than five years until 1996. Mr. Varalli served as Executive Vice President, Chief Financial Officer and Treasurer of PCEM until his resignation in March 1996. Mr. Varalli had been a consultant to American Financial, for more than five years, until March 1996. Robert H. Young, 77 Mr. Young became a director of the General Partner on Decem- Director ber 31, 1998. Mr. Young had been a director of BMC since July 1987. Since October 1991, he has been Counsel to the law firm of Morgan, Lewis & Bockius LLP. Mr. Young is also Chairman of the Board of Directors of Independence Blue Cross.
- --------------- * Also a director of Services Company. The General Partner has an Audit Committee, which currently consists of four directors: Brian F. Billings, Neil M. Hahl, William C. Pierce and Robert H. Young. Messrs. Billings, Hahl, Pierce and Young are neither officers nor employees of the General Partner or any of its affiliates. 46 In addition, the General Partner has a Finance Committee, which currently consists of five directors: Neil M. Hahl, Edward F. Kosnik, Jonathan O'Herron, Ernest R. Varalli and C. Richard Wilson. The Finance Committee provides oversight and advice with respect to the capital structure of the Partnership. Executive Officers of the General Partner Set forth below is certain information concerning the executive officers the General Partner who also serve in similar positions in Services Company.
Name, Age and Present Business Experience During Position Past Five Years - --------------------------- ----------------------------------------------------------------- William H. Shea, Jr., 44 Mr. Shea was named President and Chief Operating Officer of President and Chief the General Partner and BMC in July 1998. Mr. Shea had been Operating Officer named Executive Vice President of the General Partner in Sep- tember 1997 and previously served as Vice President of Market- ing and Business Development of the General Partner from March 1996 to September 1997. Mr. Shea was Vice President-- West Central Region of Laidlaw Environmental Services from 1994 until 1995. He was Vice President--Sales and Eastern Region Operations of USPCI, Inc. (a subsidiary of Union Pacific Corporation) from 1993 until 1994. Mr. Shea is the son-in-law of Mr. Alfred W. Martinelli. David J. Martinelli, 38 Mr. Martinelli was named Senior Vice President and Treasurer Senior Vice President of the General Partner in July 1998 and previously served as and Treasurer Vice President and Treasurer of the General Partner from June 1996. Mr. Martinelli served as Assistant Treasurer of the Gen- eral Partner from March 1996 to June 1996. He was employed in a corporate financial position with Salomon Brothers Inc from 1993 until 1996. He is the son of Mr. Alfred W. Martinelli. Stephen C. Muther, 49 Mr. Muther has been Senior Vice President--Administration, Senior Vice President-- General Counsel and Secretary of the General Partner since Administration, February 1995. Mr. Muther served as General Counsel, Vice General Counsel President--Administration and Secretary of the General Part- and Secretary ner from May 1990 to February 1995. Steven C. Ramsey, 44 Mr. Ramsey has been Senior Vice President--Finance and Chief Senior Vice President-- Financial Officer of the General Partner since February 1995. Finance and Chief Mr. Ramsey served as Vice President and Treasurer of the Gen- Financial Officer eral Partner from February 1991 to February 1995.
Item 11. Executive Compensation Director Compensation The fee schedule for directors of the General Partner is as follows: annual fee, $15,000; attendance fee for each Board of Directors meeting, $1,000; and attendance fee for each committee meeting, $750. Messrs. Martinelli, Varalli and Wilson do not receive any fees as directors. Directors' fees paid by BMC in 1998 to its directors amounted to $147,800. Mr. Hahl received $118,100 for consulting services, and Mr. Varalli was paid a consulting fee in the amount of $112,500. Each of these payments were reimbursed by the Partnership. Members of the Board of Directors of Services Company are not compensated for their services as directors. 47 Executive Compensation Prior to the consummation of the ESOP Restructuring on August 12, 1997, executive officers of the General Partner and other employees of the General Partner received compensation and benefits which were reimbursed by the Partnership and the Operating Partnerships. As part of the ESOP Restructuring, the Partnership and the Operating Partnerships were permanently released from their obligation to reimburse the General Partner for certain compensation and fringe benefit costs for executive level duties performed by the General Partner with respect to operations, finance, legal, marketing and business development, and treasury, as well as the President of the General Partner. See "Certain Relationships and Related Transactions." Executive Officer Severance Agreements BMC, Services Company and Glenmoor entered into severance agreements in May 1997 with four executive officers of the General Partner providing for the payment of severance compensation equal to the amount of annual base salary and incentive compensation then being paid to such individuals (the "Severance Compensation Amount"). Such officers were C. Richard Wilson, then President and Chief Operating Officer; Michael P. Epperly, then Senior Vice President--Operations; Steven C. Ramsey, Senior Vice President--Finance; and Stephen C. Muther, Senior Vice President - Administration, General Counsel and Secretary. The severance agreements provide for 1.5 times the Severance Compensation Amount upon termination of such individual's employment without "cause" under certain circumstances not involving a "change of control" of the Partnership, and 2.99 times such individual's Severance Compensation Amount (subject to certain limitations) following a "change of control". For purposes of the severance agreements, a "change of control" is defined as the acquisition (other than by the General Partner and its affiliates) of 80 percent or more of the LP Units of the Partnership. Any costs incurred under the severance agreements was to be reimbursed by the Partnership. In April 1998, in connection with the realignment of senior management, Mr. Wilson was named Vice Chairman and was succeeded as President and Chief Operating Officer of the General Partner by William H. Shea, Jr. Mr. Epperly's position was eliminated, and his responsibilities were assigned to other officers. The General Partner entered into agreements with each of Messrs. Wilson and Epperly under which they would receive the equivalent of the Severance Compensation Amount and certain additional compensation pending their retirement. Thereafter, each of Messrs. Wilson and Epperly agreed to provide certain consulting services to the General Partner for a period of 60 months for a fixed annual fee. Total costs incurred in 1998 under Messrs. Wilson's and Epperly's severance agreements amounted to $0.9 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations". Director Recognition Program The General Partner has adopted the Director Recognition Program (the "Recognition Program") that had been instituted by BMC in September 1997. The Recognition Program provides that, upon retirement or death and subject to certain conditions, directors receive a recognition benefit of up to three times their annual director's fees (excluding attendance and committee fees) based upon their years of service as a member of the Board of Directors of the General Partner or BMC. A minimum of three full years of service as a member of the Board of Directors is required for eligibility under the Recognition Program. Members of the Board of Directors who are concurrently serving as an officer or employee of the General Partner or its affiliates are not eligible for the Recognition Program. Item 12. Security Ownership of Certain Beneficial Owners and Management Services Company owns approximately 9.6 percent of the outstanding LP Units as of March 15, 1999. No other person or group is known to be the beneficial owner of more than 5 percent of the LP Units as of March 15, 1999. 48 The following table sets forth certain information, as of March 15, 1999, concerning the beneficial ownership of LP Units by each director of the General Partner, the Chief Executive Officer of the General Partner, the four most highly compensated officers of the General Partner and by all directors and executive officers of the General Partner as a group. Such information is based on data furnished by the persons named. Based on information furnished to the General Partner by such persons, no director or executive officer of the General Partner owned beneficially, as of March 15, 1999, more than 1 percent of any class of equity securities of the Partnership or any of its subsidiaries outstanding at that date.
Name Number of LP Units (1) - -------------------------------------------------------------------- ----------------------- Brian F. Billings .................................................. 15,000(2) Neil M. Hahl ....................................................... 2,000(2) Edward F. Kosnik ................................................... 10,000(2) Alfred W. Martinelli ............................................... 9,000(2) Stephen C. Muther .................................................. 13,500 Jonathan O'Herron .................................................. 14,800 William C. Pierce .................................................. 1,600(2) Steven C. Ramsey ................................................... 14,000 William H. Shea, Jr. ............................................... 4,200(2) Ernest R. Varalli .................................................. 13,000(2) C. Richard Wilson .................................................. 5,000 Robert H. Young .................................................... 5,000 All directors and executive officers as a group (consisting of 13 persons, including those named above) .......... 107,100
- --------------- (1) Unless otherwise indicated, the persons named above have sole voting and investment power over the LP Units reported. (2) The LP Units owned by the persons indicated have shared voting and investment power with their respective spouses. Item 13. Certain Relationships and Related Transactions The Partnership and the Operating Partnerships are managed by the General Partner pursuant to the Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"), the several Amended and Restated Agreements of Limited Partnership of the Operating Partnerships (the "Operating Partnership Agreements") and the several Management Agreements between the General Partner and the Operating Partnerships (the "Management Agreements"). BMC, which had been general partner of the Partnership, contributed its general partnership interest and certain other assets to the General Partner effective December 31, 1998. The General Partner is a wholly-owned subsidiary of BMC. Under the Partnership Agreement and the Operating Partnership Agreements, as well as the Management Agreements, the General Partner and certain related parties are entitled to reimbursement of all direct and indirect costs and expenses related to the business activities of the Partnership and the Operating Partnerships, except as otherwise provided by the Exchange Agreement (as discussed below). These costs and expenses include insurance fees, consulting fees, general and administrative costs, compensation and benefits payable to employees of the General Partner (other than certain executive officers), tax information and reporting costs, legal and audit fees and an allocable portion of overhead expenses. Such reimbursed amounts constitute a substantial portion of the revenues of the General Partner. 49 On March 22, 1996, BAC, now Glenmoor, acquired all of the common stock of BMC from a subsidiary of American Financial for $63 million. The purchase price was financed in part through the ESOP. Glenmoor is owned by certain directors and members of senior management of the General Partner or trusts for the benefit of their families and certain director-level employees of Services Company. Glenmoor is entitled to receive an annual management fee for certain management functions it provides to the General Partner pursuant to a Management Agreement among Glenmoor, BMC and the General Partner. The amount is approved each year by the disinterested directors of the General Partner. The management fee includes a Senior Administrative Charge of not less than $975,000, reimbursement for certain compensation costs and expenses and participation of Glenmoor employees in the General Partner's employee benefit plans, including the ESOP. Amounts paid to Glenmoor in 1998 for management fees equaled $2.4 million, including $1.0 for Senior Administrative Charge and $1.4 million of reimbursed expenses. Amounts paid in 1997 to Glenmoor for management fees equaled $3.1 million, including $1.0 million for the Senior Administrative Charge and $2.1 million of reimbursed expenses. On August 12, 1997, with approval of a majority interest of Unitholders at a special meeting held on August 11, 1997, the Partnership restructured the ESOP by replacing the ESOP's investment in BAC with a beneficial ownership interest in LP Units. The Partnership issued 2,573,146 LP Units to Services Company in consideration for, among other things, (i) the permanent release of the Partnership's obligation to reimburse the General Partner, and its affiliates for certain senior executive compensation costs, and (ii) the reduction of the General Partner's incentive compensation formula under the Incentive Compensation Agreement (as discussed below). In connection with the ESOP Restructuring, the ESOP Loan was also restructured. The amount, term and interest rate applicable to the ESOP Loan were not changed, but the ESOP became the direct borrower under the ESOP Loan. The ESOP secured the ESOP Loan with, among other things, a pledge of the LP Units held by Services Company. The ESOP Loan is guaranteed by Glenmoor, BMC, the General Partner and Services Company. The distributions on the LP Units held by the ESOP will be used to pay the principal and interest on the ESOP Loan. The General Partner will make an additional contribution to the ESOP (the "top-up provision"), if necessary, to pay any balance due under the ESOP Loan. The top-up contribution will be reimbursed by the Partnership to the extent it exceeds certain reserves established by the General Partner for that purpose. In connection with the ESOP Restructuring, the General Partner's employees were transferred to Services Company. Services Company employs all of the employees previously employed by the General Partner and has become the sponsor of all of the employee benefit plans previously maintained by the General Partner. Services Company also entered into a Services Agreement with BMC and the General Partner to provide services to the Partnership and the Operating Partnerships over a 13.5 year term. Services Company is reimbursed by BMC or the General Partner for its direct and indirect expenses. Costs reimbursed to BMC, the General Partner or Services Company by the Partnership and the Operating Partnerships totaled $54.4 million and $57.2 million in 1998 and 1997, respectively. Compensation and benefit costs of certain executive officers of BMC or the General Partner were not charged to the Partnership after August 12, 1997 pursuant to the Exchange Agreement. 50 The following chart depicts the ownership relationships among the Partnership, the General Partner and various other parties: ____________ ____________ _____________________ | | | | | | | Public | | | | | |Unitholders | | ESOP | | Glenmoor | |____________| |____________| |_____________________| | | | | | 100% | 100% | | | | ____________ _____________________ | | | | | | | Services | | | | | Company | | BMC | | |____________| |_____________________| \ / | \ / | 90% \ / 9% | 100% \ / | ______________ _____________________ | | 1% | | | Buckeye |__________________|Buckeye Pipe Line Co.| |Partners, L.P.| | (General Partner) | |______________| |_____________________| | | | 99% | | | ______________ | | | 1% | | Operating |_____________________________| | Partnerships | |______________| As part of the ESOP Restructuring, the Incentive Compensation Agreement was amended to change the target and payment thresholds, and the General Partner also agreed not to receive any incentive compensation in respect of distributions on the LP Units issued pursuant to the ESOP Restructuring. The Incentive Compensation Agreement, as subsequently amended to reflect the two-for-one LP Unit split effective on January 29, 1998, provides that, subject to certain limitations and adjustments, if a quarterly cash distribution exceeds a target of $0.325 per LP Unit, the Partnership will pay the General Partner, in respect of each outstanding LP Unit, incentive compensation equal to (i) 15 percent of that portion of the distribution per LP Unit which exceeds the target quarterly amount of $0.325 but is not more than $0.35, plus (ii) 25 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.35 but is not more than $0.375, plus (iii) 35 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.375 but is not more than $0.425, plus (iv) 40 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.425 but is not more than $0.525, plus (v) 45 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.525. the General Partner is also entitled to incentive compensation, under a comparable formula, in respect of special cash distributions exceeding a target special distribution amount per LP Unit. The target special distribution amount generally means the amount which, together with all amounts distributed per LP Unit prior to the special distribution compounded quarterly at 13 percent per annum, would equal $10.00 (the initial public offering price of the LP Units split two-for-one) compounded quarterly at 13 percent per annum from the date of the closing of the initial public offering in December 1986. Incentive compensation paid by the Partnership for quarterly cash distributions totaled $6,405,000 and $3,042,000 in 1998 and 1997 respectively. No special cash distributions have ever been paid by the Partnership. On December 31, 1998, BMC transferred its general partnership interest and certain other assets relating to the Partnership to the General Partner and the General Partner assumed certain liabilities and obligations of BMC, including the liabilities and obligations of BMC under the Exchange Agreement, the Services Agreement and the Incentive Compensation Agreement. On February 4, 1999, the General Partner announced a quarterly distribution of $0.525 per GP and LP Unit payable on February 26, 1999. As such distribution exceeds a target of $0.325 per LP Unit, the Partnership will pay the General Partner incentive compensation aggregating $1.6 million as a result of this distribution. 51 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as a part of this Report: (1) and (2) Financial Statements and Financial Statement Schedule--see Index to Financial Statements and Financial Statement Schedule appearing on page 23. (3) Exhibits, including those incorporated by reference. The following is a list of exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.
Exhibit Number (Referenced to Item 601 of Regulation S-K) - ---------------- *3.1 -- Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of December 31, 1998. *3.2 -- Certificate of Amendment to Amended and Restated Certificate of Limited Partnership of the Partnership, dated as of December 31, 1998. 4.1 -- Amended and Restated Indenture of Mortgage and Deed of Trust and Security Agreement, dated as of December 16, 1997, by Buckeye to PNC Bank, National Association, as Trustee. (8) (Exhibit 4.1) 4.2 -- Note Agreement, dated as of December 16, 1997, between Buckeye and The Prudential Insurance Company of America. (8) (Exhibit 4.2) 4.3 -- Defeasance Trust Agreement, dated as of December 16, 1997, between and among PNC Bank, National Association, and Douglas A. Wilson, as Trustees. (8) (Exhibit 4.3) 4.4 -- Certain instruments with respect to long-term debt of the Operating Partnerships which relate to debt that does not exceed 10 percent of the total assets of the Partnership and its consolidated subsidiaries are omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, 17 C.F.R. ss.229.601. The Partnership hereby agrees to furnish supplementally to the Securities and Exchange Commission a copy of each such instrument upon request. 10.1 -- Amended and Restated Agreement of Limited Partnership of Buckeye, dated as of December 23, 1986. (1)(2) (Exhibit 10.1) 10.2 -- Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership of Buckeye, dated as of August 12, 1997. (8) (Exhibit 10.2) 10.3 -- Management Agreement, dated November 18, 1986, between the Manager and Buckeye. (1)(3) (Exhibit 10.4) 10.4 -- Amended and Restated Management Agreement, dated November 18, 1986 between the General Partner, Buckeye and Glenmoor. (7) (Exhibit 10.2)
52
Exhibit Number (Referenced to Item 601 of Regulation S-K) - ------------------ 10.5 -- Amendment to Management Agreement dated as of August 12, 1997 between the General Partner, Buckeye and Glenmoor. (8) (Exhibit 10.5) 10.6 -- Amended and Restated Incentive Compensation Agreement, dated as of March 22, 1996, between the General Partner and the Partnership. (7) (Exhibit 10.4) 10.7 -- Amendment No. 1 to Amended and Restated Incentive Compensation Agreement dated as of March 22, 1997 between the General Partner and the Partnership. (8) (Exhibit 10.7) 10.8 -- Amendment No. 2 to Amended and Restated Incentive Compensation Agreement dated as of January 20, 1998 between the General Partner and the Partnership. (8) (Exhibit 10.8) 10.9 -- Services Agreement, dated as of August 12, 1997, among the General Partner, the Manager and Services Company. (8) (Exhibit 10.9) 10.10 -- Exchange Agreement, dated as of August 12, 1997, among the General Partner, the Manager the Partnership and the Operating Partnership. (8) (Exhibit 10.10) 10.11 -- Unit Option and Distribution Equivalent Plan of Buckeye Partners, L.P. (4)(5) (Exhibit 10.10) 10.12 -- Buckeye Management Company Unit Option Loan Program. (4)(5) (Exhibit 10.11) 10.13 -- Form of Executive Officer Severance Agreement. (8) (Exhibit 10.13) *10.14 -- Contribution, Assignment and Assumption Agreement, dated as of December 31, 1998, between Buckeye Management Company and Buckeye Pipe Line Company. *10.15 -- Director Recognition Program of the General Partner. *10.16 -- Credit Agreement dated as of December 16, 1998 among Buckeye Pipe Line Company, L.P., Buckeye Partners, L.P., First Union National Bank as Agent, The First National Bank of Chicago as Documentation Agent and the Lenders party thereto. *10.17 -- Guaranty Agreement dated December 16, 1998 by Buckeye Partners, L.P. in favor of First Union National Bank, as agent for the lenders that are or become parties to the Credit Agreement dated as of December 16, 1998 among Buckeye Pipe Line Company, L.P., Buckeye Partners, L.P., First Union National Bank as Agent, The First National Bank of Chicago as Documentation Agent and the Lenders party thereto. 21.1 -- List of subsidiaries of the Partnership. (7) (Exhibit 21.1) *27 -- Financial Data Schedule.
53 - --------------- (1) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1986. (2) The Amended and Restated Agreements of Limited Partnership of the other Operating Partnerships are not filed because they are identical to Exhibit 10.1 except for the identity of the partnership. (3) The Management Agreements of the other Operating Partnerships are not filed because they are identical to Exhibit 10.4 except for the identity of the partnership. (4) Represents management contract or compensatory plan or arrangement. (5) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (6) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (7) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1995. (8) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1997. * Filed herewith (b) Reports on Form 8-K filed during the quarter ended December 31, 1998: None 54 SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BUCKEYE PARTNERS, L.P. (Registrant) By: Buckeye Pipe Line Company, as General Partner Dated: March 17, 1999 By: /s/ ALFRED W. MARTINELLI ------------------------------------- Alfred W. Martinelli Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: March 17, 1999 By: /s/ BRIAN F. BILLINGS ------------------------------------- Brian F. Billings Director Dated: March 17, 1999 By: /s/ NEIL M. HAHL ------------------------------------- Neil M. Hahl Director Dated: March 17, 1999 By: /s/ EDWARD F. KOSNIK ------------------------------------- Edward F. Kosnik Director Dated: March 17, 1999 By: /s/ JONATHAN O'HERRON ------------------------------------- Jonathan O'Herron Director Dated: March 17, 1999 By: /s/ ALFRED W. MARTINELLI ------------------------------------- Alfred W. Martinelli Chairman of the Board and Director (Principal Executive Officer) Dated: March 17, 1999 By: /s/ WILLIAM C. PIERCE ------------------------------------- William C. Pierce Director Dated: March 17, 1999 By: /s/ ERNEST R. VARALLI ------------------------------------- Ernest R Varalli Director Dated: March 17, 1999 By: /s/ C. RICHARD WILSON ------------------------------------- C. Richard Wilson Director Dated: March 17, 1999 By: /s/ ROBERT H. YOUNG ------------------------------------- Robert H. Young Director 55 INDEPENDENT AUDITORS' REPORT To the Partners of Buckeye Partners, L.P.: We have audited the consolidated financial statements of Buckeye Partners, L.P. and its subsidiaries as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, and have issued our report thereon dated January 28, 1999; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Buckeye Partners, L.P. and subsidiaries referred to in Item 14. This consolidated financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania January 28, 1999 S-1 SCHEDULE I BUCKEYE PARTNERS, L.P. Registrant's Condensed Financial Statements (In thousands) BALANCE SHEETS
December 31, --------------------------- 1998 1997 ------------ ------------ Assets Current assets Cash and cash equivalents ....................................... $ 30 $ 469 Temporary investments ........................................... -- 740 Other current assets ............................................ 44 554 --------- --------- Total current assets .......................................... 74 1,763 Investments in and advances to subsidiaries (at equity) ......... 298,566 302,265 --------- --------- Total assets .................................................. $ 298,640 $ 304,028 ========= ========= Liabilities and partners' capital Current liabilities .............................................. $ 155 $ 1,250 --------- --------- Partners' capital General Partner ................................................. 2,390 2,432 Limited Partners ................................................ 296,095 300,346 --------- --------- Total partners' capital ....................................... 298,485 302,778 --------- --------- Total liabilities and partners' capital ....................... $ 298,640 $ 304,028 ========= =========
STATEMENTS OF INCOME
Year Ended December 31, -------------------------------------------- 1998 1997 1996 -------------- ---------- -------------- Equity in income of subsidiaries .................. $ 58,415 $ 9,418 $ 50,674 Operating (expenses) credits ...................... (6) 17 (8) Interest income ................................... 3 48 55 Interest and debt expense ......................... -- (58) (58) Incentive compensation to General Partner ......... (6,405) (3,042) (1,326) --------- -------- --------- Net income .................................. $ 52,007 $ 6,383 $ 49,337 ========= ======== =========
STATEMENTS OF CASH FLOWS
Year Ended December 31, ---------------------------------------- 1998 1997 1996 ----------- ------------ ----------- Cash flows from operating activities: Net income ................................................. $ 52,007 $ 6,383 $ 49,337 Adjustments to reconcile net income to net cash provided by operating activities: Decrease (increase) in investment in subsidiaries ......... 3,699 37,555 (13,590) Change in assets and liabilities: Temporary investments ................................... 740 4,533 (4,378) Other current assets .................................... 510 (481) (29) Current liabilities ..................................... (1,095) (4,947) 1,204 --------- --------- --------- Net cash provided by operating activities ............... 55,861 43,043 32,544 Cash flows from financing activities: Capital contributions ...................................... -- 5 10 Proceeds from exercise of unit options ..................... 366 516 974 Distributions to Unitholders ............................... (56,666) (44,305) (36,527) --------- --------- --------- Net decrease in cash and cash equivalents .................. (439) (741) (2,999) Cash and cash equivalents at beginning of period ........... 469 1,210 4,209 --------- --------- --------- Cash and cash equivalents at end of period ................. $ 30 $ 469 $ 1,210 ========= ========= ========= Supplemental cash flow information: Non-cash change from issuance of LP Units ................. -- $ 64,200 -- Non-cash change in investments in subsidiaries ............ -- $ 64,200 --
See footnotes to consolidated financial statements of Buckeye Partners, L.P. S-2 EX-3.1 2 EXHIBIT 3.1 CONFORMED COPY ================================================================================ AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BUCKEYE PARTNERS, L.P. (As Amended and Restated as of December 31, 1998) ================================================================================ BUCKEYE PARTNERS, L.P. TABLE OF CONTENTS ARTICLE I DEFINITIONS "Affiliate"....................................................................1 "Agent" ......................................................................2 "Agreed Value".................................................................2 "Agreement"....................................................................2 "BMC" ......................................................................2 "Business Day".................................................................2 "Capital Accounts".............................................................2 "Capital Contribution".........................................................2 "Carrying Value"...............................................................2 "Certificate of Limited Partnership"...........................................2 "Code" ......................................................................2 "Contributed Property".........................................................2 "Contributing Partner".........................................................2 "Delaware Act".................................................................3 "Designated Expenses"..........................................................3 "Eighty Percent Interest"......................................................3 "ESOP" ......................................................................3 "ESOP Loan"....................................................................3 "Exchange Act".................................................................3 "Exchange Agreement"...........................................................3 "General Partner"..............................................................3 "GP Unit"......................................................................3 "Incentive Compensation Agreement".............................................3 "Indemnitee"...................................................................4 "Issue Price"..................................................................4 "Limited Partner"..............................................................4 "Liquidator"...................................................................4 "LP Certificate"...............................................................4 "LP Unit"......................................................................4 "Majority Interest"............................................................4 "Management Agreements"........................................................4 "Manager"......................................................................4 i "NASDAQ" ......................................................................4 "National Securities Exchange..................................................4 "Net Agreed Value".............................................................4 "Operating Partnership Agreements".............................................4 "Operating Partnerships".......................................................4 "Opinion of Counsel"...........................................................4 "Organizational Limited Partner"...............................................5 "Partner"......................................................................5 "Partnership"..................................................................5 "Partnership Interest".........................................................5 "Partnership Securities".......................................................5 "Percentage Interest"..........................................................5 "Person" ......................................................................5 "Pipe Line"....................................................................5 "Recapture Income".............................................................5 "Record Date"..................................................................5 "Record Holder" or "Holder"....................................................5 "Restricted Payment"...........................................................5 "Securities Act"...............................................................5 "Time of Delivery".............................................................5 "Transfer Agent"...............................................................5 "Two-Thirds Interest"..........................................................6 "Unit" ......................................................................6 "Unit Price" ..................................................................6 "Units Register" ..............................................................6 "Unrealized Gain"..............................................................6 "Unrealized Loss"..............................................................6 ARTICLE II ORGANIZATIONAL MATTERS 2.1 Formation....................................................6 2.2 Name.........................................................7 2.3 Principal Office; Registered Office..........................7 2.4 Power of Attorney............................................7 2.5 Term.........................................................8 2.6 Organizational Limited Partner...............................8 2.7 Organizational Certificate...................................8 ii ARTICLE III PURPOSE 3.1 Purpose......................................................9 ARTICLE IV CAPITAL CONTRIBUTIONS; PURCHASES PURSUANT TO PURCHASE AGREEMENTS; ADDITIONAL ISSUANCES 4.1 General Partner Contributions................................9 4.2 Limited Partner Contributions...............................10 4.3 Issuances of Additional LP Units and Other Securities.......10 4.4 No Preemptive Rights........................................11 4.5 No Interest.................................................11 4.6 Loans from Partners.........................................11 4.7 No Withdrawal...............................................11 ARTICLE V CAPITAL ACCOUNTS; DISTRIBUTIONS 5.1 Capital Accounts............................................11 5.2 Distributions in Respect of Units...........................13 ARTICLE VI INCOME TAX MATTERS 6.1 Tax Allocations.............................................14 6.2 Preparation of Tax Returns..................................15 6.3 Tax Elections...............................................15 6.4 Tax Controversies...........................................15 6.5 Withholding.................................................15 ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS; INDEMNIFICATION 7.1 Powers of General Partner...................................15 7.2 Duties of General Partner...................................17 7.3 Reliance by Third Parties...................................17 7.4 Compensation and Reimbursement of the General Partner.......18 iii 7.5 Purchase or Sale of LP Units and Other Partnership Securities..18 7.6 Partnership Funds..............................................18 7.7 Outside Activities; Contracts with Affiliates; Loans to or from Affiliates..............................................19 7.8 Tax Basis and Value Determinations.............................20 7.9 Resolution of Conflicts of Interest; Standard of Care..........20 7.10 Other Matters Concerning the General Partner. ................21 7.11 Limited Liability; Indemnification.............................21 ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS 8.1 Limitation of Liability........................................22 8.2 Management of Business.........................................22 8.3 Outside Activities.............................................23 8.4 Return of Capital..............................................23 8.5 Rights of Limited Partners Relating to the Partnership.........23 ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS 9.1 Books, Records and Accounting..................................24 9.2 Fiscal Year....................................................24 9.3 Reports........................................................24 ARTICLE X ISSUANCE OF LP CERTIFICATES; TRANSFER AND EXCHANGE OF LP UNITS 10.1 Initial Issuance of LP Certificates............................24 10.2 Registration, Registration of Transfer and Exchange............25 10.3 Mutilated, Destroyed, Lost or Stolen LP Certificates...........25 10.4 Persons Deemed Owners..........................................26 ARTICLE XI TRANSFER OF GP UNITS 11.1 Transfer of GP Units...........................................26 11.2 Successor General Partner......................................26 iv ARTICLE XII ADMISSION OF INITIAL, SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS AND SUCCESSOR GENERAL PARTNER 12.1 Admission of Initial Limited Partners..........................27 12.2 Admission of Substituted Limited Partners......................27 12.3 Admission of Successor General Partner.........................27 12.4 Admission of Additional Limited Partners......................27 12.5 Amendment of Agreement and Certificate of Limited Partnership..28 ARTICLE XIII WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER 13.1 Withdrawal or Removal of the General Partner...................28 13.2 Sale of Former General Partner's Interest......................29 ARTICLE XIV DISSOLUTION AND LIQUIDATION 14.1 Dissolution....................................................29 14.2 Reconstitution.................................................30 14.3 Liquidation....................................................30 14.4 Distribution in Kind...........................................31 14.5 Cancellation of Certificate of Limited Partnership.............32 14.6 Return of Capital..............................................32 14.7 Waiver of Partition............................................32 ARTICLE XV AMENDMENT OF PARTNERSHIP AGREEMENT 15.1 Amendments Which May be Adopted Solely by the General Partner..32 15.2 Other Amendments...............................................33 15.3 Amendment Requirements.........................................33 ARTICLE XVI MEETINGS 16.1 Meetings.......................................................34 16.2 Record Date....................................................34 v 16.3 Conduct of Meeting.............................................34 16.4 Action Without a Meeting.......................................34 ARTICLE XVII CERTAIN RESTRICTIONS 17.1 Additional Units...............................................35 17.2 Certain Amendments.............................................35 17.3 Sale of Assets.................................................35 17.4 Restricted Payments by General Partner or Manager..............35 ARTICLE XVIII RIGHT TO PURCHASE UNITS 18.1 Right to Purchase Units........................................36 18.2 Notice of Election to Purchase.................................36 18.3 Purchase and Transfer of Units.................................36 ARTICLE XIX GENERAL PROVISIONS 19.1 Opinions Regarding Taxation as a Partnership...................37 19.2 Personal Property..............................................37 19.3 Addresses and Notices..........................................37 19.4 Headings.......................................................37 19.5 Binding Effect.................................................38 19.6 Integration....................................................38 19.7 Waiver.........................................................38 19.8 Counterparts...................................................38 19.9 Severability...................................................38 19.10 Applicable Law.................................................38 vi AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BUCKEYE PARTNERS, L.P. THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of December 31, 1998, is entered into by and among BUCKEYE PIPE LINE COMPANY, a Delaware corporation, PENNSYLVANIA COMPANY, a Delaware corporation, and the additional Persons that become Partners of the Partnership as provided herein. BACKGROUND On December 31, 1998, Buckeye Management Company assigned and transferred certain assets and liabilities, including all of its GP Units (as defined in Article I below), to Buckeye Pipe Line Company. Buckeye Pipe Line Company accepted the transfer of those certain assets and liabilities and the GP Units, and became the general partner of Buckeye Partners, L.P. The Partnership Agreement is hereby being amended and restated to reflect (i) the assignment and transfer of certain assets and liabilities, including the transfer of all of its GP Units, by Buckeye Management Company, and (ii) the assumption by Buckeye Pipe Line Company of the role of successor general partner of Buckeye Partners, L.P. ARTICLE I DEFINITIONS The following definitions shall for all purposes, unless otherwise clearly indicated to the contrary, apply to the terms used in this Agreement. "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question; provided, however, that, for purposes of the restrictive provisions of Sections 7.6, 7.7 and 7.9, neither the Partnership nor any of the Operating Partnerships nor any of their respective subsidiaries shall be deemed to be affiliates of the General Partner. As used herein, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. For purposes of this Agreement, Buckeye Pipe Line Services Company, a 1 Pennsylvania corporation which provides services to the General Partner and the Manager, shall be deemed an Affiliate of the General Partner. "Agent" has the meaning specified in Section 2.4 "Agreed Value" of any Contributed Property means the fair market value of such property as of the time of contribution (or, in the case of cash, the amount thereof), as determined by the General Partner using such reasonable method of valuation as it may adopt. "Agreement" means this amended and restated agreement of limited partnership, as amended or amended and restated from time to time. "BMC" means Buckeye Management Company, a Delaware corporation. "Business Day" means any day other than a Saturday, a Sunday, or a legal holiday recognized as such by the Government of the United States or the State of New York. "Capital Accounts" mean the capital accounts maintained with respect to Units pursuant to Section 5.1(a). "Capital Contribution" means any Contributed Property which a Partner contributes to the Partnership. "Carrying Value" means (a) with respect to Contributed Property, the Agreed Value of such property reduced as of the time of determination (but not below zero) by (i) all depreciation, cost recovery and amortization deductions charged to the Capital Accounts pursuant to Section 5.1(a) with respect to such property and (ii) an appropriate amount to reflect any sales, retirements and other dispositions of assets included in such property, and (b) with respect to any other property, the adjusted basis of such property for federal income tax purposes as of the time of determination, in any case as may be adjusted from time to time pursuant to Section 5.1(f). "Certificate of Limited Partnership" means the Amended and Restated Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware as described in the first sentence of Section 2.7, as amended or restated from time to time. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Contributed Property" means any cash, property or other consideration (in such form as may be permitted under the Delaware Act) contributed to the Partnership. "Contributing Partner" means any Partner contributing Contributed Property to the Partnership in exchange for Units (or any transferee of such Units). 2 "Delaware Act" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, and any successor to such Act. "Designated Expenses" mean all costs and expenses (direct or indirect) incurred by the General Partner which are directly or indirectly related to the formation, capitalization, business or activities of the Partnership and the Operating Partnerships (including, without limitation, expenses, direct or indirect, reasonably allocated to the General Partner by its Affiliates); provided, however, that Designated Expenses shall not include (a) any cost or expense for which the General Partner is not entitled to be reimbursed by reason of the proviso at the end of Section 7.11(b), (b) severance costs not permitted to be reimbursed pursuant to the Management Agreements in connection with the withdrawal of the Manager, (c) any amounts which the General Partner receives as incentive compensation under the Incentive Compensation Agreement and pays over to officers or employees of the Manager or (d) any cost or expense for which the General Partner and its Affiliates are not entitled to be reimbursed pursuant to the terms of the Exchange Agreement. "Eighty Percent Interest" means Limited Partners holding an aggregate of at least 80% of the outstanding LP Units. "ESOP" means the Buckeye Pipe Line Services Company Employee Stock Ownership Plan, as amended. "ESOP Loan" means the loan to the ESOP due March 28, 2011 in the original principal amount of $62,625,000 and guaranteed by the General Partner and certain of its Affiliates, and shall include any loans refinancing such loan. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor to such statute. "Exchange Agreement" means the Exchange Agreement, dated as of August 12, 1997, among the General Partner, the Manager, the Partnership and each of the Operating Partnerships and Glenmoor, Ltd., a Delaware corporation, as amended or restated from time to time. "General Partner" means Pipe Line, in its capacity as the general partner of the Partnership, and any successor to Pipe Line as such general partner. "GP Unit" means a Partnership Interest issued pursuant to Section 4.1 and representing a general partner's interest in the Partnership. "Incentive Compensation Agreement" means the incentive compensation agreement, dated as of March 22, 1996, between BMC and the Partnership, as amended or restated from time to time. 3 "Indemnitee" means the General Partner, any Affiliate of the General Partner, any Person who is or was a director, officer, employee or agent of the General Partner or any such Affiliate, or any Person who is or was serving at the request of the General Partner or any such Affiliate as a director, officer, partner, trustee, employee or agent of another Person. "Issue Price" means the price at which a Unit is purchased from the Partnership. "Limited Partner" means any limited partner of the Partnership. "Liquidator" has the meaning specified in Section 14.3. "LP Certificate" means a certificate issued by the Partnership, substantially in the form of Annex A to this Agreement, evidencing ownership of one or more LP Units. "LP Unit" means a Partnership Interest issued pursuant to Section 4.2 or 4.3 and representing a limited partner's interest in the Partnership. "Majority Interest" means Limited Partners holding an aggregate of more than 50% of the outstanding LP Units. "Management Agreements" mean the management agreements, dated as of November 18, 1986, pursuant to which the Manager will manage the Operating Partnerships, in each case as amended or restated from time to time. "Manager" means Pipe Line, in its capacity as the general partner and manager of the Operating Partnerships, and any successor to Pipe Line as such general partner and manager. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "National Securities Exchange" means an exchange registered with the Securities and Exchange Commission under Section 6(a) of the Exchange Act. "Net Agreed Value" means (a) in the case of any Contributed Property, the Agreed Value of such Contributed Property reduced by any indebtedness either assumed by the Partnership upon contribution of such Contributed Property or to which such Contributed Property is subject when contributed, (b) in the case of any property distributed to a Partner pursuant to Section 5.2, 14.3 or 14.4, the fair market value of such property at the time of such distribution reduced by any indebtedness either assumed by such Partner upon such distribution or to which such property is subject at the time of distribution. "Operating Partnership Agreements" mean the amended and restated agreements of limited partnership, dated as of December 23, 1986, governing the rights and obligations of the 4 partners of the Operating Partnerships and certain related matters, as amended or restated from time to time. "Operating Partnerships" mean Buckeye Pipe Line Company, L.P., Buckeye Pipe Line Company of Michigan, L.P., Buckeye Tank Terminals Company, L.P., Everglades Pipe Line Company, L.P., and Laurel Pipe Line Company, L.P., each a Delaware limited partnership. "Opinion of Counsel" means a written opinion of counsel (who may be regular counsel of the General Partner or any of its Affiliates) acceptable to the General Partner. "Organizational Limited Partner" means Pennsylvania Company, a Delaware corporation, acting as the organizational limited partner pursuant to this Agreement. "Partner" means the General Partner or a Limited Partner. "Partnership" means Buckeye Partners, L.P., a Delaware limited partnership. "Partnership Interest" means a general partner's or limited partner's interest in the Partnership. "Partnership Securities" has the meaning specified in Section 4.3. "Percentage Interest" means, with respect to any Partner, the number of Units held by such Partner divided by the number of Units outstanding. "Person" means an individual, a corporation, a limited liability company, a partnership, a trust, an unincorporated organization, an association or any other entity. "Pipe Line" means Buckeye Pipe Line Company, a Delaware corporation. "Recapture Income" means any gain recognized by the Partnership upon the disposition of any asset of the Partnership that is not a capital gain due to the recapture of certain deductions previously taken with respect to such asset. "Record Date" means the date established by the General Partner for determining the identity of Limited Partners entitled (a) to notice of or to vote at any meeting of Limited Partners, to vote by ballot or approve Partnership action in writing without a meeting or to exercise rights in respect of any other lawful action of Limited Partners, or (b) to receive any report or distribution. "Record Holder" or "Holder" of (a) any LP Unit means the Person in whose name such Unit is registered in the Units Register or (b) any GP Unit means the General Partner. 5 "Restricted Payment" means any dividend, distribution or other payment in respect of the capital stock of the General Partner or the Manager, as the case may be. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor to such statute. "Time of Delivery" means December 23, 1986. "Transfer Agent" means the bank, trust company or other Person appointed from time to time by the Partnership to act as successor transfer agent and registrar for LP Units. "Two-Thirds Interest" means Limited Partners holding an aggregate of at least two-thirds of the outstanding LP Units. "Unit" means a GP Unit or an LP Unit. "Unit Price" of a Unit means, as of any date of determination, (a) if such Unit is one of a class of Units listed or admitted to trading on a National Securities Exchange, the average of the last reported sales prices per Unit regular way or, in case no such reported sale takes place on any such day, the average of the last reported bid and asked prices per Unit regular way, in either case on the principal National Securities Exchange on which such class of Units is listed or admitted to trading (or, if such class of Units is listed or admitted to trading on the New York Stock Exchange, on the New York Stock Exchange Composite Tape), for the five trading days immediately preceding the date of determination; (b) if such Unit is not of a class of Units listed or admitted to trading on a National Securities Exchange but is of a class quoted by NASDAQ, the average of the last reported sales prices per Unit or, in case no such reported sale takes place on any such day or in case last reported sales prices are not quoted by NASDAQ, the average of the last bid and asked prices per Unit, for the five trading days immediately preceding such date of determination, as furnished by the National Quotation Bureau Incorporated or such other nationally recognized quotation service as may be selected by the General Partner for such purpose, if said Bureau is not at the time furnishing quotations; or (c) if such Unit is not of a class of Units listed for trading on a National Securities Exchange or quoted by NASDAQ, an amount equal to the fair market value of such Unit as of such date of determination, as determined by the General Partner using any reasonable method of valuation it may select. "Units Register" has the meaning specified in Section 10.2. "Unrealized Gain" attributable to a Partnership property means, as of any date of determination, the excess, if any, of the fair market value of such property as of such date of determination over the Carrying Value of such property as of such date of determination (prior to any adjustment to be made pursuant to Section 5.1(f) as of such date). 6 "Unrealized Loss" attributable to a Partnership property means, as of any date of determination, the excess, if any, of the Carrying Value of such property as of such date of determination (prior to any adjustment to be made pursuant to Section 5.1(f) as of such date) over the fair market value of such property as of such date of determination. ARTICLE II ORGANIZATIONAL MATTERS 2.1 Formation. Subject to the provisions of this Agreement, the General Partner and the Organizational Limited Partner originally formed the Partnership as a limited partnership pursuant to the provisions of the Delaware Act. The General Partner, pursuant to the authority contained in Article XV of this Agreement, does hereby amend and restate this Agreement in its entirety to continue the Partnership as a limited partnership pursuant to the provisions of the Delaware Act and to set forth the rights and obligations of the Partners and certain matters related thereto. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration, dissolution and termination of the Partnership shall be governed by the Delaware Act. 2.2 Name. The name of the Partnership shall be, and the business of the Partnership shall be conducted under the name of, "Buckeye Partners, L.P."; provided, however, that (a) the Partnership's business may be conducted under any other name or names deemed advisable by the General Partner, (b) the General Partner in its sole discretion may change the name of the Partnership at any time and from time to time and (c) the name under which the Partnership conducts business shall include "Ltd." or "Limited Partnership" (or similar words or letters) where necessary for purposes of maintaining the limited liability status of each Limited Partner or otherwise complying with the laws of any jurisdiction that so requires. 2.3 Principal Office; Registered Office. (a) The principal office of the Partnership shall be 3900 Hamilton Boulevard, Allentown, Pennsylvania 18103, or such other place as the General Partner may from time to time designate. The Partnership may maintain offices at such other places as the General Partner deems advisable. (b) The address of the Partnership's registered office in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801, and the name of the Partnership's registered agent for service of process at such address shall be The Corporation Trust Company. 2.4 Power of Attorney. (a) Each Limited Partner hereby constitutes and appoints the General Partner or, if a Liquidator shall have been selected pursuant to Section 14.3, the Liquidator, with full power of substitution, as such Limited Partner's true and lawful agent and attorney-in-fact ("Agent"), with full power and authority in such Limited Partner's name, place and stead to: 7 (i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate of Limited Partnership and any amendments or restatements thereof) which the Agent deems appropriate or necessary to form or qualify, or continue the existence or qualification of, the Partnership as a limited partnership (or a partnership in which the Limited Partners have limited liability) under the laws of any state or jurisdiction; (B) all certificates, documents and other instruments which the Agent deems appropriate or necessary to reflect any amendments, changes or modifications of this Agreement in accordance with its terms; (C) all conveyances and other documents or instruments which the Agent deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement; (D) all certificates, documents and other instruments relating to the admission, substitution, withdrawal or removal of any Partner pursuant to Article XII, XIII or XIV and other events described in Article XII, XIII or XIV; and (E) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate of Limited Partnership and any amendments or restatements thereof) relating to the determination of the rights, preferences and privileges of any class or series of Units issued pursuant to Section 4.4; and (ii) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates, documents and other instruments which the Agent deems appropriate or necessary in order to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder, is deemed to be made or given by the Partners hereunder, is consistent with the terms of this Agreement or is deemed by the Agent to be appropriate or necessary to effectuate the terms or intent of this Agreement or the purposes of the Partnership; provided, however, that, if any vote or approval of Limited Partners is specifically required for an action by any provision of this Agreement, the Agent may exercise the power of attorney made in this subsection (ii) to take such action only after such vote or approval is obtained. (b) The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Limited Partner and the transfer of all or any portion of such Limited Partner's Units and shall extend to such Limited Partner's heirs, transferees, successors, assigns and personal representatives. Each Limited Partner hereby agrees to be bound by any representations made by the Agent acting in good faith pursuant to such power of attorney; and each Limited Partner hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the Agent taken in good faith pursuant to such power of attorney. Each Limited Partner shall execute and deliver to the Agent, within 15 days after receipt of the Agent's request therefor, such further designations, powers of attorney and other instruments as the Agent deems appropriate or necessary to effectuate the terms or intent of this Agreement or the purposes of the Partnership. 8 2.5 Term. The Partnership shall continue in existence until the close of Partnership business on December 31, 2036 or until the earlier termination of the Partnership in accordance with the provisions of Article XIV. 2.6 Organizational Limited Partner. At and as of the Time of Delivery, the Partnership interest of the Organizational Limited Partner shall be terminated and the Partnership Interest of BMC shall be as described in Section 4.1. 2.7 Organizational Certificate. An Amended and Restated Certificate of Limited Partnership of the Partnership has been filed with the Secretary of State of the State of Delaware as required by the Delaware Act. The General Partner shall cause to be filed such other certificates or documents as may be required for the formation, operation and qualification of a limited partnership in Delaware and any other state in which the Partnership may elect to do business. The General Partner shall thereafter file any necessary amendments to the Certificate of Limited Partnership and any such other certificates and documents and do all things requisite to the maintenance of the Partnership as a limited partnership (or as a partnership in which the Limited Partners have limited liability) under the laws of Delaware and any other state in which the Partnership may elect to do business. Subject to applicable law, the General Partner may omit from the Certificate of Limited Partnership and any such other certificates and documents, and from all amendments thereto, the names and addresses of the Limited Partners and information relating to the Capital Contributions and shares of profits and compensation of the Limited Partners, or state such information in the aggregate rather than with respect to each individual Limited Partner. ARTICLE III PURPOSE 3.1 Purpose. The purpose and business of the Partnership shall be to engage in any lawful activity for which limited partnerships may be organized under the Delaware Act. ARTICLE IV CAPITAL CONTRIBUTIONS; PURCHASES PURSUANT TO PURCHASE AGREEMENTS; ADDITIONAL ISSUANCES 4.1 General Partner Contributions. (a) At and as of the Time of Delivery, the General Partner contributed to the Partnership, in exchange for 121,212 GP Units (i.e., a 1% Percentage Interest), an amount equal to $2,424,240. (b) Following the Time of Delivery, whenever a Limited Partner makes a Capital Contribution to the Partnership pursuant to Section 4.3, the General Partner shall contribute to the Partnership, in exchange for a number of GP Units equal to 1/99th of the total number of LP 9 Units then being purchased, Contributed Property (which may include LP Units) having a Net Agreed Value equal to 1/99th of the aggregate Net Agreed Value of all Capital Contributions to the Partnership then being made pursuant to Section 4.3, unless the General Partner receives an Opinion of Counsel that the failure to make such additional Capital Contribution would not result in the Partnership or any of the Operating Partnerships being treated as an association taxable as a corporation for federal income tax purposes. 4.2 Limited Partner Contributions. At and as of the Time of Delivery, each underwriting firm which entered into an underwriting agreement with the Partnership contributed to the Partnership, in exchange for the number of LP Units specified therein an amount in cash equal to the Issue Price for such LP Units (as specified in such underwriting agreement) multiplied by the number of LP Units being so purchased. 4.3 Issuances of Additional LP Units and Other Securities. (a) The General Partner is hereby authorized to cause the Partnership to issue, in addition to the LP Units issued pursuant to Section 4.2, additional LP Units, or classes or series thereof, or options, rights, warrants or appreciation rights relating thereto or any other type of equity security that the Partnership may lawfully issue, any secured or unsecured debt obligations of the Partnership, or debt obligations of the Partnership convertible into any class or series of equity securities of the Partnership (collectively, "Partnership Securities"), for any Partnership purpose, at any time or from time to time, to Partners or to other Persons (including, without limitation, to employee benefit plans sponsored by the General Partner, the Partnership, any of the Operating Partnerships, the Manager or any of their respective Affiliates), for such consideration and on such terms and conditions, and entitling the holders thereof to such relative rights and powers, as shall be established by the General Partner in its sole discretion, all without the approval of any Limited Partners, except as provided in Section 17.1. (b) Without limiting the generality of the foregoing (but subject to the provisions of Section 17.1), the additional Partnership Securities to be issued by the Partnership under this Section 4.3 may contain provisions with respect to (i) the allocation of items of Partnership income, gain, loss, deduction and credit; (ii) the right to share in Partnership distributions; (iii) rights upon dissolution and liquidation of the Partnership; (iv) whether any such issue of Partnership Securities may be acquired by the Partnership, by purchase, redemption or otherwise, and if so, the price at which, and the terms and conditions upon which, such Partnership Securities may be purchased, redeemed or otherwise acquired by the Partnership; (v) the conversion rights applicable to any such issue of Partnership Securities, and if so, the rate at which, and the terms and conditions upon which, such Partnership Securities may be converted into any other class or series of Partnership Securities; (vi) the terms and conditions upon which any such Partnership Securities will be issued, assigned, or transferred; and (vii) the right, if any, of the holders of any such issue of Partnership Securities to vote on Partnership matters. (c) The General Partner is hereby authorized and directed to do all acts which it deems appropriate or necessary in connection with each issuance of Units or other securities by the 10 Partnership and to amend this Agreement in any manner which it deems appropriate or necessary to provide for each such issuance, to admit additional limited partners in connection therewith and to specify the relative rights, powers and duties of the holders of the Units or other securities being so issued, all without the approval of any Limited Partners, except as provided in Section 17.1. 4.4 No Preemptive Rights. No Partner shall have any preemptive right with respect to the issuance or sale of Units or other securities that may be issued by the Partnership. 4.5 No Interest. No interest shall be paid by the Partnership on Capital Contributions. 4.6 Loans from Partners. Loans or other advances by a Partner to or for the account of the Partnership shall not be considered Capital Contributions. 4.7 No Withdrawal. No Partner shall be entitled to withdraw any part of its Capital Contributions or its Capital Account or to receive any distributions from the Partnership except as provided herein. ARTICLE V CAPITAL ACCOUNTS; DISTRIBUTIONS 5.1 Capital Accounts. (a) The Partnership shall maintain for each Partner a separate Capital Account with respect to Units in accordance with the regulations issued pursuant to Section 704 of the Code. The Capital Account of any Partner shall be increased by (i) the Net Agreed Value of all Capital Contributions made by such Partner in exchange for Units and (ii) all items of income and gain computed in accordance with Section 5.1 (b) and allocated to such Partner pursuant to Section 5.1(c) and reduced by (iii) the Net Agreed Value of all distributions of cash or property made to such Partner with respect to Units and (iv) all items of deduction and loss computed in accordance with Section 5.1(b) and allocated to such Partner pursuant to Section 5.1(c). (b) For purposes of computing the amount of each item of income, gain, loss or deduction to be reflected in the Capital Accounts, the determination, recognition and classification of such item shall be the same as its determination, recognition and classification for federal income tax purposes, provided that: (i) Any deductions for depreciation, cost recovery or amortization attributable to any Partnership property shall be determined as if the adjusted basis of such property was equal to the Carrying Value of such property. Upon an adjustment to the Carrying Value of any Partnership property subject to depreciation, cost recovery or amortization pursuant to Section 5.1(e) or 7.8, any further deductions for such depreciation, cost recovery or amortization attributable to such property shall be determined as if the 11 adjusted basis of such property was equal to the Carrying Value of such property immediately following such adjustment. (ii) If the Partnership's adjusted basis in property subject to depreciation, cost recovery or amortization is reduced for federal income tax purposes pursuant to Section 48(q) (1) of the Code, the amount of such reduction shall be deemed to be an additional item of deduction in the year such property is placed in service. Any restoration of such basis pursuant to Section 48(q) (2) of the Code shall be deemed to be an additional item of income in the year of restoration. (iii) Any income, gain or loss attributable to the taxable disposition of any Partnership property shall be determined by the Partnership as if the adjusted basis of such property as of such date of disposition was equal in amount to the Carrying Value of such property as of such date. (iv) All fees and other expenses incurred by the Partnership to promote the sale of (or to sell) a Partnership Interest that can neither be deducted nor amortized under Section 709 of the Code shall be treated as items of deduction. (v) The computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership and, as to those items described in Section 705(a)(1)(B) or Section 705(a)(2)(B) of the Code, without regard to the fact that such items are not includible in gross income or are neither currently deductible nor capitalizable for federal income tax purposes. (c) (i) For purposes of maintaining the Capital Accounts and except as otherwise provided in this Section 5.1 (c), each item of income, gain, loss and deduction (computed in accordance with Section 5.1 (b)) shall be allocated to the Partners in accordance with their respective Percentage Interests. (ii) If any Partner unexpectedly receives any adjustment allocation or distribution described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate a deficit in its Capital Account created by such adjustment, allocation or distribution as quickly as possible. (iii) To preserve uniformity of Units, the General Partner shall have sole discretion pursuant to Section 6.1(c) to make special allocations of income or deduction that do not have a material adverse effect on the Limited Partners and are consistent with the principles of Section 704 of the Code. 12 (iv) If there is a net decrease in Partnership minimum gain, within the meaning of Treasury Regulation Section 1.704-1(b) (4) (iv), during a Partnership taxable year, all Partners with deficit balances in their Capital Accounts, computed as described in Treasury Regulation Section 1.704-1(b)(4)(iv)(c) at the end of such year, will be allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in the amounts and in the proportions needed to eliminate such deficits as quickly as possible, before any other allocations are made under Section 704(b) of the Code. (d) (i) Except as otherwise provided in this Section 5.1(d), a transferee of LP Units shall, upon becoming a Limited Partner, succeed to the portion of the transferor's Capital Account maintained with respect to the Units transferred. (ii) If a transfer of Units causes a termination of the Partnership under Section 708(b)(1)(B) of the Code, the Partnership properties shall be deemed to have been distributed in liquidation of the Partnership to the Partners (including the transferee of the Units) pursuant to Sections 14.4 and 14.5 and recontributed by such Partners and transferees in reconstitution of the Partnership. The Capital Accounts of such reconstituted Partnership shall be maintained in accordance with this Article V. (e) If any additional LP Units are to be issued pursuant to Section 4.3, or if any Partnership Property is to be distributed, the Capital Accounts of the Partners (and the Carrying Values of all Partnership properties) shall, immediately prior to such issuance or distribution, be adjusted (consistent with the provisions hereof and of Section 704(b) of the Code) upwards or downwards to reflect any Unrealized Gain or Unrealized Loss attributable to all Partnership properties (as if such Unrealized Gain or Unrealized Loss had been recognized upon an actual sale of such properties immediately prior to such issuance). In determining such Unrealized Gain or Unrealized Loss, the fair market value of Partnership properties, as of any date of determination, (i) shall, in the case of the issuance of additional LP Units, be deemed to be equal to (A) the number of Units outstanding, as of the date of determination, times the Issue Price for which such additional LP Units are so issued, plus (B) the amount of any Partnership indebtedness outstanding as of the date of determination, and (ii) shall, in the case of the distribution of Partnership property, be determined in the manner provided in Section 14.3. 5.2 Distributions in Respect of Units. (a) From time to time, not less often than quarterly, the General Partner shall review the Partnership's accounts to determine whether distributions are appropriate. The General Partner may make such cash distributions as it, in its sole discretion, may determine, without being limited to current or accumulated income or gains, from any Partnership funds, including, without limitation, Partnership revenues, Capital Contributions or borrowed funds. In its sole discretion, the General Partner may also distribute to the Partners other Partnership property, additional Units or other securities of the Partnership or other entities. 13 All distributions in respect of Units shall be made concurrently to all Record Holders on the Record Date set for purposes of such distribution and shall be prorated in accordance with such Record Holders' respective Percentage Interests as of such Record Date. (b) Amounts paid pursuant to Section 7.4, any Management Agreement, any Operating Partnership Agreement or the Incentive Compensation Agreement shall not be deemed to be distributions for purposes of this Agreement. ARTICLE VI INCOME TAX MATTERS 6.1 Tax Allocations. (a) For federal income tax purposes, each item of income, gain, loss, deduction and credit of the Partnership shall be allocated among the Partners in accordance with their Percentage Interests except that the General Partner shall have the authority to make such other allocations as are necessary and appropriate to comply with Section 704 of the Code and the regulations issued pursuant thereto. (b) Gain resulting from the sale or other taxable disposition of Partnership assets and allocated to (or recognized by) a Partner (or its successor in interest) for federal income tax purposes shall be deemed to be Recapture Income to the extent such Partner has been allocated or has claimed any deduction directly or indirectly giving rise to the treatment of such gain as Recapture Income. (c) To preserve uniformity of LP Units, the General Partner shall have sole discretion to (i) adopt such conventions as it deems appropriate or necessary in determining the amount of depreciation and cost recovery deductions; (ii) make special allocations of income or deduction and (iii) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of regulations under Section 704(c) of the Code or (y) otherwise to preserve the uniformity of Units issued or sold from time to time. The General Partner may adopt such conventions and make such allocations and amendments only if they would not have a material adverse effect on the Limited Partners and are consistent with the principles of Section 704 of the Code. (d) Items of Partnership income, gain, loss, deduction and credit shall, for federal income tax purposes, be determined on a monthly basis (or other basis, as required or permitted by Section 706 of the Code) and shall be allocated to the Persons who are Record Holders of Units as of the close of business on the first day of such month; provided, however, that gain or loss on a sale or other disposition of all or a substantial portion of the assets of the Partnership shall be allocated to the Persons who are Record Holders of Units as of the close of business on the date of sale. 14 (e) Pursuant to Section 704(c) of the Code, items of income, gain, loss, deduction and credit attributable to Contributed Property shall be allocated in such a manner as to take into account the variation between the basis of such property to the Partnership and its Carrying Value. 6.2 Preparation of Tax Returns. The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, losses, deductions, credits and other items necessary for federal and state income tax purposes and shall use all reasonable efforts to furnish to the Limited Partners within 90 days after the close of the taxable year the tax information reasonably required for federal and state income tax reporting purposes. The classification, realization and recognition of income, gains, losses, deductions, credits and other items shall be on the accrual method of accounting for federal income tax purposes, unless the General Partner shall determine otherwise in its sole discretion. 6.3 Tax Elections. Except as otherwise provided herein, the General Partner shall, in its sole discretion, determine whether to make any available election. The General Partner shall elect under Section 754 of the Code to cause the basis of Partnership property to be adjusted for federal income tax purposes as provided by Sections 734 and 743 of the Code, but the General Partner may seek to revoke this election if the General Partner determines that such revocation is in the best interests of the Limited Partners. 6.4 Tax Controversies. Subject to the provisions hereof, the General Partner is designated as the Tax Matters Partner (as defined in Section 6231 of the Code) and is authorized and required to represent the Partnership (at the Partnership's expense) in connection with all examinations of the Partnership's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. Each Limited Partner agrees to cooperate with the General Partner and to do or refrain from doing any and all things reasonably required by the General Partner to conduct such proceedings. 6.5 Withholding. The General Partner is authorized to take any action necessary to comply with any withholding requirements established by applicable law, including, without limitation, with regard to (a) the sale of United States real property interests, (b) the distributions of cash or property to any Partner which is a foreign Person, and (c) the transfer of Units. ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS; INDEMNIFICATION 7.1 Powers of General Partner. Except as otherwise expressly provided in this Agreement, all powers to control and manage the business and affairs of the Partnership shall be exclusively vested in the General Partner, and no Limited Partner shall have any power to control or manage the business and affairs of the Partnership. 15 In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provisions of this Agreement, the General Partner is hereby authorized and empowered, in the name of and on behalf of the Partnership, to do and perform any and all acts and things which it deems appropriate or necessary in the conduct of the business and affairs of the Partnership, including, without limitation, the following: (a) to lend or borrow money, to assume, guarantee or otherwise become liable for indebtedness and other liabilities and to issue evidences of indebtedness; (b) to buy, lease (as lessor or lessee), sell, mortgage, encumber or otherwise acquire or dispose of any or all of the assets of the Partnership; (c) to own, use and invest the assets of the Partnership; (d) to purchase or sell products, services and supplies; (e) to make tax, regulatory and other filings, and to render periodic and other reports, to governmental agencies or bodies having jurisdiction over the assets or business of the Partnership; (f) to open, maintain and close bank accounts and to draw checks and other orders for the payment of money; (g) to negotiate, execute and perform any contracts, conveyances or other instruments; (h) to distribute Partnership cash; (i) to utilize the services of officers and employees of the General Partner or of any other Persons and to select and dismiss employees (if any) and outside attorneys, accountants, consultants and contractors; (j) to maintain insurance for the benefit of the Partnership and the Partners; (k) to form, participate in or contribute or loan cash or property to limited or general partnerships, joint ventures, corporations or similar arrangements; (1) to expand the business activities in which the Partnership is engaged or engage in new business activities by acquisition or internal development; (m) to conduct litigation and incur legal expenses and otherwise deal with or settle claims or disputes; and 16 (n) to purchase, sell or otherwise acquire or dispose of Units; in each case at such times and upon such terms and conditions as the General Partner deems appropriate or necessary, and subject to any express restrictions contained elsewhere in this Agreement. 7.2 Duties of General Partner. The General Partner shall manage the business and affairs of the Partnership in the manner the General Partner deems appropriate or necessary. Without limiting the generality of the foregoing, the General Partner's duties shall include the following: (a) to take possession of the assets of the Partnership; (b) to staff and operate the business of the Partnership with the officers and employees of the General Partner or of other Persons; (c) to render or cause to be rendered engineering, environmental and other technical services and perform or cause to be performed financial, accounting, logistical and other administrative functions for the Partnership; (d) to render such reports and make such periodic and other filings as may be required under applicable federal, state and local laws, rules and regulations; (e) to provide or cause to be provided purchasing, procurement, repair and other services for the Partnership; and (f) to conduct the business of the Partnership in accordance with this Agreement and all applicable laws, rules and regulations; in each case in such a manner as the General Partner deems appropriate or necessary. 7.3 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership's sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies which may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General 17 Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. 7.4 Compensation and Reimbursement of the General Partner. (a) Except as provided in this Section 7.4 or elsewhere in this Agreement, the Incentive Compensation Agreement or any other agreement contemplated or permitted hereby or thereby, the General Partner shall not be compensated for its services as General Partner to the Partnership. (b) The General Partner shall be promptly reimbursed for all Designated Expenses, in addition to any reimbursement as a result of indemnification in accordance with Section 7.11. The General Partner shall determine such Designated Expenses in any reasonable manner determined by it. (c) The General Partner may propose and adopt without the approval of the Limited Partners fringe benefit plans, including, without limitation, plans comparable to those that covered employees employed by the predecessors to the Operating Partnerships and plans involving the issuance of Units, for the benefit of employees of the General Partner, Partnership, any of the Operating Partnerships, the Manager or any of their respective Affiliates in respect of services performed, or obligated to be performed, directly or indirectly, for the benefit of the Partnership or any of the Operating Partnerships. 7.5 Purchase or Sale of LP Units and Other Partnership Securities. The General Partner may, on behalf of the Partnership, purchase or otherwise acquire or sell or otherwise dispose of LP Units and other Partnership Securities. As long as LP Units are held by the Partnership or any of the Operating Partnerships, such LP Units or other Partnership Securities shall not be considered outstanding for any purpose. The General Partner or any of its Affiliates may also purchase or otherwise acquire or sell or otherwise dispose of LP Units and other Partnership Securities for its own account. 7.6 Partnership Funds. The funds of the Partnership shall be deposited in such account or accounts as shall be designated by the General Partner, and shall not be commingled with the funds of the General Partner or any of its Affiliates. All withdrawals from or charges against such accounts shall be made by the General Partner or by its agents, which agents may be Affiliates of the General Partner. Funds of the Partnership may be invested as determined by the General Partner. 18 7.7 Outside Activities; Contracts with Affiliates; Loans to or from Affiliates. (a) The General Partner shall not have or permit the Manager to have any business interests or engage in any business activities except for those relating to the Partnership and the Operating Partnerships. (b) Any Affiliate of the General Partner (other than the Manager) and any director, officer, partner or employee of the General Partner or any of its Affiliates shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership and the Operating Partnerships, for their own account and for the account of others, without having or incurring any obligation to offer any interest in such businesses or activities to the Partnership, the Operating Partnerships or any Partner. Neither the Partnership, the Operating Partnerships nor any of the Partners shall have any rights by virtue of this Agreement or the partnership relationship governed hereby in any such business interests. (c) Each of the Limited Partners hereby approves, ratifies and confirms the execution, delivery and performance of the Operating Partnership Agreements, the Incentive Compensation Agreement, the Management Agreements, and the Exchange Agreement and agrees that the General Partner is authorized to execute, deliver and perform the other agreements, acts, transactions and matters described therein on behalf of the Partnership without the approval or vote of any Limited Partners, notwithstanding any other provision of this Agreement or the Operating Partnership Agreements. (d) Subject to the provisions of Section 7.4(a), the General Partner and its Affiliates may enter into contracts with, or render services to, the Partnership or any of the Operating Partnerships, provided that such contracts or services are on terms that are fair and reasonable to the Partnership. (e) Neither the General Partner nor any of its Affiliates shall sell, transfer or convey property to, or purchase property from, the Partnership, directly or indirectly, except pursuant to transactions that are fair and reasonable to the Partnership. (f) The General Partner or any of its Affiliates may lend to the Partnership funds needed by the Partnership for such periods of time as the General Partner may determine; provided, however, that the General Partner or an Affiliate may not charge the Partnership interest greater than the rate (including points or other financing charges or fees) that would be charged to the Partnership by unrelated lenders on comparable loans. The Partnership shall reimburse the General Partner or its Affiliate, as the case may be, for any costs incurred by the General Partner or Affiliate in connection with the borrowing of funds obtained by such General Partner or Affiliate and loaned to the Partnership. (g) The Partnership may lend funds to the General Partner or any of its Affiliates; provided, however, that the Partnership may not lend funds to the General Partner or an Affiliate unless such funds consist of funds available after provision for working capital and such reserves 19 as the General Partner deems appropriate and such loan shall bear interest at the rate (including points or other financing charges or fees) that the General Partner would be charged by unrelated lenders on comparable loans. 7.8 Tax Basis and Value Determinations. To the extent that the General Partner is required pursuant to the provisions of this Agreement to establish fair market values or allocate amounts realized, tax basis, Agreed Values or Net Agreed Values, the General Partner shall establish such values and make such allocations in a manner that is reasonable and fair to the Limited Partners, taking into account all applicable laws, governmental regulations, rulings and decisions. The General Partner may, in its sole discretion, modify or revise such allocations in order to comply with such laws, governmental regulations, rulings or decisions or to the extent it otherwise deems such modification or revision appropriate or necessary. The General Partner is authorized, to the extent deemed by it to be appropriate or necessary, to utilize the services of an independent appraiser in establishing such values or allocations and the General Partner shall in such cases be entitled to rely on the values or allocations established by such independent appraiser. 7.9 Resolution of Conflicts of Interest; Standard of Care. (a) Unless otherwise expressly provided in this Agreement or any other agreement contemplated hereby, (i) whenever a conflict of interest exists or arises between the General Partner or any of its Affiliates, on the one hand, and the Partnership or any Limited Partner, on the other hand, or (ii) whenever this Agreement or any other agreement contemplated hereby provides that the General Partner or any of its Affiliates shall act in a manner which is, or provide terms which are, fair and/or reasonable to the Partnership, any Operating Partnership or any Limited Partner, the General Partner or such Affiliate shall resolve such conflict of interest, take such action or provide such terms considering, in each case, the relative interests of each Party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting or engineering practices or principles, and in the absence of bad faith by the General Partner or such Affiliate, the resolution, action or terms so made, taken or provided by the General Partner or such Affiliate shall not constitute a breach of this agreement or any other agreement contemplated hereby or a breach of any standard of care or duty imposed hereby or under the Delaware Act or any other applicable law, rule or regulation. (b) Whenever this Agreement or any other agreement contemplated hereby provides that the General Partner or any of its Affiliates is permitted or required to make a decision (i) in its "discretion" or under a grant of similar authority or latitude, the General Partner or such Affiliate shall be entitled, to the extent permitted by applicable law, to consider only such interests and factors as it desires and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Partnership or the Limited Partners, or (ii) in its "good faith" or under another express standard, the General Partner or such Affiliate shall act under such express standard and, except as required by applicable law, shall not be subject to any other or different 20 standards imposed by this Agreement, any other agreement contemplated hereby or applicable law. 7.10 Other Matters Concerning the General Partner. (a) The General Partner may rely and shall be protected in acting or refraining from acting upon any certificate, document or other instrument believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors selected by it and any opinion or advice of any such Person as to matters which the General Partner believes to be within such Person's professional or expert competence shall be full and complete authorization and protection with respect to any action taken or suffered or omitted by the General Partner hereunder in good faith and in accordance with such opinion or advice. (c) The General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and the General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith. 7.11 Limited Liability; Indemnification. (a) Notwithstanding anything to the contrary in this Agreement, and except to the extent required by applicable law, no Indemnitee shall be liable to the Partnership or any Partner for any action taken or omitted to be taken by such Indemnitee, provided that such Indemnitee acted in good faith and such action or omission does not involve the gross negligence or willful misconduct of such Indemnitee. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that an Indemnitee did not act in good faith or that an action or omission involves gross negligence or willful misconduct. (b) The Partnership shall, to the extent permitted by applicable law, indemnify each Indemnitee against expenses (including legal fees and expenses), judgments, fines and amounts paid in settlement, actually and reasonably incurred by such Indemnitee, in connection with any threatened, pending or completed claim, demand, action, suit or proceeding to which such Indemnitee was or is a party or is threatened to be made a party, by reason of (i) such Indemnitee's status as a General Partner, any Affiliate of the General Partner, any Person who is or was a director, officer, employee or agent of the General Partner or any such Affiliate, or any Person who is or was serving at the request of the General Partner or any such Affiliate as a director, officer, partner, trustee, employee or agent of another Person or (ii) any action taken or omitted to be taken by such Indemnitee in any capacity referred to in clause (i) of this Section 7.11(b), relating to this Agreement or the property, business, affairs or management of the Partnership or any of the Operating Partnerships (provided the Indemnitee acted in good faith and the act or omission which is the basis of such claim, demand, action, suit or proceeding does not involve the gross negligence or willful misconduct of such Indemnitee). 21 (c) Expenses (including legal fees and expenses) incurred in defending any claim, demand, action, suit or proceeding subject to Section 7.11(b) shall be paid by the Partnership in advance of the final disposition of such claim, demand, action, suit or proceeding upon receipt of an undertaking (which need not be secured) by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined, by a court of competent jurisdiction, that the Indemnitee is not entitled to be indemnified by the Partnership as authorized hereunder. (d) The indemnification provided by Section 7.11(b) shall be in addition to any other rights to which an Indemnitee may be entitled, and shall continue as to an Indemnitee who has ceased to serve in a capacity for which the Indemnitee is entitled to indemnification and shall inure to the benefit of the heirs, successors, assigns, administrators and personal representatives of the Indemnitee. (e) To the extent commercially reasonable, the Partnership shall purchase and maintain insurance on behalf of the Indemnitees against any liability which may be asserted against or expense which may be incurred by an Indemnitee in connection with the Partnership's activities, whether or not the Partnership would have the power to indemnify an Indemnitee against such liability under the provisions of this Agreement. (f) An Indemnitee shall not be denied indemnification in whole or in part under Section 7.11(b) because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. (g) The provisions of this Section 7.11 are for the benefit of the Indemnitees and the heirs, successors, assigns, administrators and personal representatives of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Persons. ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS 8.1 Limitation of Liability. The Limited Partners shall have no liability under this Agreement (including, without limitation, liability under Section 7.11). 8.2 Management of Business. No Limited Partner shall, in its capacity as a Limited Partner, take part in the operation, management or control (within the meaning of the Delaware Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by a director, officer, employee or agent of a General Partner or an Affiliate of the General Partner in such Person's capacity as such (whether or not such Person is also a Limited Partner) shall not affect, impair or eliminate the limitations on the liability of the Limited Partners under this Agreement. 22 8.3 Outside Activities. Limited Partners shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership or the Operating Partnerships. Neither the Partnership, the Operating Partnerships nor any of the other Partners shall have any rights by virtue of this Agreement or the partnership relationship created hereby in any business ventures of any Limited Partner. 8.4 Return of Capital. No Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon termination of the Partnership may be considered as such by law and then only to the extent provided for in this Agreement. 8.5 Rights of Limited Partners Relating to the Partnership. In addition to other rights provided by this Agreement or by applicable law, each Limited Partner shall have the right for a proper purpose reasonably related to such Limited Partner's interest in the Partnership, upon reasonable demand and at such Limited Partner's own expense: (a) to obtain true and full information regarding the status of the business and financial condition of the Partnership; (b) promptly after becoming available, to obtain a copy of the Partnership's federal and state income tax returns for each year; (c) to obtain a current list of the name and address of each Partner as set forth in the Units Register; (d) to obtain a description and statement of the Net Agreed Value of any Capital Contribution made or agreed to be made by each Partner, and the date on which such Partner became a Partner; (e) to obtain a copy of this Agreement and the Certificate of Limited Partnership and all amendments thereto, together with executed copies of any powers of attorney pursuant to which this Agreement, the Certificate of Limited Partnership and all amendments thereto have been executed; and (f) to obtain such other information regarding the affairs of the Partnership as may be just and reasonable; provided, however, that the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner deems reasonable, any information which the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes could damage the Partnership or its business 23 or be in violation of applicable law, including, without limitation, federal securities law, or which the Partnership is required by agreements with third parties to keep confidential. ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS 9.1 Books, Records and Accounting. The General Partner shall keep or cause to be kept books and records with respect to the Partnership's business, which books and records shall at all times be kept at the principal office of the Partnership. Any books and records maintained by the Partnership in the regular course of its business, including the Units Register, books of account and records of Partnership proceedings, may be kept on, or be in the form of, punch cards, disks, magnetic tape, photographs, micrographics or any other information storage device, provided that the records so kept are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial reporting purposes, on the accrual basis, or on a cash basis adjusted periodically to an accrual basis, as the General Partner shall determine in its sole discretion, in accordance with generally accepted accounting principles and applicable law. 9.2 Fiscal Year. The fiscal year of the Partnership for financial reporting purposes shall be the calendar year, unless the General Partner shall determine otherwise in its sole discretion. 9.3 Reports. (a) As soon as practicable, but in no event later than 90 days after the close of each fiscal year, the General Partner shall cause to be mailed to each Record Holder of LP Units as of the last day of that fiscal year reports containing financial statements of the Partnership for the fiscal year, presented in accordance with generally accepted accounting principles, including a balance sheet, statement of income, statement of Partners' capital and statement of changes in financial position, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner. (b) As soon as practicable, but in no event later than 45 days after the close of each calendar quarter, except the last calendar quarter of each fiscal year, the General Partner shall cause to be mailed to each Record Holder of LP Units as of the last day of that calendar quarter a quarterly report for the calendar quarter containing such financial and other information as the General Partner deems appropriate. ARTICLE X ISSUANCE OF LP CERTIFICATES; TRANSFER AND EXCHANGE OF LP UNITS 10.1 Initial Issuance of LP Certificates. Upon the issuance of LP Units to any Person, the Partnership will issue one or more LP Certificates in the name of such Person evidencing the 24 number of such LP Units being so issued. LP Certificates shall be executed on behalf of the Partnership by the General Partner. No LP Certificate shall be valid for any purpose until manually countersigned by the Transfer Agent. 10.2 Registration, Registration of Transfer and Exchange. (a) The Partnership will cause to be kept a register (the "Units Register") in which, subject to such reasonable regulations as it may prescribe and subject to the provisions of Section 10.2(b), the Partnership will provide for the registration of LP Units and of transfers of such LP Units. The Transfer Agent is hereby appointed registrar for the purpose of registering LP Units and transfers of such LP Units as herein provided. Upon surrender for registration of transfer or exchange of any LP Certificate, and subject to the provisions of Section 10.2(b), the General Partner on behalf of the Partnership will execute, and the Transfer Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new LP Certificates evidencing the same aggregate number of LP Units as did the LP Certificate so surrendered. (b) Every LP Certificate surrendered for registration of transfer or exchange shall be duly endorsed on the reverse side thereof, or be accompanied by a written instrument of transfer in form satisfactory to the General Partner or the Transfer Agent, as the case may be, duly executed, in either case by the holder thereof or such holder's attorney duly authorized in writing. Every LP Certificate surrendered for registration of transfer shall be duly accepted on the reverse side thereof, or be accompanied by a written instrument of acceptance to the same effect in form satisfactory to the General Partner or the Transfer Agent, as the case may be, duly executed, in either case by the transferee or such transferee's attorney duly authorized in writing. As a condition to the issuance of any new LP Certificate under this Section 10.2, the General Partner may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. 10.3 Mutilated, Destroyed, Lost or Stolen LP Certificates. (a) If any mutilated LP Certificate is surrendered to the Transfer Agent, the General Partner on behalf of the Partnership shall execute and the Transfer Agent shall countersign and deliver in exchange therefor a new LP Certificate evidencing the same number of LP Units as did the LP Certificate so surrendered. (b) If there shall be delivered to the General Partner and the Transfer Agent (i) evidence to their satisfaction of the destruction, loss or theft of any LP Certificate and (ii) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, in the absence of notice to the General Partner or the Transfer Agent that such LP Certificate has been acquired by a bona fide purchaser, the General Partner on behalf of the Partnership shall execute and upon its request the Transfer Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Certificate, a new LP Certificate evidencing the same number of LP Units as did the LP Certificate so destroyed, lost or stolen. 25 (c) As a condition to the issuance of any new LP Certificate under this Section 10.3, the General Partner may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) connected therewith. (d) Every new LP Certificate issued pursuant to this Section 10.3 in lieu of any destroyed, lost or stolen LP Certificate shall evidence an original additional Partnership Interest in the Partnership, whether or not the destroyed, lost or stolen LP Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other LP Units duly issued hereunder. 10.4 Persons Deemed Owners. Prior to due presentment of an LP Certificate for registration of transfer and satisfaction of the requirements of Section 10.2(b) with respect thereto, (a) the Partnership, the General Partner, the Transfer Agent and any agent of any of the foregoing may deem and treat the Record Holder as the absolute owner thereof and of the LP Units evidenced thereby for all purposes whatsoever and (b) a transferee shall not be entitled to distributions or allocations or any other rights in respect of the LP Units evidenced thereby other than the right to further transfer such LP Units. ARTICLE XI TRANSFER OF GP UNITS 11.1 Transfer of GP Units. The General Partner may not transfer any GP Units unless (a) all of its GP Units are being transferred and the transferee assumes all of the rights and obligations of the General Partner hereunder, (b) the transfer is to an Affiliate of the General Partner or is in connection with the General Partner's merger or consolidation with, or a transfer of all or substantially all of the General Partner's assets to, another Person, or the transfer is approved by a Majority Interest, and (c) the Partnership receives an Opinion of Counsel that such transfer would not result in the loss of limited liability of any Limited Partner or cause the Partnership or any of the Operating Partnerships to be treated as an association taxable as a corporation for federal income tax purposes. 11.2 Successor General Partner. Any transferee of GP Units pursuant to Section 11.1 shall automatically be admitted to the Partnership as the successor General Partner, and the transferor of such GP Units shall automatically cease to be the General Partner, effective at the time provided in Section 12.3. No such transfer shall be deemed a withdrawal pursuant to Article XIII. 26 ARTICLE XII ADMISSION OF INITIAL, SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS AND SUCCESSOR GENERAL PARTNER 12.1 Admission of Initial Limited Partners. At and as of the Time of Delivery, the initial Record Holders of LP Units purchased pursuant to Section 4.2 shall automatically become Limited Partners and the Organizational Limited Partner shall automatically cease to be a Limited Partner. 12.2 Admission of Substituted Limited Partners. A transferee of LP Units shall automatically be admitted to the Partnership as a Limited Partner (and the transferor of such LP Units shall, if such transferor is assigning all of such transferor's LP Units, automatically cease to be a Limited Partner) at and as of the time the transfer is registered on the Units Register pursuant to Section 10.2. 12.3 Admission of Successor General Partner. A successor General Partner approved pursuant to Section 13.1 or the proviso to Section 14.1 or the transferee of all of the GP Units pursuant to Section 11.1 shall be admitted to the Partnership as the successor General Partner, effective as of the date an amendment or restatement of the Certificate of Limited Partnership is filed with the Secretary of State of the State of Delaware affecting such substitution; provided, however, that no such successor shall be so admitted to the Partnership until it has agreed in writing to assume the former General Partner's obligations hereunder. This Agreement and the Certificate of Limited Partnership shall be amended as appropriate to reflect the termination of the former General Partner as a general partner and the admission of the successor General Partner. 12.4 Admission of Additional Limited Partners. (a) A Person (other than the initial Record Holders of LP Units pursuant to Section 4.2 or a transferee of LP Units) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an additional Limited Partner only upon furnishing to the General Partner (i) a written instrument of acceptance in a form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, and (ii) such other documents and instruments as may be required in the discretion of the General Partner to affect such Person's admission as an additional Limited Partner. (b) Notwithstanding anything to the contrary in this Section 12.4, no Person shall be admitted as an additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's sole discretion. The admission of any Person as an additional Limited Partner shall become effective at and as of the time the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission. 27 12.5 Amendment of Agreement and Certificate of Limited Partnership. The General Partner shall take all steps necessary and appropriate under the Delaware Act to amend the records of the Partnership and, if necessary, this Agreement and the Certificate of Limited Partnership to reflect the admission of any Partner. ARTICLE XIII WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER 13.1 Withdrawal or Removal of the General Partner. (a) Pipe Line agrees to act as General Partner of the Partnership until the later of (i) the date which is twenty-five years after the Time of Delivery or (ii) the date the ESOP Loan is paid in full, subject to its right to transfer all of its GP Units pursuant to Section 11.1. At any time after the later of (i) the date which is twenty-five years after the Time of Delivery or (ii) the date the ESOP Loan is paid in full, the General Partner may withdraw from the Partnership effective upon at least 90 days' advance written notice to the Limited Partners, such withdrawal to take effect on the date specified in such notice, provided that such withdrawal is approved by an Eighty Percent Interest or the Partnership has received an Opinion of Counsel that such withdrawal would not result in the loss of limited liability of any Limited Partner or result in the Partnership or any Operating Partnership being treated as an association taxable as a corporation for federal income tax purposes. Any such withdrawal shall also constitute the withdrawal of the Manager from the Operating Partnerships, as provided in the Operating Partnership Agreements. If the General Partner gives a notice of withdrawal, a Majority Interest may, prior to the effective date of such withdrawal, approve a successor General Partner. The Person so approved (or its designated Affiliates) shall become the successor general partner or partners of the Operating Partnerships, as provided in the Operating Partnership Agreements. If no successor General Partner is so approved, the Partnership shall be dissolved pursuant to Section 14.1. Pipe Line further agrees that it shall not withdraw as general partner of any Operating Partnership, except in connection with its withdrawal as General Partner. (b) The General Partner may be removed only by an Eighty Percent Interest, and only if (i) in connection therewith, a successor General Partner is approved by a Majority Interest, (ii) the Partnership shall have received an Opinion of Counsel that the removal of the General Partner and the approval of a successor General Partner will not result in the loss of limited liability of any Limited Partner or cause the Partnership or any of the Operating Partnerships to be treated as an association taxable as a corporation for federal income tax purposes, (iii) the successor General Partner or an Affiliate thereof assumes the liabilities and obligations of the General Partner and its Affiliates under the Exchange Agreement and agrees to indemnify and hold harmless the General Partner and its Affiliates from any liability or obligation arising out of, or causes the General Partner and its Affiliates to be released from, any and all liabilities and obligations (including loan guarantees) under fringe benefit plans sponsored by the General Partner or any of its Affiliates in connection with the business of the Partnership or any of the Operating Partnerships, except as otherwise prohibited by this Agreement, and (iv) all required 28 regulatory approvals for removal of the Manager shall have been obtained. Such removal shall be effective upon the admission of the successor General Partner pursuant to Section 12.3. The Person so approved (or its designated Affiliates) shall become the successor general partner or partners of the Operating Partnerships, as provided in the Operating Partnership Agreements. 13.2 Sale of Former General Partner's Interest. If a successor General Partner is approved pursuant to Section 13.1 or 14.2 or the proviso to Section 14.1, such successor shall purchase the GP Units of the former General Partner for an amount in cash equal to the fair market value thereof, determined as of the date the successor General Partner is admitted pursuant to Section 12.3. The fair market value of the GP Units shall include the value of all rights associated with being the General Partner, including, without limitation, the General Partner's pro rata interest in the Partnership, the right to receive incentive compensation pursuant to the Incentive Compensation Agreement or compensation under any other agreement between the Partnership and the General Partner in effect on the date the successor General Partner is so admitted, and shall be reduced by the value of the assumption by the successor General Partner or its Affiliate of the obligations of the General Partner and its Affiliates pursuant to Section 13.1(b)(iii). Such fair market value shall be determined by agreement between the former General Partner and its successor or, failing agreement within 30 days after the date the successor General Partner is so admitted, by a firm of independent appraisers jointly selected by the former General Partner and its successor (or, if the former General Partner and its successor cannot agree on the selection of such a firm within 45 days after the date the successor General Partner is so admitted, by a firm of independent appraisers selected by two firms, one of which will be selected by the former General Partner and the other of which will be selected by the successor). ARTICLE XIV DISSOLUTION AND LIQUIDATION 14.1 Dissolution. The Partnership shall be dissolved, and its affairs shall be wound up, upon: (a) expiration of the term as provided in Section 2.5; (b) withdrawal of the General Partner pursuant to Section 13.1 (unless a Person becomes a successor General Partner prior to or on the effective date of such withdrawal); (c) bankruptcy or dissolution of the General Partner, or any other event that results in the General Partner ceasing to be a general partner in the Partnership (other than by reason of a withdrawal or removal pursuant to Section 13.1 or a transfer pursuant to Section 11.1); or (d) an election by the General Partner to dissolve the Partnership which is approved by a Two-Thirds Interest; 29 provided, however, that the Partnership shall not be dissolved upon an event described in Section 14.1(b) if, within 90 days of such event, all Partners agree in writing to continue the business of the Partnership and to the appointment of a successor General Partner. For purposes of this Section 14.1, bankruptcy of the General Partner shall be deemed to have occurred when (i) it commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) it seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for it or for all or any substantial part of its properties, (iii) it is adjudged a bankrupt or insolvent, or has entered against it a final and nonappealable order for relief, under any bankruptcy, insolvency or similar law now or hereafter in effect, (iv) it executes and delivers a general assignment for the benefit of its creditors, (v) it files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any involuntary proceeding of the nature described in clause (i) above, or (vi) (1) any involuntary proceeding of the nature described in clause (i) above has not been dismissed 120 days after the commencement thereof, (2) the appointment without its consent or acquiescence of a trustee, receiver or liquidator for it or for all or any substantial part of its properties has not been vacated or stayed within 90 days of such appointment, or (3) such appointment has been stayed but is not vacated within 90 days after the expiration of any such stay. 14.2 Reconstitution. Upon dissolution of the Partnership in accordance with Section 14.1(b) or (c), and a failure of all Partners to agree to continue the business of the Partnership and to the appointment of a successor General Partner as provided in the proviso to Section 14.1, then within 180 days after the event described in Section 14.1(b) or (c), a Majority Interest may elect to reconstitute the Partnership and continue its business by forming a new partnership on terms identical to those set forth in this Agreement and having as a general partner a Person approved by a Majority Interest. Upon any such election by a Majority Interest, all Partners shall be bound thereby and shall be deemed to have consented thereto. Unless such an election is made within such 180-day period, the Partnership shall conduct only activities necessary to wind up its affairs. If such an election is made within such 180-day period, then (a) the reconstituted partnership shall continue until the end of the term set forth in Section 2.5 unless earlier dissolved in accordance with this Article XIV and (b) all necessary steps shall be taken to cancel this Agreement and the Certificate of Limited Partnership and to enter into a new partnership agreement and certificate of limited partnership, and the successor general partner may for this purpose exercise the powers of attorney granted the General Partner pursuant to this Agreement; provided that the right of a Majority Interest to reconstitute and to continue the business of the Partnership shall not exist and may not be exercised unless the Partnership has received an Opinion of Counsel that (i) the exercise of the right would not result in the loss of limited liability of any Limited Partner and (ii) neither the Partnership nor the reconstituted partnership would be treated as an association taxable as a corporation for federal income tax purposes. 14.3 Liquidation. Upon dissolution of the Partnership, unless the Partnership is reconstituted pursuant to Section 14.2, the General Partner, or in the event the General Partner 30 has withdrawn from the Partnership, been removed or dissolved or become bankrupt (as defined in Section 14.1), a liquidator or liquidating committee approved by a Majority Interest shall be the liquidator of the Partnership (the "Liquidator"). The Liquidator (if other than the General Partner) shall be entitled to receive such compensation for its services as may be approved by a Majority Interest. The Liquidator shall agree not to resign at any time without 15 days' prior written notice and (if other than the General Partner) may be removed at any time, with or without cause, by notice of removal approved by a Majority Interest upon dissolution, resignation or removal of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and obligations of the original Liquidator) shall, within 30 days thereafter, be approved by a Majority Interest. Except as expressly provided in this Article XIV, the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or approval of any of the parties hereto, all of the powers conferred upon the General Partner under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers, other than the restrictions set forth in Article XVII) to the extent appropriate or necessary in the good faith judgment of the Liquidator to carry out the duties and functions of the Liquidator hereunder for and during such period of time as shall be reasonably required in the good faith judgment of the Liquidator to complete the winding-up and liquidation of the Partnership as provided for herein. The Liquidator shall liquidate the assets of the Partnership and apply and distribute the proceeds of such liquidation in the following order of priority, unless otherwise required by mandatory provisions of applicable law: (a) to creditors of the Partnership (including Partners); and (b) to the Partners, in proportion to and to the extent of the positive balances in their respective Capital Accounts; provided, however, that the Liquidator may place in escrow a reserve of cash or other assets of the Partnership for contingent liabilities in an amount determined by the Liquidator to be appropriate for such purposes. 14.4 Distribution in Kind. Notwithstanding the provisions of Section 14.3 requiring the liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if on dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership and may, in its sole discretion, distribute to the Partners, or to specific classes of Partners, as tenants in common, in lieu of cash, and as their interests may appear in accordance with the provisions of Section 14.3 (b), undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any distributions in kind shall be subject to such conditions relating to the disposition and management thereof as the Liquidator deems reasonable and equitable and to any joint ownership agreements or other agreements governing the ownership and operation of such 31 properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. 14.5 Cancellation of Certificate of Limited Partnership. Upon the completion of the distribution of Partnership property pursuant to Sections 14.3 and 14.4, the Partnership shall be terminated, and the Liquidator (or the Limited Partners if necessary) shall cause the cancellation of the Certificate of Limited Partnership and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Delaware and shall take such other actions as may be necessary to terminate the Partnership. 14.6 Return of Capital. The General Partner shall not be personally liable for the return of the Capital Contributions of the Limited Partners, or any portion thereof, it being expressly understood that any such return shall be made solely from Partnership assets. 14.7 Waiver of Partition. Each Partner hereby waives any rights to partition of the Partnership property. ARTICLE XV AMENDMENT OF PARTNERSHIP AGREEMENT 15.1 Amendments Which May be Adopted Solely by the General Partner. Subject to Section 15.3, the General Partner may amend any provision of this Agreement without the consent of any Limited Partner, and may execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect: (a) a change in the name of the Partnership, in the location of the principal place of business of the Partnership or in the registered office or registered agent of the Partnership; (b) a change that the General Partner deems appropriate or necessary to (i) qualify, or continue the qualification of, the Partnership as a limited partnership (or a partnership in which the Limited Partners have limited liability) under the laws of any state or jurisdiction or (ii) ensure that neither the Partnership nor any of the Operating Partnerships will be treated as an association taxable as a corporation for federal income tax purposes; (c) a change to divide outstanding Units into a greater number of Units, to combine outstanding Units into a smaller number of Units or to reclassify Units in a manner that in the good faith opinion of the General Partner, does not adversely affect any class of Limited Partners in any material respect; 32 (d) a change that the General Partner in its sole discretion deems appropriate or necessary to (i) satisfy any requirements, conditions or guidelines contained in any order, rule or regulation of any federal or state agency or contained in any federal or state statute or (ii) facilitate the trading of any Units or comply with any rule, regulation, requirement, condition or guideline of any National Securities Exchange on which any Units are or will be listed or admitted to trading, or NASDAQ if any Units are or will be quoted on NASDAQ; (e) a change that is appropriate or necessary, as stated in an Opinion of Counsel, to prevent the Partnership, the Operating Partnerships, the General Partner, its Affiliates and their respective directors and officers from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, whether or not substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor; (f) a change that is required or contemplated by any provision of this Agreement, including, without limitation, Sections 4.3, 12.3 and 12.5; (g) a change that in the good faith opinion of the General Partner does not adversely affect the Limited Partners in any material respect; or (h) any changes or events similar to the foregoing. 15.2 Other Amendments. Amendments to this Agreement may be proposed only by the General Partner. Subject to Section 15.3, a proposed amendment (other than amendments adopted pursuant to Section 15.1) shall be effective only when approved by a Majority Interest. The General Partner shall notify all Limited Partners upon final adoption of any proposed amendment. 15.3 Amendment Requirements. Notwithstanding the provisions of Sections 15.1 and 15.2, (i) the approval of an Eighty Percent Interest shall be required for any amendment unless the Partnership has received an Opinion of Counsel that such amendment would not result in the loss of limited liability of any Limited Partner or result in the Partnership or any Operating Partnership being treated as an association taxable as a corporation for federal income tax purposes, (ii) no provision of this Agreement which establishes a percentage of the Limited Partners required to take or approve any action shall be amended in any respect which would have the affect of reducing the voting requirement, unless such amendment is approved by at least such percentage of Limited Partners, and (iii) this Section 15.3 shall be amended only with the approval of an Eighty Percent Interest. 33 ARTICLE XVI MEETINGS 16.1 Meetings. Meetings of Limited Partners may be called by the General Partner or by Limited Partners holding an aggregate of at least 20% of the outstanding LP Units. Within 60 days after receipt by the General Partner of a written proposal to call a meeting signed by Limited Partners holding the requisite number of LP Units and indicating the purpose for which the meeting is to be called (or such longer period as shall be reasonably required by the General Partner in order to prepare documents required therefor), the General Partner shall cause a notice of the meeting to be given to each Limited Partner. A meeting shall be held at a time and place determined by the General Partner within 60 days after the giving of notice of the meeting. A Majority Interest represented in person or by proxy shall constitute a quorum at a meeting of the Partners. 16.2 Record Date. For purposes of determining the Limited Partners entitled to notice of or to vote at any meeting or to give approvals without a meeting as provided in Section 16.4, the General Partner may set a Record Date, which date for purposes of notice of a meeting shall not be less than 10 days nor more than 60 days before the date of the meeting. 16.3 Conduct of Meeting. (a) The General Partner shall have full power and authority concerning the manner of conducting any meeting of Limited Partners or the solicitation of proxies or consents in writing, including, without limitation, the determination of Persons entitled to vote, the existence of a quorum, the conduct of voting, the validity and effect of any proxies, and the determination of any controversies, votes or challenges arising in connection with or during the meeting or voting. The General Partner shall designate an individual to serve as chairman of any meeting and shall further designate an individual to take the minutes of any meeting, which individuals may be directors or officers of the General Partner. All minutes shall be kept with the records of the Partnership maintained by the General Partner. (b) The General Partner may vote its LP Units in such manner as it in its sole discretion may determine. 16.4 Action Without a Meeting. Any action that may be taken at a meeting of the Limited Partners may be taken without a meeting if approvals in writing setting forth the action so taken are signed by Limited Partners holding in the aggregate at least the minimum number of LP Units that would be necessary to authorize or take such action at a meeting at which all the Limited Partners were present and voted. Prompt notice of the taking of action without a meeting shall be given to the Limited Partners who have not approved in writing. If approvals to the taking of any action by the Limited Partners is solicited by any Person other than by or on behalf of the General Partner, the approvals shall have no force and effect unless and until (a) they are deposited with the Partnership in care of the General Partner, (b) approvals sufficient to take the action proposed are dated as of a date not more than 90 days prior to the date sufficient 34 consents are deposited with the Partnership, and (c) the Partnership receives an Opinion of Counsel that giving effect to such approvals would not result in the loss of limited liability of any Limited Partner or cause the Partnership or any of the Operating Partnerships to be treated as an association taxable as a corporation for federal income tax purposes. ARTICLE XVII CERTAIN RESTRICTIONS 17.1 Additional Units. (a) Without the prior approval of a Two-Thirds Interest, the General Partner shall not cause the Partnership to issue any class or series of LP Units having preferences or other special or senior rights over the LP Units issued pursuant to Section 4.2. (b) The General Partner shall not cause the Partnership to issue Units to the General Partner or any of its Affiliates (other than pursuant to Section 4.1) unless (i) the Units are of a class which is, prior to such issuance, listed or admitted to trading on a National Securities Exchange or quoted by NASDAQ and the Net Agreed Value of the Contributed Property being contributed in exchange for such Units is at least equal to the number of Units being so issued times the Unit Price of such Units or (ii) such issuance is approved by a Majority Interest. 17.2 Certain Amendments. (a) Without the prior approval of a Two-Thirds Interest, the General Partner shall not amend the Incentive Compensation Agreement or permit the Partnership or any Operating Partnership to amend any compensation arrangement for the General Partner or the Manager, unless, in any case, such amendment does not, in the good faith opinion of the General Partner, adversely affect the Limited Partners in any material respect. (b) The General Partner shall not cause the Partnership to approve any amendment to an Operating Partnership Agreement pursuant to Section 13.2 thereof unless such amendment is approved by a Majority Interest. 17.3 Sale of Assets. Without the prior approval of a Two-Thirds Interest, the General Partner shall not permit the sale or other disposition of all or substantially all of the consolidated assets owned by the Partnership and the Operating Partnerships. 17.4 Restricted Payments by General Partner or Manager. (a) The General Partner shall not declare or make any Restricted Payment unless (i) after giving effect thereto, the General Partner's assets that can be reached by creditors (excluding its Partnership Interest and any notes receivable from or payable to the Partnership) would have a fair market value (using such reasonable method of valuation as the General Partner may adopt) equal to or greater than $5,000,000, (ii) the Partnership has received an Opinion of Counsel that such Restricted Payment would not result in the Partnership or any Operating Partnership being treated as an association taxable as a corporation for federal income tax purposes, or (iii) such Restricted Payment is approved by an Eighty Percent Interest. 35 (b) The General Partner shall not permit the Manager to declare or make any Restricted Payment unless (i) after giving effect thereto, the Manager's assets that can be reached by creditors (excluding its partnership interest in any Operating Partnership and any notes receivable from or payable to such Operating Partnership) would have a fair market value (using such reasonable method of calculation as the General Partner may adopt) equal to or greater than $5,000,000, (ii) the Partnership has received an Opinion of Counsel that such Restricted Payment would not result in the Partnership or any Operating Partnership being treated as an association taxable as a corporation for federal income tax purposes, or (iii) such Restricted Payment is approved by an Eighty Percent Interest. ARTICLE XVIII RIGHT TO PURCHASE UNITS 18.1 Right to Purchase Units. If fewer than 10% of the outstanding LP Units are held by Persons other than the General Partner and its Affiliates, the General Partner shall have the right, which it may assign to the Partnership or any Affiliate, to purchase all, but not less than all, of the LP Units that remain outstanding and are held by Persons other than the General Partner and its Affiliates. Any such purchase shall be at a price per LP Unit in cash (the "Purchase Price") equal to the greater of the Unit Price on the date of purchase (the "Purchase Date") or the Issue Price for such LP Units, in either case multiplied by (a)1.2, if the Purchase Date is after December 31, 1996 and on or prior to December 31, 2001, (b) 1.1, if the Purchase Date is after December 31, 2001 and on or prior to December 31, 2006, or (c) 1.0, if the Purchase Date is after December 31, 2006. 18.2 Notice of Election to Purchase. In the event the General Partner, any Affiliate of the General Partner or the Partnership elects to exercise such right to purchase LP Units pursuant to Section 18.1, the General Partner shall cause the Transfer Agent to give written notice of such election to purchase (the "Notice of Election to Purchase") to the Record Holders at least 10, but not more than 60, days prior to the Purchase Date. Such Notice of Election to Purchase shall also be published in daily newspapers of general circulation printed in the English language and published in the Borough of Manhattan, New York. The Notice of Election to Purchase shall specify the Purchase Date and the Purchase Price and state that the General Partner, its Affiliate or the Partnership, as the case may be, has elected to purchase such LP Units, upon surrender thereof in exchange for payment, and at such place as specified. Any such Notice of Election to Purchase mailed to a Record Holder of LP Units at his address as reflected in the Units Register shall be conclusively presumed to have been given whether or not the owner receives such notice. 18.3 Purchase and Transfer of Units. On or prior to the Purchase Date, the General Partner, its Affiliate or the Partnership, as the case may be, shall deposit with the Transfer Agent cash in an amount equal to the amount required to purchase all outstanding LP Units held by Persons other than the General Partner or its Affiliates. If the Notice of Election to Purchase 36 shall have been duly given as aforesaid and if on or prior to the Purchase Date the cash shall have been deposited with the Transfer Agent in trust for the benefit of the holders of LP Units subject to purchase as provided herein, then from and after the Purchase Date, whether or not any LP Units shall have been surrendered for purchase, all rights of the holders of such LP Units (including, without limitation, any rights pursuant to Articles V, VI and XIV) shall thereupon cease, except the right to receive the Purchase Price therefor, without interest, upon surrender to the Transfer Agent of the LP Certificates representing such LP Units, and such LP Units shall thereupon be transferred to the General Partner, its Affiliate or the Partnership, as the case may be, on the Units Register, and the General Partner, its Affiliate or the Partnership, as the case may be, shall be deemed to be the owner of all such LP Units from and after the Purchase Date and shall have all rights as the owner of such LP Units. ARTICLE XIX GENERAL PROVISIONS 19.1 Opinions Regarding Taxation as a Partnership. Notwithstanding any other provisions of this Agreement, the requirement, as a condition to any action proposed to be taken under this Agreement, that the Partnership receive an Opinion of Counsel that the proposed action would not result in the Partnership or any of the Operating Partnerships being treated as an association taxable as a corporation for federal income tax purposes (a) shall not be applicable to the extent that the Partnership or any of the Operating Partnerships is at such time treated in all material respects as an association taxable as a corporation for federal income tax purposes and (b) shall be deemed satisfied by an Opinion of Counsel containing conditions, limitations and qualifications which are acceptable to the General Partner in its sole discretion. 19.2 Personal Property. The Partnership Interest of any Partner shall be personal property for all purposes. 19.3 Addresses and Notices. Any notice, demand, request, payment or report required or permitted to be given or made to a Limited Partner under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class mail or by other means of written communication to the Limited Partner at such Limited Partner's address as shown on the Units Register. Any notice to the Partnership or the General Partner shall be deemed given if received in writing by the General Partner at the principal office of the Partnership designated pursuant to Section 2.3. 19.4 Headings. All article or section headings in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any of the provisions hereof. 37 19.5 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto (including the additional Persons that become Limited Partners as provided herein) and their heirs, executors, administrators, successors, legal representatives and assigns. 19.6 Integration. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto. 19.7 Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or of any other covenant, duty, agreement or condition. 19.8 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding on the parties hereto (including the additional Persons that become Limited Partners as provided herein). 19.9 Severability. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof, or of such provision in other respects, shall not be affected thereby. 19.10 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. 38 IN WITNESS WHEREOF, this Agreement has been duly executed by the General Partner on behalf of itself and as agent and attorney-in-fact for the Limited Partners, as of the date first above written. BUCKEYE PIPE LINE COMPANY, as General Partner By: /s/ William H. Shea, Jr. -------------------------------------------- Title: President and Chief Operating Officer 39 EX-3.2 3 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF LIMITED PARTNERSHIP OF BUCKEYE PARTNERS, L.P. The undersigned, desiring to amend the Amended and Restated Certificate of Limited Partnership of Buckeye Partners, L.P. (the "Partnership") pursuant to the provisions of Section 17-202 of the Revised Uniform Limited Partnership Act of the State of Delaware does hereby certify as follows: FIRST: The name of the limited partnership is Buckeye Partners, L.P. SECOND: The Amended and Restated Certificate of Limited Partnership (the "Certificate") was filed in the Office of the Secretary of State of Delaware on February 4, 1998. THIRD: The previous general partner of the Partnership, Buckeye Management Company, having transfered its interest in the Partnership to a successor general partner, Buckeye Pipe Line Company, hereby amends and restates Section 4 of the Certificate in its entirety to read as follows: General Partner. The name and the business address of the sole general partner of the Partnership is: Buckeye Pipe Line Company, a Delaware corporation, 3900 Hamilton Boulevard, Allentown, Pennsylvania 18103. IN WITNESS WHEREOF, the undersigned General Partner has duly executed this Certificate of Amendment to Amended and Restated Certificate of Limited Partnership as of the date and year first aforesaid. BUCKEYE PIPE LINE COMPANY, a Delaware Corporation, as sole General Partner By: /s/ Steven C. Ramsey ------------------------------------ Name: Steven C. Ramsey Title: Senior Vice President, Finance and Chief Financial Officer EX-10.14 4 EXHIBIT 10.14 CONTRIBUTION, ASSIGNMENT AND ASSUMPTION AGREEMENT This CONTRIBUTION, ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated as of December 31, 1998, is made by and between Buckeye Management Company, a Delaware corporation (the "Corporation"), and Buckeye Pipe Line Company, a Delaware corporation and wholly-owned subsidiary of the Corporation ("Pipe Line"). W I T N E S S E T H WHEREAS, the Corporation holds a 1% general partnership interest (the "GP Interest") in Buckeye Partners, L.P., a Delaware limited partnership (the "Partnership"), and serves as the sole general partner of the Partnership; WHEREAS, the Corporation desires to contribute to Pipe Line certain assets, including the Corporation's GP Interest, and Pipe Line desires to assume the role of successor general partner of the Partnership under the Amended and Restated Agreement of Limited Partnership, as amended and restated as of July 17, 1998 (the "Partnership Agreement"), as well as certain other liabilities of the Corporation, upon the terms and subject to the conditions set forth herein; and WHEREAS, Section 11.1 of the Partnership Agreement allows the Corporation to transfer the GP Interest to Pipe Line; and WHEREAS, Section 11.2 of the Partnership Agreement provides that any transferee of the GP Interest pursuant to Section 11.1 shall automatically be admitted to the Partnership as successor general partner of the Partnership, and that the transferor of such GP Interest shall automatically cease to be the general partner of the Partnership. NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Contribution and Assignment. The Corporation hereby grants, bargains, sells, conveys, assigns, transfers and delivers all of the assets described on Exhibit A hereto (the "Assets") to Pipe Line, and its successors and assigns, and Pipe Line hereby accepts such Assets, as a contribution to capital, at and as of the date hereof. 2. Assumption of Liabilities. As consideration for the grant, bargain, sale, conveyance, assignment, transfer and delivery made under Section 1 hereof, Pipe Line hereby assumes and agrees to perform and fully discharge all of the liabilities described on Exhibit B hereto (the "Liabilities"). Pipe Line hereby agrees to indemnify, defend and hold harmless the Corporation, its successors and assigns, of and from any and all costs, liabilities and expense, including court costs and attorneys fees, arising from or connected with the Liabilities hereby assumed. 3. Further Assurances. The Corporation hereby covenants and agrees that, at any time and from time to time after the delivery of this Agreement, at Pipe Line's request and expense, the Corporation, its successors and assigns will do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, any and all such further acts, conveyances, transfers, assignments, powers of attorney and assurances as Pipe Line reasonably may require to more effectively grant, convey, assign, transfer, set over to or vest in Pipe Line the Assets, or to better enable Pipe Line to realize upon or otherwise enjoy the Assets or to carry into effect the intent and purposes of this Agreement. 4. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. 5. Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which shall be considered one and the same agreement. 2 IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties as of the date first written above. BUCKEYE MANAGEMENT COMPANY By /s/ William H. Shea, Jr. ------------------------------------------------ Name: William H. Shea, Jr. Title: President and Chief Operating Officer BUCKEYE PIPE LINE COMPANY By /s/ Steven C. Ramsey ------------------------------------------------ Name: Steven C. Ramsey Title: Senior Vice President, Finance and Chief Financial Officer 3 EXHIBIT A ASSETS 1. Units representing the 1% general partnership interest in Buckeye Partners, L.P., together with all right, title and interest of the Corporation in, to and under that certain Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., as amended and restated as of July 17, 1998; 2. All rights, title and interest of the Corporation in and to the Debt Service Reserve Account maintained under the Amended and Restated Collateral Assignment of Deposit Accounts, dated as of August 12, 1997 (the ACollateral Assignment@), among CoreStates Bank, N.A., as Collateral Trustee, the Corporation, and certain of its affiliates; 3. All goodwill of the Corporation; 4. All right, title and interest of the Corporation in, to and under that certain Amended and Restated Incentive Compensation Agreement dated as of March 22, 1996, as amended as of August 12, 1997, between the Corporation and Buckeye Partners, L.P.; 5. All right, title and interest of the Corporation in, to and under that certain Management Agreement dated as of January 1, 1998, among the Corporation, Buckeye Pipe Line Company, and Glenmoor, Ltd.; 6. All right, title and interest of the Corporation in, to and under that certain Services Agreement, dated as of August 12, 1997, among the Corporation, Buckeye Pipe Line Company and Buckeye Pipe Line Services Company; and 7. All right, title and interest of the Corporation in, to and under that certain Exchange Agreement, dated as of August 12, 1997, among the Corporation, Buckeye Partners, L.P., Buckeye Pipe Line Company, Buckeye Pipe Line Company, L.P., Buckeye Pipe Line Company of Michigan, L.P., Laurel Pipe Line Company, L.P., Everglades Pipe Line Company, L.P., Buckeye Tank Terminals, L.P., and BMC Acquisition Company (now known as Glenmoor, Ltd.). EXHIBIT B LIABILITIES 1. All liabilities and obligations of the Corporation under that certain Amended and Restated Incentive Compensation Agreement dated as of March 22, 1996, as amended as of August 12, 1997, between the Corporation and Buckeye Partners, L.P., arising after the date hereof; 2. All liabilities and obligations of the Corporation under that certain Management Agreement dated as of January 1, 1998, among the Corporation, Buckeye Pipe Line Company, and Glenmoor, Ltd., arising after the date hereof; and 3. All liabilities and obligations of the Corporation under that certain Services Agreement, dated as of August 12, 1997, among the Corporation, Buckeye Pipe Line Company and Buckeye Pipe Line Services Company, arising after the date hereof; 4. All liabilities and obligations of the Corporation under that certain Exchange Agreement, dated as of August 12, 1997, among the Corporation, Buckeye Partners, L.P., Buckeye Pipe Line Company, Buckeye Pipe Line Company, L.P., Buckeye Pipe Line Company of Michigan, L.P., Laurel Pipe Line Company, L.P., Everglades Pipe Line Company, L.P., Buckeye Tank Terminals, L.P., and BMC Acquisition Company (now known as Glenmoor, Ltd.), arising after the date hereof. 5. All liabilities and obligations of the Corporation as the general partner under the Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., as amended and restated as of July 17, 1998, arising after the date hereof. EX-10.15 5 DIRECTOR RECOGNITION BUCKEYE PIPE LINE COMPANY DIRECTOR RECOGNITION PROGRAM ---------------------------- As of January 1, 1999 In recognition of the services provided to Buckeye Pipe Line Company ("BPL") and Buckeye Management Company ("BMC"), its predecessor as general partner of Buckeye Partners, L.P. (the "Partnership"), by the directors of BPL and in order to enable BPL to attract and retain high caliber individuals to serve as directors, BPL deems it appropriate to provide its directors with certain recognition benefits. Accordingly, the Buckeye Pipe Line Company Director Recognition Program (the "Program") is hereby established under the terms and conditions hereinafter set forth. The Program replaces and supersedes a similar program administered by BMC, and BPL has assumed all of BMC's liabilities and obligations under the BMC program. No additional benefits shall be payable by BMC thereunder. 1. Participation in the Program. ----------------------------- Any member of the Board of Directors of BPL other than a director who is concurrently serving as an officer or employee of BPL or its affiliates shall be eligible to participate in the Program (a "Participant"). Any Participant who retires as a director of BMC after having met the applicable eligibility requirements set forth in Paragraph 2 shall be entitled to the benefits set forth in Paragraph 3. For purposes of the Program, a Participant's retirement as a BPL director means his voluntary resignation as a BPL director or not being nominated for reelection as a BPL director after having served the minimum period of eligibility set forth in Paragraph 3. A director who is removed for cause as provided in Section 3.05 of the By-Laws of BPL shall not be eligible for any benefits under the Program. 2. Eligibility Requirements. ------------------------- To be eligible for the benefit set forth in Paragraph 3, a BPL director must have served for at least three full years while qualifying as a Participant. For purposes of qualifying as a Participant, service as a director of BMC prior to December 31, 1998, shall be deemed to be service as a director of BPL. Notwithstanding anything in the Program to the contrary, a Participant will not be eligible for any benefits under the Program if the Board of Directors of BPL or a court of competent jurisdiction determines at any time that such Participant, while acting in such Participant's capacity as a director of BPL, failed to act in good faith and in a manner he reasonably believed to be in the best interests, or not opposed to the best interests, of BPL or the Partnership, or their respective subsidiaries and affiliates or with respect to any criminal action, acted under circumstances where he had reasonable cause to believe that his conduct was unlawful. 3. Recognition Benefit. -------------------- Upon retirement as a BPL director, a Participant will receive in a lump sum payment an amount equal to one of the following: (a) one times the annual director's fee (excluding attendance and committee fees) in effect at the time of his retirement, provided he has been a BPL director for at least three full years but less than five years; (b) two times the annual director's fee (excluding attendance and committee fees) in effect at the time of his retirement, provided he has been a BPL director for at least five full years but less than ten years; or (c) three times the annual director's fee (excluding attendance and committee fees ) in effect at the time of his retirement, provided he has been a BPL director for ten full years or greater. 4. Death Benefit. -------------- In the event a Participant's death occurs before his retirement but after such Participant has qualified as a Participant for at least three full years, a death benefit equal to the benefit payable under Paragraph 3 (as if such Participant had retired on the date of death) will be paid to the designated beneficiary or estate of such Participant. 5. Condition to Receipt of Recognition Benefit. -------------------------------------------- As a condition to receipt of the retirement benefit set forth in Paragraph 3, a BPL director must agree in writing that for a period of three years following his retirement: (a) he will, without further compensation (except reimbursement of reasonable expenses), provide consulting services upon reasonable request to BPL (such services shall not exceed the equivalent of 10 days per year); (b) he will not, without the prior written consent of BPL's Chairman, compete with BPL or the Partnership, or their respective subsidiaries and affiliates, or become an employee or consultant to, or serve on the board of directors of, any corporation that is engaged in competition with BPL or the Partnership, or their respective subsidiaries and affiliates; and - 2 - (c) he will not disclose any confidential or proprietary information of BPL or the Partnership, or of their respective subsidiaries and affiliates, or intentionally engage in any activity causing injury to BPL or the Partnership, or their respective subsidiaries and affiliates. 6. Emeritus Status. ---------------- Upon retirement as a BPL director, a Participant who was a member of the BPL Board of Directors for at least ten full years may be designated by the Board as "Director Emeritus". Director Emeritus status provides that a former director will be entitled to receive Board docket and other informational materials routinely provided to members of the BPL Board of Directors, will be entitled to attend, at BPL's expense, the meeting of the Board of Directors that is designated as its annual meeting, and will receive recognition of his Emeritus Director status in the annual report of the Partnership. 7. Administration. --------------- The Chairman of the Board of BPL will administer the Program. He shall have full power and authority to administer the Program and to make, adopt, construe, and enforce rules and regulations not inconsistent with the provisions of the Program. The Chairman shall adopt and prescribe the contents of all forms required in connection with the administration of the Program. He shall have the fullest discretion permissible under law in the discharge of his duties. The Chairman's interpretations and decisions with respect to the Program hereunder shall be final and conclusive as to the rights of the Participants. 8. Authority to Amend or Terminate. -------------------------------- BPL, by action of its Board of Directors, may amend or terminate the Program at any time. Notwithstanding the above, no amendment or termination shall operate to reduce or eliminate the benefit of any individual who is a Participant and has retired at the time such amendment or termination is approved. 9. Miscellaneous. -------------- (a) No Right to Continue on Board. None of the establishment of the Program, the payment of any benefit hereunder, or any action of BPL in connection therewith shall be held or construed to confer upon any individual any right to be elected as a member of the Board of Directors of BPL. - 3 - (b) Rights and Obligations. The rights and obligations under the Program shall be binding on a Participant's heirs, executors and administrators and on the successors and assigns of BPL. (c) Construction. Where applicable, the singular shall be construed as the plural and the masculine shall be construed as feminine. The headings and captions herein (i) are provided for reference and convenience only, (ii) shall not be considered part of the Program, and (iii) shall not be employed in the construction of the Program. (d) Withholding. If BPL is required to withhold amounts under applicable federal, state or local tax laws, rules or regulations, BPL shall be entitled to deduct and withhold such amounts from any cash payment made under the Program. (e) Funding of Benefit. In order to meet its deferred obligation hereunder, BPL may, but shall not be required to, set aside an amount necessary to provide the benefits provided herein (including the establishment of trusts). In any event, BPL's obligation to pay benefits hereunder shall constitute a general unsecured obligation, payable solely out of its general assets, and no Participant shall have the right to any specific assets of BPL. (f) Governing Law. The Program shall be construed in accordance with and governed by the laws of the State of Delaware. (g) Designated Expense. The Board of Directors has determined that the costs and expenses of the Program are being incurred by BPL for the benefit of the Partnership, and all amounts payable under the Program shall be "Designated Expenses" under the Partnership's Amended and Restated Limited Partnership Agreement. - 4 - EX-10.16 6 EXHIBIT 10.16 CREDIT AGREEMENT Dated as of December 16, 1998 Among BUCKEYE PIPE LINE COMPANY, L.P., as Borrower, BUCKEYE PARTNERS, L.P., as Guarantor, FIRST UNION NATIONAL BANK, as Administrative Agent, THE FIRST NATIONAL BANK OF CHICAGO, as Documentation Agent and THE LENDERS SIGNATORY HERETO $100,000,000 REVOLVING CREDIT FACILITY TABLE OF CONTENTS ARTICLE I Definitions and Accounting Matters Page ---- Section 1.01 Terms Defined Above............................................1 Section 1.02 Certain Defined Terms..........................................1 Section 1.03 Accounting Terms and Determinations...........................16 ARTICLE II Commitments Section 2.01 Loans and Letters of Credit...................................17 Section 2.02 Borrowings, Continuations and Conversions of Revolving Credit Loans; Letters of Credit.....................18 Section 2.03 Changes of Commitments........................................20 Section 2.04 Fees..........................................................21 Section 2.05 Several Obligations...........................................22 Section 2.06 Notes.........................................................22 Section 2.07 Prepayments...................................................23 Section 2.08 Assumption of Risks...........................................23 Section 2.09 Obligation to Reimburse and to Prepay.........................24 Section 2.10 Lending Offices...............................................25 ARTICLE III Payments of Principal and Interest Section 3.01 Repayment of Loans............................................26 Section 3.02 Interest......................................................26 ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc. Section 4.01 Payments......................................................27 Section 4.02 Pro Rata Treatment............................................27 Section 4.03 Computations..................................................27 -i- Section 4.04 Non-receipt of Funds by the Agent.............................28 Section 4.05 Set-off, Sharing of Payments, Etc.............................28 Section 4.06 Taxes.........................................................29 ARTICLE V Capital Adequacy Section 5.01 Additional Costs..............................................32 Section 5.02 Limitation on LIBOR Loans.....................................33 Section 5.03 Illegality....................................................34 Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03......34 Section 5.05 Compensation..................................................34 Section 5.06 Replacement Lenders...........................................35 ARTICLE VI Conditions Precedent Section 6.01 Initial Funding...............................................36 Section 6.02 Initial and Subsequent Loans and Letters of Credit............37 Section 6.03 Conditions Precedent for the Benefit of Lenders...............38 Section 6.04 No Waiver.....................................................38 ARTICLE VII Representations and Warranties Section 7.01 Existence.....................................................38 Section 7.02 Financial Condition...........................................38 Section 7.03 Litigation....................................................39 Section 7.04 No Breach.....................................................39 Section 7.05 Authority.....................................................39 Section 7.06 Approvals.....................................................39 Section 7.07 Use of Loans..................................................40 Section 7.08 ERISA.........................................................40 Section 7.09 Taxes.........................................................41 Section 7.10 Titles, etc...................................................41 Section 7.11 No Material Misstatements.....................................42 Section 7.12 Investment Company Act........................................42 Section 7.13 Public Utility Holding Company Act............................42 -ii- Section 7.14 Subsidiaries..................................................42 Section 7.15 Location of Business and Offices..............................42 Section 7.16 Defaults......................................................42 Section 7.17 Environmental Matters.........................................42 Section 7.18 Compliance with the Law.......................................43 Section 7.19 Insurance.....................................................44 Section 7.20 Material Agreements...........................................44 Section 7.21 Partnership Agreement.........................................44 Section 7.22 Ownership of Parties..........................................44 ARTICLE VIII Affirmative Covenants Section 8.01 Reporting Requirements........................................45 Section 8.02 Litigation....................................................46 Section 8.03 Maintenance, Etc..............................................47 Section 8.04 Environmental Matters.........................................47 Section 8.05 Further Assurances............................................48 Section 8.06 Performance of Obligations....................................48 Section 8.07 ERISA Information and Compliance..............................48 Section 8.08 Year 2000 Compatibility.......................................49 ARTICLE IX Negative Covenants Section 9.01 Debt..........................................................49 Section 9.02 Liens.........................................................50 Section 9.03 Investments, Loans and Advances...............................50 Section 9.04 Distributions and Redemptions.................................51 Section 9.05 Sales and Leasebacks..........................................51 Section 9.06 Nature of Business............................................52 Section 9.07 Limitation on Leases..........................................52 Section 9.08 Mergers, Etc..................................................52 Section 9.09 Proceeds of Notes; Letters of Credit..........................52 Section 9.10 ERISA Compliance..............................................52 Section 9.11 Sale or Discount of Receivables...............................54 Section 9.12 Funded Debt Ratio.............................................54 Section 9.13 Fixed Charge Coverage Ratio...................................54 Section 9.14 Sale of Properties............................................54 Section 9.15 Environmental Matters.........................................54 Section 9.16 Transactions with Affiliates..................................54 Section 9.17 Partnership Agreements........................................54 Section 9.18 Senior Notes..................................................55 -iii- ARTICLE X Events of Default; Remedies Section 10.01 Events of Default............................................55 Section 10.02 Remedies.....................................................57 ARTICLE XI The Agent Section 11.01 Appointment, Powers and Immunities...........................57 Section 11.02 Reliance by Agent............................................58 Section 11.03 Defaults.....................................................58 Section 11.04 Rights as a Lender...........................................58 Section 11.05 INDEMNIFICATION..............................................59 Section 11.06 Non-Reliance on Agent and other Lenders......................59 Section 11.07 Action by Agent..............................................59 Section 11.08 Resignation or Removal of Agent..............................60 ARTICLE XII Miscellaneous Section 12.01 Waiver.......................................................60 Section 12.02 Notices......................................................60 Section 12.03 Payment of Expenses, Indemnities, etc........................61 Section 12.04 Amendments, Etc..............................................63 Section 12.05 Successors and Assigns.......................................63 Section 12.06 Assignments and Participations...............................63 Section 12.07 Invalidity...................................................65 Section 12.08 Counterparts.................................................65 Section 12.09 References...................................................65 Section 12.10 Survival.....................................................65 Section 12.11 Captions.....................................................65 Section 12.12 NO ORAL AGREEMENTS...........................................66 Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION....................66 Section 12.14 Interest.....................................................67 Section 12.15 Confidentiality..............................................68 Section 12.16 EXCULPATION PROVISIONS.......................................68 -iv- ANNEXES, EXHIBITS AND SCHEDULES Annex I - List of Percentage Shares and Revolving Credit Commitments Exhibit A-1 - Form of Revolving Credit Note Exhibit A-2 - Form of Swing Line Note Exhibit B - Form of Borrowing, Continuation and Conversion Request Exhibit C - Form of Compliance Certificate Exhibit D - Form of Assignment Agreement Exhibit E - Unrestricted Subsidiaries designated on the Closing Date Schedule 7.02 - Liabilities Schedule 7.03 - Litigation Schedule 7.10 - Titles, etc. Schedule 7.14 - Subsidiaries and Partnerships Schedule 7.17 - Environmental Matters Schedule 7.21 - Material Agreements Schedule 9.01 - Debt Schedule 9.02 - Liens Schedule 9.03 - Investments, Loans and Advances -vi- THIS CREDIT AGREEMENT dated as of December 16, 1998 is among: BUCKEYE PIPE LINE COMPANY, L.P., a limited partnership formed under the laws of the State of Delaware (the "Borrower"); BUCKEYE PARTNERS, L.P., a limited partnership formed under the laws of the State of Delaware ("Buckeye Partners"); each of the lenders that is a signatory hereto or which becomes a signatory hereto as provided in Section 12.06 (individually, together with its successors and assigns, a "Lender" and, collectively, the "Lenders"); FIRST UNION NATIONAL BANK, a national banking association (in its individual capacity, "First Union"), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"); and THE FIRST NATIONAL BANK OF CHICAGO, a national banking association, as documentation agent. R E C I T A L S A. The Borrower has requested that the Lenders provide certain loans to and extensions of credit on behalf of the Borrower; and B. The Lenders have agreed to make such loans and extensions of credit subject to the terms and conditions of this Agreement. C. In consideration of the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows: ARTICLE I Definitions and Accounting Matters Section 1.01 Terms Defined Above. As used in this Agreement, the terms "Agent," "Borrower," "Buckeye Partners," "Lender," "Lenders," and "First Union" shall have the meanings indicated above. Section 1.02 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Article I or in other provisions of this Agreement in the singular to have equivalent meanings when used in the plural and vice versa): "Additional Costs" shall have the meaning assigned such term in Section 5.01(a). "Affected Loans" shall have the meaning assigned such term in Section 5.04. "Affiliate" of any Person shall mean (i) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (ii) any director or officer of such first Person or of any Person referred to in clause (i) above and (iii) if any Person in clause (i) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to "control" (including, with its correlative meanings, "controlled by" and "under common control with") such corporation or other Person. "Agreement" shall mean this Credit Agreement, as the same may from time to time be amended or supplemented. "Aggregate Revolving Credit Commitments" at any time shall equal the sum of the Revolving Credit Commitments of the Lenders ($100,000,000), as the same may be reduced pursuant to Section 2.03(a). "Applicable Lending Office" shall mean, for each Lender and for each Type of Loan, the lending office of such Lender (or an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other offices of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" shall mean for each period identified below the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Funded Debt Ratio, for the four quarterly periods ending on and determined as of the immediately preceding Quarterly Date: - -------------------------------------------------------------------------------- Funded Debt Ratio Base Rate Loan LIBOR Loan - -------------------------------------------------------------------------------- Greater than or equal to 4.5:1.0 0.000% 1.000% - -------------------------------------------------------------------------------- Less than 4.5:1.0, but greater 0.000% 0.775% than or equal to 4.0:1.0 - -------------------------------------------------------------------------------- Less than 4.0:1.0, but greater 0.000% 0.525% than or equal to 3.5:1.0 - -------------------------------------------------------------------------------- Less than 3.5:1.0, but greater 0.000% 0.400% than or equal to 3.0:1.0 - -------------------------------------------------------------------------------- Less than 3.0:1.0, but greater 0.000% 0.325% than or equal to 2.5:1.0 - -------------------------------------------------------------------------------- Less than 2.5:1.0 0.000% 0.250% - -------------------------------------------------------------------------------- The Applicable Margin shall be established following each Quarterly Date (each, a "Determination Date"). Any change in the Applicable Margin following each Determination Date shall be determined based upon the information and computations set forth in the Compliance Certificate furnished to the Agent pursuant to Section 8.01, subject to review and approval of such computations by the Agent. Each change in the Applicable Margin shall be effective as of the fifth Business Day following the date such Compliance Certificate and related financial statements are received (including, without limitation, in respect of LIBOR Loans then outstanding notwithstanding that such change occurs during an Interest Period), and shall remain in effect until the date that is the fifth -2- Business Day following the first to occur of the date on which a new Compliance Certificate (i) is delivered for which a change in the Applicable Margin occurs or (ii) is required to be delivered; provided, however; if the Borrower shall fail to deliver any required Compliance Certificate within the time period required by Section 8.01, then, five Business Days after delivery of notice to the Borrower by the Agent of non-receipt of such Compliance Certificate, the Applicable Margin shall be the highest percentage amount stated for each Type of Loan as set forth in the above table until the appropriate Compliance Certificate is so delivered. From the Closing Date to the first Determination Date, the Applicable Margin for LIBOR Loans shall be 0.325%. "Assignment" shall have the meaning assigned such term in Section 12.06(b). "Base Rate" shall mean, with respect to any Base Rate Loan, for any day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Loans that bear interest at rates based upon the Base Rate. "BMC" shall mean Buckeye Management Company, a Delaware corporation. "Borrower Partnership Agreement" shall mean the Amended and Restated Agreement of Limited Partnership of Buckeye Pipe Line Company, L.P., dated as of December 23, 1986, as amended from time to time. "Buckeye Partners Partnership Agreement" shall mean the Amended and Restated Agreement of Limited Partnership of Buckeye Partners dated as of July 17, 1998, as amended from time to time. "Business Day" shall mean any day other than a day on which commercial banks are authorized or required to close in New York and, where such term is used in the definition of "Quarterly Date" or if such day relates to a borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a LIBOR Loan or a notice by the Borrower with respect to any such borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "Change of Control" shall mean either (i) a change resulting when any Unrelated Person or any Unrelated Persons acting together which would constitute a Group together with any Affiliates thereof (in each case also constituting Unrelated Persons) shall at any time Beneficially Own more than 50% of the aggregate voting power of all classes of Voting Stock of BMC, (ii) BMC or a wholly-owned Subsidiary of BMC shall cease to own 100% of the general partnership interest of Buckeye Partners, (iii) BMC shall cease to own 100% of the outstanding stock of Buckeye Pipe Line Company on a fully diluted basis, or (iv) Buckeye Pipe Line Company shall cease to own 100% of the general partnership interest of the Borrower. As used herein (a) "Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto; provided, however, that, for purposes of this definition, (a) a Person shall not be deemed to Beneficially Own securities tendered pursuant to a tender or exchange -3- offer made by or on behalf of such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person other than (A) Glenmoor, Ltd. and the stockholders thereof as of the date hereof, (B) their respective spouses, lineal descendants, and spouses of their lineal descendants, (C) the estates of the Persons described in clauses (A) and (B), and (D) trusts established solely for the benefit of any Person or Persons described in clauses (A) and (B); and (d) "Voting Stock" of any Person shall mean capital stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Closing Date" shall mean December 16, 1998. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor statute. "Commitment" shall mean, for any Lender, its obligation to make Revolving Credit Loans and to participate in Swing Line Loans as provided in Section 2.01(b) and Letters of Credit as provided in Section 2.01(c), up to such Lender's Revolving Credit Commitment. "Compliance Certificate" shall mean a certificate from the Borrower or Buckeye Partners substantially in the form of Exhibit C. "Consolidated Net Income" shall mean, with respect to any Person for any period, the aggregate of the net income (or loss) of such Person and its Consolidated Subsidiaries after allowances for taxes for such period, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following: (i) the net income of any other Person in which such Person or any of its Consolidated Subsidiaries has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of such Person and its Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to such Person or to a Consolidated Subsidiary of such Person, as the case may be; (ii) the net income (but not loss) of any Consolidated Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental Requirement applicable to such Consolidated Subsidiary, or is otherwise restricted or prohibited in each case determined in accordance with GAAP; (iii) the net income (or loss) of any other Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (iv) any extraordinary gains or losses, including gains or losses attributable to Property sales not in the ordinary course of business; and (v) the cumulative effect of a change in accounting principles resulting in any gains or losses attributable to writeups or write downs of assets or liabilities. "Consolidated Subsidiaries" shall mean each Subsidiary of any Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. -4- "Debt" shall mean, for any Person the sum of the following (without duplication): (i) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or other similar instruments (including principal, interest, fees and charges); (ii) all obligations of such Person (whether contingent or otherwise) in respect of bankers' acceptances, letters of credit, surety or other bonds and similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of Property or services (other than for borrowed money); (iv) all obligations under leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable (whether contingent or otherwise); (v) all obligations under operating leases which require such Person or its Affiliate to make rental payments over the term of such lease, based on the purchase price or appraised value of the Property subject to such lease plus a marginal interest rate, and used primarily as a financing vehicle for, or to monetize, such Property; (vi) all Debt (as described in the other clauses of this definition) and other obligations of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; (vii) all Debt (as described in the other clauses of this definition) and other obligations of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the debtor or obligations of others; (viii) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others; (ix) obligations to deliver goods or services not in the ordinary course of business in consideration of advance payments; (x) obligations to pay for goods or services not in the ordinary course of business whether or not such goods or services are actually received or utilized by such Person; (xi) any capital stock of such Person in which such Person has a mandatory obligation to redeem such stock; (xii) any Debt of a Special Entity for which such Person is liable either by agreement or because of a Governmental Requirement; and (xiii) all obligations of such Person under Hedging Agreements. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollars" and "$" shall mean lawful money of the United States of America. "EBITDA" shall mean for any Person for any period, the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: interest, taxes, depreciation, depletion and amortization; provided, however, with respect to the Borrower, if during any period the Borrower acquires any Person and such Person becomes a Restricted Affiliate or the Borrower acquires all or substantially all of the assets of any Person, the EBITDA attributable to such Person or assets for such period determined on a pro forma basis (which determination, in each case, shall be subject to the approval of the Required Lenders, not to be unreasonably withheld) may be included in EBITDA for the calculation of the Funded Debt Ratio. "Environmental Laws" shall mean any and all Governmental Requirements pertaining to health or the environment in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any time has conducted business, or where any Property of the Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution -5- Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the state in which any Property of the Borrower or any Subsidiary is located establish a meaning for "oil," "hazardous substance," "release," "solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with the Borrower or any Subsidiary would be deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. "ERISA Event" shall mean (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Event of Default" shall have the meaning assigned such term in Section 10.01. "Excepted Liens" shall mean: (i) Prior Liens; (ii) statutory Liens incidental to the conduct of business or the ownership of Properties of the Borrower and the Restricted Affiliates (including Liens in connection with worker's compensation, unemployment insurance and other like laws (other than ERISA Liens), warehousemen's and mechanics' and materialmen's liens and statutory landlord's liens) which in each case are incurred in the ordinary course of business and not in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property and which do not in any event materially impair the value or use of the Property encumbered thereby in the operation of the businesses of the Borrower and the Restricted Affiliates; provided in each case, that the obligation secured is -6- not overdue or, if overdue, (i) is being contested by the Borrower or a Restricted Affiliate on a timely basis in good faith and in appropriate proceedings, and the Borrower or a Restricted Affiliate has established adequate reserves therefor in accordance with GAAP on the books of the Borrower or such Restricted Affiliate or (ii) such Liens in the aggregate do not secure obligations in the aggregate in excess of $1,000,000; (iii) the right reserved to, or vested in, any municipality or public authority or in any other Person by the terms of any right, power, franchise, privilege, grant, license, permit, easement or lease or by any provision of law, to terminate such right, power, franchise, privilege, grant, license, permit, easement or lease or to purchase or recapture, or to designate a purchaser of, any of the Properties or assets of the Borrower and the Restricted Affiliates; (iv) the lien of taxes and assessments which are not at the time delinquent; (v) the lien of taxes and assessments which are delinquent, but the validity of which is being diligently contested at the time by the Borrower or any of the Restricted Affiliates in good faith, provided that the Borrower or such Restricted Affiliate shall have established such reserves in such amounts as may be required under GAAP; (vi) any lien or privilege vested in any grantor, lessor or licensor or permittor for rent or other charges due or for any other obligations or acts to be performed, the payment of which rent or other charges or performance of which other obligations or acts is required under leases, easements, rights-of-way, leases, licenses, franchises, privileges, grants or permits, so long as payment of such rent or the performance of such other obligations or acts is not delinquent or the requirement for such payment or performance is being contested in good faith by appropriate proceedings; (vii) defects and irregularities in the titles to its Properties which do not in the aggregate have a Material Adverse Effect; (viii) easements, exceptions or reservations in any Property of the Borrower or any of the Restricted Affiliates granted or reserved for the purpose of pipelines, roads, the removal of oil, gas, coal or other minerals, and other like purposes or for the joint or common use of real Property, facilities and equipment, which do not in the aggregate have a Material Adverse Effect; (ix) rights reserved to or vested in any grantor, lessor, licensor, municipality or public authority to control or regulate any Property of the Borrower or any of the Restricted Affiliates or to use any such Property, provided, that the Borrower or such Restricted Affiliate shall not be in default in respect of any material obligation (except that the Borrower or such Restricted Affiliate may be contesting any such obligation in good faith) to such grantor, lessor, licensor, municipality or public authority; and provided, further, the such control, regulation or use will not in the aggregate have a Material Adverse Effect; (x) any obligations or duties to any municipality or public authority with respect to any lease, easement, right-of-way, license, franchise, privilege, permit or grant; -7- (xi) the Liens of any judgments in an aggregate amount not in excess of $500,000, or the Lien of any judgment the execution of which has been stayed, or which has been appealed and secured, if necessary, by the filing of an appeal bond; (xii) Liens or burdens imposed by any law or governmental regulation, including, without limitation, those imposed by environmental and zoning laws, ordinances, and regulations; provided, in each case, the Borrower or any of the Restricted Affiliates is not in default in any material obligation (except that the Borrower or such Restricted Affiliate may be contesting any such obligation in good faith) to such person in respect of such Property; provided, further, that the existence of such Liens and burdens do not in the aggregate have a Material Adverse Effect; (xiii) any pledge or deposit to secure payment of workers' compensation or insurance premiums, or in connection with tenders, bids, contracts or leases; or any deposits to secure public or statutory obligations; any pledge or deposit in connection with contracts with or made at the request of the United States America or any state or agency or political subdivision thereof or for any purposes similar to any of those referred to in this clause (xiii); provided, in each case, the Borrower or such Restricted Affiliate is not in default in any material obligation (except that the Borrower or such Restricted Affiliate may be contesting any such obligation in good faith) in respect thereof; (xiv) the making of a deposit with or the giving of any form of security to any governmental agency or any body created or approved by law or governmental regulation in order to entitle the Borrower of any of the Restricted Affiliates to maintain self-insurance; (xv) Liens securing Debt of the Borrower or any of the Restricted Affiliates incurred or assumed in connection with the construction or acquisition of capital Improvements; provided that such Debt would be permitted under Section 9.01(e) hereof, and provided, further, that any such Lien shall not extend to any Property other than Property the construction or acquisition of which is financed by such Debt; (xvi) Liens securing all or any part of the purchase price, or securing Debt of the Borrower or any of the Restricted Affiliates incurred or assumed to pay all or any part of the purchase price of Property acquired by the Borrower or the Restricted Affiliates, or Liens existing on such Property immediately prior to its acquisition, including, without limitation, the Liens described in clause (xv) of this definition, provided, that (i) that any such Liens shall extend solely to the Property so acquired, (ii) the principal amount of Debt secured by any such Lien shall not exceed 100% of the fair market value of such Property (as reasonably determined by the Board of Directors of the General Partner) at the time of acquisition, (iii) any such Lien not existing on such Property immediately prior to its acquisition shall be created at the time of acquisition of such Property or within 60 days thereafter and (iv) the aggregate amount of all outstanding Debt secured by such Liens shall be permitted under Section 9.01(e); -8- (xv) Liens arising in connection with Sale-Leaseback Transactions permitted under Section 9.05; provided that such Lien shall not extend to any Property other than Property being leased; and (xvi) any Lien of the Trustee encumbering the Defeasance Trust (as defined in the Defeasance Trust Agreement) and all funds and securities therein for the benefit of the holders of the Defeased Notes. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with a member of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the date for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Agent on such day on such transactions as determined by the Agent. "Fee Letter" shall mean that certain letter agreement from FUCM and First Union to the Borrower dated August 28, 1998 concerning certain fees in connection with this Agreement and any agreements or instruments executed in connection therewith, as the same may be amended or replaced from time to time. "Financial Statements" shall mean the financial statement or statements of Buckeye Partners and its Consolidated Subsidiaries described or referred to in Section 7.02. "FUCM" shall mean First Union Capital Markets, a division of Wheat First Securities, Inc., a Virginia corporation. "Funded Debt" shall mean for any Person, Debt of such Person, less all obligations of such Person to pay the deferred purchase price of Property or services obtained in the ordinary course of business. "Funded Debt Ratio" shall mean the ratio (calculated quarterly at the end of each fiscal quarter) of (i) the consolidated Funded Debt of Buckeye Partners (excluding Unrestricted Subsidiaries and Affiliates of Buckeye Partners that are not Restricted Affiliates) for the four fiscal quarters ending on such date to (ii) the consolidated EBITDA of Buckeye Partners (excluding Unrestricted Subsidiaries and Affiliates of Buckeye Partners that are not Restricted Affiliates) for such four fiscal quarters. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "General Partner" shall mean Buckeye Pipe Line Company, a Delaware corporation, general partner of the Borrower. -9- "Governmental Authority" shall include the country, the state, county, city and political subdivisions in which any Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, the Borrower, its Subsidiaries or any of their Property or the Agent, any Lender or any Applicable Lending Office. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (whether or not having the force of law), including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority. "Guarantor" shall mean Buckeye Partners and any other Person that executes a Guaranty Agreement. "Guaranty Agreement" shall mean an agreement executed by each Guarantor in form and substance satisfactory to the Agent unconditionally guaranteeing payment of the Indebtedness, as the same may be amended, modified or supplemented from time to time. "Hedging Agreements" shall mean any commodity, interest rate or currency swap, cap, floor, collar, forward agreement or other exchange or protection agreements or any option with respect to any such transaction. "Highest Lawful Rate" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Indebtedness" shall mean any and all amounts owing or to be owing by the Borrower, the Guarantors or any Restricted Affiliate to the Agent, the Issuing Bank and/or the Lenders in connection with the Loan Documents, the Letter of Credit Agreements, and any Hedging Agreements now or hereafter arising between the Borrower and any Lender or its Affiliate and permitted by the terms of this Agreement and all renewals, extensions and/or rearrangements of any of the foregoing. "Indemnified Parties" shall have the meaning assigned such term in Section 12.03(a)(ii). "Indemnity Matters" shall mean any and all actions, suits, proceedings (including any investigations, litigation or inquiries), claims, demands and causes of action made or threatened against a Person and, in connection therewith, all losses, liabilities, damages (excluding, however, indirect and consequential damages and lost profits) or reasonable costs and expenses of any kind -10- or nature whatsoever incurred by such Person whether caused by the sole or concurrent negligence of such Person seeking indemnification. "Indenture" shall mean that certain Amended and Restated Indenture dated as of December 16, 1997 between the Borrower and PNC Bank, National Association, as Trustee, as amended and supplemented from time to time. "Initial Funding" shall mean the funding of the initial Loans or issuance of the initial Letters of Credit upon satisfaction of the conditions set forth in Sections 6.01 and 6.02. "Interest Period" shall mean, with respect to any LIBOR Loan, the period commencing on the date such LIBOR Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower may select as provided in Section 2.02 (or such longer period as may be requested by the Borrower and agreed to by the Required Lenders), except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period may end after the Revolving Credit Termination Date; (ii) no Interest Period for any LIBOR Loan may end after the due date of any installment, if any, provided for in Section 3.01 to the extent that such LIBOR Loan would need to be prepaid prior to the end of such Interest Period in order for such installment to be paid when due; (iii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iv) no Interest Period shall have a duration of less than one month and, if the Interest Period for any LIBOR Loans would otherwise be for a shorter period, such Loans shall not be available hereunder. "Issuing Bank" shall mean First Union or any other Lender agreed to between the Borrower and the Agent to issue Letters of Credit. "LC Commitment" at any time shall mean $20,000,000. "LC Exposure" at any time shall mean the aggregate face amount of all undrawn and uncancelled Letters of Credit and the aggregate of all amounts drawn under all Letters of Credit and not yet reimbursed. "Letter of Credit Agreements" shall mean the written agreements with the Issuing Bank, as issuing lender for any Letter of Credit, executed in connection with the issuance by the Issuing Bank of the Letters of Credit, such agreements to be on the Issuing Bank's customary form for letters of credit of comparable amount and purpose as from time to time in effect or as otherwise agreed to by the Borrower and the Issuing Bank. -11- "Letters of Credit" shall mean the letters of credit issued pursuant to Section 2.01(c) and all reimbursement obligations pertaining to any such letters of credit, and "Letter of Credit" shall mean any one of the Letters of Credit and the reimbursement obligations pertaining thereto. "LIBOR" shall mean the rate of interest determined on the basis of the rate for deposits in Dollars for a period equal to the applicable Interest Period commencing on the first day of such Interest Period appearing on Dow Jones Market Service Page 3750 as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period. In the event that such rate does not appear on Dow Jones Market Service Page 3750, "LIBOR" shall be determined by the Agent to be the rate per annum at which deposits in Dollars are offered by leading reference banks in the London interbank market to First Union at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of the applicable Loan. "LIBOR Loans" shall mean Loans the interest rates on which are determined on the basis of rates referred to in the definition of "LIBOR Rate". "LIBOR Rate" shall mean, with respect to any LIBOR Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient of (i) LIBOR for such Loan for the Interest Period for such Loan divided by (ii) 1 minus the Reserve Requirement for such Loan for such Interest Period. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing. "Loan Documents" shall mean this Agreement, the Notes, the Letters of Credit, the Guaranty Agreement, the Letter of Credit Agreements, the Fee Letter, and any and all other agreements or instruments now or hereafter executed and delivered by the Borrower or any other Person (other than participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for or guarantee of the payment or performance of the Notes or this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, supplemented or restated from time to time. "Loans" shall mean the loans as provided for by Sections 2.01(a) and (b). "Loans" shall include the Revolving Credit Loans and the Swing Line Loans. -12- "Material Adverse Effect" shall mean any material and adverse effect on (i) the financial condition or results of operations of the Borrower, the Restricted Subsidiaries, and Buckeye Partners, taken as a whole, different from those reflected in the Financial Statements or from the facts represented or warranted in any Loan Document, or (ii) the ability of the Borrower, the Restricted Subsidiaries and Buckeye Partners, taken as a whole, to carry out their business as at the Closing Date or as proposed as of the Closing Date to be conducted or meet their obligations under the Loan Documents on a timely basis. "Multiemployer Plan" shall mean a Plan defined as such in Section 3(37) or 4001(a)(3) of ERISA. "Notes" shall mean the Notes provided for by Section 2.06, together with any and all renewals, extensions for any period, increases, rearrangements, substitutions or modifications thereof. The "Notes" shall include the Revolving Credit Notes and the Swing Line Note. "Other Taxes" shall have the meaning assigned such term in Section 4.06(b). "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions. "Percentage Share" shall mean the percentage of the Aggregate Revolving Credit Commitments to be provided by a Lender under this Agreement as indicated on Annex I hereto, as modified from time to time to reflect any assignments permitted by Section 12.06(b). "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Plan" shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or contributed to by the Borrower, any Subsidiary or an ERISA Affiliate or (ii) was at any time during the preceding six calendar years sponsored, maintained or contributed to, by the Borrower, any Subsidiary or an ERISA Affiliate. "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount payable by the Borrower under this Agreement or any other Loan Document , a rate per annum during the period commencing on the date of occurrence of an Event of Default until such amount is paid in full or all Events of Default are cured or waived equal to 2% per annum above the Base Rate as in effect from time to time plus the Applicable Margin (if any), but in no event to exceed the Highest Lawful Rate; provided however, for a LIBOR Loan, the "Post-Default Rate" for such principal shall be, for the period commencing on the date of occurrence of an Event of Default and ending on the earlier to occur of the last day of the Interest Period therefor or the date all Events of Default are cured or waived, 2% per annum above the interest rate for such Loan as provided in Section 3.02(a)(ii), but in no event to exceed the Highest Lawful Rate. "Prime Rate" shall mean the rate of interest from time to time announced publicly by the Agent at the Principal Office as its prime commercial lending rate. Such rate is set by the Agent as -13- a general reference rate of interest, taking into account such factors as the Agent may deem appropriate, it being understood that many of the Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Agent may make various commercial or other loans at rates of interest having no relationship to such rate. "Principal Office" shall mean the principal office of the Agent, presently located at 301 South College Street, Charlotte, North Carolina 28288. "Prior Liens" shall mean any Liens not created by the Borrower or any Restricted Affiliate, which at any time are Liens upon the lands over which the Borrower or any Restricted Affiliate holds easements or rights-of-way for Pipeline purposes, or upon Properties with respect to which the Borrower's or such Restricted Affiliate's interest is subordinate to any such Lien, and which do not secure bonds, notes, other indebtedness, taxes, assessments or other charges which have been assumed or guaranteed by the Borrower or any Restricted Affiliate or for which the Borrower or any Restricted Affiliate has otherwise become liable or on which the Borrower or any Restricted Affiliate customarily pays interest charges. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Quarterly Dates" shall mean the last Business Day of each March, June, September and December, in each year, the first of which shall be December 31, 1998. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Lender, any change after the Closing Date in any Governmental Requirement (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders (including such Lender or its Applicable Lending Office) of or under any Governmental Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof. "Required Lenders" shall mean, at any time while no Loans are outstanding, Lenders having at least fifty-one percent (51%) of the Aggregate Commitments and, at any time while Loans are outstanding, Lenders holding at least fifty-one percent (51%) of the outstanding aggregate principal amount of the Loans and LC Exposure (without regard to any sale by a Lender of a participation in any Loan under Section 12.06(c)). "Required Payment" shall have the meaning assigned such term in Section 4.04. "Reserve Requirement" shall mean, for any Interest Period for any LIBOR Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against -14- "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which LIBOR is to be determined as provided in the definition of "LIBOR" or (ii) any category of extensions of credit or other assets which include a LIBOR Loan. "Responsible Officer" shall mean, as to any Person, the Chief Executive Officer, the President or any Vice President of such Person and, with respect to financial matters, the term "Responsible Officer" shall include the Chief Financial Officer of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower. "Restricted Affiliates" shall mean the Restricted Subsidiaries, Buckeye Tank Terminals, L.P., Everglades Pipe Line Company, L.P., Laurel Pipe Line Company, L.P., and Buckeye Pipe Line Company of Michigan, L.P. "Restricted Subsidiary" shall mean a Subsidiary of the Borrower or Buckeye Partners that has not been designated by the Board of Directors of the General Partner or of the general partner of Buckeye Partners, at its creation or acquisition, as an Unrestricted Subsidiary. The Borrower or Buckeye Partners may thereafter redesignate an Unrestricted Subsidiary as a Restricted Subsidiary and it will thereafter be a Restricted Subsidiary; provided, that such Restricted Subsidiary may not thereafter be redesignated as an Unrestricted Subsidiary, and provided, further, that no Subsidiary may be designated as an Unrestricted Subsidiary at any time other than at its creation. To qualify as a Restricted Subsidiary, such Subsidiary shall be in a line of business as is permitted for the Borrower under the Borrower Partnership Agreement or for Buckeye Partners under the Buckeye Partners Partnership Agreement and shall have executed a Guaranty Agreement, and at the time such Subsidiary is designated as a Restricted Subsidiary no Default shall exist or result from such designation. "Revolving Credit Commitment" shall mean, as to each Lender, the amount set forth opposite such Lender's name on Annex I under the caption "Revolving Credit Commitment" (as the same may be reduced pursuant to Section 2.03(a) pro rata to each Lender based on its Percentage Share), as modified from time to time to reflect any assignments permitted by Section 12.06(b). "Revolving Credit Loans" shall mean Loans made pursuant to Section 2.01(a). "Revolving Credit Notes" shall mean the promissory note or notes (whether one or more) of the Borrower described in Section 2.06 and being in the form of Exhibit A-1. "Revolving Credit Termination Date" shall mean the earlier to occur of (i) the fifth anniversary of the Closing Date or (ii) the date that the Commitments are sooner terminated pursuant to Sections 2.03(a) or 10.02. "Sale-Leaseback Attributable Debt" shall mean, as to any particular lease relating to a Sale-Leaseback Transaction, the amount of the net sale proceeds derived from the sale or transfer to the Borrower or any Restricted Affiliate of the Property involved. -15- "Sale-Leaseback Transaction" shall mean a transaction or series of transactions pursuant to which the Borrower or any Restricted Affiliate shall sell or transfer to any Person any Property, whether now owned or hereafter acquired, and as part of the same transaction or series of transactions, the Borrower or any Restricted Affiliate shall rent or lease as lessee, or similarly acquire the right to possession or use of, such property or one or more Properties which it intends to use for the same purpose or purposes as such Property. "SEC" shall mean the Securities and Exchange Commission or any successor Governmental Authority. "Senior Notes" shall mean the 6.98% Series 1997A notes in the aggregate principal amount of $125,000,000, the 6.89% Series 1997B notes in the aggregate principal amount of $100,000,000, the 6.95% Series 1997C notes in the aggregate principal amount of $10,000,000, and the 6.96% Series 1997D notes in the aggregate principal amount of $5,000,000, each due December 16, 2024 and issued pursuant to the Indenture. "Special Entity" shall mean any joint venture, limited liability company or partnership, general or limited partnership or any other type of partnership or company other than a corporation in which Buckeye Partners or one or more of its other Subsidiaries is a member, owner, partner or joint venturer and owns, directly or indirectly, at least a majority of the equity of such entity or controls such entity, but excluding any tax partnerships that are not classified as partnerships under state law. For purposes of this definition, any Person which owns directly or indirectly an equity investment in another Person which allows the first Person to manage or elect managers who manage the normal activities of such second Person will be deemed to "control" such second Person (e.g. a sole general partner controls a limited partnership). "Subsidiary" shall mean (i) any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or Buckeye Partners or one or more of their Subsidiaries or by the Borrower or Buckeye Partners and one or more of their Subsidiaries and (ii) any Special Entity. Unless otherwise indicated herein, each reference to the term "Subsidiary" shall mean a Subsidiary of the Guarantor. "Swing Line Commitment" shall mean, for the Swing Line Lender, its obligation to make Swing Line Loans up to $5,000,000. "Swing Line Facility" shall mean the facility pursuant to Section 2.01(b). "Swing Line Lender" shall mean First Union or such other Lender as Agent, Borrower and such Lender shall agree. "Swing Line Loans" shall mean the Loans made pursuant to Section 2.01(b). -16- "Swing Line Note" shall mean the promissory note or notes (whether one or more) of the Borrower described in Section 2.01(b) and being substantially in the form of Exhibit A-2. "Taxes" shall have the meaning assigned such term in Section 4.06(a). "Type" shall mean, with respect to any Loan, a Base Rate Loan or a LIBOR Loan. "Unrestricted Subsidiary" shall mean those Persons listed on Exhibit E and any Subsidiary of the Borrower that has been designated by the Board of Directors of the General Partner as an "Unrestricted Subsidiary" at the time of its creation or acquisition; provided that no Debt or other obligation of such Unrestricted Subsidiary may be assumed or guaranteed by the Borrower or any Restricted Subsidiary, nor may any asset of the Borrower or any Restricted Subsidiary, directly or indirectly, contingently or otherwise, become encumbered or otherwise subject to the satisfaction thereof. Section 1.03 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the audited financial statements of the Borrower referred to in Section 7.02 (except for changes concurred with by the Borrower's independent public accountants). ARTICLE II Commitments Section 2.01 Loans and Letters of Credit. (a) Revolving Credit Loans. Each Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Borrower during the period from and including (i) the Closing Date or (ii) such later date that such Lender becomes a party to this Agreement as provided in Section 12.06(b), to and up to, but excluding, the Revolving Credit Termination Date in an aggregate principal amount at any one time outstanding up to, but not exceeding, the amount of such Lender's Revolving Credit Commitment as then in effect; provided, however, that the aggregate principal amount of all such Revolving Credit Loans by all Lenders hereunder at any one time outstanding, plus the LC Exposure, plus the amount outstanding under the Swing Line Facility shall not exceed the Aggregate Revolving Credit Commitments. Subject to the terms of this Agreement, during the period from the Closing Date to and up to, but excluding, the Revolving Credit Termination Date, the Borrower may borrow, repay and reborrow the amount described in this Section 2.01(a). (b) Swing Line Loans. (i) Notwithstanding any other provision of this Agreement to the contrary, in order to administer the revolving facility under Section 2.01(a) above in -17- an efficient manner and to minimize the transfer of funds between the Agent and the Lenders, the Swing Line Lender shall make available Swing Line Loans to the Borrower at the election of Borrower prior to the Revolving Credit Termination Date. The Swing Line Lender shall not make any Swing Line Loan pursuant hereto (i) if the Borrower is not in compliance with all the conditions to the making of Loans set forth in this Agreement, (ii) if after giving effect to such Swing Line Loan, the outstanding Swing Line Loans exceed the Swing Line Commitment, or (iii) if after giving effect to such Swing Line Loan, the sum of all Revolving Credit Loans and Swing Line Loans then outstanding, plus LC Exposure exceeds the Aggregate Revolving Credit Commitments. Loans made pursuant to this Section 2.01(b) shall be limited to Loans bearing interest at the Base Rate or such other rate of interest as agreed upon by the Borrower and the Swing Line Lender. The indebtedness of the Borrower to the Swing Line Lender resulting from the advances under this Section 2.01(b) shall be evidenced by the Swing Line Note made by the Borrower, which Swing Line Note shall be in a principal amount equal to the Swing Line Commitment. (ii) Subject to the terms of this Agreement, during the period from the Closing Date to but excluding, the Revolving Credit Termination Date, the Borrower may borrow, repay and reborrow Swing Line Loans under this Section 2.01(b). Each repayment of a Swing Line Loan shall be in integral multiples of $100,000 or the unpaid amount of the Swing Line Loans outstanding. The minimum outstanding amount of Swing Line Loans shall be $100,000. (iii) If the Borrower instructs the Swing Line Lender to debit its demand deposit account in an amount of any payment with respect to a Swing Line Loan, or the Swing Line Lender otherwise receives repayment after 12:00 noon Charlotte time, on a Business Day, such payment shall be deemed received on the next Business Day. (iv) The Borrower and each Lender which is or may become a party hereto acknowledge that all Swing Line Loans are to be made solely by the Swing Line Lender to the Borrower, but that each Lender shall share the risk of loss with respect to such Loans in an amount equal to such Lender's Percentage Share of such Swing Line Loan. Upon demand made by the Swing Line Lender, each Lender (including the Swing Line Lender) shall, according to its Percentage Share of such Swing Line Loan, promptly provide to the Swing Line Lender its purchase price therefor in an amount equal to its Percentage Share therein, in which case such Swing Line Loan shall be deemed from and after such date a Loan made under Section 2.01(a). The obligation of each Lender to so provide its purchase price to the Swing Line Lender shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or any other occurrence or event. (c) Letters of Credit. During the period from and including the Closing Date to, but excluding, the Revolving Credit Termination Date, the Issuing Bank, as issuing bank for the Lenders, agrees to extend credit for the account of the Borrower at any time and from -18- time to time by issuing, renewing, extending or reissuing Letters of Credit; provided however, the LC Exposure at any one time outstanding shall not exceed the lesser of (i) the LC Commitment or (ii) the Aggregate Revolving Credit Commitments, as then in effect, minus the aggregate principal amount of all Loans then outstanding. The Lenders shall participate in such Letters of Credit according to their respective Percentage Shares. Each of the Letters of Credit shall (i) be issued by the Issuing Bank, (ii) contain such terms and provisions as are reasonably required by the Issuing Bank, (iii) be for the account of the Borrower and (iv) expire not later than the earlier of (A) one year from the date of issuance or (B) five days before the Revolving Credit Termination Date. (d) Limitation on Types of Loans. Subject to the other terms and provisions of this Agreement, at the option of the Borrower, the Loans (other than Swing Line Loans) may be Base Rate Loans or LIBOR Loans; provided that, without the prior written consent of the Required Lenders, no more than five (5) LIBOR Loans may be outstanding at any time. Section 2.02 Borrowings, Continuations and Conversions of Revolving Credit Loans; Letters of Credit. (a) Borrowings. The Borrower shall give the Agent (which shall promptly notify the Lenders) advance notice as hereinafter provided of each borrowing under Section 2.01(a), which shall specify (i) the aggregate amount of such borrowing, (ii) the Type and (iii) the date (which shall be a Business Day) of the Loans to be borrowed, and (iv) (in the case of LIBOR Loans) the duration of the Interest Period therefor. (b) Minimum Amounts. All Base Rate Loan borrowings (other than Swing Line Loans) shall be in amounts of at least $1,000,000 or the remaining balance of the Aggregate Revolving Credit Commitments, if less, or any whole multiple of $1,000,000 in excess thereof, and all LIBOR Loans shall be in amounts of at least $5,000,000 or any whole multiple of $1,000,000 in excess thereof. All Swing Line Loans shall be in amounts of at least $100,000 or any whole multiple of $100,000 in excess thereof. (c) Notices. All borrowings, continuations and conversions shall require advance written notice to the Agent (which shall promptly notify the Lenders) in the form of Exhibit B (or telephonic notice promptly confirmed by such a written notice), which in each case shall be irrevocable, from the Borrower to be received by the Agent not later than 10:00 a.m. Charlotte time on the date of each Base Rate Loan borrowing and not later than 10:00 a.m. Charlotte time at least three Business Days prior to the date of each LIBOR Loan borrowing, continuation or conversion. Without in any way limiting the Borrower's obligation to confirm in writing any telephonic notice, the Agent may act without liability upon the basis of telephonic notice believed by the Agent in good faith to be from the Borrower prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Agent's record of the terms of such telephonic notice except in the case of gross negligence or willful misconduct by the Agent. (d) Continuation Options. Subject to the provisions made in this Section 2.02(d), the Borrower may elect to continue all or any part of any LIBOR Loan beyond the expiration -19- of the then current Interest Period relating thereto by giving advance notice as provided in Section 2.02(c) to the Agent (which shall promptly notify the Lenders) of such election, specifying the amount of such Loan to be continued and the Interest Period therefor. In the absence of such a timely and proper election, the Borrower shall be deemed to have elected to convert such LIBOR Loan to a Base Rate Loan pursuant to Section 2.02(e). All or any part of any LIBOR Loan may be continued as provided herein, provided that (i) any continuation of any such Loan shall be (as to each Loan as continued for an applicable Interest Period) in amounts of at least $5,000,000 or any whole multiple of $1,000,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, each LIBOR Loan shall be converted to a Base Rate Loan on the last day of the Interest Period applicable thereto. (e) Conversion Options. The Borrower may elect to convert all or any part of any LIBOR Loan on the last day of the then current Interest Period relating thereto to a Base Rate Loan by giving advance notice to the Agent (which shall promptly notify the Lenders) of such election. Subject to the provisions made in this Section 2.02(e), the Borrower may elect to convert all or any part of any Base Rate Loan (other than a Swing Line Loan) at any time and from time to time to a LIBOR Loan by giving advance notice as provided in Section 2.02(c) to the Agent (which shall promptly notify the Lenders) of such election. All or any part of any outstanding Loan may be converted as provided herein, provided that (i) any conversion of any Base Rate Loan into a LIBOR Loan shall be (as to each such Loan into which there is a conversion for an applicable Interest Period) in amounts of at least $5,000,000 or any whole multiple of $1,000,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, no Base Rate Loan may be converted into a LIBOR Loan. (f) Advances. Not later than 11:00 a.m. Charlotte time for LIBOR Loans and 1:00 p.m. Charlotte time for Base Rate Loans on the date specified for each borrowing hereunder, each Lender shall make available the amount of the Loan to be made by it on such date to the Agent, to an account which the Agent shall specify, in immediately available funds, for the account of the Borrower. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by depositing the same, in immediately available funds, in an account of the Borrower, designated by the Borrower and maintained at the Principal Office. (g) Letters of Credit. The Borrower shall give the Issuing Bank advance notice to be received by the Issuing Bank not later than 11:00 a.m. Charlotte time not less than three (3) Business Days prior thereto of each request for the issuance, and at least ten (10) Business Days prior to the date of the renewal or extension, of a Letter of Credit hereunder which request shall specify (i) the amount of such Letter of Credit, (ii) the date (which shall be a Business Day) such Letter of Credit is to be issued, renewed or extended, (iii) the duration thereof, (iv) the name and address of the beneficiary thereof, (v) the form of the Letter of Credit and (vi) such other information as the Agent may reasonably request, all of which shall be reasonably satisfactory to the Agent. Subject to the terms and conditions of this Agreement, on the date specified for the issuance, renewal or extension of a Letter of Credit, the Agent shall issue, renew or extend such Letter of Credit to the beneficiary thereof. -20- In conjunction with the issuance of each Letter of Credit, the Borrower shall execute a Letter of Credit Agreement. In the event of any conflict between any provision of a Letter of Credit Agreement and this Agreement, the Borrower, the Issuing Bank, the Agent and the Lenders hereby agree that the provisions of this Agreement shall govern. The Issuing Bank will send to the Borrower and each Lender, immediately upon issuance of any Letter of Credit, or an amendment thereto, a true and complete copy of such Letter of Credit, or such amendment thereto. Section 2.03 Changes of Commitments. (a) The Borrower shall have the right to terminate or to reduce the amount of the Aggregate Revolving Credit Commitments at any time, or from time to time, upon not less than three (3) Business Days' prior notice to the Agent (which shall promptly notify the Lenders) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall not be less than $2,000,000 or any whole multiple of $2,000,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Agent. (b) The Aggregate Revolving Credit Commitments once terminated or reduced may not be reinstated. Section 2.04 Fees. (a) Facility Fee. The Borrower shall pay to the Agent for the account of each Lender a facility fee equal to the product of the Aggregate Revolving Credit Commitments times the applicable per annum percentage set forth at the appropriate intersection in the table shown below based on the Funded Debt Ratio for the four quarterly periods ending and determined as of the immediately preceding Quarterly Date: ---------------------------------------------------------------- Funded Debt Ratio Facility Fee Percentage ---------------------------------------------------------------- Greater than or equal to 4.5:1.0 0.250% ---------------------------------------------------------------- Less than 4.5:1.0, but greater 0.225% than or equal to 4.0:1.0 ---------------------------------------------------------------- Less than 4.0:1.0, but greater 0.225% than or equal to 3.5:1.0 ---------------------------------------------------------------- Less than 3.5:1.0, but greater 0.175% than or equal to 3.0:1.0 ---------------------------------------------------------------- Less than 3.0:1.0, but greater 0.125% than or equal to 2.5:1.0 ---------------------------------------------------------------- Less than 2.5:1.0 0.100% ---------------------------------------------------------------- -21- The applicable facility fee percentage shall be established as of each Quarterly Date (the "Determination Date"). Any change in the applicable facility fee percentage following each Determination Date shall be determined based upon the computations set forth in the Compliance Certificate furnished to the Agent pursuant to Section 8.01, subject to review and approval of such computations by the Agent; provided, however, if the Borrower shall fail to deliver a Compliance Certificate within the time period required by Section 8.01, then, five Business Days after delivery of notice to the Borrower by the Agent of non-receipt of such Compliance Certificate, the applicable facility fee percentage shall be the highest percentage amount set forth in the above table until the appropriate Compliance Certificate is so delivered. Accrued facility fees shall be payable quarterly in arrears on each Quarterly Date and on the earlier of the date the Aggregate Revolving Credit Commitments are terminated or the Revolving Credit Termination Date. (b) Letter of Credit Fees. (i) The Borrower agrees to pay the Agent, for the account of each Lender, commissions for issuing the Letters of Credit on the daily average amount outstanding of the maximum liability of the Issuing Bank existing from time to time under such Letter of Credit (calculated separately for each Letter of Credit) at a rate per annum equal to the Applicable Margin then in effect for LIBOR Loans. Each Letter of Credit shall be deemed to be outstanding up to the full face amount of the Letter of Credit until the Issuing Bank has received the canceled Letter of Credit or a written cancellation of the Letter of Credit from the beneficiary of such Letter of Credit in form and substance acceptable to the Issuing Bank, or for any reductions in the amount of the Letter of Credit (other than from a drawing), written notification from the beneficiary of such Letter of Credit. Such commissions are payable quarterly in arrears on each Quarterly Date and upon cancellation or expiration of each such Letter of Credit. (ii) The Borrower agrees to pay the Issuing Bank, for its own account, an issuing fee for issuing Letters of Credit on the daily average outstanding of the maximum liability of the Issuing Bank existing from time to time under such Letter of Credit (calculated separately for each Letter of Credit) at the rate of 0.125% per annum, payable quarterly in arrears on each Quarterly Date and upon cancellation or expiration of each such Letter of Credit. (iii) In addition to the fees in Subsections 2.04(b)(i) and (ii), the Borrower agrees to pay the Issuing Bank on demand the Issuing Bank's customary letter of credit fees, including, without limitation, amendment fees, negotiation and drawing fees, and other fees customarily payable with respect to each Letter of Credit. (c) Fee Letter. The Borrower shall pay to FUCM for its account such other fees as are set forth in the Fee Letter on the dates specified therein to the extent not paid prior to the Closing Date. -22- Section 2.05 Several Obligations. The failure of any Lender to make any Loan to be made by it or to provide funds for disbursements or reimbursements under Letters of Credit on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan or provide funds on such date, but no Lender shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender or to provide funds to be provided by such other Lender. Section 2.06 Notes. (a) Revolving Credit Notes. The Revolving Credit Loans (other than Swing Line Loans) made by each Lender shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit A-1, dated (i) the Closing Date or (ii) the effective date of an Assignment pursuant to Section 12.06(b), payable to the order of such Lender in a principal amount equal to its Revolving Credit Commitment as originally in effect and otherwise duly completed and such substitute Notes as required by Section 12.06(b). The date, amount, Type, interest rate and Interest Period of each Loan made by each Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Note, and, prior to any transfer may be endorsed by such Lender on the schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender's or the Borrower's rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of its Note. (b) Swing Line Note. The Swing Line Loans made by the Swing Line Lender shall be evidenced by a single promissory note of the Borrower substantially in the form of Exhibit A-2, dated the Closing Date, payable to the order of the Swing Line Lender in a principal amount equal to the Swing Line Commitment and otherwise duly completed. Section 2.07 Prepayments. (a) Voluntary Prepayments. The Borrower may prepay the Base Rate Loans upon not less than one (1) Business Day's prior notice to the Agent (which shall promptly notify the Lenders), which notice shall specify the prepayment date (which shall be a Business Day) and the amount of the prepayment (which shall be at least $1,000,000 or whole multiples of $500,000 in excess thereof for Revolving Credit Loans that are Base Rate Loans and at least $500,000 or whole multiples of $100,000 in excess thereof for Swing Line Loans, or the remaining aggregate principal balance outstanding on the Notes prepaid) and shall be irrevocable and effective only upon receipt by the Agent, provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date. The Borrower may prepay LIBOR Loans on the same conditions as for Base Rate Loans (except that prior notice to the Agent shall be not less than three (3) Business Days for LIBOR Loans and such payment shall be at least $5,000,000 or whole multiples of $1,000,000 in excess thereof) and in addition such prepayments of LIBOR Loans shall be subject to the terms of Section 5.05 and shall be in an amount equal to all of the LIBOR Loans for the Interest Period prepaid. -23- (b) Mandatory Prepayments. If, after giving effect to any termination or reduction of the Aggregate Revolving Credit Commitments pursuant to Section 2.03(a), the outstanding aggregate principal amount of the Loans plus the LC Exposure exceeds the Aggregate Revolving Credit Commitments, the Borrower shall (i) prepay the Revolving Credit Loans on the date of such termination or reduction in an aggregate principal amount equal to the excess, together with interest on the principal amount paid accrued to the date of such prepayment, (ii) if any excess remains after prepaying all Revolving Credit Loans, prepay the Swing Line Loans on the date of such termination or reduction in an aggregate principal amount equal to such remaining excess, together with interest on the principal amount paid accrued to the date of such prepayment, and (iii) if any excess remains after prepaying all of the Loans because of LC Exposure, pay to the Agent on behalf of the Lenders an amount equal to the excess to be held as cash collateral as provided in Section 2.09(b) hereof. (c) Generally. Prepayments permitted or required under this Section 2.07 shall be without premium or penalty, except as required under Section 5.05 for prepayment of LIBOR Loans. Any prepayments on the Loans may be reborrowed subject to the then effective Aggregate Revolving Credit Commitments. Section 2.08 Assumption of Risks. The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit or any transferee thereof with respect to its use of such Letter of Credit. Neither the Issuing Bank (except in the case of gross negligence or willful misconduct on the part of the Issuing Bank or any of its agents or employees), its correspondents nor any Lender shall be responsible for the validity, sufficiency or genuineness of certificates or other documents or any endorsements thereon, even if such certificates or other documents should in fact prove to be invalid, insufficient, fraudulent or forged; for errors, omissions, interruptions or delays in transmissions or delivery of any messages by mail, telex, or otherwise, whether or not they be in code; for errors in translation or for errors in interpretation of technical terms; the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; the failure of any beneficiary or any transferee of any Letter of Credit to comply fully with conditions required in order to draw upon any Letter of Credit; or for any other consequences arising from causes beyond the Issuing Bank's control or the control of the Issuing Bank's correspondents. In addition, neither the Issuing Bank, the Agent nor any Lender shall be responsible for any error, neglect, or default of any of the Issuing Bank's correspondents; and none of the above shall affect, impair or prevent the vesting of any of the Issuing Bank's, the Agent's or any Lender's rights or powers hereunder or under the Letter of Credit Agreements, all of which rights shall be cumulative. The Issuing Bank and its correspondents may accept certificates or other documents that appear on their face to be in order, without responsibility for further investigation of any matter contained therein regardless of any notice or information to the contrary. In furtherance and not in limitation of the foregoing provisions, the Borrower agrees that any action, inaction or omission taken or not taken by the Issuing Bank or by any correspondent for the Issuing Bank in good faith in connection with any Letter of Credit, or any related drafts, certificates, documents or instruments, shall be binding on the Borrower and shall not put the Issuing Bank or its correspondents under any resulting liability to the Borrower. -24- Section 2.09 Obligation to Reimburse and to Prepay. (a) If a disbursement by the Issuing Bank is made under any Letter of Credit, the Borrower shall pay to the Agent within two (2) Business Days after notice of any such disbursement is received by the Borrower, the amount of each such disbursement made by the Issuing Bank under the Letter of Credit (if such payment is not sooner effected as may be required under this Section 2.09 or under other provisions of the Letter of Credit), together with interest on the amount disbursed from and including the date of disbursement until payment in full of such disbursed amount at a varying rate per annum equal to (i) the then applicable interest rate for Base Rate Loans through the second Business Day after notice of such disbursement is received by the Borrower and (ii) thereafter, the Post-Default Rate for Base Rate Loans (but in no event to exceed the Highest Lawful Rate) for the period from and including the third Business Day following the date of such disbursement to and including the date of repayment in full of such disbursed amount. The obligations of the Borrower under this Agreement with respect to each Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid or performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, but only to the fullest extent permitted by applicable law, the following circumstances: (i) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the other Loan Documents; (ii) any amendment or waiver of (including any default), or any consent to departure from this Agreement (except to the extent permitted by any amendment or waiver), any Letter of Credit or any of the other Loan Documents; (iii) the existence of any claim, set-off, defense or other rights which the Borrower may have at any time against the beneficiary of any Letter of Credit or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, the Agent, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the other Loan Documents, the transactions contemplated hereby or any unrelated transaction; (iv) any statement, certificate, draft, notice or any other document presented under any Letter of Credit proves to have been forged, fraudulent, insufficient or invalid in any respect or any statement therein proves to have been untrue or inaccurate in any respect whatsoever; (v) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate which appears on its face to comply, but does not comply, with the terms of such Letter of Credit; and (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. Notwithstanding anything in this Agreement to the contrary, the Borrower will not be liable for payment or performance that results from the gross negligence or willful misconduct of the Issuing Bank, except (i) where the Borrower or any Subsidiary actually recovers the proceeds for itself or the Issuing Bank of any payment made by the Issuing Bank in connection with such gross negligence or willful misconduct or (ii) in cases where the Agent makes payment to the named beneficiary of a Letter of Credit. (b) In the event of the occurrence of any Event of Default, a payment or prepayment pursuant to Section 2.07(b) or the maturity of the Notes, whether by acceleration or otherwise, an amount equal to the LC Exposure (or the excess in the case of Section 2.07(b)) shall be deemed to be forthwith due and owing by the Borrower to the Issuing Bank, -25- the Agent and the Lenders as of the date of any such occurrence; and the Borrower's obligation to pay such amount shall be absolute and unconditional, without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower may now or hereafter have against any such beneficiary, the Issuing Bank, the Agent, the Lenders or any other Person for any reason whatsoever. Such payments shall be held by the Issuing Bank on behalf of the Lenders as cash collateral securing the LC Exposure in an account or accounts at the Principal Office; and the Borrower hereby grants to and by its deposit with the Agent grants to the Agent a security interest in such cash collateral. In the event of any such payment by the Borrower of amounts contingently owing under outstanding Letters of Credit and in the event that thereafter drafts or other demands for payment complying with the terms of such Letters of Credit are not made prior to the respective expiration dates thereof, the Agent agrees, if no Event of Default has occurred and is continuing or if no other amounts are outstanding under this Agreement, the Notes or the other Loan Documents, to remit to the Borrower amounts for which the contingent obligations evidenced by the Letters of Credit have ceased. (c) Each Lender severally and unconditionally agrees that it shall promptly reimburse the Issuing Bank an amount equal to such Lender's Percentage Share of any disbursement made by the Issuing Bank under any Letter of Credit that is not reimbursed according to this Section 2.09. Section 2.10 Lending Offices. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. ARTICLE III Payments of Principal and Interest Section 3.01 Repayment of Loans. (a) Revolving Credit Loans. On the Revolving Credit Termination Date the Borrower shall repay the outstanding aggregate principal and accrued and unpaid interest under the Notes. (b) Generally. The Borrower will pay to the Agent, for the account of each Lender, the principal payments required by this Section 3.01. Section 3.02 Interest. (a) Interest Rates. The Borrower will pay to the Agent, for the account of each Lender or the Swing Line Lender, as appropriate, interest on the unpaid principal amount of each Loan made by such Lender for the period commencing on the date such Loan is made to, but excluding, the date such Loan shall be paid in full, at the following rates per annum: -26- (i) if such a Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate; and (ii) if such a Loan is a LIBOR Loan, for each Interest Period relating thereto, the LIBOR Rate for such Loan plus the Applicable Margin (as in effect from time to time), but in no event to exceed the Highest Lawful Rate. (b) Post-Default Rate. Notwithstanding the foregoing, the Borrower will pay to the Agent, for the account of each Lender interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender, and (to the fullest extent permitted by law) on any other amount payable by the Borrower hereunder, under any Loan Document or under any Note held by such Lender to or for account of such Lender, for the period commencing on the date of an Event of Default until the same is paid in full or all Events of Default are cured or waived. (c) Due Dates. Accrued interest on Base Rate Loans shall be payable on each Quarterly Date commencing on December 31, 1998, and accrued interest on each LIBOR Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than three months at three-month intervals following the first day of such Interest Period, except that interest payable at the Post-Default Rate shall be payable from time to time on demand and interest on any LIBOR Loan that is converted into a Base Rate Loan (pursuant to Section 5.04) shall be payable on the date of conversion (but only to the extent so converted). Any accrued and unpaid interest on the Loans shall be paid on the Revolving Credit Termination Date. (d) Determination of Rates. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall notify the Lenders to which such interest is payable and the Borrower thereof. Each determination by the Agent of an interest rate or fee hereunder shall, except in cases of manifest error, be final, conclusive and binding on the parties. ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc. Section 4.01 Payments. Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrower under this Agreement, the Notes and the Letter of Credit Agreements shall be made in Dollars, in immediately available funds, to the Agent at such account as the Agent shall specify by notice to the Borrower from time to time, not later than 11:00 a.m. Charlotte time on the date on which such payments shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Such payments shall be made without (to the fullest extent permitted by applicable law) defense, set-off or counterclaim. Each payment received by the Agent under this Agreement or any Note for account of a Lender shall be paid promptly to such Lender in -27- immediately available funds. Except as otherwise provided in the definition of "Interest Period", if the due date of any payment under this Agreement or any Note would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. At the time of each payment to the Agent of any principal of or interest on any borrowing, the Borrower shall notify the Agent of the Loans to which such payment shall apply. In the absence of such notice the Agent may specify the Loans to which such payment shall apply, but to the extent possible such payment or prepayment will be applied first to the Loans comprised of Base Rate Loans. Section 4.02 Pro Rata Treatment. Except for Swing Line Loans and to the extent otherwise provided herein each Lender agrees that: (i) each borrowing from the Lenders under Section 2.01 and each continuation and conversion under Section 2.02 shall be made from the Lenders pro rata in accordance with their Percentage Share, each payment of fees under Section 2.04(a) and Section 2.04(b)(i) shall be made for account of the Lenders pro rata in accordance with their Percentage Share, and each termination or reduction of the amount of the Aggregate Maximum Credit Amounts under Section 2.03(a) shall be applied to the Commitment of each Lender, pro rata according to the amounts of its respective Commitment; (ii) each payment of principal of Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amount of the Loans held by the Lenders; (iii) each payment of interest on Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the amounts of interest due and payable to the respective Lenders; and (iv) each reimbursement by the Borrower of disbursements under Letters of Credit shall be made for account of the Issuing Bank or, if funded by the Lenders, pro rata for the account of the Lenders, in accordance with the amounts of reimbursement obligations due and payable to each respective Lender. Section 4.03 Computations. Interest on LIBOR Loans and fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless such calculation would exceed the Highest Lawful Rate, in which case interest shall be calculated on the per annum basis of a year of 365 or 366 days, as the case may be. Interest on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable. Section 4.04 Non-receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or the Borrower prior to the date on which such notifying party is scheduled to make payment to the Agent (in the case of a Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be made by it hereunder or (in the case of the Borrower) a payment to the Agent for account of one or more of the Lenders hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Lender or the Borrower (as the case may be) has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until, but excluding, the date the Agent recovers such amount at a rate per -28- annum which, for any Lender as recipient, will be equal to the Federal Funds Rate, and for the Borrower as recipient, will be equal to the Base Rate plus the Applicable Margin. Section 4.05 Set-off, Sharing of Payments, Etc. (a) The Borrower agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, each Lender shall have the right and be entitled (after consultation with the Agent), at its option, to offset balances held by it or by any of its Affiliates for account of the Borrower, any Guarantor or any Restricted Affiliate at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans, or any other amount payable to such Lender hereunder, which is not paid when due (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain payment of any principal of or interest on any Loan made by it to the Borrower under this Agreement (or reimbursement as to any Letter of Credit) through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Lender shall have received a greater percentage of the principal or interest (or reimbursement) then due hereunder by the Borrower to such Lender than the percentage received by any other Lenders, it shall promptly (i) notify the Agent and each other Lender thereof and (ii) purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans (or participations in Letters of Credit) made by such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Lenders (or reimbursements of Letters of Credit). To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that any Lender so purchasing a participation (or direct interest) in the Loans made by other Lenders (or in interest due thereon, as the case may be) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans (or Letters of Credit) in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.05 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.05 to share the benefits of any recovery on such secured claim. Section 4.06 Taxes. -29- (a) Payments Free and Clear. Any and all payments by the Borrower hereunder shall be made, in accordance with Section 4.01, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, the Issuing Bank and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which the Agent, the Issuing Bank or such Lender, as the case may be, is a citizen or resident or in which such Lender has an Applicable Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in which the Agent, the Issuing Bank or such Lender is organized, or (iii) any jurisdiction (or political subdivision thereof) in which such Lender, the Issuing Bank or the Agent is presently doing business which taxes are imposed solely as a result of doing business in such jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders, the Issuing Bank or the Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.06) such Lender, the Issuing Bank or the Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law. (b) Other Taxes. In addition, to the fullest extent permitted by applicable law, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Assignment or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE ISSUING BANK AND THE AGENT FOR THE FULL AMOUNT OF TAXES (AS DEFINED ABOVE) AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER, THE ISSUING BANK OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER, THE ISSUING BANK OR THE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR THE AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER, ISSUING BANK OR THE AGENT HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY -30- THE BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE REQUEST OF SUCH LENDER, THE ISSUING BANK OR THE AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR THE AGENT IN THE EVENT SUCH LENDER OR THE AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT. (d) Lender Representations. (i) Each Lender represents that it is either (1) a banking association or corporation organized under the laws of the United States of America or any state thereof or (2) it is entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement (A) under an applicable provision of a tax convention to which the United States of America is a party or (B) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America. Each Lender that is not a banking association or corporation organized under the laws of the United States of America or any state thereof agrees to provide to the Borrower and the Agent on the Closing Date, or on the date of its delivery of the Assignment pursuant to which it becomes a Lender, and at such other times as required by United States law or as the Borrower or the Agent shall reasonably request, two accurate and complete original signed copies of either (A) Internal Revenue Service Form 4224 (or successor form) certifying that all payments to be made to it hereunder will be effectively connected to a United States trade or business (the "Form 4224 Certification") or (B) Internal Revenue Service Form 1001 (or successor form) certifying that it is entitled to the benefit of a provision of a tax convention to which the United States of America is a party which completely exempts from United States withholding tax all payments to be made to it hereunder (the "Form 1001 Certification"). In addition, each Lender agrees that if it previously filed a Form 4224 Certification, it will deliver to the Borrower and the Agent a new Form 4224 Certification prior to the first payment date occurring in each of its subsequent taxable years; and if it previously filed a Form 1001 Certification, it will deliver to the Borrower and the Agent a new certification prior to the first payment date falling in the third year following the previous filing of such certification. Each Lender also agrees to deliver to the Borrower and the Agent such other or supplemental forms as may at any time be required as a result of changes in applicable law or regulation in order to confirm or maintain in effect its entitlement to exemption from United States withholding tax on any payments hereunder, provided that the circumstances of such Lender at the relevant time and applicable laws permit it to do so. If a Lender determines, as a result of any change in either (i) a Governmental Requirement or (ii) its circumstances, that it is unable to submit -31- any form or certificate that it is obligated to submit pursuant to this Section 4.06, or that it is required to withdraw or cancel any such form or certificate previously submitted, it shall promptly notify the Borrower and the Agent of such fact. If a Lender is organized under the laws of a jurisdiction outside the United States of America, unless the Borrower and the Agent have received a Form 1001 Certification or Form 4224 Certification satisfactory to them indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax, the Borrower shall withhold taxes from such payments at the applicable statutory rate. Each Lender agrees to indemnify and hold harmless the Borrower or Agent, as applicable, from any United States taxes, penalties, interest and other expenses, costs and losses incurred or payable by (i) the Agent as a result of such Lender's failure to submit any form or certificate that it is required to provide pursuant to this Section 4.06 or (ii) the Borrower or the Agent as a result of their reliance on any such form or certificate which such Lender has provided to them pursuant to this Section 4.06. (ii) For any period with respect to which a Lender has failed to provide the Borrower with the forms or certificates required pursuant to this Section 4.06, if any, (other than if such failure is due to a change in a Governmental Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.06 with respect to taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided, however, that if a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such taxes. (iii) Any Lender claiming any additional amounts payable pursuant to this Section 4.06 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or the Agent or to change the jurisdiction of its Applicable Lending Office or to contest any tax imposed if the making of such a filing or change or contesting such tax would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. ARTICLE V Capital Adequacy Section 5.01 Additional Costs. (a) LIBOR Regulations, etc. The Borrower shall pay directly to each Lender from time to time such amounts as such Lender may reasonably determine to be necessary -32- to compensate such Lender for any costs which it determines are attributable to its making or maintaining of any LIBOR Loans or issuing or participating in Letters of Credit hereunder or its obligation to make any LIBOR Loans or issue or participate in any Letters of Credit hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such LIBOR Loans, Letters of Credit or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or any Note in respect of any of such LIBOR Loans or Letters of Credit (other than taxes imposed on the overall net income of such Lender or of its Applicable Lending Office for any of such LIBOR Loans by the jurisdiction in which such Lender has its principal office or Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of such Lender, or the Commitment or Loans of such Lender or the London interbank market; or (iii) imposes any other condition affecting this Agreement or any Note (or any of such extensions of credit or liabilities) or such Lender's Commitment or Loans. Each Lender will notify the Agent and the Borrower of any event occurring after the Closing Date which will entitle such Lender to compensation pursuant to this Section 5.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the United States. If any Lender requests compensation from the Borrower under this Section 5.01(a), the Borrower may, by notice to such Lender, suspend the obligation of such Lender to make additional Loans of the Type with respect to which such compensation is requested until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable). (b) Capital Adequacy. Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Borrower shall pay directly to any Lender from time to time on request such amounts as such Lender may reasonably determine to be necessary to compensate such Lender or its parent or holding company for any costs which it determines are attributable to the maintenance by such Lender or its parent or holding company (or any Applicable Lending Office), pursuant to any Governmental Requirement following any Regulatory Change, of capital in respect of its Commitment, its Note, its Loans, or any interest held by it in any Letter of Credit, such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender or its parent or holding company (or any Applicable Lending Office) to a level below that which such Lender or its parent or holding company (or any Applicable Lending Office) could have achieved but for such Governmental Requirement. Such Lender will notify the Borrower that it is entitled to compensation pursuant to this Section 5.01(b) as promptly as practicable after it determines to request such compensation. -33- (c) Compensation Procedure. Any Lender notifying the Borrower of the incurrence of additional costs under this Section 5.01 shall in such notice to the Borrower and the Agent set forth in reasonable detail the basis and amount of its request for compensation. Determinations and allocations by each Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a), or of the effect of capital maintained pursuant to Section 5.01(b), on its costs or rate of return of maintaining Loans or its obligation to make Loans or issue Letters of Credit, or on amounts receivable by it in respect of Loans or Letters of Credit, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive and binding for all purposes, provided that such determinations and allocations are made on a reasonable basis. Any request for additional compensation under this Section 5.01 shall be paid by the Borrower within thirty (30) days of the receipt by the Borrower of the notice described in this Section 5.01(c). (d) The Lenders shall determine the applicability of, and the amount due under, this Section 5.01 consistent with the manner in which they apply similar provisions and calculate similar amounts payable to them by other borrowers having in their credit agreements provisions comparable to this Section. Section 5.02 Limitation on LIBOR Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any LIBOR Rate for any Interest Period: (i) the Agent determines (which determination shall be conclusive, absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR Rate" in Section 1.02 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (ii) the Agent determines (which determination shall be conclusive, absent manifest error) that the relevant rates of interest referred to in the definition of "Eurodollar Rate" in Section 1.02 upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not sufficient to adequately cover the cost to the Lenders of making or maintaining Eurodollar Loans; then the Agent shall give the Borrower prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans. The Lenders shall determine the applicability of this Section 5.02 consistent with the manner in which they apply similar provisions to other borrowers having in their credit agreements provisions comparable to this Section. Section 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 shall be applicable). -34- Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03. If the obligation of any Lender to make Eurodollar Loans shall be suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans which would otherwise be made by such Lender shall be made instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has occurred and such Lender so requests by notice to the Borrower, all Affected Loans of such Lender then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) Base Rate Loans, all payments of principal which would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans. Section 5.05 Compensation. The Borrower shall pay to each Lender within thirty (30) days of receipt of written request of such Lender (which request shall set forth, in reasonable detail, the basis for requesting such amounts and which shall be conclusive and binding for all purposes provided that such determinations are made on a reasonable basis), such amount or amounts as shall compensate it for any loss, cost, expense or liability which such Lender reasonably determines are attributable to: (i) any payment, prepayment or conversion of a Eurodollar Loan properly made by such Lender or the Borrower for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10.01) on a date other than the last day of the Interest Period for such Loan; or (ii) any failure by the Borrower for any reason (including but not limited to, the failure of any of the conditions precedent specified in Article VI to be satisfied) to borrow, continue or convert a Eurodollar Loan from such Lender on the date for such borrowing, continuation or conversion specified in the relevant notice given pursuant to Section 2.02(c). Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender). Section 5.06 Replacement Lenders. (a) If any Lender has notified the Borrower and the Agent of its incurring additional costs under Section 5.01 or has required the Borrower to make payments for Taxes under Section 4.06, then the Borrower may, unless such Lender has notified the Borrower and the Agent that the circumstances giving rise to such notice no longer apply, terminate, in whole but not in part, the Commitment of any Lender (other than the Agent) (the -35- "Terminated Lender") at any time upon five (5) Business Days' prior written notice to the Terminated Lender and the Agent (such notice referred to herein as a "Notice of Termination"). (b) In order to effect the termination of the Commitment of the Terminated Lender, the Borrower shall: (i) obtain an agreement with one or more Lenders to increase their Commitment or Commitments and/or (ii) request any one or more other banking institutions to become parties to this Agreement in place and instead of such Terminated Lender and agree to accept a Commitment or Commitments; provided, however, that such one or more other banking institutions are reasonably acceptable to the Agent and become parties by executing an Assignment (the Lenders or other banking institutions that agree to accept in whole or in part the Commitment of the Terminated Lender being referred to herein as the "Replacement Lenders"), such that the aggregate increased and/or accepted Commitments of the Replacement Lenders under clauses (i) and (ii) above equal the Commitment of the Terminated Lender. (c) The Notice of Termination shall include the name of the Terminated Lender, the date the termination will occur (the "Lender Termination Date"), and the Replacement Lender or Replacement Lenders to which the Terminated Lender will assign its Commitment and, if there will be more than one Replacement Lender, the portion of the Terminated Lender's Commitment to be assigned to each Replacement Lender. (d) On the Lender Termination Date, (i) the Terminated Lender shall by execution and delivery of an Assignment assign its Commitment to the Replacement Lender or Replacement Lenders (pro rata, if there is more than one Replacement Lender, in proportion to the portion of the Terminated Lender's Commitment to be assigned to each Replacement Lender) indicated in the Notice of Termination and shall assign to the Replacement Lender or Replacement Lenders each of its Loans (if any) then outstanding and participation interests in Letters of Credit (if any) then outstanding pro rata as aforesaid), (ii) the Terminated Lender shall endorse its Note, payable without recourse, representation or warranty to the order of the Replacement Lender or Replacement Lenders (pro rata as aforesaid), (iii) the Replacement Lender or Replacement Lenders shall purchase the Notes held by the Terminated Lender (pro rata as aforesaid) at a price equal to the unpaid principal amount thereof plus interest and facility and other fees accrued and unpaid to the Lender Termination Date, and (iv) the Replacement Lender or Replacement Lenders will thereupon (pro rata as aforesaid) succeed to and be substituted in all respects for the Terminated Lender with like effect as if becoming a Lender pursuant to the terms of Section 12.06(b), and the Terminated Lender will have the rights and benefits of an assignor under Section 12.06(b). To the extent not in conflict, the terms of Section 12.06(b) shall supplement the provisions of this Section 5.06(d). For each assignment made under this Section 5.06, the Replacement Lender shall pay to the Agent the processing fee provided for in Section 12.06(b). The Borrower will be responsible for the payment of any breakage costs associated with termination and Replacement Lenders, as set forth in Section 5.05. -36- ARTICLE VI Conditions Precedent Section 6.01 Initial Funding. The obligation of the Lenders to make the Initial Funding is subject to the receipt by the Agent and the Lenders of all fees payable pursuant to Section 2.04 on or before the Closing Date and the receipt by the Agent on the Closing Date or any other date on or before the date of Initial Funding of the following documents and satisfaction of the other conditions provided in this Section 6.01, each of which shall be satisfactory to the Agent in form and substance: (a) A certificate of the Secretary or an Assistant Secretary of the General Partner setting forth (i) resolutions of its board of directors with respect to the authorization of the Borrower to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the General Partner (y) who are authorized to sign the Loan Documents to which Borrower is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representatives for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of the General Partner and the Borrower Partnership Agreement, certified as being true and complete. The Agent and the Lenders may conclusively rely on such certificate until the Agent receives notice in writing from the Borrower to the contrary. (b) A certificate of the Secretary or an Assistant Secretary of BMC setting forth (i) resolutions of its board of directors with respect to the authorization of the Guarantor to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the Guarantor (y) who are authorized to sign the Loan Documents to which Guarantor is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representatives for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of BMC and the Guarantor Partnership Agreement, certified as being true and complete. The Agent and the Lenders may conclusively rely on such certificate until they receive notice in writing from the Guarantor to the contrary. (c) Certificates of the appropriate state agencies with respect to the existence, qualification and good standing, as appropriate, of the Borrower, the Guarantor, the General Partner and BMC. (d) A Compliance Certificate duly and properly executed by a Responsible Officer and dated as of the date of the Initial Funding. (e) The Notes, duly completed and executed. -37- (f) The Loan Documents, duly completed and executed in sufficient number of counterparts as reasonably requested by the Agent. (g) Opinions of Morgan, Lewis & Bockius LLP, counsel to the Borrower and Buckeye Partners and certain local counsel to the Borrower and Buckeye Partners, each in form and substance satisfactory to the Agent, as to such matters incident to the transactions herein contemplated as the Agent may reasonably request. (h) A certificate of insurance coverage of the Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.19. (i) The Agent shall have been furnished with appropriate UCC search certificates reflecting no Liens other than Excepted Liens. (j) The Agent shall have reviewed the environmental files of the Borrower, Buckeye Partners and the Restricted Affiliates and shall be satisfied with the results of its review. (k) Such other documents as the Agent or any Lender or special counsel to the Agent may reasonably request. Section 6.02 Initial and Subsequent Loans and Letters of Credit. The obligation of the Lenders to make Loans to the Borrower upon the occasion of each borrowing hereunder and to issue, renew, extend or reissue Letters of Credit for the account of the Borrower (including the Initial Funding) is subject to the further conditions precedent that, as of the date of such Loans and after giving effect thereto: (a) no Default shall have occurred and be continuing; (b) no Material Adverse Effect shall have occurred and be continuing; and (c) the representations and warranties made by the Borrower in Article VII and in any other Loan Document shall be true on and as of the date of the making of such Loans or issuance, renewal, extension or reissuance of a Letter of Credit with the same force and effect as if made on and as of such date and following such new borrowing, except to the extent such representations and warranties are expressly limited to an earlier date or the Required Lenders may expressly consent in writing to the contrary. Each request for a borrowing or issuance, renewal, extension or reissuance of a Letter of Credit by the Borrower hereunder shall constitute a certification by the Borrower to the effect set forth in Section 6.02(c) (both as of the date of such notice and, unless the Borrower otherwise notifies the Agent prior to the date of and immediately following such borrowing or issuance, renewal, extension or reissuance of a Letter of Credit as of the date thereof). Section 6.03 Conditions Precedent for the Benefit of Lenders. All conditions precedent to the obligations of the Lenders to make any Loan are imposed hereby solely for the -38- benefit of the Lenders, and no other Person may require satisfaction of any such condition precedent or be entitled to assume that the Lenders will refuse to make any Loan in the absence of strict compliance with such conditions precedent. Section 6.04 No Waiver. No waiver of any condition precedent shall preclude the Agent or the Lenders from requiring such condition to be met prior to making any subsequent Loan or preclude the Lenders from thereafter declaring that the failure of the Borrower to satisfy such condition precedent constitutes a Default. ARTICLE VII Representations and Warranties Each of the Borrower and each Guarantor represents and warrants to the Agent and the Lenders that (each representation and warranty herein is given as of the Closing Date and shall be deemed repeated and reaffirmed on the dates of each borrowing and issuance, renewal, extension or reissuance of a Letter of Credit as provided in Section 6.02): Section 7.01 Existence. Each of the Borrower, the Guarantors, and the Restricted Affiliates: (i) is duly organized, legally existing and, as applicable, in good standing under the laws of the jurisdiction of its formation; (ii) has all requisite power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted and, with respect to Restricted Affiliates, where a failure to have such items would have a Material Adverse Effect; and (iii) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. Section 7.02 Financial Condition. The audited consolidated balance sheet of Buckeye Partners and its Consolidated Subsidiaries as at December 31, 1997 and the related consolidated statement of income, equity and cash flow of Buckeye Partners and its Consolidated Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Deloitte & Touche LLP heretofore furnished to each of the Lenders and the unaudited consolidated balance sheet of Buckeye Partners and its Consolidated Subsidiaries as at September 30, 1998 and their related consolidated statements of income, equity and cash flow of Buckeye Partners and its Consolidated Subsidiaries for the nine month period ended on such date heretofore furnished to the Agent, are complete and correct and fairly present in all material respects the consolidated financial condition of Buckeye Partners and its Consolidated Subsidiaries as at said dates and the results of its operations for the fiscal year and the nine month period on said dates, all in accordance with GAAP, as applied on a consistent basis (subject, in the case of the interim financial statements, to normal year-end adjustments and the lack of footnotes). Neither Buckeye Partners nor any Subsidiary has on the Closing Date any material Debt, contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the Financial Statements or in Schedule 7.02. Since December 31, 1997, there has been no change or event having a Material Adverse Effect which is continuing. Since the date of the Financial Statements, neither the business nor the -39- Properties (taken as a whole) of the Borrower, any Guarantor or any Restricted Affiliate have been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, permits or concessions by any Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy which is continuing. Section 7.03 Litigation. Except as disclosed to the Lenders in Schedule 7.03 hereto or as disclosed in Buckeye Partners Form 10-K for the year ended December 31, 1997 filed with the SEC (a true and complete copy of which has been delivered to the Agent), at the Closing Date there is no litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of the Borrower threatened against or affecting the Borrower, Buckeye Partners or any Restricted Affiliates which involves the possibility of any judgment or liability against the Borrower, the Guarantor or any Restricted Affiliates not fully covered by insurance (except for normal deductibles), and which, if determined adversely, would have a Material Adverse Effect. Section 7.04 No Breach. Neither the execution and delivery of the Loan Documents, nor compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent which has not been obtained as of the Closing Date under, the respective partnership agreements of the Borrower, Buckeye Partners or any Restricted Affiliate, or any Governmental Requirement or any agreement or instrument to which the Borrower, the Guarantor or any Restricted Affiliate is a party or by which it is bound or to which it or its Properties are subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of the Borrower, the Guarantor or any Restricted Affiliate pursuant to the terms of any such agreement or instrument other than the Liens created by the Loan Documents. Section 7.05 Authority. The Borrower, each Guarantor and each Restricted Affiliate have all necessary power and authority to execute, deliver and perform its obligations under the Loan Documents to which it is a party; and the execution, delivery and performance by the Borrower, each Guarantor and each Restricted Affiliate of the Loan Documents to which it is a party, have been duly authorized by all necessary action on its part; and the Loan Documents constitute the legal, valid and binding obligations of the Borrower, each Guarantor and each Restricted Affiliate, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to or affecting creditors' rights and general principles of equity. Section 7.06 Approvals. Except for those authorizations that have been obtained, no authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by the Borrower, the Guarantors or the Restricted Affiliates of the Loan Documents or for the validity or enforceability thereof. Section 7.07 Use of Loans. The proceeds of the Loans and Letters of Credit shall be used for acquisitions and general partnership purposes. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation -40- T, U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan hereunder will be used to buy or carry any margin stock. Section 7.08 ERISA. (a) The Borrower, each Subsidiary of the Borrower and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. (b) Each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code. (c) To the knowledge of the Borrower, no act, omission or transaction has occurred which could result in imposition on the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA. (d) No Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974. No material liability to the PBGC (other than for the payment of current premiums which are not past due) by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate has been or is expected by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred. (e) Full payment when due has been made of all amounts which the Borrower or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan. (f) The actuarial present value of the benefit liabilities under all Plans which are subject to Title IV of ERISA do not, as of the end of the Borrower's most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plans allocable to such benefit liabilities by more than $2,000,000 in the aggregate. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. (g) None of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by the Borrower, such Subsidiary or such ERISA Affiliate in its sole discretion at any time without any material liability. -41- (h) None of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the preceding six calendar years, sponsored, maintained or contributed to, any Multiemployer Plan. (i) Neither the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan. Section 7.09 Taxes. Each of the Borrower, the Guarantors and the Restricted Affiliates has filed all United States Federal income tax returns and all other tax returns which are required to be filed by them and have paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Borrower, any Guarantor or any Restricted Affiliate. The charges, accruals and reserves on the books of the Borrower, the Guarantors and the Restricted Affiliates in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate. No tax lien has been filed and, to the knowledge of the Borrower, no claim is being asserted with respect to any such tax, fee or other charge. Section 7.10 Titles, etc. (a) Except as set out in Schedule 7.10, each of the Borrower, the Guarantors and the Restricted Affiliates has good and defensible title to its material (individually or in the aggregate) Properties, free and clear of all Liens, except Liens permitted by Section 9.02. (b) All leases and agreements necessary for the conduct of the business of the Borrower, the Guarantors and the Restricted Affiliates are valid and subsisting, in full force and effect, except as could not reasonably be expected to have a Material Adverse Effect, and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which would affect in any material respect the conduct of the business of the Borrower, the Guarantors or the Restricted Affiliates. (c) The rights, Properties and other assets presently owned, leased or licensed by the Borrower, the Guarantors and the Restricted Affiliates including, without limitation, all easements and rights of way, include all rights, Properties and other assets necessary to permit the Borrower, each Guarantor and each Restricted Affiliates to conduct its business in all material respects in the same manner as its business has been conducted prior to the Closing Date. (d) All of the assets and Properties of the Borrower, the Guarantors and the Restricted Affiliates which are reasonably necessary for the operation of their business are in all material respects in good working condition and are maintained in accordance with prudent business standards. Section 7.11 No Material Misstatements. No written information, statement, exhibit, certificate, document or report furnished to the Agent and the Lenders (or any of them) by the Borrower, any Guarantor or any Restricted Affiliate in connection with the negotiation of this Agreement -42- contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not materially misleading in the light of the circumstances in which made. There is no fact peculiar to the Borrower, Buckeye Partners or any Restricted Affiliate which has a Material Adverse Effect or in the future is reasonably likely to have (so far as the Borrower can now foresee) a Material Adverse Effect and which has not been set forth in this Agreement or the other documents, certificates and statements furnished to the Agent by or on behalf of the Borrower, Buckeye Partners or any Restricted Affiliate prior to, or on, the Closing Date in connection with the transactions contemplated hereby. Section 7.12 Investment Company Act. None of the Borrower, any Guarantor or any Restricted Affiliate is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 7.13 Public Utility Holding Company Act. None of the Borrower, any Guarantor or any Restricted Affiliate is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or otherwise as disclosed to the Agent in writing, neither Buckeye Partners nor the Borrower has any Subsidiaries. Section 7.15 Location of Business and Offices. Each of Buckeye Partner's and the Borrower's principal place of business and chief executive offices are located at their respective addresses stated on the signature page of this Agreement or as otherwise disclosed in writing to the Agent. The principal place of business and chief executive office of each Restricted Affiliate are located at the addresses stated on Schedule 7.14 or as otherwise disclosed in writing to the Agent. Section 7.16 Defaults. None of the Borrower, any Guarantor or any Restricted Affiliate is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default under any material agreement or instrument to which it is a party or by which it is bound which default would have a Material Adverse Effect. No Default hereunder has occurred and is continuing. Section 7.17 Environmental Matters. Except (i) as provided in Schedule 7.17 (ii) as disclosed in the Form 10-K for the year ended December 31, 1997 filed by Buckeye Partners with the SEC, or (iii) as would not have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions would not have a Material Adverse Effect): (a) Neither any Property of the Borrower, any Guarantor or any Restricted Affiliate nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws; (b) Without limitation of clause (a) above, no Property of the Borrower, any Guarantor or any Restricted Affiliate nor the operations currently conducted thereon or, to the best knowledge of the Borrower, by any prior owner or operator of such Property or -43- operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws; (c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of the Borrower, each Guarantor and each Restricted Affiliate, including without limitation past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed, and each of the Borrower, the Guarantors and the Restricted Affiliates are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations; (d) All hazardous substances, solid waste, and oil and gas exploration and production wastes, if any, generated at any and all Property of the Borrower, any Guarantor or any Restricted Affiliate have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the best knowledge of the Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws; (e) The Borrower, the Guarantors and the Restricted Affiliates have taken all steps reasonably necessary to determine and have determined that no hazardous substances, solid waste, or oil and gas exploration and production wastes, have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any Property of the Borrower, any Guarantor, or any Restricted Affiliate except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment; (f) To the extent applicable, all Property of the Borrower, each Guarantor and each Restricted Affiliate currently satisfies all design, operation, and equipment requirements imposed by the OPA or scheduled as of the Closing Date to be imposed by OPA during the term of this Agreement, and the Borrower does not have any reason to believe that such Property, to the extent subject to OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement; and (g) None of the Borrower, any Guarantor or any Restricted Affiliate has any known contingent liability in connection with any release or threatened release of any oil, hazardous substance or solid waste into the environment. Section 7.18 Compliance with the Law. None of the Borrower, any Guarantor or any Restricted Affiliate has violated any Governmental Requirement or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of any of its Properties or the conduct of its business, which violation or failure would have (in the event such -44- violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Section 7.19 Insurance. The Borrower and each of the Restricted Affiliates maintains, with financially sound and reputable insurers, insurance with respect to their respective Properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. All such policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the date of the closing have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of law and of all agreements to which the Borrower, any Guarantor, or any Restricted Affiliate is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage in at least such amounts and against at least such risks (but including in any event public liability) as are usually insured against in the same general area by companies engaged in the same or a similar business for the assets and operations of the Borrower, each Guarantor and each Restricted Affiliate. Section 7.20 Material Agreements. The Borrower has heretofore delivered to the Agent a complete and correct copy of the Indenture and the Note Agreement relating to the Senior Notes, each as amended and in effect on the Closing Date. Section 7.21 Partnership Agreement. Neither the Borrower Partnership Agreement nor the Buckeye Partners Partnership Agreement has been terminated, and each is in full force and effect as of the date hereof and no default has occurred and is continuing thereunder which would have a Material Adverse Effect. Section 7.22 Ownership of Parties. (a) The Borrower is a limited partnership formed under the laws of the State of Delaware, and is owned 1% (general partnership interest) by the General Partner, and 99% (limited partnership interests) by Buckeye Partners. (b) Each of the Restricted Affiliates (excluding Restricted Subsidiaries) is a limited partnership, owned 1% (general partnership interest) by the General Partner and 99% (limited partnership interests) by Buckeye Partners, other than Buckeye Pipe Line Company of Michigan, L.P., the limited partnership interests of which are owned 0.99% by the General Partner and 98.01% by Laurel Pipe Line Company, L.P. (c) Buckeye Partners is a limited partnership formed under the laws of the State of Delaware and owned 1% (general partnership interest) by BMC or a wholly-owned Subsidiary of BMC and 99% (limited partnership interests) by public holders of limited partnership units. (d) BMC owns 100% of the capital stock of the General Partner. -45- ARTICLE VIII Affirmative Covenants The Borrower and Buckeye Partners each covenant and agree that, so long as any of the Commitments are in effect and until payment in full of all Loans hereunder, all interest thereon and all other amounts payable by the Borrower hereunder and the Guarantors under the Guaranty Agreements: Section 8.01 Reporting Requirements. The Borrower and Buckeye Partners shall deliver, or shall cause to be delivered, to the Agent with sufficient copies of each for the Lenders: (a) Annual Financial Statements. As soon as available and in any event within 120 days after the end of each fiscal year of Buckeye Partners, the audited consolidated and, within 100 days after the end of each fiscal year of Buckeye Partners, unaudited consolidating statements of income, equity, changes in financial position and cash flow of Buckeye Partners and its Consolidated Subsidiaries for such fiscal year, and the related consolidated and consolidating balance sheets of Buckeye Partners and its Consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and, in the case of the audited statements, accompanied by the related opinion of independent public accountants of recognized national standing acceptable to the Agent which opinion shall state that said financial statements fairly present in all material respects the consolidated and consolidating financial condition and results of operations of Buckeye Partners and its Consolidated Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP, except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a "going concern" or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default. (b) Quarterly Financial Statements. As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of Buckeye Partners, consolidated and consolidating statements of income, equity, changes in financial position and cash flow of Buckeye Partners and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer of BMC, which certificate shall state that said financial statements fairly present in all material respects the consolidated and consolidating financial condition and results of operations of Buckeye Partners and its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments and the lack of footnotes). -46- (c) Notice of Default, Etc. Promptly after a Responsible officer of the Borrower or of Buckeye Partners knows that any Default or any Material Adverse Effect has occurred, a notice of such Default or Material Adverse Effect, describing the same in reasonable detail and the action the Borrower or Buckeye Partners proposes to take with respect thereto. (d) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower, Buckeye Partners or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower, Buckeye Partners and its Subsidiaries, and a copy of any response by any Guarantor or any Subsidiary, to such letter or report. (e) Governmental Authorities. Promptly upon receipt thereof, a copy of any notice from any Governmental Authority (except where involving a routine or ordinary course matter, which in any case is immaterial), and promptly upon a Responsible Officer of the Borrower's or of Buckeye Partners' knowledge thereof, notice of any material dispute with any Governmental Authority involving the Borrower, any Guarantor or any Restricted Affiliate. (f) Notices Under Other Loan Agreements. Promptly after the furnishing thereof, copies of any statement, report or notice furnished by the Borrower or Buckeye Partners to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 8.01. (g) Other Matters. From time to time such other information regarding the business, affairs or financial condition of the Borrower, any Guarantor, any Restricted Affiliate or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as the Agent may reasonably request. The Borrower and Buckeye Partners will each furnish to the Agent, at the time each set of financial statements is furnished to the Agent pursuant to paragraph (a) or (b) above, a Compliance Certificate executed by a Responsible Officer of the General Partner and BMC, respectively (i) certifying as to the matters set forth therein and stating that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), and (ii) setting forth in reasonable detail the computations necessary to determine whether the Borrower is in compliance with Sections 9.12 and 9.13 as of the end of the respective fiscal quarter or fiscal year. Section 8.02 Litigation. The Borrower and Buckeye Partners shall promptly give, and shall cause any Restricted Affiliate to give to the Agent notice of: (i) all legal or arbitral proceedings, and of all proceedings before any Governmental Authority affecting the Borrower, the Guarantor or any Restricted Affiliate, except proceedings which, if adversely determined, would not have a Material Adverse Effect, and (ii) any litigation or proceeding against or adversely affecting the Borrower, the Guarantor or any Restricted Affiliate in which the amount involved exceeds $5,000,000 and is not covered in full by insurance (subject to normal and customary deductibles and for which the insurer has not assumed the defense), or in which injunctive or similar relief is sought. -47- The Borrower will promptly notify the Agent and each of the Lenders of any claim, judgment, Lien or other encumbrance affecting any Property of the Borrower, the Guarantor or any Restricted Affiliate if the value of the claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $5,000,000. Section 8.03 Maintenance, Etc. (a) Generally. Each of Buckeye Partners and the Borrower shall: preserve and maintain its partnership or corporate existence and all of its material rights, privileges and franchises and shall cause the Restricted Affilitates to do so; keep books of record and account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and activities; comply with all Governmental Requirements if failure to comply with such requirements will have a Material Adverse Effect; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; upon reasonable notice, permit representatives of the Agent or any Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Agent (as the case may be); and keep, or cause to be kept, insured by financially sound and reputable insurers all Property of a character usually insured by Persons engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such Persons and carry such other insurance as is usually carried by such Persons including, without limitation, environmental risk insurance to the extent reasonably available. (b) Proof of Insurance. Contemporaneously with the delivery of the financial statements required by Section 8.01(a) to be delivered for each year, the Borrower and Buckeye Partners will furnish or cause to be furnished, and will cause to be furnished for the Restricted Affiliates, to the Agent certificates of insurance coverage from an insurer in form and substance reasonably satisfactory to the Agent and, if requested, will furnish the Agent copies of the applicable policies. (c) Operation of Properties. Each of the Borrower and Buckeye Partners will and will cause each Restricted Affiliate to, operate its Properties or cause such Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements. Section 8.04 Environmental Matters. (a) Establishment of Procedures. Each of the Borrower and Buckeye Partners will and will cause each Restricted Affiliate to, establish and implement such procedures as may be reasonably necessary to determine and assure that any failure of the following does not have a Material Adverse Effect: (i) all Property of the Borrower, the Guarantors and the -48- Restricted Affiliates, and the operations conducted thereon and other activities of the Borrower, the Guarantors and the Restricted Affiliates, are in compliance with and do not violate the requirements of any Environmental Laws, (ii) no oil, hazardous substances or solid wastes are disposed of or otherwise released on or to any Property owned by the Borrower, any Guarantor or any Restricted Affiliate except in compliance with Environmental Laws, (iii) no hazardous substance will be released on or to any such Property in a quantity equal to or exceeding that quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas exploration and production wastes or hazardous substance is released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment. (b) Notice of Action. The Borrower and Buckeye Partners will, and will cause any Restricted Affiliate to, promptly notify the Agent and the Lenders in writing of any threatened action or investigation by any Governmental Authority of which a Responsible Officer of the Borrower, any Guarantor or any Restricted Affiliate has knowledge in connection with any Environmental Laws, excluding routine testing and corrective action. (c) Future Acquisitions. The Borrower and Buckeye Partners will, will cause each Restricted Affiliate to, provide environmental audits and tests in accordance with American Society for Testing and Materials standards as reasonably requested by the Agent or any Lender through the Agent (or as otherwise required to be obtained by the Agent or the Lenders by any Governmental Authority) in connection with any future acquisitions of any material Properties by the Borrower, any Guarantor or any Restricted Affiliate. Section 8.05 Further Assurances. The Borrower and Buckeye Partners will promptly cure any defects in the creation and issuance of the Notes and the execution and delivery of the other Loan Documents. Each of the Borrower and Buckeye Partners, at its expense, will promptly execute and deliver (or cause to be promptly executed and delivered) to the Agent upon reasonable request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower and Buckeye Partners, as the case may be, in the Loan Documents, or to, correct any omissions in the Loan Documents, or to state more fully the obligations set out herein or in any of the other Loan Documents, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith. Section 8.06 Performance of Obligations. The Borrower will pay the Notes according to the reading, tenor and effect thereof; and the Borrower will do and perform every act and discharge all of the obligations to be performed and discharged by it under this Agreement, at the time or times and in the manner specified. Section 8.07 ERISA Information and Compliance. The Borrower will promptly furnish and will cause any ERISA Affiliate to promptly furnish to the Agent with sufficient copies to the Lenders (i) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other material report with respect to each Plan or any trust created thereunder, (ii) immediately upon a Responsible Officer becoming aware of the occurrence of any ERISA Event or of any "prohibited transaction," as described in -49- section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by a Responsible Officer specifying the nature thereof, what action the Borrower or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (iii) immediately upon receipt thereof, copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower will, and will cause each ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA. Section 8.08 Year 2000 Compatibility. Each of the Borrower and Buckeye Partners shall take all action reasonably necessary, shall cause each Restricted Affiliate to take all action reasonably necessary, to assure that its computer based systems are able to operate and effectively process data, including dates, on and after January 1, 2000 or that sufficient back-up plans are in place that no such computer failure will materially and adversely affect the operations of the Borrower, Buckeye Partners or any Restricted Affiliate. Upon request of the Agent, each of the Borrower and Buckeye Partners shall, and shall cause each Restricted Affiliate to, promptly provide the Agent assurance reasonably acceptable to the Agent of the Borrower's, each Guarantor's and each Restricted Affiliate's Year 2000 compatibility. ARTICLE IX Negative Covenants The Borrower and Buckeye Partners each covenant and agree that, so long as any of the Commitments are in effect and until payment in full of Loans hereunder, all interest thereon and all other amounts payable by the Borrower hereunder and the Guarantors under the Guaranty Agreements, without the prior written consent of the Required Lenders: Section 9.01 Debt. None of the Borrower, any Guarantor or any Restricted Affiliate will incur, create, assume or permit to exist any Debt, except: (a) the Notes or other Indebtedness or any guaranty of or suretyship arrangement for the Notes or other Indebtedness; (b) Debt of the Borrower existing on the Closing Date which is reflected in the Financial Statements or is disclosed in Schedule 9.01, and any renewals or extensions (but not increases) thereof; -50- (c) accounts payable (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business which, if material and greater than 90 days past the invoice or billing date, are being contested in good faith by appropriate proceedings if reserves adequate under GAAP shall have been established therefor; (d) Debt of the Borrower or Buckeye Partners requiring no principal payments (whether at stated maturity or by virtue of scheduled amortization, required prepayment or redemption) due until at least one year after the Revolving Credit Termination Date and issued under the Indenture or otherwise on terms and conditions (excluding interest rates) no less favorable to the Borrower or Buckeye Partners than this Agreement; (e) Debt not otherwise permitted by this Section 9.01 which in the aggregate shall not exceed $15,000,000 outstanding at any one time; (f) Debt of the Borrower under Hedging Agreements entered into as a part of its normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower's operations; and (g) Debt as a result of (and to the extent permitted by) Sections 9.03(g), (h) and (i). Section 9.02 Liens. None of the Borrower, any Guarantor or any Restricted Affiliate will create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except: (a) Liens securing the payment of any Indebtedness; (b) Excepted Liens; (c) Liens disclosed on Schedule 9.02; and (d) Liens originally created to secure purchase money Debt permitted under Section 9.01(e), which in each case shall not exceed 100% of the lesser of the total purchase price and the fair market value of the Property acquired as determined at the time of acquisition; provided, that, (i) the Property to be purchased with the proceeds of such Debt shall be purchased not more than sixty (60) days prior to the date of the creation of such Lien and (ii) such Lien encumbers only the Property so acquired. Section 9.03 Investments, Loans and Advances. None of the Borrower any Guarantor or any Restricted Affiliate will make or permit to remain outstanding any loans or advances to or investments in any Person, except that the foregoing restriction shall not apply to: (a) investments, loans or advances reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.03; (b) accounts receivable arising in the ordinary course of business; -51- (c) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year from the date of creation thereof; (d) commercial paper maturing within one year from the date of creation thereof rated in the highest grade by Standard & Poor's Corporation or Moody's Investors Service, Inc.; (e) deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000.00 (as of the date of such Lender's or bank or trust company's most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by Standard & Poor's Corporation or Moody's Investors Service, Inc., respectively; (f) deposits in money market funds investing exclusively in investments described in Section 9.03(c), 9.03(d) or 9.03(e); (g) investments, loans or advances made in or to the Borrower, Buckeye Partners, any Restricted Subsidiary, or any Restricted Affiliate that has executed a Guaranty Agreement; (h) investments, loans or advances in or to any Person (other than the Borrower, Buckeye Partners, a Restricted Subsidiary or any Restricted Affiliate that has executed a Guaranty Agreement) not to exceed $50,000,000 in the aggregate at any time outstanding; and (i) other investments, loans and advances in or to any Person not to exceed the amount of net proceeds received by Buckeye Partners from an equity offering occurring substantially concurrent therewith. Section 9.04 Distributions and Redemptions. If a Default exists or would result therefrom, neither the Borrower nor Buckeye Partners will purchase, redeem or otherwise acquire for value any of its equity interests now or hereafter outstanding, return any capital or make any distribution of its assets to its equity owners. Section 9.05 Sales and Leasebacks. Neither the Borrower nor Buckeye Partners will, and will not permit any Restricted Affiliate to, enter into any Sale-Leaseback Transaction, unless: (a) such Sale-Leaseback Transaction occurs within one year after the later of (i) completion of the acquisition of the applicable Property by the Borrower, Buckeye Partners or such Restricted Affiliate or (ii) commencement of full operation with respect to such Property; or -52- (b) such Sale-Leaseback Transaction involves a lease for a term of not more than three years; or (c) the net sale proceeds derived from the sale or transfer by the Borrower, Buckeye Partners or such Restricted Affiliate of the Property involved are used solely (i) to prepay or retire Funded Debt of the Borrower ranking pari passu with the Indebtedness or (ii) for capital improvements with respect to the pipeline systems of the Borrower or any Restricted Affiliate made in the ordinary course of business of the Borrower or such Restricted Affiliate; or (d) the Sale-Leaseback Attributable Debt attributable to such Sale-Leaseback Transaction would be permitted under Section 9.01(e). Section 9.06 Nature of Business. None of the Borrower, Buckeye Partners or any Restricted Affiliate will allow any material change to be made in the nature of its business as it exists on the Closing Date. Section 9.07 Limitation on Leases. None of the Borrower, any Guarantor or any Restricted Affiliate will create, incur, assume or permit to exist any obligation by any of them for the payment of rent or hire of Property of any kind whatsoever (real or personal including capital leases), under leases or lease agreements which would cause the aggregate amount of all payments made by the Borrower, the Guarantors and the Restricted Affiliates pursuant to all such leases or lease agreements to exceed $15,000,000 (on a consolidated basis) in any period of twelve consecutive calendar months during the life of such leases. Section 9.08 Mergers, Etc. None of the Borrower, any Guarantor or any Restricted Affiliate will merge into or with or consolidate with any other Person unless such entity is the survivor, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property or assets to any other Person; provided, however, that any Restricted Affiliate may merge with or into the Borrower, any Guarantor or any other Restricted Affiliate, even if it is not the surviving entity of such merger. Section 9.09 Proceeds of Notes; Letters of Credit. The Borrower will not permit the proceeds of the Notes or Letters of Credit to be used for any purpose other than those permitted by Section 7.07. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Section 9.10 ERISA Compliance. The Borrower will not at any time take any of the following actions that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect: (a) Engage in, or permit any Subsidiary of the Borrower or ERISA Affiliate to engage in, any transaction in connection with which the Borrower, any Subsidiary of the -53- Borrower or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) Terminate, or permit any Subsidiary of the Borrower or ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate to the PBGC; (c) Fail to make, or permit any Subsidiary of the Borrower or ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower, a Subsidiary of the Borrower or any ERISA Affiliate is required to pay as contributions thereto; (d) Permit to exist, or allow any Subsidiary of the Borrower or ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) Permit, or allow any Subsidiary of the Borrower or ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA; (f) Contribute to or assume an obligation to contribute to, or permit any Subsidiary of the Borrower or ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) Acquire, or permit any Subsidiary of the Borrower or ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (h) Incur, or permit any Subsidiary of the Borrower or ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) Contribute to or assume an obligation to contribute to, or permit any Subsidiary of the Borrower or ERISA Affiliate to contribute to or assume an obligation to -54- contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; or (j) Amend or permit any Subsidiary of the Borrower or ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code. Section 9.11 Sale or Discount of Receivables. None of the Borrower, any Guarantor or any Restricted Affiliate will discount or sell (with or without recourse) any of its notes receivable or accounts receivable. Section 9.12 Funded Debt Ratio. The Borrower will not permit the Funded Debt Ratio as of the end of any fiscal quarter to be greater than 4.75 to 1.00. Section 9.13 Fixed Charge Coverage Ratio. The Borrower will not permit the Fixed Charge Coverage Ratio as of the end of any fiscal quarter (calculated quarterly at the end of each fiscal quarter) to be less than 1.25 to 1.00. For the purposes of this Section 9.13, "Fixed Charge Coverage Ratio" shall mean the ratio of (i) consolidated EBITDA of Buckeye Partners (excluding Unrestricted Subsidiaries and Affiliates of Buckeye Partners that are not Restricted Affiliates) for the four fiscal quarters ending on such date to (ii) the sum of (a) all payments of principal (including the principal component of any payments in respect of capital lease obligations) payable during the succeeding four quarters, plus (b) interest expense for the four fiscal quarters ended on such date, plus (c) capital expenditures for the four fiscal quarters ended on such date, in each case, without duplication, for Buckeye Partners on a consolidated basis (excluding Unrestricted Subsidiaries and Affiliates of Buckeye Partners that are not Restricted Affiliates). Section 9.14 Sale of Properties. None of the Borrower, any Guarantor or any Restricted Affiliate will sell, assign, convey or otherwise transfer any Property or any interest in any Property, unless such Property is not material to the ability of the Borrower or any Restricted Affiliate to generate EBITDA. Section 9.15 Environmental Matters. None of the Borrower, any Guarantor or any Restricted Affiliate will cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any remedial obligations under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations would have a Material Adverse Effect. Section 9.16 Transactions with Affiliates. None of the Borrower, any Guarantor or any Restricted Affiliate will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate unless such transactions are otherwise permitted under this Agreement, are in the ordinary course of its business and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable -55- arm's length transaction with a Person not an Affiliate; provided, however, that the foregoing shall not prohibit or prevent the Borrower, any Guarantor or any Restricted Affiliate from performing under any agreement in effect on the Closing Date. Section 9.17 Partnership Agreements. Without the prior consent of the Required Lenders, which shall not be unreasonably withheld, the Borrower will not amend or permit to be amended in any material respect the Borrower Partnership Agreement. Without the prior consent of the Required Lenders, which shall not be unreasonably withheld, Buckeye Partners will not amend or permit to be amended in any material respect the Buckeye Partners Partnership Agreement. Section 9.18 Senior Notes. Without the prior consent of the Required Lenders, which shall not be unreasonably withheld, the Borrower will not amend or permit to be amended in any material respect the Senior Notes or the Indenture, except that the Borrower may issue additional indebtedness under supplemental indentures issued under the Indenture if otherwise permitted hereunder and thereunder. ARTICLE X Events of Default; Remedies Section 10.01 Events of Default. One or more of the following events shall constitute an "Event of Default": (a) the Borrower shall default in the payment or prepayment when due of any principal of or interest on any Loan, or any reimbursement obligation for a disbursement made under any Letter of Credit, or any fees or other amount payable by it hereunder or under any other Loan Document and such default, other than a default of a payment or prepayment of principal (which shall have no cure period) shall continue unremedied for a period of 3 Business Days; or (b) the Borrower, any Guarantor or any Restricted Affiliate shall default in the payment when due of any principal of or interest on any of its other Debt aggregating $5,000,000 or more, or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Debt shall occur if the effect of such event (after the giving of notice or lapse of time or both, if applicable) is to cause, or to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, such Debt to become due prior to its stated maturity; or (c) any representation, warranty or certification made or deemed made herein or in any other Loan Document by the Borrower, any Guarantor or any Person on behalf of any Restricted Affiliate, or any certificate furnished to any Lender or the Agent pursuant to the provisions hereof or any other Loan Document, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) the Borrower, Buckeye Partners or any Restricted Affiliate (despite the fact that such Restricted Affiliate is not a party to this Agreement) shall default in the -56- performance of any of its obligations under Article IX; or the Borrower, Buckeye Partners or any Restricted Affiliate (despite the fact that such Restricted Affiliate is not a party to this Agreement) shall default in the performance of any of its obligations under Article VIII, any other Article of this Agreement (other than under Article IX) or any other Loan Document (other than the payment of amounts due which shall be governed by Section 10.01(a)) and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) notice thereof to the Borrower and Buckeye Partners by the Agent or any Lender (through the Agent), or (ii) a Responsible Officer of the Borrower or Buckeye Partners otherwise obtaining actual knowledge of such default; or (e) the Borrower shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) the Borrower shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment of all or substantially all of its assets for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Federal Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) a proceeding or case shall be commenced, without the application or consent of the Borrower, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower of all or any substantial part of its assets, or (iii) similar relief in respect of the Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 days; or (iv) an order for relief against the Borrower shall be entered in an involuntary case under the Federal Bankruptcy Code; or (h) a judgment or judgments for the payment of money in excess of $2,000,000 in the aggregate shall be rendered by a court against the Borrower or any Subsidiary and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within thirty (30) days from the date of entry thereof and the Borrower or such Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) any Guaranty Agreement after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, -57- binding and enforceable in accordance with its terms, or the Borrower or any Guarantor shall so state in writing; or (j) a Change of Control shall occur; or (k) any Guarantor takes, suffers or permits to exist any of the events or conditions referred to in paragraphs (e), (f), (g) or (h) or if any provision of any Guaranty Agreement related thereto shall for any reason cease to be valid and binding on the relevant Guarantor or if such Guarantor shall so state in writing; or (l) any Restricted Affiliate takes, suffers or permits to exist any of the events or conditions referred to in paragraphs (e), (f), (g) or (h). Section 10.02 Remedies. (a) In the case of an Event of Default other than one referred to in clauses (e), (f) or (g) of Section 10.01 or in either of clauses (m) and (n) to the extent it relates to clauses (e), (f) or (g), the Agent, upon request of the Required Lenders, shall, by notice to the Borrower, cancel the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.09(b)) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower. (b) In the case of the occurrence of an Event of Default referred to in clauses (e), (f) or (g) of Section 10.01 or in either of clauses (m) and (n) to the extent it relates to clauses (e), (f) or (g), the Commitments shall be automatically canceled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.09(b)) shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower. (c) All proceeds received after maturity of the Notes, whether by acceleration or otherwise shall be applied first to reimbursement of expenses and indemnities provided for in this Agreement and the other Loan Documents; second to accrued interest on the Notes; third to fees; fourth pro rata to principal outstanding on the Notes and other Indebtedness; fifth to serve as cash collateral to be held by the Agent to secure the LC Exposure; and any excess shall be paid to the Borrower or as otherwise required by any Governmental Requirement. -58- ARTICLE XI The Agent Section 11.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 shall include reference to its Affiliates and its and its Affiliates' officers, directors, employees, attorneys, accountants, experts and agents): (i) shall have no duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of the Loan Documents be a trustee or fiduciary for any Lender; (ii) makes no representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by the Borrower or any other Person (other than the Agent) to perform any of its obligations hereunder or thereunder or for the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower, the Guarantors, BMC, any Restricted Affiliate or any other obligor or guarantor; (iii) except pursuant to Section 11.07 shall not be required to initiate or conduct any litigation or collection proceedings hereunder; and (iv) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith including its own ordinary negligence, except for its own gross negligence or willful misconduct. The Agent may employ agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such agents, accountants, attorneys or experts selected by it in good faith or any action taken or omitted to be taken in good faith by it in accordance with the advice of such agents, accountants, attorneys or experts. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Agent. The Agent is authorized to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. The Documentation Agent shall have no duties or responsibilities hereunder. Section 11.02 Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. Section 11.03 Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or of fees or failure to reimburse for Letter of Credit drawings) unless the Agent has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default, the Agent shall give each Lender prompt notice of each such payment Default. -59- Section 11.04 Rights as a Lender. With respect to its Commitments and the Loans made by it and its participation in the issuance of Letters of Credit, First Union (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. First Union (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Agent, and First Union and its Affiliates may accept fees and other consideration from the Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE AGENT AND THE ISSUING BANK RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT OR THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE AGENT OR THE ISSUING BANK, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT. Section 11.06 Non-Reliance on Agent and other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its decision to enter into this Agreement, and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower, the Guarantors or BMC of this Agreement, the Notes, the other Loan Documents or any other document referred to or provided for herein or to inspect the properties or books of the Borrower, the Guarantors or BMC. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Agent or any of its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. -60- is acting in this transaction as special counsel to the Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. Section 11.07 Action by Agent. Except for action or other matters expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (i) receive written instructions from the Required Lenders (or all of the Lenders as expressly required by Section 12.04) specifying the action to be taken, and (ii) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions of the Required Lenders (or all of the Lenders as expressly required by Section 12.04) and any action taken or failure to act pursuant thereto by the Agent shall be binding on all of the Lenders. If a Default has occurred and is continuing, the Agent shall take such action with respect to such Default as shall be directed by the Required Lenders (or all of the Lenders as required by Section 12.04) in the written instructions (with indemnities) described in this Section 11.07, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall the Agent be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement and the other Loan Documents or applicable law. Section 11.08 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and the Agent may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of such appointment hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article XI and Section 12.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. ARTICLE XII Miscellaneous Section 12.01 Waiver. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or -61- further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Section 12.02 Notices. All notices and other communications provided for herein and in the other Loan Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement or the other Loan Documents) shall be given or made by telex, telecopy, courier or U.S. Mail or in writing and telexed, telecopied, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or in the Loan Documents, except that for notices and other communications to the Agent other than payment of money, the Borrower need only send such notices and communications to the Agent care of the Houston address of FUCM; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement or in the other Loan Documents, all such communications shall be deemed to have been duly given when transmitted, if transmitted before 1:00 p.m. local time on a Business Day (otherwise on the next succeeding Business Day) by telex or telecopier and evidence or confirmation of receipt is obtained, or personally delivered or, in the case of a mailed notice, four (4) Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid. Section 12.03 Payment of Expenses, Indemnities, etc. (a) The Borrower agrees: (i) whether or not the transactions hereby contemplated are consummated, to pay all reasonable expenses of the Agent in the administration (both before and after the execution hereof and including advice of counsel as to the rights and duties of the Agent and the Lenders with respect thereto) of, and in connection with the negotiation, syndication, investigation, preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto (including, without limitation, travel, photocopy, mailing, courier, telephone and other similar expenses of the Agent, the cost of environmental audits, surveys and appraisals at reasonable intervals, the reasonable fees and disbursements of counsel and other outside consultants for the Agent and, in the case of enforcement, the reasonable fees and disbursements of counsel for the Agent and any of the Lenders); and promptly reimburse the Agent for all amounts expended, advanced or incurred by the Agent or the Lenders to satisfy any obligation of the Borrower or the Guarantors under this Agreement or any other Loan Document, including without limitation, all costs and expenses of foreclosure; (ii) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF -62- ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS BY BUCKEYE PARTNERS OR THE BORROWER, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER, ANY GUARANTOR AND THE RESTRICTED AFFILIATES, (IV) THE FAILURE OF THE BORROWER, ANY GUARANTOR OR ANY RESTRICTED AFFILIATE TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE BORROWER OR THE GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, OR (VIII) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S), (IX) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE LOAN DOCUMENTS OR (VIII) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND (iii) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER, ANY GUARANTOR OR ANY RESTRICTED AFFILIATE OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF SUCH PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY RESTRICTED AFFILIATE WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER, ANY GUARANTOR OR ANY RESTRICTED AFFILIATE, (III) DUE TO PAST OWNERSHIP BY THE BORROWER, ANY GUARANTOR OR ANY RESTRICTED AFFILIATE OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER, ANY GUARANTOR OR ANY RESTRICTED AFFILIATE, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS; PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(A)(III) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY -63- FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE). (b) No Indemnified Party may settle any claim to be indemnified without the consent of the indemnitor, such consent not to be unreasonably withheld; provided, that the indemnitor may not reasonably withhold consent to any settlement that an Indemnified Party proposes, if the indemnitor does not have the financial ability to pay all its obligations outstanding and asserted against the indemnitor at that time, including the maximum potential claims against the Indemnified Party to be indemnified pursuant to this Section 12.03. (c) In the case of any indemnification hereunder, the Agent or Lender, as appropriate shall give notice to the Borrower of any such claim or demand being made against the Indemnified Party and the Borrower shall have the non-exclusive right to join in the defense against any such claim or demand provided that if the Borrower provides a defense, the Indemnified Party shall bear its own cost of defense unless there is a conflict between the Borrower and such Indemnified Party. (d) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY. (e) The Borrower's obligations under this Section 12.03 shall survive any termination of this Agreement and the payment of the Notes and shall continue thereafter in full force and effect. (f) The Borrower shall pay any amounts due under this Section 12.03 within thirty (30) days of the receipt by the Borrower of notice of the amount due. Section 12.04 Amendments, Etc. Any provision of this Agreement or any other Loan Document may be amended, modified or waived with the Borrower's and the Required Lenders' prior written consent; provided that (i) no amendment, modification or waiver which extends the final maturity of the Loans, increases the Aggregate Revolving Credit Commitments, forgives the principal amount of any Indebtedness outstanding under this Agreement, releases any guarantor of the Indebtedness, reduces the interest rate applicable to the Loans or the fees payable to the Lenders generally, affects this Section 12.04 or Section 12.06(a) or modifies the definition of "Required Lenders" shall be effective without consent of all Lenders; (ii) no amendment, modification or -64- waiver which increases the Revolving Credit Commitment of any Lender shall be effective without the consent of such Lender; and (iii) no amendment, modification or waiver which modifies the rights, duties or obligations of the Agent shall be effective without the consent of the Agent. Section 12.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 12.06 Assignments and Participations. (a) The Borrower may not assign its rights or obligations hereunder or under the Notes or any Letters of Credit without the prior consent of all of the Lenders and the Agent. (b) Any Lender may upon the written consent of the Agent (which consent will not be unreasonably withheld) and, if no Event of Default has occurred and is continuing, the Borrower (which consent will not be unreasonably withheld), assign to one or more assignees all or a portion of its rights and obligations under this Agreement pursuant to an Assignment Agreement substantially in the form of Exhibit D (an "Assignment"); provided, however, that (i) any such assignment shall be in the amount of at least $5,000,000 or such lesser amount to which the Borrower has consented, (ii) the assignee or assignor shall pay to the Agent a processing and recordation fee of $3,500 for each assignment and (iii) any assignment to an Affiliate of such Lender will not require the consent of the Agent or the Borrower. Any such assignment will become effective upon the execution and delivery to the Agent of the Assignment and the consent of the Agent. Promptly after receipt of an executed Assignment, the Agent shall send to the Borrower a copy of such executed Assignment. Upon receipt of such executed Assignment, the Borrower, will, at its own expense, execute and deliver new Notes to the assignor and/or assignee, as appropriate, in accordance with their respective interests as they appear and the assigning Lender shall return to the Borrower the replaced Note. Upon the effectiveness of any assignment pursuant to this Section 12.06(b), the assignee will become a "Lender," if not already a "Lender," for all purposes of this Agreement and the other Loan Documents. The assignor shall be relieved of its obligations hereunder to the extent of such assignment (and if the assigning Lender no longer holds any rights or obligations under this Agreement, such assigning Lender shall cease to be a "Lender" hereunder except that its rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Agent will prepare on the last Business Day of each month during which an assignment has become effective pursuant to this Section 12.06(b), a new Annex I giving effect to all such assignments effected during such month, and will promptly provide the same to the Borrower and each of the Lenders. (c) Each Lender may transfer, grant or assign participations in all or any part of such Lender's interests hereunder pursuant to this Section 12.06(c) to any Person, provided that: (i) such Lender shall remain a "Lender" for all purposes of this Agreement and the transferee of such participation shall not constitute a "Lender" hereunder; and (ii) no participant under any such participation shall have rights to approve any amendment to or waiver of any of the Loan Documents except to the extent such amendment or waiver would (x) forgive any principal owing on any Indebtedness or extend the final maturity of the Loans, (y) reduce the interest rate (other than as a result of waiving the applicability of any -65- post-default increases in interest rates) or fees applicable to any of the Commitments or Loans or Letters of Credit in which such participant is participating, or postpone the payment of any thereof, or (z) release any guarantor of the Indebtedness or release all or substantially all of the collateral (except as provided in the Loan Documents) supporting any of the Commitments or Loans or Letters of Credit in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Lender in respect of such participation to be those set forth in the agreement with such Lender creating such participation), and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Article V on the same basis as if it were a Lender and be indemnified under Section 12.03 as if it were a Lender. In addition, each agreement creating any participation must include an agreement by the participant to be bound by the provisions of Section 12.15. (d) The Lenders may furnish any information concerning the Borrower, the Guarantors and the Restricted Affiliates in the possession of the Lenders from time to time to assignees and participants (including prospective assignees and participants); provided that, such Persons agree to be bound by the provisions of Section 12.15. (e) Notwithstanding anything in this Section 12.06 to the contrary, any Lender may assign and pledge its Note to any Federal Reserve Bank. No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder. (f) Notwithstanding any other provisions of this Section 12.06, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any state. Section 12.07 Invalidity. In the event that any one or more of the provisions contained in any of the Loan Documents or the Letters of Credit, the Letter of Credit Agreements shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Notes, this Agreement or any other Loan Document. Section 12.08 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Section 12.09 References. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to a Section shall be deemed to refer to the applicable Section of this Agreement unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein. -66- Section 12.10 Survival. The obligations of the parties under Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans and the termination of the Commitments. To the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Agent's and the Lenders' rights, powers and remedies under this Agreement and each other Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Agent and the Lenders to effect such reinstatement. Section 12.11 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS AGREEMENT AND THE NOTES (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, BUCKEYE PARTNERS, THE AGENT AND EACH LENDER HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE BORROWER, BUCKEYE PARTNERS, THE AGENT AND EACH LENDER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE PARTIES FROM OBTAINING JURISDICTION OVER OTHER PARTIES IN ANY COURT OTHERWISE HAVING JURISDICTION. -67- (c) EACH OF THE BORROWER AND BUCKEYE PARTNERS HEREBY IRREVOCABLY DESIGNATES CT CORPORATION LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS THE DESIGNEE, APPOINTEE AND AGENT OF ITSELF TO RECEIVE, FOR AND ON BEHALF OF ITSELF, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS. IT IS UNDER STOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY OVERNIGHT COURIER TO EACH OF THE BORROWER AND BUCKEYE PARTNERS AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF ANY OF THE BORROWER AND BUCKEYE PARTNERS TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. EACH OF THE BORROWER AND BUCKEYE PARTNERS FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. (d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER OR ANY GUARANTOR IN ANY OTHER JURISDICTION. (e) THE BORROWER, BUCKEYE PARTNERS, AND EACH LENDER HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.13. Section 12.14 Interest. It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances -68- exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.14. Section 12.15 Confidentiality. In the event that the Borrower or any Guarantor provides to the Agent or the Lenders written confidential information belonging to the Borrower or such Guarantor, if the Borrower or such Guarantor shall denominate such information in writing as "confidential", the Agent and the Lenders shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain, (ii) hereafter become part of the public domain without the Agent or the Lenders breaching their obligation of confidence to the Borrower and such Guarantor, (iii) are previously known by the Agent or the Lenders from some source other than the Borrower or such Guarantor, (iv) are hereafter developed by the Agent or the Lenders without using the Borrower's or such Guarantor's information, (v) are hereafter obtained by or available to the Agent or the Lenders from a third party who owes no obligation of confidence to the Borrower or such Guarantor with respect to such information or through any other means other than through disclosure by the Borrower or such Guarantor, (vi) are disclosed with the Borrower's or the Guarantor's consent, (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Agent or the Lenders, or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. Further, except where prohibited by applicable law, the Agent or a Lender may disclose any such information to any other Lender, any independent petroleum engineers or consultants, any -69- independent certified public accountants, any legal counsel employed by such Person in connection with this Agreement or any other Loan Document, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loans; provided, however, that the Agent or the Lenders shall receive a confidentiality agreement from the Person to whom such information is disclosed such that said Person shall have the same obligation to maintain the confidentiality of such information as is imposed upon the Agent or the Lenders hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease three (3) years from the date the information was furnished, unless the Borrower and the Guarantors request in writing at least thirty (30) days prior to the expiration of such three year period, to maintain the confidentiality of such information for an additional three year period. Each of the Borrower and the Guarantors waives any and all other rights it may have to confidentiality as against the Agent and the Lenders arising by contract, agreement, statute or law except as expressly stated in this Section 12.15. Section 12.16 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS." [Signatures Begin Next Page] -70- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. BORROWER: BUCKEYE PIPE LINE COMPANY, L.P. By: Buckeye Pipe Line Company, its general partner By: /s/ Steven C. Ramsey ------------------------------------- Name: Steven C. Ramsey Title: Senior Vice President, Finance Address for Notices: 3900 Hamilton Boulevard Allentown, Pennsylvania 18103 Telecopier No.: 610/770-4581 Telephone No.: 610/770-4000 Attention: Senior Vice President, Finance GUARANTOR: BUCKEYE PARTNERS, L.P. By: Buckeye Management Company, its general partner By: /s/ Steven C. Ramsey ------------------------------------- Name: Steven C. Ramsey Title: Senior Vice President, Finance Address for Notices: 3900 Hamilton Boulevard Allentown, Pennsylvania 18103 Telecopier No.: 610/770-4581 Telephone No.: 610/770-4000 Attention: Senior Vice President, Finance Signature Page - 1 LENDER AND AGENT: FIRST UNION NATIONAL BANK By: /s/ Robert R. Wetteroff ------------------------------------ Name: Robert R. Wetteroff Title: Senior Vice President Lending Office for Base Rate Loans and LIBOR Loans: 301 South College Street, TW-10 Charlotte, North Carolina 28288-0608 Telecopier No.: 704/383-0288 Telephone No.: 704/383-0281 Attention: Syndication Agency Services Address for Notices: First Union Capital Markets First City Tower, Suite 2255 1001 Fannin Houston, Texas 77002 Telecopier No.: 713/650-6354 Telephone No.: 713/650-3619 Attention: Russell Clingman Signature Page - 2 LENDERS: THE FIRST NATIONAL BANK OF CHICAGO By: /s/ T. Thomas Cheng ------------------------------------ Name: T. Thomas Cheng Title: First Vice President Lending Office for Base Rate Loans and Eurodollar Loans: The First National Bank of Chicago One First National Plaza, Suite 0634 Chicago, Illinois 60670 Address for Notices: The First National Bank of Chicago One First National Plaza, Suite 0634 Chicago, Illinois 60670 Telecopier No.: 312/732-4840 Telephone No.: 312/732-8573 Attention: Hien Le Signature Page - 3 SUNTRUST BANK, ATLANTA By: /s/ W. David Wisdom ------------------------------------ Name: W. David Wisdom Title: Group Vice President By: /s/ Laura G. Harrison ------------------------------------ Name: Laura G. Harrison Title: Assistant Vice President Lending Office for Base Rate Loans and Eurodollar Loans: SunTrust Bank, Atlanta 25 Park Place, 21st Floor, center 122 Atlanta, Georgia 30303 Address for Notices: SunTrust Bank, Atlanta 711 Fifth Avenue, 16th Floor New York, New York 10022 Telecopier No.: 212/371-9386 Telephone No.: 212/583-2602 Attention: Lara McGinty, Associate Signature Page - 4 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Daryl G. Patterson ------------------------------------ Name: Daryl G. Patterson Title: Vice President Lending Office for Base Rate Loans and Eurodollar Loans: Bank of America National Trust and Savings Association 1850 Gateway Blvd. Concord, California 94520 Address for Notices: Bank of America National Trust and Savings Association 1850 Gateway Blvd. Concord, California 94520 Telecopier No.: 925/675-7531 Telephone No.: 925-675-7759 Attention: Daryl G. Patterson With copy to: Pamela K. Rodgers Bank of America National Trust and Savings Association 333 Clay Street, Suite 4550 Houston, Texas 77002 Telecopier No.: 713/651-4808 Telephone No.: 713/651-4880 Signature Page - 5 ANNEX I LIST OF PERCENTAGE SHARES AND REVOLVING CREDIT COMMITMENTS - -------------------------------------------------------------------------------- Name of Lender Percentage Share Revolving Credit Commitments - -------------------------------------------------------------------------------- First Union National Bank 30% $30,000,000 - -------------------------------------------------------------------------------- The First National Bank of 25% $25,000,000 Chicago - -------------------------------------------------------------------------------- Bank of America National 22.5% $22,500,000 Trust and Savings Association - -------------------------------------------------------------------------------- SunTrust Bank, Atlanta 22.5% $22,500,000 - -------------------------------------------------------------------------------- TOTAL 100% $100,000,000 - -------------------------------------------------------------------------------- Annex I-1 EXHIBIT A-1 FORM OF REVOLVING CREDIT NOTE $_____________________________ ___________________, 1998 FOR VALUE RECEIVED, BUCKEYE PIPE LINE COMPANY, L.P., a Delaware limited partnership (the "Borrower") hereby promises to pay to the order of ______________________________ (the "Lender"), at the Principal Office of First Union National Bank (the "Agent"), at 301 South College Street, Charlotte, North Carolina 28288, the principal sum of _____________ Dollars ($____________) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Lender to the Borrower under the Credit Agreement, as hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate, Interest Period and maturity of each Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this [Revolving Credit] Note, endorsed by the Lender on the schedules attached hereto or any continuation thereof. This Revolving Credit Note is one of the Notes referred to in the Credit Agreement dated as of December ____, 1998 among the Borrower, Buckeye Partners, L.P., the Lenders which are or become parties thereto (including the Lender) and the Agent (as the same may be amended or supplemented from time to time, the "Credit Agreement"), and evidences Loans made by the Lender thereunder. Capitalized terms used in this Revolving Credit Note have the respective meanings assigned to them in the Credit Agreement. This Revolving Credit Note is issued pursuant to the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the other Loan Documents. The Credit Agreement provides for the acceleration of the maturity of this Revolving Credit Note upon the occurrence of certain events, for prepayments of Loans upon the terms and conditions specified therein and other provisions relevant to this Revolving Credit Note. Exhibit A-1-1 THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. BUCKEYE PIPE LINE COMPANY, L.P. By: Buckeye Pipe Line Company, its general partner By:___________________________________ Name: Title: Exhibit A-1-2 EXHIBIT A-2 FORM OF SWING LINE NOTE $5,000,000 ___________________, 1998 FOR VALUE RECEIVED, BUCKEYE PIPE LINE COMPANY, L.P., a Delaware limited partnership (the "Borrower") hereby promises to pay to the order of FIRST UNION NATIONAL BANK (the "Swing Line Lender"), at its Principal Office at 301 South College Street, Charlotte, North Carolina 28288, the principal sum of FIVE MILLION DOLLARS ($5,000,000) or, if less, the outstanding principal amount advanced under this Swing Line Note, in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Swing Line Loan, at such office, in like money and funds, for the period commencing on the date of such Swing Line Loan until such Swing Line Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, interest rate and maturity of each Swing Line Loan made by the Swing Line Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Swing Line Lender on its books and, prior to any transfer of this Swing Line Note, may be endorsed by the Swing Line Lender on the schedules attached hereto or any continuation thereof or on any separate record maintained by the Swing Line Lender. This Swing Line Note is one of the Notes referred to in the Credit Agreement dated as of December __, 1998 among the Borrower, Buckeye Partners, L.P., the Lenders which are or become parties thereto (including the Swing Line Lender) and the Agent, and evidences Swing Line Loans made by the Swing Line Lender thereunder (such Amended and Restated Credit Agreement as the same may be amended or supplemented from time to time, the "Credit Agreement"). Capitalized terms used in this Swing Line Note have the respective meanings assigned to them in the Credit Agreement. This Swing Line Note is issued pursuant to the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the other Loan Documents. The Credit Agreement provides for the acceleration of the maturity of this Swing Line Note upon the occurrence of certain events, for prepayments of Swing Line Loans upon the terms and conditions specified therein and other provisions relevant to this Swing Line Note. Exhibit A-2-1 THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. BUCKEYE PIPE LINE COMPANY, L.P. By: Buckeye Pipe Line Company, its general partner By:___________________________________ Name: Title: Exhibit A-2-2 EXHIBIT B FORM OF BORROWING, CONTINUATION AND CONVERSION REQUEST _____________________, 199__ BUCKEYE PIPE LINE COMPANY, L.P., a Delaware limited partnership (the "Borrower"), pursuant to the Credit Agreement dated as of December ____, 1998 among the Borrower, Buckeye Partners, L.P., First Union National Bank, as Agent for the lenders (the "Lenders") which are or become parties thereto, and such Lenders (together with all amendments or supplements thereto, the "Credit Agreement"), hereby makes the requests indicated below (unless otherwise defined herein, capitalized terms are defined in the Credit Agreement): [ ] 1. Revolving Credit Loans: (a) Aggregate amount of new Revolving Credit Loans to be $_____________________; (b) Requested funding date is _________________, 199__; (c) $_____________________ of such borrowings are to be Eurodollar Loans; $_____________________ of such borrowings are to be Base Rate Loans; and (d) Length of Interest Period for Eurodollar Loans is: -------------------------. [ ] 2. Swing Line Loans: (a) Aggregate amount of new Swing Line Loans to be $___________________; and (b) Requested funding date is _________________, 199__; [ ] 3. Eurodollar Loan Continuation for Eurodollar Loans maturing on ________________: (a) Aggregate amount to be continued as Eurodollar Loans is $___________; (b) Aggregate amount to be converted to Base Rate Loans is $____________; Exhibit B-1 (c) Length of Interest Period for continued Eurodollar Loans is _____________________. 4. Conversion of Outstanding Base Rate Loans to Eurodollar Loans: Convert $__________________ of the outstanding Base Rate Loans to Eurodollar Loans on ____________________ with an Interest Period of ____________________. 5. Conversion of outstanding Eurodollar Loans to Base Rate Loans: Convert $__________________ of the outstanding Eurodollar Loans with Interest Period maturing on ______________________, 199_, to Base Rate Loans. The undersigned certifies that he is the _____________________ of the general partner of Borrower, and that as such he is authorized to execute this certificate on behalf of the Borrower. The undersigned further certifies, represents and warrants on behalf of the Borrower that the Borrower is entitled to receive the requested borrowing, continuation or conversion under the terms and conditions of the Credit Agreement. BUCKEYE PIPE LINE COMPANY, L.P. By: Buckeye Pipe Line Company, its general partner By:___________________________________ Name: Title: Exhibit B-2 EXHIBIT C FORM OF COMPLIANCE CERTIFICATE The undersigned each hereby respectively certify that it is the general partner of BUCKEYE PIPE LINE COMPANY, L.P., a Delaware limited partnership (the "Borrower") and that as such it is authorized to execute this certificate on behalf of the Borrower and it is the general partner of BUCKEYE PARTNERS, L.P., a Delaware limited partnership (the "Buckeye Partners") and that as such it is authorized to execute this certificate on behalf of Buckeye Partners. With reference to the Credit Agreement dated as of December ____, 1998 among the Borrower, Buckeye Partners, L.P., First Union National Bank, as Agent for the lenders (the "Lenders") which are or become a party thereto, and such Lenders (together with all amendments or supplements thereto being the "Credit Agreement"), the undersigned, on behalf of the Borrower and Buckeye Partners, respectively, represent and warrant as follows (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): (a) The representations and warranties of the Borrower and Buckeye Partners contained in Article VII of the Credit Agreement and in the other Loan Documents and otherwise made in writing by or on behalf of the Borrower and Buckeye Partners pursuant to the Credit Agreement and the other Loan Documents were true and correct when made, and are repeated at and as of the time of delivery hereof and are true and correct at and as of the time of delivery hereof, except as such representations and warranties are modified to give effect to the transactions expressly permitted by the Credit Agreement. (b) Each of the Borrower and Buckeye Partners has performed and complied with all agreements and conditions contained in the Credit Agreement and in the other Loan Documents required to be performed or complied with by it prior to or at the time of delivery hereof. (c) None of the Borrower, Buckeye Partners or any Restricted Subsidiary of the Borrower or Buckeye Partners has incurred any material liabilities, direct or contingent, since [date of last audited financial statements delivered] except those set forth in Schedule 9.01 to the Credit Agreement and except those not prohibited by the terms of the Credit Agreement or consented to by the Lenders in writing. (d) Since [date of last audited financial statements delivered], no change has occurred, either in any case or in the aggregate, in the condition, financial or otherwise, of the Borrower, Buckeye Partners or any Subsidiary of the Borrower or Buckeye Partners which would have a Material Adverse Effect. (e) There exists, and, after giving effect to the loan or loans with respect to which this certificate is being delivered, will exist, no Default under the Credit Agreement or any event or circumstance which constitutes, or with notice or lapse of time (or both) would constitute, an event of default under any loan or credit Exhibit C-1 agreement, indenture, deed of trust, security agreement or other agreement or instrument evidencing or pertaining to any Debt of the Borrower, Buckeye Partners or any Subsidiary of the Borrower or Buckeye Partners, or under any material agreement or instrument to which the Borrower, Buckeye Partners or any Subsidiary of the Borrower or Buckeye Partners is a party or by which the Borrower, Buckeye Partners or any Subsidiary of the Borrower or Buckeye Partners is bound. (f) The financial statements furnished to the Agent with this certificate fairly present the consolidated financial condition and results of operations of Buckeye Partners and its Consolidated Subsidiaries as at the end of, and for, the [fiscal quarter] [fiscal year] ending _________________________ and such financial statements have been prepared in accordance with the accounting requirements specified in the Credit Agreement. (g) Attached hereto are the detailed computations necessary to determine whether the Borrower is in compliance with Sections 9.12 and 9.13 of the Credit Agreement as of the end of the [fiscal quarter] [fiscal year] ending ____________________. The officers signing this Certificate on behalf of the general partners of the Borrower and Buckeye Partners each hereby certify that they hold the officer set forth under their signature and are authorized to execute this Certificate on behalf of such general partner. EXECUTED AND DELIVERED this ____ day of ______________. BUCKEYE PIPE LINE COMPANY, L.P. By: Buckeye Pipe Line Company, its general partner By:___________________________________ Name: Title: BUCKEYE PARTNERS, L.P. By: Buckeye Management Company, its general partner By:__________________________________ Name: Title: Exhibit C-2 EXHIBIT D FORM OF ASSIGNMENT AGREEMENT ASSIGNMENT AGREEMENT ("Agreement") dated as of ________________, 199___ between: _________________________________ (the "Assignor") and __________________________ (the "Assignee"). RECITALS A. The Assignor is a party to the Credit Agreement dated as of November ____, 1998 (as amended and supplemented and in effect from time to time, the "Credit Agreement") among Buckeye Pipe Line Company, L.P., a ___________ limited partnership (the "Borrower"), Buckeye Partners, L.P., Buckeye Management Company, each of the lenders that is or becomes a party thereto as provided in Section 12.06 of the Credit Agreement (individually, together with its successors and assigns, a "Lender", and collectively, together with their successors and assigns, the "Lenders"), and First Union National Bank, in its individual capacity, ("First Union") and as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). B. The Assignor proposes to sell, assign and transfer to the Assignee, and the Assignee proposes to purchase and assume from the Assignor, [all][a portion] of the Assignor's [Revolving] Credit Commitment, outstanding Loans and its Percentage Share of the outstanding LC Exposure, all on the terms and conditions of this Agreement. C. In consideration of the foregoing and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions. Section 1.01 Definitions. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. Section 1.02 Other Definitions. As used herein, the following terms have the following respective meanings: "Assigned Interest" shall mean all of Assignor's (in its capacity as a "Lender") rights and obligations (i) under the Credit Agreement and the other Loan Documents in respect of the Revolving Credit Commitment of the Assignor in the principal amount equal to $____________________, including, without limitation, any obligation to participate pro rata in any LC Exposure, and (ii) to make Loans under the Revolving Credit Commitment and any right to receive payments for the Loans outstanding under the Revolving Credit Exhibit D-1 Commitment assigned hereby of $____________ (the "Loan Balance"), plus the interest and fees which will accrue from and after the Assignment Date. "Assignment Date" shall mean _____________________, 199___. ARTICLE II Sale and Assignment. Section 2.01 Sale and Assignment. On the terms and conditions set forth herein, effective on and as of the Assignment Date, the Assignor hereby sells, assigns and transfers to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, all of the right, title and interest of the Assignor in and to, and all of the obligations of the Assignor in respect of, the Assigned Interest. Such sale, assignment and transfer is without recourse and, except as expressly provided in this Agreement, without representation or warranty. Section 2.02 Assumption of Obligations. The Assignee agrees with the Assignor (for the express benefit of the Assignor and the Borrower) that the Assignee will, from and after the Assignment Date, perform all of the obligations of the Assignor in respect of the Assigned Interest. From and after the Assignment Date: (a) the Assignor shall be released from the Assignor's obligations in respect of the Assigned Interest, and (b) the Assignee shall be entitled to all of the Assignor's rights, powers and privileges under the Credit Agreement and the other Loan Documents in respect of the Assigned Interest. Section 2.03 Consent by Agent. By executing this Agreement as provided below, in accordance with Section 12.06(b) of the Credit Agreement, the Agent hereby acknowledges notice of the transactions contemplated by this Agreement and consents to such transactions. ARTICLE III Payments. Section 3.01 Payments. As consideration for the sale, assignment and transfer contemplated by Section 2.01 hereof, the Assignee shall, on the Assignment Date, assume Assignor's obligations in respect of the Assigned Interest and pay to the Assignor an amount equal to the Loan Balance, if any. An amount equal to all accrued and unpaid interest and fees shall be paid to the Assignor as provided in Section 3.02 (iii) below. Except as otherwise provided in this Agreement, all payments hereunder shall be made in Dollars and in immediately available funds, without setoff, deduction or counterclaim. Section 3.02 Allocation of Payments. The Assignor and the Assignee agree that (i) the Assignor shall be entitled to any payments of principal with respect to the Assigned Interest made prior to the Assignment Date, together with any interest and fees with respect to the Assigned Interest accrued prior to the Assignment Date, (ii) the Assignee shall be entitled to any payments of Exhibit D-2 principal with respect to the Assigned Interest made from and after the Assignment Date, together with any and all interest and fees with respect to the Assigned Interest accruing from and after the Assignment Date, and (iii) the Agent is authorized and instructed to allocate payments received by it for account of the Assignor and the Assignee as provided in the foregoing clauses. Each party hereto agrees that it will hold any interest, fees or other amounts that it may receive to which the other party hereto shall be entitled pursuant to the preceding sentence for account of such other party and pay, in like money and funds, any such amounts that it may receive to such other party promptly upon receipt. Section 3.03 Delivery of Notes. Promptly following the receipt by the Assignor of the consideration required to be paid under Section 3.01 hereof, the Assignor shall, in the manner contemplated by Section 12.06(b) of the Credit Agreement, (i) deliver to the Agent (or its counsel) the Note held by the Assignor and (ii) notify the Agent to request that the Borrower execute and deliver new Notes to the Assignor, if Assignor continues to be a Lender, and the Assignee, dated the date of this Agreement in the principal amount equal to the Revolving Credit Commitment of the Assignor (if appropriate) and the Assignee after giving effect to the sale, assignment and transfer contemplated hereby. Section 3.04 Further Assurances. The Assignor and the Assignee hereby agree to execute and deliver such other instruments, and take such other actions, as either party may reasonably request in connection with the transactions contemplated by this Agreement. ARTICLE IV Conditions Precedent. Section 4.01 Conditions Precedent. The effectiveness of the sale, assignment and transfer contemplated hereby is subject to the satisfaction of each of the following conditions precedent: (a) the execution and delivery of this Agreement by the Assignor and the Assignee; (b) the receipt by the Assignor of the payment required to be made by the Assignee under Section 3.01 hereof; and (c) the acknowledgment and consent by the Agent contemplated by Section 2.03 hereof. Exhibit D-3 ARTICLE V Representations and Warranties. Section 5.01 Representations and Warranties of the Assignor. The Assignor represents and warrants to the Assignee as follows: (a) it has all requisite power and authority, and has taken all action necessary to execute and deliver this Agreement and to fulfill its obligations under, and consummate the transactions contemplated by, this Agreement; (b) the execution, delivery and compliance with the terms hereof by Assignor and the delivery of all instruments required to be delivered by it hereunder do not and will not violate any Governmental Requirement applicable to it; (c) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against it in accordance with its terms; (d) all approvals and authorizations of, all filings with and all actions by any Governmental Authority necessary for the validity or enforceability of its obligations under this Agreement have been obtained; (e) the Assignor has good title to, and is the sole legal and beneficial owner of, the Assigned Interest, free and clear of all Liens, claims, participations or other charges of any nature whatsoever; and (f) the transactions contemplated by this Agreement are commercial banking transactions entered into in the ordinary course of the banking business of the Assignor. Section 5.02 Disclaimer. Except as expressly provided in Section 5.01 hereof, the Assignor does not make any representation or warranty, nor shall it have any responsibility to the Assignee, with respect to the accuracy of any recitals, statements, representations or warranties contained in the Credit Agreement or in any certificate or other document referred to or provided for in, or received by any Lender under, the Credit Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of the Credit Agreement, the Notes or any other document referred to or provided for therein or for any failure by the Borrower or any other Person (other than Assignor) to perform any of its obligations thereunder prior or for the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower or the Subsidiaries [or any other obligor or guarantor], or any other matter relating to the Credit Agreement or any other Loan Document or any extension of credit thereunder. Section 5.03 Representations and Warranties of the Assignee. The Assignee represents and warrants to the Assignor as follows: Exhibit D-4 (a) it has all requisite power and authority, and has taken all action necessary to execute and deliver this Agreement and to fulfill its obligations under, and consummate the transactions contemplated by, this Agreement; (b) the execution, delivery and compliance with the terms hereof by Assignee and the delivery of all instruments required to be delivered by it hereunder do not and will not violate any Governmental Requirement applicable to it; (c) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against it in accordance with its terms; (d) all approvals and authorizations of, all filings with and all actions by any Governmental Authority necessary for the validity or enforceability of its obligations under this Agreement have been obtained; (e) the Assignee has fully reviewed the terms of the Credit Agreement and the other Loan Documents and has independently and without reliance upon the Assignor, and based on such information as the Assignee has deemed appropriate, made its own credit analysis and decision to enter into this Agreement; (f) the Assignee hereby affirms that the representations contained in Section 4.06(d)[(i)][ii)] of the Credit Agreement are true and accurate as to it [IF (ii) IS SELECTED ADD: and, the Assignee has contemporaneously herewith delivered to the Agent and the Borrower such certifications as are required thereby to avoid the withholding taxes referred to in Section 4.06]; and (g) the transactions contemplated by this Agreement are commercial banking transactions entered into in the ordinary course of the banking business of the Assignee. ARTICLE VI Miscellaneous. Section 6.01 Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) to the intended recipient at its "Address for Notices" specified below its name on the signature pages hereof or, as to either party, at such other address as shall be designated by such party in a notice to the other party. Section 6.02 Amendment, Modification or Waiver. No provision of this Agreement may be amended, modified or waived except by an instrument in writing signed by the Assignor and the Assignee, and consented to by the Agent. Exhibit D-5 Section 6.03 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The representations and warranties made herein by the Assignee are also made for the benefit of the Agent and the Borrower, and the Assignee agrees that the Agent and the Borrower are entitled to rely upon such representations and warranties. Section 6.04 Assignments. Neither party hereto may assign any of its rights or obligations hereunder except in accordance with the terms of the Credit Agreement. Section 6.05 Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 6.06 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be identical and all of which, taken together, shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. Section 6.07 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. Section 6.08 Expenses. To the extent not paid by the Borrower pursuant to the terms of the Credit Agreement, each party hereto shall bear its own expenses in connection with the execution, delivery and performance of this Agreement. Section 6.09 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed and delivered as of the date first above written. ASSIGNOR: ________________________________ By:_____________________________ Name: Title: Exhibit D-6 Address for Notices: _______________________________ _______________________________ _______________________________ Telecopier No.:________________ Telephone No.: ________________ Attention: ____________________ Exhibit D-7 ASSIGNEE: ________________________________ By:_____________________________ Name: Title: Address for Notices: _______________________________ _______________________________ _______________________________ Telecopier No.:________________ Telephone No.: ________________ Attention: ____________________ ACKNOWLEDGED AND CONSENTED TO: _____________________________, as Agent By:___________________________ Name: Title: Exhibit D-8 EXHIBIT E UNRESTRICTED SUBSIDIARIES DESIGNATED ON THE CLOSING DATE Exhibit E-1 EX-10.17 7 GUARANTY AGREEMENT GUARANTY AGREEMENT by BUCKEYE PARTNERS, L.P. in favor of FIRST UNION NATIONAL BANK December 16, 1998 TABLE OF CONTENTS -----------------
Page ARTICLE 1 --------- General Terms ------------- Section 1.1 Terms Defined Above....................................................................1 ------------------- Section 1.2 Certain Definitions....................................................................1 ------------------- Section 1.3 Credit Agreement Definitions...........................................................3 ---------------------------- ARTICLE 2 --------- The Guaranty ------------ Section 2.1 Liabilities Guaranteed.................................................................3 ---------------------- Section 2.2 Nature of Guaranty.....................................................................3 ------------------ Section 2.3 Intentionally Deleted..................................................................3 --------------------- Section 2.4 Guarantor's Waivers....................................................................4 ------------------- Section 2.5 Maturity of Liabilities; Payment.......................................................4 -------------------------------- Section 2.6 Agent's Expenses.......................................................................4 ---------------- Section 2.7 Liability..............................................................................4 --------- Section 2.8 Events and Circumstances Not Reducing or Discharging Guarantor's ---------------------------------------------------------------- Obligations.....................................................................................4 ----------- Section 2.9 Right of Subrogation and Contribution..................................................6 ------------------------------------- ARTICLE 3 --------- Representations and Warranties ------------------------------ Section 3.1 By Guarantor...........................................................................7 ------------ Section 3.2 No Representation by Lenders...........................................................8 ---------------------------- ARTICLE 4 --------- Subordination of Indebtedness -----------------------------
i
Section 4.1 Subordination of All Guarantor Claims..................................................8 ------------------------------------- Section 4.2 Claims in Bankruptcy...................................................................8 -------------------- Section 4.3 Payments Held in Trust.................................................................8 ---------------------- Section 4.4 Liens Subordinate......................................................................8 ----------------- Section 4.5 Notation of Records....................................................................9 ------------------- ARTICLE 5 --------- Miscellaneous ------------- Section 5.1 Successors and Assigns.................................................................9 ---------------------- Section 5.2 Notices................................................................................9 ------- Section 5.3 Business and Financial Information.....................................................9 ---------------------------------- Section 5.4 Construction...........................................................................9 ------------ Section 5.5 Invalidity............................................................................10 ---------- Section 5.6 ENTIRE AGREEMENT......................................................................10 ----------------
ii GUARANTY AGREEMENT ------------------ THIS GUARANTY AGREEMENT, dated as of December 16, 1998, by BUCKEYE PARTNERS, L.P. (the "Guarantor"), is in favor of FIRST UNION NATIONAL BANK, as agent (the "Agent") for the lenders (the "Lenders") that are or become parties to the Credit Agreement defined below. W I T N E S S E T H: - - - - - - - - - - WHEREAS, on even date herewith, BUCKEYE PIPE LINE COMPANY, L.P., a Delaware limited partnership (the "Borrower"), the Agent and the Lenders have entered into that certain Credit Agreement (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"); and WHEREAS, one of the terms and conditions stated in the Credit Agreement for the making of the loans described therein is the execution and delivery to the Agent for the benefit of the Lenders of this Guaranty Agreement; NOW, THEREFORE, (i) in order to comply with the terms and conditions of the Credit Agreement, (ii) to induce the Lenders, at any time or from time to time, to loan monies, with or without security to or for the account of Borrower in accordance with the terms of the Credit Agreement, (iii) at the special insistence and request of the Lenders, and (iv) for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Guarantor hereby agrees as follows: ARTICLE 1 --------- General Terms ------------- Section 1.1 Terms Defined Above. As used in this Guaranty Agreement, the terms "Agent", "Borrower", "Credit Agreement", "Guarantor" and "Lenders" shall have the meanings indicated above. Section 1.2 Certain Definitions. As used in this Guaranty Agreement, the following terms shall have the following meanings, unless the context otherwise requires: "Contribution Obligation" shall mean an amount equal, at any time and from time to time and for each respective Subsidiary Guarantor, to the product of (i) its Contribution Percentage times (ii) the sum of all payments made previous to or at the time of calculation by all Subsidiary Guarantors in respect of the Liabilities, as a Subsidiary Guarantor (less the amount of any such payments previously returned to any Subsidiary Guarantor by operation of law or otherwise, but not including payments received by any Subsidiary Guarantor by way of its rights of subrogation and contribution under Section 2.9 of the other Guaranty Agreements), provided, however, such Contribution Obligation for any Subsidiary Guarantor shall in no event exceed such Subsidiary Guarantor's Maximum Guaranteed Amount, as defined in the respective Guaranty Agreement of such Subsidiary Guarantor. "Contribution Percentage" shall mean for any Subsidiary Guarantor for any applicable date as of which such percentage is being determined, an amount equal to the quotient of (i) the Net Worth of such Subsidiary Guarantor as of such date, divided by (ii) the sum of the Net Worth of all the Subsidiary Guarantors as of such date. "Guarantor Claims" shall have the meaning indicated in Section 4.1 hereof. "Guaranty Agreement" shall mean this Guaranty Agreement, and where the context indicates, the Guaranty Agreement of any other Subsidiary Guarantor, as the same may from time to time be amended, supplemented, or otherwise modified. "Liabilities" shall mean (a) any and all indebtedness, obligations and liabilities of the Borrower pursuant to the Credit Agreement, including without limitation, (i) the unpaid principal of and interest on the Notes, including without limitation, interest accruing subsequent to the filing of a petition or other action concerning bankruptcy or other similar proceeding, (ii) payment of and performance of any and all Hedging Agreements between the Borrower and any of the Lenders or their Affiliates, (iii) payment of and performance of any and all Letters of Credit, and (iv) any additional Loans made by the Lenders to the Borrower; (b) any and all other indebtedness, obligations and liabilities of any kind of the Borrower to the Lenders, now or hereafter existing, arising directly between the Borrower and the Lenders or acquired outright, as a participation, condi tionally or as collateral security from another by the Lenders, absolute or contingent, joint and/or several, secured or unsecured, due or not due, arising by operation of law or otherwise, or direct or indirect, including indebtedness, obligations and liabilities to the Lenders of the Borrower as a member of any partnership, syndicate, association or other group, and whether incurred by the Borrower as principal, surety, endorser, guarantor, accommodation party or otherwise and (c) all renewals, rearrangements, substitutions, increases, extensions for any period, amendments or supplements in whole or in part of the Notes or any documents evidencing the above. "Maximum Guaranteed Amount" shall mean, for the Guarantor, the greater of (i) the "reasonably equivalent value" or "fair consideration" (or equivalent concept) received by the Guarantor in exchange for the obligation incurred hereunder, within the meaning of any applicable state or federal fraudulent conveyance or transfer laws; or (ii) the lesser of (A) the maximum amount that will not render the Guarantor insolvent, or (B) the maximum amount that will not leave the Guarantor with any property deemed an unreasonably small capital. Clauses (A) and (B) are and shall be determined pursuant to and as of the appropriate date mandated by such applicable state or federal fraudulent conveyance or transfer laws and to the extent allowed by law take into account the rights to contribution and subrogation under Section 2.9 in each Guaranty Agreement so as to provide for the largest Maximum Guaranteed Amount possible. "Net Payments" shall mean an amount equal, at any time and from time to time and for each respective Subsidiary Guarantor, to the difference of (i) the sum of all payments made previous to or at the time of calculation by such Subsidiary Guarantor in respect to the Liabilities, as a Subsidiary Guarantor, and in respect of its obligations contained in this Guaranty Agreement, less (ii) the sum of all such payments previously returned to such Subsidiary Guarantor by operation of law or otherwise and including payments received by such Subsidiary Guarantor by way of its rights of subrogation and contribution under Section 2.9 of the other Guaranty Agreements. 2 "Net Worth" shall mean for any Subsidiary Guarantor, calculated on and as of any applicable date on which such amount is being determined, the difference between (i) the sum of all such Subsidiary Guarantor's property, at a fair valuation and as of such date, minus (ii) the sum of all such Subsidiary Guarantor's debts, at a fair valuation and as of such date, excluding the Liabilities. "Subsidiary Guarantors" shall mean the Guarantor and any other Affiliate of the Borrower which executes a guaranty agreement securing the Liabilities. Section 1.3 Credit Agreement Definitions. Unless otherwise defined herein, all terms beginning with a capital letter which are defined in the Credit Agreement shall have the same meanings herein as therein. ARTICLE 2 --------- The Guaranty ------------ Section 2.1 Liabilities Guaranteed. Guarantor hereby irrevocably and unconditionally guarantees in favor of the Agent for the benefit of the Lenders the prompt payment of the Liabilities when due, whether at maturity or otherwise, provided, however, that, notwithstanding anything herein or in any other Loan Document to the contrary, the maximum liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed Amount. Section 2.2 Nature of Guaranty. This Guaranty Agreement is an absolute, irrevocable, completed and continuing guaranty of payment and not a guaranty of collection, and no notice of the Liabilities or any extension of credit already or hereafter contracted by or extended to Borrower need be given to Guarantor. This Guaranty Agreement may not be revoked by Guarantor and shall continue to be effective with respect to debt under the Liabilities arising or created after any attempted revocation by Guarantor and shall remain in full force and effect until the Liabilities are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto no Liabilities may be outstanding. Borrower and the Lenders may modify, alter, rearrange, extend for any period and/or renew from time to time, the Liabilities, and the Lenders may waive any Default or Events of Default without notice to the Guarantor and in such event Guarantor will remain fully bound hereunder on the Liabilities. This Guaranty Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Liabilities is res cinded or must otherwise be returned by any of the Lenders upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made. This Guaranty Agreement may be enforced by the Agent and any subsequent holder of any of the Liabilities and shall not be discharged by the assignment or negotiation of all or part of the Liabilities. Except as otherwise expressly provided herein, Guarantor hereby expressly waives presentment, demand, notice of non-payment, protest and notice of protest and dishonor, notice of Default or Event of Default, notice of intent to accelerate the maturity and notice of acceleration of the maturity and any other notice in connection with the Liabilities, and also notice of acceptance of this Guaranty Agreement, acceptance on the part of the Lenders being conclusively presumed by the Lenders' request for this Guaranty Agreement and delivery of the same to the Agent. Section 2.3 Intentionally Deleted. 3 Section 2.4 Guarantor's Waivers. Guarantor waives any right to require any of the Lenders to (i) proceed against Borrower or any other person liable on the Liabilities, (ii) enforce any of their rights against any other guarantor of the Liabilities, (iii) proceed or enforce any of their rights against or exhaust any security given to secure the Liabilities, (iv) have Borrower joined with Guarantor in any suit arising out of this Guaranty Agreement and/or the Liabilities, or (v) pursue any other remedy in the Lenders' powers whatsoever. The Lenders shall not be required to mitigate damages or take any action to reduce, collect or enforce the Liabilities. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of Borrower or any other guarantor of the Liabilities, and shall remain liable hereon regardless of whether Borrower or any other guarantor be found not liable thereon for any reason. Whether and when to exercise any of the remedies of the Lenders under any of the Loan Documents shall be in the sole and absolute discretion of the Agent, and no delay by the Agent in enforcing any remedy, including delay in conducting a foreclosure sale, shall be a defense to the Guarantor's liability under this Guaranty Agreement. Section 2.5 Maturity of Liabilities; Payment. Guarantor agrees that if the maturity of any of the Liabilities is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this Guaranty Agreement without demand or notice to Guarantor. Guarantor will, forthwith upon notice from the Agent, pay to the Agent the amount due and unpaid by Borrower and guaranteed hereby. The failure of the Agent to give this notice shall not in any way release Guarantor hereunder. Section 2.6 Agent's Expenses. If Guarantor fails to pay the Liabilities after notice from the Agent of Borrower's failure to pay any Liabilities at maturity, and if the Agent obtains the services of an attorney for collection of amounts owing by Guarantor hereunder, or obtaining advice of counsel in respect of any of their rights under this Guaranty Agreement, or if suit is filed to enforce this Guaranty Agreement, or if proceedings are had in any bankruptcy, probate, receivership or other judicial proceedings for the establishment or collection of any amount owing by Guarantor hereunder, or if any amount owing by Guarantor hereunder is collected through such proceedings, Guarantor agrees to pay to the Agent the Agent's reasonable attorneys' fees. Section 2.7 Liability. It is expressly agreed that the liability of the Guarantor for the payment of the Liabilities guaranteed hereby shall be primary and not secondary. Section 2.8 Events and Circumstances Not Reducing or Discharging Guarantor's Obligations. Guarantor hereby consents and agrees to each of the following to the fullest extent permitted by law, and agrees that Guarantor's obligations under this Guaranty Agreement shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following: (a) Modifications, etc. Any renewal, extension, modification, increase, decrease, alteration or rearrangement of all or any part of the Liabilities, or of the Notes, or the Credit Agreement or any instrument executed in connection therewith, or any contract or understanding between Borrower and any of the Lenders, or any other Person, pertaining to the Liabilities; 4 (b) Adjustment, etc. Any adjustment, indulgence, forbearance or compromise that might be granted or given by any of the Lenders to Borrower or Guarantor or any Person liable on the Liabilities; (c) Condition of Borrower or Guarantor. The insolvency, bankruptcy arrangement, adjustment, composition, liquidation, disability, dissolution, death or lack of power of Borrower or Guarantor or any other Person at any time liable for the payment of all or part of the Liabilities; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners, or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor; (d) Invalidity of Liabilities. The invalidity, illegality or unenforceability of all or any part of the Liabilities, or any document or agreement executed in connection with the Liabilities, for any reason whatsoever, including without limitation the fact that the Liabilities, or any part thereof, exceed the amount permitted by law, the act of creating the Liabilities or any part thereof is ultra vires, the officers or representatives executing the documents or otherwise creating the Liabilities acted in excess of their authority, the Liabilities violate applicable usury laws, the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Liabilities wholly or partially uncollectible from Borrower, the creation, performance or repayment of the Liabilities (or the execution, delivery and performance of any document or instrument representing part of the Liabilities or executed in connection with the Liabilities, or given to secure the repayment of the Liabilities) is illegal, uncollectible, legally impossible or unenforceable, or the Credit Agreement or other documents or instruments pertaining to the Liabilities have been forged or otherwise are irregular or not genuine or authentic; (e) Release of Obligors. Any full or partial release of the liability of Borrower on the Liabilities or any part thereof, of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Liabilities or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Liabilities in full without assistance or support of any other Person, and Guarantor has not been induced to enter into this Guaranty Agreement on the basis of a contemplation, belief, understanding or agreement that other parties other than the Borrower will be liable to perform the Liabilities, or the Lenders will look to other parties to perform the Liabilities. (f) Other Security. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Liabilities; 5 (g) Release of Collateral, etc. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Liabilities; (h) Care and Diligence. The failure of the Lenders or any other Person to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security; (i) Status of Liens. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Liabilities shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty Agreement in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Liabilities; (j) Payments Rescinded. Any payment by Borrower to the Lenders is held to constitute a preference under the bankruptcy laws, or for any reason the Lenders are required to refund such payment or pay such amount to Borrower or someone else; or (k) Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Credit Agreement, the Liabilities, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Liabilities pursuant to the terms hereof; it being the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Liabilities when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Liabilities. Section 2.9 Right of Subrogation and Contribution. If Guarantor makes a payment in respect of the Liabilities, it shall be subrogated to the rights of the Lenders against the Borrower with respect to such payment and shall have the rights of contribution against the other Subsidiary Guarantors set forth in Section 2.9 of the Subsidiary Guarantors' Guaranty Agreements; provided that Guarantor shall not enforce its rights to any payment by way of subrogation or by exercising its rights of contribution or reimbursement or the right to participate in any security now or hereafter held by or for the benefit of the Lenders until the Liabilities have been paid in full. The Guarantor agrees that after all the Liabilities have been paid in full that if its then current Net Payments are less than the amount of its then current Contribution Obligation, Guarantor shall pay to the other Subsidiary Guarantors an amount (together with any payments required of the other Subsidiary Guarantors by Section 2.9 of each other Guaranty Agreement) such that the Net Payments made by 6 all Subsidiary Guarantors in respect of the Liabilities shall be shared among all of the Subsidiary Guarantors in proportion to their respective Contribution Percentage. ARTICLE 3 --------- Representations and Warranties ------------------------------ Section 3.1 By Guarantor. In order to induce the Lenders to accept this Guaranty Agreement, Guarantor represents and warrants to the Lenders (which representations and warranties will survive the creation of the Liabilities and any extension of credit thereunder) that: (a) Benefit to Guarantor. Guarantor's guaranty pursuant to this Guaranty Agreement reasonably may be expected to benefit, directly or indirectly, Guarantor. (b) Existence. Guarantor is a limited partnership duly organized, legally existing and in good standing under the laws of the State of Delaware and is duly qualified in all jurisdictions wherein the property owned or the business transacted by it makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect. (c) Partnership Power and Authorization. Guarantor is duly authorized and empowered to execute, deliver and perform this Guaranty Agreement and all action on Guarantor's part requisite for the due execution, delivery and performance of this Guaranty Agreement has been duly and effectively taken. (d) Binding Obligations. This Guaranty Agreement constitutes valid and binding obligations of Guarantor, enforceable in accordance with its terms (except that enforcement may be subject to any applicable bankruptcy, insolvency, fraudulent conveyance, moratorium, or similar laws generally affecting the enforcement of creditors' rights). (e) No Legal Bar or Resultant Lien. This Guaranty Agreement will not violate any provisions of Guarantor's agreement of limited partnership, or any contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which Guarantor is subject, or result in the creation or imposition of any Lien upon any Properties of Guarantor. (f) No Consent. Guarantor's execution, delivery and performance of this Guaranty Agreement does not require the consent or approval of any other Person, including without limitation any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof. (g) Solvency. The Guarantor hereby represents that (i) it is not insolvent as of the date hereof and will not be rendered insolvent as a result of this Guaranty 7 Agreement, (ii) it is not engaged in business or a transaction, or about to engage in a business or a transaction, for which any property or assets remaining with such Guarantor is unreasonably small capital, and (iii) it does not intend to incur, or believe it will incur, debts that will be beyond its ability to pay as such debts mature. Section 3.2 No Representation by Lenders. Neither the Lenders nor any other Person has made any representation, warranty or statement to the Guarantor in order to induce the Guarantor to execute this Guaranty Agreement. ARTICLE 4 --------- Subordination of Indebtedness ----------------------------- Section 4.1 Subordination of All Guarantor Claims. As used herein, the term "Guarantor Claims" shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligation of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower arising as a result of subrogation or otherwise as a result of Guarantor's payment of all or a portion of the Liabilities. Until the Liabilities shall be paid and satisfied in full and Guarantor shall have performed all of its obligations hereunder, except as otherwise not prohibited by the Credit Agreement, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims. Section 4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving Borrower as debtor, the Lenders shall have the right to prove their claim in any proceeding, so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian, dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to the Lenders. Should the Agent or any Lender receive, for application upon the Liabilities, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment in full of the Liabilities, Guarantor shall become subrogated to the rights of the Lenders to the extent that such payments to the Lenders on the Guarantor Claims have contributed toward the liquidation of the Liabilities, and such subrogation shall be with respect to that proportion of the Liabilities which would have been unpaid if the Agent or a Lender had not received dividends or payments upon the Guarantor Claims. Section 4.3 Payments Held in Trust. In the event that notwithstanding Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims or distributions which is prohibited by such Sections, Guarantor agrees to hold in trust for the Lenders an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely 8 no dominion over the amount of such funds, payments, claims or distributions except to pay them promptly to the Agent, and Guarantor covenants promptly to pay the same to the Agent. Section 4.4 Liens Subordinate. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Liabilities, regardless of whether such encumbrances in favor of Guarantor, the Agent or the Lenders presently exist or are hereafter created or attach. Without the prior written consent of the Lenders, Guarantor shall not (a) exercise or enforce any creditor's right it may have against the Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceeding (judicial or otherwise, including without limitation the commencement of or joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any lien, mortgages, deeds of trust, security interest, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor. Section 4.5 Notation of Records. All promissory notes, accounts receivable ledgers or other evidence of the Guarantor Claims accepted by or held by Guarantor shall contain a specific written notice thereon that the indebtedness evidenced thereby is subordinated under the terms of this Guaranty Agreement. ARTICLE 5 --------- Miscellaneous ------------- Section 5.1 Successors and Assigns. This Guaranty Agreement is and shall be in every particular available to the successors and assigns of the Lenders and is and shall always be fully binding upon the legal representatives, heirs, successors and assigns of Guarantor, notwithstanding that some or all of the monies, the repayment of which this Guaranty Agreement applies, may be actually advanced after any bankruptcy, receivership, reorganization, death, disability or other event affecting Guarantor. Section 5.2 Notices. Any notice or demand to Guarantor under or in connection with this Guaranty Agreement may be given and shall conclusively be deemed and considered to have been given and received in accordance with Section 12.02 of the Credit Agreement, addressed to Guarantor at the address on the signature page hereof or at such other address provided to the Agent in writing. Section 5.3 Business and Financial Information. The Guarantor will promptly furnish to the Agent and the Lenders from time to time upon request such information regarding the business and affairs and financial condition of the Guarantor and its subsidiaries as the Agent and the Lenders may reasonably request. Section 5.4 Construction. This Guaranty Agreement is a contract made under and shall be construed in accordance with and governed by the laws of the State of New York. 9 Section 5.5 Invalidity. In the event that any one or more of the provisions contained in this Guaranty Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Guaranty Agreement. Section 5.6 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LENDERS AND THE GUARANTOR AND SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN GUARANTY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 10 WITNESS THE EXECUTION HEREOF, as of the date first above written. BUCKEYE PARTNERS, L.P. By: Buckeye Management Company, its General Partner By: /s/ Steven C. Ramsey --------------------------------- Name: Steven C. Ramsey Title: Senior Vice President, Finance 3900 Hamilton Boulevard Allentown, Pennsylvania 18103 Telecopier No.: 610/770-4581 Telephone No.: 610/770-4000 Attention: Senior Vice President, Finance Signature Page-1 STATE OF PENNSYLVANIA ss. ss. COUNTY OF DELAWARE ss. THIS INSTRUMENT was acknowledged before me this 16th day of December, 1998 by Steven C. Ramsey, Senior Vice President, Finance of Buckeye Management Company, a Delaware corporation, general partner of Buckeye Partners, L.P., a Delaware limited partnership, on behalf of such corporation as general partner of such partnership. Robin L. Clark ---------------------------- Notary Public in and for the Commonwealth of Pennsylvania SEAL: Signature Page-2 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 DEC-31-1998 8,341 0 7,578 0 2,988 24,227 600,806 68,110 618,099 30,493 240,000 0 0 0 298,485 618,099 0 184,477 0 110,119 0 0 15,886 52,007 0 52,007 0 0 0 52,007 1.93 1.92
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