-----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, HLxI6Ij//JD15Wx+O9szJa/kJZEZrN6LjWKfuvvYcyqEoBt7Ro73LdqN1iSvJArz Cvv4fAanPQPtOgZZur0igg== 0000950109-96-001823.txt : 19960329 0000950109-96-001823.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950109-96-001823 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-09356 FILM NUMBER: 96540303 BUSINESS ADDRESS: STREET 1: 3900 HAMILTON BLVD CITY: ALLENTOWN STATE: PA ZIP: 18103 BUSINESS PHONE: 2158208300 MAIL ADDRESS: STREET 1: 3900 HAMILTON BLVD CITY: ALLENTOWN STATE: PA ZIP: 18103 10-K 1 FORM 10-K DRAFT: 2/26 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9356 BUCKEYE PARTNERS, L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 23-2432497 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 3900 HAMILTON BOULEVARD ALLENTOWN, PENNSYLVANIA 18103 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 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 25, 1996, the aggregate market value of the registrant's LP Units held by non-affiliates was $460 million. The calculation of such market value should not be construed as an admission or conclusion by the registrant that any person is in fact an affiliate of the registrant. LP Units outstanding as of March 25, 1996: 12,047,230 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS.................................................................... 1 ITEM 2. PROPERTIES.................................................................. 10 ITEM 3. LEGAL PROCEEDINGS........................................................... 11 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 .................................................... 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................. 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................. 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 41 ITEM 11. EXECUTIVE COMPENSATION ..................................................... 43 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 49 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 50 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............ 53
PART I ITEM 1. BUSINESS INTRODUCTION Buckeye Partners, L.P. (the "Partnership"), the Registrant, is a limited partnership organized in 1986 under the laws of the state of Delaware. The Partnership conducts all its operations through subsidiary entities. These operating subsidiaries are Buckeye Pipe Line Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"), each of which is 99 percent owned. (Each of Buckeye, Laurel, Everglades and BTT is referred to as an "Operating Partnership" and collectively as the "Operating Partnerships"). Buckeye is one of the largest independent pipeline common carriers of refined petroleum products in the United States, with 3,119 miles of pipeline serving 10 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 271,000 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 for purposes of the 1986 Acquisition 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"), in November 1986. Laurel was formed in October 1992 and succeeded to the operations of Laurel Pipe Line Company ("Laurel Corp") (an Ohio corporation) which was a majority owned corporate subsidiary of the Partnership until the minority interest was acquired in December 1991. Buckeye Management Company (the "General Partner"), a corporation organized in 1986 under the laws of the state of Delaware, owns a 1 percent general partnership interest in, and serves as sole general partner of, the Partnership. A corporate subsidiary of the General Partner, Buckeye Pipe Line Company (a Delaware corporation) (the "Manager"), owns a 1 percent general partnership interest in, and serves as sole general partner and manager of, each Operating Partnership. On March 22, 1996, BMC Acquisition Company ("BAC"), a corporation organized in 1996 under the laws of the state of Delaware, acquired all of the common stock of the General Partner from a subsidiary of American Financial (the "Acquisition"). BAC is owned by Glenmoor Partners, LLP ("Glenmoor"), an investment group led by Alfred W. Martinelli, Chairman of the Board and Chief Executive Officer of the General Partner and including as partners all of the members of senior management of the General Partner, certain managers of the Manager and by the BMC Acquisition Company Employee Stock Ownership Plan (the "ESOP") formed for the benefit of employees of the General Partner, the Manager and Glenmoor. Pursuant to a Management Agreement dated March 22, 1996, among Glenmoor, the General Partner and the Manager (the "Glenmoor Management Agreement"), Glenmoor will hire all of the executive officers of the General Partner and the Manager and certain managers of the Manager and provide certain management functions for the General Partner and the Manager following the Acquisition. The executive officers will continue in their capacity as executive officers of the General Partner and the Manager. See "Certain Relationships and Related Transactions." REFINED PRODUCTS BUSINESS The Partnership receives petroleum products from refineries, connecting pipelines and marine terminals, and transports those products to other locations. In 1995, refined products accounted for substantially all of the Partnership's consolidated revenues and consolidated operating income. The Partnership transported an average of approximately 1,009,800 barrels per day of refined products in 1995. The following table shows the volume and percentage of refined products transported over the last three years. 1 VOLUME AND PERCENTAGE OF REFINED PRODUCTS TRANSPORTED(1) (VOLUME IN THOUSANDS OF BARRELS PER DAY)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1995 1994 1993 --------------- --------------- -------------- VOLUME PERCENT VOLUME PERCENT VOLUME PERCENT ------- ------- ------- ------- ------ ------- Gasoline........................ 507.1 50% 526.0 51% 503.6 51% Jet Fuels....................... 243.9 24 235.5 23 234.1 24 Middle Distillates (2).......... 235.2 24 246.1 24 223.0 23 Other Products.................. 23.6 2 21.2 2 20.4 2 ------- --- ------- --- ----- --- Total........................... 1,009.8 100% 1,028.8 100% 981.1 100% ======= === ======= === ===== ===
- -------- (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, Washington and Florida. Pennsylvania--New York--New Jersey Buckeye serves major population centers in the states of Pennsylvania, New York and New Jersey through 1,002 miles of pipeline. Refined products are received at Linden, New Jersey. Products are then transported through two lines from Linden, New Jersey to Allentown, Pennsylvania. From Allentown, the pipeline continues west, through a connection with Laurel, to Pittsburgh, Pennsylvania (serving Reading, Harrisburg, Altoona/Johnstown and Pittsburgh) and north through eastern Pennsylvania into New York State (serving Scranton/Wilkes-Barre, Binghamton, Syracuse, Utica and Rochester and, via a connecting carrier, Buffalo). Products received at Linden, New Jersey are also transported through two lines to John F. Kennedy International and LaGuardia Airports and to commercial bulk terminals at Long Island City and Inwood, New York. The pipeline presently supplies Kennedy, LaGuardia and Newark International airports with substantially all of each airport's jet fuel requirements. Laurel transports refined products through a 345-mile pipeline extending westward from five refineries in the Philadelphia area to Pittsburgh, Pennsylvania. Indiana--Ohio--Michigan--Illinois Buckeye transports refined products through 1,991 miles of pipeline (of which 246 miles are jointly owned with other pipeline companies) in southern Illinois, central Indiana, eastern Michigan, western and northern Ohio and western Pennsylvania. A number of receiving lines and delivery lines connect to a central corridor which runs from Lima, Ohio, through Toledo, Ohio to Detroit, Michigan. Products are received at East Chicago, Indiana; Robinson, Illinois and at the corridor connection points of Detroit, Toledo and Lima. Major areas served include Huntington/Fort Wayne, Indiana; Bay City, Detroit and Flint, Michigan; Cleveland, Columbus, Lima and Toledo, Ohio; and Pittsburgh, Pennsylvania. Other Refined Products Pipelines Buckeye serves Connecticut and Massachusetts through 112 miles of pipeline that carry refined products from New Haven, Connecticut to Hartford, Connecticut and Springfield, Massachusetts. Everglades carries primarily jet fuel on a 37-mile pipeline from Port Everglades, Florida to Hollywood-Ft. Lauderdale International Airport and Miami International Airport. 2 Buckeye owns a 14-mile pipeline from Tacoma, Washington to McChord Air Force Base which delivers military jet fuel. 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 271,000 barrels of refined petroleum products. The facility, which is served by Buckeye and Laurel, provides bulk storage and loading facilities for shippers or other customers. COMPETITION AND OTHER BUSINESS CONSIDERATIONS The Operating Partnerships do business without the benefit of exclusive franchises from government entities. In addition, the Operating Partnerships generally operate as common carriers, providing transportation services at posted tariffs and without long-term contracts. As providers of such service, the Operating Partnerships do not own the products they transport. Demand for such service arises, ultimately, from demand for petroleum products in the regions served and the ability and willingness of refiners, marketers and end- users to supply such demand by deliveries through the Partnership's pipelines. Demand for refined petroleum products is primarily a function of price, prevailing economic conditions and weather. The Operating Partnerships' businesses are, therefore, subject to a variety of factors partially or entirely beyond their control. Multiple sources of pipeline entry and multiple points of delivery, however, have historically helped maintain stable total volumes even when volumes at particular source or destination points have changed. The Partnership's business may in the future be affected by changing prices or demand for oil and for other fuels. The Partnership may also be affected by energy conservation, changing sources of supply, structural changes in the oil industry and new energy technologies. The General Partner is unable to predict the effect of such factors. A substantial portion of the refined petroleum products transported by the Partnership's pipelines are ultimately used as fuel for motor vehicles and aircraft. Changes in transportation and travel patterns in the areas served by the Partnership's pipelines could adversely affect the Partnership's results of operations. In 1995, the Operating Partnerships had approximately 105 customers, most of which were either major integrated oil companies or smaller marketing companies. The largest two customers accounted for 7.7 percent and 6.7 percent, respectively, of consolidated revenues, while the 20 largest customers accounted for 77.6 percent of consolidated revenues. Generally, pipelines are the lowest cost method for long-haul overland movement of refined petroleum products. Therefore, the Operating Partnership's most significant competitors for large volume shipments are other pipelines, many of which are owned and operated by major integrated oil companies. Although it is unlikely that a pipeline system comparable in size and scope to the Operating Partnership's will be built in the foreseeable future, new pipelines (including pipeline segments that connect with existing pipeline systems) could be built to effectively compete with the Operating Partnerships in particular locations. In some areas, the Operating Partnerships compete with marine transportation. Tankers and barges on the Great Lakes account for some of the volume to certain Michigan, Ohio and upstate New York locations during the approximately eight non-winter months of the year. Barges are presently a competitive factor for deliveries to the New York City area, the Pittsburgh area, Connecticut and Ohio. 3 Trucks competitively deliver product in a number of areas served by the Operating Partnerships. While their costs may not be competitive for longer hauls or large volume shipments, trucks compete effectively with the Operating Partnerships in many areas. The availability of truck transportation places a significant competitive constraint on the ability of the Operating Partnerships to increase their tariff rates. Privately arranged exchanges of product between marketers in different locations are an increasing but unquantified form of competition. Generally, such exchanges reduce both parties' costs by eliminating or reducing transportation charges. Distribution of refined petroleum products depends to a large extent upon the location and capacity of refineries. In past years, a significant quantity of domestic refining capacity has been shut down. To date, the aggregate impact of these shut-downs has affected the Operating Partnerships' volumes favorably, as these shut-downs have resulted in the transportation of product over longer distances to certain locations. Because the Operating Partnerships' pipelines have numerous source points, the General Partner does not believe that the shut-down of any particular refinery would have a material adverse effect on the Partnership. However, the General Partner is unable to determine whether additional shut-downs will occur or what their effects might be. The Operating Partnerships' mix of products transported tends to vary seasonally. Declines in demand for heating oil during the summer months are, to a certain extent, offset by increased demand for gasoline and jet fuels. Overall, operations have been only moderately seasonal, with somewhat lower than average volume being transported during March, April and May as compared to the rest of the year. Neither the Partnership nor any of the Operating Partnerships have any employees. All of the operations of the Operating Partnerships are managed and operated by employees of the Manager. At December 31, 1995, the Manager had 594 full-time employees, 168 of whom were represented by two labor unions. The collective bargaining agreement with each of these unions is subject to renewal in 1996. The Operating Partnerships (and their predecessors) have never experienced any significant work stoppages or other significant labor problems. CAPITAL EXPENDITURES The General Partner anticipates that the Partnership will continue to make ongoing capital expenditures to maintain and enhance its assets and properties, including improvements to meet customers' needs and those required to satisfy new environmental and safety standards. In 1995, total capital expenditures were $17.4 million. Projected capital expenditures for 1996 amount to $14.3 million. Planned capital expenditures in 1996 include, among other things, renewal and replacement of several tank floors, roofs and seals, installation of new metering systems and field instrumentation and various facility improvements that facilitate increased pipeline volumes. Although projected 1996 capital expenditures are expected to decline, capital expenditures are expected to increase over time primarily in response to increasingly rigorous governmental safety and environmental requirements as well as industry standards. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." REGULATION General 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 4 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. Tariffs FERC has jurisdiction over Buckeye's interstate tariffs. In July 1988, in the midst of a rate proceeding involving Buckeye, FERC issued an order that provided Buckeye with the opportunity to qualify for an unspecified alternative form of "light-handed" rate regulation if Buckeye could establish that it lacked significant market power. On December 31, 1990, after extensive testimony and hearings, FERC issued an opinion which found that in most of its relevant market areas, Buckeye operated in a competitive environment in which it could not exercise significant market power and that Buckeye's tariff rates in those markets were just and reasonable. Based on these findings, FERC permitted Buckeye to implement a "light-handed" rate regulation program on an experimental basis for three years beginning in March 1991. Under the program, in markets where Buckeye does not have significant market power, individual rate increases: (a) will not exceed a real (i.e., exclusive of inflation) increase of 15 percent over any two-year period (the "rate cap"), and (b) will be allowed to become effective without suspension or investigation if they do not exceed a "trigger" equal to the change in the GDP 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 experimental program, that the proposed rates are unduly discriminatory, or that Buckeye has acquired significant market power in markets previously found to be competitive. In October 1992, the Energy Policy Act of 1992 (the "Policy Act") was enacted. Title XVIII of the Policy Act, "Oil Pipeline Regulatory Reform," provided, among other things, that certain tariff rates that were in effect on October 25, 1991 were deemed "just and reasonable, " and that FERC was directed by October 24, 1993 to promulgate a rule establishing a simplified and generally applicable ratemaking methodology for oil pipelines. FERC was also directed to issue a rule streamlining certain procedural aspects of its proceedings. On October 22, 1993, FERC issued a final rule pursuant to the Policy Act with respect to rate regulation of oil pipelines. The rule relies primarily on an index methodology, whereby a pipeline would be allowed to change its rates in accordance with an index that FERC believes reflects cost changes appropriate for application to pipeline rates. In the alternative, a pipeline is allowed to charge market-based rates if the pipeline establishes that it does not possess significant market power in a particular market. In addition, the rule provides for the rights of both pipelines and shippers to demonstrate that the index should not apply to an individual pipeline's rates in light of the pipeline's costs. The final rule became effective on January 1, 1995. On October 26, 1994, Buckeye filed a motion that requested FERC to permit Buckeye to continue its existing "experimental" rate program indefinitely, as an exception to the generic oil pipeline rate 5 regulations. On December 6, 1994, FERC issued an order granting that motion and extended the operation of Buckeye's rate program indefinitely, commencing January 1, 1995. The Buckeye rate program will be subject to reevaluation at the same time FERC reviews the index selected in the generic oil pipeline regulations, currently scheduled to occur five years after the effective date of the generic rules. 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 and state laws and regulations relating to the protection of the environment. Although the General Partner believes that the operations of the Operating Partnerships comply in all material respects with applicable environmental regulations, risks of substantial liabilities are inherent in pipeline operations, and there can be no assurance that material environmental liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly rigorous environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations of the Operating Partnerships, could result in substantial costs and liabilities to the Partnership. See "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources--Environmental Matters." The Oil Pollution Act of 1990 ("OPA") amends certain provisions of the federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act ("CWA"), and other statutes as they pertain to the prevention of and response to oil spills into navigable waters. The OPA subjects owners of facilities to strict joint and several liability for all containment and clean-up costs and certain other damages arising from a spill. The CWA provides penalties for any discharges of petroleum products in reportable quantities and imposes substantial liability for the costs of removing a spill. State laws for the control of water pollution also provide varying civil and criminal penalties and liabilities in the case of releases of petroleum or its derivatives into surface waters or into the ground. Regulations are currently being developed under OPA and state laws which may impose additional regulatory burdens on the Partnership. Contamination resulting from spills or releases of refined petroleum products are not unusual in the petroleum pipeline industry. The Partnership's pipelines cross numerous navigable rivers and streams. Although the General Partner believes that the Operating Partnerships comply in all material respects with the spill prevention, control and countermeasure requirements of federal laws, any spill or other release of petroleum products into navigable waters may result in material costs and liabilities to the Partnership. The Resource Conservation and Recovery Act ("RCRA"), as amended, establishes a comprehensive program of regulation of "hazardous wastes." Hazardous waste generators, transporters, and owners or operators of treatment, storage and disposal facilities must comply with regulations designed to ensure detailed tracking, handling and monitoring of these wastes. RCRA also regulates the disposal of certain non-hazardous wastes. As a result of recently issued regulations, many previously non-hazardous wastes generated by pipeline operations have become "hazardous wastes" which are subject to more rigorous and costly disposal requirements. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), also known as "Superfund," governs the release or threat of release of a "hazardous substance." Disposal of a hazardous substance, whether on or off-site, may subject the generator of that substance to liability under CERCLA for the costs of clean-up and other remedial action. Pipeline maintenance and other activities in the ordinary course of business could subject the Operating Partnerships to the requirements of these statutes. As a result, to the extent hydrocarbons or other petroleum waste may have been released or disposed of in the past, the Operating Partnerships may 6 in the future be required to remedy contaminated property. Governmental authorities such as the Environmental Protection Agency ("EPA"), and in some instances third parties, are authorized under CERCLA to seek to recover remediation and other costs from responsible persons, without regard to fault or the legality of the original disposal. In addition to its potential liability as a generator of a "hazardous substance," the property or right-of- way of the Operating Partnerships may be adjacent to or in the immediate vicinity of Superfund and other hazardous waste sites. Accordingly, the Operating Partnerships may be responsible under CERCLA for all or part of the costs required to cleanup such sites, which costs could be material. The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the "Amendments"), imposes controls on the emission of pollutants into the air. The Operating Partnerships may be affected in several ways by the Amendments, including required changes in operating procedures and increased capital expenditures. The Amendments require states to develop permitting programs over the next several years to comply with new federal programs. Existing operating and air-emission permits like those held by the Operating Partnerships will have to be reviewed to determine compliance with the new programs. It is possible that new or more stringent controls will be imposed upon the Operating Partnerships through this permit review. In addition, the Amendments impose new requirements on the composition of fuels transported by the Operating Partnerships. While the principal impact of these new requirements will be on refiners and marketers of such fuels, the Operating Partnerships may have to institute additional quality control procedures and provide additional tankage in order to satisfy customer needs for segregated storage of these reformulated fuels. The Operating Partnerships are also subject to environmental laws and regulations adopted by the various states in which they operate. In certain instances, the regulatory standards adopted by the states are more stringent than applicable federal laws. In connection with the 1986 Acquisition, Pipe Line obtained an Administrative Consent Order ("ACO") from the New Jersey Department of Environmental Protection and Energy ("NJDEPE") under the New Jersey Environmental Cleanup Responsibility Act of 1983 ("ECRA") for all six of Pipe Line's facilities in New Jersey. The ACO permitted the 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 contamination at the New Jersey facilities and to implement any required clean-up plan. Sampling continues in an effort to identify areas of contamination at the New Jersey facilities, while clean-up operations have begun at certain of the sites. The obligations of Pipe Line were not assumed by the Partnership, and the costs of compliance have been and will continue to be paid by American Financial. Through December 1995, Buckeye's costs of approximately $2,516,000 have been funded 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 required increased coordination of safety regulation between federal and state agencies, testing and certification of pipeline personnel, and authorization of safety-related feasibility studies. In 1990, the Manager initiated a random drug testing program to comply with the regulations promulgated by the Office of Pipeline Safety, DOT, and in January 1995, the Manager instituted a program to comply with new DOT regulations that require alcohol testing of certain pipeline personnel. 7 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 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 its unitholders (the "Unitholders"), and is qualified in its entirety by reference to the Code. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE PARTNERSHIP. Characterization of the Partnership for Tax Purposes The Code treats a publicly traded partnership that existed on December 17, 1987, such as the Partnership, as a corporation for federal income tax purposes beginning in the earlier of (i) 1998 or (ii) the year in which it adds a substantial new line of business unless, for each taxable year of the Partnership beginning in the earlier of such years, 90 percent or more of its gross income consists of qualifying income. Qualifying income includes interest, dividends, real property rents, gains from the sale or disposition of real property, income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy and timber), and gain from the sale or disposition of capital assets that produced such income. 8 Because the Partnership is engaged primarily in the refined products pipeline transportation business, the General Partner believes that 90 percent or more of the Partnership's gross income has been qualifying income. If this continues to be true and no subsequent legislation amends this provision, the Partnership would continue to be classified as a partnership and not as a corporation for federal income tax purposes. In connection with the Acquisition, the existing demand notes in an aggregate principal amount of $28,000,000 (the "Demand Notes") issued by a subsidiary of American Financial and payable to the General Partner were cancelled. In addition, promissory notes in the same amount (the "Inter- company Notes") issued by the General Partner and payable to the Manager were cancelled. At the Acquisition closing, BAC contributed approximately $5.8 million to the capital of the General Partner and the General Partner issued to the Manager a $5 million demand note. In accordance with the Amended and Restated Agreement of Limited Partnership, dated December 12, 1986, as amended (the "Partnership Agreement"), the Partnership has received an opinion of counsel that neither the cancellation of the Demand Notes or the Inter-company Notes, nor the declaration or making of any dividend, distribution or other payment in respect of the capital stock of the General Partner or the Manager (a "Restricted Payment") after such cancellation would result in the classification of the Partnership or any Operating Partnership as an association taxable as a corporation for federal income tax purposes. The opinion of counsel assumed, among other things, that after giving effect to the cancellation of the Demand Notes and the Inter-company Notes, and the payment of any Restricted Payment, the General Partner and the Manager will have a net worth of at least $5,000,000 without regard to any investment in the Partnership or the Operating Partnerships, which amount could be reached by creditors. The form of the opinion of counsel was approved by a special committee of disinterested directors of the General Partner consisting of William C. Pierce (Chairman), A. Leon Fergenson and Edward F. Kosnik, acting on behalf of the Partnership. Passive Activity Loss Rules The Code provides that an individual, estate, trust or personal service corporation generally may not deduct losses from passive business activities, to the extent they exceed income from all such passive activities, against other income. Income which may not be offset by passive activity "losses" includes not only salary and active business income, but also portfolio income such as interest, dividends or royalties or gain from the sale of property that produces portfolio income. Credits from passive activities are also limited to the tax attributable to any income from passive activities. The passive activity loss rules are applied after other applicable limitations on deductions, such as the at-risk rules and the basis limitation. Certain closely held corporations are subject to slightly different rules, which can also limit their ability to offset passive losses against certain types of income. Under the Code, net income from publicly traded partnerships is not treated as passive income for purposes of the passive loss rule, but is treated as 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 a Unitholder's interest in the Partnership. A Unitholder's share of Partnership net income may not be offset by passive activity losses generated by other passive activities. In addition, a Unitholder's proportionate share of the Partnership's portfolio income, including portfolio income arising from the investment of the Partnership's working capital, is not treated as income from a passive activity and may not be offset by such Unitholder's share of net losses of the Partnership. 9 Deductibility of Interest Expense The Code generally provides that investment interest expense is deductible only to the extent of a non-corporate taxpayer's net investment income. In general, net investment income for purposes of this limitation includes gross income from property held for investment, gain attributable to the disposition of property held for investment (except for net capital gains for which the taxpayer has elected to be taxed at a maximum rate of 28 percent) and portfolio income (determined pursuant to the passive loss rules) reduced by certain expenses (other than interest) which are directly connected with the production of such income. Property subject to the passive loss rules is not treated as property held for investment. However, the IRS has issued a Notice which provides that net income from a publicly traded partnership (not otherwise treated as a corporation) may be included in net investment income for purposes of the limitation on the deductibility of investment interest. A Unitholder's investment income attributable to its interest in the Partnership will include both its allocable share of the Partnership's portfolio income and trade or business income. A Unitholder's investment interest expense will include its allocable share of the Partnership's interest expense attributable to portfolio investments. Unrelated Business Taxable Income Certain entities otherwise exempt from federal income taxes (such as individual retirement accounts, pension plans and charitable organizations) are nevertheless subject to federal income tax on net unrelated business taxable income 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 are allowed in computing the entity's taxable unrelated business income. ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE ADVISABLE. State Tax Treatment The Partnership owns property or does business in the states of Pennsylvania, New York, New Jersey, Indiana, Ohio, Michigan, Illinois, Connecticut, Massachusetts, Washington and Florida. A Unitholder will likely be required to file state income tax returns and to pay applicable state income taxes in many of these states and may be subject to penalties for failure to comply with such requirements. Some of the states have proposed that the Partnership withhold a percentage of income attributable to Partnership operations within the state for Unitholders who are non-residents of the state. In the event that amounts are required to be withheld (which may be greater or less than a particular Unitholder's income tax liability to the state), such withholding would generally not relieve the non-resident Unitholder from the obligation to file a state income tax return. ITEM 2. PROPERTIES As of December 31, 1995, the principal facilities of the Operating Partnerships included 3,501 miles of 6-inch to 24-inch diameter pipeline, 37 pumping stations, 102 delivery points and various sized tanks having an aggregate capacity of approximately 9.7 million barrels. The Operating Partnerships own substantially all of their facilities subject, in the case of Buckeye, to a mortgage and security interest granted to secure payment of the outstanding balance of Buckeye's First Mortgage Notes due serially through 2010. See Note 8 to Consolidated Financial Statements of Buckeye Partners, L.P. In addition, certain portions of Buckeye's pipeline in Connecticut and Massachusetts are subject to security interests in favor of the owners of the right-of-way to secure future lease payments. 10 In general, the Operating Partnerships' pipelines are located on land owned by others pursuant to rights granted under easements, leases, licenses and permits from railroads, utilities, governmental entities and private parties. Like other pipelines, certain of the Operating Partnerships' rights are revocable at the election of the grantor or are subject to renewal at various intervals, and some require periodic payments. The Operating Partnerships have not experienced any revocations or lapses of such rights which were material to its business or operations, and the General Partner has no reason to expect any such revocation or lapse in the foreseeable future. Most pumping stations and terminal facilities are located on land owned by the Operating Partnerships. The General Partner believes that the Operating Partnerships have sufficient title to their material assets and properties, possess all material authorizations and franchises from state and local governmental and regulatory authorities and have all other material rights necessary to conduct their business substantially in accordance with past practice. Although in certain cases the Operating Partnerships' title to assets and properties or their other rights, including their rights to occupy the land of others under easements, leases, licenses and permits, may be subject to encumbrances, restrictions and other imperfections, none of such imperfections are expected by the General Partner to interfere materially with the conduct of the Operating Partnerships' businesses. ITEM 3. LEGAL PROCEEDINGS The Partnership, in the ordinary course of business, is involved in various claims and legal proceedings, some of which are covered in whole or in part by insurance. The General Partner is unable to predict the timing or outcome of these claims and proceedings. Although it is possible that one or more of these claims or proceedings, if adversely determined, could, depending on the relative amounts involved, have a material effect on the Partnership's results of operations for a future period, the General Partner does not believe that their outcome will have a material effect on the Partnership's consolidated financial condition. FREEPORT LANDSLIDE On March 30, 1990, a landslide near Freeport, Pennsylvania caused a rupture to one of the Partnership's pipelines which resulted in the release of approximately 58,000 gallons of petroleum products. Undetermined amounts of petroleum products saturated the soils surrounding the landslide area and flowed into Knapp Run and eventually into the Allegheny River. Buckeye promptly conducted extensive emergency response and remediation efforts. Following the release, various agencies and departments of both the federal and state governments, including the United States Department of Justice, the Pennsylvania Office of Attorney General, the Pennsylvania Department of Environmental Resources ("DER") , the Pennsylvania Department of Transportation, EPA, the National Transportation Safety Board, and DOT, commenced investigations into the circumstances of the pipeline rupture. In January 1995, the U.S. Attorney's office in Pittsburgh filed a complaint against Buckeye alleging two misdemeanor violations of environmental laws. In May 1995, Buckeye pleaded guilty and paid a fine of $125,000 in respect of the alleged violation of the strict liability provisions of the Rivers and Harbors Act and reimbursed the government $100,000 towards its costs of the investigation of the incident. The government dismissed the charge alleging a violation of the Clean Water Act. Also in January 1995, the DER filed a complaint for civil penalties with the Commonwealth of Pennsylvania Environmental Hearing Board based on alleged violations by Buckeye of various state strict liability environmental laws. The DER, acting as trustee for various Pennsylvania environmental agencies, also asserted natural resource damage claims against Buckeye arising from the pipeline rupture. In August 1995, Buckeye reached a settlement agreement with the DER concerning the civil penalty and natural resource damage claims. In return for a release and dismissal of action for civil penalties, Buckeye agreed to pay the state agencies $88,000 in civil penalties and $475,000 in natural resource damages. In addition, Buckeye agreed to pay the Pennsylvania Fish and Boat Commission $22,000 for response costs. Buckeye was 11 reimbursed by its insurance carriers for the $475,000 payment for natural resource damages and the $22,000 payment for response costs. In addition to the above governmental proceedings, eight civil class actions against the Partnership, Buckeye and certain affiliates were filed in four Pennsylvania counties. Plaintiffs in these lawsuits seek both injunctive and monetary relief, including punitive damages and attorneys' fees, based on a number of legal theories. The parties have consolidated these actions in a single class action in the Court of Common Pleas for Allegheny County, Pennsylvania, but the proposed class has not yet been certified and there has been no significant activity in the case. At this time, it is not possible to predict the likely outcome of such case. The consolidated class action is the only remaining proceeding arising from the pipeline rupture. Buckeye believes that it has meritorious defense to the consolidated class action complaint but its potential liability, if any, related to this matter cannot be estimated at this time. Buckeye maintains insurance in amounts believed by the General Partner to be adequate covering certain liabilities and claims arising out of pipeline accidents above a self-insured retention amount. The insurance is written generally on an indemnity basis, which requires Buckeye to seek reimbursement from its carriers for covered claims after paying such claims directly. The insurance carriers are reimbursing Buckeye for covered claims arising from the Freeport incident subject to the terms of the policy. OTHER ENVIRONMENTAL PROCEEDINGS With respect to other environmental litigation, certain Operating Partnerships (or their predecessors) have been named as a defendant in several lawsuits or have been notified by federal or state authorities that they are a potentially responsible party ("PRP") under federal laws or a respondent under state laws relating to the generation, disposal or release of hazardous substances into the environment. Typically, an Operating Partnership is one of many PRPs for a particular site and its contribution of total waste at the site is minimal. However, because CERCLA and similar statutes impose liability without regard to fault and on a joint and several basis, the liability of the Operating Partnerships in connection with these proceedings could be material. Potentially material proceedings affecting the Operating Partnerships are described below. In July 1986, Buckeye was named as one of several PRPs for the Whitmoyer Laboratories site in Myerstown, Pennsylvania. Buckeye previously owned part of the site and sold it to a purchaser now believed to be primarily responsible for the reported substantial chemical contamination at the site. Without knowledge of the contamination, Buckeye subsequently repurchased a small portion of the site on which it constructed a pumping station. After completion of a remedial investigation and feasibility study and consideration of proposed remediation plans, EPA issued two Records of Decision in December 1990 proposing a clean-up estimated to cost approximately $125 million. In 1992, EPA entered into a Consent Decree with the two PRPs that were former owners of Whitmoyer Laboratories. These PRPs agreed to assume the cost of clean-up at the site, and to reimburse EPA for future response costs and a portion of its past response costs. These two PRPs have instituted suit against each other to determine their relative responsibility for the Whitmoyer Laboratories site clean-up. One of the PRPs served a third-party complaint against Buckeye for the stated purpose of tolling the statute of limitations to preserve its rights, if any, against Buckeye. Buckeye subsequently settled the third-party complaint that had been filed against it. In consideration of mutual releases and the PRP's agreement to cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster pump station, to reroute its pipeline around the site and to reimburse the PRP for the cost of removing the original pipeline, if such removal is required by EPA. Buckeye estimates at this time that the costs of complying with the terms of the settlement agreement will be between $1 million and $2 million. Buckeye has not entered into any agreements with the EPA or the other PRP involved at the site, and Buckeye has not waived any rights to recover for any claim arising out of the PRP's activities at the site or any claims brought by any governmental agency or third party based upon environmental 12 conditions at the site. In the event that claims were asserted by any party in connection with the site, Buckeye believes that it would have meritorious defenses, but its potential liability, if any, related to such claims, cannot be estimated at this time. In July 1987, the NJDEPE ordered Buckeye and 27 other parties to provide site security and conduct a preliminary clean-up at the Borne Chemical site located in Elizabeth, New Jersey. Twenty of the parties (including Buckeye) agreed to provide security and to remove certain materials from the site. Buckeye agreed to pay approximately $64,000 of the $4 million estimated cost of this activity. This removal work has been completed. The NJDEPE is requiring that all parties (including Buckeye) which are alleged to have contributed hazardous substances to the site, conduct a remedial investigation/feasibility study to determine the scope of additional contamination, if any, that may exist at the site. Buckeye's involvement with this site is based on allegations that a small amount of Buckeye's waste was stored at this site pending its ultimate disposal elsewhere. Buckeye believes that it has meritorious defenses, but its potential liability, if any, for future costs cannot be estimated at this time. In March 1989, the NJDEPE issued a directive to Buckeye and 113 other parties demanding payment of approximately $9.2 million in remediation costs incurred by NJDEPE at the Bridgeport Rental & Oil Services site in Logan Township, New Jersey. This site is subject to a remediation being conducted by EPA under CERCLA. In March 1992, an action was commenced by Rollins Environmental Services (NJ), Inc., and others, against the United States of America and certain additional private parties seeking reimbursement for remediation expenses incurred by plaintiffs in connection with the site. In June 1992, the United States of America brought an action against Rollins Environmental Services (NJ), Inc., and additional private parties, seeking reimbursement of approximately $29 million for response costs incurred by EPA at the site. Buckeye has not been designated by EPA as a PRP with respect to the site, and has not been named as a defendant in any litigation connected with the site. Buckeye believes that it is, at most, a de minimis contributor of waste to this site. Although EPA has estimated remediation costs at the site to be over $100 million, Buckeye expects that its liability, if any, will not be material. In July 1994, Buckeye was named as a defendant in an action filed by the Michigan Department of Natural Resources 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 $1.2 million and a declaratory judgment that the defendants are liable for future response costs and remedial activities at the site. 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 with respect to past or future clean-up costs at the site. The litigation is presently in the discovery phase. Although the cost of the ultimate remediation cannot be determined at this time, Buckeye expects that its liability, if any, will not be material. Additional claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors may be asserted in the future under various federal and state laws, but the amount of such claims or the potential liability, if any, cannot be estimated. See "Business--Regulation-- Environmental Matters." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the holders of LP Units during the fourth quarter of the fiscal year ended December 31, 1995. 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. The high and low sales prices of the LP Units in 1995 and 1994, as reported on the New York Stock Exchange Composite Tape, were as follows:
1995 1994 ------------- ------------- QUARTER HIGH LOW HIGH LOW - ------- ------ ------ ------ ------ First............................................... 37 32 41 35 1/2 Second.............................................. 36 30 39 1/4 35 1/4 Third............................................... 36 1/4 33 7/8 37 3/4 35 1/2 Fourth.............................................. 36 3/4 33 5/8 37 1/2 30 7/8
During the months of December 1995 and January 1996, 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 quarterly during 1994 and 1995 were as follows:
RECORD DATE PAYMENT DATE AMOUNT PER UNIT - ----------- ------------ --------------- February 8, 1994............................. February 28, 1994 $0.70 May 6, 1994.................................. May 31, 1994 $0.70 August 8, 1994............................... August 31, 1994 $0.70 November 8, 1994............................. November 30, 1994 $0.70 February 10, 1995............................ February 28, 1995 $0.70 May 8, 1995.................................. May 31, 1995 $0.70 August 4, 1995............................... August 31, 1995 $0.70 November 10, 1995............................ November 30, 1995 $0.70
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 9, 1996, the Partnership announced a quarterly distribution of $0.75 per LP Unit payable on February 29, 1996. 14 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, 1995, 1994, 1993, 1992 and 1991. The tables should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Report.
YEAR ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Income Statement Data: Revenue......................... $183,462 $186,338 $175,495 $163,064 $151,828 Depreciation and amortization... 11,202 11,203 11,002 10,745 10,092 Operating income................ 71,504 72,481 66,851 63,236 58,452 Interest and debt expense....... 21,710 24,931 25,871 27,452 27,502 Income from continuing opera- tions before extraordinary charge and cumulative effect of change in accounting princi- ple............................ 49,840 48,086 41,654 34,546 30,465 Net income...................... 49,840 45,817 39,366 9,002 30,465 Income per Unit from continuing operations before extraordinary charge and cumulative effect of change in accounting princi- ple............................ 4.10 3.96 3.44 2.85 2.51 Net income per Unit............. 4.10 3.77 3.25 0.74 2.51 Distributions per Unit.......... 2.80 2.80 2.60 2.60 2.60
DECEMBER 31, -------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (IN THOUSANDS) Balance Sheet Data: Total assets..................... $552,646 $534,765 $543,493 $533,143 $545,281 Long-term debt................... 214,000 214,000 224,000 225,000 242,500 General Partner's capital........ 2,622 2,460 2,338 2,259 2,521 Limited Partners' capital........ 259,563 243,516 231,357 223,585 249,533
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the liquidity and capital resources and the results of operations of the Partnership for the periods indicated below. Amounts in the Management's Discussion and Analysis of Financial Condition and Results of Operations relate to continuing operations unless otherwise indicated. This discussion should be read in conjunction with the consolidated financial statements and notes thereto, which are included elsewhere in this Report. RESULTS OF OPERATIONS Through its Operating Partnerships, the Partnership is principally engaged in the transportation of refined petroleum products including gasoline, jet fuel, diesel fuel, heating oil and kerosene. The Partnership's revenues are principally a function of the volumes of refined petroleum products transported by the Partnership, which are in turn a function of the demand for refined petroleum products in the regions served by the Partnership's pipelines and the tariffs or transportation fees charged for such transportation. Results of operations are affected by factors which include 15 competitive conditions, demand for products transported, seasonality and regulation. See "Business-- Competition and Other Business Considerations." 1995 Compared With 1994 Revenue for the year ended December 31, 1995 was $183.5 million, $2.8 million or 1.5 percent less than revenue of $186.3 million for 1994. Volume delivered during 1995 averaged 1,009,800 barrels per day, 19,000 barrels per day or 1.8 percent less than volume of 1,028,800 barrels per day delivered in 1994. The decline in 1995 revenue was related to decreases in gasoline and distillate deliveries, offset somewhat by increases in turbine fuel deliveries and the effect of tariff rate increases. See "Tariff Changes". Gasoline volumes declined as several competitive pipeline systems marginally expanded their capacity in 1995 resulting in some volume shifting to these systems. In addition, a Midwest refinery shutdown contributed to the decline. These declines in gasoline volume were somewhat offset by increased market share in Pennsylvania through the addition of a significant new customer during 1995. The distillate volume decline was primarily related to warmer weather throughout the Northeast in the first quarter of 1995. Marketers also opted to keep inventories at low levels, unlike the prior year when extensive summer inventory building occurred. The Midwest refinery closure also contributed to the decline in distillate volumes. Meanwhile, turbine fuel deliveries increased as both airline passenger and cargo traffic improved in the Partnership's market areas during 1995. Volume increases occurred at several major airport locations. Costs and expenses during 1995 were $112.0 million, $1.9 million or 1.7 percent less than costs and expenses of $113.9 million during 1994. Declines in the use of outside services and power, along with declines in casualty loss expense, were partially offset by increases in payroll and employee benefit expenses. Other income (expenses) consist of interest income, interest and debt expense, and minority interests and other. The partial repayment and refinancing of debt at lower interest rates in 1994 resulted in an interest expense decline of $3.2 million in 1995. 1994 Compared With 1993 Revenue for the year ended December 31, 1994 was $186.3 million, $10.8 million or 6.2 percent greater than revenue of $175.5 million for 1993. Volume delivered during 1994 averaged 1,028,800 barrels per day, 47,700 barrels per day or 4.9 percent greater than volume of 981,100 barrels per day delivered in 1993. Greater revenue in 1994 was related to increased gasoline and distillate deliveries and to the effect of tariff rate increases. See "Tariff Changes". Gasoline volumes increased primarily due to higher end-use demand in response to continued economic recovery and moderate growth in market share. Higher distillate shipments were the result of increased demand due to colder weather early in the year and the effect of carrying two distillate inventories, both high and low sulfur product, as required by Clean Air Act regulations that became effective in October 1993. Turbine fuel shipments increased slightly due to market demand growth at major airports. Costs and expenses during 1994 were $113.9 million, $5.3 million or 4.9 percent greater than costs and expenses of $108.6 million during 1993. Categories of increased expenses included payroll and employee benefits, maintenance services, power, supplies and casualty loss. A significant portion of these increased expenses were directly related to the transportation of additional volume. In addition, costs incurred in connection with environmental remediation activities were $2.9 million greater than the prior year. See "Environmental Matters." Other income (expenses) consist of interest income, interest and debt expense, and minority interests and other. Net reductions in debt, plus refinancing of debt at lower interest rates, resulted in a decline in interest expense of $0.9 million from 1993 levels. 16 Tariff Changes In each of the years 1995, 1994 and 1993, certain of the Operating Partnerships filed increases in certain tariff rates. The increases, at the time of filing, were projected to generate approximately $4.0 million, $0.4 million and $1.5 million in additional revenue per year, respectively. Tariff increases filed in 1995 became effective on May 1 and June 1, 1995. LIQUIDITY AND CAPITAL RESOURCES The Partnership's financial condition at December 31, 1995, 1994 and 1993 is highlighted in the following comparative summary: Liquidity and Capital Indicators
AS OF DECEMBER 31, -------------------------- 1995 1994 1993 -------- -------- -------- Current ratio...................................... 1.7 to 1 1.2 to 1 1.1 to 1 Ratio of cash and temporary investments and trade receivables to current liabilities................ 1.3 to 1 1.0 to 1 1.0 to 1 Working capital (in thousands)..................... $ 16,814 $ 5,750 $ 5,709 Ratio of total debt to total capital............... .45 to 1 .46 to 1 .50 to 1 Book value (per Unit).............................. $ 21.58 $ 20.27 $ 19.28
Cash Provided by Operations During 1995, cash provided by operations of $61.8 million was derived principally from $61.0 million of income from operations before depreciation. Changes in current assets and current liabilities resulted in a net cash use of $0.9 million. Increases in prepaid and other current assets and declines in temporary investments and trade receivables account for the majority of the change. Remaining cash sources, totaling $1.7 million, were primarily related to increases in other non-current liabilities. During 1994, cash provided by operations of $58.1 million was derived principally from $59.3 million of income from continuing operations before an extraordinary charge and before depreciation. Changes in current assets and current liabilities resulted in a net cash use of $0.7 million. Increases in accrued and other current liabilities, trade receivables, temporary investments and prepaid and other current assets account for the majority of the change. Remaining cash uses, totaling $0.5 million, were related to an extraordinary charge on early extinguishment of debt of $2.3 million, changes in minority interests and changes in other non-current liabilities. During 1993, cash provided by operations of $52.9 million was derived principally from $52.7 million of income from continuing operations before an extraordinary charge and before depreciation. Changes in current assets and current liabilities resulted in a net source of $3.7 million. Operating working capital changes relate to a decrease in trade receivables and an increase in accrued and other current liabilities. Remaining cash uses, totaling $3.5 million, were related to an extraordinary charge on early extinguishment of debt of $2.2 million and changes in minority interests and other non-current liabilities. Debt Obligation and Credit Facilities The indenture pursuant to which the First Mortgage Notes were issued (the "Mortgage Note Indenture") was amended in March 1994 by a Fourth Supplemental Indenture to permit Buckeye to issue additional First Mortgage Notes from time to time under certain circumstances so long as the aggregate principal amount of First Mortgage Notes outstanding after any such issuance does not exceed $275 million. 17 At December 31, 1995, the Partnership had $214.0 million in outstanding current and long-term debt. The debt represents the First Mortgage Notes of Buckeye. This amount excludes $25.0 million of First Mortgage Notes scheduled to mature after December 31, 1995 which had previously been retired by in- substance defeasance. The First Mortgage Notes are collateralized by substantially all of Buckeye's currently existing and after acquired property, plant and equipment. During 1995, the Partnership did not make any payments of principal on the First Mortgage Notes as no payments were required due to prior in-substance defeasances. At December 31, 1994, the Partnership had $214.0 million in outstanding current and long-term debt represented by the First Mortgage Notes of Buckeye. This amount does not include $45.0 million in First Mortgage Notes which have been retired by in-substance defeasance. The First Mortgage Notes are collateralized by substantially all of Buckeye's currently existing and after acquired property, plant and equipment. Debt outstanding at December 31, 1994 includes $15 million of additional First Mortgage Notes, Series N, bearing interest at a rate of 7.93 percent. The First Mortgage Notes, Series N, were issued on April 11, 1994 and are due December 2010. Current and long-term debt excludes $20 million of 9.72 percent First Mortgage Notes, Series I, due December 1996, which were retired by an in-substance defeasance with the proceeds of the Series N First Mortgage Notes and an additional defeasance of $5 million in December 1994. Also excluded from long-term debt is $5 million of 11.18 percent First Mortgage Notes, Series J, which were retired by an in- substance defeasance in December 1994. Total debt due beyond 1994 that was retired by an in-substance defeasance during 1994 amounted to $25 million with total new debt issued during 1994 of $15.0 million. During 1994, the Partnership also paid $16 million of principal on the First Mortgage Notes, Series G, that became due in December 1994. At December 31, 1993, the Partnership had $240.0 million in outstanding current and long-term debt represented by the First Mortgage Notes of Buckeye which does not include $20.0 million in First Mortgage Notes which had previously been retired by in-substance defeasance. Debt outstanding at 1993 year-end included $35 million of additional First Mortgage Notes (Series K, L and M) bearing interest rates from 7.11 percent to 7.19 percent which were issued on January 7, 1994 in accordance with an agreement entered into on December 31, 1993 and excluded $20 million of 9.50 percent First Mortgage Notes, Series H, due December 1995 that were retired by an in-substance defeasance with a portion of the proceeds from such additional First Mortgage Notes. During 1993, the Partnership paid $17.5 million of principal on the First Mortgage Notes, Series F, that became due in December 1993. In December 1993, Buckeye entered into an agreement with the purchaser of the $35 million of additional First Mortgage Notes which permitted Buckeye, under certain circumstances, to issue up to $40 million of additional First Mortgage Notes to such purchaser. At December 31, 1995, Buckeye had the capacity to borrow up to $25.0 million of additional First Mortgage Notes under this agreement. On January 7, 1996, this facility to borrow additional First Mortgage Notes expired. The Partnership has a $15 million unsecured short-term revolving credit facility with a commercial bank. This facility, which has options to extend borrowings through September 1999, is available to the Partnership for general purposes, including capital expenditures and working capital. In addition, Buckeye has a $10 million short-term line of credit secured by accounts receivable. Laurel has an unsecured $1 million line of credit. At December 31, 1995, there were no outstanding borrowings under these facilities. The ratio of total debt to total capital was 45 percent, 46 percent, and 50 percent at December 31, 1995, 1994 and 1993, respectively. For purposes of the calculation of this ratio, total capital consists of current and long-term debt, minority interests and partners' capital. Cash Distributions Pursuant to the Mortgage Note Indenture, cash distributions by Buckeye to the Partnership cannot exceed Net Cash Available to Partners (generally defined to equal net income plus depreciation 18 and amortization less (a) capital expenditures funded from operating cash flows, (b) payments of principal of debt and (c) certain other amounts, all on a cumulative basis since the formation of the Partnership). The maximum amount available for distribution by Buckeye to the Partnership under the formula as of December 31, 1995 amounted to $13.5 million. The Partnership is also entitled to receive cash distributions from Everglades, BTT and Laurel. Capital Expenditures At December 31, 1995, property, plant and equipment was approximately 92 percent of total consolidated assets. This compares to 94 percent and 92 percent for the years ended December 31, 1994 and 1993, 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 $17.4 million, $15.4 million and $13.3 million for 1995, 1994 and 1993, respectively. Projected capital expenditures for 1996 are $14.3 million. Planned capital expenditures include, among other things, renewal and replacement of several tank floors, roofs and seals, installation of new metering systems and field instrumentation and various facility improvements that facilitate increased pipeline volumes. Although projected 1996 capital expenditures are less than the two prior years, capital expenditures are expected to increase primarily in response to increasingly rigorous governmental safety and environmental requirements as well as industry standards. Environmental Matters The Operating Partnerships are subject to federal and state laws and regulations relating to the protection of the environment. These regulations, as well as the Partnership's own standards relating to protection of the environment, cause the Operating Partnerships to incur current and ongoing operating and capital expenditures. During 1995, the Operating Partnerships incurred operating expenses of $2.6 million and capital expenditures of $2.7 million for environmental matters. Capital expenditures of $6.7 million for environmental related projects are included in the Partnership's plans for 1996. Expenditures, both capital and operating, relating to environmental matters are expected to remain somewhat higher than in past years due to the Partnership's commitment to maintain high environmental standards and to increasingly rigorous environmental laws. Certain Operating Partnerships (or their predecessors) have been named as a defendant in lawsuits or have been notified by federal or state authorities that they are a PRP under federal laws or a respondent under state laws relating to the generation, disposal, or release of hazardous substances into the environment. These proceedings generally relate to potential liability for clean-up costs. The total potential remediation costs to be borne by the Operating Partnerships relating to these clean-up sites cannot be reasonably estimated and could be material. With respect to each site, however, the Operating Partnership involved is one of several or as many as several hundred PRPs that would share in the total costs of clean-up under the principle of joint and several liability. The General Partner believes that the generation, handling and disposal of hazardous substances by the Operating Partnerships and their predecessors have been in material compliance with applicable environmental and regulatory requirements. At the Whitmoyer Laboratories site in Myerstown, Pennsylvania, Buckeye is one of several PRPs for a clean-up estimated to cost approximately $125 million. However, in 1992, EPA entered into an agreement with the estate of one of the PRPs to recover a portion of EPA's past costs and a Consent Decree with the two PRPs that were former owners of Whitmoyer Laboratories to assume the cost of clean-up at the site and to reimburse EPA for future response costs and a portion of its past response costs. These two PRPs have instituted suit against each other to determine their relative 19 responsibility for the Whitmoyer Laboratories site clean-up. One of the PRPs served a third-party complaint against Buckeye for the stated purpose of tolling the statute of limitations to preserve its rights, if any, against Buckeye. Buckeye subsequently settled the third-party complaint that had been filed against it. In consideration of mutual releases and the PRP's agreement to cleanup Buckeye's portion of the site, Buckeye agreed to remove its booster pump station, to reroute its pipeline around the site and to reimburse the PRP for the cost of removing the original pipeline, if such removal is required by EPA. Buckeye has not entered into any agreements with the EPA or the other PRP involved at the site, and Buckeye has not waived any rights to recover for any claim arising out of the PRP's activities at the site or any claims brought by any governmental agency or third-party based upon environmental conditions at the site. Although the exact costs of the settlement are not known, Buckeye estimates at this time that the costs of complying with the terms of the settlement agreement will be between $1 million and $2 million. In March 1990, a landslide near Freeport, Pennsylvania caused a rupture to one of Buckeye's pipelines which resulted in the release of approximately 58,000 gallons of petroleum products. During 1995, Buckeye paid claims and other charges related to this incident in the amount of $1.0 million. Total claims paid as a result of this incident have amounted to $14.1 million. Of this amount, $11.9 million has been reimbursed by Buckeye's insurance carriers. Buckeye is unable to estimate the total amount of future environmental clean-up and other costs and liabilities that may be incurred in connection with this incident. However, based on information currently available to it, Buckeye believes that its net expense after insurance recoveries will not be material to its financial condition or results of operations. See "Legal Proceedings--Freeport Landslide." Various claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors have been asserted and may be asserted in the future under various federal and state laws. Although the Partnership has made a provision for certain legal expenses relating to these matters, the General Partner is unable to determine the timing or outcome of any pending proceedings or of any future claims and proceedings. See "Business--Regulation--Environmental Matters" and "Legal Proceedings." Discontinued Operations In the fourth quarter of 1990, the Partnership recorded a non-cash charge to earnings of $19.1 million, net of estimated earnings during phase-out, relating to the Partnership's decision to discontinue its 16-inch crude oil pipeline and a refined products terminal. The Partnership closed the sale of the 16-inch crude oil pipeline, together with associated real and personal property to Sun Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2 million. Remaining discontinued operations consisting of petroleum facilities at a refined products terminal were dismantled and removed during the first quarter 1993. Disposal of these discontinued operations resulted in a loss of $127,000 in 1993. ADOPTION OF EMPLOYEE STOCK OWNERSHIP PLAN In connection with the Acquisition, the ESOP was formed for the benefit of employees of the General Partner, the Manager and Glenmoor. The General Partner borrowed $63 million pursuant to a 15-year term loan from a third- party lender. The General Partner then loaned $63 million to the ESOP, which used the loan proceeds to purchase $63 million of Senior A Convertible Preferred Stock of BAC. Interest payments associated with the amortization of the ESOP loan for the remainder of 1996 are estimated to be approximately $3.7 million. The General Partner has implemented an expense reduction plan including, among other things, a freeze on salaried employee pay as well as fringe benefit reductions and eliminations that will fully offset the expenses associated with the amortization of the ESOP loan in 1996. 20 ACCOUNTING STATEMENTS NOT YET ADOPTED Impairment of Long-Lived Assets In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Also, in general, long-lived assets and certain identifiable intangibles to be disposed of should be reported at the lower of carrying amount or fair value less cost to sell. The Partnership intends to adopt the new method of accounting for the impairment of long-lived assets and for long-lived assets to be disposed of during fiscal year 1996. However, adoption of this new standard is not expected to have a material effect on the Partnership's financial position or results of operations. Stock-Based Compensation In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. This statement defines a fair value based method of accounting for an employee stock option and encourages all entities to adopt that method of accounting for their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which the Partnership currently uses to measure stock-based compensation to its employees under its Unit Option and Distribution Equivalent Plan. The Partnership intends to adopt the provisions of this new standard during fiscal year 1996. However, adoption of this new standard is not expected to have a material effect on the Partnership's financial position or results of operations. 21 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..................................... 23 Consolidated Statements of Income--For the years ended December 31, 1995, 1994 and 1993......................................... 24 Consolidated Balance Sheets--December 31, 1995 and 1994.......... 25 Consolidated Statements of Cash Flows--For the years ended Decem- ber 31, 1995, 1994 and 1993..................................... 26 Notes to Consolidated Financial Statements....................... 27 Financial Statement Schedules and Independent Auditors' Report: Independent Auditors' Report..................................... S-1 Schedule I--Registrant's Condensed Financial Statements.......... S-2 Schedule II--Valuation and Qualifying Accounts--For the years ended December 31, 1995, 1994 and 1993.......................... S-3
Schedules other than those listed above are omitted because they are either not applicable or not required or the information required is included in the consolidated financial statements or notes thereto. 22 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, 1995 and 1994, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Philadelphia, Pennsylvania January 26, 1996 (March 22, 1996 as to Note 3) 23 BUCKEYE PARTNERS, L.P. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------- NOTES 1995 1994 1993 ----- -------- -------- -------- Revenue................................... 2 $183,462 $186,338 $175,495 -------- -------- -------- Costs and expenses Operating expenses...................... 4,14 89,156 92,097 87,029 Depreciation and amortization........... 2 11,202 11,203 11,002 General and administrative expenses..... 14 11,600 10,557 10,613 -------- -------- -------- Total costs and expenses.............. 111,958 113,857 108,644 -------- -------- -------- Operating income.......................... 71,504 72,481 66,851 -------- -------- -------- Other income (expenses) Interest income......................... 1,037 1,465 919 Interest and debt expense............... (21,710) (24,931) (25,871) Minority interests and other............ (991) (929) (245) -------- -------- -------- Total other income (expenses)......... (21,664) (24,395) (25,197) -------- -------- -------- Income from continuing operations before extraordinary charge..................... 49,840 48,086 41,654 Loss from discontinued operations......... 6 -- -- (127) Extraordinary charge on early extinguishment of debt................... 12 -- (2,269) (2,161) -------- -------- -------- Net income................................ $ 49,840 $ 45,817 $ 39,366 ======== ======== ======== Net income allocated to General Partner... 15 $ 498 $ 458 $ 394 Net income allocated to Limited Partners.. 15 $ 49,342 $ 45,359 $ 38,972 Income allocated to General and Limited Partners per Partnership Unit: Income from continuing operations before extraordinary charge................... $ 4.10 $ 3.96 $ 3.44 Loss from discontinued operations....... -- -- (.01) Extraordinary charge on early extinguishment of debt................. -- (.19) (.18) -------- -------- -------- Net income................................ $ 4.10 $ 3.77 $ 3.25 ======== ======== ========
See notes to consolidated financial statements. 24 BUCKEYE PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ----------------- NOTES 1995 1994 ------------ -------- -------- Assets Current assets Cash and cash equivalents.................... 2 $ 16,213 $ 6,071 Temporary investments........................ 2 895 1,400 Trade receivables............................ 2 16,295 17,057 Inventories.................................. 2 1,561 1,320 Prepaid and other current assets............. 7,272 5,474 -------- -------- Total current assets....................... 42,236 31,322 Property, plant and equipment, net............. 2,5 509,944 503,083 Other non-current assets....................... 466 360 -------- -------- Total assets............................... $552,646 $534,765 ======== ======== Liabilities and partners' capital Current liabilities Accounts payable............................. $ 2,406 $ 2,325 Accrued and other current liabilities........ 4,7,10,11,14 23,016 23,247 -------- -------- Total current liabilities.................. 25,422 25,572 Long-term debt................................. 8,12 214,000 214,000 Minority interests............................. 2,781 2,616 Other non-current liabilities.................. 4,9,10,11,14 48,258 46,601 Commitments and contingent liabilities......... 4 -- -- -------- -------- Total liabilities.......................... 290,461 288,789 -------- -------- Partners' capital................................ 15 General Partner................................ 2,622 2,460 Limited Partners............................... 259,563 243,516 -------- -------- Total partners' capital.................... 262,185 245,976 -------- -------- Total liabilities and partners' capital.... $552,646 $534,765 ======== ========
See notes to consolidated financial statements. 25 BUCKEYE PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- NOTES 1995 1994 1993 ----- -------- -------- -------- Cash flows from operating activities: Income from continuing operations before extraordinary charge..................... $ 49,840 $ 48,086 $ 41,654 -------- -------- -------- Adjustments to reconcile income to net cash provided by operating activities: Extraordinary charge on early extinguishment of debt.................. -- (2,269) (2,161) Depreciation and amortization............ 11,202 11,203 11,002 Minority interests....................... 510 469 145 Distributions to minority interests...... (345) (345) (532) Change in assets and liabilities: Temporary investments................... 505 (1,150) (250) Trade receivables....................... 762 (1,716) 1,497 Inventories............................. (241) (146) (153) Prepaid and other current assets........ (1,798) (1,029) (1,189) Accounts payable........................ 81 (237) 1,378 Accrued and other current liabilities (a).................................... (231) 3,560 2,394 Other non-current assets................ (106) 100 -- Other non-current liabilities (a)....... 1,657 1,544 (1,043) -------- -------- -------- Total adjustments from continuing operating activities.................. 11,996 9,984 11,088 -------- -------- -------- Net cash provided by continuing operating activities.............................. 61,836 58,070 52,742 Net cash provided by discontinued operations (b).......................... 6 -- -- 206 -------- -------- -------- Net cash provided by operating activities............................ 61,836 58,070 52,948 -------- -------- -------- Cash flows from investing activities: Capital expenditures...................... (17,407) (15,364) (13,328) Proceeds from sale of net assets of discontinued operations.................. 6 -- -- 9,200 Net (expenditures for) proceeds from disposal of property, plant and equipment................................ (656) 153 (1,810) -------- -------- -------- Net cash used in investing activities.. (18,063) (15,211) (5,938) -------- -------- -------- Cash flows from financing activities: Capital contribution...................... 4 4 -- Proceeds from exercise of unit options.... 374 428 -- Proceeds from issuance of long-term debt.. 8 -- 15,000 35,000 Payment of long-term debt................. 8 -- (41,000) (37,500) Distributions to Unitholders.............. 15,16 (34,009) (33,968) (31,515) -------- -------- -------- Net cash used in financing activities.. (33,631) (59,536) (34,015) -------- -------- -------- Net increase (decrease) in cash and cash equivalents............................... 2 10,142 (16,677) 12,995 Cash and cash equivalents at beginning of year...................................... 2 6,071 22,748 9,753 -------- -------- -------- Cash and cash equivalents at end of year... $ 16,213 $ 6,071 $ 22,748 ======== ======== ======== Supplemental cash flow information: Cash paid during the year for interest (net of amount capitalized).............. $ 21,656 $ 24,947 $ 26,169 Non-cash changes in property, plant and equipment................................ -- -- 602 (a) Non-cash changes in accrued and other liabilities.............................. -- -- 3,173 (b) Non-cash changes in discontinued operations............................... -- -- 3,259
See notes to consolidated financial statements. 26 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994 AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1. ORGANIZATION Buckeye Partners, L.P. (the "Partnership") is a limited partnership organized in 1986 under the laws of the state of Delaware. The Partnership owns 99 percent limited partnership interests in Buckeye Pipe Line Company, L.P. ("Buckeye"), Laurel Pipe Line Company, L.P. ("Laurel"), Everglades Pipe Line Company, L.P. ("Everglades") and Buckeye Tank Terminals Company, L.P. ("BTT"). The foregoing entities are hereinafter referred to as the "Operating Partnerships." Laurel owns a 98.01 percent limited partnership interest in Buckeye Pipe Line Company of Michigan, L.P. ("BPL Michigan") which discontinued operations in 1993 (see Note 6). Buckeye is one of the largest independent pipeline common carriers of refined petroleum products in the United States, with 3,119 miles of pipeline serving 10 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 271,000 barrels of refined petroleum products. During December 1986, the Partnership sold 12,000,000 limited partnership units ("LP Units") in a public offering representing an aggregate 99 percent limited partnership interest in the Partnership. Concurrently, the Partnership sold 121,212 units representing a 1 percent general partnership interest in the Partnership ("GP Units") to Buckeye Management Company (the "General Partner"), a wholly owned subsidiary of American Financial Group, Inc. ("American Financial"), formerly American Premier Underwriters, Inc. The Partnership used the proceeds from such sales to purchase from subsidiaries of American Financial the 99 percent limited partnership interests in the then existing Operating Partnerships and an 83 percent stock interest in Laurel Pipe Line Company ("Laurel Corp"). In December 1991, the Partnership acquired the minority interest in Laurel Corp. Laurel was formed in October 1992 and succeeded to the operations of Laurel Corp. The Partnership has issued an additional 29,730 limited partnership units and 300 general partnership units under its Unit Option and Distribution Equivalent Plan. At December 31, 1995, there were 12,029,730 limited partnership units and 121,512 general partnership units outstanding (see Note 15 and Note 17). A subsidiary of the General Partner, Buckeye Pipe Line Company (the "Manager"), owns a 1 percent general partnership interest in, and serves as sole general partner and manager of, each Operating Partnership. The Manager also owns a 1 percent general partnership interest and a 0.99 percent limited partnership interest in BPL Michigan. The Partnership maintains its accounts in accordance with the Uniform System of Accounts for Pipeline Companies, as prescribed by the Federal Energy Regulatory Commission ("FERC"). Reports to FERC differ from the accompanying consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, generally in that such reports calculate depreciation over estimated useful lives of the assets as prescribed by FERC. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements of the Partnership have been prepared using the purchase method of accounting. An allocation of the purchase price to the net assets acquired was made on their 27 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) relative fair market values as appraised. The financial statements include the accounts of the Operating Partnerships on a consolidated basis. All significant intercompany transactions have been eliminated in consolidation. 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 are major integrated oil companies, major refiners and large regional marketing companies. While the consolidated Partnership's continuing customer base numbers approximately 105, no customer during 1995 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. 28 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 1995 and 1994, the Partnership's reported amount of net assets for financial reporting purposes exceeded its tax basis by approximately $211 million and $179 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. Pensions The Manager maintains a defined contribution plan and a defined benefit plan (see Note 10) which provide retirement benefits to substantially all of its regular full-time employees. Certain hourly employees of the Manager are covered by a defined contribution plan under a union agreement. Postretirement Benefits Other Than Pensions The Manager provides postretirement health care and life insurance benefits for certain of its retirees (see Note 11). Certain other retired employees are covered by a health and welfare plan under a union agreement. Impairment of Long-Lived Assets Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is effective for fiscal years beginning after December 15, 1995. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Also, in general, long-lived assets and certain identifiable intangibles to be disposed of should be reported at the lower of carrying amount or fair value less cost to sell. The impact of this new standard is not expected to have a material effect on the Partnership's financial position or results of operations. Stock-Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation," is effective for fiscal years beginning after December 15, 1995. This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. This statement defines a fair value based method of accounting for an employee stock option and encourages all entities to adopt that method of accounting for their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", which the 29 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Partnership currently uses to measure stock-based compensation to its employees under its Unit Option and Distribution Equivalent Plan. The impact of this new standard is not expected to have a material effect on the Partnership's financial position or results of operations. 3. SUBSEQUENT EVENT On January 8, 1996, American Financial announced a definitive agreement to sell all of the outstanding shares of stock of the General Partner for $63 million in cash to an investment group consisting of certain members of its management and the BMC Acquisition Company Employee Stock Ownership Plan (the "ESOP"). On March 22, 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 the General Partner from a subsidiary of American Financial (the "Acquisition"). BAC is owned by Glenmoor Partners, LLP ("Glenmoor"), an investment group led by Alfred W. Martinelli, Chairman of the Board and Chief Executive Officer of the General Partner and including as partners all of the members of senior management of the General Partner, certain managers of the Manager and by the ESOP. Comerica Bank-Illinois serves as trustee of the ESOP. In connection with the Acquisition, the ESOP was formed for the benefit of employees of the General Partner, the Manager and Glenmoor. The General partner borrowed $63 million pursuant to a 15-year term loan from a third- party lender. The General Partner then loaned $63 million to the ESOP, which used the loan proceeds to purchase $63 million of Senior A Convertible Preferred Stock of BAC. BAC used the $63 million proceeds of the sale of the Senior A Convertible Preferred Stock to the ESOP plus $6 million of proceeds from the sale of common stock to Glenmoor to pay the Acquisition purchase price, Acquisition-related expenses and to make a capital contribution to the General Partner to maintain its net worth at not less than $5,000,000. On March 22, 1996, the General Partner amended the Partnership Agreement 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 to the General Partner by any successor general partner of the Partnership, and (c) reduce the threshold for payment of Restricted Payments by the General Partner or the Manager from $23,000,000 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 of the Partnership. Also on March 22, 1996, the General Partner amended and restated the Incentive Compensation Agreement to (a) delete American Financial as a party to the agreement, (b) eliminate certain provisions relating to distribution support obligations which expired in 1991, and (c) clarify that the Incentive Compensation Agreement terminates if the General Partner is removed as general partner of the Partnership. The Incentive Compensation Agreement was approved on behalf of the Partnership by a special committee of disinterested directors of the Partnership. 30 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. 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 expenses of $2.6 million, $5.9 million and $3.0 million for 1995, 1994 and 1993, respectively, which were related to the environment. Expenditures, both capital and operating, relating to environmental matters are expected to remain somewhat higher than in past years due to the Partnership's commitment to maintain high environmental standards and to increasingly strict environmental laws and government enforcement policies. Certain Operating Partnerships (or their predecessors) have been named as a defendant in lawsuits or have been notified by federal or state authorities that they are a potentially responsible party ("PRP") under federal laws or a respondent under state laws relating to the generation, disposal, or release of hazardous substances into the environment. These proceedings generally relate to potential liability for clean-up costs. The total potential remediation costs relating to these clean-up sites cannot be reasonably estimated. With respect to each site, however, the Operating Partnership involved is one of several or as many as several hundred PRPs that would share in the total costs of clean-up under the principle of joint and several liability. The General Partner believes that the generation, handling and disposal of hazardous substances by the Operating Partnerships and their predecessors have been in material compliance with applicable environmental and regulatory requirements. Additional claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Partnerships or their predecessors may be asserted in the future under various federal and state laws. Although the Partnership has made a provision for certain legal expenses relating to these matters, the General Partner is unable to determine the timing or outcome of any pending proceedings or of any future claims and proceedings. Guaranteed Investment Contract The Buckeye Pipe Line Company Retirement and Savings Plan (the "Plan") 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 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 has received an interest only contract from Aurora National Life Assurance Company in substitution for its Executive Life GIC. The contract provides for semi-annual interest payments at a rate of 5.61 percent per annum through September 1998, the maturity date of the contract. In addition, the Plan is to receive certain additional cash payments through the maturity date of the contract pursuant to the Plan of Rehabilitation. The timing and amount of these additional cash payments cannot be estimated accurately at this time. In May 1991, the General Partner, in order to safeguard the basic retirement and savings benefits of its employees, announced its intention to enter an arrangement with the Plan that would guarantee that the Plan would receive at least its initial 31 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) principal investment of $7.4 million plus interest at an effective rate per annum of 5 percent from July 1, 1989. The General Partner's present intention is to effectuate its commitment no later than September 1998. The costs and expenses of the General Partner's employee benefit plans are reimbursable by the Partnership under the applicable limited partnership and management agreements. The General Partner believes that an adequate provision has been made for costs which may be incurred by the Partnership in connection with the guarantee. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, ----------------- 1995 1994 -------- -------- (IN THOUSANDS) Land...................................................... $ 10,186 $ 10,189 Buildings and leasehold improvements...................... 26,211 23,887 Machinery, equipment and office furnishings............... 519,548 514,287 Construction in progress.................................. 2,335 8,576 -------- -------- 558,280 556,939 Less accumulated depreciation........................... 48,336 53,856 -------- -------- Total................................................... $509,944 $503,083 ======== ========
Depreciation expense was $11,202,000, $11,203,000 and $11,002,000 for the years 1995, 1994 and 1993, respectively. 6. DISCONTINUED OPERATIONS In the fourth quarter of 1990, the Partnership recorded a non-cash charge to earnings of $19.1 million, net of estimated earnings during phase-out, relating to the Partnership's decision to discontinue its 16-inch crude oil pipeline and a refined products terminal. The Partnership closed the sale of the 16-inch crude oil pipeline, together with associated real and personal property to Sun Pipe Line Company on February 1, 1993. Proceeds from the sale amounted to $9.2 million. Remaining discontinued operations consisting of petroleum facilities at the refined products terminal were dismantled and removed during the first quarter 1993. Disposal of these discontinued operations resulted in a loss of $127,000 in 1993. 7. ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities consist of the following:
DECEMBER 31, --------------- 1995 1994 ------- ------- (IN THOUSANDS) Taxes--other than income.................................... $ 8,258 $ 7,557 Accrued charges due Manager................................. 6,436 6,011 Accrued outside services.................................... 660 2,377 Environmental liabilities................................... 2,409 2,530 Interest.................................................... 1,023 969 Other....................................................... 4,230 3,803 ------- ------- Total..................................................... $23,016 $23,247 ======= =======
32 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. LONG-TERM DEBT AND CREDIT FACILITIES Long-term debt consists of the following:
DECEMBER 31, ----------------- 1995 1994 -------- -------- (IN THOUSANDS) First Mortgage Notes 11.18% Series J due December 15, 2006 (subject to $16.9 million annual sinking fund requirement commencing December 15, 1997)..................................... $164,000 $164,000 7.11% Series K due December 15, 2007.................... 11,000 11,000 7.15% Series L due December 15, 2008.................... 11,000 11,000 7.19% Series M due December 15, 2009.................... 13,000 13,000 7.93% Series N due December 15, 2010.................... 15,000 15,000 -------- -------- Total................................................. $214,000 $214,000 ======== ========
Maturities of debt outstanding at December 31, 1995 are as follows: None in 1996; $11,900,000 in 1997; $16,900,000 in 1998; $16,900,000 in 1999; $16,900,000 in 2000 and a total of $151,400,000 in the period 2001 through 2010. The fair value of the Partnership's debt is estimated to be $250 million and $221 million as of December 31, 1995 and 1994, respectively. These values were calculated using interest rates currently available to the Partnership for issuance of debt with similar terms and remaining maturities. The First Mortgage Notes are collateralized by a mortgage on and a security interest in substantially all of the currently existing and after-acquired property, plant and equipment (the "Mortgaged Property") of Buckeye. The indenture pursuant to which the First Mortgage Notes were issued (the "Mortgage Note Indenture"), as amended by Supplemental Indentures, contains covenants which generally (a) limit the outstanding indebtedness of Buckeye under the Mortgage Note Indenture at any time to $275 million plus up to $15 million of short-term borrowings for working capital purposes, (b) prohibit Buckeye from creating or incurring additional liens on its property, (c) prohibit Buckeye from disposing of substantially all of its property or business to another party and (d) prohibit Buckeye from disposing of any part of the Mortgaged Property unless the proceeds in excess of $1 million in a fiscal year are available for reinvestment in assets subject to the lien of the Mortgage Note Indenture. In December 1993, Buckeye entered into an agreement to issue $35 million of additional First Mortgage Notes in accordance with provisions under a Third Supplemental Indenture and as permitted under the Mortgage Note Indenture. These additional First Mortgage Notes, which were issued on January 7, 1994, mature from 2007 to 2009 and bear interest at rates ranging from 7.11 percent to 7.19 percent. A portion of the proceeds of these notes was used to complete an in-substance defeasance of principal and interest with respect to Buckeye's $20 million, 9.50 percent First Mortgage Notes (Series H) due December 1995 (see Note 12). Remaining proceeds of the additional notes were used for working capital purposes. In addition, Buckeye entered into an agreement with the purchaser of the $35 million of additional First Mortgage Notes which permitted Buckeye, under certain circumstances, to issue up to $40 million of additional First Mortgage Notes to such purchaser (the "Mortgage Note Facility"). 33 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During March 1994, Buckeye entered into an agreement with such purchaser to issue $15 million of additional First Mortgage Notes under the Mortgage Note Facility and in accordance with provisions under a Fourth and Fifth Supplemental Indenture and the Mortgage Note Indenture. These additional First Mortgage Notes mature in 2010 and bear interest at 7.93 percent. The proceeds of these notes, plus additional cash of $1.6 million, were used to complete an in-substance defeasance of principal and interest with respect to $15 million of 9.72 percent First Mortgage Notes (Series I) due December 1996. In addition, in December 1994, Buckeye completed an in-substance defeasance of $5 million of Buckeye's 9.72 percent Series I First Mortgage Notes and $5 million of Buckeye's 11.18 percent Series J First Mortgage Notes (see Note 12). As of December 1995, Buckeye had the capacity to borrow up to $25 million of additional First Mortgage Notes under the Mortgage Note Facility. On January 7, 1996, the Mortgage Note Facility expired. The Partnership Agreement contains certain restrictions which limit the incurrence of any debt by the Partnership or any Operating Partnership to the First Mortgage Notes, any additional debt of Buckeye permitted by the Mortgage Note Indenture and other debt not in excess of an aggregate consolidated principal amount of $25 million plus the aggregate proceeds from the sale of additional partnership interests. The Partnership maintains a $15 million unsecured revolving credit facility with a commercial bank which is available to the Partnership for general purposes, including capital expenditures and working capital. Interest on any borrowings under this facility is calculated on the bank's Alternate Base Rate ("ABR") or LIBOR plus one percent. ABR is defined as the highest of the bank's prime rate, the three month secondary CD rate plus one percent, and the Federal Funds Rate plus one-half of one percent. At December 31, 1995, there was no amount outstanding under this facility. Buckeye has a line of credit from two commercial banks (the "Working Capital Facility") which permits short-term borrowings of up to $10 million outstanding at any time. Borrowings under the Working Capital Facility bear interest at each bank's prime rate and are secured by the accounts receivable of Buckeye. The Mortgage Note Indenture contains covenants requiring that, for a period of 45 consecutive days during any year, no indebtedness be outstanding under the Working Capital Facility. In addition, Laurel has an unsecured line of credit from a commercial bank which permits short-term borrowings of up to $1 million outstanding at any time. Borrowings bear interest at the bank's prime rate. Laurel's unsecured line of credit contains covenants requiring that, for a period of 30 consecutive days during any year, no indebtedness be outstanding under this facility. At December 31, 1995, there were no amounts outstanding under either of these facilities. 9. OTHER NON-CURRENT LIABILITIES Other non-current liabilities consist of the following:
DECEMBER 31, --------------- 1995 1994 ------- ------- (IN THOUSANDS) Accrued employee benefit liabilities........................ $35,699 $34,121 Accrued charges due Manager................................. 2,607 2,607 Other....................................................... 9,952 9,873 ------- ------- Total..................................................... $48,258 $46,601 ======= =======
34 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. PENSION PLANS The Manager provides retirement benefits, primarily through noncontributory pension plans, for substantially all of its regular full-time employees, except those covered by certain labor contracts, under which the Manager contributes 5 percent of each covered employee's salary, and a retirement income guarantee plan (a defined benefit plan) which generally guarantees employees hired before January 1, 1986, a retirement benefit at least equal to the benefit they would have received under a previously terminated defined benefit plan. The Manager's policy is to fund amounts as are necessary to at least meet the minimum funding requirements of ERISA. All of these plans were assumed by the Manager. Net pension expense for 1995, 1994 and 1993 for the defined benefit plans included the following components:
1995 1994 1993 ------- ----- ------- (IN THOUSANDS) Service cost........................................ $ 452 $ 448 $ 431 Interest cost on projected benefit obligation....... 933 785 784 Actual return on assets............................. (1,653) (31) (1,142) Net amortization and deferral....................... 838 (854) 229 ------- ----- ------- Net pension expense............................... $ 570 $ 348 $ 302 ======= ===== =======
The pension expense for the defined contribution plan included in the consolidated statements of income approximated $1,493,000, $1,471,000 and $1,403,000 for 1995, 1994 and 1993, respectively. The following table sets forth the funded status of the Manager's defined benefit plans and amounts recognized in the Partnership's consolidated balance sheets at December 31, 1995 and 1994 related to those plans:
DECEMBER 31, ------------------ 1995 1994 -------- -------- (IN THOUSANDS) Actuarial present value of benefit obligations Vested benefit obligations............................ $ (5,338) $ (3,386) ======== ======== Accumulated benefit obligations....................... $ (6,721) $ (4,312) ======== ======== Projected benefit obligation.......................... $(14,311) $(11,712) Plan assets at fair value............................... 8,521 7,891 -------- -------- Projected benefit obligation in excess of plan assets... (5,790) (3,821) Unrecognized net loss (gain) ........................... 476 (763) Unrecognized net asset.................................. (1,262) (1,422) -------- -------- Pension liability recognized in the balance sheet....... $ (6,576) $ (6,006) ======== ========
As of December 31, 1995, approximately 42.6 percent of plan assets were invested in debt securities, 55.3 percent in equity securities and 2.1 percent in cash equivalents. The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25 percent and 8.50 percent at December 31, 1995 and 1994, 35 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) respectively. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5.0 percent and 6.0 percent at December 31, 1995 and 1994, respectively. The expected long-term rate of return on assets was 8.5 percent as of January 1, 1995 and 1994. The Manager also participates in a multi-employer retirement income plan which provides benefits to employees covered by certain labor contracts. Pension expense for the plan was $145,000, $152,000 and $156,000 for 1995, 1994 and 1993, respectively. 11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Manager provides postretirement health care and life insurance benefits to certain of its retirees. To be eligible for these benefits an employee had to be hired prior to January 1, 1991 and has to meet certain service requirements. The Manager does not pre-fund this postretirement benefit obligation. Net postretirement benefit costs for 1995, 1994 and 1993 included the following components:
1995 1994 1993 ------ ------ ------ Service cost....................................... $ 520 $ 583 $ 442 Interest cost on accumulated postretirement benefit obligation........................................ 1,895 1,712 1,673 Net amortization and deferral...................... (577) (576) (580) ------ ------ ------ Net postretirement expense......................... $1,838 $1,719 $1,535 ====== ====== ======
The following table sets forth the amounts related to postretirement benefit obligations recognized in the Partnership's consolidated balance sheets as of December 31, 1995 and 1994:
DECEMBER 31, ------------------ 1995 1994 -------- -------- (IN THOUSANDS) Actuarial present value of accumulated postretirement benefits Retirees and dependents............................. $(11,886) $(11,666) Employees eligible to retire...................... (4,368) (3,828) Employees ineligible to retire.................... (8,431) (7,363) -------- -------- Accumulated postretirement benefit obligation..... (24,685) (22,857) Unamortized gain due to plan amendment................ (4,637) (5,217) Unrecognized net loss (gain) ......................... 199 (41) -------- -------- Postretirement liability recognized in the balance sheet................................................ $(29,123) $(28,115) ======== ========
The weighted average discount rate used in determining the accumulated postretirement benefit obligation ("APBO") was 7.25 percent and 8.50 percent at December 31, 1995 and 1994, respectively. The assumed rate for plan cost increases in 1995 was 11.6 percent and 10.2 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 4.5 percent, and remain at 4.5 percent thereafter for both non-Medicare eligible and Medicare eligible retirees. The effect of a 1 percent increase in the health care cost trend rate for each future year would have increased the aggregate of service and interest cost 36 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) components by $512,500 in 1995 and the APBO would have increased by $4,232,600 as of December 31, 1995. The Manager also contributes to a multi-employer postretirement benefit plan which provides health care and life insurance benefits to employees covered by certain labor contracts. The cost of providing these benefits was approximately $137,000, $130,000 and $123,000 for 1995, 1994 and 1993, respectively. 12. EARLY EXTINGUISHMENT OF DEBT In March 1994, Buckeye entered into an agreement to issue $15 million of additional First Mortgage Notes (Series N) bearing interest at 7.93 percent (see Note 8). The proceeds from the issuance of these First Mortgage Notes, plus additional amounts approximating $1.6 million, were used to purchase U.S. Government securities. These securities were deposited into an irrevocable trust to complete an in-substance defeasance of $15 million of Buckeye's 9.72 percent, Series I, First Mortgage Notes. In addition, during December 1994, Buckeye purchased approximately $10.7 million of U.S. Government securities. These securities were deposited into an irrevocable trust to complete an in- substance defeasance of $5 million of Buckeye's 9.72 percent, Series I, First Mortgage Notes and $5 million of Buckeye's 11.18 percent, Series J, First Mortgage Notes. The funds placed in trust in 1994 will be used solely to satisfy the interest due and principal amounts of $20 million Series I Notes due December 1996 and $5 million Series J Notes due serially through December 2006. Accordingly, these U.S. Government securities, the Series I First Mortgage Notes and $5 million of the Series J First Mortgage Notes have been excluded from the balance sheets. This debt extinguishment resulted in an extraordinary charge of $2,269,000 in 1994. In December 1993, Buckeye entered into an agreement to issue $35 million of additional First Mortgage Notes (Series K, L and M) bearing interest at rates ranging from 7.11 percent to 7.19 percent (see Note 8). A portion of the proceeds from the issuance of these First Mortgage Notes were used to purchase approximately $22.2 million of U.S. Government securities. These securities were deposited into an irrevocable trust to complete an in-substance defeasance of Buckeye's 9.50 percent, Series H, First Mortgage Notes. The funds in the trust were used solely to satisfy the interest due and principal amount of $20 million due at maturity in December 1995. Accordingly, these U.S. Government securities and the Series H First Mortgage Notes have been excluded from the balance sheets. This debt extinguishment resulted in an extraordinary charge of $2,161,000 in 1993. 13. LEASES The Operating Partnerships lease certain land and rights-of-way. Minimum future lease payments for these leases as of December 31, 1995 are approximately $2.6 million for each of the next five years. Substantially all of these lease payments can be cancelled at any time should they not be required for operations. The Manager leases space in an office building and certain copying equipment and Buckeye leases certain computing equipment and automobiles. The rent on such leases is charged to the Operating Partnerships. Future minimum lease payments under these noncancellable operating leases at December 31, 1995 were as follows: $964,000 for 1996, $850,000 for 1997, $724,000 for 1998, $353,000 for 1999, $362,000 for 2000 and $2,020,000 thereafter. Rent expense for all operating leases was $5,161,000, $4,834,000 and $4,890,000 for 1995, 1994 and 1993, respectively. 37 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. RELATED PARTY TRANSACTIONS The Partnership and the Operating Partnerships are managed and controlled by the General Partner and the Manager. Under certain partnership agreements and management agreements, the General Partner, the Manager, and certain related parties are entitled to reimbursement of all direct and indirect costs related to the business activities of the Partnership and the Operating Partnerships. These costs, which totaled $55.4 million, $52.5 million and $52.7 million in 1995, 1994 and 1993, respectively, include insurance fees, consulting fees, general and administrative costs, compensation and benefits payable to officers and employees of the General Partner and Manager, tax information and reporting costs, legal and audit fees and an allocable portion of overhead expenses. In 1986, Buckeye's predecessor (then owned by a subsidiary of American Financial) obtained an Administrative Consent Order ("ACO") from the New Jersey Department of Environmental Protection and Energy under the New Jersey Environmental Cleanup Responsibility Act of 1983 ("ECRA") for all six of its facilities in New Jersey. The ACO required Pipe Line to conduct in a timely manner a sampling plan for environmental contamination at the New Jersey facilities and to implement any required clean-up plan. Sampling continues in an effort to identify areas of contamination at the New Jersey facilities, while clean-up operations have begun at certain of the sites. The obligations of Pipe Line were not assumed by the Partnership and the costs of compliance have been and will continue to be paid by American Financial. Through December 1995, Buckeye's costs of approximately $2,516,000 have been funded by American Financial. On July 18, 1995, the General Partner amended the Partnership Agreement to reflect its agreement to continue to act as general partner of the Partnership until December 23, 2006, a ten-year extension of its current term. In connection therewith, the General Partner, the Partnership and American Financial amended the Distribution Support Incentive Compensation and APU Redemption Agreement dated December 23, 1986, which provides for incentive compensation payable to the General Partner in the event quarterly or special distributions to Unitholders exceed specified targets. Both amendments were approved on behalf of the Partnership by a special committee of disinterested directors of the General Partner. 38 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 15. PARTNERS' CAPITAL Changes in partners' capital for the years ended December 31, 1993, 1994, and 1995 were as follows:
GENERAL LIMITED PARTNER PARTNERS TOTAL ---------------------- ----------- (IN THOUSANDS, EXCEPT FOR UNITS) Partners' capital at January 1, 1993.... $ 2,259 $ 223,585 $ 225,844 Net income.............................. 394 38,972 39,366 Distributions........................... (315) (31,200) (31,515) -------- ----------- ----------- Partners' capital at December 31, 1993.. 2,338 231,357 233,695 Net income.............................. 458 45,359 45,817 Distributions........................... (340) (33,628) (33,968) Proceeds from Exercise of unit options and capital contributions.............. 4 428 432 -------- ----------- ----------- Partners' capital at December 31, 1994.. 2,460 243,516 245,976 Net income.............................. 498 49,342 49,840 Distributions........................... (340) (33,669) (34,009) Proceeds from Exercise of unit options and capital contributions.............. 4 374 378 -------- ----------- ----------- Partners' capital at December 31, 1995.. $ 2,622 $ 259,563 $ 262,185 ======== =========== =========== Units outstanding at January 1 and December 31, 1993...................... 121,212 12,000,000 12,121,212 Units issued pursuant to the unit option and distribution equivalent plan and capital contributions.................. 162 16,060 16,222 -------- ----------- ----------- Units outstanding at December 31, 1994.. 121,374 12,016,060 12,137,434 Units issued pursuant to the unit option and distribution equivalent plan and capital contributions.................. 138 13,670 13,808 -------- ----------- ----------- Units outstanding at December 31, 1995.. 121,512 12,029,730 12,151,242 ======== =========== ===========
The net income per unit for 1995, 1994 and 1993 was calculated using the weighted average outstanding units of 12,146,124, 12,131,640 and 12,121,212, 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 more than 4,800,000 additional LP Units, or issue any additional LP Units of a class or series having preferences or other special or senior rights over the LP Units. At December 31, 1995, the Partnership has the ability to issue up to 4,770,270 additional LP Units without prior approval of the Limited Partners of the Partnership. 16. CASH DISTRIBUTIONS The Mortgage Note Indenture covenants permit cash distributions by Buckeye to the Partnership so long as no default exists under the Mortgage Note Indenture and provided that such distributions do not exceed Net Cash Available to Partners (generally defined to equal net income plus depreciation and amortization less (a) capital expenditures, funded from operating cash flows (b) payments of principal of debt and (c) certain other amounts, all on a cumulative basis since the formation of the Partnership). The maximum amount available for distribution by Buckeye to the Partnership under the formula as of December 31, 1995 amounted to $13.5 million. The Partnership is also entitled to receive cash distributions from Everglades, BTT and Laurel. 39 BUCKEYE PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Partnership makes quarterly cash distributions to Unitholders of substantially all of its available cash, generally defined as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as the General Partner deems appropriate or as are required by the terms of the Mortgage Note Indenture. In 1995 and 1994, quarterly distributions of $0.70 per GP and LP Unit were paid in February, May, August and November. In 1993, quarterly distributions of $0.65 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 $34,009,000 in 1995, $33,968,000 in 1994 and $31,515,000 in 1993. On February 9, 1996, the General Partner announced a quarterly distribution of $0.75 per GP and LP Unit payable on February 29, 1996. 17. UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN The Partnership has a Unit Option and Distribution Equivalent Plan (the "Option Plan"), which was approved by the Board of Directors of the General Partner on April 25, 1991 and by holders of the LP Units on October 22, 1991. The Option Plan authorizes the granting of options (the "Options") to acquire LP Units to selected key employees (the "Optionees") of the General Partner or any subsidiary, not to exceed 360,000 LP Units in the aggregate. The price at which each LP Unit may be purchased pursuant to an Option granted under the Option Plan is generally equal to the market value on the date of the grant. Options may be granted with a feature that allows Optionees to apply accrued credit balances (the "Distribution Equivalents") as an adjustment to the aggregate purchase price of such Options. The Distribution Equivalents shall be an amount equal to (i) the Partnership's per LP Unit regular quarterly distribution, multiplied by (ii) the number of LP Units subject to such Options that have not vested. Vesting in the Options is determined by the number of anniversaries the Optionee has remained in the employ of the General Partner or a subsidiary following the date of the grant of the Option. Options become vested in varying amounts beginning generally three years after the date of grant and remain exercisable for a period of five years. The aggregate number of Options granted during 1995, 1994 and 1993 were 30,250 units, 26,750 units and 23,500 units, respectively, with a purchase price of $34.438, $39.438 and $32.750, respectively. All such Options were granted with Distribution Equivalents. During 1995, a total of 13,670 Options were exercised at an exercise price ranging from $15.225 to $19.638 per unit. During 1994, a total of 16,060 Options were exercised at an exercise price ranging from $18.025 to $29.450 per unit. At December 31, 1995, there were 93,120 Options outstanding and 3,500 of the outstanding Options were exercisable. At December 31, 1994, there were 76,540 Options outstanding and none of the outstanding Options were exercisable. 18. QUARTERLY FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORT) Summarized quarterly financial data for 1995 and 1994 are set forth below. Quarterly results were influenced by seasonal factors inherent in the Partnership's business.
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL --------------- --------------- --------------- --------------- ----------------- 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994 ------- ------- ------- ------- ------- ------- ------- ------- -------- -------- (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Revenue................. $44,234 $45,619 $46,011 $46,114 $46,195 $46,574 $47,022 $48,031 $183,462 $186,338 Operating income........ 16,844 18,201 17,887 18,054 17,852 18,766 18,921 17,460 71,504 72,481 Income from operations before extraordinary charge................. 11,405 11,784 12,535 12,013 12,393 12,706 13,507 11,583 49,840 48,086 Net income.............. 11,405 10,215 12,535 12,013 12,393 12,706 13,507 10,883 49,840 45,817 Income per Unit before extraordinary charge... 0.94 0.97 1.03 0.99 1.02 1.05 1.11 0.95 4.10 3.96 Net income per Unit..... 0.94 0.84 1.03 0.99 1.02 1.05 1.11 0.89 4.10 3.77
40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership does not have directors or officers. The directors and officers of the General Partner and the Manager perform all management functions. Prior to the Acquisition, directors and officers of the General Partner and the Manager were selected by American Financial. Directors and officers of the General Partner and the Manager will now be selected by BAC. See "Certain Relationships and Related Transactions". DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER Set forth below is certain information concerning the directors and executive officers of the General Partner. All of such persons were elected to their present positions with the General Partner in October 1986, except as noted below.
NAME, AGE AND PRESENT POSITION WITH GENERAL BUSINESS EXPERIENCE DURING PARTNER PAST FIVE YEARS --------------------- --------------------------- Alfred W. Martinelli, 68 Mr. Martinelli has been Chairman of the Board and Chairman of the Board, Chief Executive Officer of the General Partner for Chief Executive Offi- more than five years. He served as President of the cer and Director* General Partner from February 1991 to February 1992. Mr. Martinelli has been Chairman and Chief Executive Officer of Penn Central Energy Management Company ("PCEM") for more than five years. He was also Vice Chairman and a director of American Financial and a director of American Annuity Group, Inc. until his resignation in March 1996. C. Richard Wilson, 51 Mr. Wilson was elected as a director of the General President and Director* Partner in February 1995. He was elected President of the General Partner in March 1996. Mr. Wilson was elected Chairman of the Board of the Manager in Feb- ruary 1995. He has been President and Chief Operat- ing Officer of the Manager since February 1991. Ernest R. Varalli, 65 Mr. Varalli was elected to his present position in Executive Vice Presi- July 1987. He served as Executive Vice President, dent, Chief Chief Financial Officer and Treasurer of PCEM until Financial Officer, his resignation in March 1996. Mr. Varalli had been Treasurer a consultant to American Financial for more than and Director* five years. Brian F. Billings, 57 Mr. Billings served as President of the General Director* Partner from October 1986 to December 1990. He served as Chairman of the Manager to February 1995. Mr. Billings was President of the Manager from July 1987 to December 1990. He was President of PCEM from December 1986 to 1995.
41
NAME, AGE AND PRESENT POSITION WITH GENERAL BUSINESS EXPERIENCE DURING PARTNER PAST FIVE YEARS - --------------------- --------------------------- A. Leon Fergenson, 83 Mr. Fergenson has been a director of the General Director Partner since December 1986. He is also a director of American Annuity Group, Inc., Sequa Corporation and National Benefit Life Insurance Company. Edward F. Kosnik, 51 Mr. Kosnik has been Executive Vice President and Director Chief Financial Officer of Alexander & Alexander Services, Inc. since August 1994 and is also a di- rector. He was Chairman of the Board, President and Chief Executive Officer of JWP, Inc. from May 1993 through April 1994. Mr. Kosnik was Executive Vice President and Chief Financial Officer of JWP, Inc. from December 1992 to April 1993. He was President of Sprague Technologies, Inc. from May 1992 to June 1992 and President and Chief Executive Officer of Sprague Technologies, Inc. from July 1987 to May 1992. William C. Pierce, 55 Mr. Pierce has been a director of the General Part- Director ner since February 1987. He was Executive Vice Pres- ident and Group Executive of Chemical Bank and Chem- ical Banking Corporation from November 1992 until his retirement in July 1994. Mr. Pierce served as Executive Vice President and Chief Risk Policy Offi- cer of Chemical Bank and Chemical Banking Corpora- tion from December 1991 to November 1992. He was Chief Credit Officer of Chemical Bank and Chemical Banking Corporation from January 1988 to December 1991. Robert H. Young, 74 Mr. Young has been a director of the General Partner Director since July 1987. He was Secretary of the General Partner from July 1987 through October 1991. Since October 1991, Mr. Young has been Counsel to the law firm of Morgan, Lewis & Bockius. Prior to October 1991, he was a Senior Partner with that firm for more than five years. Mr. Young is also Chairman of the Board of Directors of Independence Blue Cross.
- -------- * Also a director of the Manager. Mr. Neil M. Hahl, the President of the General Partner since February 1992, a director of the General Partner since February 1989 and Senior Vice President of American Financial, resigned as President and director of the General Partner upon the closing of the Acquisition. The General Partner has an Audit Committee, which currently consists of three directors: A. Leon Fergenson, William C. Pierce and Robert H. Young. Messrs. Fergenson, Pierce and Young are neither officers nor employees of the General Partner or any of its affiliates. The General Partner also has a Compensation Committee, which currently consists of four directors: Alfred W. Martinelli, Brian F. Billings, Ernest R. Varalli and Robert H. Young. The Compensation Committee is concerned primarily with establishing executive compensation policies for 42 officers of the Manager and administering of the Partnership's Option Plan. See "Executive Compensation--Compensation Committee Interlocks and Insider Participation in Compensation Decisions." DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGER Set forth below is certain information concerning the directors and executive officers of the Manager. Messrs. Billings and Martinelli were elected as directors of the Manager in March 1987, and Mr. Varalli was elected as a director of the Manager in July 1987.
NAME, AGE AND PRESENT POSITION WITH THE BUSINESS EXPERIENCE DURING MANAGER PAST FIVE YEARS --------------------- -------------------------- C. Richard Wilson, 51 Mr. Wilson was elected Chairman of the Board of the Chairman of the Board, Manager in February 1995. He was named President and President, Chief Oper- Chief Operating Officer in February 1991. Mr. Wilson ating Officer was Executive Vice President and Chief Operating Of- and Director ficer from July 1987 to February 1991. He has been a director of the Manager since October 1986. Mr. Wilson was elected as a Director of the General Partner in February 1995 and as President of the General Partner in March 1996. Michael P. Epperly, 52 Mr. Epperly was named Senior Vice President--Opera- Senior Vice President-- tions in March 1990. He was Vice President--Opera- Operations tions from October 1986 to February 1990. Stephen C. Muther, 46 Mr. Muther was named Senior Vice President--Adminis- Senior Vice President-- tration, General Counsel and Secretary in February Administration, General 1995. He served as General Counsel, Vice President-- Counsel Administration and Secretary from May 1990 to Febru- and Secretary* ary 1995. Steven C. Ramsey, 41 Mr. Ramsey was named Vice President--Finance and Vice President--Finance Treasurer in February 1995. He served as Vice Presi- and Treasurer dent and Treasurer from February 1991 to February 1995. Mr. Ramsey was elected Treasurer in June 1989. Prior to June 1989, he served in various positions in the marketing and engineering departments of the Manager.
- -------- * Also Secretary of the General Partner since February 1992. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the total compensation earned by the Chief Executive Officer of the General Partner and the four most highly compensated executive officers of the General Partner and the Manager for services rendered to the Partnership, the General Partner or the Manager for the fiscal year ended December 31, 1995, as well as the total compensation earned by such individuals for the two previous fiscal years. Alfred W. Martinelli, Chairman of the Board, Chief Executive Officer and Director of the General Partner, did not receive any cash compensation for serving as an officer of the General Partner in 1995, but received fees for serving as a Director of the General Partner. See "Director Compensation". Executive officers of the Manager, including Messrs. Wilson, Epperly, Muther and Ramsey, are compensated by the Manager and, pursuant to management agreements with each of the Operating Partnerships, such compensation is reimbursed by the Operating Partnerships in accordance with an allocation formula based upon the results of the prior year's operations. 43 SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION --------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ----------------------------- ---------- ---------- OTHER SECURITIES ANNUAL UNDERLYING LTIP ALL OTHER NAME AND BONUS(1) COMPEN- OPTIONS(2) PAYOUTS(3) COMPEN- PRINCIPAL POSITION YEAR SALARY ($) ($) SATION($) (#) ($) SATION ($) ------------------ ---- ---------- -------- --------- ---------- ---------- ---------- Alfred W. Martinelli.... 1995 0 0 0 0 0 30,000(6) Chairman of the Board 1994 0 0 11,033(4) 0 0 24,500(6) and Chief Executive 1993 0 0 5,539(4) 0 0 22,500(6) Officer of the General Partner C. Richard Wilson....... 1995 247,500 135,000 (5) 10,000 0 40,425(7) Chairman of the Board, 1994 225,000 120,000 (5) 9,000 13,050 33,938(7) President and Chief 1993 206,667 105,000 (5) 7,500 37,050 20,977(7) Operating Officer of the Manager Michael P. Epperly...... 1995 167,500 67,500 (5) 4,500 0 25,850(7) Senior Vice President-- 1994 155,000 67,500 (5) 4,550 10,875 23,650(7) Operations of the 1993 143,333 60,000 (5) 3,750 30,729 19,901(7) Manager Stephen C. Muther....... 1995 170,500 75,000 (5) 5,500 0 23,050(7) Senior Vice President-- 1994 155,000 60,000 (5) 4,000 0 20,000(7) Administration, General 1993 144,167 45,000 (5) 3,000 20,000 17,550(7) Counsel and Secretary of the Manager Steven C. Ramsey........ 1995 145,800 67,500 (5) 4,500 0 20,580(7) Vice President--Finance 1994 135,000 60,000 (5) 4,000 7,250 18,000(7) and Treasurer of the 1993 126,667 45,000 (5) 2,500 20,377 15,800(7) Manager
- -------- (1) Represents amounts awarded by the Compensation Committee as cash bonuses earned under the Manager's Annual Incentive Compensation Plan ("AIC Plan"). Under the AIC Plan, individual awards are granted to participants based upon satisfaction of such participant's target award opportunities and such awards are paid to participants as soon as practicable after they are granted. (2) Represents options granted under the Partnership's Unit Option and Distribution Equivalent Plan (the "Option Plan"). See "Long Term Compensation--Option Plan". Certain officers of the Manager are also eligible to participate in the American Financial Stock Option Plan (the "American Financial Option Plan"). No cost or expense relating to the American Financial Option Plan is borne by the Partnership. No options were awarded in 1993, 1994 or 1995 under the American Financial Option Plan to the Chief Executive Officer of the General Partner or the four most highly compensated executive officers of the General Partner and the Manager. (3) Represents payments received during the applicable year under the Manager's Long-Term Incentive Compensation Plans (the "LTIC Plans"). See "Long-Term Compensation--Long-Term Incentive Plans". 44 (4) Represents lease payments made by the Partnership for an automobile used by Mr. Martinelli. (5) During the year indicated, no perquisites or non-cash compensation exceeded the lesser of $50,000 or an amount equal to 10 percent of such person's salary and bonus. (6) Represents director fees which commenced in July 1992. See "Director Compensation". (7) Represents the amount contributed by the Manager to the Manager's defined contribution retirement plan and the Manager's matching contributions under the Manager's savings plan and, for Messrs. Wilson, Epperly, Muther and Ramsey an additional $23,925, $9,350, $8,050 and $5,580, respectively, under the Manager's Benefit Equalization Plan for 1995. Messrs. Wilson, Epperly, Muther and Ramsey received an additional $18,313, $7,150, $5,000 and $3,000, respectively in 1994 and Mr. Wilson and Mr. Epperly received an additional $733 and $379, respectively, in 1993 under the Manager's Benefit Equalization Plan. In addition to participation in the Manager's defined contribution plan, Messrs. Wilson, Epperly and Ramsey are guaranteed certain defined benefits upon retirement under the Manager's retirement income guarantee plan. See "Retirement and Savings Plans". LONG-TERM COMPENSATION Option Plan The following table sets forth additional information regarding options granted under the Option Plan to the Chief Executive Officer of the General Partner and the four most highly compensated executive officers of the General Partner and Manager during 1995. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF LP UNIT PRICE APPRECIATION FOR INDIVIDUAL GRANTS OPTION TERM ------------------------------------------ -------------------------- PERCENT OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OPTIONS EMPLOYEES OR BASE GRANTED (1) IN FISCAL PRICE EXPIRATION NAME (#) YEAR ($/UNIT) DATE 5% ($) (2) 10% ($) (2) ---- ----------- ---------- -------- ---------- ----------- ------------ Alfred W. Martinelli.... 0 -- -- -- -- -- C. Richard Wilson....... 10,000 33.1% 34.438 2/01/2005 216,600 548,900 Michael P. Epperly...... 4,500 14.9% 34.438 2/01/2005 97,500 247,000 Stephen C. Muther....... 5,500 18.2% 34.438 2/01/2005 119,100 301,900 Steven C. Ramsey........ 4,500 14.9% 34.438 2/01/2005 97,500 247,000
- -------- (1) Represents LP Unit options granted under the Option Plan. Options shown in the table were granted with a feature that allows optionees to apply accrued credit balances (the "Distribution Equivalents") as a reduction to the aggregate purchase price of such options. The Distribution Equivalents are equal to (i) the Partnership's per LP Unit regular quarterly distribution as declared from time to time by the Board of Directors of the General Partner, multiplied by (ii) the number of LP Units subject to options that have not vested. Vesting in the options is determined by the number of anniversaries the optionee has remained in the employ of the General Partner or a subsidiary following the date of the grant of the option. Vesting shall be at the rate of 0 percent if the number of anniversaries are less than three, 60 percent if the number of anniversaries are three but less than four, 80 percent if the number of anniversaries are four but 45 less than five and 100 percent if the number of anniversaries are five or more. In addition, the optionee may become fully vested upon death, retirement, disability or a determination by the Board of Directors of the General Partner or the Compensation Committee that acceleration of the vesting in the option would be desirable for the Partnership. Up to 95 percent of the LP Unit purchase price and up to 100 percent of any taxes required to be withheld in connection with the purchase of the LP Units pursuant to such options may be financed through a loan program established by the General Partner. (2)The dollar amounts under these columns are the values of options (not including accrual of any Distribution Equivalents) at the 5 percent and 10 percent rates set by the Securities and Exchange Commission and therefore are not intended to forecast possible future appreciation, if any, of the price of LP Units. No alternative formula for a grant date valuation was used, as the General Partner is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors. The following table sets forth information regarding options exercised in 1995 and values of unexercised options as of December 31, 1995 for the Chief Executive Officer of the General Partner and the four most highly compensated executive officers of the General Partner and the Manager. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT DECEMBER 31, DECEMBER 31, 1995 (#) 1995 ($)(1) LP UNITS ------------- ------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE ---- ------------ ------------ ------------- ------------- Alfred W. Martinelli...... 0 -- 0/0 -- C. Richard Wilson......... 5,670 93,600 0/30,670 0/39,300 Michael P. Epperly........ 3,000 47,000 0/15,000 0/21,000 Stephen C. Muther......... 2,400 38,400 0/14,300 0/16,800 Steven C. Ramsey.......... 0 -- 2,000/12,500 13,800/14,000
- -------- (1) The values of the unexercised options do not include any accrual for Distribution Equivalents. In 1995, Messrs. Wilson, Epperly and Muther exercised options to purchase 2,620 shares, 1,091 shares and 545 shares of American Financial, respectively, with a net value realized of $19,752, $3,446 and $6,570, respectively. In 1994, Mr. Muther exercised options to purchase 546 shares of American Financial with a net value realized of $3,784. In 1993, Messrs. Wilson, Epperly and Muther exercised options to purchase 11,294 shares, 1,636 shares and 1,090 shares of American Financial, respectively, with a net value realized of $63,559, $22,141 and $8,916, respectively. All shares were acquired pursuant to the American Financial Option Plan. No cost or expense relating to the exercise of these options was incurred by the Partnership. Long-Term Incentive Plans Prior to 1991 when the Option Plan went into effect, the Manager created a LTIC Plan each year which permitted the Board of Directors of the General Partner or the Compensation Committee to grant cash awards to certain employees of the Manager for performance during three-year periods. Although cash award payments continued under these LTIC Plans through 1994, no new LTIC plans were established after 1990. In addition to the LTIC Plans, the Manager created a transition plan which grants to each participant an additional cash award in an amount equal to the difference 46 between the target amount under the 1990-1992 LTIC Plan and the sum of (i) amounts received pursuant to LTIC Plans and (ii) the value of Distribution Equivalents vested under the Option Plan for each year from 1992 through 1995. Awards under LTIC Plans were based on achievement of certain long-term financial performance goals for the Partnership and could not exceed 150 percent of the target award opportunity established by the Board of Directors of the General Partner or the Compensation Committee at the beginning of such period (or as soon as practicable thereafter) for such period. A participant's target award opportunity under the LTIC Plans could not exceed 25 percent of such participant's aggregate base salary earned during the three-year period. If the Partnership met or exceeded the interim financial performance goals under the LTIC Plans, cash payments up to the full amount of the target award were made in the following installments: 10 percent in the second year of the award period, 30 percent in the third year of the award period and 60 percent in the first year following the award period. Any cash award in excess of the target award was paid in the second year following the award period with 10 percent simple interest. RETIREMENT AND SAVINGS PLANS Effective December 31, 1985, Pipe Line terminated its defined benefit retirement plan (the "Retirement Plan") and adopted a new defined contribution plan (the "New Retirement Program"). Those employees hired prior to January 1, 1986 are covered by a retirement income guarantee plan (the "RIGP"). These plans were assumed by the Manager. The Operating Partnerships reimburse the Manager for cash costs incurred in connection with the New Retirement Program, the RIGP, the Equalization Plan (described below) and the Savings Plan (described below). Under the New Retirement Program, the Manager makes contributions equal to 5 percent of an employee's covered compensation, which includes base salary plus overtime, annual cash bonuses and any periodic salary continuance payments but does not include extraordinary cash bonuses, deferred awards, other forms of deferred compensation, lump-sum severance pay, fees or any other kind of special or extra compensation. Employees may elect to have the Manager's contributions invested in any of five investment funds. The RIGP generally provides for an additional retirement benefit equal to the amount, if any, by which the aggregate of the annuity equivalent of the employee's accrued benefit under the former Retirement Plan at December 31, 1985 plus the annuity equivalent of the vested portion of employer contributions under the New Retirement Program for the account of such employee (plus or minus aggregate investment gains or losses thereon) is less than the retirement benefit that the employee would have received if the former Retirement Plan had continued. The vesting formula for the New Retirement Program and the RIGP provides for 100 percent vesting after 5 years of service. Service under the former Retirement Plan is carried over to the new plans. The minimum retirement benefit guaranteed under the RIGP is based on the highest average compensation during any five consecutive calendar years of employment within the last ten years of employment preceding retirement ("Highest Average Compensation"). For purposes of the RIGP, compensation is defined to include the same components as under the New Retirement Program, except that periodic salary continuance payments are not included. The former Retirement Plan benefit, which the RIGP was established to guarantee, provides for a retirement benefit equal to 1.75 percent per year of service (maximum of 60 percent) of the Highest Average Compensation, reduced by 1.46 percent for each year of service (with a maximum offset of 50 percent) of the estimated primary insurance amount that an employee is entitled to receive upon retirement, other termination of employment or, if earlier, attainment of age 65 under the Social Security Act. 47 The Manager also assumed Pipe Line's Benefit Equalization Plan (the "Equalization Plan"), which generally makes up the reductions caused by Internal Revenue Code limitations in the annual retirement benefit determined pursuant to the RIGP and in the Manager's contributions on behalf of an employee pursuant to the New Retirement Program and the Savings Plan. Those amounts not payable under the RIGP (or under affiliated company retirement plans and employee transfer policies), the New Retirement Program or the Savings Plan are payable under the Equalization Plan. Estimated annual benefits under the RIGP and the Equalization Plan, calculated under the single life annuity option form of pension, payable to participants at the normal retirement age of 65, are illustrated in the following table.
ESTIMATED ANNUAL RETIREMENT BENEFIT AVERAGE OF 5 -------------------------------------------- HIGHEST ANNUAL YEARS OF SERVICE COMPENSATION -------------------------------------------- LEVELS 15 20 25 30 35 -------------- -------- -------- -------- -------- -------- $100,000....................... $ 22,970 $ 30,627 $ 38,384 $ 45,941 $ 52,510 150,000....................... 36,095 48,127 60,159 72,191 82,514 200,000....................... 49,220 65,627 82,034 98,441 112,518 250,000....................... 62,345 83,127 103,909 124,691 142,521 300,000....................... 75,470 100,627 125,784 150,941 172,525 350,000....................... 88,595 118,127 147,659 177,191 202,529 400,000....................... 101,720 135,627 169,534 203,441 232,533 450,000....................... 114,845 153,127 191,409 229,691 262,536 500,000....................... 127,970 170,627 213,284 255,941 292,540
The amounts shown in the above table have been reduced by the percentage equal to 1.46 percent for each year of service of the estimated maximum annual benefits payable under the Social Security Act in respect of each category. The amounts shown in the table would be further reduced, as described above, by the accrued benefit under the former Retirement Plan as of December 31, 1985, as well as by the aggregate amount of vested employer contributions under the New Retirement Program (plus or minus aggregate investment gains or losses thereon). Messrs. Wilson, Epperly and Ramsey have 21, 30 and 14 full credited years of service with the Manager and its affiliates, respectively, under the New Retirement Program, the RIGP and the Equalization Plan. Each of them is 100 percent vested under such plans. Mr. Muther has five full years of credited service with the Manager. He is not covered under the RIGP and is currently vested under the New Retirement Program. Officers of the Manager are also eligible to participate on a voluntary basis in the Manager's Savings Plan (the "Savings Plan"). An employee may elect to contribute to the Savings Plan annually a specified percentage of his pay, subject to certain limitations. The Manager will contribute to the Savings Plan, out of its current or accumulated profits, for the benefit of each participating employee, an amount equal to his contributions up to a maximum of 5 percent of his pay (6 percent of pay if the employee has completed 20 or more years of service). Employees may elect to have the Manager's contributions invested in any of four investment funds. The Manager's contributions vest immediately for the first 2 percent of the employee's pay and at the rate of 20 percent per year of service (excluding the first year of service) for the remainder, with 100 percent vesting upon death, disability, retirement or attainment of age 65. Benefits are payable, at the election of the employee, in a lump-sum cash distribution after termination of employment or as an annuity upon retirement or a combination of the two. DIRECTOR COMPENSATION The fee schedule for directors of the General Partner other than Messrs. Martinelli and Wilson is as follows: annual fee, $15,000; attendance fee for each Board of Directors meeting, $1,000; and 48 attendance fee for each committee meeting, $750. Directors' fees paid by the General Partner in 1995 to such directors amounted to $169,500. Mr. Martinelli, Chairman of the Board, Chief Executive Officer and Director of the General Partner is entitled to receive the following fees as Chairman of the Board of Directors: annual fee $20,000; attendance fee for each Board of Directors meeting, $1,500; and attendance fee for each committee meeting, $1,000. Director's fees paid by the General Partner in 1995 to Mr. Martinelli amounted to $30,000. Mr. Wilson, Chairman of the Board, President and Chief Operating Officer of the Manager and President and Director of the General Partner, is compensated by the Partnership for his services to the Manager (see "Summary Compensation Table") and does not receive any additional compensation or other benefits with respect to his services as a director of the General Partner. Members of the Board of Directors of the Manager were not compensated for their services as directors, and it is not currently anticipated that any such compensation will be paid in the future to directors of the Manager who are full-time employees of the Manager or any of its affiliates. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS The Compensation Committee consists of Messrs. Martinelli, Varalli, Billings and Young. Messrs. Martinelli and Varalli are executive officers of the General Partner and Mr. Billings is a former executive officer of the General Partner. Mr. Martinelli is also Chairman of BAC. Mr. Young is counsel to the law firm of Morgan, Lewis and Bockius, which supplies legal services to the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT No person or group is known to be the beneficial owner of more than 5 percent of the LP Units as of February 1, 1996. 49 The following table sets forth certain information, as of February 1, 1996, concerning the beneficial ownership of LP Units by each director of the General Partner, the Chief Executive Officer of the General Partner, the four most highly compensated officers of the General Partner and the Manager and by all directors and executive officers of the General Partner and the Manager as a group. Such information is based on data furnished by the persons named. Based on information furnished to the General Partner by such persons, no director or executive officer of the General Partner or the Manager owned beneficially, as of February 1, 1996, 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....................................... 7,500 Michael P. Epperly...................................... 25(2) A. Leon Fergenson....................................... 200 Neil M. Hahl............................................ 2,500 Edward F. Kosnik........................................ 5,000 Alfred W. Martinelli.................................... 4,500 William C. Pierce....................................... 800(2) Steven C. Ramsey........................................ 300(2) Ernest R. Varalli....................................... 6,500 C. Richard Wilson....................................... 2,500 Robert H. Young......................................... 2,500 All directors and executive officers as a group (consisting of 12 persons, including those named above)................................................. 32,325(2)
- -------- (1) Unless otherwise indicated, the persons named above have sole voting and investment power over the LP Units reported. (2) The LP Units owned by Messrs. Epperly, Pierce and Ramsey have shared voting and investment power with their respective spouses. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership and the Operating Partnerships are managed and controlled by the General Partner and the Manager, respectively, pursuant to the Partnership Agreement, the several Amended and Restated Agreements of Limited Partnership of the Operating Partnerships (the "Operating Partnership Agreements") and the several Management Agreements between the Manager and the Operating Partnerships (the "Management Agreements"). On July 18, 1995, the General Partner amended the Partnership Agreement to reflect its agreement to continue to act as general partner of the Partnership until December 23, 2006, a ten-year extension of its current term. In connection therewith, the General Partner, the Partnership and American Financial amended the Distribution Support Incentive Compensation and APU Redemption Agreement dated December 23, 1986, which provides for incentive compensation payable to the General Partner in the event quarterly or special distributions to Unitholders exceed specified targets. Both amendments were approved on behalf of the Partnership by a special committee of disinterested directors of the General Partner comprised of A. Leon Fergenson, Edward F. Kosnik and Robert H. Young. On March 22, 1996, BAC acquired all of the common stock of the General Partner from a subsidiary of American Financial for $63 million. The common stock of BAC is owned by Glenmoor and certain managers of the Manager. Glenmoor is a limited liability partnership whose partners consist primarily of members of senior management of the General Partner and the Manager, including Alfred W. Martinelli, Chairman of the Board, Chief Executive Officer, Director of the General Partner, and a Director of the Manager; Ernest R. Varalli, Executive Vice President, Chief Financial Officer, 50 Treasurer, Director of the General Partner and a Director of the Manager; C. Richard Wilson, Chairman of the Board, President, Chief Operating Officer, Director of the Manager and President and a Director of the General Partner; Stephen C. Muther, Senior Vice President--Administration, General Counsel and Secretary of the Manager and Secretary of the General Partner; Steven C. Ramsey, Vice President--Finance and Treasurer of the Manager; and Michael P. Epperly, Senior Vice President--Operations of the Manager. All of the outstanding Senior A Convertible Preferred Stock of BAC is owned by the ESOP. Comerica Bank-Illinois serves as trustee of the ESOP. In connection with the Acquisition, the General Partner borrowed $63 million pursuant to a 15-year term loan from a third-party lender. The General Partner then loaned $63 million to the ESOP, which used the proceeds to purchase the Senior A Convertible Preferred Stock from BAC. BAC used the $63 million proceeds of the sale of the Senior A Convertible Preferred Stock to the ESOP plus $6 million of proceeds from the sale of BAC common stock to Glenmoor to pay the Acquisition purchase price, Acquisition-related expenses and to make a capital contribution to the General Partner to maintain its net worth at not less than $5,000,000. On March 22, 1996, the General Partner amended the Partnership Agreement 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 to the General Partner by any successor general partner of the Partnership, and (c) reduce the threshold for payment of Restricted Payments by the General Partner or the Manager from $23,000,000 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 of the General Partner comprised of William C. Pierce, A. Leon Fergenson and Edward F. Kosnik. Also on March 22, 1996, the General Partner amended and restated the Incentive Compensation Agreement to (a) delete American Financial as a party to the agreement, (b) eliminate certain provisions relating to distribution support obligations which expired in 1991, and (c) clarify that the Incentive Compensation Agreement terminates if the General Partner is removed as general partner of the Partnership. The amended and restated agreement was approved on behalf of the Partnership by a special committee of disinterested directors of the Partnership comprised of William C. Pierce, A. Leon Fergenson and Edward F. Kosnik. Under the Partnership Agreement and the Operating Partnership Agreements, as well as the Management Agreements, the General Partner, the Manager and certain related parties are entitled to reimbursement of all direct and indirect costs and expenses related to the business activities of the Partnership and the Operating Partnerships. These costs and expenses include insurance fees, consulting fees, general and administrative costs, compensation and benefits payable to officers and other employees of the General Partner and Manager, tax information and reporting costs, legal and audit fees and an allocable portion of overhead expenses. Such reimbursed amounts constitute a substantial portion of the revenues of the General Partner and the Manager. These costs and expenses reimbursed by the Partnership totaled $55.3 million in 1995. The Partnership received management consulting services from PCEM through June 1995. The cost of this management consulting service allocated to the Partnership in 1995 totaled $60,000. On July 18, 1995, a special committee of disinterested directors of the General Partner, acting on behalf of the Partnership, agreed to replace the management consulting service allocation from PCEM with a 51 Senior Management Charge from American Financial equalling $1,400,000 per annum, and an Overhead Allocation estimated to be 3% of overall American Financial non-executive administrative overhead or $450,000 per annum. This allocation was intended to cover the services of Messrs. Martinelli, Varalli, Hahl and other senior American Financial officers who from time to time provide advice regarding Partnership matters, as well as treasury, pension, human resources, risk management, claims and litigation services which the Partnership receives from time to time from American Financial personnel. Amounts paid in 1995 to American Financial for allocated expenses equaled $925,000. See "Executive Compensation--Summary Compensation and Compensation Committee Interlocks and Insider Participation in Compensation Decisions." On March 22, 1996, the General Partner entered into the Glenmoor Management Agreement pursuant to which Glenmoor agreed to provide certain management functions to the General Partner and the Manager. Glenmoor shall receive an annual management fee, which shall be 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 Manager's employee benefit plans, including the ESOP. The aggregate management fee to Glenmoor is expected to be less than the amounts paid by the General Partner and the Manager to American Financial and senior management for similar services. The Glenmoor Management Agreement was approved by a special committee of disinterested directors of the General Partner comprised of William C. Pierce, A. Leon Fergenson and Edward F. Kosnik. The Incentive Compensation Agreement, as amended, provides that, subject to certain limitations and adjustments, if a quarterly cash distribution exceeds a target of $0.65 per LP Unit, the Partnership will pay the General Partner, in respect of each outstanding LP Unit, incentive compensation equal to (i) 25 percent of that portion of the distribution per LP Unit which exceeds the target quarterly amount of $0.65 but is not more than $0.70 plus (ii) 30 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.70 but is not more than $0.80 plus (iii) 40 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.80 but is not more than $0.90 plus (iv) 50 percent of the amount, if any, by which the quarterly distribution per LP Unit exceeds $0.90. The General Partner is also entitled to incentive compensation, under a comparable formula, in respect of special cash distributions exceeding a target special distribution amount per LP Unit. The target special distribution amount generally means the amount which, together with all amounts distributed per LP Unit prior to the special distribution compounded quarterly at 13 percent per annum, would equal $20.00 (the initial public offering price of the LP Units) compounded quarterly at 13 percent per annum from the date of the closing of the initial public offering. Incentive compensation paid by the Partnership to the General Partner totaled $481,000 in 1995. On February 9, 1996, the General Partner announced a quarterly distribution of $0.75 per GP and LP Unit payable on February 29, 1996. As such distribution exceeds a target of $0.65 per LP Unit, the Partnership will pay the General Partner incentive compensation aggregating $331,000 as a result of this distribution. 52 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: (1) and (2) Financial Statements and Financial Statement Schedules--see Index to Financial Statements and Financial Statement Schedules appearing on page 22. (3) Exhibits, including those incorporated by reference. The following is a list of exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.
EXHIBIT NUMBER (REFERENCED TO ITEM 601 OF REGULATION S-K) --------------- *2.1 --Share Purchase Agreement dated as of January 5, 1996 between BMC Acquisition Company and Pennsylvania Company. *2.2 --Amendment to Share Purchase Agreement dated as of March 22, 1996 between BMC Acquisition Company and Pennsylvania Compa- ny. 3.1 --Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of December 23, 1986.(1) (Exhibit 3.1) 3.2 --Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership of the Partnership dated July 18, 1995.(10) (Exhibit 3.1) *3.3 --Amendment No. 2 to the Amended and Restated Agreement of Limited Partnership of the Partnership dated March 22, 1996. 3.4 --Amended and Restated Certificate of Limited Partnership of the Partnership, dated as of November 18, 1986.(1) (Exhibit 3.1) 4.1 --Indenture of Mortgage and Deed of Trust and Security Agree- ment, dated as of December 15, 1986, by Buckeye to Pittsburgh National Bank and J. G. Routh, as Trustees.(1) (Exhibit 4.1) 4.2 --Note Purchase Agreement, dated as of December 15, 1986, among Buckeye and the several purchasers named therein relat- ing to $300,000,000 of First Mortgage Notes.(1) (Exhibit 4.2) 4.3 --First Supplemental Indenture of Mortgage and Deed of Trust and Security Agreement, dated as of December 1, 1987, by Buckeye Pipe Line Company, L.P., to Pittsburgh National Bank and J. G. Routh, as Trustees.(2) (Exhibit 4.4) 4.4 --Second Supplemental Indenture and Deed of Trust and Security Agreement, dated as of November 30, 1992 by Buckeye Pipe Line Company, L.P. to Pittsburgh National Bank and J. G. Routh, as Trustees.(3) (Exhibit 4.5) 4.5 --Third Supplemental Indenture and Deed of Trust and Security Agreement, dated as of December 31, 1993, by Buckeye Pipe Line Company, L.P. to Pittsburgh National Bank and J. G. Routh, as Trustees.(8) (Exhibit 4.5) 4.6 --Note Purchase and Private Shelf Agreement, dated as of De- cember 31, 1993 between Buckeye Pipe Line Company, L.P. and The Prudential Insurance Company of America.(8) (Exhibit 4.6) 4.7 --Fourth Supplemental Indenture of Mortgage and Deed of Trust and Security Agreement, dated as of March 15, 1994, by Buck- eye Pipe Line Company, L.P., to PNC Bank, National Associa- tion and J.G. Routh, as Trustees.(9) (Exhibit 4.8)
53
EXHIBIT NUMBER (REFERENCED TO ITEM 601 OF REGULATION S-K) --------------- 4.8 --Fifth Supplemental Indenture of Mortgage and Deed of Trust and Security Agreement, dated as of March 30, 1994, by Buck- eye Pipe Line Company, L.P., to PNC Bank, National Associa- tion and J.G. Routh, as Trustees.(9) (Exhibit 4.9) 4.9 --Certain instruments with respect to long-term debt of the Operating Partnerships which relate to debt that does not ex- ceed 10 percent of the total assets of the Partnership and its consolidated subsidiaries are omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, 17 C.F.R. (S)229.601. The Partnership hereby agrees to furnish supplementally to the Securities and Exchange Commission a copy of each such instrument upon request. 10.1 --Amended and Restated Agreement of Limited Partnership of Buckeye, dated as of December 23, 1986.(1)(4) (Exhibit 10.1) *10.2 --Management Agreement, dated March 22, 1996 between the Gen- eral Partner and Glenmoor. 10.3 --Management Agreement, dated November 18, 1986, between the Manager and Buckeye.(1)(5) (Exhibit 10.4) *10.4 --Amended and Restated Incentive Compensation Agreement, dated as of March 22, 1996, between the General Partner and the Partnership. 10.5 --Annual Incentive Compensation Plan for key employees of the Manager.(1)(6) (Exhibit 10.8) 10.6 --Form of Long-Term Incentive Compensation Plan for key em- ployees of the Manager.(1)(6) (Exhibit 10.9) 10.7 --Unit Option and Distribution Equivalent Plan of Buckeye Partners, L.P.(6)(7) (Exhibit 10.10) 10.8 --Buckeye Management Company Unit Option Loan Program.(6)(7) (Exhibit 10.11) 10.9 --Buckeye Pipe Line Company Benefit Equalization Plan.(3)(6) (Exhibit 10.10) *11.1 --Computation of earnings per Unit. *21.1 --List of subsidiaries of the Partnership. *27 --Financial Data Schedule
- -------- (1) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1986. (2) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended March 31, 1988. (3) Previously filed with the Securities and Exchange Commission as the Exhibit to Buckeye Partners, L.P. Annual Report on Form 10-K for the year 1992. (4) The Amended and Restated Agreements of Limited Partnership of the other Operating Partnerships are not filed because they are identical to Exhibit 10.1 except for the identity of the partnership. (5) The Management Agreements of the other Operating Partnerships are not filed because they are identical to Exhibit 10.4 except for the identity of the partnership. (6) Represents management contract or compensatory plan or arrangement. 54 (7) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (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 1993. (9) Previously filed with the Securities and Exchange Commission as the Exhibit to the Buckeye Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. (10) 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. * Filed herewith (b) Reports on Form 8-K filed during the quarter ended December 31, 1995: None 55 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Buckeye Partners, L.P. (Registrant) By: Buckeye Management Company, as General Partner /s/ Alfred W. Martinelli Dated: March 26, 1996 By: _________________________________ Alfred W. Martinelli Chairman of the Board PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. /s/ Brian F. Billings Dated: March 26, 1996 By: _________________________________ Brian F. Billings Director /s/ A. Leon Fergenson Dated: March 26, 1996 By: _________________________________ A. Leon Fergenson Director /s/ Edward F. Kosnik Dated: March 26, 1996 By: _________________________________ Edward F. Kosnik Director /s/ Alfred W. Martinelli Dated: March 26, 1996 By: _________________________________ Alfred W. Martinelli Chairman of the Board and Director (Principal Executive Officer) /s/ William C. Pierce Dated: March 26, 1996 By: _________________________________ William C. Pierce Director /s/ Ernest R. Varalli Dated: March 26, 1996 By: _________________________________ Ernest R. Varalli Executive Vice President, Chief Financial Officer, Treasurer and Director (Principal Accounting and Financial Officer) /s/ C. Richard Wilson Dated: March 26, 1996 By: _________________________________ C. Richard Wilson President and Director /s/ Robert H. Young Dated: March 26, 1996 By: _________________________________ Robert H. Young Director 56 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, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, and have issued our report thereon dated January 26, 1996 (March 22, 1996 as to Note 3); such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of Buckeye Partners, L.P. and subsidiaries referred to in Item 14. These consolidated financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. Deloitte & Touche LLP Philadelphia, Pennsylvania January 26, 1996 (March 22, 1996 as to Note 3) S-1 SCHEDULE I BUCKEYE PARTNERS, L.P. REGISTRANT'S CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS) BALANCE SHEETS
DECEMBER 31, ----------------- 1995 1994 -------- -------- Assets Current assets Cash and cash equivalents................................. $ 4,209 $ 41 Temporary investments.................................. 895 2,255 Other current assets...................................... 44 30 -------- -------- Total current assets.................................... 5,148 2,326 Investments in and advances to subsidiaries (at equity)..... 262,030 245,689 -------- -------- Total assets............................................ $267,178 $248,015 -------- -------- -------- -------- Liabilities and partners' capital Current liabilities......................................... $ 4,993 $ 2,039 -------- -------- Partners' capital General Partner........................................... 2,622 2,460 Limited Partners.......................................... 259,563 243,516 -------- -------- Total partners' capital................................. 262,185 245,976 -------- -------- Total liabilities and partners' capital................. $267,178 $248,015 -------- -------- -------- --------
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Equity in income of subsidiaries................. $ 50,388 $ 46,250 $ 39,462 Operating expenses............................... (29) (16) (10) Interest income.................................. 20 -- -- Interest and debt expense........................ (58) (57) (86) Incentive compensation to General Partner........ (481) (360) -- -------- -------- -------- Net income................................. $ 49,840 $ 45,817 $ 39,366 -------- -------- -------- -------- -------- -------- STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Cash flows from operating activities: Net income..................................... $ 49,840 $ 45,817 $ 39,366 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiaries....... (16,341) (11,982) (7,858) Change in assets and liabilities: Temporary investments...................... 1,360 (2,005) (250) Other current assets....................... (14) (12) 342 Current liabilities........................ 2,954 347 1,287 -------- -------- -------- Net cash provided by operating activities.. 37,799 32,165 32,887 Cash flows from financing activities: Capital contributions.......................... 4 4 -- Proceeds from exercise of unit options......... 374 428 -- Distributions to Unitholders................... (34,009) (33,968) (31,515) -------- -------- -------- Net increase (decrease) in cash and cash equiv- alents........................................ 4,168 (1,371) 1,372 Cash and cash equivalents at beginning of peri- od............................................ 41 1,412 40 -------- -------- -------- Cash and cash equivalents at end of period..... $ 4,209 $ 41 $ 1,412 ======== ======== ========
See footnotes to consolidated financial statements of Buckeye Partners, L.P. S-2 SCHEDULE II BUCKEYE PARTNERS, L.P. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END DESCRIPTION OF PERIOD EXPENSES, NET ACCOUNTS DEDUCTIONS OF PERIOD - ----------- ---------- ------------- ---------- ---------- --------- Year ended December 31, 1995 Reserve for discontinued operations............. $ -- $-- $-- $ -- $-- ======= ==== ==== ======= ==== Year ended December 31, 1994 Reserve for discontinued operations............. $ -- $-- $-- $ -- $-- ======= ==== ==== ======= ==== Year ended December 31, 1993 Reserve for discontinued operations............. $21,768 $127 $-- $21,895(a) $-- ======= ==== ==== ======= ====
- -------- (a) Represents disposition of discontinued operations upon sale of net assets of discontinued operations during 1993. S-3 EX-2.1 2 SHARE PURCHASE AGREEMENT EXHIBIT 2.1 SHARE PURCHASE AGREEMENT RELATING TO THE ACQUISITION OF BUCKEYE MANAGEMENT COMPANY BY BMC ACQUISITION COMPANY DATED: JANUARY 5, 1996 TABLE OF CONTENTS
PAGE ---- Article 1 Sale and Purchase of Shares.................................... 1 1.1 Sale and Purchase of the Shares................................ 1 1.2 The Purchase Price............................................. 1 Article 2 The Closing.................................................... 1 2.1 Closing Date................................................... 1 2.2 Deliveries..................................................... 2 Article 3 Representations and Warranties of the Shareholder.............. 2 3.1 Organization and Standing...................................... 2 3.2 Capitalization and Share Ownership............................. 2 3.3 Authority and Binding Effect................................... 2 3.4 Validity of Contemplated Transactions.......................... 3 3.5 Subsidiaries................................................... 3 3.6 Taxes.......................................................... 3 3.7 No Material Undisclosed Facts.................................. 3 Article 4 Representations and Warranties of the Buyer.................... 3 4.1 Organization and Standing...................................... 3 4.2 Authority and Binding Effect................................... 4 4.3 Validity of Contemplated Transactions.......................... 4 4.4 Purchase for Investment........................................ 4 4.5 Available Financing............................................ 4 4.6 Financial Projections.......................................... 4 4.7 Investigation and Evaluation................................... 5 4.8 Securities Law Matters......................................... 5 Article 5 Certain Covenants.............................................. 5 5.1 Conduct of Business Pending Closing............................ 5 5.2 Approvals...................................................... 6 5.3 Confidential Information....................................... 6 5.4 Public Announcements........................................... 7 5.5 Tax Matters.................................................... 7 5.6 Audit Adjustments.............................................. 8 5.7 Certain Employee Benefit Arrangements.......................... 9 5.8 Insurance Arrangements......................................... 9 5.9 NJ Environmental Liabilities................................... 10 5.10 Prudential Financing and Special Committee Approval............ 12 5.11 No Solicitation of Transactions................................ 12 Article 6 Conditions Precedent to Obligations of the Buyer............... 12 6.1 Representations and Warranties................................. 12 6.2 Performance by the Shareholder................................. 12 6.3 Certificates................................................... 12 6.4 Intentionally Omitted.......................................... 12 6.5 Litigation Affecting Closing................................... 12 6.6 Regulatory Compliance and Approvals............................ 12 6.7 Consents....................................................... 12 6.8 Financing...................................................... 12 6.9 Special Committee.............................................. 13
PAGE ---- Article 7 Conditions Precedent to Obligations of the Shareholder......... 13 7.1 Buyer Representations True at Closing.......................... 13 7.2 Performance by the Buyer....................................... 13 7.3 Officer's Certificate.......................................... 13 7.4 Demand Notes................................................... 13 7.5 Incumbency Certificate......................................... 13 7.6 Opinion of Counsel............................................. 13 7.7 Litigation Affecting Closing................................... 13 7.8 Regulatory Compliance and Approval............................. 13 7.9 Special Committee.............................................. 14 Article 8 Miscellaneous.................................................. 14 8.1 No Survival of Representation and Warranties................... 14 8.2 Payment of Expenses............................................ 14 8.3 Termination.................................................... 14 8.4 Brokers' and Finders' Fees..................................... 14 8.5 Assignment and Binding Effect.................................. 15 8.6 Waiver......................................................... 15 8.7 Notices........................................................ 15 8.8 Pennsylvania Law to Govern..................................... 15 8.9 Remedies Not Exclusive......................................... 15 8.10 No Benefit to Others........................................... 16 8.11 Contents of Agreement.......................................... 16 8.12 Section Headings and Gender.................................... 16 8.13 Cooperation.................................................... 16 8.14 Severability................................................... 16 8.15 Counterparts................................................... 16 Annex I Certain Defined Terms............................................. 17 Schedule 4.1 List of Common Stock Subscribers............................. 20
ii SHARE PURCHASE AGREEMENT This Share Purchase Agreement is dated as of January 5, 1996. The parties are Pennsylvania Company, a Delaware corporation (the "Shareholder"), being the owner of all of the issued and outstanding shares of capital stock of Buckeye Management Company, a Delaware corporation (the "Company"), and BMC Acquisition Company, a Delaware corporation (the "Buyer"). PREAMBLE The Shareholder owns 1,000 shares of Common Stock, par value $1.00 per share (the "Common Stock"), of the Company which constitutes all of the issued and outstanding shares of capital stock of the Company (the "Shares"). The Buyer desires to purchase from the Shareholder, and the Shareholder desires to sell to the Buyer, all of the Shares in exchange for the Purchase Price in accordance with the terms and conditions set forth in this Agreement. The parties hereto have determined to make an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended and in effect on the date hereof (the "Code"), to have the purchase and sale of the Shares hereunder treated for Federal income tax purposes as a purchase of assets by the Buyer from the Shareholder. For convenience and brevity, certain terms used in various parts of this Agreement are listed in alphabetical order and defined or referred to on Annex I hereto (such terms to be equally applicable to both singular and plural forms of the terms defined). Now, Therefore, in consideration of the respective covenants, representations and warranties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE 1 Sale and Purchase of Shares 1.1 Sale and Purchase of the Shares. On the Closing Date and subject to the terms and conditions hereinafter set forth and on the basis of and in reliance upon the representations, warranties, obligations and agreements set forth herein, the Shareholder shall sell to the Buyer and the Buyer shall purchase from the Shareholder all of the Shares in exchange for the payment to the Shareholder of the Purchase Price. 1.2 The Purchase Price. On the Closing Date and subject to the terms and conditions hereinafter set forth and on the basis of and in reliance upon the representations, warranties, obligations and agreements set forth herein, the Buyer shall pay to the Shareholder $63,000,000 (the "Purchase Price"), payable by wire transfer of immediately available funds to such account as the Shareholder shall designate. ARTICLE 2 The Closing 2.1 Closing Date. The Closing (the "Closing") of the sale and purchase of the Shares shall take place at the offices of Morgan, Lewis & Bockius LLP, 2000 One Logan Square, Philadelphia, Pennsylvania at 10:00 A.M. local time, on the later of (i) March 8, 1996, (ii) the fifth business day following the satisfaction or waiver of all of the conditions set forth in Articles 6 and 7 hereof, or (iii) at such other time or place or on such other date as the Buyer and the Shareholder may agree to in writing. The date of the Closing is hereinafter sometimes referred to as the "Closing Date." The Closing shall be deemed to have occurred as of the close of business on the Closing Date. 2.2 Deliveries. At the Closing, subject to the provisions of this Agreement, the Shareholder shall deliver to the Buyer, free and clear of all Liens, the certificates for the Shares to be sold by such Shareholder, duly endorsed in blank, or with separate stock transfer powers attached thereto and signed in blank, and the Buyer shall deliver to the Shareholder the Purchase Price by wire transfer of immediately available funds. At the Closing, the Shareholder shall also deliver to the Buyer, and the Buyer shall deliver to the Shareholder, the certificates, opinions and other instruments and documents referred to in Articles 6 and 7. The Buyer and the Shareholder shall deliver executed copies of IRS Form 8023 making the joint election under Section 338(h)(10) of the Code, and in the case of the Buyer the election under Section 338(g) of the Code to allow the election under Section 338(h)(10) of the Code to be made. The parties shall cooperate with each other to reach agreement upon a schedule of the allocation of the Purchase Price to be attached to the IRS Form 8023 by each of the Buyer and the Shareholder. ARTICLE 3 Representations and Warranties of the Shareholder The Shareholder hereby represents and warrants to the Buyer that: 3.1 Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having full corporate power and authority to carry on its business as it is now being conducted and to own, lease and operate its assets. The Company is duly qualified to do business and is in good standing in every jurisdiction in which its business or the character of its assets requires such qualification and in which the failure to be so qualified would have a Company Material Adverse Effect. 3.2 Capitalization and Share Ownership. The Company's authorized capital stock consists of 1,000 shares of Common Stock, par value $1.00 per share, of which 1,000 shares are presently outstanding (previously defined as the "Shares"), which Shares are owned by the Shareholder free and clear of any Liens. All of the Shares have been duly authorized and validly issued, are fully paid and nonassessable, were not issued in violation of the terms of any Contract binding upon the Company, and were issued in compliance with all applicable charter documents of the Company. No equity securities of the Company, other than the Shares, are issued or outstanding. There are, and have been, no preemptive rights with respect to the issuance of the Shares. There are no existing Contracts, subscriptions, options, warrants, calls, commitments or rights of any character to purchase or otherwise acquire any capital stock or other securities of the Company, whether or not presently issued or outstanding, from the Shareholder or the Company, at any time, or upon the happening of any stated event. 3.3 Authority and Binding Effect. The Shareholder has the full corporate power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by the Shareholder has been duly authorized by all necessary corporate and shareholder action. This Agreement has been, and the other agreements, documents and instruments required to be delivered by the Shareholder in accordance with the provisions hereof (the "Shareholder Documents") will be, duly executed and delivered on behalf of the Shareholder by duly authorized officers of the Shareholder, and this Agreement constitutes, and the Shareholder Documents will constitute, the legal, valid and binding obligations of the Shareholder, enforceable against the Shareholder in accordance with their respective terms, except as may be limited by bankruptcy or insolvency laws and other similar laws or equitable principles affecting rights of creditors generally. 2 3.4 Validity of Contemplated Transactions. Neither the execution and delivery of this Agreement by the Shareholder nor the consummation of the transactions contemplated hereby will contravene or violate the charter documents or by-laws of the Shareholder or the Company or any Regulation or Court Order which is applicable to the Company or the Shareholder, or will result in a Default under, or require the consent or approval of any party to, any material Contract relating to its business or its assets or to or by which the Company or the Shareholder is a party or otherwise bound or affected, or, to the Shareholder's knowledge based upon oral opinions of counsel, require the Company or the Shareholder to notify or obtain any License from any federal, state, local or other court or governmental agency or body or from any other regulatory authority, except for public utility commission or environmental approvals required to be obtained by the Company. 3.5 Subsidiaries. Except for interests in Buckeye Pipe Line Company, a Delaware corporation (the "Management Subsidiary"), and the Master Partnership, and the interests of the Management Subsidiary in each of the Operating Partnerships, neither the Company nor the Management Subsidiary has any subsidiaries or stock or other equity or ownership interest (whether controlling or not) in any corporation, association, partnership, limited liability company, joint venture or other entity. The Company owns of record and beneficially (i) all of the issued and outstanding capital stock of the Management Subsidiary free and clear of any Liens, and (ii) a 1% general partnership interest in the Master Partnership in accordance with the Master Partnership Agreement. The Company is the general partner of the Master Partnership. The Management Subsidiary owns of record and beneficially a 1% general partnership interest in each of the Operating Partnerships in accordance with the Operating Partnership Agreements related thereto and a .99% limited partnership interest in Buckeye Pipe Line Company of Michigan, L.P. pursuant to its Operating Partnership Agreement. The Management Subsidiary is the sole general partner of the Operating Partnerships. There are: (a) no existing Contracts, subscriptions, options, warrants, calls, commitments or rights of any character to purchase or otherwise acquire from the Company or the Management Subsidiary at any time, or upon the happening of any stated event, any capital shares or other securities of the Company, the Management Subsidiary, the Master Partnership, or the Operating Partnerships, whether or not presently issued or outstanding; (b) no outstanding securities of the Management Subsidiary that are convertible into or exchangeable for capital shares or other securities of the Management Subsidiary; and (c) no Contracts, subscriptions, options, warrants, calls, commitments or rights to purchase or otherwise acquire from the Company or the Management Subsidiary any such convertible or exchangeable securities. 3.6 Taxes. All United States Federal income tax returns and all other material tax returns which are required to be filed with respect to the Company and the Management Subsidiary have been filed (except in instances in which there is an effective extension of the time in which to file a tax return) and all taxes due with respect thereto or pursuant to any assessment with respect to the Company or the Management Subsidiary have been paid, except for assessments the validity of which is being contested in good faith by appropriate proceedings. 3.7 No Material Undisclosed Facts. The Shareholder has not omitted to disclose to the Buyer any material fact with respect to the Company or the Management Subsidiary, actually known by the Shareholder which is not known to the Company or the Management Subsidiary. ARTICLE 4 Representations and Warranties of the Buyer The Buyer hereby represents and warrants to the Company and the Shareholder as follows: 4.1 Organization and Standing. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware, having all requisite corporate power and authority to 3 perform its obligations under this Agreement. As of the date hereof, the Buyer has received legally binding subscriptions from the persons listed on Schedule 4.1 to contribute not less than $5 million to the Company on or before the Closing Date in return for common stock of the Buyer. (In the case of Alfred W. Martinelli, his subscription is subject to financing to be provided by the Shareholder or its affiliates in the event that the Closing Date occurs prior to March 13, 1996.) The Buyer has no assets or liabilities except for its rights and obligations under this Agreement, the subscriptions and Prudential Commitment Letter. 4.2 Authority and Binding Effect. The Buyer has the corporate power and authority to execute, deliver and perform this Agreement and the other agreements, documents and instruments required to be delivered by the Buyer in accordance with the provisions hereof (the "Buyer Documents"), and has taken all actions necessary to secure all approvals required in connection therewith. The execution, delivery and performance of this Agreement and the Buyer Documents by the Buyer has been duly authorized by all necessary corporate and shareholder action. This Agreement has been, and the Buyer Documents will be, duly executed and delivered on behalf of the Buyer by duly authorized officers of the Buyer, and this Agreement constitutes, and the Buyer Documents will constitute, the legal, valid and binding obligation of the Buyer, enforceable against it in accordance with their respective terms, except as may be limited by bankruptcy or insolvency and other similar laws or equitable principles affecting rights of creditors generally. 4.3 Validity of Contemplated Transactions. Neither the execution and delivery of this Agreement by the Buyer nor the consummation of the transactions contemplated hereby by the Buyer will contravene or violate any Regulation or Court Order which is applicable to the Buyer, or the charter documents or By-Laws of the Buyer, or will result in a Default under any Contract to which the Buyer is a party or by which it is otherwise bound, or require the Buyer to notify or obtain any License from any federal, state, local or other court or governmental agency or body or from any other regulatory authority. 4.4 Purchase for Investment. The Buyer is acquiring the Shares solely for its own account for investment and not with a view to or for the sale or distribution thereof. The Buyer acknowledges that the Shares are not registered under the Securities Act of 1933, as amended, and that such Shares may not be transferred or sold except pursuant to the registration provisions of the Securities Act or pursuant to an applicable exemption therefrom. 4.5 Available Financing. The Buyer has delivered to the Shareholder a commitment letter (the "Prudential Commitment Letter") from Prudential Capital Group to lend the Buyer up to $63,000,000 to purchase the Shares. The Buyer has no reason to believe that Prudential Capital Group and the Buyer will not be able to reach agreement on the form and substance of a definitive agreement reflecting the terms of the Prudential Commitment Letter or that all conditions precedent to the obligations of Prudential Capital Group contained therein or in the Prudential Commitment Letter will not be satisfied. 4.6 Financial Projections. The Buyer has provided to the Shareholder financial projections for the Buyer, the Company, and the Management Subsidiary, supported by a cost reduction proposal, which reflects the financial impact of the Company's results of operations, reimbursements from the Master Partnership and Operating Partnerships, sources of expense savings, repayment of the financing described in the Prudential Commitment Letter, and the payment by the Buyer, the Company and the Management Subsidiary of their obligations as they become due (the "Financial Information"). The Buyer represents that (i) such Financial Information was prepared in good faith, (ii) the Buyer reasonably believes the assumptions upon which the projections contained in the Financial Information are based are reasonable and (iii) the Buyer currently intends to operate the Company and the Management Subsidiary in a manner consistent in all material respects with the assumptions contained in the Financial Information. 4 4.7 Investigation and Evaluation. The Buyer acknowledges that (a) the Buyer is experienced in the operation of the type of business conducted by the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships, (b) the Buyer and its directors, officers, attorneys, accountants and advisors have been given the opportunity to examine to the full extent deemed necessary by the Buyer all books, records and other information with respect to the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships, (c) the Buyer has taken full responsibility for determining the scope of its investigations of the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships, and for the manner in which such investigations have been conducted, and has examined the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships to the Buyer's full satisfaction, (d) the Buyer is fully capable of evaluating the adequacy and accuracy of the information and material obtained by the Buyer in the course of such investigations, (e) the Buyer has not relied on the Shareholder with respect to any matter in connection with the Buyer's evaluation of the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships, other than the representations and warranties specifically set forth in Article 3, and (f) the Shareholder is making no representations or warranties, express or implied, of any nature whatever with respect to the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships, other than the representations and warranties of the Shareholder specifically set forth in Article 3. The Buyer acknowledges that (a) the Buyer has taken full responsibility for evaluating the adequacy, completeness and accuracy of various forecasts, projections, opinions and similar material heretofore furnished by the Shareholder, its affiliates or their representatives to the Buyer in connection with the Buyer's investigations of the Company, the Management Subsidiary, the Master Partnership, and the Operating Partnerships and their respective businesses, assets and liabilities; (b) there are uncertainties inherent in attempting to make projections and forecasts and render opinions, the Buyer is familiar with such uncertainties, and the Buyer is not relying on any projections, forecasts or opinions furnished to it by the Shareholder, or any affiliate thereof or any of their representatives; and (c) neither the Shareholder nor any affiliate of the Shareholder makes any representations or warranties concerning any such forecasts or projections. 4.8 Securities Law Matters. To the knowledge of the Buyer, neither this Agreement, nor any other agreement, document, certificate or written statement furnished to the Buyer by or on behalf of the Shareholder in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. The Buyer, for itself, its employees, shareholders and affiliates, irrevocably acknowledges and confirms that the Shareholder has complied in all respects with its obligations to the Buyer, if any, under Rule 10b-5 under the Securities Exchange Act of 1934, as amended, and under all other federal and state securities laws in connection with the transactions contemplated hereby. ARTICLE 5 Certain Covenants 5.1 Conduct of Business Pending Closing. Until the Closing Date, except as may be approved by the Buyer in writing or as otherwise provided in this Agreement, the Shareholder shall use its reasonable efforts (subject to the fiduciary duty of the Company and the Management Subsidiary to the Master Partnership and the Operating Partnerships) to cause the Company and the Management Subsidiary to: (A) operate the business of the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships solely in the ordinary course and in substantially the same manner as such business has been operated in the past; 5 (B) not issue, repurchase or redeem or commit to issue, repurchase or redeem, or permit the Master Partnership to issue, repurchase or redeem, any shares of capital stock or partnership units, any options or other rights to acquire such stock or units or any securities convertible into or exchangeable for such stock or units except pursuant to the Buckeye Partners, L.P. Unit Option and Distribution Equivalent Plan; (C) not declare or pay any dividend on, or make any other distribution with respect to, the Shares; (D) not declare, pay or make any other distribution with respect to, the partnership units of the Master Partnership, except for periodic distributions by the Master Partnership with respect to such units in amounts and at times which are consistent with past practice; (E) not (1) incur a material amount of long or short-term debt for money borrowed, (2) guarantee or agree to guarantee the obligations of others, (3) indemnify or agree to indemnify others, or (4) incur any other material Liabilities, in each case other than those incurred in the ordinary course of business consistent with past practice; (F) use its reasonable efforts to retain the employees of the Management Subsidiary and maintain the respective businesses of the Company and the Management Subsidiary so that employees will remain available to the Management Subsidiary on and after the Closing Date and to maintain existing relationships with suppliers, customers and others having business dealings with the Company or the Management Subsidiary; (G) not amend its Certificate of Incorporation or By-Laws or the Master Partnership Agreement or the Operating Partnership Agreements; (H) not merge with or into any other corporation or, except in the ordinary course of business, sell, assign, transfer, pledge or encumber any part of the assets of the Company or the Management Subsidiary or agree to do any of the foregoing; (I) except in the ordinary course of business, not enter into any Contract on their own behalf, rather than as agent for or a partner of the Master Partnership or any of the Operating Partnerships, that is material, or permit any amendment or termination of any such material Contract to which the Company or the Management Subsidiary is a party; (J) except in the ordinary course of business, not waive any rights of material value that would otherwise accrue to the Company after the Closing Date; (K) except in the ordinary course of business (or as disclosed in the Disclosure Letter), not increase the salaries or benefits of, or make any bonus or similar payments to or establish or modify any Employee Benefit Plans for, any of the Company's directors, officers or employees or enter into or modify any employment, consulting or similar Contracts with any such persons or agree to do any of the foregoing; (L) use its reasonable efforts to obtain any consents or approvals required under any material Contracts that are necessary to complete the Acquisition or to avoid a Default under any such Contracts; and (M) not make any capital expenditures on its own behalf, rather than as agent for or a partner of the Master Partnership or any of the Operating Partnerships, in excess of $1,000,000. 5.2 Approvals. The Buyer and the Shareholder shall use their reasonable efforts to obtain promptly all Licenses from all Regulatory Bodies and all consents required under the terms of any Contracts which are required in connection with the consummation of the Acquisition. 5.3 Confidential Information. Promptly, but in no event later than 5 business days, following the later of (a) the approval by the Special Committee of the matters described in Section 7.9 and (b) the delivery by the Buyer to the Shareholder of written confirmation from Prudential Capital Group 6 that the Finance Committee of the Board of Directors of The Prudential Insurance Company of America has authorized Prudential Capital Group to purchase a note or notes in accordance with the Prudential Commitment Letter, the Shareholder shall cause Furman Selz LLC to require all parties to any confidentiality agreement between Furman Selz LLC on behalf of the Shareholder and any other party with respect to a sale of the Company to return or destroy all confidential information of the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships in accordance with the terms of such confidentiality agreements. At the Closing, the Shareholder will, to the extent legally assignable, assign all of its rights under such confidentiality agreements to the Company. 5.4 Public Announcements. The Buyer and the Shareholder shall not make any public announcement of the transactions contemplated hereby without the prior written consent of the other party. Nothing contained herein shall prevent either party at any time from furnishing any information to any governmental agency or pursuant to any Court Order or which is required by any Regulation or any rule of the New York Stock Exchange. 5.5 Tax Matters. (A) Section 338(h)(10) Election. The Shareholder and the Buyer shall make a timely joint election under Section 338(h)(10) of the Code and pursuant to the applicable provisions of the Temporary Treasury Regulations in order that the transaction contemplated by this Agreement will be treated for Federal income tax purposes as a purchase of assets by the Buyer from the Company. Any liability for taxes resulting from the election by the Buyer and the Shareholder under Section 338(h)(10) of the Code will be paid by the Shareholder. (B) Taxes Prior to and After the Closing Date. The Shareholder shall include the Company in the applicable consolidated federal income tax return for the period prior to and including the Closing Date. Taxes as a result of the joint election under Section 338(h)(10) will be borne by the Shareholder. Any adjustments in taxes of the Company for the period to and including the Closing Date shall be borne by the Shareholder. The liability for any taxes of the Company for the periods beginning after the Closing Date shall be borne by the Company and the Buyer. The Buyer shall make an election under Section 338(g) of the Code to the extent necessary to allow the Section 338(h)(10) election to be made. The Buyer will indemnify and hold harmless the Shareholder and the Company against any and all liability (including, without limitation, interest, additions to tax and penalties) for or with respect to federal, state or local income taxes of the Company claimed or assessed for all taxable periods beginning after the Closing Date. The Shareholder will indemnify and hold harmless the Buyer and the Company against any and all liability (including, without limitation, interest, additions to tax and penalties) for or with respect to federal, state or local income taxes of the Company claimed or assessed for all taxable periods including periods to and including the Closing Date. (C) Indemnification With Respect to Taxes. Without limiting the indemnification obligations of any party contained elsewhere herein: After the Closing, the Shareholder will indemnify and hold harmless the Buyer and the Company against any and all liability (including, without limitation, interest, additions to tax and penalties) for or with respect to federal income taxes (and state or local income taxes in states in which tangible personal property or real property of the Company is located) of the Company claimed or assessed for all taxable periods ending on or prior to the Closing Date attributable to gain realized by the Company as a result of the purchase and sale of the Shares pursuant hereto and the making of the joint election by the Shareholder and the Buyer under Section 338(h)(10) of the Code (and by the Buyer under Section 338(g) of the Code but only to the extent it is required for the election under Section 338(h)(10) of the Code)), net of any tax benefit resulting from such payment. If the parties are unable to agree with respect to the amount of any payment due under the preceding sentence, the matter shall be submitted to an independent accounting firm selected by both parties. The decision of such independent accounting firm shall be binding upon both parties and the expense of such independent accounting firm shall be borne equally by the parties. 7 (D) Prior Period Adjustments. The Shareholder shall have the right to contest any adjustment that increases the liability of the Company or the Shareholder for taxes which arose during the period or periods ending on or prior to the Closing Date (including federal income taxes (and state or local income taxes in states which tangible personal property or real property of the Company is located) attributable to gain realized by the Company as a result of the purchase and sale of the Shares pursuant hereto and the making of the joint election by the Shareholder and Buyer under Section 338(h)(10) of the Code (and by the Buyer under Section 338(g) of the Code but only to the extent it is required for the election under Section 338(h)(10) of the Code)). The Buyer agrees to cooperate or cause the Company to cooperate in the negotiation, settlement or litigation of any such adjustment. All decisions with respect to the negotiation, settlement or litigation of any such adjustment shall be made by the Shareholder and shall be binding upon the Buyer. All expenses to contest such adjustment on behalf of the Company shall be borne by the Shareholder. Any indemnity payable by the Shareholder to the Buyer or the Company pursuant to this Section 5.5(D) shall be payable within 10 days of the Buyer's and/or the Company's request therefor, which request shall be no sooner than within 20 days of the required remittance to the tax authority. The parties agree that any payment made pursuant to this Section 5.5(D) shall be deemed an adjustment to the Purchase Price hereunder. (E) Cooperation. After the Closing Date, the Buyer, the Shareholder and the Company shall cooperate fully with each other and shall make available to the other, as reasonably requested, and to any taxing authority, all information, records or documents relating to tax liabilities or potential tax liabilities of the Company for all periods prior to or ending on the Closing Date and shall preserve all such information, records and documents until the expiration of any applicable statutes of limitation or extensions thereof. The Buyer, the Shareholder and the Company shall also make available to each other, as reasonably requested, personnel responsible for preparing or maintaining information, records and documents in connection with tax matters. (F) Audits. So long as taxable periods of the Company ending on or before the Closing Date remain open, the Buyer and the Shareholder shall promptly notify the other in writing within 10 days from receipt by the Buyer or the Shareholder of notice of (i) any pending or threatened federal, state or local income tax audits or assessments of the Company, and (ii) any pending or threatened federal, state or local income tax audits or assessments of the Buyer which may affect the tax liabilities of the Company for taxable periods ending on or before the Closing Date. The Shareholder shall have the right to represent the interests of the Company in any tax audit or administrative or court proceeding relating to fiscal periods ending on or before the Closing and to employ counsel of its choice at its expense. The Buyer agrees that it will, at the Shareholder's expense, cooperate fully with the Shareholder and its counsel in the defense against or compromise of any claim in any said proceeding. 5.6 Audit Adjustments. (A) If, as a result of the examination of the consolidated federal, state or local income tax return of the Shareholder or the Company (or any predecessor) for a taxable year ending on or before or including the Closing Date, there shall be any adjustment which decreases deductions, losses or credits against taxes ("Tax Benefits") or which increases income, gains or recaptures of credits against taxes ("Tax Detriments") for any such taxable year and which will permit the Buyer or the Company (or any corporation in an affiliated group of which the Buyer or the Company is a member) to increase the Tax Benefits or decrease the Tax Detriments to which they would otherwise have been entitled for any taxable year beginning on or after the Closing Date, the Shareholder will notify the Buyer of such adjustment and provide the Buyer with such information as may be necessary for the Buyer to take account of such increases or decreases through the filing of a claim for refund or otherwise. The Buyer shall take such action as is necessary to secure the benefit of such increases or decreases and shall pay the Shareholder the amount of such benefit (together with interest, if any, received), such amount to be paid when and as such benefit is realized, less the amount, if any, of the Buyer's reasonable expenses incurred in securing such benefit for the Shareholder. 8 (B) If, as a result of the examination of the consolidated or separate federal, state or local income tax return of any group of corporations of which the Buyer or the Company (or any successor) is a member for a taxable year beginning on or after the Closing Date, there shall be any adjustment which decreases Tax Benefits or increases Tax Detriments for any such taxable year and which will permit the Shareholder or any member of the Shareholder's consolidated group to increase Tax Benefits or decrease Tax Detriments to which the Shareholder would otherwise have been entitled for any taxable year ending on or before and including the Closing Date, the Buyer will notify the Shareholder of such adjustment and provide the Shareholder with such information as may be necessary for the Shareholder to take account of such increase or decrease through the filing of a claim for refund or otherwise. The Shareholder shall take such action as is necessary to secure the benefit of such increases or decreases and shall pay to the Buyer the amount of such benefit (together with interest, if any, received), such amount to be paid when and as such benefit is realized, less the amount, if any, of the Shareholder's reasonable expenses incurred in securing such benefit for the Buyer. 5.7 Certain Employee Benefit Arrangements. From and after the Closing: (A) The Buckeye Pipe Line Company Retirement Income Guarantee Plan. The Buckeye Pipe Line Company Retirement Income Guarantee Plan (the "RIGP") is funded through a master defined benefit trust (the "Master DB Trust"). After the Closing Date, Buckeye Pipe Line Company will continue to be the "Plan Sponsor", as defined in ERISA, for such RIGP (and will continue to be responsible for any contributions required or due with respect to the RIGP). Within 45 days after the Closing Date, the Buyer shall identify a successor trust to hold the assets of the RIGP, and promptly after identification of such successor trust, the trustee of the Master DB Trust shall transfer the pro rata share of the assets of the Master DB Trust allocable to the RIGP to the trustee of such successor trust. (B) The Buckeye Pipe Line Company Retirement and Savings Plan. After the Closing Date, Buckeye Pipe Line Company will continue to be the "Plan Sponsor", as defined in ERISA, with respect to the Buckeye Pipe Line Company Retirement and Savings Plan (the "RASP") (and will continue to be responsible for any contributions required or due with respect to the RASP). The Buyer agrees to retain, through the end of 1996, the provision in the RASP allowing participants in the RASP to transfer their account balances from the RASP to the American Premier Retirement and Savings Plan. A portion of the assets of the RASP are invested in a trust which holds fixed income assets on behalf of the RASP and other qualified retirement plans (the "Fixed Income Trust"). Within 45 days after the Closing Date, the Buyer shall identify a successor trust to hold the assets of the RASP invested in the Fixed Income Trust and, promptly after identification of such successor trust, the trustee of the Fixed Income Trust shall transfer a pro rata share of the assets in the Fixed Income Trust allocable to the RASP to the trustee of such successor trust. 5.8 Insurance Arrangements. From and after the Closing: (a) The Company and the Management Subsidiary shall cease to be covered with respect to any occurrence after the Closing under the insurance policies and agreements obtained and maintained by the Shareholder and its affiliates covering the Company and the Management Subsidiary, (the "Policies"). All such occurrences prior to the Closing which are insured under the Policies shall continue to be so insured, and the Company and Management Subsidiary shall be entitled to the benefits thereof, subject to applicable Retention Levels. The Buyer shall cause the Company and the Management Subsidiary to pay to the Shareholder and its affiliates any retrospective premium adjustments and premium audit adjustments payable to insurance carriers and all retention payments in respect of insurance covering the Company and the Management Subsidiary for periods prior to the Closing Date. The Shareholder shall, or shall cause its affiliates to, pay to the Company any rebate received with respect to any premiums paid prior to the Closing Date in respect of Policies covering the Company and the Management Subsidiary for 9 periods subsequent to the Closing Date as a result of the removal of the Company and the Management Subsidiary from coverage under such Policies. (b) Provided the Buyer is not in breach of its obligations under subsection (c) hereof, the Shareholder shall indemnify and hold the Company and the Management Subsidiary to the extent they are named insured under the applicable Policy or Policies harmless from and against any and all Insured Losses to the extent such Insured Losses exceed the applicable Retention Level of the Company or the Management Subsidiary but do not exceed the Retention Level applicable to the Shareholder and its affiliates with respect thereto. Neither the Shareholder nor its affiliates shall have any liability to the Company or the Management Subsidiary for any Insured Losses to the extent such Insured Losses (a) are within the applicable Retention Level for the particular company or (b) exceed the applicable Retention Level for the Shareholder and its affiliates. In addition, the Shareholder and its affiliates shall have no liability to the Buyer, the Company or the Management Subsidiary for any Loss which would not be covered by the insuring terms and conditions of the applicable Policy, assuming a Retention Level for the Shareholder and its affiliates of zero. (c) The Company and the Management Subsidiary shall be liable and responsible for all the Insured Losses that are within the Retention Levels applicable to them. Accordingly, provided the Shareholder and its affiliates are not in breach of their obligations under section (b) hereof, the Buyer will cause the Company and the Management Subsidiary to either, as the Shareholder shall direct, (a) reimburse the Shareholder and its affiliates for such payments as the Shareholder and its affiliates may make in the normal course of their claims management program to the applicable insurer or claims administrator of Insured Losses that are within the Retention Levels of the Company and the Management Subsidiary, such reimbursement to be made promptly and in any event within 15 days of presentation of the Shareholder's written invoices therefor or (b) pay such Insured Losses directly to the applicable insurer or claims administrator. The Buyer will, and will cause the Company and the Management Subsidiary to, negotiate in good faith to settle all claims under the Policies within the applicable Retention Levels of the Company and the Management Subsidiary and promptly notify and consult with the Shareholder regarding any such claim that may exceed the applicable Retention Levels of the Company and the Management Subsidiary. The Shareholder shall have the right to control and direct the defense of any such claim that is likely to exceed the Retention Levels of the Company and the Management Subsidiary. (d) The parties hereto shall give, and shall cause the Company and the Management Subsidiary to give, to each other prompt notice of the assertion by any person of any claim against the Shareholder or any of its affiliates, or the Company and the Management Subsidiary, as the case may be, which might be subject to the insurance coverage or related obligations described in this Section 5.8. The parties hereto shall cooperate, and shall cause the Company and the Management Subsidiary to cooperate, with the Shareholder and its affiliates, or the Company and the Management Subsidiary, as the case may be, and any applicable insurance carrier or claims administrator in any investigation by the Shareholder and its affiliates, or by the Company and the Management Subsidiary, as the case may be, or any applicable insurance carrier or claims administrator, of any such claim, including without limitation any currently pending claim which relates to a pre-Closing occurrence; and the Buyer shall give, and shall cause the Company and the Management Subsidiary to give, to the Shareholder and its affiliates, and any applicable insurance carrier or claims administrator, reasonable access to the books, records and personnel of the Company and the Management Subsidiary to the extent reasonably necessary to enable the Shareholder or any of its affiliates, and any applicable insurance carrier or claims administrator, to investigate such claim. 5.9 NJ Environmental Liabilities. From and after the Closing, the Shareholder or an affiliate of the Shareholder (the Shareholder and each of its affiliates, the "Shareholder Group") shall continue 10 to retain the liabilities described that certain Administrative Consent Order, dated November 17, 1986, issued by the New Jersey Department of Environmental Protection (such liabilities, the "NJ Environmental Liabilities"). In connection with the NJ Environmental Liabilities, the parties agree as follows: (a) The Buyer shall cooperate, and cause the employees and officers of the Company and the Management Subsidiary to cooperate, with the Shareholder Group in connection with all matters related to the NJ Environmental Liabilities and shall provide, at no charge, such administrative assistance with respect thereto as the Shareholder may reasonably request (which may include, without limitation, review of documents and attendance at meetings and teleconferences regarding the NJ Environmental Liabilities). (b) The Buyer shall, and shall cause the Company and the Management Subsidiary to, provide to the Shareholder Group such services, labor and materials, to the extent reasonably available, as the Shareholder may request in connection with the NJ Environmental Liabilities. The Shareholder shall reimburse the Buyer, the Company or the Management Subsidiary, as appropriate, for such entity's direct, out-of-pocket cost (i) of all hourly labor furnished by such entity at the request of the Shareholder, (ii) of all services provided by non-employees of the Buyer, the Company or the Management Subsidiary at the request of the Shareholder, and (iii) of all materials provided by such entity at the request of the Shareholder. The Shareholder Group shall have the right to use, without cost, the water filtration system/waste recovery system and plant located at the Linden, New Jersey premises of the Operating Partnerships (the "Waste Recovery System") in connection with the activities of the Shareholder Group related to the NJ Environmental Liabilities, subject to reimbursement by the Shareholder Group of any costs incurred for activated carbon attributed solely to the Shareholder Group's utilization of the Waste Recovery System. (c) Without the prior consent of the Shareholder, the Buyer shall not take any action which it knows is reasonably likely to increase the amount of the NJ Environmental Liabilities. In addition, the Buyer shall, and shall cause the Company and the Management Subsidiary to, take all commercially reasonable actions to mitigate the expense and liability of the Shareholder Group with respect to the NJ Environmental Liabilities. (d) In connection with the NJ Environmental Liabilities, the Shareholder Group agrees to use commercially reasonable efforts to obtain a Declaration of Environmental Restriction ("DER"). Buyer hereby consents to the issuance of a DER, and agrees that it shall execute, and shall cause the Company, the Management Subsidiary, the Master Partnership and the Operating Partnership, to execute all commercially reasonable documents necessary to obtain a DER. (e) Upon request of the Shareholder the Buyer will use reasonable efforts to support and facilitate any reasonable proposal from the Shareholder Group that the Master Partnership, in consideration for a payment by the Shareholder Group, assume the remaining costs anticipated to be associated with the NJ Environmental Liabilities. (f) The Buyer acknowledges on its own behalf and on behalf of The Company and the Management Subsidiary that there are no unpaid charges for services, labor, materials or facilities provided by the Company or the Management Subsidiary in connection with the NJ Environmental Liabilities. (g) The Buyer acknowledges that the Shareholder Group will not be liable for any environmental liability or expense related to, or arising out of the business of, the Company, the Management Subsidiary, the Master Partnership, or any of the Operating Partnerships, other than the NJ Environmental Liabilities. (h) The Buyer shall indemnify the Shareholder Group against any failure by the Company, the Management Subsidiary, the Master Partnership and the Operating Partnerships to comply with the provisions of this Section 5.9. 11 5.10 Prudential Financing and Special Committee Approval. The Buyer shall use its best efforts to diligently and as promptly as practicable (i) obtain the approval of the Special Committee of the matters described in Section 6.9 hereof and provide such information in connection therewith as the Special Committee may request; and (ii) negotiate, execute and deliver, and consummate a definitive agreement with Prudential Capital Group providing for the financing described in the Prudential Commitment Letter. Upon the Shareholder's request from time to time, the Buyer shall report to the Shareholder concerning the status of such matters. 5.11 No Solicitation of Transactions. Prior to the termination of this Agreement pursuant to Section 8.3, none of the Shareholder or any of its affiliates or any of their respective directors, officers, employees, representatives, investment bankers or agents shall, directly or indirectly, solicit or initiate inquiries or proposals form, or provide confidential information to or participate in any discussions or negotiations with, any corporation, partnership, person, trust or other entity or group (other than the Buyer and its affiliates and representatives) concerning the sale of stock of the Company or the Management Subsidiary or any of their respective assets or any merger, consolidation, recapitalization, liquidation or similar transaction involving the Company or the Management Subsidiary. This Section 5.11 shall not be considered to limit any rights or remedies the Buyer may have a result of a breach of this Agreement by the Shareholder. ARTICLE 6 Conditions Precedent to Obligations of the Buyer Subject to waiver as set forth in Section 8.6, the obligations of the Buyer under this Agreement are subject to the fulfillment prior to or at the Closing of each of the following conditions: 6.1 Representations and Warranties. The representations and warranties of the Shareholder set forth in Article 3 shall be true and correct in all material respects on the Closing Date with the same effect as if made at that time. 6.2 Performance by the Shareholder. The Shareholder shall have performed and satisfied in all material respects all agreements and conditions which it is required by this Agreement to perform or satisfy prior to or on the Closing Date. 6.3 Certificates. The Buyer shall have received certificates from the Shareholder dated the Closing Date certifying in such detail as the Buyer may reasonably request that each of the conditions described in Sections 6.1 and 6.2 has been fulfilled. 6.4 Intentionally Omitted. 6.5 Litigation Affecting Closing. No Court Order shall have been issued or entered which prohibits the completion of the Acquisition. 6.6 Regulatory Compliance and Approvals. All approvals required under any Regulations to carry out the Acquisition shall have been obtained and the Company and the Shareholder shall have complied in all material respects with all Regulations applicable to the Acquisition. 6.7 Consents. The Shareholder or the Company shall have delivered to the Buyer all consents required to be obtained in connection with the Acquisition in order to avoid a Default under any material Contract to or by which the Company is a party or may be bound. 6.8 Financing. The Buyer and Prudential Capital Group shall have entered into a definitive agreement reflecting the terms of the Prudential Commitment Letter and the Prudential Capital 12 Group shall be prepared to fund the loan provided for thereby in the amount of $63,000,000 contemporaneously with the Closing. 6.9 Special Committee. A committee of independent directors of the Company which will exclude all directors who are employees of the Shareholder, the Company or their affiliates (the "Special Committee") shall have approved on behalf of the Master Partnership (i) the form of opinion of Morgan, Lewis & Bockius LLP relating to the satisfaction by the Buyer of the Company's capital requirement in compliance with Sections 17.6 and 19.1 of the Master Partnership Agreement after giving effect to the cancellation of the Demand Notes and (ii) the Buyer's employee stock ownership plan as a fringe benefit, the cost of which may be reasonably allocated to the Partnership pursuant to Section 7.4 of the Master Partnership Agreement. ARTICLE 7 Conditions Precedent to Obligations of the Shareholder Subject to waiver as set forth in Section 8.6, the obligations of the Shareholder under this Agreement are subject to the fulfillment prior to or at the Closing of each of the following conditions: 7.1 Buyer Representations True at Closing. The representations and warranties of the Buyer set forth in Article 4 shall be true and correct in all material respects on the Closing Date with the same effect as if made at that time. 7.2 Performance by the Buyer. The Buyer shall have performed and satisfied all agreements and conditions which it is required by this Agreement to perform or satisfy prior to or on the Closing Date. 7.3 Officer's Certificate. The Shareholder shall have received a certificate from an appropriate officer of the Buyer dated the Closing Date certifying in such detail as the Shareholder may reasonably request that each of the conditions described in Sections 7.1 and 7.2 has been fulfilled. 7.4 Demand Notes. The Shareholder shall have been released from its obligations under the Demand Notes, and the Buyer shall have provided for capitalization of the Company in the amount of at least $6 million. 7.5 Incumbency Certificate. The Shareholder shall have received a certificate of the Secretary or an Assistant Secretary of the Buyer dated the Closing Date certifying to the incumbency of the officers of the Buyer signing for it and as to the authenticity of their signatures. 7.6 Opinion of Counsel. The Shareholder shall have received the written opinion dated the Closing Date of Morgan, Lewis & Bockius LLP, counsel for the Buyer, in form and substance reasonably satisfactory to the Shareholder. 7.7 Litigation Affecting Closing. No Court Order shall have been issued or entered which would be prohibits the completion of the Acquisition. No person who or which is not a party to this Agreement shall have commenced or threatened to commence any Litigation seeking to restrain or prohibit, or to obtain substantial damages in connection with, this Agreement or the transactions contemplated by this Agreement. 7.8 Regulatory Compliance and Approval. All approvals required under any Regulations to carry out the Acquisition shall have been obtained and that the Buyer shall have complied in all material respects with all Regulations applicable to the Acquisition. 13 7.9 Special Committee. The Special Committee shall have approved on behalf of the Master Partnership (i) the form of opinion of Morgan, Lewis & Bockius LLP relating to the satisfaction by the Buyer of the Company's capital requirement in compliance with Sections 17.6 and 19.1 of the Master Partnership Agreement after giving effect to the cancellation of the Demand Notes, (ii) cancellation of the Demand Notes effective at the Closing and (iii) the Buyer's employee stock ownership plan as a fringe benefit, the cost of which may be reasonably allocated to the Partnership pursuant to Section 7.4 of the Master Partnership Agreement. ARTICLE 8 Miscellaneous 8.1 No Survival of Representation and Warranties. None of the representations, warranties, covenants and agreements made by each party in this Agreement or in any attachment, Exhibit, certificate, document or list delivered by any such party pursuant hereto or in connection with the Acquisition shall survive the Closing. 8.2 Payment of Expenses. The Buyer shall pay all legal, accounting and other fees and expenses which it incurs in connection with this Agreement and the transactions contemplated hereby, and all legal, accounting and other fees and expenses incurred by the Shareholder in connection with this Agreement shall be paid by the Shareholder (other than expenses and costs incurred for, by or on account of employees of the Company or the Company's auditors and other than expenses and costs, including without limitation reasonable attorney's fees, related to the securing of all requisite Regulatory Approvals, all of which shall be paid by the Company). 8.3 Termination. This Agreement may be terminated before the Closing occurs only as follows: (a) By written consent of the Shareholder and the Buyer; (b) By written notice by the Shareholder to the Buyer at any time after February 22, 1996, unless on or prior thereto the Buyer shall have provided the Shareholder with satisfactory evidence that the Special Committee has approved the matters described in Section 7.9 hereof; (c) By written notice by the Shareholder to the Buyer at any time after February 22, 1996, unless on or prior thereto the Buyer shall have delivered to the Shareholder written confirmation from Prudential Capital Group that the Finance Committee of the Board of Directors of The Prudential Insurance Company of America has authorized Prudential Capital Group to purchase a note or notes in accordance with the Prudential Commitment Letter; (d) By written notice by the Shareholder to the Buyer, at any time after April 15, 1995, except that no such notice may be given under this clause (d) if as of the date of such notice the only condition specified in Article 7 that is not satisfied or able to be satisfied is the condition specified in Section 7.8; or (e) By written notice by the Shareholder or the Buyer to the other at any time after June 30, 1995. 8.4 Brokers' and Finders' Fees. The Shareholder and the Buyer each to the other represents and warrants that all negotiations relative to this Agreement have been carried on by them directly without the intervention of any person, firm, corporation or other entity who or which may be entitled to any brokerage fee or other commission in respect of the execution of this Agreement or the consummation of the transactions contemplated hereby except for (i) Furman Selz LLC, whose fees shall be paid by the Shareholder and (ii) Houlihan, Lokey, Howard & Zukin, Inc., whose fees shall be paid by the Buyer, and each of them shall indemnify and hold the other or any affiliate of them harmless against any and all claims, losses, liabilities or expenses which may be asserted against any 14 of them as a result of any dealings, arrangements or agreements by the indemnifying party with any such person, firm, corporation or other entity. 8.5 Assignment and Binding Effect. This Agreement may not be assigned prior to the Closing by any party hereto without the prior written consent of the other parties. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the Shareholder and by the successors and assigns of the Buyer. 8.6 Waiver. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument executed by such party. 8.7 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally to the address set forth below (to the attention of the person identified below) or sent by facsimile message, Federal Express (or other reputable overnight delivery service) or by registered or certified mail, postage prepaid, as follows: If to the Buyer, to: BMC Acquisition Company 5 Radnor Corporate Center 100 Matson Ford Road Radnor, PA 19087 Attention: A. W. Martinelli With required copies to: Buckeye Management Company If by Federal Express: If by mail: 3900 Hamilton Boulevard P.O. Box 368 Allentown, PA 18103 Emmaus, PA 18049 Attention: Stephen C. Muther, Esquire If to the Shareholder, to: American Financial Group, Inc. One East Fourth Street Cincinnati, OH 45202 Attention: Neil M. Hahl With a required copy to the Corporate Secretary of the Shareholder at the same address. or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have given as of the date so delivered or sent by facsimile message, the day after the date sent when sent by Federal Express (or other reputable overnight delivery service), or, if mailed, three business days after the date so mailed. 8.8 Pennsylvania Law to Govern. This Agreement shall be governed by and interpreted and enforced in accordance with the substantive laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed in that Commonwealth. 8.9 Remedies Not Exclusive. Nothing in this Agreement shall be deemed to limit or restrict in any manner other rights or remedies that any party may have against any other party at law, in equity or otherwise. 15 8.10 No Benefit to Others. The representations, warranties, covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto and the Company and their successors and assigns, and they shall not be construed as conferring and are not intended to confer any rights on any other persons. 8.11 Contents of Agreement. This Agreement sets forth the entire agreement of the parties hereto with respect to the transactions contemplated hereby. This Agreement may not be amended except by an instrument in writing signed by the parties hereto, and no claimed amendment, modification, termination or waiver shall be binding unless in writing and signed by the party against whom or which such claimed amendment, modification, termination or waiver is sought to be enforced. The Shareholder agrees that upon request of the Buyer, it will amend this Agreement and take such other action as may be necessary to modify the structure of the transaction contemplated hereby from a stock purchase to a partial stock purchase and partial stock redemption, except that the Shareholder shall be so obligated only if such modification will not have an adverse effect on the Shareholder or its affiliates. 8.12 Section Headings and Gender. All section headings and the use of a particular gender are for convenience only and shall in no way modify or restrict any of the terms or provisions hereof. Any reference in this Agreement to a Section, Annex or Exhibit shall be deemed to be a reference to a Section, Annex or Exhibit of this Agreement unless the context otherwise expressly requires. 8.13 Cooperation. Subject to the provisions hereof, the parties hereto shall use their reasonable efforts to take, or cause to be taken, such action, to execute and deliver, or cause to be executed and delivered, such additional documents and instruments and to do, or cause to be done, all things necessary, proper or advisable under the provisions of this Agreement and under applicable law to consummate and make effective the transactions contemplated by this Agreement. 8.14 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.15 Counterparts. This Agreement may be executed in two or more counterparts, each of which is an original and all of which together shall be deemed to be one and the same instrument. This Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by all of the parties. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. In Witness Whereof, the parties hereto have duly executed this Agreement as of the date first written above. Pennsylvania Company /s/ Neil M. Hahl By: _________________________________ Title: Senior Vice President BMC Acquisition Company /s/ A.W. Martinelli By: _________________________________ Title: Chairman 16 ANNEX I CERTAIN DEFINED TERMS "Acquisition" means the acquisition of all of the Shares by the Buyer and all related transactions provided for in or contemplated by this Agreement. "Agreement" means this Share Purchase Agreement. "Buyer" means BMC, a Delaware corporation. "Company Material Adverse Effect" shall mean a material adverse change in, or material adverse effect on, the results of operations, financial condition or business of the Company and the Management Subsidiary, taken as a whole; but in any case after application of the proceeds of any insurance or indemnity under any contract or agreement with any third party. "Contract" means any written or oral contract, agreement, lease, instrument or other commitment that is binding on any person or its property under applicable law. "Court Order" means any judgment, decree, injunction, order or ruling of any federal, state or local court or governmental or regulatory body or authority that is binding on any person or its property under applicable law. "Default" means (1) a material breach of or material default under any Contract, (2) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a material breach of or material default under any Contract, or (3) the occurrence of an event that with or without the passage of time or the giving of notice or both would give rise to a right of termination, renegotiation or acceleration under any Contract. "Demand Notes" mean that certain Demand Promissory Note, dated November 18, 1986, in the aggregate principal amount of $24,000,000, by the Shareholder to the Company, and that certain Demand Promissory Note, dated December 23, 1986, in the aggregate principal amount of $4,000,000, by the Shareholder to the Company. "Employee Benefit Plans" means "employee benefit plans" as defined in section 3(3) of ERISA and any other plan, policy, program, practice or arrangement providing benefits to any officer or employee of the Company, the Management Subsidiary, or any dependent or beneficiary thereof, which are now maintained by the Company or the Management Subsidiary, or under which the Company or the Management Subsidiary has any obligation or liability, including, without limitation, all incentive, bonus, deferred compensation, medical, disability, share purchase, unit purchase, retirement or other similar plans, policies, programs, practices or arrangements; provided, however, that such term shall not include (i) any employment agreements entered into by the Company or the Management Subsidiary with their respective employees, or (ii) any regular payroll practices of the Company or the Management Subsidiary. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Insured Losses" shall mean Losses under the Policies and any related loss adjustment expense, including attorney fees and claims administration and handling costs. "IRS" means the Internal Revenue Service. "Liability" means any direct or indirect liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of or by any person (other than endorsements of notes, bills and checks presented to banks for collection or deposit in the ordinary course of business). 17 "Licenses" means licenses, franchises, permits, easements, rights and other authorizations. "Lien" means any mortgage, lien, security interest, pledge, encumbrance, restriction on transferability, defect of title, charge or claim of any nature whatsoever on any property or property interest. "Litigation" means any lawsuit, action, arbitration, administrative or other proceeding, criminal prosecution or governmental investigation or inquiry involving the Company, the Management Subsidiary, their respective businesses or assets, or any Contracts to which the Company or the Management Subsidiary is a party or by which it or any of their respective businesses or assets may be bound. "Loss" or "Losses" shall mean: liabilities, damages, costs, judgments, costs of investigating claims, amounts paid in settlement, interest, penalties, assessments and out-of-pocket expenses (including reasonable attorneys' and auditors' and actuaries' fees) actually incurred. "Master Partnership" means Buckeye Partners, L.P., a Delaware limited partnership. "Master Partnership Agreement" means that certain Amended and Restated Agreement of Limited Partnership of the Master Partnership, dated as of December 23, 1986. "Operating Partnerships" means Buckeye Pipe Line Company, L.P., a Delaware limited partnership, Buckeye Pipe Line Company of Michigan, L.P., a Delaware limited partnership, Buckeye Tank Terminals Company, L.P., a Delaware limited partnership, Everglades Pipe Line Company, L.P., a Delaware limited partnership, and Laurel Pipe Line Company, L.P., a Delaware limited partnership. "Regulation" means any statute, law, ordinance, regulation, order or rule of any federal, state, local or other governmental agency or body or of any other type of regulatory body, including, without limitation, those covering environmental, energy, safety, health, transportation, bribery, recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters. "Retention Levels" shall mean the retention levels specified in the Policies for the respective companies, time periods and types of insurance coverage specified thereon. 18 INDEX OF DEFINED TERMS Acquisition................................................................. 26 Agreement................................................................... 26 Buyer....................................................................... 1 Buyer Documents............................................................. 5 Closing..................................................................... 2 Closing Date................................................................ 2 Code........................................................................ 1 Common Stock................................................................ 1 Company..................................................................... 1 Company Material Adverse Effect............................................. 26 Contract.................................................................... 26 Court Order................................................................. 26 Default..................................................................... 26 Demand Notes................................................................ 26 Employee Benefit Plans...................................................... 26 ERISA....................................................................... 27 Financial Information....................................................... 6 Fixed Income Trust.......................................................... 14 Insured Losses.............................................................. 27 IRS......................................................................... 27 Liability................................................................... 27 Licenses.................................................................... 27 Lien........................................................................ 27 Litigation.................................................................. 27 Loss or Losses.............................................................. 27 Management Subsidiary....................................................... 4 Master DB Trust............................................................. 13 Master Partnership.......................................................... 27 Master Partnership Agreement................................................ 27 Operating Partnerships...................................................... 28 Plan Sponsor................................................................ 13 Policies.................................................................... 14 Prudential Commitment Letter................................................ 6 Purchase Price.............................................................. 2 RASP........................................................................ 13 Regulation.................................................................. 28 Retention Levels............................................................ 28 RIGP........................................................................ 13 Shareholder................................................................. 1 Shareholder Documents....................................................... 3 Shares...................................................................... 1 Special Committee........................................................... 19 Tax Benefits................................................................ 12 Tax Detriments.............................................................. 12
19 SCHEDULE 4.1 (Names of subscribers for common stock) Alfred W. Martinelli C. Richard Wilson Stephen C. Muther Steven C. Ramsey Michael P. Epperly 20 EX-2.2 3 AMENDMENT TO SHARE PURCHASE AGREEMENT EXHIBIT 2.2 AMENDMENT TO SHARE PURCHASE AGREEMENT This Amendment is made as of this 22nd day of March, 1996 by Pennsylvania Company, a Delaware corporation (the "Shareholder") and BMC Acquisition Company, a Delaware corporation (the "Buyer"). Whereas, the Shareholder and the Buyer have entered into a Share Purchase Agreement (the "Agreement") dated as of January 5, 1996 providing for the acquisition of all of the issued and outstanding shares of capital stock of Buckeye Management Company, a Delaware corporation ("Company") by the Buyer from the Shareholder; and Whereas, the Shareholder and the Buyer desire to amend the Agreement as set forth in this Amendment. Now, Therefore, intending to be legally bound, the parties hereto agree as follows: 1. The Shareholder and the Buyer hereby agree that, prior to the Closing, the Buyer may terminate the existing subscription agreements from the persons listed on the form of Schedule 4.1 originally attached to the Agreement and simultaneously enter into a new subscription agreement with Glenmoor Partners, LLP, a Pennsylvania limited liability partnership, to acquire not less than $5,000,000 of common stock of the Buyer on or before the Closing Date. 2. The Shareholder and the Buyer hereby agree that the date "April 15, 1995" in Section 8.3(d) and the date "June 30, 1995" in Section 8.3(e) were intended to be and are hereby amended to be "April 15, 1996" and "June 30, 1996" respectively. 3. The Shareholder and the Buyer hereby agree that Section 8.1 of the Agreement shall be amended to insert the phrase "Except as otherwise specifically set forth in this Agreement in the case of covenants and agreements," at the beginning of such section. 4. Buyer shall use commercially reasonable efforts to obtain as soon as practicable following the Closing Date, but in no event later than August 14, 1996, the release of Shareholder and its affiliates from all surety bonds for which Shareholder or any of its affiliates is a guarantor or an account party, but which relate to the operations of the Company, the Master Partnership and the Operating Partnerships. Shareholder agrees to keep any such surety bonds in place until August 14, 1996, after which time Shareholder or its affiliates may give notice of cancellation with respect to their guaranty. Buyer agrees to indemnify and hold harmless Seller and its affiliates from any loss arising out of such surety bonds. 5. All capitalized terms used in this Amendment but not defined herein shall have the same meaning as such term has in the Agreement. 6. Any provision of this Amendment that is inconsistent with the provisions of the Agreement shall be deemed amended to effectuate the intention of the parties as expressed herein. Every other provision of the Agreement shall remain unchanged and shall remain in full force and effect. 7. This Amendment may be executed in two or more counterparts, each of which is an original, and all of which together shall be deemed to be one and the same instrument. This Amendment shall become binding when one or more counterparts taken together shall have been executed and delivered by both of the parties. It shall not be necessary in making proof of this Amendment or any counterpart hereof to produce or account for any of the other counterparts. In Witness Whereof, the parties hereto have duly executed this Amendment as of the date first written above. Pennsylvania Company /s/ Neil M. Hahl By: _________________________________ Name: Neil M. Hahl Title: Senior Vice President BMC Acquisition Company /s/ C. Richard Wilson By: _________________________________ Name: C. Richard Wilson Title: President 2 EX-3.3 4 AMENDMENT NO. 2 TO AMENDED AGREEMENT EXHIBIT 3.3 AMENDMENT NO. 2 TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BUCKEYE PARTNERS, L.P. This Amendment is made as of this 22nd day of March, 1996 by Buckeye Management Company, a Delaware corporation ("BMC" or the "General Partner"). Whereas, BMC is the general partner of Buckeye Partners, L.P., a Delaware limited partnership (the "Partnership"); Whereas, the Partnership is governed under an Amended and Restated Agreement of Limited Partnership dated as of December 23, 1986, as amended as of July 18, 1995 (the "Partnership Agreement"); Whereas, Pennsylvania Company, the owner of all of the outstanding shares of capital stock of the General Partner (the "Shares") has agreed to sell the Shares to BMC Acquisition Company, a company owned by certain investors including management of the General Partner and an employee stock ownership plan (the "ESOP") to be formed for the benefit of the employees of the General Partner and its subsidiary; Whereas, the Board of Directors of BMC has determined, and a special committee of disinterested directors of the Board of Directors of BMC, on behalf of the Partnership (the "Special Committee"), has agreed (i) in order to facilitate a loan to the ESOP (the "ESOP Loan"), to amend Section 13.1 of the Partnership Agreement to extend the period of time in which BMC has agreed to act as general partner of the Partnership, (ii) to amend Section 13.2 of the Partnership Agreement to conform with the Amended and Restated Incentive Compensation Agreement of even date herewith, which amended and restated the Distribution Support, Incentive Compensation and APU Redemption Agreement, dated as of December 15, 1986 and amended as of July 18, 1995 (the "Distribution Support Agreement") and (iii) to amend Section 17.6 of the Partnership Agreement to reduce the required net worth of the General Partner and the Manager, after giving effect to any Restricted Payment, from $23,000,000 to $5,000,000; Whereas, Section 15.1 of the Partnership Agreement provides that the General Partner may amend any provision of the Partnership Agreement without the consent of the limited partners of the Partnership to reflect any change that in the good faith opinion of the General Partner does not adversely affect such limited partners in any material respect; and Whereas, the General Partner has determined that this Amendment does not adversely affect the limited partners of the Partnership in any material respect. Now Therefore, intending to be legally bound, the Partnership Agreement is hereby amended as follows: 1. The first sentence of Section 13.1(a) of the Partnership Agreement is hereby amended in its entirety as follows: BMC agrees to continue to act as General Partner of the Partnership until the later of (i) the date which is twenty-five years after the Time of Delivery or (ii) the date the ESOP Loan is paid in full, subject to BMC's right to transfer all of its GP Units pursuant to Section 11.1. 2. A new sentence is hereby added following the first sentence of Section 13.2 of the Partnership Agreement as follows: The fair market value of the GP Units shall include the value of the right to receive incentive compensation pursuant to the Distribution Support Agreement or any other agreement between the Partnership and the General Partner in effect on the date the successor General Partner is so admitted. 3. All references to the amount $23,000,000 in Section 17.6 are hereby amended to be $5,000,000. 4. All terms used herein but not otherwise defined herein shall have the meaning set forth for such terms in the Partnership Agreement. 5. Any provision of the Partnership Agreement which is inconsistent with the provisions of this Amendment shall be deemed amended to effectuate the intention expressed herein. Every other provision of the Partnership Agreement shall remain unchanged and in full force and effect. 6. This Amendment shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. In Witness Whereof, this Amendment has been executed as of the day and year first above written. Buckeye Management Company, as General Partner /s/ C. Richard Wilson By: _________________________________ Name: C. Richard Wilson Title: President 2 EX-10.2 5 MANAGEMENT AGREEMENT EXHIBIT 10.2 MANAGEMENT AGREEMENT DATED AS OF MARCH 22, 1996 AMONG BUCKEYE MANAGEMENT COMPANY, BUCKEYE PIPE LINE COMPANY AND GLENMOOR PARTNERS LLP A PENNSYLVANIA LIMITED LIABILITY PARTNERSHIP MANAGEMENT AGREEMENT This Management Agreement (the "Agreement"), dated as of March 22, 1996, is entered into among Buckeye Management Company, a Delaware corporation (the "General Partner"), Buckeye Pipe Line Company, a Delaware corporation ("BPLC") and Glenmoor Partners LLP ("Glenmoor"), a Pennsylvania limited liability partnership. Witnesseth: Whereas, the General Partner owns a 1% general partnership interest in, and serves as sole general partner of, Buckeye Partners, L.P., a publicly traded Delaware limited partnership (the "Partnership"); and Whereas, BPLC owns a 1% general partnership interest in, and serves as sole general partner of, Buckeye Pipe Line Company, 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 (together, the "Operating Partnerships"), and the Partnership owns a 99% limited partnership interest in each such entity; and Whereas, the officers of the General Partner and BPLC, under the supervision of the board of directors of the General Partner and BPLC, respectively, currently manage the Partnership and its Operating Partnerships; and Whereas, on the date hereof, Pennsylvania Company ("Pennco"), a wholly owned subsidiary of American Financial Group, Inc. ("AFG"), has sold all of the issued and outstanding capital stock of the General Partner to BMC Acquisition Company, a newly formed Delaware corporation ("BAC"); and Whereas, the preferred stock of BAC is held by an employee stock ownership plan, whose participants consist of the employees of Glenmoor, the General Partner and BPLC, and the common stock of BAC is held by Glenmoor and certain managers of BPLC; and Whereas, Glenmoor intends to employ all of the executive officers and director-level managers of the General Partner and BPLC; and Whereas, the General Partner and BPLC desire to engage and appoint Glenmoor to provide senior management services to the General Partner and BPLC in accordance with the terms set forth below. Now, Therefore, in consideration of the mutual promises hereinafter set forth and intending to be legally bound, the General Partner, BPLC and Glenmoor hereby agree as follows: ARTICLE I Appointment of Glenmoor The General Partner and BPLC hereby appoint Glenmoor as managing agent, and Glenmoor accepts its appointment by the General Partner and BPLC, to manage the business and affairs of the General Partner and BPLC in the manner which Glenmoor deems appropriate and to perform all management functions currently performed by the officers of the General Partner and BPLC. Management functions to be performed by Glenmoor shall include, among other things, supervision of day-to-day activities, ESOP plan administration, insurance management, risk management, strategic planning and advice regarding corporate and partnership governance issues. Glenmoor agrees to perform such services under the supervision and control of the boards of directors of the General 2 Partner and BPLC. Employees of Glenmoor shall also serve as officers of the General Partner and BPLC, as they may be duly elected from time to time by the boards of directors of the General Partner and BPLC, respectively. ARTICLE II Compensation In consideration for the services to be performed hereunder, the General Partner shall pay Glenmoor an annual management fee, the amount of which shall be approved each year by the disinterested directors of the General Partner. In connection with such annual approval, Glenmoor shall submit to the board of directors of the General Partner an itemized report on the components of the management fee in reasonable detail, consistent with the past practice of AFG. The management fee shall be based on the reimbursement of all costs and expenses (direct or indirect) incurred by Glenmoor which are directly or indirectly related to the capitalization, business or activities of the Partnership and the Operating Partnerships, including the salaries, bonuses and benefits (including without limitation participation in all retirement, savings, welfare, workers' compensation and other benefit plans maintained by the General Partner and BPLC for its employees) of employees of Glenmoor (whether or not such individuals are also partners of Glenmoor) reasonably allocated to the General Partner and BPLC based upon time spent on behalf of the Partnership and the Operating Partnerships. The management fee shall include a "Senior Administrative Charge" of not less than $975,000 to compensate Glenmoor for certain senior management functions (including the services of A.W. Martinelli and E. Varalli) set forth in Article I hereof which were previously provided to the General Partner by AFG and its affiliates. This Senior Administrative Charge component of the management fee shall be specifically approved by the disinterested directors of the General Partner in connection with its annual approval of the management fee. The General Partner and BPLC shall also make contributions to the BMC Acquisition Company Employee Stock Ownership Plan ("ESOP") on behalf of Glenmoor employees who are also officers of the General Partner or BPLC in a manner consistent with contributions to the ESOP on behalf of BPLC employees. The executive officers of BPLC and the General Partner who are employed by Glenmoor will be directly compensated by Glenmoor and, except for the ESOP contributions noted above, will not be separately compensated by the General Partner or BPLC for serving in their officer capacity. In addition to the management fee, the General Partner shall reimburse Glenmoor for any costs arising out of any common and competitive severance agreements between Glenmoor and its employees which have been approved by the appropriate committee of the board of directors of the General Partner and which are triggered by the termination of a Glenmoor employee as an officer of the General Partner or BPLC or the termination of this Agreement by the General Partner. ARTICLE III Outside Activities Glenmoor shall be entitled to and may have business interests and engage in business activities in addition to those relating to the business of the General Partner, BPLC, the Partnership or any Operating Partnership for its 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 General Partner, BPLC, the Partnership or any Operating Partnership; provided, however, that Glenmoor shall not engage in any businesses or activities that are in direct competition with the General Partner, BPLC, the Partnership or any Operating Partnership unless Glenmoor has received prior written consent of the disinterested directors of the General Partner to engage in such competitive activities. Neither the General Partner, BPLC, the Partnership, any Operating Partnership, nor any limited partner of the Partnership, shall have any rights by virtue of this Agreement, or the relationship created hereby, in any such business interests of Glenmoor. 3 ARTICLE IV Liability of Glenmoor; Indemnification 4.01 Liability of Glenmoor. Notwithstanding anything to the contrary in this Agreement, and except to the extent required by applicable law, neither Glenmoor, any person who is or was a partner, employee or agent of Glenmoor, or any person who is or was serving at the request of Glenmoor as a director, officer, partner, trustee, employee or agent of another person (collectively, the "Indemnitees") shall be liable to the General Partner or BPLC for any action taken or omitted to be taken by such Indemnitee, provided that such action was taken 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. 4.02 Indemnification. (a) The General Partner and BPLC shall, to the fullest extent permitted by applicable law, jointly and severally 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 action, suit or proceeding to which such Indemnitee was or is a party or is threatened to be made a party by reason of the Indemnitee's status as (i) a general partner of Glenmoor; (ii) an employee or agent of Glenmoor; or (iii) a person serving at the request of Glenmoor in another entity in similar capacity, and which relates to this Agreement or the property, business, affairs or management of the General Partner or BPLC, provided that the Indemnitee acted in good faith, and the act or omission which is the basis of such demand, claim, action, suit or proceeding does not involve the gross negligence or willful misconduct of such Indemnitee. (b) Expenses (including legal fees and expenses) incurred in defending any proceeding subject to Section 4.02(a) hereof shall be paid by the General Partner or BPLC in advance of the final disposition of such 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 General Partner or BPLC as authorized hereunder. (c) The indemnification provided by Section 4.02(a) hereof shall be in addition to any other rights to which the Indemnitees 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. (d) To the extent commercially reasonable, the General Partner 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, such Indemnitees in connection with the General Partner's and BPLC's activities, whether or not the General Partner or BPLC would have the power to indemnify such Indemnitees against such liability under the provisions of this Agreement. (e) An Indemnitee shall not be denied indemnification in whole or in part under Section 4.02(a) hereof 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 and the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). (f) The provisions of this Article IV are for the benefit of the Indemnitees and their heirs, successors, assigns, administrators and personal representatives, and shall not be deemed to create any rights for the benefit of any other persons. 4 ARTICLE V No Interest Conveyed to Glenmoor This Agreement is a management agreement only and does not convey to Glenmoor any right, title or interest in or to any assets of the General Partner or BPLC, except that Glenmoor shall have and is hereby granted a license to enter upon and use such assets for the purpose of performing its duties and obligations hereunder. ARTICLE VI Term The term of this Agreement shall commence as of the date hereof and shall continue until the earlier of (i) the dissolution and liquidation of the Partnership, (ii) the dissolution and liquidation of Glenmoor or (iii) the removal of the General Partner as general partner of the Partnership. Notwithstanding the foregoing, the General Partner may terminate this Agreement on not less than 180 days' prior written notice upon a determination by the disinterested directors of the General Partner that continuation of this Agreement is not in the best interests of the Partnership; provided, however, that if the General Partner terminates this Agreement pursuant to the foregoing clause for reasons other than the bad faith, gross negligence or willful misconduct of Glenmoor or its partners or employees in connection with a matter material to the Partnership, the General Partner shall pay Glenmoor promptly following the effective date of Glenmoor's termination a termination fee equal to (i) the previous year's Senior Administrative Charge multiplied by three, plus (ii) any amount outstanding pursuant to Article II hereof, including reimbursement of severance obligations arising out of the termination of this Agreement by the General Partner which have been approved by the appropriate committee of the board of directors of the General Partner. ARTICLE VII Reports, Records and Access Glenmoor shall prepare, maintain and furnish all reports, records and information required by the Partnership Agreement. ARTICLE VIII General Provisions 8.01 Address and Notices. Any notice under this Agreement shall be deemed given if received in writing by the General Partner and BPLC at BPLC's principal offices located at 3900 Hamilton Blvd., Allentown, Pennsylvania 18103, or by Glenmoor at its principal offices located at 5 Radnor Corporate Center, 100 Matsonford Road, Radnor, Pennsylvania 19087. 8.02 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. 8.03 Assignment; Binding Effect. This Agreement may not be assigned by Glenmoor without the prior written consent of the disinterested directors of the General Partner. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns. 5 8.04 Entire Agreement. This Agreement constitutes the entire agreement between the parties with regard to management services to be provided by Glenmoor to the General Partner and BPLC and supersedes all prior agreements or understandings between the General Partner, BPLC and Glenmoor or their agents with regard to such services. 8.05 Modification; Waiver. No modification or waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom it is sought to be enforced. 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. No waiver at any time of any provision of this Agreement shall be deemed a waiver of any other provision of this Agreement at that time or a waiver of that or any other provision at any other time. 8.06 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding on the parties hereto. 8.07 Accounting Principles. All financial reports requested to be rendered under this Agreement shall be prepared in accordance with generally accepted accounting principles. 8.08 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. 8.09 Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions. In Witness Whereof, this Agreement has been duly executed by the parties hereto as of the date first above written. Buckeye Management Company /s/ Ernest R. Varalli By: _________________________________ Buckeye Pipe Line Company /s/ Stephen C. Muther By: _________________________________ Glenmoor Partners LLP, a Pennsylvania Limited Liability Partnership /s/ C. Richard Wilson By: _________________________________ 6 EX-10.4 6 AMENDED AND RESTATED INCENTIVE COMPENSATION AGREEMENT EXHIBIT 10.4 AMENDED AND RESTATED INCENTIVE COMPENSATION AGREEMENT This Amended and Restated Incentive Compensation Agreement, dated as of March 22, 1996 (this "Agreement"), is entered into between Buckeye Management Company, a Delaware corporation (the "General Partner"), and Buckeye Partners, L.P., a Delaware limited partnership (the "Partnership"). Whereas, the General Partner, the Partnership and American Financial Group, Inc., previously known as The Penn Central Corporation ("AFG") have entered into a Distribution Support, Incentive Compensation and APU Redemption Agreement, dated as of December 15, 1986, as amended as of July 18, 1995 (the "Agreement"); Whereas, Pennsylvania Company, a wholly owned subsidiary of AFG and the owner of all of the outstanding shares of capital stock of the General Partner (the "Shares"), has agreed to sell the Shares to BMC Acquisition Company, a company to be owned by certain investors including management of the General Partner and an employee stock ownership plan (the "ESOP") for the benefit of the employees of the General Partner and its subsidiary; Whereas, Section 5.8 of the Agreement provides that the Agreement may be amended only after complying with Section 17.4(a) of the Amended and Restated Agreement of Limited Partnership dated as of December 15, 1986, as amended (the "Partnership Agreement"), which provides that, without the prior approval of a two-thirds interest of the limited partners of the Partnership, the General Partner shall not amend the Agreement, unless such amendment does not, in the good faith opinion of the General Partner, adversely affect the limited partners of the Partnership (the "Limited Partners") in any material respect; Whereas, the Board of Directors of the General Partner, on behalf of the General Partner, and a special committee of disinterested directors of the Board of Directors of the General Partner (the "Special Committee"), on behalf of the Partnership, have approved the amendment and restatement of the Agreement in accordance with the terms and conditions set forth below; and Whereas, the Special Committee has further determined that this amended and restated Agreement does not adversely affect the Limited Partners in any material respect. The parties hereto hereby agree as follows: ARTICLE I Definitions Set forth below are definitions of certain capitalized terms used in this Agreement. These definitions are intended to restate the definitions for such terms in the Partnership's Prospectus, dated December 16, 1986 (the "Prospectus"), relating to the initial offering and sale of 12,000,000 LP Units representing limited partnership interests. All capitalized terms used herein and not otherwise defined herein shall have the meanings provided therefor in the Partnership Agreement. 1.1 "Aggregate Target Quarterly Amount" means the Target Quarterly Amount per LP Unit times the number of Units outstanding. 1.2 "Aggregate Target Special Distribution Amount" means the Target Special Distribution Amount times the number of Units outstanding. 1.3 "Available Cash" for any quarter means the Partnership's consolidated cash receipts during such quarter (including, for this purpose, amounts retained as described in clause (b) below during prior quarters and determined by the General Partner, in its sole discretion, to no longer be required to be so retained) less (a) its consolidated cash expenditures during such quarter (other than distributions of Available Cash for the prior quarter and expenditures of amounts received in prior quarters) and (b) such retentions (i) for working capital, anticipated cash expenditures (including capital expenditures and debt service) and contingencies as the General Partner, in its sole discretion, deems appropriate or (ii) as are required by the terms of the Mortgage Note Indenture. 1.4 "IPO Price" is $20.00 per LP Unit. 1.5 "Manager" means Buckeye Pipe Line Company, a wholly-owned subsidiary of the General Partner. 1.6 "Pipe Line Partnership" means the limited partnership subsidiaries of the Partnership, collectively. 1.7 "Quarterly Cash To Be Distributed" for any quarter means the Available Cash for such quarter (excluding cash to be distributed in a Special Distribution) less retentions of Available Cash necessary to pay the General Partner incentive compensation pursuant to this Agreement. 1.8 "Special Cash To Be Distributed" means the cash or fair market value of securities to be distributed in a Special Distribution. 1.9 "Special Distribution" means any special cash distribution to Unitholders in excess of $10 million from the proceeds of a financing, sale of assets or disposition (or a series of related financings, sales of assets or dispositions) or a special distribution of marketable securities with a fair market value in excess of $10 million. 1.10 "Target Quarterly Amount" is $.65 per quarter. 1.11 "Target Special Distribution Amount" means the amount which, together with all amounts distributed per LP Unit prior to the Special Distribution compounded quarterly from the respective dates of distribution to the date of such Special Distribution at the Target Rate, would equal the IPO Price compounded quarterly at the Target Rate from December 23, 1986 to the date of such Special Distribution. 1.12 "Target Rate" is 13% per annum. ARTICLE II Incentive Compensation Agreement 2.1 Quarterly Incentive Compensation. If Quarterly Cash To Be Distributed for any calendar quarter exceeds the Aggregate Target Quarterly Amount, the Partnership shall, subject to Section 2.3, pay the General Partner incentive compensation equal to the sum of (a) 25% of the portion of the Quarterly Cash To Be Distributed which (i) exceeds $.65 per LP Unit and (ii) is not more than $.70 per LP Unit; (b) 30% of the portion of the Quarterly Cash To Be Distributed which (i) exceeds $.70 per LP Unit and (ii) does not exceed $.80 per LP Unit; (c) 40% of the portion of the Quarterly Cash To Be Distributed which (i) exceeds $.80 per LP Unit per quarter and (ii) does not exceed $.90 per LP Unit; and (d) 50% of the portion of the Quarterly Cash To Be Distributed which exceeds $.90 per LP Unit per quarter. 2 2.2 Special Distribution Incentive Compensation. If the Special Cash To Be Distributed in a Special Distribution exceeds the Aggregate Target Special Distribution Amount for such Special Distribution, the Partnership shall, subject to Section 2.3, pay the General Partner, out of Special Cash To Be Distributed, incentive compensation equal to (a) 15% of the portion of the Special Cash To Be Distributed which (i) exceeds 100% of the Aggregate Target Special Distribution Amount and (ii) is not more than 115% of the Aggregate Target Special Distribution Amount, plus (b) 25% of the amount (if any) by which the Special Cash To Be Distributed exceeds 115% of the Aggregate Target Special Distribution Amount. 2.3 Limitation on Incentive Compensation. The General Partner shall not be entitled to incentive compensation at any time pursuant to Section 2.1 and 2.2 to the extent that the aggregate incentive compensation payments and distributions made by the Partnership or the Pipeline Partnership to the General Partner or the Manager after the closing of the offering made by the Prospectus would exceed 10% of the sum of (a) the total distributions made by the Partnership or the Pipeline Partnership to Unitholders and to the Manager as general partner of the Operating Partnership and (b) the total incentive compensation payments made to the General Partner pursuant to Sections 2.1 and 2.2. 2.4 Termination Upon Removal of General Partner. The agreement contained in this Article II shall terminate if the General Partner is removed as general partner of the Partnership pursuant to the Partnership Agreement, effective upon the date of such removal. However, the value of the right to receive incentive compensation as provided in this Article II shall be included in determining the fair market value of the GP Units pursuant to Section 13.2 of the Partnership Agreement. ARTICLE III Miscellaneous 3.1 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. 3.2 Binding Effect; Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.3 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. 3.4 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding on the parties hereto. 3.5 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 3.6 Amendment. This Agreement may be amended only after complying with Section 17.4(a) of the Partnership Agreement. 3 In Witness Whereof, this Amended and Restated Incentive Compensation Agreement has been duly executed by the parties hereto as of the date first above written. Buckeye Management Company /s/ C. Richard Wilson By: _________________________________ Buckeye Partners, L.P. By: Buckeye Management Company, as General Partner /s/ Ernest R. Varalli By: _________________________________ 4 EX-11.1 7 COMPUTATION OF EARNINGS PER UNIT EXHIBIT 11.1 BUCKEYE PARTNERS, L.P. COMPUTATION OF EARNINGS PER UNIT (IN THOUSANDS, EXCEPT FOR UNITS AND PER UNIT AMOUNTS)
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ---------- ---------- ---------- Income from continuing operations before extraordinary charge....................... $ 49,840 $48,086 $41,654 Loss from disposal of discontinued operations................................. -- -- (127) Extraordinary charge on early extinguishment of debt.................................... -- (2,269) (2,161) ---------- ---------- ---------- Net income.................................. $ 49,840 $45,817 $39,366 ========== ========== ========== Primary earnings per Unit: Income from continuing operations before extraordinary charge..................... $ 4.10 $ 3.96 $ 3.43 Loss from disposal of discontinued operations............................... -- -- (0.01) Extraordinary charge on early extinguishment of debt................... -- (0.19) (0.18) ---------- ---------- ---------- Net income................................ $ 4.10 $ 3.77 $ 3.24 ========== ========== ========== Fully-diluted earnings per Unit: Income from continuing operations before extraordinary charge..................... $ 4.10 $ 3.96 $ 3.43 Loss from disposal of discontinued operations............................... -- -- (0.01) Extraordinary charge on early extinguishment of debt................... -- (0.19) (0.18) ---------- ---------- ---------- Net income................................ $ 4.10 $ 3.77 $ 3.24 ========== ========== ========== Average number of Units outstanding: Units outstanding at December 31,......... 12,146,124 12,131,640 12,121,212 Exercise of Options reduced by the number of Units purchased with proceeds (Prima- ry)...................................... 17,387 20,376 18,945 ---------- ---------- ---------- Total Units outstanding--Primary.......... 12,163,511 12,152,016 12,140,157 ========== ========== ========== Units outstanding at December 31,......... 12,146,124 12,131,640 12,121,212 Exercise of Options reduced by the number of Units purchased with proceeds (Fully- diluted)................................. 20,563 20,268 25,589 ---------- ---------- ---------- Total Units outstanding--Fully-diluted.... 12,166,687 12,151,908 12,146,801 ========== ========== ==========
- -------- Although not required to be presented in the income statement under provisions of APB Opinion No. 15, this calculation is submitted in accordance with Regulations S-K item 601(b)(11). EX-21.1 8 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 BUCKEYE PARTNERS, L.P. SUBSIDIARIES OF THE REGISTRANT The following table lists each significant subsidiary of Buckeye Partners, L.P. and its jurisdiction of organization.
JURISDICTION OF SUBSIDIARY ORGANIZATION ---------- ------------ Buckeye Pipe Line Company, L.P. (99% owned)..................... Delaware Buckeye Tank Terminals Company, L.P. (99% owned)................ Delaware Everglades Pipe Line Company, L.P. (99% owned).................. Delaware Laurel Pipe Line Company, L.P. (99% owned)...................... Delaware
EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 DEC-31-1995 16,213 895 16,295 0 1,561 42,236 558,280 48,336 552,646 25,422 214,000 0 0 0 262,185 552,646 0 183,462 0 111,958 0 0 21,710 49,840 0 49,840 0 0 0 49,840 4.10 4.10
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