e424b7
This prospectus
supplement relates to an effective registration statement under
the Securities Act of 1933 but is not complete and may be
changed. This prospectus supplement and the accompanying
prospectus are not an offer to sell these securities and they
are not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
|
Filed
Pursuant to Rule 424(b)(7)
Registration No. 333-170569
Subject
to Completion
Preliminary Prospectus Supplement dated January 27,
2011
PROSPECTUS
SUPPLEMENT
(To prospectus dated December 10, 2010)
Buckeye Partners,
L.P.
4,250,000 Limited Partnership
Units
The selling unitholder, BGH GP Holdings, LLC, is selling
4,250,000 limited partnership units representing limited partner
interests, or LP Units, in us. BGH GP Holdings, LLC is currently
the owner of approximately 14% of all of our units. We will not
receive any proceeds from the sale of the LP units by the
selling unitholder in the offering.
The LP units are listed on the New York Stock Exchange under the
symbol BPL. On January 26, 2011, the last
reported sale price of our LP units on the New York Stock
Exchange was $66.86 per unit.
Investing in our limited partnership units involves risks.
See Risk Factors beginning on
page S-5
of this prospectus supplement and on page 3 of the
accompanying base prospectus.
|
|
|
|
|
|
|
|
|
|
|
Per Unit
|
|
Total
|
|
Public offering price
|
|
|
$
|
|
|
|
$
|
|
Underwriting discount
|
|
|
$
|
|
|
|
$
|
|
Proceeds to the selling unitholder (before expenses)
|
|
|
$
|
|
|
|
$
|
|
The underwriters may also exercise their option to purchase up
to an additional 637,500 limited partnership units from the
selling unitholder, at the public offering price, less the
underwriting discount, for 30 days after the date of this
prospectus supplement to cover overallotments, if any.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or the adequacy of this prospectus
supplement or the accompanying base prospectus. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the limited partnership units
on or about February , 2011.
Joint Book-Running Managers
The date of this prospectus supplement is
January , 2011.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
Prospectus Supplement
|
|
|
|
S-1
|
|
|
|
|
S-4
|
|
|
|
|
S-5
|
|
|
|
|
S-9
|
|
|
|
|
S-9
|
|
|
|
|
S-9
|
|
|
|
|
S-10
|
|
|
|
|
S-11
|
|
|
|
|
S-12
|
|
|
|
|
S-12
|
|
|
|
|
S-13
|
|
|
|
|
S-15
|
|
|
|
|
S-21
|
|
|
|
|
S-21
|
|
|
|
|
S-21
|
|
|
|
|
|
|
|
|
Page
|
|
Base Prospectus
|
About This Prospectus
|
|
|
1
|
|
Buckeye Partners, L.P.
|
|
|
1
|
|
Where You Can Find More Information
|
|
|
2
|
|
Information We Incorporate by Reference
|
|
|
2
|
|
Risk Factors
|
|
|
3
|
|
Forward-Looking Statements
|
|
|
4
|
|
Use of Proceeds
|
|
|
4
|
|
Description of the Limited Partnership Units
|
|
|
4
|
|
How We Make Cash Distributions
|
|
|
5
|
|
Our Amended and Restated Partnership Agreement
|
|
|
6
|
|
Material U.S. Federal Income Tax Consequences
|
|
|
14
|
|
Legal Matters
|
|
|
29
|
|
Experts
|
|
|
29
|
|
Selling Unitholders
|
|
|
29
|
|
Plan of Distribution
|
|
|
29
|
|
This document is in two parts. The first part is this prospectus
supplement, which describes our business and the specific terms
of this offering. The second part is the accompanying base
prospectus, which gives more general information, some of which
may not apply to this offering. Generally, when we refer only to
the prospectus, we are referring to both parts
combined. If information in this prospectus supplement conflicts
with information in the accompanying base prospectus, you should
rely on the information in this prospectus supplement.
You should rely only on the information contained in or
incorporated by reference in this prospectus supplement and the
accompanying base prospectus and in any free writing prospectus
prepared by us or on our behalf. We, the selling unitholder, and
the underwriters have not authorized anyone to provide you with
different information. No offer of the LP units is being made in
any state where the offer is not permitted. You should not
assume that the information contained in this prospectus
supplement or the accompanying base prospectus or the
information we have previously filed with the Securities and
Exchange Commission that is incorporated by reference herein is
accurate as of any date other than its respective date.
S-ii
SUMMARY
You should carefully read the entire prospectus supplement,
the accompanying base prospectus and the other documents
incorporated by reference to understand fully the terms of the
limited partnership units, as well as the tax and other
considerations that are important in making your investment
decision. Unless otherwise indicated, the information in this
prospectus supplement assumes that the underwriters do not
exercise their option to purchase additional limited partnership
units.
For purposes of this prospectus supplement and the
accompanying base prospectus, unless otherwise indicated, the
terms Partnership, Buckeye, us,
we, our and similar terms refer to
Buckeye Partners, L.P., together with our subsidiaries. The
terms selling unitholder or Holdings LLC
refers to BGH GP Holdings, LLC, and the term
Holdings refers to Buckeye GP Holdings, L.P.
References to Buckeye GP, the general
partner or our general partner refer to our
subsidiary Buckeye GP LLC, which is the general partner of the
Partnership. Substantially all of the information presented
herein regarding Bahamas Oil Refining Company International
Limited, or BORCO, is based on information provided to us by
affiliates of FRC Founders Corporation, or First Reserve, in
connection with our acquisition of an 80% indirect interest in
BORCO.
Buckeye
Partners, L.P.
About
the Partnership
We are a publicly traded master limited partnership organized in
1986 under the laws of the State of Delaware. The original
Buckeye Pipe Line Company was founded in 1886 as part of the
Standard Oil Company and became a publicly owned, independent
company after the dissolution of Standard Oil in 1911. Expansion
into petroleum products transportation after World War II
and acquisitions ultimately led to Buckeye Pipe Line Company
becoming a leading independent common carrier pipeline. In 1964,
Buckeye Pipe Line Company was acquired by a subsidiary of the
Pennsylvania Railroad, which later became the Penn Central
Corporation. In 1986, we were created through the reorganization
of Buckeye Pipe Line Company into a master limited partnership,
Buckeye Partners, L.P. We are publicly traded on the New York
Stock Exchange (NYSE: BPL). Buckeye GP LLC, a Delaware limited
liability company and our subsidiary, is our general partner.
We have one of the largest independent refined petroleum
products pipeline systems in the United States in terms of
volumes delivered with approximately 5,400 miles of
pipeline and 69 active products terminals that provide aggregate
storage capacity of over 53 million barrels. We recently
closed the acquisition of an 80% interest in a Bahamian terminal
facility with a total installed capacity of 21.6 million
barrels. In addition, we operate and maintain approximately
2,400 miles of other pipelines under agreements with major
oil and gas, petrochemical and chemical companies and perform
certain engineering and construction management services for
third parties. We also own a major natural gas storage facility
in northern California and market refined petroleum products in
certain of the geographic areas served by our pipeline and
terminalling operations. We operate and report in five business
segments: Pipeline Operations; Terminalling & Storage;
Natural Gas Storage; Energy Services; and
Development & Logistics.
Recent
Developments
Acquisition of Buckeye GP Holdings L.P. On
November 19, 2010, we completed the acquisition of all of
the limited partnership and economic interests in Buckeye GP
Holdings L.P., through which we own our general partner. As part
of the acquisition, the incentive compensation agreement (also
referred to as the incentive distribution rights) previously
held by our general partner was extinguished, and the general
partner units previously held by our general partner
(representing an approximate 0.5% general partner interest in
us) were converted to a noneconomic interest. Buckeye GP
Holdings unitholders received aggregate consideration of
approximately 20 million LP units.
S-1
Acquisition of BORCO. On January 18,
2011, we completed the previously announced acquisition of an
indirect 80% interest in FR Borco Coop Holdings, L.P., or FRBCH,
the indirect owner of BORCO, from First Reserve, for an
aggregate purchase price of $1.36 billion. We paid First
Reserve $644 million in cash and $400 million of newly
issued LP Units and Class B Units. In addition, we used
approximately $63 million to pay applicable Bahamian
transfer taxes, approximately $320 million to repay
existing indebtedness of a subsidiary of FRBCH, approximately
$18 million to make certain payments to BORCOs
operator and indirect minority owner and bonuses to employees
that became payable as a result of the transaction and
approximately $9 million to pay certain fees and expenses
incurred by FRBCH and its affiliates in connection with the
transaction.
To finance the cash portion of the purchase price and related
cash expenditures, on January 13, 2011, we issued
$650 million principal amount of 4.875% senior notes
due 2021 and, on January 18 and 19, 2011, we issued LP units and
Class B units to institutional investors for aggregate
consideration of approximately $425 million. The
Class B units represent a separate class of limited
partnership interests from the LP units, but share equally with
the LP units with respect to the payment of distributions. We
have the option to pay distributions on the Class B units
with cash or by issuing additional Class B units. The
Class B units will convert into LP units on a
one-for-one
basis on the earlier of (a) the date on which at least
4 million barrels of incremental storage capacity are
placed in service by BORCO or (b) January 18, 2014.
On January 14, 2011, Vopak Bahamas B.V., or Vopak, the
owner of the remaining 20% interest in FRBCH, exercised its tag
right to sell its 20% interest to us. The sale will be at the
same proportionate price and on the same terms and conditions as
those on which we purchased the 80% indirect interest in FRBCH
from First Reserve, including the same forms of consideration.
We expect to finance the cash portion of the purchase of the
Vopak interest of approximately $168 million with
borrowings under our credit facility. The closing of our
acquisition of the Vopaks 20% interest in FRBCH is subject
to the negotiation of definitive documentation and the
satisfaction of the customary closing conditions contained
therein.
Pursuant to the two registration rights agreements, each dated
December 18, 2010, we are required to file a shelf
registration statement by February 2, 2011 to register the
4,382,889 Class B Units and the 2,483,444 LP Units
purchased by First Reserve and 1,314,870 Class B units and
5,794,725 LP units purchased by institutional investors
described above. We expect to enter into a registration rights
agreement with Vopak in connection with the exercise of its tag
right. Once registered, these units will be transferrable
without restriction or further registration under the Securities
Act. Neither First Reserve nor such institutional investors have
entered into
lock-up
agreements in connection with this offering. The sale by First
Reserve, such institutional investors, or the selling unitholder
of our LP units or Class B units, or the perception that
such sales could occur, could have a material adverse effect on
the price of our units or could impair our ability to obtain
capital through an offering of equity securities. Please read
Certain Units Eligible for Future Sale and
Risk Factors The market price of our LP units
could be adversely affected by sales of substantial amounts of
our units in the public or private markets, including sales by
the selling unitholder or other large holders.
BORCO owns a terminal facility located along the Northwest
Providence Channel of The Grand Bahama Island, which it uses to
operate a fully integrated terminalling business and offers
customers storage, berthing, heating, transshipment, blending,
treating, bunkering and other ancillary services.
BORCOs terminal facility includes 80 aboveground storage
tanks ranging in capacity from 5,000 to 500,000 barrels
with a total installed capacity of 21.6 million barrels.
Presently 66 of the 80 tanks are available to serve third
parties, and 14 of the tanks (representing only 0.2 million
barrels) are dedicated for BORCOs own use. Of the 66 tanks
available to serve third parties, 10 are currently used for the
storage of crude oil, 43 are used for the storage of fuel oil,
and 13 are used for the storage of clean petroleum products,
such as gasoline, diesel and certain other distillates. Six of
the tanks currently used for crude oil can be converted between
crude oil service and fuel oil service. BORCO is prepared to
undertake a significant expansion project, which we expect will
be phased in over the next two to three years and will add
approximately 7.5 million barrels of petroleum product
storage, increasing total storage capacity to more than
S-2
29 million barrels. The new tankage is expected to be
constructed with the flexibility to store fuel oil, clean
petroleum products or crude oil. The facility site also has
additional unused land available for future expansions, with
room to install approximately 13 million barrels of
incremental storage capacity, and there is an opportunity to
optimize the configuration of a portion of the existing tank
area to add approximately 3 million barrels of incremental
storage capacity. When the expansion project is completed and if
additional storage is installed on the unused land, the total
facility storage capacity could be increased to as much as
45 million barrels.
Business
Strategy
Our primary business objective is to provide stable and
sustainable cash distributions to our unitholders while
maintaining a relatively low investment risk profile. Our
business strategy to accomplish this objective is to:
|
|
|
|
|
Maximize utilization of our assets at the lowest cost per unit;
|
|
|
|
Maintain stable long-term customer relationships, including by
providing superior customer service;
|
|
|
|
Operate in a safe and environmentally responsible manner;
|
|
|
|
Optimize, expand and diversify our portfolio of energy
assets; and
|
|
|
|
Maintain a solid, conservative financial position and our
investment-grade credit rating.
|
Executive
Offices and Ownership
Our principal executive offices are located at One Greenway
Plaza, Suite 600, Houston, Texas 77046, and our telephone
number is
(832) 615-8600.
The following table reflects our ownership as of
January 25, 2011 after giving effect to this offering and
assuming the underwriters do not exercise their option to
purchase additional LP units from the selling unitholder. The
row titled Public Unitholders includes certain of
our directors and officers, as well as the institutional
investors that purchased LP units and Class B units in
connection with our funding of the BORCO Acquisition.
Ownership
of Buckeye Partners, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
LP Units
|
|
|
Class B Units
|
|
|
Ownership
|
|
|
Public Unitholders
|
|
|
68,229,734
|
|
|
|
1,314,870
|
|
|
|
81.4
|
%
|
Buckeye Pipe Line Services Company
|
|
|
1,501,120
|
|
|
|
|
|
|
|
1.8
|
%
|
BGH GP Holdings, LLC
|
|
|
7,512,623
|
|
|
|
|
|
|
|
8.8
|
%
|
First Reserve
|
|
|
2,483,444
|
|
|
|
4,382,889
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,726,921
|
|
|
|
5,697,759
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-3
THE
OFFERING
|
|
|
LP units offered by the selling unitholder |
|
4,250,000 limited partnership units. |
|
|
|
4,887,500 limited partnership units if the underwriters exercise
their option to purchase additional limited partnership units in
full. |
|
Units to be outstanding before and after this offering* |
|
79,726,921 LP units and 5,697,759 Class B units. |
|
Use of proceeds |
|
We will not receive any proceeds from the sale of the LP units
by the selling unitholder in this offering. |
|
Cash distributions |
|
Cash distributions are made on our units on a quarterly basis.
Cash distributions on our units are generally paid within
60 days after the end of each fiscal quarter. We expect
that the first distribution payable to the purchasers of the
limited partnership units offered hereby will be paid in
February, 2011. |
|
Estimated ratio of taxable income to distributions |
|
We estimate that if you purchase limited partnership units in
this offering and own them through the record date for the
distributions for the period ending December 31, 2013, then
you will be allocated, on a cumulative basis, an amount of
federal taxable income for that period that will be less than
20% of the amount of cash distributed to you with respect to
that period. For the basis of this estimate, please read
Tax Considerations in this prospectus supplement. |
|
New York Stock Exchange symbol |
|
BPL |
|
|
|
* |
|
Excludes 1,500,000 LP units reserved for issuance under our
Long-Term Incentive Plan and 241,800 outstanding LP unit options
awarded employees pursuant to the Buckeye Partners, L.P. Unit
Option and Distribution Equivalent Plan. |
S-4
RISK
FACTORS
You should carefully consider the risk factors described
below, the risk factors beginning on page 27 of our Annual
Report on
Form 10-K
for the year ended December 31, 2009 and on page 57 of
our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010, as well as the risk
factors relating to our business under the caption Risk
Factors beginning on page 3 of the accompanying base
prospectus, before making an investment decision. These risks
are not the only ones we face. Additional risks not presently
known to us or that we currently deem immaterial may also impair
our business operations. Our business, financial condition or
results of operations could be materially adversely affected by
any of these risks. You should consider carefully these risk
factors together with all of the other information included in
this prospectus supplement, the accompanying base prospectus and
the documents we have incorporated by reference in this document
before investing in our limited partnership units.
Risks
Relating to the BORCO Acquisition and Our Business
The
representations, warranties, and indemnifications made by each
of First Reserve and Vopak are limited in the BORCO sale and
purchase agreements and our diligence of BORCO has been limited;
as a result, the assumptions on which our estimates of future
results of BORCO have been based may prove to be incorrect in a
number of material ways, resulting in us not realizing the
expected benefits of the BORCO acquisition.
The representations and warranties made by each of First Reserve
and Vopak are limited in the BORCO sale and purchase agreements
and our diligence of BORCO has been limited. In addition, the
sale and purchase agreements do not provide any indemnities
other than for breaches of First Reserves and Vopaks
obligations to pay certain fees, transfer taxes and expenses and
for certain breaches of representations and warranties of First
Reserve and Vopak. As a result, the assumptions on which our
estimates of future results of BORCO have been based may prove
to be incorrect in a number of material ways, resulting in us
not realizing our expected benefits of the BORCO acquisition,
including anticipated increased cash flow.
We may not be able to achieve our current expansion plans for
BORCO on economically viable terms, if at all. Our current
expansion plans include the addition of approximately
7.5 million barrels of flexible petroleum product storage,
expected to be phased in over the next two to three years. In
connection with this expansion effort, we may encounter
difficulties. These risks include the following:
|
|
|
|
|
unexpected operational events;
|
|
|
|
adverse weather conditions;
|
|
|
|
inadequate customer demand for, or interest in, flexible storage;
|
|
|
|
regulatory hurdles;
|
|
|
|
any rights Vopak may have to block certain decisions relating to
our expansion plans;
|
|
|
|
facility or equipment malfunctions or breakdowns;
|
|
|
|
a shortage of skilled labor; and
|
|
|
|
risks associated with subcontractors services, supplies,
cost escalation and personnel.
|
S-5
Financing
the BORCO acquisition substantially increased our
leverage.
Our total outstanding indebtedness as of January 24, 2010
was approximately $2.43 billion. The increase in our
indebtedness may reduce our flexibility to respond to changing
business and economic conditions or to fund capital expenditures
or working capital needs.
The
acquisition of BORCO could expose us to additional unknown and
contingent liabilities.
The acquisition of BORCO could expose us to additional unknown
and contingent liabilities. The BORCO facility was constructed
between 1968 and 1975 and was initially constructed and designed
to operate as a refinery which was permanently shut down in
1985. We have performed a certain level of diligence in
connection with the acquisition of BORCO and have attempted to
verify the representations made by First Reserve and Vopak, but
there may be unknown and contingent liabilities related to BORCO
of which we are unaware. First Reserve and Vopak have not agreed
to indemnify us for losses or claims relating to the operation
of the business or otherwise except for breaches of First
Reserves and Vopaks obligations to pay certain fees,
transfer taxes and expenses and for certain breaches of
representations and warranties of First Reserve and Vopak. We
could be liable for unknown obligations relating to BORCO for
which indemnification is not available, which could materially
adversely affect our business, results of operations and cash
flow.
BORCO
depends on a limited number of customers for substantially all
of its revenue, and the loss of any of them could adversely
affect our results of operations and cash flow.
Storage revenue represented approximately 80% of BORCOs
total revenue for the nine months ended September 30, 2010.
Currently, BORCO has a limited number of long-term storage
customers, consisting of oil majors, energy companies, physical
traders and one national oil company. For the nine months ended
September 30, 2010, approximately 30% and 69% of storage
revenue was derived from the top one and the top three
customers, respectively. We expect BORCO to continue to derive
substantially all of its total revenue from a small number of
customers in the future. BORCO may be unsuccessful in renewing
its storage contracts with its customers, and those customers
may discontinue or reduce contracted storage from BORCO. If any
of BORCOs customers, in particular its top three
customers, significantly reduces its contracted storage with
BORCO and if BORCO is unable to find other storage customers on
terms substantially similar to the terms under BORCOs
existing storage contracts, our business, results of operations
and cash flow could be adversely affected.
If the
Vopak transaction does not close, we will not own 100% of BORCO
and Vopak may be able to prevent certain business decisions
relating to BORCO.
Vopak currently owns a 20% equity interest in BORCO. On
January 14, 2011, Vopak notified BORCO and First Reserve in
writing that it has elected to exercise its right to sell its
20% equity interest to Buckeye on the same terms and conditions
provided to First Reserve. While the Partnership expects the
acquisition of Vopaks interest to close as promptly as
definitive documentation can be executed and the closing
conditions satisfied, there can be no assurance that the Vopak
transaction will close. If the Vopak transaction does not close,
we will not own 100% of BORCO and Vopak may be able to prevent
certain business decisions relating to BORCO. For example, Vopak
would have the ability to block approval of the annual budget,
certain capital expenditure projects and budget modifications,
certain incurrences of debt, certain sales and acquisitions, the
hiring and removal of the BORCO CEO/general manager and the
entry or termination of certain contracts. In addition, any
disagreement that we may have with Vopak as operator of BORCO
could cause an adverse effect on BORCO and, thereby, our results
of operations and cash flow.
S-6
BORCO
is currently exempt from Bahamian taxation. If BORCOs tax
status in The Bahamas were to change, such that BORCO has more
tax liability than we anticipate, our cash flow could be
materially adversely affected.
BORCO is currently exempt from income and property tax in The
Bahamas pursuant to concessions granted under the Hawksbill
Creek Agreement between the Government of the Bahamas and the
Grand Bahama Port Authority. BORCOs exemption from
Bahamian taxation pursuant to the Hawksbill Creek Agreement is
scheduled to expire in 2015. If the Bahamian governmental
authorities do not extend the concessions under the Hawksbill
Creek Agreement or BORCOs tax status in The Bahamas were
to otherwise change, such that BORCO has more tax liability than
we anticipate, our cash flow could be materially adversely
affected.
A
substantial amount of the petroleum products handled by BORCO
are exported from Venezuela, which exposes us to political
risks.
A substantial portion of BORCOs revenues relate to
petroleum products exported from Venezuela by Petróleos de
Venezuela, S.A. (commonly referred to as PDVSA). This
involvement with products exported from Venezuela exposes BORCO
to significant risks, including potential political and economic
instability and trade restrictions and economic embargoes
imposed by the United States and other countries.
Hurricanes
could damage BORCOs facilities or disrupt BORCOs
operations or the operations of its customers, which could have
a material adverse effect on our business, financial results and
cash flow.
BORCOs operations could be impacted by severe weather
conditions such as hurricanes. Any such event could cause a
serious business disruption or serious damage to the BORCO
facilities, which could affect BORCOs ability to provide
terminalling services. Additionally, such events could impact
BORCOs customers, and they may be unable to utilize
BORCOs services. Any such occurrence could have a material
adverse effect on our business, financial results and cash flow.
BORCO
may be adversely affected by economic, political and regulatory
developments.
BORCOs terminal facility is located in The Bahamas. As a
result, we are exposed to the risks of international operations,
including political, economic and regulatory developments and
changes in laws or policies affecting our terminal operations,
as well as changes in the policies of the United States
affecting trade, taxation and investment in other countries. Any
such developments or changes could have a material adverse
effect on our business, results of operations and cash flow.
Compliance with laws and regulations that apply to BORCO
increases the cost of doing business and could interfere with
our ability to offer services or expose us to fines and
penalties. These numerous laws and regulations include the
Foreign Corrupt Practices Act and local laws prohibiting corrupt
payments to government officials or agents. Although policies
designed to fully ensure compliance with these laws are in place
or under development, employees, contractors, or agents may
violate the policies. Any such violations could include
prohibitions on BORCOs ability to offer its services and
could have a material adverse effect on our business, financial
results and cash flow.
The
market price of our LP units could be adversely affected by
sales of substantial amounts of our units in the public or
private markets, including sales by the selling unitholder or
other large holders.
After this offering, we will have 79,726,921 LP units and
5,697,759 Class B units outstanding, The 7,512,623 LP units
(6,875,123 LP Units if the underwriters exercise their option to
purchase additional LP units in full) that will be held by the
selling unitholder after this offering will be subject to resale
restrictions under a 60-day
lock-up
agreement with the underwriters. Each of the
lock-up
agreements with the underwriters may be waived in the discretion
of the representatives of the underwriters. Upon the expiration
of
S-7
the lock-up
agreement, the LP units held by the selling unitholder will be
transferrable without further restriction or registration under
the Securities Act. In addition, we have agreed to register for
resale the LP units and Class B units issued to each of
First Reserve and the institutional investors in connection with
our acquisition of an 80% indirect interest in FRBCH. Sales by
the selling unitholder, First Reserve, the institutional
investors or other large holders of a substantial number of our
LP units or Class B units in the public or private markets
following this offering, or the perception that such sales might
occur, could have a material adverse effect on the price of our
units or could impair our ability to obtain capital through an
offering of equity securities. See Certain Units Eligible
for Future Sale.
We are
a holding company and depend entirely on our subsidiaries
distributions to pay cash distributions to our
unitholders.
We are a holding company with no material operations. If we do
not receive cash distributions from our subsidiaries, we will
not be able to make cash distributions to our unitholders. Among
other things, this would adversely affect the market price of
our LP units. We are currently bound by the terms of a credit
facility which prohibits us from making distributions to our
unitholders if a default under the credit facility exists at the
time of the distribution or would result from the distribution.
Approval from the Central Bank of the Bahamas will be required
before BORCO can make distributions to us. Our subsidiaries may
from time to time incur indebtedness under agreements that
contain restrictions which could limit each subsidiarys
ability to make distributions to us.
S-8
USE OF
PROCEEDS
We will not receive any proceeds from the sale of the LP units
by the selling unitholder in this offering.
SELLING
UNITHOLDER
The following table sets forth information concerning the
selling unitholder and the number of LP units the selling
unitholder is selling. The selling unitholder acquired the LP
Units offered hereby upon the closing of the transactions
contemplated by the merger agreement between us, our general
partner, Holdings, MainLine Management LLC, and Grand Ohio, LLC,
or MergerCo, in which we acquired Holdings through a merger of
MergerCo with and into Holdings. As of January 25, 2011,
there were 79,726,921 LP units and 5,697,759 Class B units
outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LP units Owned
|
|
|
|
LP Units Owned
|
|
|
Immediately Prior To This
|
|
Units
|
|
Immediately After this
|
|
|
Offering
|
|
offered
|
|
Offering
|
|
|
Number
|
|
Percent (1)
|
|
hereby (2)
|
|
Number
|
|
Percent (1)
|
|
BGH GP Holdings, LLC
|
|
|
11,762,623
|
|
|
|
14
|
%
|
|
|
4,250,000
|
|
|
|
7,512,623
|
|
|
|
8.8
|
%
|
|
|
|
(1) |
|
Percentages include Class B units, which are convertible
into LP units on a
one-to-one
basis. |
|
(2) |
|
A total of 4,887,500 LP units will be sold by the selling
unitholder if the underwriters exercise their option to purchase
additional common units in full. |
The selling unitholder may be deemed to be an
underwriter within the meaning of the Securities Act
of 1933, as amended, or the Securities Act. If the selling
unitholder is deemed to be an underwriter, the selling
unitholder may be subject to certain statutory liabilities under
the Securities Act and the Securities Exchange Act of 1934, as
amended, or the Exchange Act. In addition, in making offers and
sales pursuant to this prospectus supplement and the
accompanying base prospectus, the selling unitholder may be
deemed to be making such offers and sales directly on behalf of
us.
For more information on our relationship with the selling
unitholder, please see the documents incorporated by reference
into this prospectus.
GRANT OF
ADDITIONAL UNITS
IN BGH GP HOLDINGS, LLC
Prior to this offering, BGH GP Holdings, LLC granted additional
units in BGH GP Holdings, LLC, denominated as Value N-1 Units
and Value N-2 Units, to Forrest E. Wylie, our Chairman and Chief
Executive Officer. The Value N-1 Units and Value N-2 Units were
fully vested upon issuance, and, assuming full satisfaction of
all performance criteria, are entitled to share in distributions
made by BGH GP Holdings, LLC up to an aggregate amount of
$8 million if the members of BGH GP Holdings, LLC that are
affiliated with ArcLight Capital Partners, LLC and
Kelso & Company receive a return on their investment
at a multiple equal to or greater than 2.0.
S-9
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 2010 on:
|
|
|
|
|
a consolidated historical basis;
|
|
|
|
a pro forma basis to reflect (i) the acquisition of all of
the economic interest in Buckeye GP Holdings; (ii) the
acquisition of an 80% interest in BORCO; (iii) the issuance
of LP units and Class B units to First Reserve at the
closing of such acquisition; (iv) the private placement of
LP units and Class B units; and (v) the sale on
January 13, 2011 of our 4.875% senior notes due 2021
and the application of the proceeds therefrom.
|
The historical information presented below reflects the cash and
cash equivalents and capitalization of Buckeye GP Holdings, the
surviving consolidated entity for accounting purposes after our
acquisition of Buckeye GP Holdings. This table should be read in
conjunction with our historical consolidated and pro forma
financial statements and the notes to those financial statements
that are incorporated by reference in this prospectus. The pro
forma information presented below does not reflect the pending
acquisition by us of Vopaks 20% interest in FRBCH, which
acquisition is subject to the negotiation of definitive
documentation and the satisfaction of the customary closing
conditions contained therein.
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
|
Buckeye GP
|
|
|
Buckeye
|
|
|
|
Holdings L.P.
|
|
|
Partners, L.P.
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Cash and cash equivalents
|
|
|
$15,922
|
|
|
|
$39,776
|
|
|
|
|
|
|
|
|
|
|
BES Credit Agreement
|
|
|
211,800
|
|
|
|
211,800
|
|
3.60% ESOP Notes due March 28, 2011
|
|
|
3,076
|
|
|
|
3,076
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
4.625% Notes due July 15, 2013
|
|
|
300,000
|
|
|
|
300,000
|
|
5.300% Notes due October 15, 2014
|
|
|
275,000
|
|
|
|
275,000
|
|
5.125% Notes due July 1, 2017
|
|
|
125,000
|
|
|
|
125,000
|
|
6.050% Notes due January 15, 2018
|
|
|
300,000
|
|
|
|
300,000
|
|
5.500% Notes due August 15, 2019
|
|
|
275,000
|
|
|
|
275,000
|
|
6.750% Notes due August 15, 2033
|
|
|
150,000
|
|
|
|
150,000
|
|
4.875% Notes due February 1, 2021
|
|
|
|
|
|
|
650,000
|
|
Credit Facility
|
|
|
20,000
|
|
|
|
20,695
|
|
Other, including unamortized discounts, premiums and fair value
hedge
|
|
|
(3,730
|
)
|
|
|
(10,425
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,656,146
|
|
|
|
2,300,146
|
|
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
Partners capital
|
|
|
238,706
|
|
|
|
2,163,907
|
|
Noncontrolling interests
|
|
|
1,143,855
|
|
|
|
303,108
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
1,382,561
|
|
|
|
2,467,015
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
$3,038,707
|
|
|
|
$4,767,161
|
|
|
|
|
|
|
|
|
|
|
S-10
CASH
DISTRIBUTIONS
The following table sets forth, for the periods indicated, the
quarterly cash distributions paid per LP unit.
|
|
|
|
|
|
|
Cash Distributions
|
|
|
per unit (1)
|
|
Year ended December 31, 2008
|
|
|
|
|
First Quarter
|
|
|
.8500
|
|
Second Quarter
|
|
|
.8625
|
|
Third Quarter
|
|
|
.8750
|
|
Fourth Quarter
|
|
|
.8875
|
|
Year ended December 31, 2009
|
|
|
|
|
First Quarter
|
|
|
.9000
|
|
Second Quarter
|
|
|
.9125
|
|
Third Quarter
|
|
|
.9250
|
|
Fourth Quarter
|
|
|
.9375
|
|
Year ended December 31, 2010
|
|
|
|
|
First Quarter
|
|
|
.9500
|
|
Second Quarter
|
|
|
.9625
|
|
Third Quarter
|
|
|
.9750
|
|
Fourth Quarter
|
|
|
|
(2)
|
|
|
|
(1) |
|
Reflects cash distributions in respect of each fiscal quarter
indicated. We generally declare cash distributions in respect of
each fiscal quarter approximately 30 days after the end of
such quarter and generally make such distributions within
60 days after the end of such quarter. |
|
(2) |
|
We have not yet declared the distribution for the fourth quarter
of 2010. We expect the purchasers of LP units in this offering
(rather than the selling unitholder) will receive the declared
distribution for the fourth quarter of 2010 if they continue to
hold the LP units they purchase on the record date for the
distribution. |
S-11
CERTAIN
UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the LP units offered hereby, the selling
unitholder will hold an aggregate of 7,512,623 LP units. Upon
the expiration of the
lock-up
agreement entered into by the selling unitholder in connection
with this offering, the selling unitholder may generally freely
transfer such remaining LP units without restriction or further
registration under the Securities Act.
As of January 26, 2011, institutional investors that
purchased equity to finance a portion of our acquisition of an
indirect 80% interest in BORCO owned 5,794, 725 LP units and
1,314,310 Class B units. On the same date, First Reserve
owned 2,483,444 LP units and 4,382,889 Class B units. The
Class B units represent a separate class of limited
partnership interests from the LP units, but share equally with
the LP units with respect to the payment of distributions.
Additionally, the Class B units will convert into LP units
on a
one-for-one
basis on the earlier of (a) the date on which at least
4 million barrels of incremental storage capacity are
placed in service by BORCO or (b) January 18, 2014.
Pursuant to the two registration rights agreements, each dated
December 18, 2010, we are required to file a shelf
registration statement by February 2, 2011 to register the
Class B Units and the LP Units purchased by each of First
Reserve and the institutional investors described above. We
expect to enter into a registration rights agreement with Vopak
in connection with the exercise of its tag right. Once
registered, these units will be transferrable without
restriction or further registration under the Securities Act.
Neither First Reserve nor such institutional investors have
entered into
lock-up
agreements in connection with this offering. The sale by First
Reserve, such institutional investors, or the selling unitholder
of our LP units or Class B units, or the perception that
such sales could occur, could have a material adverse effect on
the price of our units or could impair our ability to obtain
capital through an offering of equity securities.
SECTION 16
MATTERS
BGH GP Holdings, LLC is the sole member of MainLine Management
LLC, which has the right under the Amended and Restated
Agreement of Limited Partnership of Buckeye Partners, L.P. to
appoint two directors to the Board of Directors of Buckeye GP,
LLC. Buckeye GP LLC is the general partner of Buckeye Partners,
L.P. These directors serve on the Board of Directors of Buckeye
GP LLC as representatives of BGH GP Holdings, LLC. Consequently,
BGH GP Holdings, LLC previously determined that it is a
director by deputization of Buckeye Partners, L.P.
for purposes of Section 16 of the Securities Exchange Act
and has made filings with the Securities and Exchange Commission
pursuant to Section 16 in this capacity. Consistent with
this determination, on November, 18, 2010, the Board of
Directors of Buckeye GP LLC adopted resolutions approving the
acquisition by BGH GP Holdings, LLC and its owners of limited
partnership units of Buckeye Partners, L.P. upon consummation of
the merger transaction in which Buckeye Partners, L.P. acquired
Buckeye GP Holdings, L.P. on November 19, 2010.
S-12
TAX
CONSIDERATIONS
The tax consequences to you of an investment in our limited
partnership units will depend in part on your own tax
circumstances. For a discussion of the principal federal income
tax considerations associated with our operations and the
purchase, ownership and disposition of limited partnership
units, please read Material U.S. Federal Income Tax
Consequences in the accompanying base prospectus and
Tax Considerations for Unitholders and Tax
Risks for Unitholders in our Annual Report on
Form 10-K
for the year ended December 31, 2009. You are urged to
consult with your own tax advisor about the federal, state,
local and foreign tax consequences particular to your
circumstances.
Partnership
Tax Treatment
The anticipated after-tax economic benefit of an investment in
our limited partnership units depends largely on our being
treated as a partnership for federal income tax purposes. We
have not requested a ruling from the IRS with respect to our
partnership status. In order to be treated as a partnership for
federal income tax purposes, at least 90% of our gross income
must be from specific qualifying sources, such as the
transportation of refined petroleum products or other passive
types of income such as dividends. For a more complete
description of this qualifying income requirement, please read
Material Tax ConsequencesPartnership Status in
the accompanying base prospectus.
If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our taxable income
at the corporate tax rate, which is currently a maximum of 35%,
and would likely pay state income tax at varying rates.
Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses or deductions would
flow through to you. Because a tax would be imposed upon us as a
corporation, our cash available for distribution to you would be
substantially reduced. Therefore, treatment of us as a
corporation would result in a material reduction in the
anticipated cash flow and after-tax return to the unitholders,
likely causing a substantial reduction in the value of our
limited partnership units.
Ratio of
Taxable Income to Distributions
We estimate that if you purchase limited partnership units in
this offering and own them through the record date for the
distribution with respect to the December 31, 2013, then
you will be allocated, on a cumulative basis, an amount of
federal taxable income for that period that will be less than
20% of the amount of cash distributed to you with respect to
that period. If you continue to own limited partnership units
purchased in this offering after that period, the percentage of
federal taxable income allocated to you may be higher. Our
estimate is based upon many assumptions regarding our business
and operations, including assumptions as to tariffs, capital
expenditures, cash flows and anticipated cash distributions. Our
estimate assumes our available cash will approximate the amount
necessary to continue to distribute the current quarterly
distribution of $0.975 per unit (based on the last quarterly
distribution paid by us) throughout the referenced period. This
estimate and the assumptions are subject to, among other things,
numerous business, economic, regulatory, competitive and
political uncertainties beyond our control. Further, this
estimate is based on current tax law and certain tax reporting
positions that we have adopted. The Internal Revenue Service
could disagree with our tax reporting positions. Accordingly, we
cannot assure you that the estimate will be correct. The actual
percentage of distributions that will constitute taxable income
could be higher or lower, and any differences could be material
and could materially affect the value of limited partnership
units. For example, the ratio of allocable taxable income to
cash distributions to a purchaser of limited partnership units
in this offering will be greater, and perhaps substantially
greater, than our estimate with respect to the period described
above if:
|
|
|
|
|
gross income from operations exceeds the amount required to make
the current quarterly distribution on all units, yet we only
distribute the current quarterly distribution on all
units; or
|
S-13
|
|
|
|
|
we make a future offering of limited partnership units and use
the proceeds of such offering in a manner that does not produce
substantial additional deductions during the period described
above, such as to repay indebtedness outstanding at the time of
such offering or to acquire property that is not eligible for
depreciation or amortization for federal income tax purposes or
that is depreciable or amortizable at a rate significantly
slower than the rate applicable to our assets at the time of
such offering.
|
Please read Material U.S. Federal Income Tax
Consequences in the accompanying base prospectus and
Tax Considerations for Unitholders and Tax
Risks for Unitholders in our Annual Report on
Form 10-K
for the year ended December 31, 2009.
Tax
Rates
Under current law, the highest marginal U.S. federal income
tax rate applicable to ordinary income of individuals is 35% and
the highest marginal U.S. federal income tax rate
applicable to long-term capital gains (generally, capital gains
on certain assets held for more than 12 months) of
individuals is 15%. However, absent new legislation extending
the current rates, beginning January 1, 2013, the highest
marginal U.S. federal income tax rate applicable to
ordinary income and long-term capital gains of individuals will
increase to 39.6% and 20%, respectively. Moreover, these rates
are subject to change by new legislation at any time.
Tax-Exempt
Organizations & Other Investors
Ownership of limited partnership units by tax-exempt entities,
including employee benefit plans and individual retirement
accounts (known as IRAs), and
non-U.S. investors
raises issues unique to such persons. Please read Material
U.S. Federal Income Tax ConsequencesTax-Exempt
Organizations and Certain Other Investors in the
accompanying base prospectus.
S-14
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Barclays Capital Inc., Citigroup Global Markets Inc., Goldman,
Sachs & Co. and Wells Fargo Securities, LLC are acting
as representatives of the underwriters named below. Subject to
the terms and conditions set forth in an underwriting agreement
among us, the selling unitholder and the underwriters, the
selling unitholder has agreed to sell to the underwriters, and
each of the underwriters has agreed, severally and not jointly,
to purchase from the selling unitholder, the number of limited
partnership units set forth opposite its name below.
|
|
|
|
|
|
|
Number
|
|
Underwriter
|
|
of Units
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
|
|
Barclays Capital Inc.
|
|
|
|
|
Citigroup Global Markets Inc.
|
|
|
|
|
Goldman, Sachs & Co.
|
|
|
|
|
Wells Fargo Securities, LLC
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,250,000
|
|
|
|
|
|
|
Subject to the terms and conditions set forth in the
underwriting agreement, the underwriters have agreed, severally
and not jointly, to purchase all of the limited partnership
units sold under the underwriting agreement if any of these
limited partnership units are purchased. If an underwriter
defaults, the underwriting agreement provides that the purchase
commitments of the nondefaulting underwriters may be increased
or the underwriting agreement may be terminated.
We and the selling unitholder have agreed to indemnify the
several underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of
those liabilities.
The underwriters are offering the limited partnership units,
subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of legal matters by their counsel,
including the validity of the limited partnership units, and
other conditions contained in the underwriting agreement, such
as the receipt by the underwriters of officers
certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
Commissions
and Expenses
The representatives have advised us and the selling unitholder
that the underwriters propose initially to offer the limited
partnership units to the public at the public offering price set
forth on the cover page of this prospectus and to dealers at
that price less a concession not in excess of
$ per unit. After the initial
offering, the public offering price, concession or any other
term of the offering may be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to the
selling unitholder. The information assumes either no exercise
or full exercise by the underwriters of their overallotment
option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Unit
|
|
Without Option
|
|
With Option
|
|
Public offering price
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Underwriting discount
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Proceeds, before expenses, to the selling unitholder
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
S-15
The expenses of the offering, not including the underwriting
discount, are estimated at $272,360 and are payable by us.
Overallotment
Option
The selling unitholder has granted an option to the
underwriters, exercisable for 30 days after the date of
this prospectus, to purchase up to 637,500 additional LP units
at the public offering price less the underwriting discounts and
commissions. The underwriters may exercise this option solely to
cover any overallotments. If the underwriters exercise this
option, each underwriter will be obligated, subject to certain
conditions contained in the underwriting agreement, to purchase
a number of additional limited partnership units proportionate
to that underwriters initial amount reflected in the above
table.
No Sales
of Similar Securities
We, our general partner, its directors and executive officers
and the selling unitholder have agreed that, without the prior
written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, we and they will not directly or indirectly
(1) offer for sale, sell, pledge, or otherwise dispose of
(or enter into any transaction or device that is designed to, or
could be expected to, result in the disposition by any person at
any time in the future of) any LP units or securities
convertible into or exercisable or exchangeable for LP units,
other than certain permitted transfers and issuances,
(2) sell or grant any options, rights or warrants with
respect to any LP units or securities convertible into or
exercisable or exchangeable for LP units, other than certain
permitted grants of options, (3) enter into any swap or
other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of
ownership of the LP units, (4) file or cause to be filed a
registration statement, including any amendment thereto, with
respect to the registration of any of our equity securities or
any securities convertible into or exercisable or exchangeable
for our equity securities or (5) publicly disclose the
intention to do any of the foregoing, in each case for a period
of 60 days after the date of this prospectus supplement.
The restrictions described above do not apply to:
|
|
|
|
|
the sale of LP units to the underwriters pursuant to the
underwriting agreement;
|
|
|
|
the issuance by us of LP units to our option holders upon the
exercise of options granted under our Amended and Restated Unit
Option and Distribution Equivalent Plan;
|
|
|
|
the issuance by us of additional options and awards under our
Amended and Restated Unit Option and Distribution Equivalent
Plan, and our Long-Term Incentive Plan, provided that any such
options will not be exercisable during the
60-day
lock-up
period described above;
|
|
|
|
the issuance of LP units to sellers of assets or entities in
connection with acquisitions by us, provided that the
underwriters have received similar
lock-up
agreements from such sellers; or
|
|
|
|
the filing of registration statements pursuant to registration
rights agreements entered into with First Reserve and
institutional investors in connection with the financing of the
acquisition of an 80% interest in FRBCH or the filing of a
registration statement pursuant to a registration rights
agreement expected to be entered into with Vopak in connection
with the acquisition of its 20% interest in FRBCH; neither First
Reserve nor such institutional investors have entered into any
lock-up
agreements with the underwriters in connection with this
offering. See Certain Units Eligible for Future Sale.
|
Further, Buckeye Pipe Line Services Company may sell LP units in
connection with (i) the liquidation of employee accounts in
the Buckeye Pipe Line Services Company Employee Stock Ownership
Plan at or about the time an employee ceases to be an employee
of Buckeye Pipe Line Services Company, or
S-16
(ii) the sale by participants who are 55 years old or
older of a portion of their accounts in the Buckeye Pipe Line
Services Company Employee Stock Ownership Plan in connection
with IRS diversification regulations.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, in
its sole discretion, may release the LP units and other
securities subject to the
lock-up
agreements described above in whole or in part at any time with
or without notice. When determining whether or not to release
the LP units and other securities from
lock-up
agreements, Merrill Lynch, Pierce, Fenner & Smith
Incorporated will consider, among other factors, the
holders reasons for requesting the release, the number of
LP units or other securities for which the release is being
requested and market conditions at the time.
Indemnification
We and the selling unitholder have agreed to indemnify the
several underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and to
contribute to payments that the underwriters may be required to
make for these liabilities.
Stabilization,
Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions,
short sales and purchases to cover positions created by short
sales, and penalty bids or purchases for the purpose of pegging,
fixing or maintaining the price of the LP units, in accordance
with Regulation M under the Securities Exchange Act of
1934, as amended.
|
|
|
|
|
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
|
|
|
|
A short position involves a sale by the underwriters of LP units
in excess of the number of LP units the underwriters are
obligated to purchase in the offering, which creates a syndicate
short position. This short position may be either a covered
short position or a naked short position. In a covered short
position, the number of LP units involved in the sales made by
the underwriters in excess of the number of LP units they are
obligated to purchase is not greater than the number of LP units
that they may purchase by exercising their option to purchase
additional LP units. In a naked short position, the number of LP
units involved is greater than the number of LP units in their
option to purchase additional LP units. The underwriters may
close out any short position by either exercising their option
to purchase additional LP units
and/or
purchasing LP units in the open market. In determining the
source of LP units to close out the short position, the
underwriters will consider, among other things, the price of LP
units available for purchase in the open market as compared to
the price at which they may purchase LP units through their
option to purchase additional LP units. A naked short position
is more likely to be created if the underwriters are concerned
that there could be downward pressure on the price of the LP
units in the open market after pricing that could adversely
affect investors who purchase in the offering.
|
|
|
|
Syndicate covering transactions involve purchases of the LP
units in the open market after the distribution has been
completed in order to cover syndicate short positions.
|
|
|
|
Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the LP units originally
sold by the syndicate member are purchased in a stabilizing or
syndicate covering transaction to cover syndicate short
positions.
|
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our LP units or preventing or retarding a
decline in the market price of our LP units. As a result, the
price of our LP units may be higher than the price that might
otherwise exist
S-17
in the open market. These transactions may be effected on the
New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of our LP
units. In addition, neither we nor the underwriters make any
representation that the representatives will engage in these
stabilizing transactions or that any transaction, once
commenced, will not be discontinued without notice.
Electronic
Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the online services,
prospective investors may be allowed to place orders online. The
underwriters may agree with us to allocate a specific number of
LP units for sale to online brokerage account holders. Any such
allocation for online distributions will be made by the
underwriters on the same basis as other allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members website
and any information contained in any other website maintained by
an underwriter or selling group member is not part of the
prospectus or the registration statement of which the prospectus
forms a part, has not been approved
and/or
endorsed by us or any underwriter or selling group member in its
capacity as an underwriter or selling group member and should
not be relied upon by investors.
New York
Stock Exchange
Our LP units are listed on the New York Stock Exchange under the
symbol BPL.
Relationships
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities.
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and investment banking
services for us, for which they received or will receive
customary fees and expenses. Certain of the underwriters and
their respective affiliates are agents and lenders under our
revolving credit facility and the secured credit facility of
Buckeye Energy Services LLC. In the ordinary course of their
various business activities, the underwriters and their
respective affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers, and such investment and securities
activities may involve securities
and/or
instruments of the issuer. The underwriters and their respective
affiliates may also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
Public
Offer Selling Restrictions Under the Prospectus
Directive
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer
S-18
of securities described in this prospectus may not be made to
the public in that relevant member state other than:
|
|
|
|
|
to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
|
|
|
|
to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000;
and (3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
|
|
|
|
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives; or
|
|
|
|
in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive,
|
provided that no such offer of securities shall require
us or any underwriter to publish a prospectus pursuant to
Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of
securities to the public in any relevant member state
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide
to purchase or subscribe the securities, as the expression may
be varied in that member state by any measure implementing the
Prospectus Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
We have not authorized and do not authorize the making of any
offer of securities through any financial intermediary on their
behalf, other than offers made by the underwriters with a view
to the final placement of the securities as contemplated in this
prospectus. Accordingly, no purchaser of the securities, other
than the underwriters, is authorized to make any further offer
of the securities on behalf of us or the underwriters.
Notice to
Prospective Investors in the United Kingdom
Our partnership may constitute a collective investment
scheme as defined by section 235 of the Financial
Services and Markets Act 2000 (FSMA) that is not a
recognized collective investment scheme for the
purposes of FSMA (CIS) and that has not been
authorized or otherwise approved. As an unregulated scheme, it
cannot be marketed in the United Kingdom to the general public,
except in accordance with FSMA. This prospectus is only being
distributed in the United Kingdom to, and is only directed at:
|
|
|
|
(1)
|
if our partnership is a CIS and is marketed by a person who is
an authorized person under FSMA, (a) investment
professionals falling within Article 14(5) of the Financial
Services and Markets Act 2000 (Promotion of Collective
Investment Schemes) Order 2001, as amended (the CIS
Promotion Order) or (b) high net worth companies and
other persons falling with Article 22(2)(a) to (d) of
the CIS Promotion Order; or
|
|
|
(2)
|
otherwise, if marketed by a person who is not an authorized
person under FSMA, (a) persons who fall within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005, as amended (the
Financial Promotion Order) or
(b) Article 49(2)(a) to (d) of the Financial
Promotion Order; and
|
|
|
(3)
|
in both cases (1) and (2) to any other person to whom
it may otherwise lawfully be made, (all such persons together
being referred to as relevant persons). Our
partnerships limited
|
S-19
|
|
|
|
|
partnership units are only available to, and any invitation,
offer or agreement to subscribe, purchase or otherwise acquire
such limited partnership units will be engaged in only with,
relevant persons. Any person who is not a relevant person should
not act or rely on this document or any of its contents.
|
An invitation or inducement to engage in investment activity
(within the meaning of Section 21 of FSMA) in connection
with the issue or sale of any limited partnership units which
are the subject of the offering contemplated by this prospectus
will only be communicated or caused to be communicated in
circumstances in which Section 21(1) of FSMA does not apply
to our partnership.
Notice to
Prospective Investors in Germany
This prospectus has not been prepared in accordance with the
requirements for a securities or sales prospectus under the
German Securities Prospectus Act
(Wertpapierprospektgesetz), the German Sales Prospectus
Act (Verkaufsprospektgesetz), or the German Investment
Act (Investmentgesetz). Neither the German Federal
Financial Services Supervisory Authority (Bundesanstalt
für FinanzdienstleistungsaufsichtBaFin) nor any
other German authority has been notified of the intention to
distribute our limited partnership units in Germany.
Consequently, our limited partnership units may not be
distributed in Germany by way of public offering, public
advertisement or in any similar manner and this prospectus and
any other document relating to this offering, as well as
information or statements contained therein, may not be supplied
to the public in Germany or used in connection with any offer
for subscription of the limited partnership units to the public
in Germany or any other means of public marketing. Our limited
partnership units are being offered and sold in Germany only to
qualified investors which are referred to in Section 3,
paragraph 2 no. 1, in connection with Section 2,
no. 6, of the German Securities Prospectus Act,
Section 8f paragraph 2 no. 4 of the German Sales
Prospectus Act, and in Section 2 paragraph 11 sentence
2 no. 1 of the German Investment Act. This prospectus is
strictly for use of the person who has received it. It may not
be forwarded to other persons or published in Germany.
This offering of our limited partnership units does not
constitute an offer to buy or the solicitation or an offer to
sell limited partnership units in any circumstances in which
such offer or solicitation is unlawful.
Notice to
Prospective Investors in the Netherlands
Our limited partnership units may not be offered or sold,
directly or indirectly, in the Netherlands, other than to
qualified investors (gekwalificeerde beleggers) within
the meaning of Article 1:1 of the Dutch Financial
Supervision Act (Wet op het financieel toezicht).
Notice to
Prospective Investors in Switzerland
This prospectus is being communicated in Switzerland to a small
number of selected investors only. Each copy of this prospectus
is addressed to a specifically named recipient and may not be
copied, reproduced, distributed or passed on to third parties.
Our limited partnership units are not being offered to the
public in Switzerland, and neither this prospectus, nor any
other offering materials relating to our limited partnership
units may be distributed in connection with any such public
offering.
We have not been registered with the Swiss Financial Market
Supervisory Authority FINMA as a foreign collective investment
scheme pursuant to Article 120 of the Collective Investment
Schemes Act of June 23, 2006 (CISA).
Accordingly, our limited partnership units may not be offered to
the public in or from Switzerland, and neither this prospectus,
nor any other offering materials relating to our limited
partnership units may be made available through a public
offering in or from Switzerland. Our limited partnership units
may only be offered and this prospectus may only be distributed
in or from Switzerland by way of private placement exclusively
to qualified investors (as this term is defined in the CISA and
its implementing ordinance).
S-20
LEGAL
MATTERS
Certain legal matters are being passed upon for us by
Vinson & Elkins L.L.P., New York, New York. Certain
legal matters are being passed upon for the underwriters by
Andrews Kurth LLP, Houston, Texas.
EXPERTS
The consolidated financial statements, incorporated in this
prospectus supplement by reference from the Buckeye Partners,
L.P. Annual Report on
Form 10-K
for the year ended December 31, 2009 and the Buckeye
Partners, L.P. Current Report on
Form 8-K/A
dated December 6, 2010, and the effectiveness of Buckeye
Partners, L.P. and subsidiaries internal control over
financial reporting have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their reports which are incorporated herein by
reference. Such consolidated financial statements have been so
incorporated by reference in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of FR Borco Topco, L.P.
and subsidiaries for the year ended December 31, 2009 and
the period from February 7, 2008 through December 31,
2008, incorporated in this prospectus supplement by reference
from the Buckeye Partners, L.P. Current Report on
Form 8-K
filed on January 4, 2011, have been audited by KPMG
Accountants N.V., independent auditors, as stated in their
report which is also incorporated herein by reference. Such
consolidated financial statements have been so incorporated by
reference in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and other reports with and furnish
other information to the Securities and Exchange Commission, or
the SEC. You may read and copy any document we file with or
furnish to the SEC at the SECs public reference room at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-800-732-0330
for further information on their public reference room. Our SEC
filings are also available at the SECs web site at
http://www.sec.gov.
You can also obtain information about us at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
The SEC allows us to incorporate by reference the
information we have filed with the SEC. This means that we can
disclose important information to you without actually including
the specific information in this prospectus supplement and the
accompanying base prospectus by referring you to those
documents. The information incorporated by reference is an
important part of this prospectus supplement and the
accompanying base prospectus. Information that we file later
with the SEC (which does not include any information furnished
pursuant to Item 2.02 or Item 7.01 on any Current
Report on
Form 8-K)
will automatically update and may replace information in this
prospectus supplement and the accompanying base prospectus, and
information previously filed with the SEC. In addition to the
documents listed in Where You Can Find More
Information on page 4 of the accompanying base
prospectus, we incorporate by reference the documents listed
below:
|
|
|
|
|
The Annual Report on
Form 10-K
for the year ended December 31, 2009, filed on
February 26, 2010, as amended by the Annual Report on
Form 10-K/A
for the year ended December 31, 2009, filed on
August 26, 2010;
|
|
|
|
The Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010, filed on May 7,
2010, as amended by the Quarterly Report on
Form 10-Q/A
for the quarter ended March 31, 2010, filed on
August 26, 2010, Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010, filed on
August 6, 2010 and Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2010, filed on
November 8, 2010;
|
S-21
|
|
|
|
|
Current Reports on
Form 8-K/A
filed on April 4, 2008 and December 6, 2010 and
Form 8-K
filed on February 5, 2010 (excluding any information
furnished pursuant to Item 2.02), March 15, 2010
(excluding any information furnished pursuant to
Item 7.01), April 20, 2010 (excluding any information
furnished pursuant to Item 7.01), May 11, 2010
(excluding any information furnished pursuant to
Item 2.02), June 11, 2010 (excluding any information
furnished pursuant to Item 7.01), July 1, 2010,
August 10, 2010 (excluding any information furnished
pursuant to Item 2.02), August 11, 2010,
August 20, 2010, September 1, 2010 (excluding any
information furnished pursuant to Item 7.01),
November 3, 2010, November 9, 2010, November 22,
2010 (excluding any information furnished pursuant to
Item 2.02), November 26, 2010, December 2, 2010,
December 21, 2010 (excluding any information furnished
pursuant to Item 7.01), January 4, 2011,
January 7, 2011, January 19, 2011, January 20,
2011, and January 27, 2011.
|
If information in incorporated documents conflicts with
information in this prospectus supplement or the accompanying
base prospectus you should rely on the most recent information.
If information in an incorporated document conflicts with
information in another incorporated document, you should rely on
the most recent incorporated document.
You may request a copy of any document incorporated by reference
in this prospectus supplement or the accompanying base
prospectus, at no cost, by writing or calling us at the
following address:
One Greenway
Plaza
Suite 600
Houston, Texas 77046
(832) 615-8600
Attention: Investor Relations
S-22
Prospectus
Buckeye Partners,
L.P.
12,347,184 limited partnership
units
Up to 12,347,184 limited partnership units representing limited
partner interests in us may be offered and sold from time to
time by the selling unitholders named in this prospectus or in
any supplement to this prospectus or document incorporated by
reference herein. The selling unitholders may sell the limited
partnership units at various times and in various types of
transactions, including sales in the open market, sales in
negotiated transactions and sales by a combination of these
methods. We will not receive any proceeds from the sale of the
units by the selling unitholders.
Our limited partnership units are listed for trading on the New
York Stock Exchange under the ticker symbol BPL.
Investing in our securities
involves a high degree of risk. Limited partnerships are
inherently different from corporations. Please read Risk
Factors beginning on page 3 of this prospectus and in
the documents incorporated by reference herein and therein
before you make any investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is December 10, 2010.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
6
|
|
|
|
|
6
|
|
|
|
|
6
|
|
|
|
|
6
|
|
|
|
|
6
|
|
|
|
|
7
|
|
|
|
|
8
|
|
|
|
|
8
|
|
|
|
|
9
|
|
|
|
|
10
|
|
|
|
|
10
|
|
|
|
|
10
|
|
|
|
|
11
|
|
|
|
|
11
|
|
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
14
|
|
|
|
|
15
|
|
|
|
|
16
|
|
|
|
|
16
|
|
|
|
|
22
|
|
|
|
|
22
|
|
|
|
|
25
|
|
|
|
|
25
|
|
|
|
|
26
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
29
|
|
|
|
|
29
|
|
|
|
|
29
|
|
In making your investment decision, you should rely only on
the information contained or incorporated by reference in this
prospectus. We have not authorized anyone to provide you with
any other information. If anyone provides you with different or
inconsistent information, you should not rely on it.
You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the
front cover of this prospectus. You should not assume that the
information contained in the documents incorporated by reference
in this prospectus is accurate as of any date other than the
respective dates of those documents. Our business, financial
condition, results of operations and prospects may have changed
since those dates.
ii
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement on
Form S-3
that we have filed with the Securities and Exchange Commission
(the SEC) using a shelf registration
process. Under this shelf registration process, the selling
unitholders may sell the securities described in this prospectus
in one or more offerings.
This prospectus provides you with a general description of the
securities that may be offered by the selling unitholders. We
may provide a prospectus supplement that will contain specific
information about the terms of an offering. The prospectus
supplement may also add to, update or change information in this
prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement,
you should rely on the information in that prospectus
supplement. Therefore, before you invest in our securities, you
should read carefully this prospectus, any prospectus supplement
and the additional information described below under the heading
Where You Can Find More Information.
As used in this prospectus, the Partnership,
we, our, us, or like terms
mean Buckeye Partners, L.P. References to Holdings
refer to Buckeye GP Holdings L.P. References to Buckeye
GP, the general partner, or our general
partner refer to Buckeye GP LLC, the general partner of
the Partnership. References to our operating
partnerships includes, collectively, Buckeye Pipe Line
Company, L.P., Buckeye Pipe Line Holdings, L.P., Everglades Pipe
Line Company, L.P. and Laurel Pipe Line Company, L.P., each a
Delaware limited partnership. References to a Partnership
unitholder or Partnership unitholders refer to
a holder or to the holders of our LP Units (as defined below).
Unless otherwise stated, the information in this prospectus
provides a description of us and the securities the selling
unitholders may offer after the closing of the merger between
our wholly-owned subsidiary, Grand Ohio, LLC, a Delaware limited
liability company (MergerCo) and Holdings. Pursuant
to the First Amended and Restated Agreement and Plan of Merger,
dated as of August 18, 2010 (the merger
agreement) between us, our general partner, MergerCo,
Holdings and MainLine Management LLC, a Delaware limited
liability company and Holdings general partner, we will
acquire Holdings through a merger of MergerCo with and into
Holdings and all common units and management units of Holdings
will be converted into limited partner interests in us
represented by limited partnership units (LP Units).
As a result of the merger, Holdings will become our subsidiary,
with us as Holdings sole limited partner and
Holdings general partner remaining as the non-economic
general partner of Holdings. In connection with the merger, the
incentive compensation agreement held by our general partner
will be cancelled and the general partner units held by our
general partner will be converted to a non-economic general
partner interest. Pursuant to the merger agreement, we will
issue to the holders of Holdings common units and management
units approximately 20 million LP Units in the merger. Each
unitholder of Holdings will receive 0.705 LP Units per Holdings
common unit or management unit.
BUCKEYE
PARTNERS, L.P.
We are a publicly traded Delaware limited partnership and our LP
Units are listed on the New York Stock Exchange
(NYSE) under the ticker symbol BPL. We
operate and report in five business segments: Pipeline
Operations; Terminalling & Storage; Natural Gas
Storage; Energy Services; and Development & Logistics.
Our principal line of business is the transportation,
terminalling, and storage of refined petroleum products in the
United States for major integrated oil companies, large refined
petroleum product marketing companies and major end users of
refined petroleum products on a fee basis through facilities we
own and operate. We also own a major natural gas storage
facility in northern California and market refined petroleum
products in certain of the geographic areas served by our
pipeline and terminalling operations. In addition, we operate
and maintain approximately 2,400 miles of other pipelines
under agreements with major oil and chemical companies, and
perform certain engineering and construction management services
for third parties.
Our executive offices are located at One Greenway Plaza,
Suite 600, Houston, Texas 77046. Our telephone number is
(832) 615-8600.
We make our periodic reports and other information filed with or
furnished to the SEC available, free of charge, through our
website, as soon as reasonably practicable. Information on our
website or any other website is not incorporated by reference
into this prospectus and does not constitute a part of this
prospectus unless specifically so designated and filed with the
SEC.
1
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other
information with the SEC. You may read and copy any document we
file at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-732-0330
for further information on their public reference room. Our SEC
filings are also available at the SECs website at
http://www.sec.gov.
You can also obtain information about us at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New
York 10005, or on our website at
http://www.buckeye.com.
Information on our website or any other website is not
incorporated by reference into this prospectus and does not
constitute a part of this prospectus unless specifically so
designated and filed with the SEC.
INFORMATION
WE INCORPORATE BY REFERENCE
The SEC allows us to incorporate by reference into
this prospectus the information we have filed with the SEC. This
means that we can disclose important information to you without
actually including the specific information in this prospectus
by referring you to those documents. The information
incorporated by reference is an important part of this
prospectus. Information that we file later with the SEC will,
including all information that we file after the date of the
initial registration statement and prior to effectiveness of the
registration statement, automatically update and may replace
information in this prospectus and information previously filed
with the SEC.
The documents listed below and any future filings made with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, (excluding those furnished to the SEC on
Form 8-K),
prior to the termination of the offering, are incorporated by
reference in this prospectus.
|
|
|
|
|
Annual Report on
Form 10-K
for the year ended December 31, 2009, filed on
February 26, 2010, as amended by the Annual Report on
Form 10-K/A
for the year ended December 31, 2009, filed on
August 26, 2010;
|
|
|
|
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010, filed on May 7,
2010, as amended by the Quarterly Report on
Form 10-Q/A
for the quarter ended March 31, 2010, filed on
August 26, 2010, Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010, filed on
August 6, 2010 and Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2010, filed on
November 8, 2010;
|
|
|
|
Current Reports on
Form 8-K
filed on June 11, 2010, July 1, 2010, August 11,
2010, August 20, 2010, and November 3, 2010;
|
|
|
|
The description of our LP Units contained in the Registration
Statement on
Form 8-A,
filed August 9, 2005.
|
You may request a copy of any document incorporated by reference
in this prospectus, at no cost, by writing or calling us at the
following address:
Buckeye Partners, L.P.
One Greenway Plaza
Suite 600
Houston, Texas 77046
(832) 615-8600
You should rely only on the information contained in or
incorporated by reference in this prospectus or any prospectus
supplement. We have not authorized anyone else to provide you
with any information. We are not making an offer of these
securities in any state where the offer is not permitted. You
should not assume that the information incorporated by reference
or provided in this prospectus or any prospectus supplement is
accurate as of any date other than its respective date.
2
RISK
FACTORS
An investment in our securities involves a significant degree of
risk. Before you invest in our securities you should carefully
consider those risks discussed in the Forward-Looking
Statements section of this prospectus, the risk factors
included in our most recent Annual Report on
Form 10-K,
as supplemented by our Quarterly Reports on
Form 10-Q,
each of which is incorporated herein by reference, and those
risk factors that may be included in any applicable prospectus
supplement, together with all of the other information included
in this prospectus, any prospectus supplement and the documents
we incorporate by reference in evaluating an investment in our
securities.
If any of the risks discussed in the foregoing documents were to
occur, our business, financial condition, results of operations
and cash flow could be materially adversely affected. In that
case, we may be unable to pay distributions to our unitholders,
the trading price of our units could decline and you could lose
all or part of your investment.
3
FORWARD-LOOKING
STATEMENTS
Some of the information contained in or incorporated by
reference in this prospectus may contain forward-looking
statements. These statements can be identified by the use of
forward-looking terminology including anticipate,
continue, estimate, expect,
may, believe, will, or other
similar words, although some forward-looking statements are
expressed differently. These statements discuss future
expectations and contain projections. Specific factors that
could cause actual results to differ from those in the
forward-looking statements include, but are not limited to:
(1) price trends and overall demand for petroleum products
and natural gas in the United States in general and in our
service areas in particular (economic activity, weather,
alternative energy sources, conservation and technological
advances may affect price trends and demands);
(2) competitive pressures from other transportation
services or alternative fuel sources; (3) changes, if any,
in laws and regulations, including, among others, safety, tax
and accounting matters or Federal Energy Regulatory Commission
regulation of our tariff rates; (4) liabilities for
environmental claims; (5) security issues affecting our
assets, including, among others, potential damage to our assets
caused by vandalism, acts of war or terrorism;
(6) construction costs, unanticipated capital expenditures
and operating expenses to repair or replace our assets;
(7) availability and cost of insurance on our assets and
operations; (8) our ability to successfully identify and
complete strategic acquisitions and make cost saving changes in
operations; (9) expansion in the operations of our
competitors; (10) our ability to integrate any acquired
operations into our existing operations and to realize
anticipated cost savings and other efficiencies;
(11) shut-downs or cutbacks at major refineries that use
our services; (12) deterioration in our labor relations;
(13) changes in real property tax assessments;
(14) regional economic conditions; (15) disruptions to
the air travel system; (16) interest rate fluctuations and
other capital market conditions; (17) market conditions in
our industry; (18) credit risks associated with our
customers; (19) our treatment as a corporation for federal
income tax purposes or if we become subject to entity-level
taxation for state tax purposes; and (20) the impact of
government legislation and regulation on us.
These factors are not necessarily all of the important factors
that could cause actual results to differ materially from those
expressed in any of our forward-looking statements. Other
unknown or unpredictable factors could also have material
adverse effects on future results. Forward-looking statements
speak only as of the date of this prospectus or, in the case of
forward-looking statements contained in any document
incorporated by reference, the date of such document and we
expressly disclaim any obligation or undertaking to update these
statements to reflect any change in our expectations or beliefs
or any change in events, conditions or circumstances on which
any forward-looking statement is based.
USE OF
PROCEEDS
The LP Units to be offered and sold pursuant to this prospectus
will be offered and sold by the selling unitholders. We will not
receive any proceeds from the sale of LP Units by the selling
unitholders.
DESCRIPTION
OF THE LIMITED PARTNERSHIP UNITS
General
Unless otherwise stated, the following description of the LP
Units describes such units immediately following the closing of
the merger. Pursuant to the merger agreement, we will enter into
an amended and restated partnership agreement (the amended
and restated partnership agreement). Following the closing
of the merger, the rights of the holders of LP Units will be
governed by the terms of our amended and restated partnership
agreement.
The LP Units represent limited partner interests in us. The
holders of LP Units are entitled to receive distributions, if
made, in accordance with our amended and restated partnership
agreement and exercise the rights or privileges available to
limited partners thereunder. For a description of the rights and
privileges of holders of LP Units in and to partnership
distributions, please read How We Make Cash
Distributions. For a description of the rights and
privileges of limited partners under our amended and restated
partnership agreement, including voting rights, please read
Our Amended and Restated Partnership Agreement.
4
Voting
Each holder of LP Units is entitled to one vote for each LP Unit
on all matters submitted to a vote of the unitholders. Certain
events, as more fully described in our amended and restated
partnership agreement, require the approval of the limited
partners holding in the aggregate at least two-thirds of the
outstanding LP Units. Other events, as more fully described in
our amended and restated partnership agreement, require the
approval of the limited partners holding in the aggregate at
least 80% of the outstanding LP Units. Please read Our
Amended and Restated Partnership Agreement
Voting.
No
Preemptive Rights
No person is entitled to preemptive rights in respect of
issuances of securities by us.
Amendments
to the Terms of the LP Units
Amendments to our amended and restated partnership agreement may
be proposed only by our general partner. To adopt a proposed
amendment, other than certain amendments, our general partner
must seek written approval of the holders of the number of units
required to approve the amendment or call a meeting of the
limited partners to consider and vote upon the proposed
amendment. Certain amendments may be made by our general partner
without the approval of our unitholders. Certain other
amendments require the approval of a majority of outstanding LP
Units. Certain other amendments require the approval of a
supermajority of outstanding LP Units. Please read
Amendment of Our Amended and Restated
Partnership Agreement. No amendments to certain provisions
and definitions in our amended and restated partnership
agreement relating to or requiring approval by a majority of the
members of the audit committee of the board of directors of our
general partner (defined as special approval) or the
approval of a majority of the members of the audit committee of
the board of directors of our general partner may be made
without first obtaining such special approval.
Transfer
Agent and Registrar
The transfer agent and registrar for the LP Units is
Computershare Trust Company N.A. You may contact them at
the following address: 525 Washington Boulevard, Jersey City,
New Jersey 07310.
HOW WE
MAKE CASH DISTRIBUTIONS
Set forth below is a summary of the significant provisions of
our amended and restated partnership agreement that relate to
cash distributions.
General
Our amended and restated partnership agreement will not require
distributions to be made quarterly or at any other time. Under
our amended and restated partnership agreement, our general
partner, from time to time and not less than quarterly, is
required to review our accounts to determine whether
distributions are appropriate. Our general partner will be
permitted to make such distributions as it may determine,
without being limited to current or accumulated income or gains.
Cash distributions may be made from any of our funds, including,
without limitation, revenues, capital contributions or borrowed
funds. Our general partner may also distribute other Partnership
property, additional LP Units, or other securities of the
Partnership or other entities. Distributions will be made
concurrently to all record holders on the record date set for
purposes of such distributions.
Units
Eligible for Distributions
The LP Units generally participate pro rata in our
distributions. As of November 10, 2010, there were
approximately 51,555,916 LP Units issued and outstanding.
Pursuant to the merger agreement, we will issue approximately
20 million LP Units. We currently have a long-term
incentive plan and a deferral and unit incentive plan (together,
the LTIP) which provide for the issuance of up to
1,500,000 LP Units, subject to certain adjustments. As of
November 10, 2010, 1,115,652 LP Units remained available
for issuance under the LTIP after giving effect to the issuance
or forfeiture of phantom unit and performance unit awards. As of
November 10, 2010
5
there were 244,100 LP Units issuable upon exercise of options
granted to employees pursuant to our unit option and
distribution equivalent plan and 333,000 LP Units available for
grant in connection with such plan.
Distributions
of Cash upon Liquidation
If we dissolve in accordance with our amended and restated
partnership agreement, we will sell or otherwise dispose of our
assets in a process called a liquidation. We will first apply
the proceeds of liquidation to the payment of our creditors,
including by way of a reserve of cash or other assets of the
Partnership for contingent liabilities. We will distribute any
remaining proceeds to our unitholders, in accordance with their
capital account balances, as adjusted to reflect any gain or
loss upon the sale or other disposition of our assets in
liquidation.
If the sale of our assets in liquidation would be impracticable
or would cause undue loss, the sale may be deferred for a
reasonable amount of time or the assets (except those necessary
to satisfy liabilities) may be distributed to our limited
partners in lieu of cash in the same manner as cash or proceeds
of a sale would have been distributed.
OUR
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
amended and restated partnership agreement.
In connection with the closing of the merger, our existing
partnership agreement will be amended and restated. The
following provisions of our amended and restated partnership
agreement are summarized elsewhere in this prospectus.
|
|
|
|
|
with regard to distributions of available cash, please read
How We Make Cash Distributions;
|
|
|
|
with regard to allocations of taxable income and taxable loss,
please read Material U.S. Federal Income Tax
Consequences.
|
Organization
and Duration
The Partnership was organized on July 11, 1986 and has a
term extending until the close of business on December 31,
2086.
Purpose
The purpose of the Partnership under our amended and restated
partnership agreement is to engage in any lawful activity for
which limited partnerships may be organized under the Delaware
Revised Uniform Limited Partnership Act (DRULPA).
Our general partner is authorized in general to perform all acts
deemed necessary to carry out our purposes and to conduct our
business.
Power of
Attorney
Each of our limited partners grants to our general partner and,
if appointed, a liquidator, a power of attorney to, among other
things, execute and file documents required for our
qualification, continuance or dissolution.
Issuance
of Additional Securities
Our amended and restated partnership agreement authorizes our
general partner to cause us to issue an unlimited number of
additional LP Units and other equity securities for the
consideration and on the terms and conditions established by our
general partner without the approval of any limited partners.
Without the prior approval of the holders of two-thirds of the
outstanding LP Units, our general partner is prohibited from
causing us to issue any class or series of LP Units having
preferences or other special or senior rights over the
previously outstanding LP Units. Without the approval of a
majority of the holders of the outstanding LP Units, our general
partner is prohibited from causing us to issue LP Units to
itself or its affiliates unless the LP units are of a class
6
previously listed or admitted to trading on a national
securities exchange and property is contributed to us with a
value at least equal to the fair market value of the issued LP
units.
It is possible that we will fund acquisitions, and other capital
requirements, through the issuance of additional LP Units or
other equity securities. Holders of any additional LP Units that
we issue will be entitled to share with then-existing holders of
LP Units in our distributions of available cash. In addition,
the issuance of additional partnership interests may dilute
(i) the percentage interests of then-existing holders of LP
Units in our net assets and (ii) the voting rights of
then-existing holders of LP Units under our amended and restated
partnership agreement.
The holders of LP Units do not have preemptive rights to acquire
additional LP Units or other partnership interests.
Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the DRULPA and
that it otherwise acts in conformity with the provisions of our
amended and restated partnership agreement, the partners
liability under the DRULPA will be limited, subject to possible
exceptions, to the amount of capital the partner is obligated to
contribute to the Partnership for the partners LP Units
plus the partners share of any undistributed profits and
assets and any funds wrongfully distributed to it, as described
below. If it were determined, however, that the right, or
exercise of the right, by our limited partners as a group:
|
|
|
|
|
to elect members of the board of directors of our general
partner;
|
|
|
|
to remove or replace our general partner;
|
|
|
|
to approve certain amendments to our amended and restated
partnership agreement; or
|
|
|
|
to take any other action under our amended and restated
partnership agreement
|
constituted participation in the control of our
business for the purposes of the DRULPA, then the limited
partners could be held personally liable for our obligations
under the laws of Delaware, to the same extent as our general
partner. This liability would extend to persons who transact
business with us who reasonably believe that a limited partner
is a general partner based on the limited partners
conduct. Neither our amended and restated partnership agreement
nor the DRULPA specifically provides for legal recourse against
our general partner if a limited partner were to lose limited
liability through any fault of our general partner. Although
this does not mean that a limited partner could not seek legal
recourse, we know of no precedent for this type of a claim in
Delaware case law.
Under the DRULPA, a limited partnership may not make a
distribution to a partner if, after the distribution, all
liabilities of the limited partnership, other than liabilities
to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the limited partnership, would exceed the
fair value of the assets of the limited partnership. For the
purpose of determining the fair value of the assets of a limited
partnership, the DRULPA provides that the fair value of property
subject to liability for which recourse of creditors is limited
will be included in the assets of the limited partnership only
to the extent that the fair value of that property exceeds the
nonrecourse liability. The DRULPA provides that a limited
partner who receives a distribution and knew at the time of the
distribution that the distribution was in violation of the
DRULPA will be liable to the limited partnership for the amount
of the distribution for three years from the date of
distribution. Under the DRULPA, an assignee who becomes a
substituted limited partner of a limited partnership is liable
for the obligations of its assignor to make contributions to the
limited partnership, excluding any obligations of the assignor
with respect to wrongful distributions, as described above,
except the assignee is not obligated for liabilities unknown to
it at the time it became a limited partner and that could not be
ascertained from the partnership agreement.
Our subsidiaries conduct business in multiple states.
Maintenance of our limited liability as a limited partner or
member of our subsidiaries formed as limited partnerships or
limited liability companies may require compliance with legal
requirements in the jurisdictions in which such subsidiaries
conduct business, including qualifying our subsidiaries to do
business there. Limitations on the liability of a limited
partner or member for the obligations of a limited partnership
or limited liability company have not been clearly established
in many jurisdictions. If it were determined that we were, by
virtue of our limited partner interest or limited liability
company interest in our
7
subsidiaries or otherwise, conducting business in any state
without compliance with the applicable limited partnership or
limited liability company statute, or that the right or exercise
of the right by the limited partners as a group to elect members
of the board of directors of our general partner, to remove or
replace our general partner, to approve certain amendments to
our amended and restated partnership agreement, or to take other
action under our amended and restated partnership agreement
constituted participation in the control of our
business for purposes of the statutes of any relevant
jurisdiction, then the limited partners could be held personally
liable for our obligations under the law of that jurisdiction to
the same extent as our general partner under the circumstances.
We will operate in a manner that our general partner considers
reasonable and necessary or appropriate to preserve the limited
liability of the limited partners.
Voting
Rights
The following matters require the vote of our unitholders as
specified below.
|
|
|
Election of the board of directors of our general partner |
|
Subject to either approval by the California Public Utilities
Commission (the CPUC) and the Pennsylvania Public
Utility Commission (the PaPUC) of the public
election provisions or a determination by the board of directors
of our general partner that such approvals are not required, all
but up to two directors on the board of directors of our general
partner will be elected by a plurality of the votes cast at
meetings of the limited partners. Please read
Meetings; Voting. |
|
Amendment of the amended and restated partnership agreement |
|
Certain amendments may be made by our general partner without
the approval of our unitholders. Certain other amendments
require the approval of holders of a majority of outstanding LP
Units. Certain other amendments require the approval of holders
of a super-majority of outstanding LP Units. Please read
Amendment of Our Amended and Restated
Partnership Agreement. |
|
Sale of all or substantially all of the Partnerships assets |
|
Holders of two-thirds of outstanding LP Units. Please read
Merger, Sale or Other Disposition of
Assets. |
|
Dissolution of the Partnership |
|
Holders of two-thirds of outstanding LP Units. Please read
Termination and Dissolution. |
|
Removal/Replacement of our general partner |
|
Holders of 80% of outstanding LP Units. Please read
Withdrawal or Removal of Our General
Partner. |
Amendment
of Our Amended and Restated Partnership Agreement
General. Amendments to our amended and
restated partnership agreement may be proposed only by our
general partner. To adopt a proposed amendment, other than
certain amendments discussed below, our general partner must
seek written approval of the holders of the number of units
required to approve the amendment or call a meeting of the
limited partners to consider and vote upon the proposed
amendment. Except as otherwise described below, an amendment
must be approved by the limited partners holding in the
aggregate at least a majority of the outstanding LP Units,
referred to as a Majority Interest. No amendments to
certain provisions and definitions in our amended and restated
partnership agreement relating to or requiring special
approval or the approval of a majority of the members of
the audit committee of the board of directors of our general
partner may be made without first obtaining such special
approval.
8
No Unitholder Approval. Our general partner
may generally make amendments to our amended and restated
partnership agreement without the approval of any limited
partner or assignee to reflect:
|
|
|
|
|
a change in our name, the location of our principal place of
business, our registered agent or our registered office;
|
|
|
|
a change that our general partner deems appropriate or necessary
for us to qualify or to continue our qualification as a limited
partnership or a partnership in which the limited partners have
limited liability under the laws of any state or jurisdiction or
to ensure that neither we nor any of our operating partnerships
will be treated as an association taxable as a corporation for
federal income tax purposes;
|
|
|
|
a change that is appropriate or necessary, in the opinion of our
counsel, to prevent us, Holdings, our general partner or any of
their subsidiaries from in any manner being subjected to the
provisions of the Investment Company Act of 1940, the Investment
Advisors Act of 1940, or plan asset regulations
adopted under the Employee Retirement Income Security Act of
1974, whether or not substantially similar to plan asset
regulations currently applied or proposed; or
|
|
|
|
any other changes or events similar to any of the matters
described in the clauses above.
|
In addition, our general partner may make amendments to our
amended and restated partnership agreement without the approval
of any limited partner or assignee if those amendments, in the
discretion of our general partner, reflect:
|
|
|
|
|
a change that in the good faith opinion of our general partner
does not adversely affect our limited partners in any material
respect;
|
|
|
|
a change to divide our outstanding units into a greater number
of units, to combine the outstanding units into a smaller number
of units or to reclassify our units in a manner that in the good
faith opinion of our general partner does not adversely affect
any class of our limited partners in any material respect;
|
|
|
|
a change that our general partner deems appropriate or necessary
to satisfy any requirements, conditions or guidelines contained
in any order, rule or regulation of any federal or state agency
or contained in any federal or state statute; or
|
|
|
|
a change that our general partner deems appropriate or necessary
to facilitate the trading of any of the LP Units or comply with
any rule, regulation, requirement, condition or guideline of any
exchange on which any units are or will be listed or admitted to
trading.
|
Opinion of Counsel and Partnership Unitholder
Approval. No amendments to our amended and
restated partnership agreement will become effective without the
approval of holders of at least 80% of the LP Units unless we
obtain an opinion of counsel to the effect that the amendment
will not result in the loss of limited liability of any of our
limited partners or cause us or any of our operating
partnerships to be treated as an association taxable as a
corporation for federal income tax purposes.
Any amendment to our amended and restated partnership agreement
that reduces the voting percentage required to take any action
must be approved by the affirmative vote of our limited partners
constituting not less than the voting requirement sought to be
reduced.
Merger,
Sale or Other Disposition of Assets
Our amended and restated partnership agreement generally
prohibits our general partner, without the prior approval of the
holders of at least two-thirds of the outstanding LP Units and
special approval, from causing us to, among other things, sell,
exchange or otherwise dispose of all or substantially all of the
consolidated assets owned by us and our operating partnerships.
In addition, our amended and restated partnership agreement
generally prohibits our general partner from causing us to merge
or consolidate with another entity without special approval. Our
general partner may, however, mortgage, pledge, hypothecate or
grant a security interest in all or substantially all of our
assets without the approval of the holders of outstanding LP
Units and without special approval.
9
Withdrawal
or Removal of Our General Partner
Our general partner has agreed not to withdraw voluntarily as a
general partner of the Partnership prior to the later of
December 23, 2011 or the date the ESOP loan, which is
expected to mature on March 28, 2011, is paid in full. On
or after the later of such dates, our general partner may
withdraw as general partner of the Partnership by giving
90 days advance written notice, provided such
withdrawal is approved by the vote of the holders of not less
than 80% of the outstanding LP Units or we receive an opinion of
counsel regarding limited liability and tax matters.
Upon receiving notice of the withdrawal of our general partner,
prior to the effective date of such withdrawal, the holders of a
majority of the outstanding LP Units may select a successor to
the withdrawing general partner. If a successor is not elected,
we will be dissolved, wound up and liquidated, unless within
90 days of that withdrawal, all of our partners agree in
writing to continue our business and to appoint a successor
general partner. Please read Termination and
Dissolution below.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than 80% of the
outstanding LP Units, we receive an opinion of counsel regarding
limited liability and tax matters, the successor general partner
or an affiliate thereof agrees to indemnify and hold harmless
our general partner and its affiliates from any liability or
obligation arising out of, or causes the general partner and its
affiliates to be released from, any and all liabilities and
obligations (including loan guarantees) under fringe benefit
plans sponsored by the general partner or any of its affiliates
in connection with our business, except as otherwise prohibited
by our amended and restated partnership agreement, and all
required regulatory approvals for removal of our general partner
shall have been obtained. Any removal of our general partner is
also subject to the approval of a successor general partner by
the vote of the holders of a majority of the outstanding LP
Units and the agreement of the successor general partner or one
of its affiliates to indemnify the removed general partner
against, or to cause it to be released from, certain liabilities.
If our general partner withdraws or is removed, we are required
to reimburse the departing general partner for all amounts due
the departing general partner.
Transfer
of General Partner Interest
Our general partner is prohibited under our amended and restated
partnership agreement from transferring its general partner
interest.
Termination
and Dissolution
We will continue as a limited partnership until the close of
business on December 31, 2086 or until earlier terminated
under our amended and restated partnership agreement. We will
dissolve upon:
(1) the expiration of our term on December 31, 2086;
(2) the withdrawal of our general partner unless a person
becomes a successor general partner prior to or on the effective
date of such withdrawal;
(3) the bankruptcy or dissolution of our general partner,
or any other event that results in its ceasing to be our general
partner other than by reason of a withdrawal or removal; or
(4) the election of our general partner to dissolve us, if
approved by the holders of two-thirds of the outstanding LP
Units.
Upon a dissolution under clause (2) or (3) and the
failure of all partners to agree in writing to continue our
business and to elect a successor general partner, the holders
of LP Units representing a Majority Interest may also elect,
within 180 days of such dissolution, to reconstitute the
Partnership and continue our business on the same terms and
conditions described in our amended and restated partnership
agreement by forming a new limited partnership on terms
identical to those in our amended and restated partnership
agreement and having as general partner a person approved by the
holders of a majority of the outstanding LP Units subject to our
receipt of an opinion of counsel to the effect that:
(1) the action would not result in the loss of limited
liability of any limited partner; and
(2) neither the Partnership nor the reconstituted limited
partnership would be treated as an association taxable as a
corporation for federal income tax purposes.
10
Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new partnership by the holders of LP Units representing a
Majority Interest, our general partner or, if our general
partner has withdrawn, been removed, dissolved or become
bankrupt, the liquidator authorized to wind up our affairs will,
acting with all of the powers of our general partner that the
liquidator deems appropriate or necessary in its good faith
judgment, liquidate our assets and apply and distribute the
proceeds of the liquidation as described in How We Make
Cash Distributions Distributions of Cash Upon
Liquidation.
Meetings;
Voting
For purposes of determining the holders of LP Units entitled to
notice of or to vote at any meeting or to give approvals without
a meeting, our general partner may set a record date, which date
for purposes of notice of a meeting shall not be less than
10 days nor more than 60 days before the date of the
meeting. If a meeting is adjourned, notice need not be given of
the adjourned meeting and a new record date does not need to be
set, if the time and place thereof are announced at the meeting
at which the adjournment is taken, unless such adjournment
(together with any prior adjournments that did not have a new
record date set) is for more than 60 days. The Partnership
may transact any business at the adjourned meeting that might
have been transacted at the original meeting.
Any action that is required or permitted to be taken by our
unitholders may be taken either at a meeting of our unitholders
or without a meeting if consents in writing describing the
action so taken are signed by holders of the number of units
necessary to authorize or take that action at a meeting, except
that election of directors by unitholders may only be done at a
meeting. Special meetings of our unitholders may be called by
our general partner or by our unitholders owning at least 20% of
the outstanding LP Units.
Following either (a) the receipt of approvals from the CPUC
and the PaPUC of the provisions in our amended and restated
partnership agreement providing for our public unitholders to
elect some or all of the members of the board of directors of
our general partner (the public election provisions)
or (b) a determination by the board of directors of our
general partner that such approvals are not required, annual
meetings of limited partners for the election of directors to
the board of directors of our general partner (as described
below), and such other matters as the board of directors of our
general partner submits to a vote of the limited partners, will
be held on the first Tuesday in June of each year or on such
other date as is fixed by our general partner. If the board of
directors of our general partner is not able to make the
determination described in (b) above, our general partner
will be obligated under our amended and restated partnership
agreement to use commercially reasonable efforts to obtain the
approvals described in (a) above. If approval by the CPUC
and PaPUC of the public election provisions or a determination
by the board of directors of our general partner that such
approvals are not required occurs after February 1 of a year,
the first annual meeting will be held in the year following such
approval or determination. Unitholders may vote either in person
or by proxy at meetings. The holders of a majority of the
outstanding LP Units, represented in person or by proxy, will
constitute a quorum.
Except as described below with respect to the election of
directors, each record holder of an LP Unit has one vote per LP
Unit, although additional limited partner interests having
special voting rights could be issued. Please read
Issuance of Additional Securities. LP
Units held in nominee or street name account will be voted by
the broker or other nominee in accordance with the instruction
of the beneficial owner unless the arrangement between the
beneficial owner and its nominee provides otherwise. With
respect to the election of directors, our amended and restated
partnership agreement will provide that if, at any time, any
person or group beneficially owns 20% or more of the outstanding
LP Units, then all LP Units owned by such person or group in
excess of 20% of the outstanding LP Units may not be voted, and
in each case, the foregoing LP units will not be counted when
calculating the required votes for such matter and will not be
deemed to be outstanding for purposes of determining a quorum
for such meeting. Such LP Units will not be treated as a
separate class for purposes of our amended and restated
partnership agreement. Notwithstanding the foregoing, the board
of directors of our general partner may, by action specifically
referencing votes for the election of directors, determine that
the limitation described above will not apply to a specific
person or group. For so long as the general partner of Holdings
has the right to designate any Holdco GP Directors (as defined
below), BGH GP Holdings, LLC (BGH GP), ArcLight
Capital Partners, LLC
11
and Kelso & Company and their affiliates will not vote
their LP Units in connection with the election of Public
Directors, and Public Limited Partners will be
defined as all limited partners other than BGH GP, ArcLight
Capital Partners, LLC and Kelso & Company and their
affiliates. Once the general partner of Holdings ceases to have
the right to designate any Holdco GP Directors, Public
Limited Partners will mean all limited partners.
Board of
Directors
General. The number of directors of our
general partners board will be not less than six and not
more than nine. Following either approval by the CPUC and the
PaPUC of the public election provisions or a determination by
the board of directors of our general partner that such
approvals are not required, any decrease in the number of
directors by our general partners board may not have the
effect of shortening the term of any incumbent director. The
board of directors of our general partner must maintain at least
three directors meeting the independence and experience
requirements of any national securities exchange on which our LP
Units are listed or quoted
Public Directors. Following either approval by
the CPUC and the PaPUC of the public election provisions or a
determination by the board of directors of our general partner
that such approvals are not required, the Public Limited
Partners (as defined in our amended and restated partnership
agreement, and described above) will be entitled to elect all
members of the board of our general partner, other than the
Holdco GP Directors, as described below (such directors elected
by the Public Limited Partners are referred to as the
Public Directors). Following either approval by the
CPUC and the PaPUC of the public election provisions or a
determination by the board of directors of our general partner
that such approvals are not required, the Public Directors will
be classified with respect to their terms of office by dividing
them into three classes, each class to be as nearly equal in
number as possible. The Public Directors that are designated to
Class I will serve for an initial term that expires at the
first annual meeting, the Public Directors designated to
Class II will serve for an initial term that expires at the
second annual meeting, and the Public Directors designated to
Class III will serve for an initial term that expires at
the third annual meeting. At each annual meeting of our
unitholders, directors to replace Public Directors whose terms
expire at such annual meeting will be elected to hold office
until the third succeeding annual meeting. Each Public Director
will hold office for the term for which such director is elected
or until such directors earlier death, resignation or
removal. Any vacancies may be filled by a majority of the
remaining Public Directors then in office. A Public Director may
be removed only for cause and only upon a vote of the majority
of the remaining Public Directors then in office.
Holdco GP Directors. Our amended and restated
partnership agreement provides that the general partner of
Holdings will have the right to appoint all of the members of
the board of directors of our general partner until the earlier
to occur of (a) the receipt of approvals from the CPUC and
the PaPUC of the public election provisions or (b) a
determination by the board of directors of our general partner
that such approvals are not required.
After approval by the CPUC and PaPUC of the public election
provisions or determination by the board of directors of our
general partner that such approvals are not required, the
amended and restated partnership agreement will provide that the
general partner of Holdings will be entitled to designate up to
two directors to the board of directors of our general partner.
Such directors are referred to in the amended and restated
partnership agreement as Holdco GP Directors. Our
amended and restated partnership agreement provides that the
general partner of Holdings shall have the right to designate
(a) two directors for so long as BGH GP, ArcLight Capital
Partners, LLC and Kelso & Company and their affiliates
(directly and indirectly), collectively own at least 10,495,107
LP Units (85% of the number they will own after the closing of
the merger) or (b) one director for so long as they
collectively own at least 5,247,554 LP Units (42.5% of the
number they will own after the closing of the merger).
Nominations of Public Directors. Nominations
of persons for election as Public Directors may be made at an
annual meeting of the limited partners only (a) by or at
the direction of the Public Directors or any committee thereof
or (b) by any Public Limited Partner who (i) was a
record holder at the time the notice provided for in our amended
and restated partnership agreement is delivered to our general
partner, (ii) is entitled to vote at the meeting and
(iii) complies with the notice procedures set forth in our
amended and restated partnership agreement.
For any nominations brought before an annual meeting by a Public
Limited Partner, the limited partner must give timely notice
thereof in writing to our general partner. The notice must
contain certain information as described
12
in our amended and restated partnership agreement. To be timely,
a Public Limited Partners notice must be delivered to our
general partner not later than the close of business on the
90th day, nor earlier than the close of business on the
120th day, prior to the first anniversary of the preceding
years annual meeting (provided, however, that in the event
that the date of the annual meeting is more than 30 days
before or more than 70 days after such anniversary date,
notice by the limited partner must be so delivered not earlier
than the close of business on the 120th day prior to such
annual meeting and not later than the close of business on the
later of the 90th day prior to such annual meeting or the
10th day following the day on which public announcement of
the date of such meeting is first made by us or our general
partner). For purposes of the 2011 annual meeting, if such
meeting is held, the first anniversary of the preceding
years annual meeting will be deemed to be June 1,
2011. The public announcement of an adjournment or postponement
of an annual meeting will not commence a new time period (or
extend any time period) for the giving of a limited
partners notice as described above.
In the event that the number of Public Directors is increased
effective at an annual meeting and there is no public
announcement by us or our general partner naming the nominees
for the additional directorships at least 100 days prior to
the first anniversary of the preceding years annual
meeting, a Public Limited Partners notice will also be
considered timely, but only with respect to nominees for the
additional directorships, if it is delivered to our general
partner not later than the close of business on the
10th day following the day on which such public
announcement is first made by us or our general partner.
Nominations of persons for election as Public Directors also may
be made at a special meeting of limited partners at which
directors are to be elected in accordance with the provisions of
our amended and restated partnership agreement.
Only such persons who are nominated in accordance with the
procedures set forth in our amended and restated partnership
agreement will be eligible to be elected at an annual or special
meeting of limited partners to serve as Public Directors.
Notwithstanding the foregoing, unless otherwise required by law,
if the Public Limited Partner (or a qualified representative of
the limited partner) does not appear at the annual or special
meeting of limited partners to present a nomination, such
nomination will be disregarded notwithstanding that proxies in
respect of such vote may have been received by our general
partner or us.
In addition to the provisions described above and in our amended
and restated partnership agreement, a Public Limited Partner
must also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder; provided,
however, that any references in our amended and restated
partnership agreement to the Exchange Act or the rules
promulgated thereunder are not intended to and do not limit any
requirements applicable to nominations pursuant to our amended
and restated partnership agreement, and compliance with our
amended and restated partnership agreement is the exclusive
means for a limited partner to make nominations.
Indemnification
Our amended and restated partnership agreement, the agreements
of limited partnership of our operating partnerships (the
Operating Partnership Agreements, and together with
our amended and restated partnership agreement, the
Partnership Agreements) and the management
agreements of our operating partnerships provide that we or our
operating partnerships, as the case may be, shall indemnify (to
the extent permitted by applicable law) certain persons (each,
an Indemnitee) against expenses (including legal
fees and expenses), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such Indemnitee
in connection with any threatened, pending or completed claim,
demand, action, suit or proceeding (a claim) to
which the Indemnitee is or was an actual or threatened party and
which relates to the Partnership Agreements or our, or any or
our operating partnerships, property, business, affairs or
management. This indemnity is available only if the Indemnitee
acted in good faith and the action or omission which is the
basis of such claim, demand, action, suit or proceeding does not
involve the gross negligence or willful misconduct of such
Indemnitee. Indemnitees include our general partner, any
affiliates of such general partner, any person who is or was a
director, officer, manager, member, employee or agent of such
general partner or any affiliate, or any person who is or was
serving at the request of such general partner or any such
affiliate as a director, officer, manager, member, partner,
trustee, employee or agent of another individual, corporation,
limited liability company, partnership, trust, unincorporated
organization, association or other entity; and an Indemnitee
shall be indemnified only in connection with any claim made by
reason of such Indemnitees
13
status as such or any action taken or omitted to be taken in the
Indemnitees capacity as such. Expenses subject to
indemnity will be paid by us to the Indemnitee in advance,
subject to receipt of an undertaking by or on behalf of the
Indemnitee to repay such amount if it is ultimately determined
by a court of competent jurisdiction that the Indemnitee is not
entitled to indemnification. We maintain a liability insurance
policy on behalf of certain of the Indemnitees.
Section 18-108
of the Delaware Limited Liability Company Act provides that,
subject to such standards and restrictions set forth in its
limited liability company agreement, a Delaware limited
liability company may indemnify and hold harmless any member or
manager or other person from and against any and all claims and
demands whatsoever. Article V of the existing limited
liability company agreement of our general partner currently
provides (and Article V of the amended and restated limited
liability company agreement of our general partner expected to
be entered into and effective as of the closing of the merger
will provide) for the indemnification of affiliates of our
general partner and members, managers, partners, officers,
directors, employees, agents and trustees of our general partner
or any affiliate of our general partner and such persons who
serve at the request of our general partner as members,
managers, partners, officers, directors, employees, agents,
trustees and fiduciaries of any other enterprise against certain
liabilities under certain circumstances.
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material tax considerations
that may be relevant to owning LP Units. This section is based
upon current provisions of the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code), existing and
proposed Treasury regulations promulgated under the Internal
Revenue Code (the Treasury Regulations) and current
administrative rulings and court decisions, all of which are
subject to change. Changes in these authorities may cause the
tax consequences to vary substantially from the consequences
described below. Unless the context otherwise requires,
references in this section to us or we
are references to Buckeye Partners, L.P. and our operating
subsidiaries.
The following discussion does not comment on all federal income
tax matters affecting us or our unitholders. Moreover, the
discussion focuses on our unitholders who are individual
citizens or residents of the United States and has only limited
application to corporations, estates, trusts, nonresident aliens
or other unitholders subject to specialized tax treatment, such
as tax-exempt institutions, foreign persons, individual
retirement accounts (IRAs), real estate investment trusts
(REITs) or mutual funds. In addition, the discussion only
comments to a limited extent on state, local, and foreign tax
consequences. Accordingly, we encourage each prospective
Partnership unitholder to consult, and depend on, its own tax
advisor in analyzing the federal, state, local and foreign tax
consequences particular to it of the ownership or disposition of
LP Units.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or our prospective unitholders. Instead,
we will rely on opinions of Vinson & Elkins L.L.P.
Unlike a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
may not be sustained by a court if contested by the IRS. Any
contest of this sort with the IRS may materially and adversely
impact the market for LP Units and the prices at which LP Units
trade. In addition, the costs of any contest with the IRS,
principally legal, accounting and related fees, will result in a
reduction in cash available for distribution to our unitholders
and thus will be borne indirectly by our unitholders.
Furthermore, the tax treatment of the Partnership, or of an
investment in us, may be significantly modified by future
legislative or administrative changes or court decisions. Any
modifications may or may not be retroactively applied.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us.
For the reasons described below, Vinson & Elkins
L.L.P. has not rendered an opinion with respect to the following
specific federal income tax issues: (1) the treatment of a
Partnership unitholder whose LP Units are loaned to a short
seller to cover a short sale of units (please read
Tax Consequences of LP Unit
Ownership Treatment of Short Sales);
(2) whether our monthly convention for allocating taxable
income and losses is permitted by existing Treasury Regulations
(please read Disposition of LP
Units Allocations Between
14
Transferors and Transferees); and (3) whether our
method for depreciating Section 743 adjustments is
sustainable in certain cases (please read Tax
Consequences of LP Unit Ownership Section 754
Election and Uniformity of LP
Units).
Partnership
Status
An entity treated as a partnership for federal income tax
purposes generally incurs no federal income tax liability.
Instead, each partner of a partnership is required to take into
account its share of items of income, gain, loss and deduction
of the partnership in computing its federal income tax
liability, regardless of whether cash distributions are made to
it by the partnership. Distributions by a partnership to a
partner are generally not taxable to the partnership or the
partner, unless the amount of cash distributed to it is in
excess of the partners adjusted basis in its partnership
interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception, exists with respect to
publicly traded partnerships for which 90% or more of the gross
income for every taxable year consists of qualifying
income. Qualifying income includes income and gains
derived from the transportation, processing and marketing of
natural resources, including oil, gas, and products thereof.
Other types of qualifying income include interest (other than
from a financial business), dividends, gains from the sale of
real property and gains from the sale or other disposition of
capital assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 5% of
our current gross income is not qualifying income; however, this
estimate could change from time to time. Based upon and subject
to this estimate, the factual representations made by us as
described below, and a review of the applicable legal
authorities described above, Vinson & Elkins L.L.P. is
of the opinion that at least 90% of our current gross income
constitutes qualifying income, we will be classified as a
partnership for federal income tax purposes, and except for
Buckeye Gulf Coast Pipe Lines, L.P., each of our operating
subsidiaries will be disregarded as an entity separate from us
or will be treated as a partnership for federal income tax
purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us. The
representations made by us upon which Vinson & Elkins
L.L.P. has relied include:
(1) Except for Buckeye Gulf Coast Pipe Lines, L.P., neither
we nor any of our operating subsidiaries that are partnerships
or limited liability companies has elected or will elect to be
treated as a corporation;
(2) For each taxable year, more than 90% of our gross
income has been and will be income that Vinson &
Elkins L.L.P. has opined or will opine is qualifying
income within the meaning of Section 7704(d) of the
Internal Revenue Code; and
(3) Each hedging transaction that we treat as resulting in
qualifying income has been and will be appropriately identified
as a hedging transaction pursuant to applicable Treasury
Regulations, and has been and will be associated with oil, gas,
or products thereof that are held or to be held by us in
activities that Vinson & Elkins L.L.P. has opined or
will opine result in qualifying income.
We believe that these representations have been true in the past
and expect that these representations will be true in the future.
The U.S. federal income tax treatment of publicly traded
partnerships, including us, may be modified by future
legislation or judicial or administrative interpretation, all of
which may be applied retroactively. For example, legislation
introduced in the U.S. Congress could affect the
U.S. federal income tax treatment of certain publicly
traded partnerships. Although we do not believe such legislation
would affect our tax treatment as a partnership, the proposed
legislation could be modified. We are unable to predict whether
any such changes, or other proposals, will ultimately be enacted.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case
the IRS may also require that we make adjustments with respect
to our unitholders or pay other amounts), we will be treated as
if we had transferred all of our assets, subject to liabilities,
to a newly formed corporation, on the first day of the year in
which
15
we fail to meet the Qualifying Income Exception, in return for
stock in that corporation and then distributed that stock to our
unitholders in liquidation of their interests in us. This deemed
contribution and liquidation should be tax-free to our
unitholders and us so long as we, at that time, do not have
liabilities in excess of the tax basis of our assets.
Thereafter, we would be treated as a corporation for federal
income tax purposes.
If we are treated as an association taxable as a corporation in
any taxable year, either as a result of a failure to meet the
Qualifying Income Exception or otherwise, our items of income,
gain, loss and deduction would be reflected only on our tax
return rather than being passed through to our unitholders, and
our net income would be taxed to us at corporate rates. In
addition, any distribution made to a Partnership unitholder
would be treated as taxable dividend income to the extent of our
current or accumulated earnings and profits, or, in the absence
of earnings and profits, a nontaxable return of capital to the
extent of the unitholders tax basis in its LP Units, and
taxable capital gain after the unitholders tax basis in
its LP Units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in our
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of LP
Units.
The remainder of this section is based on Vinson &
Elkins L.L.P.s opinion that we will be classified as a
partnership for federal income tax purposes.
Limited
Partner Status
Unitholders who are admitted as limited partners of the
Partnership as well as assignees who have executed and delivered
transfer applications, and are awaiting admission as limited
partners, and our unitholders whose LP Units are held in street
name or by a nominee and who have the right to direct the
nominee in the exercise of all substantive rights attendant to
the ownership of their units, will be treated as partners of us
for federal income tax purposes. As there is no direct or
indirect controlling authority addressing assignees of LP Units
who are entitled to execute and deliver transfer applications
and thereby become entitled to direct the exercise of attendant
rights, but who fail to execute and deliver transfer
applications, Vinson & Elkins L.L.P.s opinion
does not extend to these persons. Furthermore, a purchaser or
other transferee of LP Units who does not execute and deliver a
transfer application may not receive some federal income tax
information or reports furnished to record holders of LP Units
unless the LP Units are held in a nominee or street name account
and the nominee or broker has executed and delivered a transfer
application for those units.
A beneficial owner of LP Units whose LP Units have been
transferred to a short seller to complete a short sale would
appear to lose its status as a partner with respect to those LP
Units for federal income tax purposes. Please read
Tax Consequences of LP Unit
Ownership Treatment of Short Sales.
Items of our income, gain, loss or deduction would not appear to
be reportable by a Partnership unitholder who is not a partner
for federal income tax purposes, and any cash distributions
received by a Partnership unitholder who is not a partner for
federal income tax purposes would therefore appear to be fully
taxable as ordinary income. These unitholders are urged to
consult their own tax advisors with respect to their tax
consequences of holding LP Units.
The references to Partnership unitholders in the
discussion that follows are to persons who are treated as
partners in the Partnership for federal income tax purposes.
Tax
Consequences of LP Unit Ownership
Flow-Through
of Taxable Income
Subject to the discussion below under Entity
Level Collections, we do not pay any federal income
tax. Instead, each Partnership unitholder will be required to
report on its income tax return its share of our income, gains,
losses and deductions without regard to whether corresponding
cash distributions are received by it. Consequently, we may
allocate income to a Partnership unitholder even if it has not
received a cash distribution. Each Partnership unitholder will
be required to include in income its allocable share of our
income, gain, loss and deduction for our taxable year or years
ending with or within its taxable year. Our taxable year ends on
December 31.
16
Treatment
of Distributions
Distributions made by us to a Partnership unitholder generally
will not be taxable to the Partnership unitholder for federal
income tax purposes, except to the extent the amount of any such
cash distribution exceeds its tax basis in its LP Units
immediately before the distribution. Cash distributions made by
us to a Partnership unitholder in an amount in excess of its tax
basis in its LP Units generally will be considered to be gain
from the sale or exchange of those LP Units, taxable in
accordance with the rules described under
Disposition of LP Units. To the extent
that cash distributions made by us cause a Partnership
unitholders at risk amount to be less than
zero at the end of any taxable year, it must recapture losses
from us deducted in previous years. Please read
Limitations on Deductibility of Losses
below.
Any reduction in a Partnership unitholders share of our
liabilities for which no partner bears the economic risk of
loss, known as nonrecourse liabilities, will be
treated as a distribution by us of cash to that Partnership
unitholder. A decrease in a unitholders percentage
interest in us because of our issuance of additional LP Units
will decrease the unitholders share of our nonrecourse
liabilities and thus will result in a corresponding deemed
distribution of cash, which may constitute a non-pro rata
distribution. A non-pro rata distribution of money or property
may result in ordinary income to a Partnership unitholder,
regardless of its tax basis in its LP Units, if the distribution
reduces the Partnership unitholders share of our
unrealized receivables including depreciation
recapture,
and/or
substantially appreciated inventory items, both as
defined in Section 751 of the Internal Revenue Code, and
collectively referred to as, Section 751
Assets. If the distribution reduces a Partnership
unitholders share of Section 751 Assets, it will be
treated as having received its proportionate share of the
Section 751 Assets and then having exchanged those assets
with us in return for the non-pro rata portion of the actual
distribution made to it. This latter deemed exchange will
generally result in the Partnership unitholders
realization of ordinary income. That income will equal the
excess of (1) the non-pro rata portion of that distribution
over (2) the Partnership unitholders tax basis
(generally zero) for the share of Section 751 Assets deemed
relinquished in the exchange.
Basis
of LP Units
A unitholders initial tax basis for its LP units will be
the amount it paid for the LP units plus its share of our
nonrecourse liabilities. That tax basis will be increased by its
share of our income and by any increases in its share of our
nonrecourse liabilities. That tax basis generally will be
decreased, but not below zero, by distributions to it from us,
by its share of our losses, by any decreases in its share of our
nonrecourse liabilities and by its share of our expenditures
that are not deductible in computing taxable income and are not
required to be capitalized. A Partnership unitholders
share of our nonrecourse liabilities will generally be based on
the Book-Tax Disparity (as described in
Allocation of Income, Gain, Loss and
Deduction below) attributable to such unitholder, to the
extent of such amount, and, thereafter, its share of our
profits. Please read Disposition of LP
Units Recognition of Gain or Loss.
Limitations
on Deductibility of Losses
The deduction by a Partnership unitholder of its share of our
losses will be limited to its tax basis in its LP Units and, in
the case of an individual unitholder, estate, trust or a
corporate unitholder (if more than 50% of the value of the
corporate unitholders stock is owned directly or
indirectly by or for five or fewer individuals or some
tax-exempt organizations), to the amount for which the
Partnership unitholder is considered to be at risk
with respect to our activities, if that amount is less than its
tax basis. A Partnership unitholder subject to these limitations
must recapture losses from us deducted in previous years to the
extent that distributions cause its at-risk amount to be less
than zero at the end of any taxable year. Losses disallowed to a
Partnership unitholder or recaptured as a result of these
limitations will carry forward and will be allowable as a
deduction in a later year to the extent that its at-risk amount
is subsequently increased, provided such losses do not exceed
such Partnership unitholders tax basis in its LP Units.
Upon the taxable disposition of an LP Unit, any gain recognized
by a Partnership unitholder can be offset by losses that were
previously suspended by the at-risk limitation but may not be
offset by losses suspended by the basis limitation. Any loss
previously suspended by the at-risk limitation in excess of that
gain would no longer be utilizable.
17
In general, a Partnership unitholder will be at risk to the
extent of its tax basis in LP Units, excluding any portion of
that tax basis attributable to its share of our nonrecourse
liabilities, reduced by (i) any portion of that basis
representing amounts otherwise protected against loss because of
a guarantee, stop loss agreement or other similar arrangement
and (ii) any amount of money it borrows to acquire or hold
LP Units, if the lender of those borrowed funds owns an interest
in us, is related to the Partnership unitholder or can look only
to the LP Units for repayment. A Partnership unitholders
at-risk amount will increase or decrease as the tax basis of
such Partnership unitholders LP Units increases or
decreases, other than tax basis increases or decreases
attributable to increases or decreases in its share of our
nonrecourse liabilities.
In addition to the basis and at-risk limitations on the
deductibility of losses, the passive loss limitations generally
provide that individuals, estates, trusts and some closely held
corporations and personal service corporations are permitted to
deduct losses from passive activities, which are generally
defined as trade or business activities in which the taxpayer
does not materially participate, only to the extent of the
taxpayers income from passive activities. The passive loss
limitation is applied separately with respect to each publicly
traded partnership. Consequently, any passive losses we generate
will be available to offset only our passive income generated in
the future and will not be available to offset income from other
passive activities or investments (including our investments or
a Partnership unitholders investments in other publicly
traded partnerships), or a Partnership unitholders salary
or active business income. Passive losses that are not
deductible because they exceed the Partnership unitholders
share of income we generate may be deducted by such Partnership
unitholder in full when it disposes of its entire investment in
us in a fully taxable transaction with an unrelated party. The
passive activity loss rules are applied after other applicable
limitations on deductions, including the at-risk rules and the
tax basis limitation.
A Partnership unitholders share of our net income may be
offset by any of our suspended passive losses, but it may not be
offset by any other current or carryover losses from other
passive activities, including those attributable to other
publicly traded partnerships.
Limitations
on Interest Deductions
The deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
|
|
|
|
|
interest on indebtedness properly allocable to property held for
investment;
|
|
|
|
interest expense attributed to portfolio income; and
|
|
|
|
the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
|
The computation of a Partnership unitholders investment
interest expense will take into account interest on any margin
account borrowing or other loan incurred to purchase or carry a
unit. Net investment income includes gross income from property
held for investment and amounts treated as portfolio income
under the passive loss rules, less deductible expenses, other
than interest, directly connected with the production of
investment income, but generally does not include gains
attributable to the disposition of property held for investment
or qualified dividend income. Absent new legislation extending
the current treatment of qualified dividends, such treatment is
scheduled to expire on December 31, 2010. The IRS has
indicated that the net passive income earned by a publicly
traded partnership will be treated as investment income to its
unitholders. In addition, a Partnership unitholders share
of our portfolio income will be treated as investment income.
Entity-Level Collections
If we are required or elect under applicable law to pay any
federal, state or local income tax on behalf of any Partnership
unitholder or any former Partnership unitholder, we are
authorized to pay those taxes from our funds. That payment, if
made, will be treated as a distribution of cash to the
Partnership unitholder on whose behalf the payment was made. If
the payment is made on behalf of a Partnership unitholder whose
identity cannot be determined, we are authorized to treat the
payment as a distribution to all current Partnership
unitholders. Payments
18
by us as described above could give rise to an overpayment of
tax on behalf of a Partnership unitholder in which event the
Partnership unitholder would be required to file a claim in
order to obtain a credit or refund.
Allocation
of Income, Gain, Loss and Deduction
In general, our items of income, gain, loss and deduction will
be allocated among our unitholders in accordance with their
percentage interests in us. Specified items of our income, gain,
loss and deduction will be allocated under Section 704(c)
of the Internal Revenue Code to account for (i) any
difference between the tax basis and fair market value of our
assets at the time of an offering and (ii) any difference
between the tax basis and fair market value of any property
contributed to us that exists at the time of such contribution,
together, referred to in this discussion as Contributed
Property.
In the event that we issue additional LP Units or engage in
certain other transactions in the future Reverse
Section 704(c) Allocations, similar to the
Section 704(c) Allocations described above, will be made to
all persons who are holders of LP Units immediately prior to
such issuance or other transactions to account for the
difference between the book basis for purposes of
maintaining capital accounts and the fair market value of all
property held by us at the time of such issuance or other
transactions. In addition, items of recapture income will be
allocated to the extent possible to the Partnership unitholder
who was allocated the deduction giving rise to the treatment of
that gain as recapture income in order to minimize the
recognition of ordinary income by other Partnership unitholders.
Finally, although we do not expect that our operations will
result in the creation of negative capital accounts, if negative
capital accounts nevertheless result, items of our income and
gain will be allocated in an amount and manner sufficient to
eliminate the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a Partnership
unitholders share of an item of income, gain, loss or
deduction only if the allocation has substantial economic
effect. In any other case, a Partnership unitholders share
of an item will be determined on the basis of its interest in
us, which will be determined by taking into account all the
facts and circumstances, including:
|
|
|
|
|
its relative contributions to us;
|
|
|
|
the interests of all the partners in profits and losses;
|
|
|
|
the interest of all the partners in cash flow; and
|
|
|
|
the rights of all the partners to distributions of capital upon
liquidation.
|
Vinson & Elkins L.L.P. is of the opinion that, with
the exception of the issues described in
Section 754 Election and
Disposition of LP Units
Allocations Between Transferors and Transferees,
allocations under our amended and restated partnership agreement
will be given effect for federal income tax purposes in
determining a Partnership unitholders share of an item of
income, gain, loss or deduction.
Treatment
of Short Sales
A Partnership unitholder whose LP Units are loaned to a
short seller to cover a short sale of LP Units may
be considered as having disposed of those units. If so, it would
no longer be treated for tax purposes as a partner with respect
to those LP Units during the period of the loan and may
recognize gain or loss from the disposition. As a result, during
this period:
|
|
|
|
|
any of our income, gain, loss or deduction with respect to those
LP Units would not be reportable by the Partnership unitholder;
|
|
|
|
any cash distributions received by the Partnership unitholder as
to those LP Units would be fully taxable; and
|
|
|
|
all of these distributions would appear to be ordinary income.
|
19
Because there is no direct or indirect controlling authority on
the issue relating to partnership interests, Vinson &
Elkins L.L.P. has not rendered an opinion regarding the
treatment of a Partnership unitholder whose LP Units are loaned
to a short seller. Therefore, Partnership unitholders desiring
to assure their status as partners and avoid the risk of gain
recognition from a loan to a short seller are urged to modify
any applicable brokerage account agreements to prohibit their
brokers from borrowing and loaning their LP Units. The IRS has
previously announced that it is studying issues relating to the
tax treatment of short sales of partnership interests. Please
also read Disposition of LP Units
Recognition of Gain or Loss.
Alternative
Minimum Tax
Each Partnership unitholder will be required to take into
account its distributive share of any items of our income, gain,
loss or deduction for purposes of the alternative minimum tax.
The current minimum tax rate for non-corporate taxpayers is 26%
on the first $175,000 of alternative minimum taxable income in
excess of the exemption amount and 28% on any additional
alternative minimum taxable income. Prospective Partnership
unitholders are urged to consult their tax advisors with respect
to the impact of an investment in LP Units on their liability
for the alternative minimum tax.
Tax
Rates
Under current law, the highest marginal U.S. federal income
tax rate applicable to ordinary income of individuals is 35% and
the highest marginal U.S. federal income tax rate
applicable to long-term capital gains (generally, capital gains
on certain assets held for more than 12 months) of
individuals is 15%. However, absent new legislation extending
the current rates, beginning January 1, 2011, the highest
marginal U.S. federal income tax rate applicable to
ordinary income and long-term capital gains of individuals will
increase to 39.6% and 20%, respectively. Moreover, these rates
are subject to change by new legislation at any time.
The recently enacted Patient Protection and Affordable Care Act
of 2010, as amended by the Health Care and Education
Affordability Reconciliation Act of 2010, will impose a 3.8%
Medicare tax on net investment income earned by certain
individuals, estates and trusts for taxable years beginning
after December 31, 2012. For these purposes, net investment
income generally includes a unitholders allocable share of
our income and gain realized by a unitholder from a sale of LP
units. In the case of an individual, the tax will be imposed on
the lesser of (1) the unitholders net investment
income or (2) the amount by which the unitholders
modified adjusted gross income exceeds $250,000 (if the
unitholder is married and filing jointly or a surviving spouse),
$125,000 (if the unitholder is married and filing separately) or
$200,000 (in any other case). In the case of an estate or trust,
the tax will be imposed on the lesser of (1) undistributed
net investment income, or (2) the excess adjusted gross
income over the dollar amount at which the highest income tax
bracket applicable to an estate or trust begins.
Section 754
Election
We have made the election permitted by Section 754 of the
Internal Revenue Code. That election is irrevocable without the
consent of the IRS unless there is a constructive termination of
the Partnership. Please read Disposition of LP
Units Constructive Termination. That election
will generally permit us to adjust an LP Unit purchasers
tax basis in our assets (inside basis) under
Section 743(b) of the Internal Revenue Code to reflect its
purchase price. The Section 743(b) adjustment separately
applies to any transferee of a unitholder who purchases LP units
from another unitholder based upon the values and bases of our
assets at the time of the transfer to the transferee. The
Section 743(b) adjustment does not apply to a person who
purchases LP Units directly from us. For purposes of this
discussion, a Partnership unitholders inside basis in our
assets will be considered to have two components: (1) its
share of our tax basis in our assets (common basis)
and (2) its Section 743(b) adjustment to that tax
basis.
Where the remedial allocation method is adopted (which we have
adopted as to all of our properties), the Treasury Regulations
under Section 743 of the Internal Revenue Code require a
portion of the Section 743(b) adjustment that is
attributable to recovery property subject to depreciation under
Section 168 of the Internal Revenue Code whose book basis
is in excess of its tax basis to be depreciated over the
remaining cost recovery period for the propertys
unamortized Book-Tax Disparity. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a
20
Section 743(b) adjustment attributable to property subject
to depreciation under Section 167 of the Internal Revenue
Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. Under our amended and restated partnership agreement, we
are authorized to take a position to preserve the uniformity of
LP Units even if that position is not consistent with these and
any other Treasury Regulations. Please read
Uniformity of LP Units.
Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no direct or
indirect controlling authority on this issue, we intend to
depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of
Contributed Property, to the extent of any unamortized Book-Tax
Disparity, using a rate of depreciation or amortization derived
from the depreciation or amortization method and useful life
applied to the propertys unamortized Book-Tax Disparity,
or treat that portion as
non-amortizable
to the extent attributable to property which is not amortizable.
This method is consistent with the methods employed by other
publicly traded partnerships but is arguably inconsistent with
Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets, and Treasury
Regulation Section 1.197-2(g)(3).
To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all purchasers acquiring LP Units in the same month would
receive depreciation or amortization, whether attributable to
common basis or a Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest
in our assets. This kind of aggregate approach may result in
lower annual depreciation or amortization deductions than would
otherwise be allowable to some Partnership unitholders. Please
read Uniformity of LP Units. A
Partnership unitholders tax basis for its LP Units is
reduced by its share of our deductions (whether or not such
deductions were claimed on an individuals income tax
return). Thus, any position we take that understates deductions
will overstate a Partnership unitholders basis in its LP
Units, which may cause the unitholder to understate gain or
overstate loss on any sale of such LP Units. Please read
Disposition of LP Units
Recognition of Gain or Loss. The IRS may challenge our
position with respect to depreciating or amortizing the
Section 743(b) adjustment we take to preserve the
uniformity of LP Units. If such a challenge were sustained, the
gain from the sale of LP Units might be increased without the
benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in its LP Units is higher than the
LP Units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation deductions and its share of any
gain or loss on a sale of our assets would be less. Conversely,
a Section 754 election is disadvantageous if the
transferees tax basis in its LP Units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of LP Units may be affected either favorably or unfavorably by
the election. A tax basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial built-in
loss immediately after the transfer or if we distribute property
and have a substantial tax basis reduction. Generally a built-in
loss or a tax basis reduction is substantial if it exceeds
$250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment we allocated to our tangible
assets to goodwill instead. Goodwill, an intangible asset, is
generally either
non-amortizable
or amortizable over a longer period of time or under a less
accelerated method than our tangible assets. We cannot assure
any Partnership unitholder that the determinations we make will
not be successfully challenged by the IRS or that the resulting
deductions will not be reduced or disallowed altogether. Should
the IRS require a different tax basis adjustment to be made, and
should, in our opinion, the expense of compliance exceed the
benefit of the election, we may seek permission from the IRS to
revoke our Section 754 election. If permission is granted,
a subsequent purchaser of LP Units may be allocated more income
than it would have been allocated had the election not been
revoked.
21
Tax
Treatment of Operations
Accounting
Method and Taxable Year
We use the year ending December 31 as our taxable year and the
accrual method of accounting for federal income tax purposes.
Each Partnership unitholder will be required to include in its
income its share of our income, gain, loss and deduction for our
taxable year ending within or with its taxable year. In
addition, a Partnership unitholder who has a taxable year ending
on a date other than December 31 and who disposes of all of its
LP Units following the close of our taxable year but before the
close of its taxable year must include its share of our income,
gain, loss and deduction in income for its taxable year, with
the result that it will be required to include in its taxable
income for its taxable year its share of more than twelve months
of our income, gain, loss and deduction. Please read
Disposition of LP Units
Allocations Between Transferors and Transferees.
Tax
Basis, Depreciation and Amortization
The tax basis of our tangible assets will be used for purposes
of computing depreciation and cost recovery deductions and,
ultimately, gain or loss on the disposition of these assets. The
federal income tax burden associated with the difference between
the fair market value of our assets and their tax bases
immediately prior to our issuance of additional LP Units or our
engaging in certain other transactions will be borne by our
unitholders as of that time. Please read Tax
Consequences of LP Unit Ownership Allocation of
Income, Gain, Loss and Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets subject
to these allowances are placed in service. Please read
Uniformity of LP Units. Property we
subsequently acquire or construct may be depreciated using
accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a
Partnership unitholder who has taken cost recovery or
depreciation deductions with respect to property we own will
likely be required to recapture some or all of those deductions
as ordinary income upon a sale of its interest in us. Please
read Tax Consequences of LP Unit
Ownership Allocation of Income, Gain, Loss and
Deduction and Disposition of LP
Units Recognition of Gain or Loss.
If we offer and sell LP Units, the costs we incur in selling LP
Units (called syndication expenses) must be
capitalized and cannot be deducted currently, ratably or upon
our termination. There are uncertainties regarding the
classification of costs as organization expenses, which we may
be able to amortize, and as syndication expenses, which we may
not amortize. Any underwriting discounts and commissions we
incur would be treated as syndication expenses.
Valuation
and Tax Basis of the Partnerships Properties
The federal income tax consequences of the ownership and
disposition of LP Units will depend in part on our estimates of
the relative fair market values and the tax bases of our assets.
Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates
and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or deduction
previously reported by the Partnership unitholders might change,
and Partnership unitholders might be required to adjust their
tax liability for prior years and incur interest and penalties
with respect to those adjustments.
Disposition
of LP Units
Units
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of LP Units equal to
the difference between the Partnership unitholders amount
realized and the Partnership unitholders adjusted tax
basis for the units sold. A Partnership
22
unitholders amount realized will equal the sum of the cash
or the fair market value of other property it receives plus its
share of our nonrecourse liabilities. Because the amount
realized includes a Partnership unitholders share of our
nonrecourse liabilities, the gain recognized on the sale of LP
Units could result in a tax liability in excess of any cash
received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for an LP Unit that decreased a Partnership
unitholders tax basis in that unit will, in effect, become
taxable income if that LP Unit is sold at a price greater than a
Partnership unitholders tax basis in that LP Unit, even if
the price received is less than its original cost.
Except as noted below, gain or loss recognized by a Partnership
unitholder, other than a dealer in LP Units, on the
sale or exchange of an LP Unit will generally be taxable as
capital gain or loss. Capital gain recognized by an individual
on the sale of LP Units held more than twelve months is
scheduled to be taxed at a maximum U.S. federal income tax
rate of 15% through December 31, 2010 and 20% thereafter
(absent new legislation extending or adjusting the current
rate). However, a portion, which will likely be substantial, of
this gain or loss will be separately computed and taxed as
ordinary income or loss under Section 751 of the Internal
Revenue Code to the extent attributable to assets giving rise to
depreciation recapture or other unrealized
receivables or inventory items that we own.
The term unrealized receivables includes potential
recapture items, including depreciation recapture. Ordinary
income attributable to unrealized receivables and inventory
items may exceed net taxable gain realized on the sale of an LP
Unit and may be recognized even if there is a net taxable loss
realized on the sale of an LP Unit. Thus, a Partnership
unitholder may recognize both ordinary income and a capital loss
upon a sale of LP Units. Net capital loss may offset capital
gains and no more than $3,000 of ordinary income, in the case of
individuals, and may be used to offset only capital gains in the
case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in its entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling Partnership unitholder who
can identify LP Units transferred with an ascertainable holding
period to elect to use the actual holding period of LP Units
transferred. Thus, according to the ruling, a Partnership
unitholder will be unable to select high or low basis LP Units
to sell as would be the case with corporate stock, but,
according to the Treasury Regulations, may designate specific LP
Units sold for purposes of determining the holding period of LP
Units transferred. A Partnership unitholder electing to use the
actual holding period of LP Units transferred must consistently
use that identification method for all subsequent sales or
exchanges of LP Units. A Partnership unitholder considering the
purchase of additional LP Units or a sale of LP Units purchased
in separate transactions is urged to consult its tax advisor as
to the possible consequences of this ruling and those Treasury
Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, that is, one in
which gain would be recognized if it were sold, assigned or
terminated at its fair market value, if the taxpayer or related
persons enter(s) into:
|
|
|
|
|
a short sale;
|
|
|
|
an offsetting notional principal contract; or
|
|
|
|
a futures or forward contract with respect to the partnership
interest or substantially identical property.
|
Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
23
Allocations
Between Transferors and Transferees
In general, our taxable income or loss will be determined
annually, will be prorated on a monthly basis and will be
subsequently apportioned among the Partnership unitholders in
proportion to the number of LP Units owned by each of them as of
the opening of the applicable exchange on the first business day
of the month (the Allocation Date). However, gain or
loss realized on a sale or other disposition of our assets other
than in the ordinary course of business will be allocated among
the Partnership unitholders on the Allocation Date in the month
in which that gain or loss is recognized. As a result, a
Partnership unitholder transferring LP Units may be allocated
income, gain, loss and deduction realized after the date of
transfer.
Although simplifying conventions are contemplated by the
Internal Revenue Code and most publicly traded partnerships use
similar simplifying conventions, the use of this method may not
be permitted under existing Treasury Regulations. Recently,
however, the Department of the Treasury and the IRS issued
proposed Treasury Regulations that provide a safe harbor
pursuant to which a publicly traded partnership may use a
similar monthly simplifying convention to allocate tax items
among transferor and transferee Partnership unitholders,
although such tax items must be prorated on a daily basis.
Nonetheless, the proposed regulations do not specifically
authorize the use of the proration method we have adopted.
Existing publicly traded partnerships are entitled to rely on
these proposed Treasury Regulations; however, they are not
binding on the IRS and are subject to change until final
Treasury Regulations are issued. Accordingly, Vinson &
Elkins L.L.P. is unable to opine on the validity of this method
of allocating income and deductions between transferor and
transferee Partnership unitholders. If this method is not
allowed under the Treasury Regulations, or only applies to
transfers of less than all of the Partnership unitholders
interest, our taxable income or losses might be reallocated
among our unitholders. We are authorized to revise our method of
allocation among our unitholders, as well as among transferor
and transferee Partnership unitholders whose interests vary
during a taxable year, to conform to a method permitted under
future Treasury Regulations.
A Partnership unitholder who owns LP Units at any time during a
quarter and who disposes of them prior to the record date set
for a cash distribution for that quarter will be allocated items
of our income, gain, loss and deductions attributable to that
quarter but will not be entitled to receive that cash
distribution.
Notification
Requirements
A Partnership unitholder who sells any of its LP Units is
generally required to notify us in writing of that sale within
30 days after the sale (or, if earlier, January 15 of the
year following the sale). A purchaser of LP Units who purchases
such LP Units from another Partnership unitholder is also
generally required to notify us in writing of that purchase
within 30 days after the purchase. Upon receiving such
notifications, we are required to notify the IRS of that
transaction and to furnish specified information to the
transferor and transferee. Failure to notify us of a purchase
may, in some cases, lead to the imposition of penalties.
However, these reporting requirements do not apply to a sale by
an individual who is a citizen of the United States and who
effects the sale or exchange through a broker who will satisfy
such requirements.
Constructive
Termination
We will be considered to have terminated for tax purposes if
there are sales or exchanges which, in the aggregate, constitute
50% or more of the total interests in our capital and profits
within a twelve- month period. For purposes of determining
whether the 50% threshold has been reached, multiple sales of
the same interest are counted only once. A constructive
termination results in the closing of our taxable year for all
Partnership unitholders. In the case of a Partnership unitholder
reporting on a taxable year other than a fiscal year ending
December 31, the closing of our taxable year may result in
more than twelve months of our taxable income or loss being
includable in its taxable income for the year of termination. A
constructive termination occurring on a date other than December
31 will result in us filing two tax returns (and the Partnership
unitholders could receive two Schedules K-1 if the relief
discussed below is not available) for one fiscal year and the
cost of the preparation of these returns will be borne by all
the Partnership unitholders indirectly through the Partnership.
We would also be required to make new tax elections after a
termination, including a new election under Section 754 of
the Internal Revenue Code. A constructive termination of the
Partnership would result in a deferral of our deductions for
24
depreciation. A termination could also result in penalties if we
were unable to determine that the termination had occurred.
Moreover, a termination might either accelerate the application
of, or subject us to, any tax legislation enacted before the
termination. The IRS has recently announced a relief procedure
whereby if a publicly traded partnership that has technically
terminated requests and the IRS grants special relief, among
other things, the partnership will be required to provide only a
single
Schedule K-1
to a Partnership unitholder for the tax years in which the
termination occurs.
Uniformity
of LP Units
Because we cannot match transferors and transferees of LP Units,
we must maintain uniformity of the economic and tax
characteristics of LP Units to a purchaser of these LP Units. In
the absence of uniformity, we may be unable to completely comply
with a number of federal income tax requirements, both statutory
and regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the LP Units. Please read Tax Consequences of
LP Unit Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the unamortized Book-Tax Disparity, or treat
that portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets , and Treasury
Regulation Section 1.197-2(g)(3).
Please read Tax Consequences of LP Unit
Ownership Section 754 Election. To the
extent that the Section 743(b) adjustment is attributable
to appreciation in value in excess of the unamortized Book-Tax
Disparity, we will apply the rules described in the Treasury
Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation
and amortization position under which all purchasers acquiring
LP Units in the same month would receive depreciation and
amortization deductions, whether attributable to a common basis
or Section 743(b) adjustment, based upon the same
applicable methods and lives as if they had purchased a direct
interest in our property. If we adopt this position, it may
result in lower annual depreciation and amortization deductions
than would otherwise be allowable to some Partnership
unitholders and risk the loss of depreciation and amortization
deductions not taken in the year that these deductions are
otherwise allowable. We will not adopt this position if we
determine that the loss of depreciation and amortization
deductions will have a material adverse effect on Partnership
unitholders. If we choose not to utilize this aggregate method,
we may use any other reasonable depreciation and amortization
method to preserve the uniformity of the intrinsic tax
characteristics of any LP Units that would not have a material
adverse effect on our unitholders. The IRS may challenge any
method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained,
the uniformity of LP Units might be affected, and the gain from
the sale of LP Units might be increased without the benefit of
additional deductions. Please read Disposition
of LP Units Recognition of Gain or Loss.
Tax-Exempt
Organizations and Other Investors
Ownership of LP Units by employee benefit plans, other
tax-exempt organizations, non-resident aliens,
non-U.S. corporations
and other
non-U.S. persons
raises issues unique to those investors and, as described below
to a limited extent, may have substantially adverse tax
consequences to them. If you are a tax-exempt entity or a
non-U.S. person,
you should consult your tax advisor with respect to your tax
consequences of holding LP Units.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a Partnership unitholder that is a tax-exempt
organization will be unrelated business taxable income and will
be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates
that own LP Units will be considered to be engaged in business
in the United States because of the ownership of LP Units. As a
consequence they will be
25
required to file federal tax returns to report their share of
our income, gain, loss or deduction and pay federal income tax
at regular rates on their share of our net income or gain. Under
rules applicable to publicly traded partnerships, distributions
to
non-U.S. Partnership
unitholders are subject to withholding at the highest applicable
effective tax rate. Each
non-U.S. Partnership
unitholder must obtain a taxpayer identification number from the
IRS and submit that number to our transfer agent on a
Form W-8
BEN or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns LP Units
will be treated as engaged in a United States trade or business,
that corporation may be subject to the United States branch
profits tax at a rate of 30%, in addition to regular federal
income tax, on its share of our income and gain, as adjusted for
changes in the foreign corporations U.S. net
equity, which is effectively connected with the conduct of
a United States trade or business. That tax may be reduced or
eliminated by an income tax treaty between the United States and
the country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
Partnership unitholder is subject to special information
reporting requirements under Section 6038C of the Internal
Revenue Code.
A foreign Partnership unitholder who sells or otherwise disposes
of an LP Unit will be subject to U.S. federal income tax on
gain realized from the sale or disposition of that unit to the
extent the gain is effectively connected with a U.S. trade
or business of the foreign unitholder. Under a ruling published
by the IRS, interpreting the scope of effectively
connected income, a foreign unitholder would be considered
to be engaged in a trade or business in the U.S. by virtue
of the U.S. activities of the partnership, and part or all
of that unitholders gain would be effectively connected
with that unitholders indirect U.S. trade or
business. Moreover, under the Foreign Investment in Real
Property Tax Act (FIRPTA), a foreign Partnership
unitholder generally will be subject to U.S. federal income
tax upon the sale or disposition of an LP Unit if (i) it
owned (directly or constructively applying certain attribution
rules) more than 5% of the LP Units at any time during the
five-year period ending on the date of such disposition and
(ii) 50% or more of the fair market value of all of our
assets consisted of U.S. real property interests at any
time during the shorter of the period during which such
unitholder held LP Units or the
5-year
period ending on the date of disposition. Currently, more than
50% of our assets consist of U.S. real property interests
and we do not expect that to change in the foreseeable future.
Therefore, foreign Partnership unitholders may be subject to
U.S. federal income tax on gain from the sale or
disposition of their LP Units.
Administrative
Matters
Information
Returns and Audit Procedures
We intend to furnish to each Partnership unitholder, within
90 days after the close of each calendar year, specific tax
information, including a
Schedule K-1,
which describes its share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take
various accounting and reporting positions, some of which have
been mentioned earlier, to determine each Partnership
unitholders share of income, gain, loss and deduction. We
cannot assure you that those positions will in all cases yield a
result that conforms to the requirements of the Internal Revenue
Code, Treasury Regulations or administrative interpretations of
the IRS. Neither the Partnership nor Vinson & Elkins
L.L.P. can assure prospective Partnership unitholders that the
IRS will not successfully contend in court that those positions
are impermissible. Any challenge by the IRS could negatively
affect the value of the LP Units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
Partnership unitholder to adjust a prior years tax
liability and possibly may result in an audit of its own return.
Any audit of a Partnership unitholders return could result
in adjustments not related to our returns as well as those
related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. Under our amended and restated partnership agreement,
the board of directors of our general partner must designate one
of our or our general partners officers who is a partner
as our Tax Matters Partner.
26
The Tax Matters Partner has made and will make some elections on
our behalf and on behalf of our unitholders. In addition, the
Tax Matters Partner can extend the statute of limitations for
assessment of tax deficiencies against our unitholders for items
in our returns. The Tax Matters Partner may bind a Partnership
unitholder with less than a 1% profits interest in us to a
settlement with the IRS unless that Partnership unitholder
elects, by filing a statement with the IRS, not to give that
authority to the Tax Matters Partner. The Tax Matters Partner
may seek judicial review, by which all the Partnership
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any
Partnership unitholder having at least a 1% interest in profits
or by any group of the Partnership unitholders having in the
aggregate at least a 5% interest in profits. However, only one
action for judicial review will go forward, and each Partnership
unitholder with an interest in the outcome may participate.
A Partnership unitholder must file a statement with the IRS
identifying the treatment of any item on its federal income tax
return that is not consistent with the treatment of the item on
our return. Intentional or negligent disregard of this
consistency requirement may subject a Partnership unitholder to
substantial penalties.
Nominee
Reporting
Persons who hold an interest in us as a nominee for another
person are required to furnish to us:
(1) the name, address and taxpayer identification number of
the beneficial owner and the nominee;
(2) whether the beneficial owner is:
a person that is not a United States person;
a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the
foregoing; or
a tax-exempt entity;
(3) the amount and description of LP Units held, acquired
or transferred for the beneficial owner; and
(4) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales.
Brokers and financial institutions are required to furnish
additional information, including whether they are
U.S. persons and specific information on LP Units they
acquire, hold or transfer for their own account. A penalty of
$50 per failure, up to a maximum of $100,000 per calendar year,
is imposed by the Internal Revenue Code for failure to report
that information to us. The nominee is required to supply the
beneficial owner of the LP Units with the information furnished
to us.
Accuracy-Related
Penalties
An additional tax equal to 20% of the amount of any portion of
an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or
regulations, substantial understatements of income tax and
substantial valuation misstatements, is imposed by the Internal
Revenue Code. No penalty will be imposed, however, for any
portion of an underpayment if it is shown that there was a
reasonable cause for that portion and that the taxpayer acted in
good faith regarding that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to
penalty generally is reduced if any portion is attributable to a
position adopted on the return:
(1) for which there is, or was, substantial
authority; or
(2) as to which there is a reasonable basis and the
pertinent facts of that position are disclosed on the return.
27
If any item of income, gain, loss or deduction included in the
distributive shares of the Partnership unitholders could result
in that kind of an understatement of income for
which no substantial authority exists, we would be
required to disclose the pertinent facts on our return. In
addition, we will make a reasonable effort to furnish sufficient
information for Partnership unitholders to make adequate
disclosure on their returns and to take other actions as may be
appropriate to permit Partnership unitholders to avoid liability
for this penalty. More stringent rules apply to tax
shelters, which we do not believe includes us, or any of
our investments, plans or arrangements.
A substantial valuation misstatement exists if (a) the
value of any property, or the tax basis of any property, claimed
on a tax return is 150% or more of the amount determined to be
the correct amount of the valuation or tax basis, (b) the
price for any property or services (or for the use of property)
claimed on any such return with respect to any transaction
between persons described in Internal Revenue Code
Section 482 is 200% or more (or 50% or less) of the amount
determined under Section 482 to be the correct amount of
such price, or (c) the net Internal Revenue Code
Section 482 transfer price adjustment for the taxable year
exceeds the lesser of $5 million or 10% of the
taxpayers gross receipts. No penalty is imposed unless the
portion of the underpayment attributable to a substantial
valuation misstatement exceeds $5,000 ($10,000 for most
corporations). The penalty is increased to 40% in the event of a
gross valuation misstatement. The Partnership does not
anticipate making any valuation misstatements.
Reportable
Transactions
If we engage in a reportable transaction, we (and
possibly our unitholders and others) would be required to make a
detailed disclosure of the transaction to the IRS. A transaction
may be a reportable transaction based upon any of several
factors, including the fact that it is a type of tax avoidance
transaction publicly identified by the IRS as a listed
transaction or that it produces certain kinds of losses
for partnerships, individuals, S corporations, and trusts
of at least $2.0 million in any single year, or
$4.0 million in any combination of 6 successive tax years.
Our participation in a reportable transaction could increase the
likelihood that our federal income tax information return (and
possibly a Partnership unitholders tax return) is audited
by the IRS. Please read Information Returns
and Audit Procedures above.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, our unitholders could be subject to the
following provisions of the American Jobs Creation Act of 2004:
|
|
|
|
|
accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related
Penalties;
|
|
|
|
for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability; and
|
|
|
|
in the case of a listed transaction, an extended statute of
limitations. The Partnership does not expect to engage in any
reportable transactions.
|
State,
Local and Other Tax Considerations
In addition to federal income taxes, our unitholders will be
subject to other taxes, including state and local income taxes,
unincorporated business taxes, and estate, inheritance or
intangibles taxes that may be imposed by the various
jurisdictions in which we conduct business or own property or in
which the unitholder is a resident. The Partnership currently
conducts business or owns property in many states, most of which
impose personal income taxes. Most of these states also impose
an income tax on corporations and other entities. Moreover, we
may also own property or do business in other states in the
future that impose income or similar taxes on nonresident
individuals. Although an analysis of those various taxes is not
presented here, each prospective Partnership unitholder should
consider their potential impact on its investment in us. A
Partnership unitholder may be required to file state income tax
returns and to pay state income taxes in any state in which we
do business or own property, and such Partnership unitholder may
be subject to penalties for failure to comply with those
requirements. In some states, tax losses may not produce a tax
benefit in the year incurred and also may not be available to
offset income in subsequent taxable years. Some of the states
may require us, or we may elect, to withhold a percentage of
income from amounts to be distributed to a Partnership
unitholder who is not a resident of the state. Withholding, the
amount of which may be
28
greater or less than a particular Partnership unitholders
income tax liability to the state, generally does not relieve a
nonresident Partnership unitholder from the obligation to file
an income tax return. Amounts withheld may be treated as if
distributed to Partnership unitholders for purposes of
determining the amounts distributed by us. Please read
Tax Consequences of LP Unit
Ownership Entity-Level Collections. Based
on current law and our estimate of our future operations, we
anticipate that any amounts required to be withheld will not be
material.
It is the responsibility of each Partnership unitholder to
investigate the legal and tax consequences, under the laws of
pertinent states and localities, of its investment in us.
Vinson & Elkins L.L.P. has not rendered an opinion on
the state, local, or foreign tax consequences of an investment
in us. We strongly recommend that each prospective Partnership
unitholder consult, and depend on, its own tax counsel or other
advisor with regard to those matters. It is the responsibility
of each Partnership unitholder to file all tax returns that may
be required of it.
LEGAL
MATTERS
In connection with particular offerings of the securities in the
future, and if stated in the applicable prospectus supplement,
the validity of those securities may be passed upon by
Vinson & Elkins L.L.P., New York, New York, as our
counsel, and for any underwriters or agents by counsel named in
the applicable prospectus supplement.
EXPERTS
The consolidated financial statements incorporated in this
Prospectus by reference from Buckeye Partners, L.P. Annual
Report on
Form 10-K
for the year ended December 31, 2009 and the effectiveness
of Buckeye Partners, L.P. and subsidiaries internal
control over financial reporting have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports, which are
incorporated by reference (which reports (1) express an
unqualified opinion on the consolidated financial statements and
include an explanatory paragraph referring to the change in
method of accounting for noncontrolling interests in 2009 and
(2) express an unqualified opinion on the effectiveness of
internal control over financial reporting). Such financial
statements have been so incorporated by reference in reliance
upon the reports of such firm given upon their authority as
experts in accounting and auditing.
SELLING
UNITHOLDERS
This prospectus covers the offering for resale of up to
12,347,184 LP Units that we will issue to BGH GP Holdings, LLC,
a Delaware limited liability company, upon the closing of the
merger. BGH GP Holdings, LLC is the current owner of
Holdings general partner and approximately 62% of the
limited partner interests in Holdings. We expect that BGH GP
Holdings, LLC will own approximately 17% of our outstanding LP
Units after the closing of the merger, and will have the right
to appoint two or more of the directors of our general partner.
Please see Our Amended and Restated Partnership
Agreement Board of Directors.
The selling unitholder may currently hold or acquire at any time
LP units in addition to those registered hereby. In addition,
the selling unitholder may sell, transfer or otherwise dispose
of some or all of their units in private placement transactions
exempt from or not subject to the registration requirements of
the Securities Act of 1933, or the Securities Act. Accordingly,
we cannot give an estimate as to the amount of units that will
be held by the selling unitholder upon termination of this
offering.
Additional selling unitholders may be identified by prospectus
supplement or other document that we file that is incorporated
by reference into this prospectus.
PLAN OF
DISTRIBUTION
As of the date of this prospectus, we have not been advised by
the selling unitholders as to any plan of distribution. The
selling unitholders may choose not to sell any of their LP
Units. Distributions of the LP Units by the selling unitholders,
or by their partners, pledgees, donees, transferees or other
successors in interest, may from time to time be offered for
sale either directly by such selling unitholder or other person,
or through underwriters,
29
dealers or agents or on any exchange on which the LP Units may
from time to time be traded, in the
over-the-counter
market, or in independently negotiated transactions or
otherwise. The methods by which the LP Units may be sold include:
|
|
|
|
|
underwritten transactions;
|
|
|
|
privately negotiated transactions;
|
|
|
|
exchange distributions
and/or
secondary distributions;
|
|
|
|
sales in the
over-the-counter
market;
|
|
|
|
ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
|
|
|
|
broker-dealers may agree with the selling unitholders to sell a
specified number of such common units at a stipulated price per
unit;
|
|
|
|
a block trade (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the securities as agent
but may position and resell a portion of the block as principal
to facilitate the transaction;
|
|
|
|
purchases by a broker or dealer as principal and resale by such
broker or dealer for its own account pursuant to this prospectus;
|
|
|
|
short sales;
|
|
|
|
a combination of any such methods of sale; and
|
|
|
|
any other method permitted pursuant to applicable law.
|
Such transactions may be effected by the selling unitholders at
market prices prevailing at the time of sale, at prices related
to market prices or at negotiated prices. The selling
unitholders may effect such transactions by selling the LP Units
to underwriters or to or through broker-dealers, and such
underwriters or broker-dealers may receive compensation in the
form of discounts or commissions from the selling unitholders
and may receive commissions from the purchasers of the LP Units
for whom they may act as agent. The selling unitholders may
agree to indemnify any underwriter, broker-dealer or agent that
participates in transactions involving sales of the units
against certain liabilities, including liabilities arising under
the Securities Act. We have agreed to register the LP Units for
sale under the Securities Act and to indemnify the selling
unitholders and each person who participates as an underwriter
in the offering of the units against certain civil liabilities,
including certain liabilities under the Securities Act.
We will pay the costs and expenses of the registration and
offering of the LP units offered hereby. We will not pay any
underwriting fees, discounts and selling commissions allocable
to the selling unitholders sale of its LP units, which
will be paid by the selling unitholder. Broker-dealers may act
as agent or may purchase securities as principal and thereafter
resell the securities from time to time:
|
|
|
|
|
in or through one or more transactions (which may involve
crosses and block transactions) or distributions;
|
|
|
|
on the New York Stock Exchange;
|
|
|
|
in the
over-the-counter
market; or
|
|
|
|
in private transactions.
|
Broker-dealers or underwriters may receive compensation in the
form of underwriting discounts or commissions and may receive
commissions from purchasers of the securities for whom they may
act as agents. If any broker-dealer purchases the securities as
principal, it may effect resales of the securities from time to
time to or through other broker-dealers, and other
broker-dealers may receive compensation in the form of
concessions or commissions from the purchasers of securities for
whom they may act as agents.
In connection with sales of the LP Units under this prospectus,
the selling unitholders may enter into hedging transactions with
broker-dealers, who may in turn engage in short sales of the LP
Units in the course of hedging the
30
positions they assume. The selling unitholders also may sell LP
Units short and deliver them to close out the short positions,
or loan or pledge the LP Units to broker-dealers that in turn
may sell them.
The selling unitholders and any underwriters, broker-dealers or
agents who participate in the distribution of the LP Units may
be deemed to be underwriters within the meaning of
the Securities Act. To the extent any of the selling unitholders
are broker-dealers, they are, according to SEC interpretation,
underwriters within the meaning of the Securities
Act. Underwriters are subject to the prospectus delivery
requirements under the Securities Act. If the selling
unitholders are deemed to be underwriters, the selling
unitholders may be subject to certain statutory liabilities
under the Securities Act and the Exchange Act.
To the extent required, the names of the specific managing
underwriter or underwriters, if any, as well as other important
information, will be set forth in prospectus supplements. In
that event, the discounts and commissions we and the selling
unitholder will allow or pay to the underwriters, if any, and
the discounts and commissions the underwriters may allow or pay
to dealers or agents, if any, will be set forth in, or may be
calculated from, the prospectus supplements. Any underwriters,
brokers, dealers and agents who participate in any sale of the
securities may also engage in transactions with, or perform
services for, us or our affiliates in the ordinary course of
their businesses. We may indemnify underwriters, brokers,
dealers and agents against specific liabilities, including
liabilities under the Securities Act.
In addition, the selling unitholder has advised us that it may
sell LP units in compliance with Rule 144, if available, or
pursuant to other available exemptions from the registration
requirements under the Securities Act, rather than pursuant to
this prospectus.
The aggregate maximum compensation the underwriters will receive
in connection with the sale of any securities under this
prospectus and the registration statement of which it forms a
part will not exceed 10% of the gross proceeds from the sale.
Because FINRA views our LP units as interests in a direct
participation program, any offering of LP units under the
registration statement of which this prospectus forms a part
will be made in compliance with Rule 2310 of the FINRA
Rules.
To the extent required, this prospectus may be amended or
supplemented from time to time to describe a specific plan of
distribution. The place and time of delivery for the securities
in respect of which this prospectus is delivered will be set
forth in the accompanying prospectus supplement.
In connection with offerings under this shelf registration and
in compliance with applicable law, underwriters, brokers or
dealers may engage in transactions which stabilize or maintain
the market price of the securities at levels above those which
might otherwise prevail in the open market. Specifically,
underwriters, brokers or dealers may overallot in connection
with offerings, creating a short position in the securities for
their own accounts. For the purpose of covering a syndicate
short position or stabilizing the price of the securities, the
underwriters, brokers or dealers may place bids for the
securities or effect purchases of the securities in the open
market. Finally, the underwriters may impose a penalty whereby
selling concessions allowed to syndicate members or other
brokers or dealers for distribution the securities in offerings
may be reclaimed by the syndicate if the syndicate repurchases
previously distributed securities in transactions to cover short
positions, in stabilization transactions or otherwise. These
activities may stabilize, maintain or otherwise affect the
market price of the securities, which may be higher than the
price that might otherwise prevail in the open market, and, if
commenced, may be discontinued at any time.
31
Buckeye Partners,
L.P.
4,250,000 Limited Partnership
Units
PROSPECTUS SUPPLEMENT
BofA Merrill Lynch
Barclays Capital
Citi
Goldman, Sachs &
Co.
Wells Fargo
Securities
January , 2011