e424b3
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-170569
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 5 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
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i
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.
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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; |
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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; |
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Current Reports on Form 8-K filed on June 11, 2010, July 1, 2010,
August 11, 2010,
August 20, 2010, and November 3, 2010; |
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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.
4
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.
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 AgreementVoting.
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.
5
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 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.
6
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.
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with regard to distributions of available cash, please read How We Make Cash
Distributions; |
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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 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
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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:
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to elect members of the board of directors of our general partner; |
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to remove or replace our general partner; |
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to approve certain amendments to our amended and restated partnership agreement; or |
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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 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.
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Election of the board of directors of our
general partner
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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. |
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Amendment of the amended
and restated partnership agreement
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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. |
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Sale of all or substantially
all of the Partnerships assets
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Holders of two-thirds of
outstanding LP Units.
Please read Merger, Sale
or Other Disposition of
Assets. |
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Dissolution of the Partnership
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Holders of two-thirds of
outstanding LP Units.
Please read Termination
and Dissolution. |
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Removal/Replacement of our general partner
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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.
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:
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a change in our name, the location of our principal place of business, our
registered agent or our registered office; |
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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; |
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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 |
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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:
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a change that in the good faith opinion of our general partner does not adversely
affect our limited partners in any material respect; |
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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; |
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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 |
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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.
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.
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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:
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the expiration of our term on December 31, 2086; |
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the withdrawal of our general partner unless a person becomes a successor
general partner prior to or on the effective date of such withdrawal; |
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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 |
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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:
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the action would not result in the loss of limited liability of any limited
partner; and |
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neither the Partnership nor the reconstituted limited partnership would be
treated as an association taxable as a corporation for federal income tax purposes. |
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
DistributionsDistributions of Cash Upon Liquidation.
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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 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
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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 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
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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 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.
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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 OwnershipTreatment 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 UnitsAllocations Between 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 OwnershipSection 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
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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:
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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; |
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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 |
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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 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
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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 OwnershipTreatment
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.
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.
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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 UnitsRecognition 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.
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.
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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:
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interest on indebtedness properly allocable to property held for investment; |
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interest expense attributed to portfolio income; and |
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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 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
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determined on the basis of its interest in us, which will be determined by taking into account
all the facts and circumstances, including:
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its relative contributions to us; |
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the interests of all the partners in profits and losses; |
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the interest of all the partners in cash flow; and |
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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 UnitsAllocations 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:
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any of our income, gain, loss or deduction with respect to those LP Units would not
be reportable by the Partnership unitholder; |
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any cash distributions received by the Partnership unitholder as to those LP Units
would be fully taxable; and |
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all of these distributions would appear to be ordinary income. |
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 UnitsRecognition 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.
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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 UnitsConstructive 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 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 UnitsRecognition 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
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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.
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 UnitsAllocations 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 OwnershipAllocation 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
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Tax Consequences of LP Unit OwnershipAllocation of Income, Gain, Loss and Deduction and
Disposition of LP UnitsRecognition 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 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
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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:
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a short sale; |
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an offsetting notional principal contract; or |
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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.
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.
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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 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
OwnershipSection 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 OwnershipSection 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
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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 UnitsRecognition 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 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.
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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.
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
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Persons who hold an interest in us as a nominee for another person are required to furnish to
us: |
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the name, address and taxpayer identification number of the beneficial owner
and the nominee; |
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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;
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the amount and description of LP Units held, acquired or transferred for the
beneficial owner; and |
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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:
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for which there is, or was, substantial authority; or |
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as to which there is a reasonable basis and the pertinent facts of that
position are disclosed on the return. |
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.
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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:
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accuracy-related penalties with a broader scope, significantly narrower exceptions,
and potentially greater amounts than described above at Accuracy-Related Penalties; |
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for those persons otherwise entitled to deduct interest on federal tax deficiencies,
nondeductibility of interest on any resulting tax liability; and |
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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 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 OwnershipEntity-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.
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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.
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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 AgreementBoard 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.
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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, 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:
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underwritten transactions; |
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privately negotiated transactions; |
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exchange distributions and/or secondary distributions; |
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sales in the over-the-counter market; |
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ordinary brokerage transactions and transactions in which the broker solicits
purchasers; |
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broker-dealers may agree with the selling unitholders to sell a specified number of
such common units at a stipulated price per unit; |
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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; |
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purchases by a broker or dealer as principal and resale by such broker or dealer for
its own account pursuant to this prospectus; |
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short sales; |
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a combination of any such methods of sale; and |
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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:
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in or through one or more transactions (which may involve crosses and block transactions) or
distributions; |
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on the New York Stock Exchange; |
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in the over-the-counter market; or |
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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 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
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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.
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