<PAGE>


   As filed with the Securities and Exchange Commission on January 28, 2002

                                           Registration Statement No. 333-71968

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                              -------------------


                                Amendment No. 3

                                      to
                                   Form S-1

                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933

                              -------------------
                        Sunoco Logistics Partners L.P.
            (Exact name of registrant as specified in its charter)



<TABLE>
<S>                             <C>                          <C>
           Delaware                         4610                 23-3096839
(State or other jurisdiction of (Primary Standard Industrial  (I.R.S. Employer
incorporation or organization)  Classification Code Number)  Identification No.)
</TABLE>


                              1801 Market Street
                       Philadelphia, Pennsylvania 19103
                                (215) 977-3000
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

                              -------------------
                               JEFFREY W. WAGNER
                              Sunoco Partners LLC
                              1801 Market Street
                       Philadelphia, Pennsylvania 19103
                                (215) 977-3000
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                              -------------------
                                  Copies to:

<TABLE>
<S>                       <C>
 WILLIAM N. FINNEGAN IV        JOSHUA DAVIDSON
 CATHERINE S. GALLAGHER      Baker Botts L.L.P.
 Vinson & Elkins L.L.P.        One Shell Plaza
 1001 Fannin, Suite 2300        910 Louisiana
Houston, Texas 77002-6760 Houston, Texas 77002-4995
     (713) 758-2222            (713) 229-1234
</TABLE>


                               -----------------
   Approximate date of commencement of proposed sale to the public:  As soon as
practicable after the effective date of this registration statement.

   If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                               -----------------
   The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


<PAGE>

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.


                 Subject to Completion, dated January 28, 2002


PROSPECTUS



[LOGO] SUNOCO

                        Sunoco Logistics Partners L.P.

                            5,750,000 Common Units

                    Representing Limited Partner Interests

--------------------------------------------------------------------------------


We are a partnership recently formed by Sunoco, Inc. This is the initial public
offering of our common units. We expect the initial public offering price to be
between $19.00 and $21.00 per unit. Holders of common units are entitled to
receive quarterly distributions of available cash of $0.45 per unit, or $1.80
on an annualized basis, before any distributions are paid on our subordinated
units, to the extent we have sufficient cash from operations after
establishment of cash reserves and payment of fees and expenses, including
payments to our general partner. The common units have been approved for
listing on the New York Stock Exchange, subject to official notice of issuance,
under the symbol "SXL."


 Investing in our common units involves risk. "Risk Factors" begin on page 13.

   These risks include the following:

   . We may not have sufficient cash from operations to enable us to pay the
     minimum quarterly distribution following establishment of cash reserves
     and payment of fees and expenses, including payments to our general
     partner.
   . Sunoco R&M's obligations under the pipelines and terminals storage and
     throughput agreement may be reduced or suspended in some circumstances,
     which would reduce our ability to make distributions.
   . If Sunoco R&M satisfies only its minimum obligations under, or if we are
     unable to renew or extend, our pipelines and terminals storage and
     throughput agreement, our ability to make distributions would be reduced.
   . A significant decrease in demand for refined products in the markets
     served by our pipelines would reduce our ability to make distributions.
   . Due to our lack of asset diversification, adverse developments in our
     pipelines and terminals businesses would reduce our ability to make
     distributions.
   . Rate regulation may not allow us to recover the full amount of increases
     in our costs, and a successful challenge to our rates would reduce our
     ability to make distributions to our unitholders.
   . Our operations are subject to federal, state, and local laws and
     regulations relating to environmental protection and operational safety
     that could require us to make substantial expenditures.
   . Sunoco, Inc. and its affiliates have conflicts of interest and limited
     fiduciary responsibilities.
   . Unitholders cannot remove our general partner without its consent, which
     could lower the trading price of the common units.

   . You will experience immediate and substantial dilution of $8.30 per common
     unit.

   . You may be required to pay taxes on income from us even if you do not
     receive any cash distributions from us.


<TABLE>
<CAPTION>
                                                         Per Common Unit Total
                                                         --------------- -----
 <S>                                                     <C>             <C>
 Initial public offering price..........................        $          $
 Underwriting discount..................................        $          $
 Proceeds, before expenses, to Sunoco Logistics Partners        $          $
</TABLE>


The 5,750,000 common units offered hereby include 5,000,000 common units to be
offered to the public and 750,000 common units that are subject to a 30-day
option granted to the underwriters to cover over-allotments, if any. To the
extent that the underwriters do not exercise this option, our general partner
will be obligated to purchase these common units at the initial public offering
price.

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.

Lehman Brothers, on behalf of the underwriters, expects to deliver the common
units on or about       , 2002.

--------------------------------------------------------------------------------
LEHMAN BROTHERS

            SALOMON SMITH BARNEY
                      UBS WARBURG
                                  BANC OF AMERICA SECURITIES LLC
                                            WACHOVIA SECURITIES
                                                     CREDIT SUISSE FIRST BOSTON
          , 2002


<PAGE>


[Graphic A- Map of operating territory depicting the location of our Eastern
Pipeline System, Terminal Facilities, Western Pipeline System and Sunoco R&M's
refineries]


<PAGE>

                               TABLE OF CONTENTS


<TABLE>
<S>                                                                                                               <C>
PROSPECTUS SUMMARY...............................................................................................  1
   Sunoco Logistics Partners L.P.................................................................................  1
   Partnership Structure and Management..........................................................................  6
   The Offering..................................................................................................  8
   Summary Historical and Pro Forma Financial and Operating Data................................................. 10
   Summary of Conflicts of Interest and Fiduciary Responsibilities............................................... 12
RISK FACTORS..................................................................................................... 13
   Risks Inherent in Our Business................................................................................ 13
       We may not have sufficient cash from operations to enable us to pay the minimum quarterly
         distribution following establishment of cash reserves and payment of fees and expenses,
         including payments to our general partner............................................................... 13
       Cost reimbursements, which will be determined in our general partner's sole discretion, and  fees
         due our general partner and its affiliates will be substantial and will reduce our cash  available
         for distribution to you................................................................................. 14
       Sunoco R&M's obligations under the pipelines and terminals storage and throughput agreement
         may be reduced or suspended in some circumstances, which would reduce our ability to make
         distributions to our unitholders........................................................................ 14
       If Sunoco R&M satisfies only its minimum obligations under, or if we are unable to renew or
         extend, our pipelines and terminals storage and throughput agreement, our ability to make
         distributions would be reduced.......................................................................... 15
       A significant decrease in demand for refined products in the markets served by our pipelines
         would reduce our ability to make distributions to our unitholders....................................... 15
       Due to our lack of asset diversification, adverse developments in our pipelines and terminals
         businesses would reduce our ability to make distributions to our unitholders............................ 16
       Rate regulation may not allow us to recover the full amount of increases in our costs, and a
         successful challenge to our rates would reduce our ability to make distributions to our
         unitholders............................................................................................. 16
       Our operations are subject to federal, state, and local laws and regulations relating to
         environmental protection and operational safety that could require us to make substantial
         expenditures............................................................................................ 17
       If existing or future state or federal government regulations banning or restricting the use of
         MTBE in gasoline take effect, our ability to make distributions to our unitholders would be
         reduced................................................................................................. 17
       When the price of foreign crude oil delivered to the United States is greater than that of domestic
         crude oil, or the price for the future delivery of crude oil falls below current prices, our
         customers are less likely to store crude oil, thereby reducing our storage revenues at our
         Nederland Terminal...................................................................................... 17
       A material decrease in the supply, or increase in the price, of crude oil available for transport
         through our Western Pipeline System would reduce our ability to make distributions to our
         unitholders............................................................................................. 18
       Any reduction in the capability of or the allocations to our shippers in interconnecting, third-party
         pipelines would cause a reduction of volumes transported in our pipelines and through our
         terminals, which would reduce our ability to make distributions to our unitholders...................... 18
       Our operations are subject to operational hazards and unforeseen interruptions for which we may
         not be adequately insured............................................................................... 18
       We are exposed to the credit risk of our customers in the ordinary course of our crude oil
         acquisition and marketing activities.................................................................... 18
       Competing pipelines could cause us to reduce our rates.................................................... 18
       If we do not make acquisitions on economically acceptable terms, any future growth will be
         limited................................................................................................. 19
       Restrictions in our and Sunoco, Inc.'s debt agreements may prevent us from engaging in some
         beneficial transactions or paying distributions......................................................... 19
</TABLE>


                                       i


<PAGE>



<TABLE>
<S>                                                                                                            <C>
   Risks Inherent in an Investment in Us...................................................................... 19
       Sunoco, Inc. and its affiliates have conflicts of interest and limited fiduciary responsibilities,
         which may permit them to favor their own interests to your detriment................................. 19
       Even if unitholders are dissatisfied, they cannot remove our general partner without its consent,
         which could lower the trading price of the common units.............................................. 20
       The control of our general partner may be transferred to a third party without unitholder
         consent.............................................................................................. 21
       You will experience immediate and substantial dilution of $8.30 per common unit........................ 21
       We may issue additional common units without your approval, which would dilute your ownership
         interests............................................................................................ 21
       Our general partner's discretion in establishing cash reserves may reduce the amount of cash
         available for distribution to you.................................................................... 22
       Sunoco, Inc. and its affiliates may engage in limited competition with us.............................. 22
       Our general partner may cause us to borrow funds in order to make cash distributions, even
         where the purpose or effect of the borrowing benefits the general partner or its affiliates.......... 22
       Our general partner has a limited call right that may require you to sell your common units  at
         an undesirable time or price......................................................................... 23
       You may not have limited liability if a court finds that unitholder action constitutes control  of
         our business......................................................................................... 23
   Tax Risks.................................................................................................. 23
       The IRS could treat us as a corporation, which would substantially reduce the cash available
         for distribution to unitholders...................................................................... 23
       A successful IRS contest of the federal income tax positions we take may adversely impact the
         market for our common units, and the costs of any contest will be borne by our unitholders
         and our general partner.............................................................................. 24
       You may be required to pay taxes on income from us even if you do not receive any cash
         distributions from us................................................................................ 24
       Tax gain or loss on the disposition of our common units could be different than expected............... 24
       Tax-exempt entities, regulated investment companies, and foreign persons face unique tax issues
         from owning common units that may result in adverse tax consequences to them......................... 24
       We will register as a tax shelter. This may increase the risk of an IRS audit of us or a
         unitholder........................................................................................... 24
       We will treat each purchaser of units as having the same tax benefits without regard to the units
         purchased. The IRS may challenge this treatment, which could adversely affect the value of the
         common units......................................................................................... 25
       You will likely be subject to state, local, and foreign taxes and return filing requirements as a
         result of investing in our common units.............................................................. 25

USE OF PROCEEDS............................................................................................... 26

CAPITALIZATION................................................................................................ 27

DILUTION...................................................................................................... 28

CASH DISTRIBUTION POLICY...................................................................................... 29
   Distributions of Available Cash............................................................................ 29
   Operating Surplus and Capital Surplus...................................................................... 29
   Subordination Period....................................................................................... 30
   Distributions of Available Cash from Operating Surplus during the Subordination Period..................... 31
   Distributions of Available Cash from Operating Surplus after the Subordination Period...................... 32
   Incentive Distribution Rights.............................................................................. 32
   Percentage Allocations of Available Cash from Operating Surplus............................................ 32
   Distributions from Capital Surplus......................................................................... 33
</TABLE>



                                      ii


<PAGE>



<TABLE>
<S>                                                                                 <C>
   Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels.  33
   Distributions of Cash Upon Liquidation..........................................  34

CASH AVAILABLE FOR DISTRIBUTION....................................................  36

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF SUNOCO LOGISTICS
  (PREDECESSOR) AND PRO FORMA FINANCIAL DATA OF SUNOCO LOGISTICS
  PARTNERS.........................................................................  38

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS....................................................................  40
   Introduction....................................................................  40
   Overview........................................................................  40
   Results of Operations...........................................................  45
   Liquidity and Capital Resources.................................................  52
   Environmental Matters...........................................................  56
   Impact of Inflation.............................................................  57
   New Accounting Pronouncements...................................................  57
   Quantitative and Qualitative Disclosures about Market Risk......................  57

BUSINESS...........................................................................  58
   Overview........................................................................  58
   Our Relationship with Sunoco, Inc...............................................  59
   Business Strategies.............................................................  62
   Competitive Strengths...........................................................  62
   Eastern Pipeline System.........................................................  64
   Terminal Facilities.............................................................  71
   Western Pipeline System.........................................................  77
   Other Business Opportunities....................................................  87
   Pipeline and Terminal Control Operations........................................  87
   Safety and Maintenance..........................................................  88
   Competition.....................................................................  89
   Sunoco R&M's Refining and Marketing Operations..................................  90
   Inactive Assets.................................................................  93
   Pipeline, Terminalling, and Storage Assets Retained by Sunoco, Inc..............  93
   Rate Regulation.................................................................  94
   Environmental Regulation........................................................  98
   Environmental Remediation....................................................... 102
   Title to Properties............................................................. 103
   Employees....................................................................... 104
   Legal Proceedings............................................................... 104

MANAGEMENT......................................................................... 105
   Management of Sunoco Logistics Partners......................................... 105
   Directors and Executive Officers of Sunoco Partners LLC......................... 105
   Reimbursement of Expenses of the General Partner................................ 106
   Executive Compensation.......................................................... 107
   Compensation of Directors....................................................... 107
   Long-Term Incentive Plan........................................................ 107
   Management Incentive Plan....................................................... 108

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................... 109

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................... 110
   Distributions and Payments to the General Partner and Its Affiliates............ 110
   Agreements Governing the Transactions........................................... 111
</TABLE>



                                      iii


<PAGE>



<TABLE>
        <S>                                                          <C>
           Omnibus Agreement........................................ 111
           Pipelines and Terminals Storage and Throughput Agreement. 114
           Other Agreements with Sunoco R&M and Sunoco, Inc......... 114

        CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES........ 115
           Conflicts of Interest.................................... 115
           Fiduciary Responsibilities............................... 117

        DESCRIPTION OF THE COMMON UNITS............................. 120
           The Units................................................ 120
           Transfer Agent and Registrar............................. 120
           Transfer of Common Units................................. 120

        DESCRIPTION OF THE SUBORDINATED UNITS....................... 122
           Conversion of Subordinated Units......................... 122
           Limited Voting Rights.................................... 123
           Distributions upon Liquidation........................... 123

        THE PARTNERSHIP AGREEMENT................................... 124
           Organization and Duration................................ 124
           Purpose.................................................. 124
           Power of Attorney........................................ 124
           Capital Contributions.................................... 124
           Limited Liability........................................ 125
           Issuance of Additional Securities........................ 125
           Amendment of the Partnership Agreement................... 126
           Action Relating to the Operating Partnership............. 128
           Merger, Sale, or Other Disposition of Assets............. 129
           Termination and Dissolution.............................. 129
           Liquidation and Distribution of Proceeds................. 129
           Withdrawal or Removal of the General Partner............. 130
           Transfer of General Partner Interests.................... 131
           Transfer of Ownership Interests in General Partner....... 131
           Transfer of Incentive Distribution Rights................ 131
           Change of Management Provisions.......................... 132
           Limited Call Right....................................... 132
           Meetings; Voting......................................... 132
           Status as Limited Partner or Assignee.................... 133
           Non-citizen Assignees; Redemption........................ 133
           Indemnification.......................................... 134
           Books and Reports........................................ 134
           Right to Inspect Our Books and Records................... 134
           Registration Rights...................................... 135

        UNITS ELIGIBLE FOR FUTURE SALE.............................. 136

        MATERIAL TAX CONSEQUENCES................................... 137
           Partnership Status....................................... 137
           Limited Partner Status................................... 138
           Tax Consequences of Unit Ownership....................... 139
           Tax Treatment of Operations.............................. 144
           Disposition of Common Units.............................. 145
           Uniformity of Units...................................... 146
           Tax-Exempt Organizations and Other Investors............. 147
           Administrative Matters................................... 148
           State, Local, Foreign and Other Tax Considerations....... 150
</TABLE>



                                      iv


<PAGE>



<TABLE>
<S>                                                                                      <C>
INVESTMENT IN SUNOCO LOGISTICS PARTNERS BY EMPLOYEE BENEFIT PLANS.......................... 151

UNDERWRITING............................................................................... 152


VALIDITY OF THE COMMON UNITS............................................................... 155

EXPERTS.................................................................................... 155

WHERE YOU CAN FIND MORE INFORMATION........................................................ 156

FORWARD-LOOKING STATEMENTS................................................................. 156

INDEX TO FINANCIAL STATEMENTS.............................................................. F-1

APPENDIX A  - Form of First Amended and Restated Agreement of Limited Partnership of Sunoco
              Logistics Partners L.P....................................................... A-1
APPENDIX B  - Form of Application for Transfer of Common Units............................. B-1
APPENDIX C  - Glossary of Terms............................................................ C-1
APPENDIX D  - Pro Forma Available Cash from Operating Surplus.............................. D-1
</TABLE>



   You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where an offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations, and prospects may have changed since that date.

   Until        , 2002 (the 25th day after the date of this prospectus), all
dealers effecting transactions in our common units, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.

                                       v


<PAGE>


                              PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
It does not contain all of the information that you should consider before
investing in the common units. You should read the entire prospectus carefully,
including the historical and pro forma financial statements and notes to those
financial statements. The information presented in this prospectus assumes (1)
an initial public offering price of $20.00 per unit and (2) 5,000,000 common
units are sold to the public and all of the 750,000 common units subject to the
over-allotment option are purchased by our general partner. You should read
"Risk Factors" beginning on page 13 for more information about important
factors that you should consider before buying the common units.

   We include a glossary of some of the terms used in this prospectus as
Appendix C. References in this prospectus to "Sunoco Logistics Partners," "we,"
"our," "us," or like terms refer to Sunoco Logistics Partners L.P. References
in this prospectus to "Sunoco R&M" refer to Sunoco, Inc. (R&M), a wholly owned
subsidiary of Sunoco, Inc., through which Sunoco, Inc. conducts its refining
and marketing operations.

                        Sunoco Logistics Partners L.P.

   We are a Delaware limited partnership recently formed by Sunoco, Inc. to
acquire, own, and operate a geographically diverse and complementary group of
refined product and crude oil pipelines and terminal facilities. We have an
experienced management team dedicated to a growth strategy, and we intend to
acquire additional assets in the future. Our business comprises three segments:

   . Eastern Pipeline System.  Our Eastern Pipeline System primarily serves
     Sunoco R&M's refining and marketing operations in the Northeast and
     Midwest United States and includes 1,895 miles of refined product
     pipelines, including a one-third interest in an 80-mile refined product
     pipeline and 58 miles of interrefinery pipelines between two of Sunoco
     R&M's refineries; a 123-mile wholly owned crude oil pipeline; and a 9.4%
     interest in Explorer Pipeline Company, a joint venture that owns a
     1,413-mile refined product pipeline.

   . Terminal Facilities.  Our Terminal Facilities consist of 32 inland refined
     product terminals with an aggregate capacity of 4.8 million barrels, which
     primarily serve our Eastern Pipeline System; a 2.0 million barrel refined
     product terminal serving Sunoco R&M's Marcus Hook refinery near
     Philadelphia, Pennsylvania; an 11.2 million barrel marine crude oil
     terminal on the Texas Gulf Coast, our Nederland Terminal; one inland and
     two marine crude oil terminals, with a combined capacity of 3.0 million
     barrels, and related pipelines, all of which serve Sunoco R&M's
     Philadelphia refinery; and a 1.0 million barrel liquefied petroleum gas,
     or LPG, terminal near Detroit, Michigan.


   . Western Pipeline System.  Our Western Pipeline System gathers, purchases,
     sells, and transports crude oil principally in Oklahoma and Texas and
     consists of 1,883 miles of crude oil trunk pipelines and 870 miles of
     crude oil gathering lines that supply the trunk pipelines; 143 crude oil
     transport trucks; and 127 crude oil truck unloading facilities.


   We transport, terminal, and store refined products and crude oil in 11
states. We generate revenues by charging tariffs for transporting refined
products and crude oil through our pipelines and by charging fees for
terminalling and storing refined products, crude oil, and other hydrocarbons
in, and for providing services at, our terminals. We also generate revenues by
purchasing domestic crude oil and selling it to Sunoco R&M and other customers.
Generally, as we purchase crude oil, we simultaneously enter into corresponding
sale transactions involving physical deliveries of crude oil, which enables us
to secure a profit on the transaction at the time of purchase and to establish
a substantially balanced position.

   For the year ended December 31, 2000, on a pro forma basis, we had revenues
of $1,821.9 million, EBITDA of $87.7 million, and net income of $49.5 million.
For the nine months ended September 30, 2001, on a pro forma basis, we had
revenues of $1,263.7 million, EBITDA of $73.1 million, and net income of
$42.1 million.

                                      1


<PAGE>

Our Relationship with Sunoco, Inc.


   We have a strong and mutually beneficial relationship with Sunoco, Inc., one
of the leading independent United States refining and marketing companies and
the largest refiner in the Northeast United States. Sunoco, Inc. operates its
businesses through a number of operating subsidiaries, the primary one being
Sunoco R&M, which operates Sunoco, Inc.'s four refineries and markets gasoline
and convenience items through approximately 4,150 retail sites. Substantially
all of our business activities with Sunoco, Inc. are conducted through Sunoco
R&M. The majority of our operations are strategically located within Sunoco
R&M's refining and marketing supply chain. Sunoco R&M relies on us to provide
transportation and terminalling services that support its refining and
marketing operations.


   The following table sets forth the crude oil refining capacity in barrels
per day, or bpd, of each of Sunoco R&M's refineries and, for the twelve months
ended September 30, 2001, the percentages of crude oil and feedstocks and
refined products that we transported or terminalled for Sunoco R&M:


<TABLE>
<CAPTION>
                                Crude Oil / Feedstocks       Refined Products
-                             -------------------------- -------------------------
                                             Percent of                 Percent of
                    Crude Oil  Transported     Sunoco     Transported     Sunoco
                    Refining  or Terminalled    R&M      or Terminalled    R&M
Sunoco R&M Refinery Capacity  by Our Assets   Volumes    by Our Assets   Volumes
------------------- --------- -------------- ----------- -------------- ----------
                      (bpd)
<S>                 <C>       <C>            <C>         <C>            <C>
 Philadelphia, PA..  330,000       Yes              100%      Yes             63%
 Marcus Hook, PA...  175,000        No                0%      Yes             93%
 Toledo, OH........  140,000       Yes               52%      Yes             88%
 Tulsa, OK.........   85,000       Yes              100%      Yes/(1)/   22%/(1)/
                    -----                        ---                    --
     Total.........  730,000                    67%/(2)/                 71%/(1)/
</TABLE>

--------
(1)The only refined product that we transport from the Tulsa refinery is lube
   extracted feedstock. Excluding that refinery, we transported or terminalled
   77% of the total refined products from Sunoco R&M's refineries.
(2)Excluding the Marcus Hook refinery, we transported 87% of the total crude
   oil and feedstocks to Sunoco R&M's refineries.

   For the twelve months ended September 30, 2001, Sunoco R&M accounted for
approximately 77% of the pro forma sales and other operating revenue of our
Eastern Pipeline System, 63% of the pro forma sales and other operating revenue
of our Terminal Facilities, and 68% of the pro forma sales and other operating
revenue of our Western Pipeline System. The corresponding historical
percentages for the twelve months ended September 30, 2001 were 77%, 56%, and
68%, respectively. For additional information concerning our sales and other
operating revenue attributable to Sunoco R&M, please read "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."

   With the exception of our Nederland Terminal, Sunoco R&M accounts for
substantially all of the throughput volumes at our Terminal Facilities. In
addition, Sunoco R&M and its affiliates are the only shippers on approximately
850 miles of our Eastern Pipeline System, and Sunoco R&M is the only shipper on
approximately 45 miles of our Western Pipeline System. We expect to continue to
derive a substantial portion of our revenues from Sunoco R&M for the
foreseeable future. At the closing of this offering, we will enter into an
agreement with Sunoco R&M under which Sunoco R&M will agree to use our
pipelines and terminals for periods generally ranging from five to seven years.
A more detailed description of this agreement begins on page 5.


   Sunoco, Inc. will retain a significant interest in our partnership through
its indirect ownership of a 76.5% limited partner interest and a 2%
general partner interest. In addition, to carry out our operations, our
general partner and its affiliates, which are indirectly owned by Sunoco, Inc.,
will employ approximately 1,170 people who will provide direct support to our
operations. We will not have any employees. Please read "Business--Employees."


                                      2


<PAGE>

Summary of Risk Factors

   An investment in our common units involves risks associated with our
business, our partnership structure, and the tax characteristics of our common
units. Those risks are described under the caption "Risk Factors" beginning on
page 13 and include:

   Risks Inherent in Our Business

   . We may not have sufficient cash from operations to enable us to pay the
     minimum quarterly distribution following establishment of cash reserves
     and payment of fees and expenses, including payments to our general
     partner.


   . Cost reimbursements, which will be determined in our general partner's
     sole discretion, and fees due our general partner and its affiliates will
     be substantial and will reduce our cash available for distribution.


   . Sunoco R&M's obligations under the pipelines and terminals storage and
     throughput agreement may be reduced or suspended in some circumstances,
     which would reduce our ability to make distributions to our unitholders.

   . If Sunoco R&M satisfies only its minimum obligations under, or if we are
     unable to renew or extend, our pipelines and terminals storage and
     throughput agreement, our ability to make distributions would be reduced.

   . A significant decrease in demand for refined products in the markets
     served by our pipelines would reduce our ability to make distributions to
     our unitholders.

   . Due to our lack of asset diversification, adverse developments in our
     pipelines and terminals businesses would reduce our ability to make
     distributions to our unitholders.

   . Rate regulation may not allow us to recover the full amount of increases
     in our costs, and a successful challenge to our rates would reduce our
     ability to make distributions to our unitholders.

   . Our operations are subject to federal, state, and local laws and
     regulations relating to environmental protection and operational safety
     that could require us to make substantial expenditures.

   . If existing or future state or federal government regulations banning or
     restricting the use of MTBE in gasoline take effect, our ability to make
     distributions to our unitholders would be reduced.

   Risks Inherent in an Investment in Us

   . Sunoco, Inc. and its affiliates have conflicts of interest and limited
     fiduciary responsibilities, which may permit them to favor their own
     interests to your detriment.

   . Even if unitholders are dissatisfied, they cannot remove our general
     partner without its consent, which could lower the trading price of the
     common units.

   . The control of our general partner may be transferred to a third party
     without unitholder consent.


   . You will experience immediate and substantial dilution of $8.30 per common
     unit.


   . We may issue additional common units without your approval, which would
     dilute your ownership interests.


   . Our general partner's discretion in establishing cash reserves may reduce
     cash available for distribution.


   Tax Risks

   . The IRS could treat us as a corporation, which would substantially reduce
     the cash available for distribution to unitholders.

   . A successful IRS contest of the federal income tax positions we take may
     adversely impact the market for our common units, and the costs of any
     contest will be borne by our unitholders and our general partner.


   . You may be required to pay taxes on income from us even if you do not
     receive any cash distributions.


                                      3


<PAGE>

Business Strategies

   Our primary business strategies are to:

   . generate stable cash flows;

   . increase our pipeline and terminal throughput;

   . pursue strategic and accretive acquisitions that complement our existing
     asset base; and

   . continue to improve our operating efficiency and to reduce our costs.

Competitive Strengths

   We believe we are well-positioned to execute our business strategies
successfully using the following competitive strengths:

   . We have a unique strategic relationship with Sunoco R&M's refining and
     marketing operations.  Our refined product and crude oil pipelines and
     terminals are directly linked to Sunoco R&M's refineries and afford Sunoco
     R&M with the most cost-effective means to access crude oil and distribute
     refined products. Sunoco R&M has agreed to continue using our assets to
     transport, terminal, and store refined products and crude oil. Please read
     "Business--Our Relationship with Sunoco, Inc."

   . Our refined product pipelines and our terminals are strategically located
     in areas with high demand.  We have a strong presence in the Northeast and
     Midwest United States, and our transportation and distribution assets in
     these regions operate at high utilization rates, providing us a base of
     stable cash flows.

   . We have a complementary portfolio of assets that are both geographically
     and operationally diverse.  Our assets include refined product pipelines
     and terminals in the Northeast and Midwest United States and a crude oil
     terminal and pipelines in Texas, Oklahoma, and the Gulf Coast area. This
     diversity contributes to our stable cash flows.

   . Our pipelines and terminals are efficient and well-maintained.  We have
     recently made significant investments to upgrade our asset base. Our
     refined product pipelines and many of our crude oil pipelines and our
     terminals are automated to provide continuous, real-time operational data.
     We use a state-of-the-art internal inspection program and other procedures
     to monitor the integrity of our pipelines.


   . Our executive officers and directors have extensive experience and include
     some of the most senior officers of Sunoco, Inc.  Our management team has
     operated our assets for almost ten years. As a result, we believe we have
     the expertise to execute our business strategies. Our general partner has
     adopted compensation and incentive plans to closely align the interests of
     our executive officers with the interests of our common unitholders.



Recent Developments



   GulfMark Acquisition.  On November 1, 2001, we acquired a 54-mile, 8-inch
bi-directional crude oil pipeline and a related crude oil acquisition business
from GulfMark Energy, Inc. for $5.0 million in cash. The pipeline extends from
Sour Lake, Texas to Baytown, Texas and complements our existing Texas Gulf
Coast and East Texas pipeline system. The crude oil acquisition business
handles approximately 12,000 bpd and complements our existing crude oil
acquisition and marketing business.



   Recent Financial Results.  We expect operating income to be approximately
$7.0 million to $9.0 million for the fourth quarter of 2001 as compared to
$14.5 million for the fourth quarter of 2000. For the full year 2001, operating
income is expected to range from $52.5 million to $54.5 million as compared to
$59.3 million for 2000. Actual amounts will be determined upon completion of
the financial statement closing process and audit.



                                      4


<PAGE>


   The expected decline in fourth quarter operating income is primarily
attributable to a decrease in earnings in our Terminal Facilities, principally
our Nederland Terminal. Fourth quarter 2000 income from Nederland benefited
from significant volumes attributable to the sales of crude oil by the U.S.
Department of Energy from its Strategic Petroleum Reserve. Eastern Pipeline
System operating income decreased due to increases in expenses for
environmental remediation and outside services and higher depreciation and
amortization. This decrease was partially offset by higher refined product
pipeline throughput volumes resulting from increased production at Sunoco R&M's
Marcus Hook refinery, which underwent a major scheduled maintenance turnaround
during the fourth quarter of 2000. A decline in Western Pipeline System
operating income was primarily attributable to lower margins in our crude oil
acquisition and marketing operations.




Our Pipelines and Terminals Storage and Throughput Agreement with Sunoco R&M

   Under our pipelines and terminals storage and throughput agreement with
Sunoco R&M, Sunoco R&M will pay us fees generally comparable to those charged
by third parties to:

   . transport on our refined product pipelines or throughput in our 32 inland
     refined product terminals an amount of refined products that will produce
     at least $75.0 million of revenue in the first year, escalating at 1.67%
     per year for the next four years. In addition, Sunoco R&M will pay us to
     transport on our refined product pipelines an amount of refined products
     that will produce at least $54.3 million of revenue in the sixth year and
     at least $55.2 million of revenue in the seventh year. Sunoco R&M will pay
     the published tariffs on the pipelines and contractually agreed upon fees
     at the terminals. On a pro forma basis, we would have received $82.8
     million in revenue from Sunoco R&M for the use of these pipelines and
     terminals during the year ended December 31, 2000;

   . receive and deliver at least 130,000 bpd of refined products per year at
     our Marcus Hook Tank Farm for five years. In the first year, we will
     receive a fee of $0.1627 per barrel for the first 130,000 bpd and $0.0813
     per barrel for volumes in excess of 130,000 bpd. These fees will escalate
     at the rate of 1.67% per year. During the year ended December 31, 2000,
     Sunoco R&M's throughput at the Marcus Hook Tank Farm averaged 133,455 bpd;

   . store 975,734 barrels of LPG per year at our Inkster Terminal, which
     represents all of our LPG storage capacity at this facility. In the first
     year of this seven-year agreement, we will receive a fee of $2.04 per
     barrel of committed storage, a fee of $0.204 per barrel for receipts
     greater than 975,734 barrels per year and a fee of $0.204 per barrel for
     deliveries greater than 975,734 barrels per year. These fees will escalate
     at the rate of 1.875% per year. For the past five years, Sunoco R&M has
     used the full capacity of our Inkster Terminal;

   . receive and deliver at least 290,000 bpd of crude oil or refined products
     per year at our Fort Mifflin Terminal Complex for seven years. In the
     first year, we will receive a fee of $0.1627 per barrel for the first
     180,000 bpd and $0.0813 per barrel for volumes in excess of 180,000 bpd.
     These fees will escalate at the rate of 1.67% per year. Sunoco R&M's
     throughput at the Fort Mifflin Terminal Complex averaged 314,623 bpd
     during the year ended December 31, 2000; and

   . transport or cause to be transported an aggregate of at least 140,000 bpd
     of crude oil per year on our Marysville to Toledo, Nederland to Longview,
     Cushing to Tulsa, Barnsdall to Tulsa, and Bad Creek to Tulsa crude oil
     pipelines at the published tariffs for a term of seven years. During the
     year ended December 31, 2000, we and Sunoco R&M transported 165,149 bpd on
     these pipelines.

If Sunoco R&M fails to meet its minimum obligations pursuant to the contract
terms set forth above, it will be required to pay us in cash the amount of any
shortfall, which may be applied as a credit in the following year after Sunoco
R&M's minimum obligations are met.

   Sunoco R&M's minimum revenue or throughput obligations may be permanently
reduced or suspended if Sunoco R&M (1) shuts down or reconfigures one of its
refineries (other than planned maintenance turnarounds), or is prohibited from
using MTBE in the gasoline it produces, and (2) reasonably believes in good
faith that such

                                      5


<PAGE>

event will jeopardize its ability to satisfy these obligations. Sunoco, Inc.
has advised us that it is not currently proceeding with any transaction or plan
that it believes is likely to result in any reconfigurations or other
operational changes in any of its refineries served by our assets that would
have a material effect on Sunoco R&M's business relationship with us. Further,
Sunoco, Inc. has also advised us that it is not considering a shutdown of any
of its refineries served by our assets. Sunoco, Inc. is, however, actively
managing its assets and operations, and, therefore, changes of some nature,
possibly material to its business relationship with us, are likely to occur at
some point in the future.

   To the extent Sunoco R&M does not extend or renew the pipelines and
terminals storage and throughput agreement, our financial condition and results
of operations may be adversely affected. Our assets were constructed or
purchased to service Sunoco R&M's refining and marketing supply chain and are
well-situated to suit Sunoco R&M's needs. As a result, we would expect that
even if this agreement is not renewed, Sunoco R&M would continue to use our
pipelines and terminals. However, we cannot assure you that Sunoco R&M will
continue to use our facilities or that we will be able to generate additional
revenues from third parties. Please read "Risk Factors--Risks Inherent in Our
Business."

Other Agreements with Sunoco R&M and Sunoco, Inc.

   Under a 20-year lease agreement, Sunoco R&M will pay us $5.1 million in the
first year to lease the 58 miles of interrefinery pipelines between Sunoco
R&M's Philadelphia and Marcus Hook refineries, escalating at 1.67% per year for
the next 19 years. On a pro forma basis, Sunoco R&M would have paid us $4.9
million for the use of these pipelines during the year ended December 31, 2000.


   Sunoco R&M will also agree to purchase from us at market-based rates
particular grades of crude oil that our crude oil acquisition and marketing
business purchases for delivery to pipelines in: Longview, Trent, Tye, and
Colorado City, Texas; Haynesville, Louisiana; Marysville and Lewiston,
Michigan; and Tulsa, Oklahoma. At Marysville and Lewiston, Michigan, we
exchange Michigan sweet and Michigan sour crude oil we own for domestic sweet
crude oil supplied by Sunoco R&M at market-based rates. The initial term of
these agreements is two months. These agreements will renew on a monthly basis
unless terminated by either party on 30 days' written notice. Sunoco R&M has
indicated that it has no current intention to terminate these agreements.
During the year ended December 31, 2000, Sunoco R&M purchased 79,346 bpd of
crude oil from us in these areas.


   We will enter into an omnibus agreement with Sunoco, Inc. and its affiliates
under which they will generally agree not to engage in the business of
purchasing crude oil at the wellhead, or operating crude oil pipelines or
terminals, refined product pipelines or terminals, or LPG terminals in the
continental United States. In addition, this agreement addresses our payment of
a fee to Sunoco, Inc. or our general partner for the provision of various
general and administrative services, Sunoco R&M's reimbursement to us for
certain maintenance expenditures, Sunoco, Inc.'s indemnification of us for
certain environmental and other liabilities, and other matters.

                     PARTNERSHIP STRUCTURE AND MANAGEMENT


   Our operations will be conducted through, and our operating assets will be
owned by, our operating partnership and its subsidiaries. Our general partner
has sole responsibility for conducting our business and for managing our
operations. The senior executives who currently manage our business will
continue to manage and operate the business as the senior executives of our
general partner. Our general partner or Sunoco, Inc. will receive an annual
administrative fee, initially in the amount of $8.0 million, for the provision
of various general and administrative services for our benefit. The $8.0
million fee does not include salaries of pipeline and terminal personnel or
other employees of our general partner, including senior executives, or the
cost of their employee benefits. We will also reimburse Sunoco, Inc. and its
affiliates for direct expenses they incur on our behalf. We also anticipate
incurring additional general and administrative costs, including costs related
to operating as a separate publicly held entity. Please read "Certain
Relationships and Related Transactions."


   Our principal executive offices are located at 1801 Market Street,
Philadelphia, Pennsylvania 19103, and our phone number is (215) 977-3000.


   The chart on the following page depicts the organization and ownership of
Sunoco Logistics Partners and our operating partnership after giving effect to
the offering and the related formation transactions.


                                      6


<PAGE>


                      [FLOW CHART]

                 -----------------------------------------------
                                  Ownership of
                         Sunoco Logistics Partners L.P.*
                 Common Unitholders:
                     Public Unitholders..................  21.5%
                     Sunoco Partners LLC.................  27.5%

                 Subordinated Unitholder:
                     Sunoco Partners LLC.................  49.0%

                 General Partner Interest................   2.0%
                                                           -----
                                                            100%
                                                           =====
                 -----------------------------------------------

-------------------------                            --------------------------
   Public Unitholders                                       Sunoco, Inc.
 5,000,000 Common Units*
------------------------                            --------------------------
             \                                                      |
              \                                                    100%
                                                                Indirect
                                                                Ownership

                                                                   |
                                                   -----------------------------
                           21.5%                          Sunoco Partners LLC
                      Limited Partner                    (the General Partner)
                         Interest                      6,383,639 Common Units*
                             \                     11,383,639 Subordinated Units
                              \                    Incentive Distribution Rights
                                                   -----------------------------
                                                     |                   |


                                             76.5% Limited          2.0% General
                                            Partner Interest    Partner Interest
                                                     |                  /
                                           -------------------------------
                                            Sunoco Logistics Partners L.P.
                                                 (the Partnership)
                                           -------------------------------
                                             /
                              100%
                      Ownership Interest
                    /
--------------------------
 Sunoco Logistics Partners                                 |
          GP LLC                                     99.99% Limited
--------------------------                           Partner Interest
                     \                                     |
                          0.01% General
                        Partner Interest

                                          ----------------------------------
                                               Sunoco Logistics Partners
                                                   Operations L.P.
                                              (the Operating Partnership)
                                          ----------------------------------
                                                         |
                                                       100%
                                               Ownership Interest
                                                         |
                                          ----------------------------------
                                             Operating Subsidiaries
                                          ----------------------------------



-------------------
* Assumes all of the 750,000 common units subject to the over-allotment option
  are purchased by Sunoco Partners LLC.




                                      7


<PAGE>

                                 THE OFFERING

Common units offered to the
  public....................  5,000,000 common units.

                              5,750,000 common units if the underwriters
                              exercise their over-allotment option in full. To
                              the extent that the underwriters do not exercise
                              their 750,000 common unit over-allotment option,
                              our general partner will be obligated to purchase
                              these common units at the initial public offering
                              price.


Units outstanding after this
  offering..................  11,383,639 common units and 11,383,639
                              subordinated units, each representing a 49%
                              limited partner interest in us.


Cash distributions..........  We intend to make minimum quarterly distributions
                              of $0.45 per common unit to the extent we have
                              sufficient cash from operations after
                              establishment of cash reserves and payment of
                              fees and expenses, including payments to our
                              general partner. In general, we will pay any cash
                              distributions we make each quarter in the
                              following manner:

                              . first, 98% to the holders of common units and
                                2% to the general partner, until each common
                                unit has received a minimum quarterly
                                distribution of $0.45 plus any arrearages from
                                prior quarters;

                              . second, 98% to the holders of subordinated
                                units and 2% to the general partner, until each
                                subordinated unit has received a minimum
                                quarterly distribution of $0.45; and

                              . third, 98% to all unitholders, pro rata, and 2%
                                to the general partner, until each unit has
                                received a distribution of $0.50.

                              If cash distributions exceed $0.50 per unit in a
                              quarter, our general partner will receive
                              increasing percentages, up to 50%, of the cash we
                              distribute in excess of that amount. We refer to
                              these distributions as "incentive distributions."

                              We must distribute all of our cash on hand at the
                              end of each quarter, less reserves established by
                              our general partner in its discretion. We refer
                              to this cash as "available cash," and we define
                              its meaning in our partnership agreement and in
                              the glossary of terms attached as Appendix C. The
                              amount of available cash may be greater than or
                              less than the minimum quarterly distribution.

                              We believe that, based on the assumptions on page
                              37 of this prospectus, we will have sufficient
                              cash from operations to make the minimum
                              quarterly distribution of $0.45 on all units for
                              each quarter through December 31, 2002. The
                              amount of pro forma cash available for
                              distribution generated during 2000 and the first
                              nine months of 2001 would have been sufficient to
                              allow us to pay the full minimum quarterly
                              distribution on the common units, but would not
                              have been sufficient to allow us to pay the full
                              minimum quarterly distribution on the
                              subordinated units, during these periods. Please
                              read "Cash Available for Distribution."

Subordination period........  The subordination period will end once we meet
                              the financial tests in the partnership agreement,
                              but it generally cannot end before December 31,
                              2006.

                                      8


<PAGE>

                              When the subordination period ends, all
                              subordinated units will convert into common units
                              on a one-for-one basis, and the common units will
                              no longer be entitled to arrearages.

Early conversion of
  subordinated units........  If we meet the financial tests in the partnership
                              agreement for any quarter ending on or after
                              December 31, 2004, 25% of the subordinated units
                              will convert into common units. If we meet these
                              tests for any quarter ending on or after December
                              31, 2005, an additional 25% of the subordinated
                              units will convert into common units. The early
                              conversion of the second 25% of the subordinated
                              units may not occur until at least one year after
                              the early conversion of the first 25% of
                              subordinated units.


Issuance of additional units  In general, during the subordination period we
                              can issue up to 5,691,820 additional common
                              units, or 50% of the common units outstanding
                              immediately after this offering, without
                              obtaining unitholder approval. We can also issue
                              an unlimited number of common units for
                              acquisitions that increase cash flow from
                              operations per unit on a pro forma basis.


Voting rights...............  Our general partner will manage and operate us.
                              Unlike the holders of common stock in a
                              corporation, you will have only limited voting
                              rights on matters affecting our business. You
                              will have no right to elect our general partner
                              or the directors of our general partner on an
                              annual or other continuing basis. Our general
                              partner may not be removed except by a vote of
                              the holders of at least 66 2/3% of the
                              outstanding units, including any units owned by
                              our general partner and its affiliates, voting
                              together as a single class.

Limited call right..........  If at any time our general partner and its
                              affiliates own more than 80% of the outstanding
                              common units, our general partner has the right,
                              but not the obligation, to purchase all of the
                              remaining common units at a price not less than
                              the then-current market price of the common units.


Estimated ratio of taxable
  income to distributions...  We estimate that if you hold the common units you
                              purchase in this offering through December 31,
                              2004, you will be allocated, on a cumulative
                              basis, an amount of federal taxable income for
                              that period that will be 20% or less of the cash
                              distributed to you with respect to that period.
                              Please read "Material Tax Consequences--Tax
                              Consequences of Unit Ownership--Ratio of Taxable
                              Income to Distributions" for the basis of this
                              estimate.



Exchange listing............  The common units have been approved for listing
                              on the New York Stock Exchange, subject to
                              official notice of issuance, under the symbol
                              "SXL."


Senior notes................  Concurrently with this offering, our operating
                              partnership will issue $250 million of senior
                              notes. For a description of the senior notes,
                              please read "Management's Discussion and Analysis
                              of Financial Condition and Results of
                              Operations--Liquidity and Capital
                              Resources--Senior Notes."

                                      9


<PAGE>

         SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

   The following table shows summary historical financial and operating data of
Sunoco Logistics (Predecessor) and pro forma financial data of Sunoco Logistics
Partners L.P., in each case for the periods and as of the dates indicated. The
summary historical financial data for Sunoco Logistics (Predecessor) for 1998,
1999 and 2000 are derived from the audited combined financial statements of
Sunoco Logistics (Predecessor). The summary historical financial data for
Sunoco Logistics (Predecessor) for September 30, 2000 and 2001 are derived from
the unaudited combined financial statements of Sunoco Logistics (Predecessor).

   The pro forma financial statements of Sunoco Logistics Partners L.P. give
pro forma effect to:

  .  the contribution of certain assets and liabilities of Sunoco Logistics
     (Predecessor) to Sunoco Logistics Partners L.P.;

  .  the completion of this offering;

  .  the issuance of the senior notes and the establishment of the revolving
     credit facility; and

  .  the execution of the pipelines and terminals storage and throughput
     agreement with Sunoco R&M and the omnibus agreement with Sunoco R&M and
     Sunoco, Inc.

The summary pro forma financial data presented below for the year ended
December 31, 2000 and as of and for the nine months ended September 30, 2001
are derived from our unaudited pro forma financial statements. The pro forma
balance sheet assumes the offering and related transactions occurred as of
September 30, 2001, and the pro forma statements of income assume the offering
and related transactions occurred on January 1, 2000. A more complete
explanation of the pro forma data can be found in our Unaudited Pro Forma
Financial Statements.

   We define EBITDA as operating income plus depreciation and amortization.
EBITDA provides additional information for evaluating our ability to make the
minimum quarterly distribution and is presented solely as a supplemental
measure. You should not consider EBITDA as an alternative to net income, income
before income taxes, cash flows from operations, or any other measure of
financial performance presented in accordance with accounting principles
generally accepted in the United States. Our EBITDA may not be comparable to
EBITDA or similarly titled measures of other entities as other entities may not
calculate EBITDA in the same manner as we do.

   For the periods presented, Sunoco R&M was the primary or exclusive user of
our refined product terminals, our Fort Mifflin Terminal Complex, and our
Marcus Hook Tank Farm. Historically, most of the terminalling and throughput
services provided by Sunoco Logistics (Predecessor) for Sunoco R&M's refining
and marketing operations were at fees that enabled us to recover our costs, but
not to generate any operating income. Accordingly, historical EBITDA for those
assets was equal to their depreciation and amortization.

   Maintenance capital expenditures are capital expenditures made to replace
partially or fully depreciated assets in order to maintain the existing
operating capacity of our assets and to extend their useful lives. Expansion
capital expenditures are capital expenditures made to expand the existing
operating capacity of our assets, whether through construction or acquisition.
We treat repair and maintenance expenditures that do not extend the useful life
of existing assets as operating expenses as we incur them. The maintenance
capital expenditures for the periods presented include several one-time
projects to upgrade our technology, increase reliability, and lower our cost
structure.

   Throughput is the total number of barrels per day transported on a pipeline
system or through a terminal and includes barrels ultimately transported to a
delivery point on another pipeline system.

   The following table should be read together with, and is qualified in its
entirety by reference to, the historical and pro forma financial statements and
the accompanying notes included elsewhere in this prospectus. The table should
be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

                                      10


<PAGE>



<TABLE>
<CAPTION>
                                      Sunoco Logistics (Predecessor)                  Sunoco Logistics Partners L.P.
                                                Historical                                      Pro Forma
                      --------------------------------------------------------------  ------------------------------


                                                                 Nine Months Ended                      Nine Months
                              Year Ended December 31,              September 30,       Year Ended          Ended
                      --------------------------------------  ----------------------  December 31,     September 30,
                         1998     1999/(1)/          2000        2000        2001         2000             2001
                      ----------  ----------      ----------  ----------  ----------  ------------     -------------
                                            (in thousands, except per unit and operating data)
<S>                   <C>         <C>             <C>         <C>         <C>         <C>              <C>
Income Statement
 Data:
Revenues:
 Sales and other
   operating
   revenue:
   Affiliates........ $  570,332  $  764,133      $1,301,079  $  964,885  $  837,124   $1,308,792       $   846,831
   Unaffiliated
    customers........    124,869     210,069         507,532     364,475     413,387      507,532           413,387
 Other income/(2)/...      5,022       6,133           5,574       4,032       3,474        5,574             3,474
                      ----------  ----------      ----------  ----------  ----------   ----------       -----------
Total revenues.......    700,223     980,335       1,814,185   1,333,392   1,253,985    1,821,898         1,263,692
                      ----------  ----------      ----------  ----------  ----------   ----------       -----------
Costs and expenses:
 Cost of products
   sold and
   operating
   expenses..........    583,587     866,610       1,699,541   1,247,403   1,164,381    1,699,541         1,164,381
 Depreciation and
   amortization......     18,622      19,911          20,654      15,217      17,682       20,654            17,682
 Selling, general
   and
   administrative
   expenses..........     29,890      27,461          34,683      25,971      26,213       34,683            26,213
                      ----------  ----------      ----------  ----------  ----------   ----------       -----------
Total costs and
 expenses............    632,099     913,982       1,754,878   1,288,591   1,208,276    1,754,878         1,208,276
                      ----------  ----------      ----------  ----------  ----------   ----------       -----------
Operating income.....     68,124      66,353          59,307      44,801      45,709       67,020            55,416
Net interest cost
 and debt expense....      7,117       6,487          10,304       6,640       8,504       17,567            13,296
                      ----------  ----------      ----------  ----------  ----------   ----------       -----------
Income before
 income tax expense..     61,007      59,866          49,003      38,161      37,205       49,453            42,120
Income tax expense...     23,116      22,488          18,483      14,411      13,920           --                --
                      ----------  ----------      ----------  ----------  ----------   ----------       -----------
Net income........... $   37,891  $   37,378      $   30,520  $   23,750  $   23,285   $   49,453       $    42,120
                      ==========  ==========      ==========  ==========  ==========   ==========       ===========
Pro forma net
 income per unit:
 Basic...............                                                                  $     2.13       $      1.81
                                                                                       ==========       ===========
 Diluted.............                                                                  $     2.12       $      1.80
                                                                                       ==========       ===========
Other Financial
 Data:
EBITDA............... $   86,746  $   86,264      $   79,961  $   60,018  $   63,391   $   87,674       $    73,098
Explorer Pipeline
 Company joint
 venture (9.4%
 ownership
 interest):
 Equity income....... $    3,885  $    4,591      $    3,766  $    2,482  $    3,094
 Cash dividends...... $    4,612  $    4,730      $    3,749  $    2,589  $    3,057
Net cash provided
 by operating
 activities.......... $   44,950  $  125,165      $   79,116  $   62,090  $   17,076
Net cash used in
 investing
 activities.......... $  (36,933) $  (75,120)     $  (77,292) $  (36,968) $  (40,518)
Net cash provided
 by (used in)
 financing
 activities.......... $   (8,017) $  (50,045)     $   (1,824) $  (25,122) $   23,442
Capital
 expenditures:
 Maintenance......... $   28,420  $   32,312      $   39,067  $   24,591  $   28,898
 Expansion...........      8,527      49,556/(1)/     18,854      11,484      11,324
                      ----------  ----------      ----------  ----------  ----------
Total capital
 expenditures........ $   36,947  $   81,868/(1)/ $   57,921  $   36,075  $   40,222
                      ==========  ==========      ==========  ==========  ==========
Operating Data
 (bpd):
Eastern Pipeline
 System
 throughput/(3)/.....    520,627     542,843         535,510     560,004     551,681
Terminal Facilities
 throughput..........  1,163,907   1,245,189       1,281,231   1,235,849   1,172,817
Western Pipeline
 System throughput...    253,124     252,098         295,991     291,538     289,496
Crude oil purchases
 at wellhead.........    155,606     145,425         176,964     178,965     177,189

Balance Sheet Data
 (at period end):
Net properties,
 plants and
 equipment........... $  430,848  $  481,967      $  518,605  $  503,718  $  541,441                    $  541,441
Total assets......... $  528,279  $  712,149      $  845,956  $  839,379  $  797,648                    $  855,441
Total debt,
 including current
 portion and debt
 due affiliate....... $   90,225  $   95,287      $  190,043  $  140,107  $  194,843                    $  254,843
Net parent
 investment/partners'
 equity.............. $  235,478  $  223,083      $  157,023  $  176,891  $  198,950                    $  305,280
</TABLE>


--------
(1)On October 1, 1999, Sunoco Logistics (Predecessor) acquired the crude oil
   transportation and marketing operations of Pride Companies, L.P. for $29.6
   million in cash and the assumption of $5.3 million of debt. The purchase
   price was allocated to the assets acquired and liabilities assumed based on
   their fair value. The acquired assets included Pride's 800-mile crude oil
   pipeline system, 800,000 barrels of tankage and related assets, and the
   right to purchase 35,000 barrels per day of third party lease crude oil. The
   results of operations and related operating data relating to the acquired
   business have been included in the above table from the date of acquisition.
   We have included the purchase price of this acquisition in expansion capital
   expenditures.
(2)Includes equity income from our investment in Explorer Pipeline Company, a
   joint venture in which we own a 9.4% interest.
(3)Excludes amounts attributable to our 9.4% ownership interest in Explorer
   Pipeline Company and our interrefinery pipelines. Also excludes amounts
   attributable to our Toledo, Twin Oaks, and Linden transfer pipelines, which
   transport large volumes over short distances and generate minimal revenues.

                                      11


<PAGE>

        SUMMARY OF CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES

   Sunoco Partners LLC, our general partner, has a legal duty to manage us in a
manner beneficial to our unitholders. This legal duty originates in statutes
and judicial decisions and is commonly referred to as a "fiduciary" duty.
However, because our general partner is indirectly owned by Sunoco, Inc., its
officers and directors have fiduciary duties to manage the business of our
general partner in a manner beneficial to Sunoco, Inc. and its affiliates. As a
result of this relationship, conflicts of interest may arise in the future
between us and our unitholders, on the one hand, and our general partner and
its affiliates, on the other hand. For a more detailed description of the
conflicts of interest and fiduciary responsibilities of our general partner,
please read "Conflicts of Interest and Fiduciary Responsibilities."

   Our partnership agreement limits the liability and reduces the fiduciary
duties of our general partner to our unitholders. Our partnership agreement
also restricts the remedies available to unitholders for actions that might
otherwise constitute breaches of our general partner's fiduciary duty. By
purchasing a common unit, you are treated as having consented to various
actions contemplated in the partnership agreement and conflicts of interest
that might otherwise be considered a breach of fiduciary or other duties under
applicable state law.

   For a description of our other relationships with our affiliates, please
read "Certain Relationships and Related Transactions."

                                      12


<PAGE>


                                 RISK FACTORS

   Limited partner interests are inherently different from the capital stock of
a corporation, although many of the business risks to which we are subject are
similar to those that would be faced by a corporation engaged in a similar
business. You should carefully consider the following risk factors together
with all of the other information included in this prospectus in evaluating an
investment in our common units.

   If any of the following risks were actually to occur, our business,
financial condition, or results of operations could be materially adversely
affected. In that case, we might not be able to pay distributions on our common
units, the trading price of our common units could decline, and you could lose
all or part of your investment.

Risks Inherent in Our Business

We may not have sufficient cash from operations to enable us to pay the minimum
quarterly distribution following establishment of cash reserves and payment of
fees and expenses, including payments to our general partner.

   We may not have sufficient available cash each quarter to pay the minimum
quarterly distribution. The amount of cash we can distribute on our common
units principally depends upon the amount of cash we generate from our
operations, which will fluctuate from quarter to quarter based on, among other
things:

   . the volume of refined products and crude oil transported in our pipelines
     or handled at our terminals;

   . the tariff rates and terminalling fees we charge;

   . our crude oil acquisition and marketing margins;

   . the level of our operating costs, including payments to our general
     partner; and

   . prevailing economic conditions.

   In addition, the actual amount of cash we will have available for
distribution will depend on other factors such as:

   . the level of capital expenditures we make;

   . our debt service requirements;

   . fluctuations in our working capital needs;

   . our ability to make working capital borrowings under our revolving credit
     facility; and

   . the amount, if any, of cash reserves established by our general partner in
     its discretion.

   You should also be aware that the amount of cash we have available for
distribution depends primarily on our cash flow, including cash flow from
financial reserves and working capital borrowings, and not solely on
profitability, which will be affected by non-cash items. As a result, we may
make cash distributions during periods when we record losses and may not make
cash distributions during periods when we record net income.


   Pro forma available cash from operating surplus generated during 2000 and
the nine months ended September 30, 2001 would have been sufficient to allow us
to pay the full minimum quarterly distribution on the common units, but
insufficient by $12.4 million and $1.6 million, respectively, to pay the full
minimum quarterly distribution on the subordinated units during these periods.
For a calculation of our ability to make distributions to unitholders based on
our pro forma results in 2000 and for the first nine months of 2001, please
read "Cash Available for Distribution" and Appendix D.


                                      13


<PAGE>

Cost reimbursements, which will be determined in our general partner's sole
discretion, and fees due our general partner and its affiliates will be
substantial and will reduce our cash available for distribution to you.

   Payments to our general partner will be substantial and will reduce the
amount of available cash for distribution to unitholders. For three years
following this offering, we will pay Sunoco, Inc. or our general partner an
administrative fee of $8.0 million per year for the provision by Sunoco, Inc.
or its affiliates of various general and administrative services for our
benefit. The administrative fee may increase in the second and third years by
up to a maximum of 2.5% per year and may also increase if we make an
acquisition that requires an increase in the level of general and
administrative services that we receive from Sunoco, Inc. or its affiliates. In
addition, the general partner will be entitled to reimbursement for all other
expenses it incurs on our behalf, including the salaries of and the cost of
employee benefits for employees of our general partner, including senior
executives, who provide services to us. Our general partner has sole discretion
in determining the amount of these expenses. Our general partner and its
affiliates also may provide us other services for which we will be charged fees
as determined by our general partner. Please read "Conflicts of Interest and
Fiduciary Responsibilities--Conflicts of Interest."

Sunoco R&M's obligations under the pipelines and terminals storage and
throughput agreement may be reduced or suspended in some circumstances, which
would reduce our ability to make distributions to our unitholders.

   For the twelve months ended September 30, 2001, Sunoco R&M accounted for
approximately 77% of the pro forma sales and other operating revenue of our
Eastern Pipeline System, 63% of the pro forma sales and other operating revenue
of our Terminal Facilities, and 68% of the pro forma sales and other operating
revenue of our Western Pipeline System. We received the balance of our revenues
from third parties. We will continue to remain dependent on third parties for
additional revenues. Our pipelines and terminals storage and throughput
agreement does not cover our crude oil acquisition and marketing business or
our Nederland Terminal. In addition, although the contract makes provision for
escalation of the fees charged to Sunoco R&M, the increased fees may be
inadequate to cover increased costs in the future.

   Sunoco R&M's obligations under the pipelines and terminals storage and
throughput agreement may be permanently reduced in some circumstances, which
would reduce our ability to make distributions to our unitholders. These
events, some of which are within the exclusive control of Sunoco R&M, include:

   . Governmental action that prohibits Sunoco R&M from using MTBE in the
     gasoline it produces if Sunoco R&M reasonably believes in good faith that
     this action will jeopardize its ability to satisfy its minimum revenue or
     throughput obligations.

   . The inability of Sunoco R&M and us to agree on the amount of any surcharge
     required to be paid by Sunoco R&M to cover substantial and unanticipated
     costs that we may incur in complying with new laws or governmental
     regulations applicable to our Terminal Facilities.

   . A decision by Sunoco R&M to shut down or reconfigure one or more of its
     refineries if Sunoco R&M reasonably believes in good faith that such event
     will jeopardize its ability to satisfy its minimum revenue or throughput
     obligations. Factors that might lead Sunoco R&M to shut down or
     reconfigure a refinery include:

       -  reduced demand for refined products produced at the refinery;


       -  increasingly stringent environmental regulations. For example, Sunoco
          R&M has estimated that it will be required to make capital
          expenditures of approximately $300 million to $400 million over the
          next five years at its refineries to bring them into compliance with
          the Environmental Protection Agency's new rules limiting the sulfur
          in motor gasoline and diesel fuel;


                                      14


<PAGE>

       -  a catastrophic event at a refinery, such as a major fire, flood, or
          explosion; and


       -  environmental proceedings or other litigation that could limit all or
          a portion of the operations at a refinery. As part of a Clean Air Act
          enforcement initiative, the EPA has requested information relating to
          potential violations of the Clean Air Act from Sunoco R&M and other
          refiners. The EPA has entered into consent agreements with several
          refiners that require them to make significant capital expenditures
          to install control equipment to reduce emissions of sulfur dioxide,
          nitrogen oxides, and particulate matter. Sunoco R&M has received
          notices of violation from the EPA relating to its Marcus Hook,
          Philadelphia, and Toledo refineries and is currently evaluating its
          position. As part of this initiative, Sunoco R&M could be required to
          make significant capital expenditures. See "Business--Environmental
          Regulation."


   Depending on the ultimate cost of complying with existing and future
environmental regulations or proceedings, Sunoco R&M may determine that it is
more economical to reduce production at a refinery or shut down all or a
portion of a refinery rather than make these capital expenditures.

   Furthermore, Sunoco R&M's obligations would be temporarily suspended during
the occurrence of an event that is outside the control of the parties, which
renders performance impossible with respect to an asset for at least 30 days.
The occurrence of any of these events could reduce our revenues and cash flow,
and our ability to make distributions to our unitholders.

   Sunoco, Inc. continually considers opportunities presented by third parties
with respect to its refinery assets. These opportunities may include offers to
purchase and joint venture propositions. Sunoco, Inc. also continually
considers changes to its refineries. Those changes may involve new facilities,
reduction in certain operations or modifications of facilities or operations.
Changes may be considered to meet market demands, to satisfy regulatory
requirements or environmental and safety objectives, to improve operational
efficiency or for other reasons. Sunoco, Inc. is actively managing its assets
and operations, and, therefore, changes of some nature, possibly material to
its business relationship with us, are likely to occur at some point in the
future.

If Sunoco R&M satisfies only its minimum obligations under, or if we are unable
to renew or extend, our pipelines and terminals storage and throughput
agreement, our ability to make distributions would be reduced.

   Sunoco R&M may reduce the volumes it transports on our pipelines or delivers
at our terminals to the minimum amounts it is obligated to transport or deliver
under the pipelines and terminals storage and throughput agreement. If Sunoco
R&M had only transported or delivered amounts equal to its minimum commitments
during the past twelve months, we would not have been able to make the minimum
quarterly distribution on all the units in the absence of a significant
increase in new business from third parties. In addition, the terms of Sunoco
R&M's obligations under the pipelines and terminals storage and throughput
agreement are of relatively brief duration, ranging from five to seven years.
If Sunoco R&M fails to use our facilities after expiration of the agreement and
we are unable to generate additional revenues from third parties, our ability
to make cash distributions to unitholders will be reduced.

A significant decrease in demand for refined products in the markets served by
our pipelines would reduce our ability to make distributions to our unitholders.

   A sustained decrease in demand for refined products in the markets served by
our pipelines would significantly reduce our revenues and, therefore, reduce
our ability to make distributions to our unitholders. Factors that could lead
to a decrease in market demand include:

   . a recession or other adverse economic condition that results in lower
     spending by consumers on gasoline, diesel fuel, and travel;

   . an increase in the market price of crude oil that leads to higher refined
     product prices;

   . higher fuel taxes or other governmental or regulatory actions that
     increase, directly or indirectly, the cost of gasoline or other refined
     products; and

   . a shift by consumers to more fuel-efficient or alternative fuel vehicles
     or an increase in fuel economy, whether as a result of technological
     advances by manufacturers, pending legislation proposing to mandate higher
     fuel economy, or otherwise.

                                      15


<PAGE>

Due to our lack of asset diversification, adverse developments in our pipelines
and terminals businesses would reduce our ability to make distributions to our
unitholders.

   We rely exclusively on the revenues generated from our pipelines and
terminals businesses. Due to our lack of asset diversification, an adverse
development in one of these businesses would have a significantly greater
impact on our financial condition and results of operations than if we
maintained more diverse assets.

Rate regulation may not allow us to recover the full amount of increases in our
costs, and a successful challenge to our rates would reduce our ability to make
distributions to our unitholders.

   The primary rate-making methodology of the Federal Energy Regulatory
Commission, or FERC, is price indexing. We use this methodology in all of our
interstate markets. The indexing method allows a pipeline to increase its rates
by a percentage equal to the change in the producer price index for finished
goods minus 1%. If the index rises by less than 1% or falls, we will be
required to reduce our rates that are based on the FERC's price indexing
methodology if they exceed the new maximum allowable rate. In addition, changes
in the index might not be large enough to fully reflect actual increases in our
costs. The FERC's rate-making methodologies may limit our ability to set rates
based on our true costs or may delay the use of rates that reflect increased
costs. Any of the foregoing would adversely affect our revenues and cash flow.

   Under the Energy Policy Act adopted in 1992, our interstate pipeline rates
were deemed just and reasonable or "grandfathered." As that Act applies to our
rates, a person challenging a grandfathered rate must, as a threshold matter,
establish a substantial change since the date of enactment of the Act, in
either the economic circumstances or the nature of the service that formed the
basis for the rate. A complainant might assert that the creation of the
partnership itself constitutes such a change, an argument that has not
previously been specifically addressed by the FERC. If the FERC were to find a
substantial change in circumstances, then the existing rates could be subject
to detailed review. There is a risk that some of our rates could be found to be
in excess of levels justified by our cost of service. In such event, the FERC
would order us to reduce our rates. Any such reduction would result in lower
revenues and cash flows and would reduce our ability to make distributions to
our unitholders. Please read "Business--Rate Regulation--Our Pipelines."

   In a 1995 decision involving an unrelated oil pipeline limited partnership,
the FERC partially disallowed the inclusion of income taxes in that
partnership's cost of service. In another FERC proceeding involving a different
oil pipeline limited partnership, the FERC held that the oil pipeline limited
partnership may not claim an income tax allowance for income attributable to
non-corporate limited partners. If our rates were challenged and the FERC were
to disallow the inclusion of an income tax allowance in our cost of service, it
may be more difficult for us to justify our rates.

   In addition, a state commission could also investigate our intrastate rates
or our terms and conditions of service on its own initiative or at the urging
of a shipper or other interested party. If a state commission found that our
rates exceeded levels justified by our cost of service, the state commission
could order us to reduce our rates.

   Sunoco R&M has agreed not to challenge, or to cause others to challenge or
assist others in challenging, our tariff rates for seven years. This agreement
does not prevent other current or future shippers from challenging our tariff
rates. At the end of the seven years, Sunoco R&M will be free to challenge, or
to cause other parties to challenge or assist others in challenging, our tariff
rates. If any party successfully challenges our tariff rates, the effect would
be to reduce our ability to make distributions to our unitholders.

   Potential changes to current rate-making methods and procedures may impact
the federal and state regulations under which we will operate in the future. In
addition, if the FERC's petroleum pipeline ratemaking methodology changes, the
new methodology could result in tariffs that generate lower revenues and cash
flow and adversely affect our ability to make cash distributions to our
unitholders. Please read "Business--Rate Regulation" for more information on
our tariff rates.

                                      16


<PAGE>

Our operations are subject to federal, state, and local laws and regulations
relating to environmental protection and operational safety that could require
us to make substantial expenditures.

   Our pipelines, gathering systems, and terminal operations are subject to
increasingly strict environmental and safety laws and regulations. The
transportation and storage of refined products and crude oil result in a risk
that refined products, crude oil, and other hydrocarbons may be suddenly or
gradually released into the environment, potentially causing substantial
expenditures for a response action, significant government penalties, liability
to government agencies for natural resources damages, personal injury, or
property damages to private parties and significant business interruption. We
own or lease a number of properties that have been used to store or distribute
refined products and crude oil for many years. Many of these properties have
also been operated by third parties whose handling, disposal, or release of
hydrocarbons and other wastes were not under our control. We expect it will
cost approximately $8.8 million to assess, monitor, and remediate 19 sites
where releases of crude oil or petroleum products have occurred. Please read
"Business--Environmental Regulation" and "--Environmental Remediation" for more
information.

   We estimate that we will spend $8.2 million on storage tank inspection and
repair over the next five years at our Nederland Terminal. We also expect to
spend approximately $8.0 million in each of the next five years to comply with
the recently adopted pipeline integrity management rule of the U.S. Department
of Transportation, or DOT. Although Sunoco, Inc. has agreed to indemnify us for
costs in excess of $8.0 million per year, up to a maximum of $15.0 million over
the next five years with regard to compliance with this DOT pipeline integrity
management rule, the cost to perform such activities may exceed these estimated
amounts and the amount of any indemnification. If we are not able to recover
the excess costs through increased tariffs and revenues, cash distributions to
our unitholders would be adversely affected.

If existing or future state or federal government regulations banning or
restricting the use of MTBE in gasoline take effect, our ability to make
distributions to our unitholders would be reduced.

   Our Eastern refined product pipeline system transports from Sunoco R&M's
refineries gasoline containing MTBE, an oxygenate used extensively to reduce
motor vehicle tailpipe emissions. Many states, including New York and
Connecticut, have banned or restricted the use of MTBE in gasoline commencing
as early as 2003 in response to concerns about MTBE's adverse impact on ground
or surface water. Other states are considering bans or restrictions on MTBE or
opting out of the EPA's reformulated gasoline program, either of which events
would reduce the use of MTBE. Any ban or restriction on the use of MTBE may
lead to the greater use of ethanol. Unlike MTBE, which can be blended in
gasoline at the refinery, ethanol is blended at the terminal and is not
transported by our pipelines. Any revenues we would receive for blending
ethanol might not offset the loss of revenues we would suffer from the reduced
volumes we transport on our Eastern refined product pipelines. In addition,
Congress is currently considering removing or modifying the oxygenate
requirement, which could reduce the amount of gasoline transported on our
Eastern refined product pipelines and reduce our ability to make distributions
to our unitholders.

When the price of foreign crude oil delivered to the United States is greater
than that of domestic crude oil, or the price for the future delivery of crude
oil falls below current prices, our customers are less likely to store crude
oil, thereby reducing our storage revenues at our Nederland Terminal.

   Most of the crude oil stored at our Nederland Terminal is foreign crude oil.
When the price of foreign crude oil delivered to the United States is greater
than that of domestic crude oil, the demand for this storage capacity may
decrease. If this market condition occurs, our storage revenues will be lower,
which would reduce our ability to make distributions to our unitholders.

   When the price of crude oil in a given month exceeds the price of crude oil
for delivery in a subsequent month, the market is backwardated. When the crude
oil market is backwardated, the demand for storage capacity at our Nederland
Terminal may decrease because crude oil producers can capture a premium for
prompt

                                      17


<PAGE>

deliveries rather than storing it for sale later. The market has been in
backwardation for much of the last several years. In a backwardated market, our
storage revenues may be lower, which would reduce our ability to make
distributions to our unitholders.

A material decrease in the supply, or increase in the price, of crude oil
available for transport through our Western Pipeline System would reduce our
ability to make distributions to our unitholders.

   The volume of crude oil we transport in our crude oil pipelines depends on
the availability of attractively priced crude oil produced in the areas
accessible to our crude oil pipelines and received from other common carrier
pipelines. If we do not replace volumes lost due to a material temporary or
permanent decrease in supply, the volumes of crude oil transported through our
pipelines would decline, reducing our revenues and cash flow and our ability to
make distributions to our unitholders. For example, some of the gathering
systems that supply crude oil that we transport on our Western Pipeline System
are experiencing a decline in production. In addition, sustained low crude oil
prices could lead to a decline in drilling activity and production levels or
the shutting-in or abandonment of marginal wells. Similarly, a temporary or
permanent material increase in the price of crude oil supplied from any of
these sources, as compared to alternative sources of crude oil available to our
customers, would cause the volumes of crude oil transported in our pipelines to
decline, thereby reducing our revenues and cash flow and adversely affecting
our ability to make cash distributions to our unitholders.

Any reduction in the capability of or the allocations to our shippers in
interconnecting, third-party pipelines would cause a reduction of volumes
transported in our pipelines and through our terminals, which would reduce our
ability to make distributions to our unitholders.

   Sunoco R&M and the other users of our pipelines and terminals are dependent
upon connections to third-party pipelines to receive and deliver crude oil and
refined products. Any reduction of capabilities of these interconnecting
pipelines due to testing, line repair, reduced operating pressures, or other
causes would result in reduced volumes transported in our pipelines or through
our terminals. Similarly, if additional shippers begin transporting volumes
over interconnecting pipelines, the allocations to our existing shippers would
be reduced, which would also reduce volumes transported in our pipelines or
through our terminals. Any reduction in volumes transported in our pipelines or
through our terminals would adversely affect our revenues and cash flow.

Our operations are subject to operational hazards and unforeseen interruptions
for which we may not be adequately insured.


   Our operations are subject to operational hazards and unforeseen
interruptions such as natural disasters, adverse weather, accidents, fires,
explosions, hazardous materials releases, and other events beyond our control.
These events might result in a loss of equipment or life, injury, or extensive
property damage, as well as an interruption in our operations. We may not be
able to maintain or obtain insurance of the type and amount we desire at
reasonable rates. As a result of market conditions, premiums and deductibles
for certain of our insurance policies have increased substantially, and could
escalate further. In some instances, certain insurance could become unavailable
or available only for reduced amounts of coverage. For example, insurance
carriers are now requiring broad exclusions for losses due to war risk and
terrorist acts. If we were to incur a significant liability for which we were
not fully insured, it could have a material adverse effect on our financial
position.


We are exposed to the credit risk of our customers in the ordinary course of
our crude oil acquisition and marketing activities.

   When we purchase crude oil at the wellhead, we sometimes pay all of or a
portion of the production proceeds to an operator who distributes these
proceeds to the various interest owners, an arrangement that exposes us to
operator credit risk. Therefore, we must determine whether operators have
sufficient financial resources to make these payments and distributions and to
indemnify and defend us in case of a protest, action, or complaint. Even if our
credit review and analysis mechanisms work properly, we may experience losses
in dealings with operators and other parties.

Competing pipelines could cause us to reduce our rates.

   If a competing crude oil or refined product pipeline charged lower rates
than we do, we could be forced to reduce our rates to remain competitive, which
would reduce our revenues and cash flow. Several companies have

                                      18


<PAGE>

announced pipeline expansion or conversion projects that will likely begin
competing with Explorer Pipeline Company and portions of our West Texas
pipeline system this year.

If we do not make acquisitions on economically acceptable terms, any future
growth will be limited.

   Our future growth will depend principally on our ability to make
acquisitions at attractive prices. If we are unable to identify attractive
acquisition candidates or we are unable to acquire businesses on economically
acceptable terms, our future growth will be limited. Any acquisition involves
potential risks, including:

   . the inability to integrate the operations of recently acquired businesses;

   . the diversion of management's attention from other business concerns;

   . customer or key employee loss from the acquired businesses; and

   . a significant increase in our indebtedness and working capital
     requirements.

   Any of these factors would adversely affect our ability to achieve
anticipated levels of cash flows from our acquisitions or realize other
anticipated benefits. In addition, competition from other buyers could reduce
our acquisition opportunities or cause us to pay a higher price than we might
otherwise pay.

Restrictions in our and Sunoco, Inc.'s debt agreements may prevent us from
engaging in some beneficial transactions or paying distributions.


   Upon completion of this offering, we expect our total outstanding long-term
indebtedness to be approximately $255 million, including $250 million of senior
notes and approximately $5 million of other indebtedness. Our payment of
principal and interest on the debt will reduce the cash available for
distribution on our units, as will our obligation to repurchase the senior
notes upon the occurrence of specified events involving a change of control of
our general partner. In addition, we will be prohibited by our credit facility
and the senior notes from making cash distributions during an event of default,
or if the payment of a distribution would cause an event of default, under any
of our debt agreements. The termination of our pipelines and terminals storage
and throughput agreement prior to its expiration will constitute an event of
default under our credit facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Credit Facility." Our leverage and various limitations in our credit
facility and the senior notes may reduce our ability to incur additional debt,
engage in some transactions, and capitalize on acquisition or other business
opportunities. Sunoco, Inc.'s revolving credit agreement also limits the
aggregate amount of debt Sunoco, Inc. and its consolidated subsidiaries,
including us, may borrow. Since Sunoco, Inc. will own and control our general
partner, we may not be permitted to incur additional debt if the effect would
be to cause an event of default under Sunoco, Inc.'s revolving credit
agreement. Any subsequent refinancing of Sunoco, Inc.'s or our current debt or
any new debt could have similar or greater restrictions.


Risks Inherent in an Investment in Us

Sunoco, Inc. and its affiliates have conflicts of interest and limited
fiduciary responsibilities, which may permit them to favor their own interests
to your detriment.


   Following the offering, Sunoco, Inc. will indirectly own the 2% general
partner interest and a 76.5% limited partner interest in us and will own and
control our general partner. Conflicts of interest may arise between Sunoco,
Inc. and its affiliates, including our general partner, on the one hand, and us
and our unitholders, on the other hand. As a result of these conflicts, the
general partner may favor its own interests and the interests of its affiliates
over the interests of our unitholders. These conflicts include, among others,
the following situations:


   . Sunoco R&M, as a shipper on our pipelines, has an economic incentive not
     to cause us to seek higher tariff rates or terminalling fees, even if such
     higher rates or terminalling fees would reflect rates that could be
     obtained in arm's-length, third-party transactions;

   . neither our partnership agreement nor any other agreement requires Sunoco,
     Inc. to pursue a business strategy that favors us or utilizes our assets,
     including whether to increase or decrease refinery production, whether to
     shut down or reconfigure a refinery, or what markets to pursue or grow.
     Sunoco, Inc.'s directors and officers have a fiduciary duty to make these
     decisions in the best interests of the stockholders of Sunoco, Inc.;

                                      19


<PAGE>

   . our general partner is allowed to take into account the interests of
     parties other than us, such as Sunoco, Inc., in resolving conflicts of
     interest;

   . our general partner may limit its liability and reduce its fiduciary
     duties, while also restricting the remedies available to our unitholders
     for actions that, without the limitations, might constitute breaches of
     fiduciary duty;

   . our general partner determines the amount and timing of asset purchases
     and sales, capital expenditures, borrowings, issuance of additional
     partnership securities, and reserves, each of which can affect the amount
     of cash that is distributed to our unitholders;

   . our general partner determines which costs incurred by Sunoco, Inc. and
     its affiliates are reimbursable by us;

   . our partnership agreement does not restrict our general partner from
     causing us to pay it or its affiliates for any services rendered on terms
     that are fair and reasonable to us or entering into additional contractual
     arrangements with any of these entities on our behalf;

   . our general partner controls the enforcement of obligations owed to us by
     our general partner and its affiliates, including the pipelines and
     terminals storage and throughput agreement with Sunoco R&M;

   . our general partner decides whether to retain separate counsel,
     accountants, or others to perform services for us; and


   . Sunoco, Inc. may at any time propose that we undertake a project to
     develop and construct or acquire an asset, and if our general partner
     determines in its good faith judgment, with the concurrence of its
     conflicts committee, that the project, including the terms on which
     Sunoco, Inc. would agree to use such asset, will be beneficial on the
     whole to us and that proceeding with the project will not effectively
     preclude us from undertaking another project that will be more beneficial
     to us, we will be required to use our commercially reasonable efforts to
     finance, develop, and construct or acquire the asset.


   Please read "Certain Relationships and Related Transactions--Omnibus
Agreement" and "Conflicts of Interest and Fiduciary Responsibilities."

Even if unitholders are dissatisfied, they cannot remove our general partner
without its consent, which could lower the trading price of the common units.

   Unlike the holders of common stock in a corporation, unitholders have only
limited voting rights on matters affecting our business and, therefore, limited
ability to influence management's decisions regarding our business. Unitholders
did not elect our general partner or its board of directors and will have no
right to elect our general partner or its board of directors on an annual or
other continuing basis. The board of directors of our general partner is chosen
by the members of our general partner. Furthermore, if the unitholders are
dissatisfied with the performance of our general partner, they will have little
ability to remove our general partner. As a result of these limitations, the
price at which the common units will trade could be diminished because of the
absence or reduction of a takeover premium in the trading price.


   The unitholders will be unable initially to remove the general partner
without its consent because the general partner and its affiliates will own
sufficient units upon completion of the offering to be able to prevent its
removal. The vote of the holders of at least 66 2/3% of all outstanding units
voting together as a single class is required to remove the general partner. At
closing, the general partner and its affiliates will own 78.0% of the units.
Also, if the general partner is removed without cause during the subordination
period and units held by the general partner are not voted in favor of that
removal, all remaining subordinated units will automatically be converted into
common units and any existing arrearages on the common units will be
extinguished. A removal of the general partner under these circumstances would
adversely affect the common units by prematurely eliminating their distribution
and liquidation preference over the subordinated units, which would otherwise
have continued until we had met certain distribution and performance tests.


                                      20


<PAGE>

   Cause is narrowly defined to mean that a court of competent jurisdiction has
entered a final, non-appealable judgment finding the general partner liable for
actual fraud, gross negligence, or willful or wanton misconduct in its capacity
as our general partner. Cause does not include most cases of charges of poor
management of the business, so the removal of the general partner because of
the unitholders' dissatisfaction with the general partner's performance in
managing our partnership will most likely result in the termination of the
subordination period.

   Furthermore, unitholders' voting rights are further restricted by the
partnership agreement provision providing that any units held by a person that
owns 20% or more of any class of units then outstanding, other than the general
partner, its affiliates, their transferees, and persons who acquired such units
with the prior approval of the board of directors of the general partner,
cannot vote on any matter.

   The partnership agreement also contains provisions limiting the ability of
unitholders to call meetings or to acquire information about our operations, as
well as other provisions limiting the unitholders' ability to influence the
manner or direction of management.

The control of our general partner may be transferred to a third party without
unitholder consent.

   The general partner may transfer its general partner interest to a third
party in a merger or in a sale of all or substantially all of its assets
without the consent of the unitholders. Furthermore, there is no restriction in
the partnership agreement on the ability of the owner of the general partner
from transferring its ownership interest in the general partner to a third
party. The new owner of the general partner would then be in a position to
replace the board of directors and officers of the general partner with its own
choices and to control the decisions taken by the board of directors and
officers.


You will experience immediate and substantial dilution of $8.30 per common unit.



   The assumed initial public offering price of $20.00 per unit exceeds pro
forma net tangible book value of $11.70 per unit. Based on an assumed initial
public offering price of $20.00, you will incur immediate and substantial
dilution of $8.30 per common unit. This dilution results primarily because the
assets contributed by our general partner are recorded at their historical
cost, and not their fair value, in accordance with generally accepted
accounting principles. Please read "Dilution."


We may issue additional common units without your approval, which would dilute
your ownership interests.


   During the subordination period, our general partner, without the approval
of our unitholders, may cause us to issue up to 5,691,820 additional common
units. Our general partner may also cause us to issue an unlimited number of
additional common units or other equity securities of equal rank with the
common units, without unitholder approval, in a number of circumstances such as:


   . the issuance of common units in connection with acquisitions that increase
     cash flow from operations per unit on a pro forma basis;

   . the conversion of subordinated units into common units;

   . the conversion of units of equal rank with the common units into common
     units under some circumstances;

   . the conversion of the general partner interest and the incentive
     distribution rights into common units as a result of the withdrawal of our
     general partner;

   . issuances of common units under our long-term incentive plan; or

   . issuances of common units to repay up to $40.0 million of certain
     indebtedness.

                                      21


<PAGE>

   After the end of the subordination period, we may issue an unlimited number
of limited partner interests of any type without the approval of our
unitholders. Our partnership agreement does not give our unitholders the right
to approve our issuance of equity securities ranking junior to the common units
at any time.

   The issuance of additional common units or other equity securities of equal
or senior rank will have the following effects:

   . our unitholders' proportionate ownership interest in us will decrease;

   . the amount of cash available for distribution on each unit may decrease;

   . because a lower percentage of total outstanding units will be subordinated
     units, the risk that a shortfall in the payment of the minimum quarterly
     distribution will be borne by our common unitholders will increase;

   . the relative voting strength of each previously outstanding unit may be
     diminished; and

   . the market price of the common units may decline.

Our general partner's discretion in establishing cash reserves may reduce the
amount of cash available for distribution to you.

   The partnership agreement requires the general partner to deduct from
operating surplus cash reserves that in its reasonable discretion are necessary
to fund our future operating expenditures. In addition, the partnership
agreement permits the general partner to reduce available cash by establishing
cash reserves for the proper conduct of our business, to comply with applicable
law or agreements to which we are a party, or to provide funds for future
distributions to partners. These cash reserves will affect the amount of cash
available for distribution to you.

Sunoco, Inc. and its affiliates may engage in limited competition with us.

   Sunoco, Inc. and its affiliates may engage in limited competition with us.
Pursuant to the omnibus agreement, Sunoco, Inc. and its affiliates will agree
not to engage in the business of purchasing crude oil at the wellhead or
operating refined product or crude oil pipelines or terminals or LPG terminals
in the continental United States. The omnibus agreement, however, does not
apply to:

   . any business operated by Sunoco, Inc. or any of its subsidiaries at the
     closing of this offering;

   . any logistics asset constructed by Sunoco, Inc. or any of its subsidiaries
     within a manufacturing or refining facility in connection with the
     operation of that facility;

   . any business that Sunoco, Inc. or any of its subsidiaries acquires or
     constructs that has a fair market value of less than $5.0 million; and

   . any business that Sunoco, Inc. or any of its subsidiaries acquires or
     constructs that has a fair market value of $5.0 million or more if we have
     been offered the opportunity to purchase the business for fair market
     value, and we decline to do so with the concurrence of our conflicts
     committee.

   Upon a change of control of Sunoco, Inc. or a sale of the general partner by
Sunoco, Inc., the non-competition provisions of the omnibus agreement may
terminate.

Our general partner may cause us to borrow funds in order to make cash
distributions, even where the purpose or effect of the borrowing benefits the
general partner or its affiliates.

   In some instances, our general partner may cause us to borrow funds from
affiliates of Sunoco, Inc. or from third parties in order to permit the payment
of cash distributions. These borrowings are permitted even if the purpose and
effect of the borrowing is to enable us to make a distribution on the
subordinated units, to make incentive distributions, or to hasten the
expiration of the subordination period.

                                      22


<PAGE>

Our general partner has a limited call right that may require you to sell your
common units at an undesirable time or price.


   If at any time our general partner and its affiliates own more than 80% of
the common units, our general partner will have the right, but not the
obligation, which it may assign to any of its affiliates or to us, to acquire
all, but not less than all, of the common units held by unaffiliated persons at
a price not less than their then-current market price. As a result, you may be
required to sell your common units at an undesirable time or price and may not
receive any return on your investment. You may also incur a tax liability upon
a sale of your units. At the completion of this offering and assuming that all
of the 750,000 common units subject to the over-allotment option are purchased
by our general partner, our general partner will own approximately 56.1% of the
common units. At the end of the subordination period, assuming no additional
issuances of common units, our general partner will own approximately 78.0% of
the common units. For additional information about the call right, please read
"The Partnership Agreement--Limited Call Right."


You may not have limited liability if a court finds that unitholder action
constitutes control of our business.

   As a limited partner in a partnership organized under Delaware law, you
could be held liable for our obligations to the same extent as a general
partner if you participate in the "control" of our business. The general
partner generally has unlimited liability for the obligations of the
partnership, such as its debts and environmental liabilities, except for those
contractual obligations of the partnership that are expressly made without
recourse to the general partner. In addition, Section 17-607 of the Delaware
Revised Uniform Limited Partnership Act provides that, under some
circumstances, a unitholder may be liable to us for the amount of a
distribution for a period of three years from the date of the distribution. The
limitations on the liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly established in some
of the other states in which we do business. Please read "The Partnership
Agreement--Limited Liability" for a discussion of the implications of the
limitations on liability to a unitholder.

Tax Risks

   You should read "Material Tax Consequences" for a more complete discussion
of the following expected material federal income tax consequences of owning
and disposing of common units.

The IRS could treat us as a corporation, which would substantially reduce the
cash available for distribution to unitholders.

   The federal income tax benefit of an investment in us depends largely on our
being treated as a partnership for federal income tax purposes. We have not
requested, and do not plan to request, a ruling from the IRS on this or any
other matter affecting us.

   If we were treated as a corporation for federal income tax purposes, we
would pay tax on our income at corporate rates, currently 35%, distributions
would generally be taxed again to you as corporate distributions, and no
income, gains, losses, or deductions would flow through to you. Because a tax
would be imposed upon us as an entity, the cash available for distribution to
you would be substantially reduced. Treatment of us as a corporation would
result in a material reduction in the anticipated cash flow and after-tax
return to you and thus would likely result in a substantial reduction in the
value of the common units.

   Current law may change so as to cause us to be treated as a corporation for
federal income tax purposes or otherwise to be subject to entity-level
taxation. The partnership agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that subjects us to
taxation as a corporation or otherwise subjects us to entity-level taxation for
federal, state, or local income tax purposes, the minimum quarterly
distribution amount and the target distribution amounts will be adjusted to
reflect the impact of that law on us.

                                      23


<PAGE>

A successful IRS contest of the federal income tax positions we take may
adversely impact the market for our common units, and the costs of any contest
will be borne by our unitholders and our general partner.

   We have not requested any ruling from the IRS with respect to our treatment
as a partnership for federal income tax purposes or any other matter affecting
us. The IRS may adopt positions that differ from our counsel's conclusions
expressed in this prospectus. It may be necessary to resort to administrative
or court proceedings to sustain some or all of our counsel's conclusions or the
positions we take. A court may not agree with all our counsel's conclusions or
the positions we take. Any contest with the IRS may materially and adversely
impact the market for our common units and the prices at which common units
trade. In addition, our costs of any contest with the IRS will be borne
indirectly by our unitholders and our general partner.

You may be required to pay taxes on income from us even if you do not receive
any cash distributions from us.

   You will be required to pay federal income taxes and, in some cases, state,
local, and foreign income taxes on your share of our taxable income, whether or
not you receive cash distributions from us. You may not receive cash
distributions equal to your share of our taxable income or even the tax
liability that results from that income.

Tax gain or loss on the disposition of our common units could be different than
expected.

   If you sell your common units, you will recognize gain or loss equal to the
difference between the amount realized and your tax basis in those common
units. Prior distributions in excess of the total net taxable income you were
allocated for a common unit, which decreased your tax basis in that common
unit, will, in effect, become taxable income to you if the common unit is sold
at a price greater than your tax basis in that common unit, even if the price
you receive is less than your original cost. A substantial portion of the
amount realized, whether or not representing gain, may be ordinary income to
you. Should the IRS successfully contest some positions we take, you could
recognize more gain on the sale of units than would be the case under those
positions, without the benefit of decreased income in prior years. In addition,
if you sell your units, you may incur a tax liability in excess of the amount
of cash you receive from the sale.

Tax-exempt entities, regulated investment companies, and foreign persons face
unique tax issues from owning common units that may result in adverse tax
consequences to them.

   Investment in common units by tax-exempt entities, such as individual
retirement accounts (known as IRAs), regulated investment companies (known as
mutual funds), and non-U.S. persons raises issues unique to them. For example,
virtually all of our income allocated to organizations exempt from federal
income tax, including individual retirement accounts and other retirement
plans, will be unrelated business income and will be taxable to them. Very
little of our income will be qualifying income to a regulated investment
company. Distributions to non-U.S. persons will be reduced by withholding taxes
at the highest effective rate applicable to individuals, and non-U.S. persons
will be required to file federal income tax returns and pay tax on their share
of our taxable income.

We will register as a tax shelter. This may increase the risk of an IRS audit
of us or a unitholder.

   We intend to register with the IRS as a "tax shelter." We will advise you of
our tax shelter registration number once that number has been assigned. The IRS
requires that some types of entities, including some partnerships, register as
"tax shelters" in response to the perception that they claim tax benefits that
the IRS may believe to be unwarranted. As a result, we may be audited by the
IRS and tax adjustments could be made. Any unitholder owning less than a 1%
profits interest in us has very limited rights to participate in the income tax
audit process. Further, any adjustments in our tax returns will lead to
adjustments in our unitholders' tax returns and may lead to audits of
unitholders' tax returns and adjustments of items unrelated to us. You will
bear the cost of any expense incurred in connection with an examination of your
personal tax return.

                                      24


<PAGE>

We will treat each purchaser of units as having the same tax benefits without
regard to the units purchased. The IRS may challenge this treatment, which
could adversely affect the value of the common units.

   Because we cannot match transferors and transferees of common units and
because of other reasons, we will take depreciation and amortization positions
that may not conform to all aspects of the Treasury regulations. A successful
IRS challenge to those positions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of these tax
benefits or the amount of gain from the sale of common units and could have a
negative impact on the value of our common units or result in audit adjustments
to your tax returns. Please read "Material Tax Consequences--Uniformity of
Units" for a further discussion of the effect of the depreciation and
amortization positions we will adopt.

You will likely be subject to state, local, and foreign taxes and return filing
requirements as a result of investing in our common units.

   In addition to federal income taxes, unitholders will likely be subject to
other taxes, such as state, local, and foreign income taxes, unincorporated
business taxes and estate, inheritance, or intangible taxes that are imposed by
the various jurisdictions in which we do business or own property. You will
likely be required to file state, local, and foreign income tax returns and pay
state, local, and foreign income taxes in some or all of the various
jurisdictions in which we do business or own property and may be subject to
penalties for failure to comply with those requirements. We will initially own
property and conduct business in Indiana, Kansas, Louisiana, Michigan, New
Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Texas, and Ontario,
Canada. Of those states, only Texas does not currently impose a state income
tax. We may do business or own property in other states or foreign countries in
the future. It is your responsibility to file all federal, state, local, and
foreign tax returns. Our counsel has not rendered an opinion on the state,
local, or foreign tax consequences of an investment in our common units.

                                      25


<PAGE>


                                USE OF PROCEEDS

   We expect to receive net proceeds of approximately $93.0 million from the
sale of 5,000,000 common units offered by this prospectus, after deducting
underwriting discounts but before paying estimated offering expenses.
Additionally, we expect to receive proceeds of approximately $15.0 million from
the sale of 750,000 common units that our general partner will be obligated to
purchase to the extent that the underwriters do not exercise the over-allotment
option. Any net proceeds from a sale of common units to the underwriters will
be reduced by the underwriting discount. We base these proceeds on an assumed
public offering price of $20.00 per unit and no exercise of the underwriters'
over-allotment option.

   The net proceeds of this offering will be $108.0 million. We intend to use
approximately $6.0 million of the net proceeds to pay expenses associated with
offering and related formation transactions. The remaining $102.0 million of
net proceeds will be used to increase working capital to the level necessary
for the operation of our business, thereby establishing working capital that
was not contributed to us by Sunoco, Inc. in connection with our formation.
Please read Notes 2 and 3 to our Unaudited Pro Forma Financial Statements.

   We intend to distribute to Sunoco, Inc. and its affiliates all of the net
proceeds from the sale of $250.0 million of senior notes.

                                      26


<PAGE>


                                CAPITALIZATION

   The following table shows:

   . our historical capitalization as of September 30, 2001; and


   . our pro forma capitalization as of September 30, 2001, adjusted to reflect
     the offering of the common units, the issuance of the senior notes, the
     removal of assets and liabilities that will not be contributed by Sunoco,
     Inc. to us, and the application of the net proceeds we receive in the
     offering and these financings in the manner described under "Use of
     Proceeds."


   This table is derived from, should be read together with and is qualified in
its entirety by reference to our historical and pro forma financial statements
and the accompanying notes included elsewhere in this prospectus.



<TABLE>
<CAPTION>
                                                                           As of September 30, 2001
                                                                           ------------------------
                                                                             Actual      Pro Forma
                                                                            --------    ---------
                                                                                (in thousands)
<S>                                                                        <C>          <C>

Debt due to affiliate, including current portion and short-term borrowings $190,000     $     --
Senior notes..............................................................       --      250,000
Other debt, including current portion.....................................    4,843        4,843
                                                                            --------    --------
   Total debt.............................................................  194,843      254,843
                                                                            --------    --------
Equity:
   Net parent investment..................................................  198,950           --
   Held by public:
     Common units.........................................................       --       88,696
   Held indirectly by Sunoco, Inc.:
     Common units.........................................................       --       79,255
     Subordinated units...................................................       --      133,263
     General partner interest.............................................       --        4,066
                                                                            --------    --------
       Total equity.......................................................  198,950      305,280
                                                                            --------    --------
       Total capitalization............................................... $393,793     $560,123
                                                                            ========    ========
</TABLE>




                                      27


<PAGE>

                                   DILUTION


   Dilution is the amount by which the offering price will exceed the net
tangible book value per unit after the offering. On a pro forma basis as of
September 30, 2001, after giving effect to the offering of common units and the
related transactions, our net tangible book value was $271.9 million, or $11.70
per common unit. Purchasers of common units in this offering will experience
substantial and immediate dilution in net tangible book value per common unit
for financial accounting purposes, as illustrated in the following table.




<TABLE>
<S>                                                                                            <C>   <C>
Assumed initial public offering price per common unit............................................... $20.00
Pro forma net tangible book value per common unit before the offering/(1)/.................... $9.72
Increase in net tangible book value per common unit attributable to purchasers in the offering  1.98
                                                                                               -----

Less: Pro forma net tangible book value per common unit after the offering/(2)/.....................  11.70
                                                                                                     ------
Immediate dilution in net tangible book value per common unit to purchasers in the offering......... $ 8.30
                                                                                                     ======
</TABLE>


--------

(1)Determined by dividing the number of units (5,633,639 common units,
   11,383,639 subordinated units, and the 2% general partner interest, which
   has a dilutive effect equivalent to 464,638 units) to be issued to the
   general partner for its contribution of assets and liabilities to us into
   the net tangible book value of the contributed assets and liabilities.


(2)Determined by dividing the total number of units (11,383,639 common units,
   11,383,639 subordinated units, and the 2% general partner interest, which
   has a dilutive effect equivalent to 464,638 units) to be outstanding after
   the offering into our pro forma net tangible book value, after giving effect
   to the application of the net proceeds of the offering. The general
   partner's dilutive effect equivalent was determined by multiplying the total
   number of units deemed to be outstanding (i.e., the total number of common
   and subordinated units outstanding divided by 98%) by the general partner's
   2% general partner interest.


   The following table sets forth the number of units that we will issue and
the total consideration contributed to us by the general partner in respect of
its units and by the purchasers of common units in this offering upon
consummation of the transactions contemplated by this prospectus.



<TABLE>
<CAPTION>

                                                                             Units Acquired
                                                                           -----------------      Total
                                                                             Number   Percent Consideration
                                                                           ---------- ------- --------------
                                                                                              (in thousands)
<S>                                                                        <C>        <C>     <C>
General partner/(1)(2)/................................................... 18,231,916   78.5%    $218,280
New investors.............................................................  5,000,000   21.5%     100,000
                                                                           ----------  -----     --------
   Total.................................................................. 23,231,916  100.0%    $318,280
                                                                           ==========  =====     ========
</TABLE>


--------

(1)Upon the consummation of the transactions contemplated by this prospectus,
   our general partner will own 6,383,639 common units (including 750,000
   common units purchased by the general partner at the initial public offering
   price),11,383,639 subordinated units, and a 2% general partner interest
   having a dilutive effect equivalent to 464,638 units.

(2)The assets contributed by the general partner and its affiliates were
   recorded at historical cost in accordance with accounting principles
   generally accepted in the United States. Book value of the consideration
   provided by the general partner and its affiliates, as of September 30,
   2001, was $203.3 million.


                                      28


<PAGE>

                           CASH DISTRIBUTION POLICY

Distributions of Available Cash

   General.  Within 45 days after the end of each quarter, beginning with the
quarter ending March 31, 2002, we will distribute all of our available cash to
unitholders of record on the applicable record date. We will adjust the minimum
quarterly distribution for the period from the closing of the offering through
March 31, 2002 based on the actual length of the period.

   Definition of Available Cash.  We define available cash in the glossary, and
it generally means, for each fiscal quarter, all cash on hand at the end of the
quarter:

   . less the amount of cash that the general partner determines in its
     reasonable discretion is necessary or appropriate to:

     --provide for the proper conduct of our business;

     --comply with applicable law, any of our debt instruments, or other
       agreements; or

     --provide funds for distributions to our unitholders and to our general
       partner for any one or more of the next four quarters;

   . plus all cash on hand on the date of determination of available cash for
     the quarter resulting from working capital borrowings made after the end
     of the quarter. Working capital borrowings are generally borrowings that
     are made under our credit facility and in all cases are used solely for
     working capital purposes or to pay distributions to partners.

   Intent to Distribute the Minimum Quarterly Distribution.  We intend to
distribute to the holders of common units and subordinated units on a quarterly
basis at least the minimum quarterly distribution of $0.45 per unit, or $1.80
per year, to the extent we have sufficient cash from our operations after
establishment of cash reserves and payment of fees and expenses, including
payments to our general partner. However, there is no guarantee that we will
pay the minimum quarterly distribution on the common units in any quarter, and
we will be prohibited from making any distributions to unitholders if it would
cause an event of default, or an event of default is existing, under our credit
facility or the senior notes.

Operating Surplus and Capital Surplus

   General.  All cash distributed to unitholders will be characterized as
either "operating surplus" or "capital surplus." We distribute available cash
from operating surplus differently than available cash from capital surplus.

   Definition of Operating Surplus.  We define operating surplus in the
glossary, and for any period it generally means:

   . our cash balance on the closing date of this offering; plus

   . $15.0 million (as described below); plus

   . all of our cash receipts after the closing of this offering, excluding
     cash from borrowings that are not working capital borrowings, sales of
     equity and debt securities and sales or other dispositions of assets
     outside the ordinary course of business; plus

   . working capital borrowings made after the end of a quarter but before the
     date of determination of operating surplus for the quarter; less

   . all of our operating expenditures after the closing of this offering,
     including the repayment of working capital borrowings, but not the
     repayment of other borrowings, and including maintenance capital
     expenditures; less

   . the amount of cash reserves that the general partner deems necessary or
     advisable to provide funds for future operating expenditures.

                                      29


<PAGE>

   Definition of Capital Surplus.  We also define capital surplus in the
glossary, and it will generally be generated only by:

   . borrowings other than working capital borrowings;

   . sales of debt and equity securities; and

   . sales or other disposition of assets for cash, other than inventory,
     accounts receivable and other current assets sold in the ordinary course
     of business or as part of normal retirements or replacements of assets.

   Characterization of Cash Distributions.  We will treat all available cash
distributed as coming from operating surplus until the sum of all available
cash distributed since we began operations equals the operating surplus as of
the most recent date of determination of available cash. We will treat any
amount distributed in excess of operating surplus, regardless of its source, as
capital surplus. As reflected above, operating surplus includes $15.0 million
in addition to our cash balance on the closing date of this offering, cash
receipts from our operations and cash from working capital borrowings. This
amount does not reflect actual cash on hand at closing that is available for
distribution to our unitholders. Rather, it is a provision that will enable us,
if we choose, to distribute as operating surplus up to $15.0 million of cash we
receive in the future from non-operating sources, such as asset sales,
issuances of securities, and long-term borrowings, that would otherwise be
distributed as capital surplus. We do not anticipate that we will make any
distributions from capital surplus.

Subordination Period

   General.  During the subordination period, which we define below and in the
glossary, the common units will have the right to receive distributions of
available cash from operating surplus in an amount equal to the minimum
quarterly distribution of $0.45 per quarter, plus any arrearages in the payment
of the minimum quarterly distribution on the common units from prior quarters,
before any distributions of available cash from operating surplus may be made
on the subordinated units. The purpose of the subordinated units is to increase
the likelihood that during the subordination period there will be available
cash to be distributed on the common units.

   Definition of Subordination Period.  We define the subordination period in
the glossary. The subordination period will extend until the first day of any
quarter beginning after December 31, 2006 that each of the following tests are
met:

   . distributions of available cash from operating surplus on each of the
     outstanding common units and subordinated units equaled or exceeded the
     minimum quarterly distribution for each of the three consecutive,
     non-overlapping four-quarter periods immediately preceding that date;

   . the "adjusted operating surplus" (as defined below) generated during each
     of the three consecutive, non-overlapping four-quarter periods immediately
     preceding that date equaled or exceeded the sum of the minimum quarterly
     distributions on all of the outstanding common units and subordinated
     units during those periods on a fully diluted basis and the related
     distribution on the 2% general partner interest during those periods; and

   . there are no arrearages in payment of the minimum quarterly distribution
     on the common units.


   Early Conversion of Subordinated Units.  Before the end of the subordination
period, 50% of the subordinated units, or up to 5,691,820 subordinated units,
may convert into common units on a one-for-one basis immediately after the
distribution of available cash to the partners in respect of any quarter ending
on or after:


   . December 31, 2004 with respect to 25% of the subordinated units; and

   . December 31, 2005 with respect to 25% of the subordinated units.

   The early conversions will occur if at the end of the applicable quarter
each of the following occurs:

   . distributions of available cash from operating surplus on each of the
     outstanding common units and subordinated units equaled or exceeded the
     minimum quarterly distribution for each of the three consecutive,
     non-overlapping four-quarter periods immediately preceding that date;


                                      30


<PAGE>

   . the adjusted operating surplus generated during each of the three
     consecutive, non-overlapping four-quarter periods immediately preceding
     that date equaled or exceeded the sum of the minimum quarterly
     distributions on all of the outstanding common units and subordinated
     units during those periods on a fully diluted basis and the related
     distribution on the 2% general partner interest during those periods; and

   . there are no arrearages in payment of the minimum quarterly distribution
     on the common units.

   However, the second early conversion of the subordinated units may not occur
until at least one year following the first early conversion of the
subordinated units.

   Definition of Adjusted Operating Surplus.   We define adjusted operating
surplus in the glossary and for any period it generally means:

   . operating surplus generated with respect to that period; less

   . any net increase in working capital borrowings with respect to that
     period; less

   . any net reduction in cash reserves for operating expenditures with respect
     to that period not relating to an operating expenditure made with respect
     to that period; plus

   . any net decrease in working capital borrowings with respect to that
     period; plus

   . any net increase in cash reserves for operating expenditures with respect
     to that period required by any debt instrument for the repayment of
     principal, interest or premium.

   Adjusted operating surplus is intended to reflect the cash generated from
operations during a particular period and therefore excludes net increases in
working capital borrowings and net drawdowns of reserves of cash generated in
prior periods.

   Effect of Expiration of the Subordination Period.  Upon expiration of the
subordination period, each outstanding subordinated unit will convert into one
common unit and will then participate pro rata with the other common units in
distributions of available cash. In addition, if the unitholders remove our
general partner other than for cause and units held by the general partner and
its affiliates are not voted in favor of such removal:

   . the subordination period will end and each subordinated unit will
     immediately convert into one common unit;

   . any existing arrearages in payment of the minimum quarterly distribution
     on the common units will be extinguished; and

   . the general partner will have the right to convert its general partner
     interest and its incentive distribution rights into common units or to
     receive cash in exchange for those interests.

Distributions of Available Cash from Operating Surplus during the Subordination
Period

   We will make distributions of available cash from operating surplus for any
quarter during the subordination period in the following manner:

   . First, 98% to the common unitholders, pro rata, and 2% to the general
     partner, until we distribute for each outstanding common unit an amount
     equal to the minimum quarterly distribution for that quarter;

   . Second, 98% to the common unitholders, pro rata, and 2% to the general
     partner, until we distribute for each outstanding common unit an amount
     equal to any arrearages in payment of the minimum quarterly distribution
     on the common units for any prior quarters during the subordination period;

   . Third, 98% to the subordinated unitholders, pro rata, and 2% to the
     general partner, until we distribute for each subordinated unit an amount
     equal to the minimum quarterly distribution for that quarter; and

   . Thereafter, in the manner described in "--Incentive Distribution Rights"
     below.

                                      31


<PAGE>

Distributions of Available Cash from Operating Surplus after the Subordination
Period

   We will make distributions of available cash from operating surplus for any
quarter after the subordination period in the following manner:

   . First, 98% to all unitholders, pro rata, and 2% to the general partner,
     until we distribute for each outstanding unit an amount equal to the
     minimum quarterly distribution for that quarter; and

   . Thereafter, in the manner described in "--Incentive Distribution Rights"
     below.

Incentive Distribution Rights

   Incentive distribution rights represent the right to receive an increasing
percentage of quarterly distributions of available cash from operating surplus
after the minimum quarterly distribution and the target distribution levels
have been achieved. Our general partner currently holds the incentive
distribution rights, but may transfer these rights separately from its general
partner interest, subject to restrictions in the partnership agreement.

   If for any quarter:

   . we have distributed available cash from operating surplus to the common
     and subordinated unitholders in an amount equal to the minimum quarterly
     distribution; and

   . we have distributed available cash from operating surplus on outstanding
     common units in an amount necessary to eliminate any cumulative arrearages
     in payment of the minimum quarterly distribution;

then, we will distribute any additional available cash from operating surplus
for that quarter among the unitholders and the general partner in the following
manner:

   . First, 98% to all unitholders, pro rata, and 2% to the general partner,
     until each unitholder receives a total of $0.500 per unit for that quarter
     (the "first target distribution");

   . Second, 85% to all unitholders, pro rata, and 15% to the general partner,
     until each unitholder receives a total of $0.575 per unit for that quarter
     (the "second target distribution");

   . Third, 75% to all unitholders, pro rata, and 25% to the general partner,
     until each unitholder receives a total of $0.700 per unit for that quarter
     (the "third target distribution"); and

   . Thereafter, 50% to all unitholders, pro rata, and 50% to the general
     partner.

In each case, the amount of the target distribution set forth above is
exclusive of any distributions to common unitholders to eliminate any
cumulative arrearages in payment of the minimum quarterly distribution.

Percentage Allocations of Available Cash from Operating Surplus

   The following table illustrates the percentage allocations of the additional
available cash from operating surplus between the unitholders and our general
partner up to the various target distribution levels. The amounts set forth
under "Marginal Percentage Interest in Distributions" are the percentage
interests of our general partner and the unitholders in any available cash from
operating surplus we distribute up to and including the corresponding amount in
the column "Total Quarterly Distribution Target Amount," until available cash
from operating surplus we distribute reaches the next target distribution
level, if any. The percentage interests shown for the unitholders and the
general partner for the minimum quarterly distribution are also applicable to
quarterly distribution amounts that are less than the minimum quarterly
distribution.

                                      32


<PAGE>


<TABLE>
<CAPTION>

                                                            Marginal Percentage
                                                         Interest in Distributions
                                    Total Quarterly      -------------------------
                                     Distribution                          General
                                     Target Amount       Unitholders       Partner
                               ------------------------- -----------       -------
<S>                            <C>                       <C>               <C>
Minimum Quarterly Distribution          $0.450               98%             2%
First Target Distribution.....       up to $0.500            98%             2%
Second Target Distribution.... above $0.500 up to $0.575     85%             15%
Third Target Distribution..... above $0.575 up to $0.700     75%             25%
Thereafter....................       above $0.700            50%             50%
</TABLE>


Distributions from Capital Surplus

   How Distributions from Capital Surplus Will Be Made.  We will make
distributions of available cash from capital surplus, if any, in the following
manner:

   . First, 98% to all unitholders, pro rata, and 2% to the general partner,
     until we distribute for each common unit that was issued in this offering,
     an amount of available cash from capital surplus equal to the initial
     public offering price;

   . Second, 98% to the common unitholders, pro rata, and 2% to the general
     partner, until we distribute for each common unit, an amount of available
     cash from capital surplus equal to any unpaid arrearages in payment of the
     minimum quarterly distribution on the common units; and

   . Thereafter, we will make all distributions of available cash from capital
     surplus as if they were from operating surplus.

   Effect of a Distribution from Capital Surplus.  The partnership agreement
treats a distribution of capital surplus as the repayment of the initial unit
price from this initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital surplus per
unit is referred to as the "unrecovered initial unit price." Each time a
distribution of capital surplus is made, the minimum quarterly distribution and
the target distribution levels will be reduced in the same proportion as the
corresponding reduction in the unrecovered initial unit price. Because
distributions of capital surplus will reduce the minimum quarterly
distribution, after any of these distributions are made, it may be easier for
the general partner to receive incentive distributions and for the subordinated
units to convert into common units. However, any distribution of capital
surplus before the unrecovered initial unit price is reduced to zero cannot be
applied to the payment of the minimum quarterly distribution or any arrearages.

   Once we distribute capital surplus on a unit issued in this offering in an
amount equal to the initial unit price, we will reduce the minimum quarterly
distribution and the target distribution levels to zero. We will then make all
future distributions from operating surplus, with 50% being paid to the holders
of units, 48% to the holders of the incentive distribution rights and 2% to the
general partner.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

   In addition to adjusting the minimum quarterly distribution and target
distribution levels to reflect a distribution of capital surplus, if we combine
our units into fewer units or subdivide our units into a greater number of
units, we will proportionately adjust:

   . the minimum quarterly distribution;

   . target distribution levels;

   . unrecovered initial unit price;

   . the number of common units issuable during the subordination period
     without a unitholder vote; and

   . the number of common units into which a subordinated unit is convertible.

                                      33


<PAGE>

   For example, if a two-for-one split of the common units should occur, the
minimum quarterly distribution, the target distribution levels and the
unrecovered initial unit price would each be reduced to 50% of its initial
level. We will not make any adjustment by reason of the issuance of additional
units for cash or property.

   In addition, if legislation is enacted or if existing law is modified or
interpreted in a manner that causes us to become taxable as a corporation or
otherwise subject to taxation as an entity for federal, state or local income
tax purposes, we will reduce the minimum quarterly distribution and the target
distribution levels by multiplying the same by one minus the sum of the highest
marginal federal corporate income tax rate that could apply and any increase in
the effective overall state and local income tax rates. For example, if we
became subject to a maximum marginal federal, and effective state and local
income tax rate of 38%, then the minimum quarterly distribution and the target
distributions levels would each be reduced to 62% of their previous levels.

Distributions of Cash Upon Liquidation

   If we dissolve in accordance with the partnership agreement, we will sell or
otherwise dispose of our assets in a process called liquidation. We will first
apply the proceeds of liquidation to the payment of our creditors. We will
distribute any remaining proceeds to the unitholders and the general partner,
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.

   The allocations of gain and loss upon liquidation are intended, to the
extent possible, to entitle the holders of outstanding common units to a
preference over the holders of outstanding subordinated units upon our
liquidation, to the extent required to permit common unitholders to receive
their unrecovered initial unit price plus the minimum quarterly distribution
for the quarter during which liquidation occurs plus any unpaid arrearages in
payment of the minimum quarterly distribution on the common units. However,
there may not be sufficient gain upon our liquidation to enable the holders of
common units to fully recover all of these amounts, even though there may be
cash available for distribution to the holders of subordinated units. Any
further net gain recognized upon liquidation will be allocated in a manner that
takes into account the incentive distribution rights of the general partner.

   Manner of Adjustments for Gain.  The manner of the adjustment for gain is
set forth in the partnership agreement. If our liquidation occurs before the
end of the subordination period, we will allocate any gain to the partners in
the following manner:

   . First, to the general partner and the holders of units who have negative
     balances in their capital accounts to the extent of and in proportion to
     those negative balances;

   . Second, 98% to the common unitholders, pro rata, and 2% to the general
     partner, until the capital account for each common unit is equal to the
     sum of:

     (1)the unrecovered initial unit price;

     (2)the amount of the minimum quarterly distribution for the quarter during
        which our liquidation occurs; and

     (3)any unpaid arrearages in payment of the minimum quarterly distribution;

   . Third, 98% to the subordinated unitholders, pro rata, and 2% to the
     general partner until the capital account for each subordinated unit is
     equal to the sum of:

     (1)the unrecovered initial unit price; and

     (2)the amount of the minimum quarterly distribution for the quarter during
        which our liquidation occurs;

                                      34


<PAGE>

   . Fourth, 98% to all unitholders, pro rata, and 2% to the general partner,
     until we allocate under this paragraph an amount per unit equal to:

     (1)the sum of the excess of the first target distribution per unit over
        the minimum quarterly distribution per unit for each quarter of our
        existence; less

     (2)the cumulative amount per unit of any distributions of available cash
        from operating surplus in excess of the minimum quarterly distribution
        per unit that we distributed 98% to the unitholders, pro rata, and 2%
        to the general partner, for each quarter of our existence;

   . Fifth, 85% to all unitholders, pro rata, and 15% to the general partner,
     until we allocate under this paragraph an amount per unit equal to:

     (1)the sum of the excess of the second target distribution per unit over
        the first target distribution per unit for each quarter of our
        existence; less

     (2)the cumulative amount per unit of any distributions of available cash
        from operating surplus in excess of the first target distribution per
        unit that we distributed 85% to the unitholders, pro rata, and 15% to
        the general partner for each quarter of our existence;

   . Sixth, 75% to all unitholders, pro rata, and 25% to the general partner,
     until we allocate under this paragraph an amount per unit equal to:

     (1)the sum of the excess of the third target distribution per unit over
        the second target distribution per unit for each quarter of our
        existence; less

     (2)the cumulative amount per unit of any distributions of available cash
        from operating surplus in excess of the second target distribution per
        unit that we distributed 75% to the unitholders, pro rata, and 25% to
        the general partner for each quarter of our existence; and

   . Thereafter, 50% to all unitholders, pro rata, and 50% to the general
     partner.

   If the liquidation occurs after the end of the subordination period, the
distinction between common units and subordinated units will disappear, so that
clause (3) of the second bullet point above and all of the third bullet point
above will no longer be applicable.

   Manner of Adjustments for Losses.  Upon our liquidation, we will generally
allocate any loss to the general partner and the unitholders in the following
manner:

   . First, 98% to holders of subordinated units in proportion to the positive
     balances in their capital accounts and 2% to the general partner, until
     the capital accounts of the subordinated unitholders have been reduced to
     zero;

   . Second, 98% to the holders of common units in proportion to the positive
     balances in their capital accounts and 2% to the general partner, until
     the capital accounts of the common unitholders have been reduced to zero;
     and

   . Thereafter, 100% to the general partner.

   If the liquidation occurs after the end of the subordination period, the
distinction between common units and subordinated units will disappear, so that
all of the first bullet point above will no longer be applicable.

   Adjustments to Capital Accounts.  We will make adjustments to capital
accounts upon the issuance of additional units. In doing so, we will allocate
any unrealized and, for tax purposes, unrecognized gain or loss resulting from
the adjustments to the unitholders and the general partner in the same manner
as we allocate gain or loss upon liquidation. In the event that we make
positive adjustments to the capital accounts upon the issuance of additional
units, we will allocate any later negative adjustments to the capital accounts
resulting from the issuance of additional units or upon our liquidation in a
manner which results, to the extent possible, in the general partner's capital
account balances equaling the amount which they would have been if no earlier
positive adjustments to the capital accounts had been made.

                                      35


<PAGE>

                        CASH AVAILABLE FOR DISTRIBUTION

   We intend to pay each quarter, to the extent we have sufficient available
cash from operating surplus, the minimum quarterly distribution of $0.45 per
unit, or $1.80 per year, on all the common units and subordinated units.
Available cash for any quarter will consist generally of all cash on hand at
the end of that quarter, plus working capital borrowings after the end of the
quarter, as adjusted for reserves. Operating surplus generally consists of cash
on hand at closing, cash generated from operations after deducting related
expenditures (including the general partner's fees and expenses) and other
items, plus working capital borrowings after the end of the quarter, plus $15.0
million. The definitions of available cash and operating surplus are in the
glossary.

   The amounts of available cash from operating surplus needed to pay the
minimum quarterly distribution for one quarter and for four quarters on the
common units, the subordinated units, and the general partner interest to be
outstanding immediately after this offering are approximately:



<TABLE>
<CAPTION>
                                                One     Four
                                              Quarter Quarters
                                              ------- --------
                                               (in thousands)
                  <S>                         <C>     <C>
                  Common units............... $ 5,123 $20,491
                  Subordinated units.........   5,123  20,491
                  2% general partner interest     208     835
                                              ------- -------
                     Total................... $10,454 $41,817
                                              ======= =======
</TABLE>



Pro forma available cash from operating surplus from prior periods would not
have been sufficient to pay the minimum quarterly distribution on all units.


   If we had completed the transactions contemplated in this prospectus on
January 1, 2000, pro forma available cash from operating surplus generated
during 2000 would have been approximately $29.4 million. This amount would have
been sufficient to allow us to pay the full minimum quarterly distribution on
the common units and approximately 40.5% of the minimum quarterly distribution
on the subordinated units for that period. If we had completed the transactions
contemplated in this prospectus on January 1, 2001, pro forma available cash
from operating surplus generated during the nine months ended September 30,
2001 would have been approximately $29.8 million. This amount would have been
sufficient to allow us to pay the full minimum quarterly distribution on the
common units and approximately 90.1% of the minimum quarterly distribution on
the subordinated units for that period.


   We derived the amounts of pro forma available cash from operating surplus
shown above from our pro forma financial statements in the manner described in
Appendix D. The pro forma adjustments are based upon currently available
information and specific estimates and assumptions. The pro forma financial
statements do not purport to present our results of operations had the
transactions contemplated in this prospectus actually been completed as of the
dates indicated. In addition, available cash from operating surplus as defined
in the partnership agreement is a cash accounting concept, while our pro forma
financial statements have been prepared on an accrual basis. As a result, you
should only view the amount of pro forma available cash from operating surplus
as a general indication of the amount of available cash from operating surplus
that we might have generated had Sunoco Logistics Partners been formed in
earlier periods. A more complete explanation of the pro forma adjustments can
be found in our Unaudited Pro Forma Financial Statements.

We believe we will have sufficient available cash from operating surplus
following the offering to pay the minimum quarterly distribution on all units
through December 31, 2002.

   We believe that, following completion of the offering, we will have
sufficient available cash from operating surplus to allow us to make the full
minimum quarterly distribution on all the outstanding units for each quarter
through December 31, 2002. Our belief is based on a number of specific
assumptions, including the assumptions that:

                                      36


<PAGE>

   . volumes transported on our Eastern Pipeline System in 2002 will increase
     by 3.4% over the volumes transported during the twelve months ended
     September 30, 2001;

   . weighted average tariffs for our Eastern Pipeline System will increase by
     1.0% in 2002 over the weighted average tariffs for the twelve months ended
     September 30, 2001;

   . volumes at our refined product terminals will increase 2.1% and volumes at
     our Fort Mifflin Terminal Complex and Marcus Hook Tank Farm will increase
     0.2% in the aggregate over volumes for the twelve months ended September
     30, 2001;


   . fees charged at our Terminal Facilities in 2002 will increase over those
     charged in 2001 as provided in our pipelines and terminals storage and
     throughput agreement and existing third-party contracts;


   . volumes transported on our Western Pipeline System trunk pipelines in 2002
     will increase by 1.8% over the volumes transported during the twelve
     months ended September 30, 2001;

   . weighted average tariffs for our Western Pipeline System trunk pipelines
     in 2002 will increase by 0.7% over the weighted average tariffs for the
     twelve months ended September 30, 2001;


   . volumes for our crude oil acquisition and marketing business in 2002 will
     be the same as those for the twelve months ended September 30, 2001, and
     margin per barrel (after operating expenses) for 2002 will decline 0.6%,
     compared to the twelve months ended September 30, 2001;


   . our maintenance capital expenditures in 2002 will be $27.0 million. These
     projected maintenance capital outlays are approximately $7.1 million lower
     than the average annual outlays for the period from January 1, 1998 to
     September 30, 2001. This prior period included several one-time projects
     to upgrade our technology, increase reliability, and lower our cost
     structure. We do not believe we will incur these types of expenditures in
     2002;

   . general and administrative expenses will increase $1.0 million in 2002
     over the twelve months ended September 30, 2001;

   . operating expenses in 2002, other than those for our crude oil acquisition
     and marketing business that we discuss above, will increase by 5.9% over
     the twelve months ended September 30, 2001;

   . the cash distribution we will receive in 2002 from Explorer Pipeline
     Company will increase by 12.1% over the cash distribution we received for
     the twelve months ended September 30, 2001;

   . revenues from our interrefinery pipelines will be $5.1 million in 2002 in
     accordance with our lease with Sunoco R&M;

   . taxes other than income and excise taxes will increase $0.8 million in
     2002 over the twelve months ended September 30, 2001;

   . no material accidents, releases, or similar events will occur; and

   . market, regulatory, and overall economic conditions will not change
     substantially.

   Although we believe our assumptions are reasonable, our assumptions relate
to matters that are not within our control and cannot be predicted with any
degree of certainty. If our assumptions are not realized, the actual available
cash from operating surplus that we generate could be substantially less than
that currently expected and could, therefore, be insufficient to permit us to
make cash distributions at the levels described above. Accordingly, we cannot
assure you that distributions of the minimum quarterly distribution or any
other amounts will be made. Please read "Risk Factors--Risks Inherent in Our
Business."

                                      37


<PAGE>

     SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF SUNOCO LOGISTICS
    (PREDECESSOR) AND PRO FORMA FINANCIAL DATA OF SUNOCO LOGISTICS PARTNERS

   The following table shows selected historical financial and operating data
of Sunoco Logistics (Predecessor) and pro forma financial data of Sunoco
Logistics Partners L.P., in each case for the periods and as of the dates
indicated. The selected historical financial data for Sunoco Logistics
(Predecessor) for 1998, 1999 and 2000 are derived from the audited combined
financial statements of Sunoco Logistics (Predecessor). The selected historical
financial data for Sunoco Logistics (Predecessor) for 1996 and 1997, and for
September 30, 2000 and 2001 are derived from the unaudited combined financial
statements of Sunoco Logistics (Predecessor).

   The pro forma financial statements of Sunoco Logistics Partners L.P. give
pro forma effect to:

  .  the contribution of certain assets and liabilities of Sunoco Logistics
     (Predecessor) to Sunoco Logistics Partners L.P.;

  .  the completion of this offering;

  .  the issuance of the senior notes and the establishment of the revolving
     credit facility; and

  .  the execution of the pipelines and terminals storage and throughput
     agreement with Sunoco R&M and the omnibus agreement with Sunoco R&M and
     Sunoco, Inc.

The selected pro forma financial data presented below for the year ended
December 31, 2000 and as of and for the nine months ended September 30, 2001
are derived from our unaudited pro forma financial statements. The pro forma
balance sheet assumes the offering and related transactions occurred as of
September 30, 2001, and the pro forma statements of income assume the offering
and related transactions occurred on January 1, 2000. A more complete
explanation of the pro forma data can be found in our Unaudited Pro Forma
Financial Statements.

   We define EBITDA as operating income plus depreciation and amortization.
EBITDA provides additional information for evaluating our ability to make the
minimum quarterly distribution and is presented solely as a supplemental
measure. You should not consider EBITDA as an alternative to net income, income
before income taxes, cash flows from operations, or any other measure of
financial performance presented in accordance with accounting principles
generally accepted in the United States. Our EBITDA may not be comparable to
EBITDA or similarly titled measures of other entities as other entities may not
calculate EBITDA in the same manner as we do.

   For the periods presented, Sunoco R&M was the primary or exclusive user of
our refined product terminals, our Fort Mifflin Terminal Complex, and our
Marcus Hook Tank Farm. Historically, most of the terminalling and throughput
services provided by Sunoco Logistics (Predecessor) for Sunoco R&M's refining
and marketing operations were at fees that enabled us to recover our costs, but
not to generate any operating income. Accordingly, historical EBITDA for those
assets was equal to their depreciation and amortization.

   Maintenance capital expenditures are capital expenditures made to replace
partially or fully depreciated assets in order to maintain the existing
operating capacity of our assets and to extend their useful lives. Expansion
capital expenditures are capital expenditures made to expand the existing
operating capacity of our assets, whether through construction or acquisition.
We treat repair and maintenance expenditures that do not extend the useful life
of existing assets as operating expenses as we incur them. The maintenance
capital expenditures for the periods presented include several one-time
projects to upgrade our technology, increase reliability, and lower our cost
structure.

   Throughput is the total number of barrels per day transported on a pipeline
system or through a terminal and includes barrels ultimately transported to a
delivery point on another pipeline system.

   The following table should be read together with, and is qualified in its
entirety by reference to, the historical and pro forma financial statements and
the accompanying notes included elsewhere in this prospectus. The table should
be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

                                      38


<PAGE>



<TABLE>
<CAPTION>
                                                                    Sunoco Logistics (Predecessor)
                                                                              Historical
                                        --------------------------------------------------------------------------------------


                                                                                                           Nine Months Ended
                                                            Year Ended December 31,                          September 30,
                                        --------------------------------------------------------------  ----------------------
                                           1996        1997        1998     1999/(1)/          2000        2000          2001
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
                                                                          (in thousands, except per unit and operating data)
<S>                                     <C>         <C>         <C>         <C>             <C>         <C>           <C>
Income Statement Data:
Revenues:
  Sales and other operating revenue:
   Affiliates.......................... $  797,495  $  766,151  $  570,332  $  764,133      $1,301,079  $  964,885    $  837,124
   Unaffiliated customers..............     75,096     108,493     124,869     210,069         507,532     364,475       413,387
  Other income/(2)/....................      4,229       3,894       5,022       6,133           5,574       4,032         3,474
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
Total revenues.........................    876,820     878,538     700,223     980,335       1,814,185   1,333,392     1,253,985
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
Costs and expenses:
  Cost of products sold and operating
   expenses............................    769,654     770,091     583,587     866,610       1,699,541   1,247,403     1,164,381
  Depreciation and amortization........     28,827      18,194      18,622      19,911          20,654      15,217        17,682
  Selling, general and administrative
   expenses............................     28,769      29,811      29,890      27,461          34,683      25,971        26,213
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
Total costs and expenses...............    827,250     818,096     632,099     913,982       1,754,878   1,288,591     1,208,276
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
Operating income.......................     49,570      60,442      68,124      66,353          59,307      44,801        45,709
Net interest cost and debt expense.....      7,840       8,675       7,117       6,487          10,304       6,640         8,504
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
Income before income tax expense.......     41,730      51,767      61,007      59,866          49,003      38,161        37,205
Income tax expense.....................     15,693      19,494      23,116      22,488          18,483      14,411        13,920
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
Net income............................. $   26,037  $   32,273  $   37,891  $   37,378      $   30,520  $   23,750    $   23,285
                                        ==========  ==========  ==========  ==========      ==========  ==========    ==========
Pro forma net income per unit:
  Basic................................

  Diluted..............................

Other Financial Data:
EBITDA................................. $   78,397  $   78,636  $   86,746  $   86,264      $   79,961  $   60,018    $   63,391
Explorer Pipeline Company joint
 venture (9.4% ownership interest):
  Equity income........................ $    4,044  $    3,881  $    3,885  $    4,591      $    3,766  $    2,482    $    3,094
  Cash dividends....................... $    4,095  $    2,958  $    4,612  $    4,730      $    3,749  $    2,589    $    3,057
Net cash provided by operating
 activities............................ $  126,554  $   36,313  $   44,950  $  125,165      $   79,116  $   62,090    $   17,076
Net cash used in investing
 activities............................ $  (34,004) $  (36,594) $  (36,933) $  (75,120)     $  (77,292) $  (36,968)   $  (40,518)
Net cash provided by (used in)
 financing activities.................. $  (92,550) $      281  $   (8,017) $  (50,045)     $   (1,824) $  (25,122)   $   23,442
Capital expenditures:
  Maintenance.......................... $   22,106  $   26,680  $   28,420  $   32,312      $   39,067  $   24,591    $   28,898
  Expansion............................      7,429       8,428       8,527      49,556/(1)/     18,854      11,484        11,324
                                        ----------  ----------  ----------  ----------      ----------  ----------    ----------
Total capital expenditures............. $   29,535  $   35,108  $   36,947  $   81,868/(1)/ $   57,921  $   36,075    $   40,222
                                        ==========  ==========  ==========  ==========      ==========  ==========    ==========
Operating Data (bpd):
Eastern Pipeline System throughput/(3)/    466,294     522,170     520,627     542,843         535,510     560,004       551,681
Terminal Facilities throughput.........  1,067,500   1,166,661   1,163,907   1,245,189       1,281,231   1,235,849     1,172,817
Western Pipeline System
 throughput............................    259,858     258,931     253,124     252,098         295,991     291,538       289,496
Crude oil purchases at wellhead........    148,728     163,736     155,606     145,425         176,964     178,965       177,189

Balance Sheet Data (at period end):
Net properties, plants and equipment... $  393,912  $  412,312  $  430,848  $  481,967      $  518,605  $  503,718    $  541,441
Total assets........................... $  606,931  $  596,478  $  528,279  $  712,149      $  845,956  $  839,379    $  797,648
Total debt, including current portion
 and debt due affiliate................ $   90,000  $   90,000  $   90,225  $   95,287      $  190,043  $  140,107    $  194,843
Net parent investment/partners' equity. $  170,292  $  205,604  $  235,478  $  223,083      $  157,023  $  176,891    $  198,950
</TABLE>




<TABLE>
<CAPTION>
                                        Sunoco Logistics Partners L.P.
                                                  Pro Forma
                                        ------------------------------


                                                             Nine
                                         Year Ended      Months Ended
                                        December 31,     September 30,
                                            2000             2001
                                        ------------     -------------

<S>                                     <C>              <C>
Income Statement Data:
Revenues:
  Sales and other operating revenue:
   Affiliates..........................  $1,308,792       $  846,831
   Unaffiliated customers..............     507,532          413,387
  Other income/(2)/....................       5,574            3,474
                                         ----------       ----------
Total revenues.........................   1,821,898        1,263,692
                                         ----------       ----------
Costs and expenses:
  Cost of products sold and operating
   expenses............................   1,699,541        1,164,381
  Depreciation and amortization........      20,654           17,682
  Selling, general and administrative
   expenses............................      34,683           26,213
                                         ----------       ----------
Total costs and expenses...............   1,754,878        1,208,276
                                         ----------       ----------
Operating income.......................      67,020           55,416
Net interest cost and debt expense.....      17,567           13,296
                                         ----------       ----------
Income before income tax expense.......      49,453           42,120
Income tax expense.....................          --               --
                                         ----------       ----------
Net income.............................  $   49,453       $   42,120
                                         ==========       ==========
Pro forma net income per unit:
  Basic................................  $     2.13       $     1.81
                                         ==========       ==========
  Diluted..............................  $     2.12       $     1.80
                                         ==========       ==========
Other Financial Data:
EBITDA.................................  $   87,674       $   73,098
Explorer Pipeline Company joint
 venture (9.4% ownership interest):
  Equity income........................
  Cash dividends.......................
Net cash provided by operating
 activities............................
Net cash used in investing
 activities............................
Net cash provided by (used in)
 financing activities..................
Capital expenditures:
  Maintenance..........................
  Expansion............................

Total capital expenditures.............

Operating Data (bpd):
Eastern Pipeline System throughput/(3)/
Terminal Facilities throughput.........
Western Pipeline System
 throughput............................
Crude oil purchases at wellhead........

Balance Sheet Data (at period end):
Net properties, plants and equipment...                   $  541,441
Total assets...........................                   $  855,441
Total debt, including current portion
 and debt due affiliate................                   $  254,843
Net parent investment/partners' equity.                   $  305,280
</TABLE>


--------
(1)On October 1, 1999, Sunoco Logistics (Predecessor) acquired the crude oil
   transportation and marketing operations of Pride Companies, L.P. for $29.6
   million in cash and the assumption of $5.3 million of debt. The purchase
   price was allocated to the assets acquired and liabilities assumed based on
   their fair value. The acquired assets included Pride's 800-mile crude oil
   pipeline system, 800,000 barrels of tankage and related assets, and the
   right to purchase 35,000 barrels per day of third party lease crude oil. The
   results of operations and related operating data relating to the acquired
   business have been included in the above table from the date of acquisition.
   We have included the purchase price of this acquisition in expansion capital
   expenditures.
(2)Includes equity income from our investment in Explorer Pipeline Company, a
   joint venture in which we own a 9.4% interest.
(3)Excludes amounts attributable to our 9.4% ownership interest in Explorer
   Pipeline Company and our interrefinery pipelines. Also excludes amounts
   attributable to our Toledo, Twin Oaks, and Linden transfer pipelines, which
   transport large volumes over short distances and generate minimal revenues.

                                      39


<PAGE>


          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

   The following discussion of the financial condition and results of
operations of Sunoco Logistics (Predecessor) should be read in conjunction with
the historical combined financial statements of Sunoco Logistics (Predecessor)
and the pro forma financial statements of Sunoco Logistics Partners L.P.
included elsewhere in this prospectus. Among other things, those historical and
pro forma financial statements include more detailed information regarding the
basis of presentation for the following information.

Introduction

   We are a Delaware limited partnership formed on October 15, 2001 to acquire,
own, and operate refined product pipelines, terminalling and storage assets,
crude oil pipelines, and crude oil acquisition and marketing assets located in
the Northeast and Midwest United States. Most of these assets support Sunoco,
Inc.'s refining and marketing operations, which are conducted by Sunoco R&M.

Overview

General

   We conduct business through three segments: our Eastern Pipeline System, our
Terminal Facilities, and our Western Pipeline System. Our Eastern Pipeline
System primarily transports refined products in the Northeast and Midwest
United States largely for three of Sunoco R&M's refineries and transports crude
oil in Ohio and Michigan. This system also includes our interrefinery pipeline
between Sunoco R&M's Marcus Hook and Philadelphia refineries and our 9.4%
ownership interest in Explorer Pipeline Company, a joint venture that owns a
refined product pipeline located in the Midwest United States. Our Terminal
Facilities business includes our network of 32 refined product terminals in the
Northeast and Midwest United States that distribute products primarily to
Sunoco R&M's retail outlets, our Nederland marine crude oil terminal on the
Texas Gulf Coast, and an LPG storage facility in the Midwest. Our Terminal
Facilities business also owns and operates refinery-related assets, including
one inland and two marine crude oil terminals and related pipelines that supply
all of the crude oil processed by Sunoco R&M's Philadelphia refinery and a
refined product storage terminal used by Sunoco R&M's Marcus Hook refinery. Our
Western Pipeline System owns and operates crude oil trunk and gathering
pipelines and purchases and markets crude oil primarily in Oklahoma and Texas
for Sunoco R&M's Tulsa, Oklahoma and Toledo, Ohio refineries and for other
customers.

Eastern Pipeline System

   We generate revenue by charging shippers tariffs for transporting refined
products and crude oil through our pipelines. The amount of revenue we generate
depends on the level of these tariffs and the throughput in our pipelines. When
transporting barrels, we charge a tariff based on the point of origin and the
ultimate destination, even if the barrel moves through more than one pipeline
segment to reach its destination. For example, on the Philadelphia,
Pennsylvania to Buffalo, New York pipeline segment, we have separate tariffs
depending on whether the ultimate destination from Philadelphia is Rochester,
New York or Buffalo.

   The tariffs for our interstate common carrier pipelines are regulated by the
FERC. The rate-making methodology for these pipelines is price indexing. This
methodology provides for increases in tariff rates based upon changes in the
producer price index. Competition, however, may constrain the tariffs we
charge. We also lease to Sunoco R&M, for a fixed amount escalating annually at
1.67%, three pipelines between Sunoco R&M's Marcus Hook and Philadelphia
refineries, as well as a pipeline from our Paulsboro terminal to the
Philadelphia International Airport for the delivery of jet fuel.

   The crude oil and refined product throughput in our pipelines is directly
affected by the level of supply and demand for crude oil and refined products
in the markets served directly or indirectly by our pipelines. Demand for
gasoline in most markets peaks during the summer driving season, which extends
from April to September, and declines during the fall and winter months. Demand
for heating oil and other distillate fuels tends to peak during the winter
heating season, and declines during the spring and summer months. The supply of
crude oil to

                                      40


<PAGE>

our Eastern Pipeline System depends upon the level of crude oil production in
Canada, which has increased in recent years. Demand for crude oil transported
to refineries for processing is driven by refining margins (the price of
refined products compared to the price of crude oil and refining costs),
unscheduled downtime at refineries, and the amount of turnaround activity, when
refiners shut down selected portions of the refinery for scheduled maintenance.

   The operating income generated by our Eastern Pipeline System depends not
only on the volumes transported on the pipelines and the level of the tariff
charged, but also on the fixed costs and, to a much lesser extent, the variable
costs of operating the pipelines. Fixed costs are typically related to
maintenance, insurance, control rooms, telecommunications, pipeline field and
support personnel, and depreciation. Variable costs, such as fuel and power
costs to run pump stations along the pipelines, fluctuate with throughput.

Terminal Facilities

   Historically, most of the terminalling and throughput services we have
provided for Sunoco R&M were at fees that enabled us to recover our costs but
not generate operating income. Upon the closing of this offering, we will enter
into a pipelines and terminals storage and throughput agreement with Sunoco R&M
under which we will charge Sunoco R&M fees comparable to those charged in
arm's-length, third-party transactions. Under this new agreement, Sunoco R&M
will pay us a minimum level of revenues for terminalling refined products and
crude oil and agree to certain minimum throughputs at our Inkster Terminal,
Fort Mifflin Terminal Complex, and Marcus Hook Tank Farm. Please read
"--Agreements with Sunoco R&M and Sunoco, Inc." Future operating income from
terminalling and storage activities will depend on throughput and storage
volume and the level of fees charged for terminalling and storage services, as
well as the fixed and variable costs of operating these facilities.

   We generate revenue at our Nederland Terminal by charging storage and
throughput fees for crude oil and other petroleum products. The operating
income generated at this facility depends on storage and throughput volumes and
the level of fees charged for these services, as well as the fixed and variable
costs of operating the terminal.

   Terminalling and storage fees are not directly affected by the absolute
price level of crude oil and refined products, although they are affected by
the absolute levels of supply and demand for these products.

Western Pipeline System

   The Western Pipeline System consists of our crude oil pipelines and
gathering systems as well as our crude oil acquisition and marketing operations.

   The factors affecting the operating results of our crude oil pipelines and
gathering systems are substantially similar to the factors affecting the
operating results of our pipelines in the Eastern Pipeline System described
above. The operating results of our crude oil acquisition and marketing
operations are dependent on our ability to sell crude oil at a price in excess
of our aggregate cost. We believe gross margin, which is equal to sales and
other operating revenue less cost of products sold and operating expenses and
depreciation and amortization, is a key measure of financial performance for
the Western Pipeline System.

   Our crude oil acquisition and marketing operations generate substantial
revenues and cost of sales because they reflect the sales price and cost of the
significant volumes of crude oil we buy and sell. However, the absolute price
levels for crude oil normally do not bear a relationship to gross margin,
although these price levels significantly impact revenues and cost of products
sold. As a result, period-to-period variations in revenues and cost of sales
are not generally meaningful in analyzing the variation in gross margin for our
crude oil acquisition and marketing operations.

   In general, we purchase crude oil at the wellhead from local producers and
in bulk at major pipeline connection and marketing points. We also enter into
transactions with third parties in which we exchange one grade of crude oil for
another grade that more nearly matches our delivery requirement or the
preferences of our customers. Bulk purchases and sales and exchange
transactions are characterized by large volumes and much smaller margins than
are sales of crude oil purchased at the wellhead. As we purchase crude oil, we
establish a

                                      41


<PAGE>

margin by selling or exchanging the crude oil for physical delivery of other
crude oil to Sunoco R&M and third-party customers, such as independent refiners
or major oil companies, thereby reducing exposure to price fluctuations. This
margin is determined by the difference between the price of crude oil at the
point of purchase and the price of crude oil at the point of sale, minus the
associated costs related to acquisition and transportation. Changes in the
absolute price level for crude oil do not materially impact our margin, as we
attempt to maintain positions that are substantially balanced between crude oil
purchases and sales.

   Because we attempt to maintain balanced positions, we are able to minimize
basis risk, which occurs when crude oil is purchased based on a crude oil
specification that is different from the countervailing sales arrangement.
Specification differences include grades or types of crude oil, variability in
lease crude oil barrels produced, individual refinery demand for specific
grades of crude oil, relative market prices for the different grades of crude
oil, customer location, availability of transportation facilities, timing, and
costs (including storage) involved in delivering crude oil to the customer. Our
policy is only to purchase crude oil for which we have a market and to
structure our sales contracts so that crude oil price fluctuations do not
materially affect the margin that we receive. We do not acquire and hold any
futures contracts or other derivative products for any purpose.

   We operate our crude oil acquisition and marketing activities differently as
market conditions change. During periods when there is a higher demand than
supply of crude oil in the near term, the market is in backwardation, meaning
that the price of crude oil in a given month exceeds the price of crude oil for
delivery in subsequent months. A backwardated market has a positive impact on
marketing margins because crude oil marketers can continue to purchase crude
oil from producers at a fixed premium to posted prices while selling crude oil
at a higher premium to such prices. In backwardated markets, we purchase crude
oil and contract for its sale as soon as possible. When the demand for crude
oil is weak, the market for crude oil is often in contango, meaning that the
price of crude oil in a given month is less than the price of crude oil for
delivery in subsequent months. In a contango market, marketing margins are
adversely impacted as crude oil marketers are unable to capture the premium to
posted prices described above. However, this unfavorable market condition can
be mitigated by storing crude oil because storage owners at major trading
locations can simultaneously purchase production at current prices for storage
and sell at higher prices for future delivery. As a result, in a contango
market we will purchase crude oil and contract for its delivery in future
months to capture the price difference.

Agreements with Sunoco R&M and Sunoco, Inc.

   Pipelines and Terminals Storage and Throughput Agreement with Sunoco
R&M.  Concurrent with the closing of this offering, we will enter into a
pipelines and terminals storage and throughput agreement with Sunoco R&M. Under
this agreement, Sunoco R&M will pay us fees generally comparable to those
charged by third parties to:

    .  transport on our refined product pipelines or throughput in our 32
       inland refined product terminals an amount of refined products that will
       produce at least $75.0 million of revenue in the first year, escalating
       at 1.67% per year for the next four years. In addition, Sunoco R&M will
       pay us to transport on our refined product pipelines an amount of
       refined products that will produce at least $54.3 million of revenue in
       the sixth year and at least $55.2 million of revenue in the seventh
       year. Sunoco R&M will pay the published tariffs on the pipelines and
       contractually agreed upon fees at the terminals. On a pro forma basis,
       we would have received $82.8 million in revenue from Sunoco R&M for the
       use of these pipelines and terminals during the year ended December 31,
       2000;

    .  receive and deliver at least 130,000 bpd of refined products per year at
       our Marcus Hook Tank Farm for five years. In the first year, we will
       receive a fee of $0.1627 per barrel for the first 130,000 bpd and
       $0.0813 per barrel for volumes in excess of 130,000 bpd. These fees will
       escalate at the rate of 1.67% per year. During the year ended December
       31, 2000, Sunoco R&M's throughput at the Marcus Hook Tank Farm averaged
       133,455 bpd;

    .  store 975,734 barrels of LPG per year at our Inkster Terminal, which
       represents all of our LPG storage capacity at this facility. In the
       first year of this seven-year agreement, we will receive a fee of $2.04
       per barrel of committed storage, a fee of $0.204 per barrel for receipts
       greater than 975,734 barrels per

                                      42


<PAGE>

       year and a fee of $0.204 per barrel for deliveries greater than 975,734
       barrels per year. These fees will escalate at the rate of 1.875% per
       year. For the past five years, Sunoco R&M has used the full capacity of
       our Inkster Terminal;

    .  receive and deliver at least 290,000 bpd of crude oil or refined
       products per year at our Fort Mifflin Terminal Complex for seven years.
       In the first year, we will receive a fee of $0.1627 per barrel for the
       first 180,000 bpd and $0.0813 per barrel for volumes in excess of
       180,000 bpd. These fees will escalate at the rate of 1.67% per year.
       Sunoco R&M's throughput at the Fort Mifflin Terminal Complex averaged
       314,623 bpd during the year ended December 31, 2000; and

    .  transport or cause to be transported an aggregate of at least 140,000
       bpd of crude oil per year on our Marysville to Toledo, Nederland to
       Longview, Cushing to Tulsa, Barnsdall to Tulsa, and Bad Creek to Tulsa
       crude oil pipelines at the published tariffs for a term of seven years.
       During the year ended December 31, 2000, we and Sunoco R&M transported
       165,149 bpd on these pipelines.

If Sunoco R&M fails to meet its minimum obligations pursuant to the contract
terms set forth above, it will be required to pay us in cash the amount of any
shortfall, which may be applied as a credit in the following year after Sunoco
R&M's minimum obligations are met.

   Sunoco R&M's obligations under this agreement may be permanently reduced or
suspended if Sunoco R&M (1) shuts down or reconfigures one of its refineries
(other than planned maintenance turnarounds), or is prohibited from using MTBE
in the gasoline it produces, and (2) reasonably believes in good faith that
such event will jeopardize its ability to satisfy these obligations.

   From time to time, Sunoco, Inc. may be presented with opportunities by third
parties with respect to its refinery assets. These opportunities may include
offers to purchase and joint venture propositions. Sunoco, Inc. is also
continually considering changes to its refineries. Those changes may involve
new facilities, reduction in certain operations or modifications of facilities
or operations. Changes may be considered to meet market demands, to satisfy
regulatory requirements or environmental and safety objectives, to improve
operational efficiency or for other reasons. Sunoco, Inc. has advised us that
although it continually considers the types of matters referred to above, it is
not currently proceeding with any transaction or plan that it believes is
likely to result in any reconfigurations or other operational changes in any of
its refineries served by our assets that would have a material effect on Sunoco
R&M's business relationship with us. Further, Sunoco, Inc. has also advised us
that it is not considering a shutdown of any of its refineries served by our
assets. Sunoco, Inc. is, however, actively managing its assets and operations,
and, therefore, changes of some nature, possibly material to its business
relationship with us, are likely to occur at some point in the future.

   To the extent Sunoco R&M does not extend or renew the pipelines and
terminals storage and throughput agreement, our financial condition and results
of operations may be adversely affected. Our assets were constructed or
purchased to service Sunoco R&M's refining and marketing supply chain and are
well-situated to suit Sunoco R&M's needs. As a result, we would expect that
even if this agreement is not renewed, Sunoco R&M would continue to use our
pipelines and terminals. However, we cannot assure you that Sunoco R&M will
continue to use our facilities or that we will be able to generate additional
revenues from third parties. Please read "Risk Factors--Risks Inherent in Our
Business."

   Omnibus Agreement.  Historically, Sunoco, Inc. has allocated a portion of
its general and administrative expenses to its pipeline, terminalling, and
storage operations to cover costs of centralized corporate functions such as
legal, accounting, treasury, engineering, information technology, and
insurance. The allocation was $9.1 million, $9.0 million, and $10.1 million for
the years ended December 31, 1998, 1999, and 2000, respectively, and $7.2
million and $8.2 million for the first nine months of 2000 and 2001,
respectively.

   Under an omnibus agreement with Sunoco, Inc., we will pay Sunoco, Inc. or
our general partner an an nual administrative fee, initially in the amount of
$8.0 million, for the provision by Sunoco, Inc. or its affiliates of various
general and administrative services for our benefit for three years following
this offering. The $8.0 million fee includes expenses incurred by Sunoco, Inc.
and its affiliates to perform centralized corporate functions, such as legal,
accounting, treasury, engineering, information technology, insurance, and other
corporate services, including the administration of employee benefit plans.
This fee does not include salaries of pipeline and terminal

                                      43


<PAGE>


personnel or other employees of our general partner, including senior
executives, or the cost of their employee benefits, such as 401(k), pension,
and health insurance benefits. We will have no employees. We will also
reimburse Sunoco, Inc. and its affiliates for direct expenses they incur on our
behalf. In addition, we anticipate incurring additional general and
administrative costs, including costs for tax return preparation, annual and
quarterly reports to unitholders, investor relations, registrar and transfer
agent fees, and other costs related to operating as a separate publicly held
entity. We estimate that these incremental costs will be approximately $4.0
million per year, including incremental insurance costs. Please read "Certain
Relationships and Related Transactions--Omnibus Agreement."


   The omnibus agreement also will require Sunoco R&M to:

   . reimburse us for any operating expenses and capital expenditures in excess
     of $8.0 million per year in each year from 2002 to 2006 that are made to
     comply with the DOT's pipeline integrity management rule, subject to a
     maximum aggregate reimbursement of $15.0 million over the five-year period;


   . complete, at its expense, certain tank maintenance and inspection projects
     currently in progress or expected to be completed at the Darby Creek Tank
     Farm within one year; and


   . reimburse us for up to $10.0 million of expenditures required at the
     Marcus Hook Tank Farm and the Darby Creek Tank Farm to maintain compliance
     with existing industry standards and regulatory requirements.

   We will reflect outlays for these programs as operating expenses or capital
expenditures, as appropriate. Capital expenditures would be depreciated over
their useful lives. The reimbursement by Sunoco R&M will be reflected as a
capital contribution.

   The omnibus agreement also provides that Sunoco, Inc. will indemnify us for
certain environmental, toxic tort and other liabilities. Please read
"--Environmental Matters," "Business--Environmental Regulation,"
"Business--Environmental Remediation," and "Certain Relationships and Related
Transactions--Omnibus Agreement" for a more complete description of these
provisions.

   Other Agreements with Sunoco R&M and Sunoco, Inc. We will also enter into an
interrefinery lease agreement and crude oil purchase agreements with Sunoco
R&M, and a treasury services agreement with Sunoco, Inc.

   Under a 20-year lease agreement, Sunoco R&M will pay us $5.1 million in the
first year to lease the 58 miles of interrefinery pipelines between Sunoco
R&M's Philadelphia and Marcus Hook refineries, escalating at 1.67% per year for
the next 19 years. On a pro forma basis, Sunoco R&M would have paid us $4.9
million for the use of these pipelines for the year ended December 31, 2000.


   Sunoco R&M will also agree to purchase from us at market-based rates
particular grades of crude oil that our crude oil acquisition and marketing
business purchases for delivery to pipelines in: Longview, Trent, Tye, and
Colorado City, Texas; Haynesville, Louisiana; Marysville and Lewiston,
Michigan; and Tulsa, Oklahoma. At Marysville and Lewiston, Michigan, we
exchange Michigan sweet and Michigan sour crude oil we own for domestic sweet
crude oil supplied by Sunoco R&M at market-based rates. The initial term of
these agreements is two months. These agreements will automatically renew on a
monthly basis unless terminated by either party on 30 days' written notice.
Sunoco R&M has indicated that it has no current intention to terminate these
agreements. During the year ended December 31, 2000, Sunoco R&M purchased
79,346 bpd of crude oil from us in these areas.


   We will enter into a treasury services agreement with Sunoco, Inc. pursuant
to which we will, among other things, participate in Sunoco Inc.'s centralized
cash management program. Under this program, all of our cash receipts and cash
disbursements will be processed, together with those of Sunoco, Inc. and its
other subsidiaries, through Sunoco, Inc.'s cash accounts with a corresponding
credit or charge to an intercompany account. The intercompany balances will be
settled periodically, but no less frequently than at the end of each month.
Amounts due from Sunoco, Inc. and its subsidiaries will earn interest at a rate
equal to the average rate of our third-party money market investments, while
amounts due to Sunoco, Inc. and its subsidiaries bear interest at a rate equal
to the interest rate provided in our revolving credit facility.

                                      44


<PAGE>

Results of Operations


<TABLE>
<CAPTION>
                                                                            Nine Months Ended
                                               Year Ended December 31,        September 30,
                                             ---------------------------- ---------------------
                                               1998     1999      2000       2000       2001
                                             -------- -------- ---------- ---------- ----------
                                                               (in thousands)
<S>                                          <C>      <C>      <C>        <C>        <C>
Combined Statements of Income
Sales and other operating revenue:
 Affiliates................................. $570,332 $764,133 $1,301,079 $  964,885 $  837,124
 Unaffiliated customers.....................  124,869  210,069    507,532    364,475    413,387
Other income................................    5,022    6,133      5,574      4,032      3,474
                                             -------- -------- ---------- ---------- ----------
Total revenues..............................  700,223  980,335  1,814,185  1,333,392  1,253,985
                                             -------- -------- ---------- ---------- ----------
Cost of products sold and operating expenses  583,587  866,610  1,699,541  1,247,403  1,164,381
Depreciation and amortization...............   18,622   19,911     20,654     15,217     17,682
Selling, general and administrative expenses   29,890   27,461     34,683     25,971     26,213
                                             -------- -------- ---------- ---------- ----------
Total costs and expenses....................  632,099  913,982  1,754,878  1,288,591  1,208,276
                                             -------- -------- ---------- ---------- ----------
Operating income............................   68,124   66,353     59,307     44,801     45,709
Net interest expense........................    7,117    6,487     10,304      6,640      8,504
                                             -------- -------- ---------- ---------- ----------
Income before income tax expense............   61,007   59,866     49,003     38,161     37,205
Income tax expense..........................   23,116   22,488     18,483     14,411     13,920
                                             -------- -------- ---------- ---------- ----------
Net income.................................. $ 37,891 $ 37,378 $   30,520 $   23,750 $   23,285
                                             ======== ======== ========== ========== ==========
Segment Operating Income:

Eastern Pipeline System
Sales and other operating revenue:
 Affiliates................................. $ 68,081 $ 70,177 $   69,027 $   52,832 $   52,452
 Unaffiliated customers.....................   22,571   19,472     19,323     14,150     15,544
Other income................................    4,449    5,500      4,592      3,302      3,470
                                             -------- -------- ---------- ---------- ----------
Total revenues..............................   95,101   95,149     92,942     70,284     71,466
                                             -------- -------- ---------- ---------- ----------
Cost of products sold and operating expenses   34,150   38,633     41,174     31,603     30,447
Depreciation and amortization...............    7,395    7,929      8,272      6,164      7,235
Selling, general and administrative expenses   11,371   10,086     12,432      9,182      9,474
                                             -------- -------- ---------- ---------- ----------
Total costs and expenses....................   52,916   56,648     61,878     46,949     47,156
                                             -------- -------- ---------- ---------- ----------
Operating income............................ $ 42,185 $ 38,501 $   31,064 $   23,335 $   24,310
                                             ======== ======== ========== ========== ==========
Terminal Facilities
Sales and other operating revenue:
 Affiliates................................. $ 35,263 $ 38,329 $   44,356 $   34,238 $   31,374
 Unaffiliated customers.....................   28,307   29,166     31,042     21,046     22,267
Other income (loss).........................      343      356        430        208        (98)
                                             -------- -------- ---------- ---------- ----------
Total revenues..............................   63,913   67,851     75,828     55,492     53,543
                                             -------- -------- ---------- ---------- ----------
Cost of products sold and operating expenses   27,350   33,588     39,390     30,689     25,866
Depreciation and amortization...............    8,118    8,457      8,616      6,275      7,171
Selling, general and administrative expenses    9,649    9,039     10,666      7,416      7,392
                                             -------- -------- ---------- ---------- ----------
Total costs and expenses....................   45,117   51,084     58,672     44,380     40,429
                                             -------- -------- ---------- ---------- ----------
Operating income............................ $ 18,796 $ 16,767 $   17,156 $   11,112 $   13,114
                                             ======== ======== ========== ========== ==========
Western Pipeline System
Sales and other operating revenue:
 Affiliates................................. $466,988 $655,627 $1,187,696 $  877,815 $  753,298
 Unaffiliated customers.....................   73,991  161,431    457,167    329,279    375,576
Other income................................      230      277        552        522        102
                                             -------- -------- ---------- ---------- ----------
Total revenues..............................  541,209  817,335  1,645,415  1,207,616  1,128,976
                                             -------- -------- ---------- ---------- ----------
Cost of products sold and operating expenses  522,087  794,389  1,618,977  1,185,111  1,108,068
Depreciation and amortization...............    3,109    3,525      3,766      2,778      3,276
Selling, general and administrative expenses    8,870    8,336     11,585      9,373      9,347
                                             -------- -------- ---------- ---------- ----------
Total costs and expenses....................  534,066  806,250  1,634,328  1,197,262  1,120,691
                                             -------- -------- ---------- ---------- ----------
Operating income............................ $  7,143 $ 11,085 $   11,087 $   10,354 $    8,285
                                             ======== ======== ========== ========== ==========
</TABLE>


                                      45


<PAGE>

Operating Highlights



<TABLE>
<CAPTION>
                                                                                  Nine Months Ended
                                                   Year Ended December 31,          September 30,
                                               -------------------------------- ---------------------
                                                  1998       1999       2000       2000       2001
                                               ---------- ---------- ---------- ---------- ----------
<S>                                            <C>        <C>        <C>        <C>        <C>
Eastern Pipeline System/(1)/:
Pipeline throughput (bpd):
  Refined products/(2)/.......................    431,989    461,379    444,046    466,530    454,848
  Crude oil...................................     88,638     81,464     91,464     93,474     96,833
Total shipments (barrel miles per day)/(3)   / 55,086,591 56,136,819 54,910,640 56,404,112 55,552,924
Tariffs per barrel mile(c)....................      0.451      0.438      0.440      0.433      0.448

Terminal Facilities:
Terminal throughput (bpd):
  Refined product terminals...................    234,058    251,627    266,212    262,858    274,381
  Nederland Terminal..........................    475,796    544,624    566,941    511,688    437,852
  Fort Mifflin Terminal Complex...............    315,497    306,534    314,623    324,026    320,034
  Marcus Hook Tank Farm.......................    138,556    142,404    133,455    137,277    140,550

Western Pipeline System:
Crude oil pipeline throughput (bpd)...........    253,124    252,098    295,991    291,538    289,496
Crude oil purchases at wellhead (bpd).........    155,606    145,425    176,964    178,965    177,189
Gross margin per barrel(c)/(4)/...............       17.1       20.8       20.4       24.0       22.2
</TABLE>


--------
(1)Excludes amounts attributable to our 9.4% ownership interest in the Explorer
   Pipeline Company joint venture.
(2)Excludes Toledo, Twin Oaks, and Linden transfer pipelines, which transport
   large volumes over short distances and generate minimal revenues.
(3)Represents total average daily pipeline throughput multiplied by the number
   of miles of pipeline through which each barrel has been shipped.
(4)Represents total segment sales and other operating revenue minus cost of
   products sold and operating expenses and depreciation and amortization
   divided by crude oil pipeline throughput.

Nine Months Ended September 30, 2001 versus Nine Months Ended September 30, 2000

   Analysis of Combined Statements of Income

   Sales and other operating revenue for the nine months ended September 30,
2001 were $1,250.5 million as compared to $1,329.4 million for the same period
during 2000, a decrease of $78.9 million. This decrease was primarily due to
lower crude oil sales revenue resulting from a decline in crude oil prices.
During the first nine months of 2001, the average price of West Texas
Intermediate crude oil, or WTI, at Cushing, Oklahoma, the benchmark crude oil
in the United States, dropped to $27.75 per barrel from $29.64 per barrel.

   Other income was $3.5 million in the first nine months of 2001 versus $4.0
million in the first nine months of 2000. This $0.5 million decrease was
primarily due to lower dividend income from an insurance consortium in which
Sunoco, Inc. participates and the absence of our allocated portion of a gain
recognized in 2000 attributable to the receipt of stock by Sunoco, Inc. in
connection with an insurance company demutualization. We allocated these
insurance-related gains to each of our business segments. Partially offsetting
these lower gains was a $0.6 million increase in Explorer equity income to $3.1
million in the first nine months of 2001 from $2.5 million in the same period
in 2000. Cash dividends paid to us by Explorer approximate the equity income
earned by us from that investment. The increase in Explorer equity income was
due to the absence of the adverse impact of a refined products spill that
occurred in March 2000.

   Total cost of products sold and operating expenses decreased $83.0 million
to $1,164.4 million in the first nine months of 2001 from $1,247.4 million in
the same period in 2000. This decrease was primarily due to the decline in
crude oil prices described above.

   Approximately 90% of our sales and other operating revenue and 95% of our
cost of products sold and operating expenses are attributable to our crude oil
acquisition and marketing activities in our Western Pipeline System. However,
the critical profitability factor for these activities is the gross margin, not
the absolute level of revenues and expenses.

                                      46


<PAGE>

   Depreciation and amortization was $17.7 million during the first nine months
of 2001 compared to $15.2 million in the first nine months of 2000. This $2.5
million increase was primarily due to recent capital expenditures.

   Selling, general and administrative expenses were $26.2 million during the
first nine months of 2001 compared to $26.0 million in the first nine months of
2000. Selling, general and administrative expenses include amounts allocated to
us by Sunoco, Inc. to cover the costs of centralized corporate functions
incurred on our behalf. These costs totaled $8.2 million and $7.2 million for
the first nine months of 2001 and 2000, respectively.

   Net interest expense was $8.5 million for the first nine months of 2001
versus $6.6 million for the first nine months of 2000. This $1.9 million
increase was primarily due to higher average outstanding borrowings from an
affiliate. Income tax expense decreased as a result of the decrease in pretax
earnings. The effective tax rate decreased to 37% in the first nine months of
2001 from 38% in the same period in 2000.

   Analysis of Segment Operating Income

   Eastern Pipeline System.  Operating income in our Eastern Pipeline System
was $24.3 million in the first nine months of 2001 compared to $23.3 million
for the first nine months of 2000. This $1.0 million increase was due to a $1.0
million increase in sales and other operating revenue and a $0.2 million
increase in other income, partially offset by a $0.2 million increase in total
costs and expenses. Total pipeline throughput in the first nine months of 2001
decreased 8,323 bpd, or 1%, compared to the same period in 2000, while
shipments in barrel miles decreased 2%. The average tariff per barrel mile
increased to 0.448c per barrel in the first nine months of 2001 from 0.433c per
barrel in the same period in 2000.

   The $1.0 million increase in sales and other operating revenue was primarily
due to increased tariff revenue on our 123-mile Marysville to Toledo crude oil
pipeline and the 39-mile Twin Oaks to Montello refined product pipeline. The
higher revenue from the Marysville to Toledo pipeline was due to a 3,359 bpd
increase in volumes resulting from higher Canadian crude oil purchases by
Sunoco R&M and third parties and a larger percentage of higher-tariff crude oil
shipments. The increase in revenue on the Twin Oaks to Montello pipeline was
attributable to a 5,479 bpd increase in shipments of reformulated gasoline
blendstocks from Sunoco R&M's Marcus Hook refinery. Also contributing to the
increase in sales and other operating revenue was higher throughput of refined
products by Sunoco R&M at our terminals due to higher demand for gasoline and
heating oil and other distillate products, which was partially offset by
reduced shipments by Sunoco R&M on the Philadelphia to Linden pipeline, a
low-tariff pipeline, as a result of a turnaround at Sunoco R&M's Philadelphia
refinery in 2001.

   The $0.2 million increase in other income was primarily due to the $0.6
million increase in equity income from Explorer discussed above, partially
offset by lower allocated insurance-related gains.

   The $0.2 million increase in total costs and expenses was due to increases
in depreciation and amortization of $1.1 million due to recent capital
expenditures and increases in selling, general and administrative expenses of
$0.3 million, partially offset by a decrease in operating expenses of $1.2
million. The reduction in operating expenses was largely attributable to
remediation of a pipeline leak which occurred in January 2000.

   Terminal Facilities.  Operating income in our Terminal Facilities was $13.1
million in the first nine months of 2001 compared to $11.1 million in the first
nine months of 2000. This $2.0 million increase was in part due to storage
revenue attributable to a new 660,000 barrel tank placed into service at our
Nederland Terminal in September 2000, partially offset by a decrease in
low-tariff throughput at this terminal attributable to reduced volumes from one
customer of approximately 77,000 bpd. Also contributing to the improvement were
lower operating expenses, including costs associated with terminal repair and
upgrade projects in 2000 at the Fort Mifflin Terminal.

   Historically, most of the terminalling and throughput services we have
provided for Sunoco R&M were at fees that enabled us to recover our costs, but
not to generate operating income. Accordingly, a $3.0 million decrease in these
costs and expenses during the first nine months of 2001 resulted in a
corresponding decrease in revenues. The primary cause for these declines was
the absence of $6.0 million in charges recognized in the first

                                      47


<PAGE>

nine months of 2000 in connection with remediation activities related to a
February 2000 crude oil spill at one of our crude oil transfer lines to the
Darby Creek Tank Farm. Partially offsetting this factor were higher
depreciation and amortization due to recent capital expenditures, other
environmental remediation expenses, and other general cost increases.

   Throughput volumes at our refined product terminals increased 4% in the
first nine months of 2001 as compared to the same period in 2000 primarily due
to stronger heating oil and other distillate fuel demand resulting from colder
weather. The average throughput of our refinery-related assets, the Fort
Mifflin Terminal Complex and the Marcus Hook Tank Farm, was essentially
unchanged in the first nine months of 2001.

   Western Pipeline System.  Operating income in our Western Pipeline System
was $8.3 million in the first nine months of 2001 compared to $10.4 million in
the first nine months of 2000. This $2.1 million decrease was primarily due to
a $1.7 million decrease in gross margin and a $0.4 million decrease in other
income. Crude oil pipeline throughput volumes decreased 1% as a decline in
high-tariff throughput was essentially offset by an increase in low-tariff
volumes. Gross margin per barrel of pipeline throughput decreased by 1.8c in
the first nine months of 2001 versus the same period in 2000.

   The $1.7 million decrease in gross margin was due to a decrease in margins
from crude oil pipeline operations, partially offset by an increase in crude
oil acquisition and marketing margins. The decline in crude oil pipeline
margins was mainly due to lower revenues in our Texas Gulf Coast and East Texas
Pipeline system and higher depreciation and amortization expense. The lower
revenues were primarily the result of reduced shipments of crude oil through
our Nederland to Longview pipeline, which delivers crude oil to the Mid-Valley
and BP pipelines at Longview, Texas. Revenues also declined due to lower
gathering volumes. The increase in depreciation and amortization expense was
primarily due to recent capital expenditures. Also contributing to the decline
in crude oil pipeline margins was an increase in pipeline operating expenses
due in part to higher electricity prices. The higher crude oil acquisition and
marketing margins reflect the benefit of the then-existing market conditions
under the formula-based pricing mechanism of our supply agreement with Sunoco
R&M. Gross margin in our crude oil acquisition and marketing operations also
benefited from lower volumetric losses in our crude oil trucking operations.
Partially offsetting these positive factors were higher wages paid to our truck
drivers and higher depreciation and amortization expense.

   The $0.4 million decrease in other income was due to the lower allocated
insurance-related gains.

Year Ended December 31, 2000 versus Year Ended December 31, 1999

   Analysis of Combined Statements of Income

   Sales and other operating revenues for 2000 were $1,808.6 million compared
to $974.2 million for 1999, an increase of $834.4 million. This increase was
primarily due to higher crude oil prices and volumes. The average price of WTI
at Cushing increased to $30.20 per barrel in 2000 from $19.24 per barrel in
1999. Sales volumes increased 12.7 million barrels, or 32%, during 2000 in
large part due to the full-year impact of the acquisition of the crude oil
transportation and marketing assets of Pride Companies, L.P., or the West Texas
assets, in October 1999.

   Other income was $5.6 million in 2000 versus $6.1 million in 1999. This $0.5
million decrease was due to an $0.8 million decline in Explorer equity income
to $3.8 million in 2000 from $4.6 million in 1999, due to costs associated with
a refined products spill that occurred in March 2000, partially offset by a
$0.4 million allocated gain on the receipt of stock by Sunoco, Inc. in
connection with an insurance company demutualization.

   Total cost of products sold and operating expenses increased $832.9 million
to $1,699.5 million in 2000 from $866.6 million in 1999. This increase was
primarily due to higher crude oil acquisition prices and purchase volumes.

   Depreciation and amortization was $20.7 million in 2000 versus $19.9 million
in 1999. This $0.8 million increase was primarily due to recent capital
expenditures and the acquisition of the West Texas assets in October 1999.

                                      48


<PAGE>

   Selling, general and administrative expenses were $34.7 million in 2000
versus $27.5 million in 1999. This $7.2 million increase was largely due to
higher allocated costs attributable to Sunoco, Inc.'s employee incentive
compensation and benefit plans. Historically, allocated incentive compensation
costs were determined based upon Sunoco, Inc.'s overall financial performance.
Future incentive compensation will depend upon our performance. Higher salaries
and wages also contributed to the increase. Selling, general and administrative
expenses include amounts allocated to us by Sunoco, Inc., which were $10.1
million and $9.0 million in 2000 and 1999, respectively.

   Net interest expense was $10.3 million in 2000 versus $6.5 million in 1999.
This $3.8 million increase was primarily due to higher average outstanding
borrowings from an affiliate, partially offset by higher capitalized interest.
Income tax expense decreased as a result of the decline in pretax earnings. The
effective tax rate in both 2000 and 1999 was 38%.

   Analysis of Segment Operating Income

   Eastern Pipeline System.  Operating income in our Eastern Pipeline System
was $31.1 million in 2000 compared to $38.5 million in 1999. This $7.4 million
decrease was due to a $1.3 million decrease in sales and other operating
revenue, a $5.2 million increase in total costs and expenses, and a $0.9
million decrease in other income. Refined product pipeline throughput in 2000
decreased 17,333 bpd, or 4%, compared to 1999, and shipments in barrel miles
decreased 2% in the current period. The average tariff per barrel mile
increased to 0.440c per barrel in 2000 from 0.438c per barrel in 1999.

   The $1.3 million decrease in sales and other operating revenue was due in
part to lower tariff revenue from most of our refined product pipelines
resulting from decreased production at Sunoco R&M's refineries related to
scheduled refinery turnarounds. Also contributing to the lower sales and other
operating revenue were decreased sales of heating oil and other distillate
fuels by Sunoco R&M at our terminals due to unseasonably warm weather and
reduced shipments on our Twin Oaks to Newark pipeline due to higher prices of
refined products, particularly gasoline, in the Philadelphia area than in the
New York Harbor market. Partially offsetting these negative factors were
increased tariff revenues resulting from increased throughput on our
Philadelphia to Linden pipeline due to the expansion of the Linden junction and
a new connection to a third-party terminal in Syracuse, New York, which allowed
Sunoco R&M to shift volumes from competitors' pipelines to our Montello to
Syracuse pipeline. Revenues also increased on our Marysville to Toledo crude
oil pipeline due to increased processing of Canadian crude oil at Sunoco R&M's
Toledo refinery.

   The $5.2 million increase in total costs and expenses was due to a $2.5
million increase in operating expenses, a $2.3 million increase in selling,
general and administrative expenses, and a $0.4 million increase in
depreciation and amortization. The increase in operating expenses was primarily
due to the adverse impact of changes in volumetric gains and losses on our
pipelines and higher environmental remediation costs largely due to a pipeline
leak that occurred in January 2000. The increase in selling, general and
administrative expenses was primarily due to higher employee incentive
compensation payments and benefit costs and administrative costs allocated to
us from Sunoco, Inc.

   The $0.9 million decrease in other income was primarily due to the $0.8
million decline in equity income from Explorer discussed above.

   Terminal Facilities.  Operating income in our Terminal Facilities was $17.2
million in 2000 compared to $16.8 million in 1999. This $0.4 million increase
was primarily due to higher revenues at our Nederland Terminal primarily as a
result of a 4% increase in terminal throughput. The higher throughput was
largely due to U.S. Department of Energy sales of crude oil from the Strategic
Petroleum Reserve primarily during the fourth quarter of 2000, which was
partially offset by decreased throughput of lubricant products by Sunoco R&M.
Also partially offsetting the higher revenues was an increase in operating and
administrative expenses largely as a result of higher employee incentive
compensation payments and benefit costs and higher utility costs attributable
to increases in electricity and fuel prices.

                                      49


<PAGE>

   Total costs and corresponding revenues attributable to our refined product
terminals and refinery-related assets increased $7.0 million as a result of the
$6.0 million of charges recognized in 2000 in connection with the remediation
activities related to the spill in February 2000 at one of our crude oil
transfer lines to the Darby Creek Tank Farm. Higher employee incentive
compensation and benefit costs also contributed to the increase.

   Throughput volumes at our refined product terminals increased 6% in 2000
primarily due to higher Sunoco R&M retail gasoline sales volumes, particularly
in the Midwest. The average throughput of our refinery-related assets was
essentially unchanged in 2000 as increased crude oil throughput at Sunoco R&M's
Philadelphia refinery offset declines related to scheduled turnaround activity
at Sunoco R&M's Marcus Hook refinery.

   Western Pipeline System.  Operating income in our Western Pipeline System
was $11.1 million for both 2000 and 1999. A $3.0 million increase in gross
margin was offset by higher selling, general and administrative expenses.
Revenues and expenses in the Western Pipeline System increased significantly
during 2000 in large part due to the acquisition of the West Texas assets in
October 1999, which contributed $4.1 million and $1.3 million to operating
income (including gross margin of $4.5 million and $1.4 million) in 2000 and
1999, respectively. Excluding the West Texas assets, gross margin decreased
$0.1 million in 2000 primarily due to a decrease in margins from crude oil
acquisition and marketing activities, essentially offset by an increase in
margins from crude oil pipeline operations.

   Crude oil acquisition and marketing margins declined primarily due to
increased competitive pressure in 2000 for purchasing crude oil as demand from
Midwest refineries increased and domestic production declined. We were unable
to pass all of the increase in crude oil acquisition costs on to Sunoco R&M
under the terms of a supply agreement. Also contributing to the margin decline
was the adverse impact of volumetric gains and losses in our crude oil trucking
operations. Partially offsetting these negative factors was the absence of
unfavorable litigation settlements recognized in 1999.

   The higher crude oil pipeline margin reflects higher gross margin from the
10-inch East Texas pipeline reactivated in July 1999 to transport foreign crude
oil for Sunoco R&M's Toledo refinery and additional deliveries on the pipeline
to Sunoco R&M's and Sinclair Oil's Tulsa refineries. Partially offsetting these
positive factors were increases in salaries and wages, utility costs, and
rental expense.

   The $3.2 million increase in selling, general and administrative expenses
was primarily due to the higher employee incentive compensation and benefit
costs and higher administrative costs allocated to us by Sunoco, Inc.

Year Ended December 31, 1999 versus Year Ended December 31, 1998

   Analysis of Combined Statements of Income

   Sales and other operating revenue for 1999 were $974.2 million as compared
to $695.2 million for 1998, an increase of $279.0 million. This increase was
primarily due to higher crude oil prices, partially offset by a decrease in
volumes. The average price of WTI at Cushing increased to $19.24 per barrel in
1999 from $14.43 per barrel in 1998. Sales volumes decreased 3.0 million
barrels, or 8%, due to lower domestic crude oil production and lower demand
from Midwest refineries due to the poor refining margin environment, partially
offset by increased volumes attributable to the West Texas assets acquired in
October 1999.

   Other income was $6.1 million in 1999 versus $5.0 million in 1998. This $1.1
million increase was largely due to a $0.7 million increase in Explorer equity
income to $4.6 million in 1999 from $3.9 million in 1998, due to a 47,000 bpd,
or 10%, increase in throughput. Our allocated portion of higher dividend income
from an insurance consortium in which Sunoco, Inc. participates also
contributed to the increase in other income.

   Total cost of products sold and operating expenses increased $283.0 million
to $866.6 million in 1999 from $583.6 million in 1998. The increase was
primarily due to higher crude oil acquisition prices, partially offset by a
decrease in purchase volumes in the Western Pipeline System.

   Depreciation and amortization was $19.9 million in 1999 versus $18.6 million
in 1998. This $1.3 million increase was due to recent capital expenditures and
the acquisition of the West Texas assets in October 1999.

                                      50


<PAGE>

   Selling, general and administrative expenses were $27.5 million in 1999
versus $29.9 million in 1998. This $2.4 million decrease was primarily due to
reductions in allocated employee incentive compensation and benefit costs,
partially offset by higher salaries and wages and general cost increases.
Selling, general and administrative expenses include amounts allocated to us by
Sunoco, Inc., which totaled $9.0 million and $9.1 million in 1999 and 1998,
respectively.

   Net interest expense was $6.5 million in 1999 versus $7.1 million in 1998.
This $0.6 million decrease was primarily due to lower average interest rates
and higher capitalized interest. Income tax expense decreased as a result of
the decline in pretax earnings. The effective tax rate in both 1999 and 1998
was 38%.

   Analysis of Segment Operating Income

   Eastern Pipeline System.  Operating income in our Eastern Pipeline System
was $38.5 million in 1999 compared to $42.2 million in 1998. This $3.7 million
decrease was due to a $1.0 million decline in sales and other operating revenue
and a $3.7 million increase in total costs and expenses, partially offset by a
$1.0 million increase in other income. Refined product pipeline throughput in
1999 increased 29,390 bpd, or 7%, compared to 1998, while shipments in barrel
miles increased 2%. The average tariff per barrel mile decreased to 0.438c per
barrel in 1999 from 0.451c per barrel in 1998.

   The $1.0 million decrease in sales and other operating revenue was due in
part to lower revenues on our Marysville to Toledo crude oil pipeline caused by
a reduction in third-party throughput due to increased competition from a new
Lakehead pipeline that began operating in April 1999. This decrease in revenues
was partially offset by higher tariff revenues from increased shipments to
Sunoco R&M's Toledo refinery as the price of Canadian crude oil dropped
relative to alternative grades. Also contributing to the decrease in sales and
other operating revenue were lower tariff revenues due to the closing of Sunoco
R&M's Syracuse terminal, which resulted in Sunoco R&M shipping on a
competitor's pipeline to a third-party terminal to supply its retail outlets
and wholesale customers in the Syracuse area. Partially offsetting these
negative factors were increased shipments over our pipelines from Sunoco R&M's
Philadelphia refinery as Sunoco R&M increased production in response to
weather-related increases in heating oil and other distillate fuel demand in
its Eastern marketing area.

   The $3.7 million increase in total costs and expenses was due to $4.5
million higher operating expenses and $0.5 million higher depreciation and
amortization, partially offset by $1.3 million lower selling, general and
administrative expenses. The higher operating expenses largely resulted from
the adverse impact of changes in volumetric gains and losses on our pipelines,
higher environmental remediation costs and litigation settlements, and
increased costs for maintenance and line testing. The decrease in selling,
general and administrative expenses was primarily due to the reductions in
allocated employee incentive compensation and benefit costs, partially offset
by higher salaries and wages and other general cost increases.

   The $1.0 million increase in other income was primarily due to the $0.7
million increase in equity income from Explorer discussed above.

   Terminal Facilities.  Operating income in our Terminal Facilities was $16.8
million in 1999 versus $18.8 million in 1998. This $2.0 million decrease was
primarily due to increased operating costs at the Nederland Terminal due to
higher utility costs, which were partially offset by higher revenues at our
Fort Mifflin Terminal resulting from increased storage services provided to
Sunoco R&M's Philadelphia refinery. Revenues at Nederland were flat because
increased crude oil throughput was essentially offset by lower storage volumes.

   Total costs and corresponding revenues attributable to our refined product
terminals and refinery-related assets increased $2.8 million in 1999 in part
due to higher environmental remediation expense largely as a result of the
absence of a $1.1 million favorable adjustment to refined product terminal
environmental remediation liabilities that was recognized in 1998.

   Throughput at our refined product terminals increased 8% in 1999 primarily
due to increased Sunoco R&M volumes resulting from retail marketing growth and
a shift by Sunoco R&M to our terminals from those of our competitors. The
average throughput of our refinery-related assets decreased 1% in 1999.

                                      51


<PAGE>

   Western Pipeline System.  Operating income in our Western Pipeline System
was $11.1 million in 1999 compared to $7.1 million in 1998. This $4.0 million
increase was due to a $3.4 million increase in gross margin and a $0.6 million
decrease in selling, general and administrative expenses. Revenues and expenses
in the Western Pipeline System increased significantly during 1999 primarily
due to higher crude oil prices at the wellhead, partially offset by a decrease
in volumes despite additional volumes from the acquisition of the West Texas
assets in October 1999. Excluding the West Texas assets, gross margin increased
$2.0 million.

   This $2.0 million increase in gross margin (excluding the West Texas assets)
was primarily due to an increase in margin from crude oil acquisition and
marketing activities, partially offset by a decrease in margin from crude oil
pipelines. Crude oil acquisition and marketing margins improved in 1999 as the
crude oil market structure switched from contango in 1998 to backwardation in
1999. This resulted in increased margins since our customers pay higher prices
for crude oil during backwardated periods, while increased crude oil
acquisition costs paid to our suppliers generally lag market prices. The higher
crude oil acquisition and marketing margins were adversely impacted by higher
depreciation and amortization expense. The lower crude oil pipeline margins
were primarily due to lower throughput on our gathering and trunk lines
resulting from production declines attributable to low crude oil prices and
higher depreciation and amortization expense, partially offset by the
reactivation in July 1999 of the East Texas 10-inch pipeline to transport
foreign crude oil for Sunoco R&M's Toledo refinery. The $0.6 million decrease
in selling, general and administrative expenses was primarily due to reductions
in employee incentive compensation and benefit costs.

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

   Net cash provided by operating activities for the nine months ended
September 30, 2001 was $17.1 million compared to $62.1 million for the nine
months ended September 30, 2000. This $45.0 million decrease in net cash
provided by operating activities was primarily due to a $57.3 million increase
in working capital uses pertaining to operating activities, partially offset by
an increase in depreciation and amortization of $2.5 million, and deferred
income taxes of $5.3 million.

   The $57.3 million increase in working capital uses pertaining to operating
activities was due to a $34.4 million increase in working capital in the nine
months ended September 30, 2001 compared to a $22.9 million decrease in working
capital in the corresponding prior-year period. The increase in working capital
in 2001 was primarily a result of the impact of a decline in crude oil prices
on receivables and payables from the purchase and sale of crude oil in the
Western Pipeline System. During 2000, crude oil prices increased, which caused
working capital to decline.

   The inverse relationship between crude oil prices and the level of working
capital exists because we have more crude oil payables than receivables and
because we use the last-in, first-out method of accounting for crude oil
inventories in our crude oil acquisition and marketing activities. Crude oil
payables exceed crude oil receivables largely due to the absence of a crude oil
receivable from Sunoco R&M. Historically, receivables from Sunoco R&M have been
settled immediately through the net parent investment account. The following
example illustrates this inverse relationship. As crude oil prices increase,
the carrying amount of inventory does not change under the last-in, first-out
method of accounting, while both crude oil receivables and payables increase.
Because crude oil payables exceed crude oil receivables, the impact of the
price increase on payables is greater, resulting in a reduction in working
capital. Upon completion of the offering, payment terms in our crude oil supply
contracts with Sunoco R&M will result in crude oil receivables, lowering the
net crude oil payable and reducing the impact of changes in crude oil prices on
net cash provided by operating activities.

   For the full year 2000, our net cash provided by operating activities was
$79.1 million compared to $125.2 million in 1999 and $45.0 million in 1998. The
$46.1 million decrease in net cash provided by operating activities in 2000 was
largely due to a $35.5 million decrease in working capital sources pertaining
to operating activities and a $6.9 million decrease in net income. The $80.2
million increase in net cash provided by operating activities in 1999 was
largely due to an $82.5 million increase in working capital sources pertaining
to operating activities, partially offset by a decline in deferred income taxes
of $1.8 million. The fluctuations in working

                                      52


<PAGE>

capital during the 1998-2000 period were primarily due to the impact of crude
oil price changes on receivables and payables from the purchase and sale of
crude oil in the Western Pipeline System.

   Net cash used in investing activities for the years ended December 31, 2000,
1999, and 1998 was $77.3 million, $75.1 million, and $36.9 million,
respectively. Capital expenditures were $57.9 million in 2000, $47.0 million in
1999, and $36.9 million in 1998. The other significant investing transactions
in the three-year period were the acquisition of the West Texas assets in 1999
for $29.6 million and a loan to The Claymont Investment Company, a wholly owned
subsidiary of Sunoco, Inc., of $20.0 million in 2000.

   Net cash used in financing activities for the years ended December 31, 2000,
1999, and 1998 was $1.8 million, $50.0 million, and $8.0 million, respectively.
Distributions to Sunoco, Inc. and its affiliates were $96.6 million, $49.8
million, and $8.0 million in 2000, 1999, and 1998, respectively. Net proceeds
of borrowings from The Claymont Investment Company were $95.0 million in 2000.

   The Claymont Investment Company serves as a lender and borrower of funds to
and from Sunoco, Inc. and its subsidiaries, including Sunoco Logistics
(Predecessor), to enable those entities to achieve their desired capital
structures. Amounts owed to and due from The Claymont Investment Company under
these financing arrangements included in the Sunoco Logistics (Predecessor)
combined balance sheets will not be assumed by or contributed to our
partnership. Furthermore, subsequent to the offering, we will not engage in
these types of financing arrangements with The Claymont Investment Company or
any other subsidiary of Sunoco, Inc.

Capital Requirements

   The pipeline, terminalling, and crude oil storage operations are capital
intensive, requiring significant investment to upgrade or enhance existing
operations and to meet environmental and operational regulations. Our capital
requirements have consisted, and are expected to continue to consist, primarily
of:

   . maintenance capital expenditures, such as those required to maintain
     equipment reliability, tankage, and pipeline integrity and safety, and to
     address environmental regulations; and

   . expansion capital expenditures to acquire complementary assets to grow our
     business and to expand existing facilities, such as projects that increase
     storage or throughput volumes.

   The following table summarizes maintenance and expansion capital
expenditures for the periods presented:



<TABLE>
<CAPTION>
                                          Year Ended          Nine Months Ended
                                         December 31,           September 30,
                                 ---------------------------- -----------------
                                  1998    1999         2000     2000     2001
                                 ------- -------      ------- -------  -------
                                                 (in thousands)
<S>                              <C>     <C>          <C>     <C>      <C>
Maintenance..................... $28,420 $32,312      $39,067 $24,591  $28,898
Expansion.......................   8,527  49,556/(1)/  18,854  11,484   11,324
                                 ------- -------      ------- -------  -------
   Total........................ $36,947 $81,868/(1)/ $57,921 $36,075  $40,222
                                 ======= =======      ======= =======  =======
</TABLE>


--------
(1)Includes purchase of the West Texas assets for $29.6 million in cash and the
   assumption of $5.3 million of long-term debt.


   We estimate that our annual maintenance capital expenditures will be $27.0
million in 2002. These projected maintenance capital outlays are approximately
$7.3 million lower than the average annual outlays for the period from January
1, 1998 to September 30, 2001 . This prior period included several one-time
projects to upgrade our technology, increase reliability, and lower our cost
structure. We do not believe we will incur these types of expenditures in 2002.


   In the area of technology, we completed numerous automation projects,
upgraded our metering systems, enhanced various software packages, and replaced
pipeline control systems. In addition, we completed numerous asset upgrade
projects, including relocating pipelines at the Philadelphia International
Airport due to runway and terminal reconfigurations, rebuilds on two pump
stations, and repair and upgrades on the crude oil transfer lines between Hog
Island Wharf and the Darby Creek Tank Farm. The crude oil transfer lines, which
were historically

                                      53


<PAGE>

a part of Sunoco R&M's refining business, did not meet pipeline standards and
could not be internally inspected or maintained by conventional leak detection
devices prior to completion of this project.

   In the area of transportation and safety, the DOT has recently adopted a
pipeline integrity management rule. Based on historical integrity tests
conducted since 1989, we have estimated that compliance with this rule will
cost us approximately $8.0 million per year for five years, or a total of $40.0
million, for all pipelines in our Eastern and Western Pipeline Systems that are
subject to this rule. Under the terms of the omnibus agreement, Sunoco R&M will
reimburse us for operating expenses and capital expenditures in excess of $8.0
million per year (up to an aggregate maximum of $15.0 million over a five-year
period) incurred to comply with the DOT's pipeline integrity management rule.


   In addition, Sunoco R&M will, at its expense, complete for the Darby Creek
Tank Farm certain tank maintenance and inspection projects now in progress or
expected to be completed within one year from the closing of the offering.
Sunoco R&M estimates total costs to complete these projects will be
approximately $4.0 million. Sunoco R&M will also reimburse us up to $10.0
million in connection with expenditures required at the Darby Creek and Marcus
Hook Tank Farms to maintain compliance with existing industry standards and
regulatory requirements.


   We will reflect outlays for these programs as operating expenses or capital
expenditures, as appropriate. Capital expenditures would be depreciated over
their useful lives. The reimbursement by Sunoco R&M will be reflected as a
capital contribution.

   Our typical growth projects consist of new tankage, increased throughput on
our existing pipelines, and new connections for deliveries to customers. We
anticipate pursuing similar growth projects and acquisitions.

   We expect to fund our capital expenditures, including any acquisitions, from
cash provided by operations and, to the extent necessary, from the proceeds of:

   . borrowing under the revolving credit facility discussed below and other
     borrowings; and

   . issuance of additional common units.

Credit Facility

   In connection with the closing of this offering, our operating partnership
will enter into a three-year $150.0 million revolving credit facility, the form
of which has been filed as an exhibit to the registration statement of which
this prospectus is a part. The revolving credit facility will be available to
fund our working capital requirements, to finance future acquisitions, and for
general partnership purposes and will include a $20.0 million distribution
sublimit that will be available for distributions. We may use the credit
facility to fund the minimum quarterly distributions provided the total
outstanding borrowings for distributions do not at any time exceed $20.0
million. We will be required to reduce to zero all borrowings under the
distribution sublimit under the revolving credit facility each year for
15 days. We do not anticipate that we will borrow any of the amounts available
under our credit facility at the closing of this offering.

   Our obligations under the credit facility will be unsecured. Indebtedness
under the credit facility will rank equally with all the outstanding unsecured
and unsubordinated debt of our operating partnership. We may prepay all loans
at any time without penalty subject to reimbursement of breakage and
redeployment costs in the case of prepayment of LIBOR borrowings.

   Indebtedness under the credit facility will bear interest, at our option, at
either (i) LIBOR plus an applicable margin or (ii) the higher of the federal
funds rate plus 0.50% or the Bank of America prime rate (each plus the
applicable margin). We will incur fees in connection with the revolving credit
facility. The revolving credit facility will mature in January 2005. At that
time, the facility will terminate and all outstanding amounts will be due and
payable.

   The credit agreement prohibits us from declaring distributions to
unitholders if any event of default, as defined in the credit agreement, occurs
or would result from the declaration of distributions. In addition, the credit
facility contains various covenants limiting our operating partnership's
ability to:

   . incur indebtedness;

                                      54


<PAGE>

   . grant certain liens;

   . make certain loans, acquisitions, and investments;

   . make any material change to the nature of our business;

   . acquire another company; or

   . enter into a merger or sale of assets, including the sale or transfer of
     interests in our subsidiaries.

   The credit facility also contains covenants requiring us to maintain on a
rolling-four-quarter basis:

   . a ratio of up to 4:1 of consolidated total debt to consolidated EBITDA
     (each as defined in the credit agreement); and

   . an interest coverage ratio (as defined in the credit agreement) of 3.5:1.

   Each of the following will be an event of default under the revolving credit
facility:

   . failure to pay any principal, interest, fees, or other amounts when due;

   . failure of any representation or warranty to be true and correct;

   . termination of any material agreement, including the pipelines and
     terminals storage and throughput agreement and the omnibus agreement;

   . default under any material agreement if such default could have a material
     adverse effect on us;

   . bankruptcy or insolvency events involving us, our general partner, or our
     subsidiaries;

   . the entry of monetary judgments, not covered or funded by insurance,
     against us, our general partner, or any of our or its subsidiaries in
     excess of $20.0 million in the aggregate or any non-monetary judgment
     having a material adverse effect;

   . the sale by Sunoco, Inc. of a material portion of its refinery assets or
     other assets related to its agreements with us unless the purchaser of
     those assets has a minimum credit rating and fully assumes the rights and
     obligations of Sunoco, Inc. under those agreements; and


   . failure by Sunoco, Inc. to own, directly or indirectly, 51% of the general
     partnership interest in us or to control the management of us and our
     operating partnership.


   The revolving credit agreement is subject to a number of conditions,
including the negotiation, execution, and delivery of definitive documentation.

Senior Notes


   Concurrently with this offering, our operating partnership will issue $250
million of senior notes, the net proceeds of which will be distributed to
Sunoco, Inc. as additional consideration for its contribution of assets to us.
The senior notes will be issued pursuant to an indenture, the form of which has
been filed as an exhibit to the registration statement of which this prospectus
is a part. Obligations under the senior notes will be unsecured. Indebtedness
under the senior notes will rank equally with the credit facility and all the
outstanding unsecured and unsubordinated debt of our operating partnership. The
senior notes and revolving credit facility will be guaranteed by our
partnership and our operating partnership's subsidiaries. The senior notes will
have a maturity date of ten years and will bear interest payable semi-annually
at a fixed rate to be determined at the time of pricing, which is expected to
occur at substantially the same time as the pricing of the common units. The
senior notes will be redeemable, at our option, at a make-whole premium. The
make-whole premium will be calculated on the basis of a discount rate equal to
the yield on United States treasury notes having a constant maturity comparable
to the remaining term of the senior notes, plus a spread to be determined at
the time of pricing. The senior notes will not be subject to any sinking fund
provisions.


   In addition, the senior notes will contain various covenants limiting our
operating partnership's ability to:


     .  incur certain liens;


     .  engage in sale/leaseback transactions; or

     .  merge, consolidate, or sell substantially all of our assets.

                                      55


<PAGE>

   Each of the following will be an event of default under the indenture
governing the senior notes:




     .  failure to pay interest on any note for 30 days;



     .  failure to pay the principal of or any premium on any note when due;



     .  failure to perform any other covenant in the indenture that continues
        for 60 days after being given written notice;



     .  the acceleration of the maturity of any other debt of us or any of our
        subsidiaries or a default in the payment of any principal or interest
        in respect of any other indebtedness of us or any of our subsidiaries
        having an outstanding principal amount of $10.0 million or more
        individually or in the aggregate and such default shall be continuing
        for a period of 30 days; or



     .  the bankruptcy, insolvency, or reorganization of our operating
        partnership.



   Upon the occurrence of a change of control to a non-investment grade entity,
our operating partnership must offer to purchase the senior notes at a price
equal to 100% of their principal amount plus accrued and unpaid interest, if
any, to the date of purchase.


   The initial offering of the senior notes will not be registered under the
Securities Act and may not be sold in the United States absent registration or
an available exemption from registration requirements. The holders of the
senior notes will have certain registration rights.

Environmental Matters

   Operation of our pipelines, terminals, and associated facilities are subject
to stringent and complex federal, state, and local laws and regulations
governing the discharge of materials into the environment or otherwise relating
to protection of the environment. As a result of our compliance with these laws
and regulations, we have accrued liabilities for estimated site restoration
costs to be incurred in the future at our facilities and properties, including
liabilities for environmental remediation obligations. Under our accounting
policies, we record liabilities when site restoration and environmental
remediation and cleanup obligations are either known or considered probable and
can be reasonably estimated. For a discussion of the accrued liabilities and
charges against income related to these activities, see Note 7 to the
historical combined financial statements of Sunoco Logistics (Predecessor).

   Under the terms of our omnibus agreement with Sunoco, Inc., and in
connection with the contribution of our assets by affiliates of Sunoco, Inc.,
Sunoco, Inc. has agreed to indemnify us for 30 years from environmental and
toxic tort liabilities related to the assets contributed to us that arise from
the operation of such assets prior to closing. Sunoco, Inc. will be obligated
to indemnify us for 100% of all losses asserted within the first 21 years of
closing. Sunoco, Inc.'s share of liability for claims asserted thereafter will
decrease by 10% a year. For example, for a claim asserted during the
twenty-third year after closing, Sunoco, Inc. would be required to indemnify us
for 80% of our loss. There is no monetary cap on the amount of indemnity
coverage provided by Sunoco, Inc. Any environmental and toxic tort liabilities
not covered by this indemnity will be our responsibility. Total future costs
for environmental remediation activities will depend upon, among other things,
the identification of any additional sites, the determination of the extent of
the contamination at each site, the timing and nature of required remedial
actions, the technology available and needed to meet the various existing legal
requirements, the nature and extent of future environmental laws, inflation
rates, and the determination of our liability at multi-party sites, if any, in
light of the number, participation levels, and financial viability of other
parties. We have agreed to indemnify Sunoco, Inc. and its affiliates for
environmental and toxic tort liabilities to the extent Sunoco, Inc. is not
required to indemnify us.

   The use of MTBE continues to be the focus of federal and state government
attention due to public health and environmental issues that have been raised
by the use of MTBE in gasoline, and specifically the discovery of MTBE in water
supplies. MTBE is the primary oxygenate used by Sunoco R&M and other petroleum
refiners to meet reformulated gasoline requirements under the Clean Air Act.
Many states, including New York and Connecticut, have banned or restricted the
use of MTBE in gasoline commencing as early as 2003 in response to concerns
about MTBE's adverse impact on ground or surface water. Other states are
considering bans or restrictions on MTBE or opting out of the EPA's
reformulated gasoline program, either of which events would reduce the use of
MTBE. Any ban or restriction on the use of MTBE may lead to the greater use of
ethanol.

                                      56


<PAGE>

Unlike MTBE, which can be blended in gasoline at the refinery, ethanol is
blended at the terminal and is not transported by our pipelines. While many of
our refined product terminals currently blend ethanol, any revenues we would
receive for blending ethanol might not offset the loss of revenues we would
suffer from the reduced volumes we transport on our Eastern refined product
pipelines.

Impact of Inflation

   Although the impact of inflation has slowed in recent years, it is still a
factor in the United States economy and may increase the cost to acquire or
replace property, plant, and equipment and may increase the costs of labor and
supplies. To the extent permitted by competition, regulation, and existing
agreements, Sunoco Logistics (Predecessor) has passed along increased costs to
customers in the form of higher fees and we will continue that practice.

New Accounting Pronouncements

   In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued and,
in June 2000, it was amended by Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" (collectively, "new derivative accounting"). The new derivative
accounting requires recognition of all derivative contracts in the balance
sheet at their fair value. If the derivative contracts qualify for hedge
accounting, depending on their nature, changes in their fair values are either
offset in net income against the changes in the fair values of the items being
hedged or reflected initially as a separate component of the net parent
investment and subsequently recognized in net income when the hedged items are
recognized in net income. The ineffective portions of changes in the fair
values of derivative contracts that qualify for hedge accounting as well as
changes in fair value of all other derivatives are immediately recognized in
net income. The new derivative accounting was adopted effective January 1,
2001. There was no impact on net income or net parent investment for the nine
months ended September 30, 2001.

   In July 2001, Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No. 142"), was issued. Sunoco Logistics
(Predecessor) will adopt SFAS No. 142 effective January 1, 2002 when adoption
is mandatory. SFAS No. 142 will require the testing of goodwill and indefinite-
lived intangible assets for impairment rather than amortizing them. We are
currently assessing the impact of adopting SFAS No. 142 on our combined
financial statements. The current level of annual amortization of goodwill and
indefinite-lived intangible assets, which will be eliminated upon the adoption
of SFAS No. 142, is approximately $0.8 million.

   In August 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143"), was issued.
This statement significantly changes the method of accruing for costs
associated with the retirement of fixed assets that an entity is legally
obligated to incur. We will evaluate the impact and timing of implementing SFAS
No. 143. Implementation of this standard is required no later than January 1,
2003.

   In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), was issued. Sunoco Logistics (Predecessor) will adopt SFAS No. 144
effective January 1, 2002 when adoption is mandatory. Among other things, SFAS
No. 144 significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. SFAS No. 144 supersedes Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
provisions of Accounting Principles Board Opinion 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
that relate to reporting the effects of a disposal of a segment of a business.
We are currently assessing the impact of adopting SFAS No. 144 on our combined
financial statements.

Quantitative and Qualitative Disclosures about Market Risk

   We are exposed to various market risks, including volatility in crude oil
commodity prices and interest rates. To manage such exposure, we monitor our
inventory levels and our expectations of future commodity prices and interest
rates when making decisions with respect to risk management. We do not enter
into derivative transactions that would expose us to price risk.

                                      57


<PAGE>


 
                                  BUSINESS

Overview

   We are a Delaware limited partnership formed on October 15, 2001 by Sunoco,
Inc. to acquire, own, and operate a geographically diverse and complementary
group of refined product and crude oil pipelines and terminal facilities. We
have an experienced management team dedicated to a growth strategy, and we
intend to acquire additional assets in the future. Our business comprises three
segments:

   . Eastern Pipeline System:

     --1,895 miles of refined product pipelines, including a one-third interest
       in an 80-mile refined product pipeline, which primarily serve Sunoco
       R&M's refining and marketing operations in the Northeast and Midwest
       United States, and 58 miles of interrefinery pipelines between Sunoco
       R&M's Philadelphia and Marcus Hook, Pennsylvania refineries;

     --a 123-mile wholly owned crude oil pipeline; and

     --a 9.4% interest in the Explorer Pipeline Company, a joint venture that
       owns a 1,413-mile refined product pipeline.

   . Terminal Facilities:

     --32 inland refined product terminals with an aggregate capacity of 4.8
       million barrels, which primarily serve our Eastern Pipeline System;

     --a 2.0 million barrel refined product terminal serving Sunoco R&M's
       Marcus Hook refinery;

     --an 11.2 million barrel marine crude oil terminal on the Texas Gulf
       Coast, our Nederland Terminal;

     --one inland and two marine crude oil terminals, with a combined capacity
       of 3.0 million barrels, and related pipelines, all of which serve Sunoco
       R&M's Philadelphia refinery; and

     --a 1.0 million barrel LPG terminal near Detroit, Michigan.

   . Western Pipeline System:


     --1,883 miles of crude oil trunk pipelines and 870 miles of crude oil
       gathering lines principally in Oklahoma and Texas that supply the trunk
       pipelines;


     --143 crude oil transport trucks; and

     --127 crude oil truck unloading facilities.

   We transport, terminal, and store refined products and crude oil in 11
states. We generate revenues by charging tariffs for transporting refined
products and crude oil through our pipelines and by charging fees for storing
refined products, crude oil, and other hydrocarbons in, and for providing other
services at, our terminals. We also generate revenues by purchasing domestic
crude oil and selling it to Sunoco R&M and other customers. Generally, as we
purchase crude oil, we simultaneously enter into corresponding sale
transactions involving physical deliveries of crude oil, which enables us to
secure a profit on the transaction at the time of purchase and establish a
substantially balanced position, thereby minimizing exposure to price
volatility after the initial purchase. Our practice is not to enter into
futures contracts.

   For the year ended December 31, 2000, on a pro forma basis, we had revenues
of $1,821.9 million, EBITDA of $87.7 million, and net income of $49.5 million.
For the nine months ended September 30, 2001, on a pro forma basis, we had
revenues of $1,263.7 million, EBITDA of $73.1 million, and net income of $42.1
million.

                                      58


<PAGE>

Our Relationship with Sunoco, Inc.


   We have a strong and mutually beneficial relationship with Sunoco, Inc.
Through its subsidiaries, Sunoco, Inc. is a leading independent United States
refiner and marketer of petroleum products; a growing manufacturer of
petrochemicals; and a technologically advantaged manufacturer of
metallurgical-grade coke for use in the steel industry. Sunoco, Inc. has a
significant interest in our partnership through its indirect ownership of a
76.5 % limited partner interest and a 2% general partner interest.


   Sunoco, Inc. conducts its refinery and marketing operations through Sunoco
R&M. Substantially all of our business activities with Sunoco, Inc. are
conducted with Sunoco R&M. Sunoco R&M is the largest refiner in the Northeast
United States and owns and operates the following four refineries, which have a
combined crude oil processing capacity of 730,000 bpd:

   . the Philadelphia, Pennsylvania refinery, which can process 330,000 bpd of
     crude oil, making it the largest refinery in the Northeast United States;

   . the Marcus Hook, Pennsylvania refinery near Philadelphia, which can
     process 175,000 bpd of crude oil;

   . the Toledo, Ohio refinery, which can process 140,000 bpd of crude oil; and

   . the Tulsa, Oklahoma refinery, which can process 85,000 bpd of crude oil.


   Sunoco R&M markets refined products in 21 states on the East Coast and in
the Midwest through approximately 4,150 branded retail gasoline outlets,
selling nearly four billion gallons of gasoline per year. In addition, Sunoco
R&M sells refined products through wholesale and spot market sales and
exchanges refined product with other refiner-marketers to enhance distribution
efficiency.


   The majority of our operations are strategically located within Sunoco R&M's
refining and marketing supply chain, but we do not own or operate any refining
or marketing assets. Sunoco R&M relies on us to provide transportation and
terminalling services that support its refining and marketing operations. For
the twelve months ended September 30, 2001, Sunoco R&M accounted for
approximately 77% of the pro forma sales and other operating revenue of our
Eastern Pipeline System, 63% of the pro forma sales and other operating revenue
of our Terminal Facilities, and 68% of the pro forma sales and other operating
revenue of our Western Pipeline System. We expect to continue to derive a
substantial portion of our revenues from Sunoco R&M for the foreseeable future.

   The following table sets forth the crude oil refining capacity of each of
Sunoco R&M's refineries and, for the twelve months ended September 30, 2001,
the percentages of crude oil and feedstocks and refined products that we
transported or terminalled for Sunoco R&M:


<TABLE>
<CAPTION>
                                Crude Oil / Feedstocks         Refined Products
                              ----------------------      ---------------------
                               Transported   Percent of    Transported   Percent of
                    Crude Oil or Terminalled   Sunoco     or Terminalled   Sunoco
                    Refining      by Our        R&M           by Our        R&M
Sunoco R&M Refinery Capacity      Assets      Volumes         Assets      Volumes
------------------- --------- -------------- ----------   -------------- ----------
                      (bpd)
<S>                 <C>       <C>            <C>          <C>            <C>
 Philadelphia, PA..  330,000       Yes          100%           Yes          63%
 Marcus Hook, PA...  175,000        No            0%           Yes          93%
 Toledo, OH........  140,000       Yes           52%           Yes          88%
 Tulsa, OK.........   85,000       Yes          100%           Yes/(1)/     22%/(1)/
                     -------                    ----                        ---
    Total..........  730,000                     67%/(2)/                   71%/(1)/
</TABLE>

--------
(1)The only refined product that we transport from the Tulsa refinery is lube
   extracted feedstock. Excluding that refinery, we transported or terminalled
   77% of the total refined products from Sunoco R&M's refineries.
(2)Excluding the Marcus Hook refinery, we transported 87% of the total crude
   oil and feedstocks to Sunoco R&M's refineries.

                                      59


<PAGE>

Pipelines and Terminals Storage and Throughput Agreement with Sunoco R&M

   Under a pipelines and terminals storage and throughput agreement we will
enter into with Sunoco R&M concurrent with the closing of this offering, Sunoco
R&M will pay us fees generally comparable to those charged by third parties to:

   . transport on our refined product pipelines or throughput in our 32 inland
     refined product terminals an amount of refined products that will produce
     at least $75.0 million of revenue in the first year, escalating at 1.67%
     per year for the next four years. In addition, Sunoco R&M will pay us to
     transport on our refined product pipelines an amount of refined products
     that will produce at least $54.3 million of revenue in the sixth year and
     at least $55.2 million of revenue in the seventh year. Sunoco R&M will pay
     the published tariffs on the pipelines and contractually agreed fees at
     the terminals. On a pro forma basis, we would have received $82.8 million
     in revenue from Sunoco R&M for the use of these pipelines and terminals
     during the year ended December 31, 2000;

   . receive and deliver at least 130,000 bpd of refined products per year at
     our Marcus Hook Tank Farm for five years. In the first year, we will
     receive a fee of $0.1627 per barrel for the first 130,000 bpd and $0.0813
     per barrel for volumes in excess of 130,000 bpd. These fees will escalate
     at the rate of 1.67% per year. During the year ended December 31, 2000,
     Sunoco R&M's throughput at the Marcus Hook Tank Farm averaged 133,455 bpd;

   . store 975,734 barrels of LPG per year at our Inkster Terminal, which
     represents all of our LPG storage capacity at this facility. In the first
     year of this seven-year agreement, we will receive a fee of $2.04 per
     barrel of committed storage, a fee of $0.204 per barrel for receipts
     greater than 975,734 barrels per year and a fee of $0.204 per barrel for
     deliveries greater than 975,734 barrels per year. These fees will escalate
     at the rate of 1.875% per year. For the past five years, Sunoco R&M has
     used the full capacity of our Inkster Terminal;

   . receive and deliver at least 290,000 bpd of crude oil or refined products
     per year at our Fort Mifflin Terminal Complex for seven years. In the
     first year, we will receive a fee of $0.1627 per barrel for the first
     180,000 bpd and $0.0813 per barrel for volumes in excess of 180,000 bpd.
     These fees will escalate at the rate of 1.67% per year. Sunoco's R&M's
     throughput at the Fort Mifflin Terminal Complex averaged 314,623 bpd
     during the year ended December 31, 2000; and

   . transport or cause to be transported an aggregate of at least 140,000 bpd
     of crude oil per year on our Marysville to Toledo, Nederland to Longview,
     Cushing to Tulsa, Barnsdall to Tulsa, and Bad Creek to Tulsa crude oil
     pipelines at the published tariffs for a term of seven years. During the
     year ended December 31, 2000, we and Sunoco R&M transported 165,149 bpd on
     these pipelines.

If Sunoco R&M fails to meet its minimum obligations pursuant to the contract
terms set forth above, it will be required to pay us in cash the amount of any
shortfall, which may be applied as a credit in the following year after Sunoco
R&M's minimum obligations are met.

   Sunoco R&M's obligations under this agreement may be permanently reduced or
suspended if:

   . Sunoco R&M (1) shuts down or reconfigures one of its refineries (other
     than planned maintenance turnarounds) and (2) reasonably believes in good
     faith that such event will jeopardize its ability to satisfy its minimum
     revenue or throughput obligations. Sunoco R&M will be required to give at
     least six months' advance notice of any shut down or reconfiguration.
     Sunoco R&M will propose new minimum obligations that proportionally reduce
     the affected obligations. If we do not agree with this reduction, any
     change in Sunoco R&M's obligations will be determined by binding
     arbitration; or

   . Sunoco R&M (1) is prohibited from using MTBE in the gasoline it produces
     and (2) reasonably believes in good faith that such event will jeopardize
     its ability to satisfy its minimum revenue or throughput obligations.
     Sunoco R&M will propose new minimum obligations that proportionally reduce
     its affected obligations. If we do not agree with this reduction, any
     change in Sunoco R&M's obligations will be determined by binding
     arbitration.

   Furthermore, if new laws or regulations are enacted that require us to make
substantial and unanticipated capital expenditures at the Terminal Facilities,
we will have the right to impose a monthly surcharge on Sunoco R&M for the use
of the Terminal Facilities to cover the cost of complying with these laws or
regulations, after

                                      60


<PAGE>

we have made efforts to mitigate their effect. We and Sunoco R&M will negotiate
in good faith to agree on the level of the monthly surcharge. If we are unable
to agree, then we may terminate the agreement with respect to the affected
asset.

   Sunoco R&M's obligations under this agreement may be temporarily suspended
during the occurrence of an event that is outside the control of the parties
that renders performance impossible with respect to an asset for at least
30 days.

   Sunoco R&M has agreed not to challenge, or to cause others to challenge or
assist others in challenging, our tariff rates for seven years. This agreement
does not prevent other current or future shippers from challenging our tariff
rates. At the end of seven years, Sunoco R&M will be free to challenge, or to
cause others to challenge or assist others in challenging, our tariff rates.

   From time to time, Sunoco, Inc. may be presented with opportunities by third
parties with respect to its refinery assets. These opportunities may include
offers to purchase and joint venture propositions. Sunoco, Inc. is also
continually considering changes to its refineries. Those changes may involve
new facilities, reduction in certain operations or modifications of facilities
or operations. Changes may be considered to meet market demands, to satisfy
regulatory requirements or environmental and safety objectives, to improve
operational efficiency or for other reasons. Sunoco, Inc. has advised us that
although it continually considers the types of matters referred to above, it is
not currently proceeding with any transaction or plan that it believes is
likely to result in any reconfigurations or other operational changes in any of
its refineries served by our assets that would have a material effect on Sunoco
R&M's business relationship with us. Further, Sunoco, Inc. has also advised us
that it is not considering a shutdown of any of its refineries served by our
assets. Sunoco, Inc. is, however, actively managing its assets and operations,
and, therefore, changes of some nature, possibly material to its business
relationship with us, are likely to occur at some point in the future.

   To the extent Sunoco R&M does not extend or renew the pipelines and
terminals storage and throughput agreement, our financial condition and results
of operations may be adversely affected. Our assets were constructed or
purchased to service Sunoco R&M's refining and marketing supply chain and are
well-situated to suit Sunoco R&M's needs. As a result, we would expect that
even if this agreement is not renewed, Sunoco R&M would continue to use our
pipelines and terminals. However, we cannot assure you that Sunoco R&M will
continue to use our facilities or that we will be able to generate additional
revenues from third parties. Please read "Risk Factors--Risks Inherent in Our
Business."

Other Agreements with Sunoco R&M and Sunoco, Inc.

   Under a 20-year lease agreement, Sunoco R&M will pay us $5.1 million in the
first year to lease the 58 miles of interrefinery pipelines between Sunoco
R&M's Philadelphia and Marcus Hook refineries, escalating at 1.67% per year for
the next 19 years. On a pro forma basis, Sunoco R&M would have paid us $4.9
million for the use of these pipelines during the year ended December 31, 2000.


   Sunoco R&M will also agree to purchase from us at market-based rates
particular grades of crude oil that our crude oil acquisition and marketing
business purchases for delivery to pipelines in: Longview, Trent, Tye, and
Colorado City, Texas; Haynesville, Louisiana; Marysville and Lewiston,
Michigan; and Tulsa, Oklahoma. At Marysville and Lewiston, Michigan, we
exchange Michigan sweet and Michigan sour crude oil we own for domestic sweet
crude oil supplied by Sunoco R&M at market-based rates. The initial term of
these agreements is two months. These agreements will automatically renew on a
monthly basis unless terminated by either party on 30 days' written notice.
Sunoco R&M has indicated that it has no current intention to terminate these
agreements. During the year ended December 31, 2000, Sunoco R&M purchased
79,346 bpd of crude oil from us in these areas.


   We will enter into an omnibus agreement with Sunoco, Inc. and its affiliates
under which they will generally agree not to engage in the business of
purchasing crude oil at the wellhead, or operating crude oil pipelines or
terminals, refined product pipelines or terminals, or LPG terminals in the
continental United States. In addition, this agreement addresses our payment of
a fee to Sunoco, Inc. or our general partner for the provision of various
general and administrative services, Sunoco R&M's reimbursement to us for
certain maintenance expenditures, Sunoco, Inc.'s indemnification of us for
certain environmental and other liabilities, and other matters.

   Please read "Certain Relationships and Related Transactions."


                                      61


<PAGE>

Sunoco, Inc. Owns and Controls Our General Partner


   We are a key element of Sunoco, Inc.'s business strategy, and Sunoco, Inc.
intends to use our partnership as the primary means of growing its
transportation and terminalling business. Sunoco, Inc. will retain a
significant interest in us through its indirect ownership of a 76.5% limited
partner interest and the 2% general partner interest. While our relationship
with Sunoco, Inc. and its subsidiaries offers us many benefits, it is also a
potential source of conflicts of interest. Please read "Conflicts of Interest
and Fiduciary Responsibilities."


Business Strategies

   Our primary business strategies are to:

   Generate stable cash flows.  In our Eastern Pipeline System, Terminal
Facilities, and Western Pipeline System, our customers pay us fees based on the
volume of refined product or crude oil shipped in our pipelines under published
tariffs or stored in, or distributed from, our terminals. Our Western Pipeline
System also generates revenues by purchasing domestic crude oil and selling it
to Sunoco R&M and other third parties. We have little direct exposure to
commodity price fluctuations in our Eastern Pipeline System and Terminal
Facilities because we do not own any of the refined products or crude oil that
we transport or store in these operations. In the Western Pipeline System, we
mitigate our commodity price exposure when we purchase lease crude oil by
simultaneously entering into sale transactions that are backed by physical
delivery. The geographic and business diversity of our assets also contributes
to the stability of our cash flows. Our current intention is to focus on
businesses and assets that generate stable cash flows.

   Increase our pipeline and terminal throughput.  When necessary to meet
increases in demand for refined products or crude oil, we have increased and
will increase capacity in our existing pipelines and terminals. We increase
capacity in our pipelines by adding or expanding pump stations or increasing
the diameter of the pipelines. In addition to these measures, over the last two
years we have added 1.2 million barrels of new storage capacity at our
Nederland Terminal, bringing our total storage capacity at Nederland to 11.2
million barrels. We anticipate adding an additional 1.3 million barrels of
storage capacity at our Nederland Terminal over the next three years to meet
growing demand.

   Pursue strategic and accretive acquisitions that complement our existing
asset base.  Sunoco, Inc. has a long history of successfully pursuing and
consummating energy acquisitions and intends to use us in the future as a
growth vehicle for its transportation and terminalling business. We expect to
pursue strategic acquisitions both independently and jointly with Sunoco, Inc.
that will enable us to grow our distributable cash flow and enhance our service
capabilities to Sunoco, Inc. and third parties. For example, we may acquire
pipeline or terminal assets associated with any refineries acquired by Sunoco,
Inc. or its affiliates.

   Continue to improve our operating efficiency and to reduce our costs.  We
are focused on monitoring and controlling our cost structure. We have been able
to implement cost saving initiatives such as energy conservation, bulk
purchasing, and automation of delivery facilities and pump stations. We intend
to continue to make investments to improve our operations and pursue cost
saving initiatives.

Competitive Strengths

   We believe we are well-positioned to execute our business strategies
successfully using the following competitive strengths:

   We have a unique strategic relationship with Sunoco R&M's refining and
marketing operations.  Our refined product and crude oil pipelines and
terminals are directly linked to Sunoco R&M's refineries and afford Sunoco R&M
with the most cost-effective means to access crude oil and distribute refined
products. For the twelve months ended September 30, 2001, the three Sunoco R&M
refineries that we supply with crude oil and

                                      62


<PAGE>


feedstocks received 87% of their crude oil from us, and Sunoco R&M transported
through our refined product pipelines or across our Terminal Facilities
approximately 71% of the refined products from its four refineries. Sunoco R&M
has agreed to continue using our assets to transport, terminal, and store
refined products and crude oil. Please read "--Our Relationship with Sunoco,
Inc." Furthermore, Sunoco, Inc. has a significant economic incentive to see
that our pipeline and terminal assets are managed in the best interests of our
unitholders because, as the ultimate owner of our general partner, it will
indirectly own a 2% general partner interest and a 76.5% limited partner
interest in us. We may construct, own, and operate assets that will be operated
by us in connection with Sunoco, Inc.'s business and pursue acquisitions
jointly with Sunoco, Inc. and its subsidiaries.


   Our refined product pipelines and our terminals are strategically located in
areas with high demand.  We have a strong presence in the Northeast and Midwest
United States, areas where demand for refined products exceeds the supply from
local refineries. According to the Energy Information Administration, or EIA,
at the Department of Energy, or DOE, refined products transported into these
regions from other regions, including foreign countries, have increased 1.7%
annually from 1995 to 2000. As a result, our transportation and distribution
assets in these regions operate at high utilization rates, providing us a base
of stable cash flows. In the Gulf Coast region, our Nederland Terminal and
related pipeline network are strategically located to supply crude oil to local
refiners, as well as to major connecting pipelines that supply crude oil to the
Midwest United States. The Nederland Terminal is well-positioned to capitalize
on the trend of increasing foreign crude oil imports as inland domestic crude
oil production continues to decline. According to the EIA, imports of crude oil
through the Gulf Coast increased 4.8% annually from 1995 to 2000. In addition,
our Marysville, Michigan to Toledo, Ohio crude oil pipeline is one of only
three pipelines able to deliver Canadian crude oil to refineries in Michigan
and Northern Ohio. We believe this pipeline positions us to participate in the
growing market for Canadian crude oil, including synthetic crude oil, imported
to these refineries. The Canadian National Energy Board forecasts that
synthetic crude oil production will triple in the next 15 years, from 324,450
bpd to 995,400 bpd.

   We have a complementary portfolio of assets that are both geographically and
operationally diverse.  Our assets include our refined product pipelines and
terminals in the Northeast and Midwest United States and a crude oil terminal
and pipelines in Texas, Oklahoma, and the Texas Gulf Coast area. This diversity
contributes to our stable cash flows. Our Eastern Pipeline System, Terminal
Facilities, and Western Pipeline System represented 43%, 43%, and 14%,
respectively, of pro forma EBITDA for the twelve months ended September 30,
2001.

   Our pipelines and terminals are efficient and well-maintained.  We have
recently made significant investments to upgrade our asset base. Our refined
product pipelines and many of our terminals are automated to ensure product
quality for our customers. In addition, substantially all of our pipelines
subject to regulation by the DOT are monitored by computerized control centers
that continuously track real-time operational data, including refined products
and crude oil quantities, flow rates and pressures. We utilize a
state-of-the-art internal inspection program and other procedures to monitor
the integrity of our pipelines.


   Our executive officers and directors have extensive experience and include
some of the most senior officers of Sunoco, Inc.  Our management team has
operated our assets for almost ten years. As a result, we believe we have the
expertise to execute our business strategies. Our general partner has adopted
compensation and incentive plans to closely align the interests of our
executive officers with the interests of our common unitholders.


                                      63


<PAGE>

Eastern Pipeline System

Refined Product Pipelines

   Our refined product pipelines transport refined products from Sunoco R&M's
Philadelphia, Marcus Hook, and Toledo refineries, as well as from third
parties, to markets in New York, New Jersey, Pennsylvania, Ohio, and Michigan.
The refined products transported in these pipelines include conventional
gasoline, federal specification reformulated gasoline, other oxygenated
gasolines, low-octane gasoline for ethanol blending, distillates that include
high- and low-sulfur diesel and jet fuel, LPGs (such as propane, butane,
isobutane, and a butane/butylene mixture), refining feedstocks, and other
hydrocarbons (such as toluene and xylene). For the twelve months ended
September 30, 2001, gasoline and distillates represented approximately 57% and
34%, respectively, of the total throughput in our refined product pipelines.
Our refined product pipelines were originally constructed between 1931 and
1967. Our pipelines are regularly maintained, and we believe they are in good
repair. The FERC regulates the rates for interstate shipments on our Eastern
Pipeline System, and the Pennsylvania Public Utility Commission regulates the
rates for intrastate shipments in Pennsylvania.



[GRAPHIC B- Map depicting our Eastern Pipeline System, including the location of
                            Sunoco R&M refineries.]



                                      64


<PAGE>

   The following table details the average aggregate daily number of barrels of
refined products transported on our refined product pipelines in each of the
periods presented. The information in the following table does not include
interrefinery pipelines and transfer pipelines that transport large volumes
over short distances and generate minimal revenues.


<TABLE>
<CAPTION>


                                           Year Ended December 31,           Twelve Months
                                   ---------------------------------------       Ended
                                    1996    1997    1998    1999    2000   September 30, 2001
                                   ------- ------- ------- ------- ------- ------------------
<S>                                <C>     <C>     <C>     <C>     <C>     <C>
Refined products transported (bpd) 386,186 433,222 431,989 461,379 444,046      435,247
</TABLE>


   The following table sets forth, for each of our refined product pipeline
systems, the origin and destination, length, diameter, capacity, throughput,
capacity utilization, revenues, and Sunoco R&M throughput for the period
presented. Except as shown below, we own 100% of our refined product pipeline
systems. Throughput is the total number of barrels per day transported on a
pipeline system and includes barrels ultimately transported to a delivery point
on another pipeline system. Revenues reflect tariff revenues generated by
barrels shipped to a delivery point on a pipeline system and do not include
revenues from tariffs generated by barrels shipped on but delivered to a
delivery point on another of our pipeline systems. For example, we would
include in our throughput calculation, 10,000 bpd of refined products
transported on our Philadelphia, Pennsylvania to Montello, Pennsylvania
pipeline system even though that refined product is ultimately delivered to a
point on our Montello to Buffalo, New York pipeline system, where it would also
be counted in the calculation of throughput. All of the revenues from
transporting the 10,000 bpd of refined products would be recognized only by the
Montello to Buffalo pipeline system.



<TABLE>
<CAPTION>
                                                                          Twelve Months Ended September 30, 2001
                                                                   -----------------------------------------------------
                                        Miles of                               Capacity                     Sunoco R&M
Origin and Destination                  Pipeline Diameter Capacity Throughput Utilization    Revenues     Throughput/(1)/
----------------------                  -------- -------- -------- ---------- ----------- --------------  --------------
                                                 (inches)  (bpd)     (bpd)                (in thousands)
<S>                                     <C>      <C>      <C>      <C>        <C>         <C>             <C>
Philadelphia, PA to Montello, PA.......    210     12,8   164,400   136,825       83%        $ 8,258            77%
Montello, PA to Buffalo, NY............    300     14,8    62,400    59,776       96%         18,231            45%
Montello, PA to Kingston, PA...........     84        6     8,800     7,356       84%          1,496            85%
Montello, PA to Syracuse, NY...........    230      8,6    14,100    10,020       71%          4,127           100%
Montello, PA to Pittsburgh, PA.........    221        8    35,000    33,549       96%          6,698           100%
Toledo, OH to Blawnox, PA..............    260     10,8    32,900    17,641       54%          3,471            93%
Toledo, OH to Sarnia, Canada...........    241      8,6    66,600    41,634       63%          7,622            59%
Twin Oaks, PA to Newark, NJ............    118       14   140,000   100,602       72%         17,653            85%
Philadelphia, PA to Linden, NJ/(2)/....     88    16,12    60,000    29,405       49%          3,553           100%
                                         -----    -----   -------   -------      ----        -------           ----
 Subtotal..............................  1,752     N.M.   584,200   436,808       75%         71,109            77%
Interrefinery Pipelines................     58    8,6,4    62,400    38,968       62%          5,608/(3)/      100%
Transfer Pipelines/(4)/................     85     N.M.      N.M.   129,055      N.M.          2,441            22%
                                         -----    -----   -------   -------      ----        -------           ----
 Total.................................  1,895     N.M.      N.M.   604,831      N.M.        $79,158            67%
                                         =====    =====   =======   =======      ====        =======           ====
</TABLE>


--------
N.M.Not meaningful.
(1)Percentage of throughput attributable to Sunoco R&M.
(2)We own a one-third interest in 80 miles of this pipeline. Numerical
   information, other than mileage, reflects only our ownership.
(3)We lease these pipelines to Sunoco R&M. The revenues represent lease income
   from Sunoco R&M.
(4)Consists of our Toledo, Twin Oaks, and Linden transfer pipelines.

   For the twelve months ended September 30, 2001, Sunoco R&M accounted for an
aggregate of 67% of the refined product volumes transported on our Eastern
Pipeline System. For the same period, these pipelines transported 80% of the
refined products transported by pipeline from the three Sunoco R&M refineries
served by our Eastern Pipeline System. The following text provides additional
information about each refined product pipeline system.


                                      65


<PAGE>

   Philadelphia, Pennsylvania to Montello, Pennsylvania.  The Philadelphia to
Montello refined product pipeline system is the principal means by which Sunoco
R&M moves its refined products from its Philadelphia and Marcus Hook refineries
into our Montello terminal for further transportation on our Eastern Pipeline
System. The Philadelphia to Montello pipeline system consists of four segments:

   . a 12-inch, 60-mile segment from the Point Breeze pump station at Sunoco
     R&M's Philadelphia refinery to Montello;

   . an 8-inch, 60-mile segment from the Point Breeze pump station to Montello;

   . an 8-inch, 39-mile segment from our Twin Oaks pump station, which is
     adjacent to the Marcus Hook Tank Farm near Sunoco R&M's Marcus Hook
     refinery, to the 8-inch Point Breeze to Montello pipeline segment; and

   . an 8-inch, 51-mile segment from Boot, Pennsylvania to Fullerton,
     Pennsylvania.

  [GRAPHIC C- Diagram depicting location of our Montello terminal relative to
  Sunoco R&M's refineries, and the Philadelphia to Montello pipeline system.]



   The 12-inch Point Breeze pump station to Montello segment also serves our
Exton, Pennsylvania terminal. The 8-inch Point Breeze pump station to Montello
segment connects with the 8-inch Boot to Fullerton segment at the Boot pump
station and continues to Montello, with connections to a Phillips pipeline in
Swarthmore, Pennsylvania and our terminal in Exton along its route. The 8-inch
segment from the Twin Oaks pump station to the Point Breeze to Montello
pipeline segment serves our terminal at Malvern, Pennsylvania and our storage
facility at Icedale, Pennsylvania. The 8-inch Boot to Fullerton segment
originates at the Boot pump station and terminates at our Fullerton terminal
and Gulf Oil's Fullerton terminal. This segment also serves terminals operated
by Pipeline Petroleum Corp. and Farm & Home and delivers to Buckeye's Buckeye
pipeline in Macungie, Pennsylvania.

                                      66


<PAGE>

   Sunoco R&M accounted for 77% of volumes transported on this pipeline system
for the twelve months ended September 30, 2001. Other shippers on this system
include ExxonMobil, Gulf Oil, Major Oil, Delphi Petroleum, CITGO, El Paso,
Griffith Oil, NOCO Energy, Pickelner, and TransMontaigne. Phillips' Trainer,
Pennsylvania refinery and Motiva's Delaware City, Delaware refinery can access
the system at the Twin Oaks pump station. Products can also enter the system
from ST Services' terminal in Philadelphia and from Valero's Paulsboro, New
Jersey refinery via ExxonMobil's Malvern terminal. Refined products from
Buckeye's Laurel pipeline can enter this system at Montello.

   Montello, Pennsylvania to Buffalo, New York.  The Montello to Buffalo
refined product pipeline system consists of the following segments:

   . a 14-inch, 80-mile segment and an 8-inch, 3-mile segment from Montello to
     Williamsport, Pennsylvania; and

   . an 8-inch, 217-mile segment from Williamsport to Buffalo, including an
     8-inch, 19-mile spur from Caledonia Junction, New York to the Rochester,
     New York terminals.

   The Montello to Williamsport segment makes deliveries to Petroleum Products
Corp., our Northumberland, Pennsylvania terminal, and to Sunoco R&M, Farm &
Home, Pickelner, and Gulf Oil terminals in the Williamsport area. The
Williamsport to Buffalo segment makes deliveries to the Rochester Gas &
Electric terminal in Big Flats, New York. At Caledonia Junction, the spur runs
to our Rochester terminal, as well as to terminals operated by ExxonMobil,
Buckeye, Alaskan Oil, and Rochester Gas & Electric. In the Buffalo area, the
pipeline serves our terminal and those of United Refining and NOCO Energy.

   Sunoco R&M accounted for approximately 45% of the volumes transported on
this pipeline system for the twelve months ended September 30, 2001. In
addition to Sunoco R&M and the other companies who are served by this pipeline
system, we also transport refined products for CITGO, BP, Phillips, El Paso,
and Motiva. We also receive refined products for shipment into the Buffalo
market through our interconnection with Buckeye's Buckeye pipeline at Caledonia
Junction.

   Montello, Pennsylvania to Kingston, Pennsylvania.  The Montello to Kingston
refined product pipeline system consists of an 84-mile, 6-inch pipeline serving
our terminal in Kingston, the Lehigh Oil & Gas terminal in Barnesville,
Pennsylvania, and the Travel Center of America terminal in Beach Haven,
Pennsylvania. In addition to Sunoco R&M, which accounted for 85% of the volumes
transported on this system for the twelve months ended September 30, 2001, we
also transport product for Griffith Oil and TransMontaigne.

   Montello, Pennsylvania to Syracuse, New York.  The Montello to Syracuse
refined product pipeline system consists of 15 miles of 8-inch pipeline and 215
miles of 6-inch pipeline. This pipeline system serves our terminals in Tamaqua,
Pennsylvania and Binghamton, New York, and terminates at a Hess/ExxonMobil
terminal in Syracuse, New York. Sunoco R&M is the only shipper on this pipeline
system.

   Montello, Pennsylvania to Pittsburgh, Pennsylvania.  The Montello to
Pittsburgh refined product pipeline system consists of a 221-mile, 8-inch
pipeline supplied by our Philadelphia to Montello pipeline system and Buckeye's
Laurel pipeline at Delmont, Pennsylvania. The pipeline system serves our
terminals located in Mechanicsburg, Altoona, Delmont, Blawnox, and Pittsburgh,
Pennsylvania. This pipeline system is connected to our Toledo, Ohio to Blawnox
pipeline system, through which we can supply our Pittsburgh, Blawnox, Delmont,
and Altoona terminals with refined product from Sunoco R&M's Toledo refinery.
Sunoco R&M is the only shipper on this pipeline system.

   Toledo, Ohio to Blawnox, Pennsylvania.  The Toledo to Blawnox refined
product pipeline system consists of 115 miles of 10-inch pipeline and 145 miles
of 8-inch pipeline. This pipeline system transports refined products and
petrochemicals from Sunoco R&M's Toledo refinery, as well as petrochemicals
from Sarnia, Canada, to our terminals in Akron and Youngstown, Ohio and Vanport
and Blawnox, Pennsylvania. The pipeline

                                      67


<PAGE>

system also makes deliveries to the Kinder Morgan Indianola, Pennsylvania
facility and accesses the Inland Pipeline system owned by Sunoco R&M, BP,
Unocal, and Equilon. Sunoco R&M accounted for 93% of the volumes transported on
this pipeline system for the twelve months ended September 30, 2001.

   Toledo, Ohio to Sarnia, Canada.  The Toledo to Sarnia refined product
pipeline system consists of three segments totaling 241 miles of 6-inch and
8-inch pipelines originating at Sunoco R&M's Toledo refinery and terminating at
three separate points. The system includes one 6-inch and two 8-inch pipelines
running approximately 50 miles between Toledo and our Inkster Terminal near
Detroit, Michigan. At Inkster, the 6-inch pipeline continues 11 miles to River
Rouge, Michigan, and one of the 8-inch pipelines continues 80 miles to Sarnia.

   Deliveries into and out of Toledo originate from Sunoco R&M's Toledo
refinery, BP's Toledo refinery, Buckeye's Buckeye pipeline, and the Marathon
Ashland Petroleum, or MAP, Toledo terminal. The Toledo to River Rouge segment
serves the Atlas, Buckeye, and MAP terminals in Taylor, Michigan and our
Inkster Terminal and River Rouge Terminal. Product terminals in the Detroit
area served by the Toledo to Sarnia segment include those of BP, MAP, and RKA.
The Toledo to Sarnia segment serves our Inkster Terminal and the Consumers
Power Marysville, Michigan underground storage facilities and has delivery and
origin capabilities at Sarnia that include the Suncor, BP, Royal Dutch/Shell,
and Novacor refineries. Each section of this system is bi-directional and can
ship refined products or LPG.

   Sunoco R&M accounted for 59% of the volume on this system for the twelve
months ended September 30, 2001. Other shippers on this system include Suncor,
CITGO, MAP, Northwest Airlines, BP and Kinetic Resources.

   Twin Oaks, Pennsylvania to Newark, New Jersey.  The Twin Oaks to Newark
refined product pipeline system consists of a 111-mile, 14-inch pipeline
originating at the Twin Oaks pump station, adjacent to our Marcus Hook Tank
Farm, and terminating in Newark and Linden, New Jersey. Motiva's Delaware City
refinery, Phillips' Trainer refinery, and Sunoco R&M's Marcus Hook refinery can
access this pipeline system at its origin. Deliveries are made to our Willow
Grove, Pennsylvania and Piscataway and Newark, New Jersey terminals, as well as
into the Linden area via a 7-mile, 12-inch spur that serves terminals owned by
Kaneb, Kinder Morgan, ExxonMobil, Phillips, and Buckeye. Our Linden transfer
facility allows transfers between these third-party terminals while we make
main-line deliveries. In Newark, the pipeline system serves terminals owned by
Lukoil and Motiva. We interconnect with Buckeye's Laurel pipeline at the Twin
Oaks pump station using a 2-mile, 16-inch spur. Shippers on this pipeline
include Sunoco R&M, which accounted for 85% of volumes transported for the
twelve months ended September 30, 2001, Motiva, Phillips, ExxonMobil, and Kaneb.

   Philadelphia, Pennsylvania to Linden, New Jersey.  The Philadelphia to
Linden refined product pipeline system consists of an 80-mile, 16-inch segment
called the Harbor pipeline, and an 8-mile, 12-inch segment. We own 100% of the
12-inch segment, and we operate the 16-inch segment, which is owned jointly, in
equal percentages, by El Paso, Phillips, and us. Each owner of the 16-inch
segment has a right to 60,000 bpd of capacity. The pipeline system is connected
at its origin to the El Paso refinery in Eagle Point, New Jersey, the Phillips
tank farm in Woodbury, New Jersey, the Gulf Oil terminal in Woodbury, and
Sunoco R&M's Philadelphia refinery. Sunoco R&M can also deliver product to the
Gulf Oil terminal while other parties are shipping product to New York.
Deliveries at Linden are made to a Phillips terminal, a Gulf Oil terminal,
CITGO terminals, and Buckeye's and El Paso's pipelines. This pipeline system is
also connected and makes deliveries into our Twin Oaks, Pennsylvania to Newark
pipeline, allowing us to transport refined product to our Piscataway and
Newark, New Jersey terminals. Sunoco R&M accounted for all of our allocated
share of the volumes transported on the 16-inch segment for the twelve months
ended September 30, 2001 and for all of the volumes transported on the 12-inch
segment for the same period.

                                      68


<PAGE>

   Interrefinery Pipelines.  We also own and lease to Sunoco R&M for a fixed
amount three bi-directional 18-mile pipelines and a four-mile pipeline spur
extending to the Philadelphia International Airport. One pipeline and the spur
transfer jet fuel from Sunoco R&M's Philadelphia and Marcus Hook refineries to
the Philadelphia International Airport. A second pipeline transfers LPGs to and
from Sunoco R&M's Philadelphia refinery and Marcus Hook storage facility. The
third pipeline transfers gasoline blending components and intermediate
feedstocks between Sunoco R&M's Marcus Hook and Philadelphia refineries. The
third pipeline is used to optimize refinery operations, such as gasoline
blending and unit turnaround scheduling.

          [GRAPHIC D- Diagram depicting our interrefinery pipelines.]



  Crude Oil Pipeline

   We own and operate a 123-mile, 16-inch crude oil pipeline that runs from
Marysville, Michigan to Toledo, Ohio. It has a capacity of 140,000 bpd. This
pipeline receives crude oil from the Lakehead pipeline system for delivery to
Sunoco R&M and BP refineries located in Toledo, Ohio and to MAP's Samaria,
Michigan tank farm, which supplies its refinery in Detroit, Michigan.
Marysville is also a truck injection point for local production. Sunoco R&M is
the major shipper on the pipeline, accounting for 77% of the volumes
transported for the twelve months ended September 30, 2001. Other shippers
include BP and MAP. The pipeline was built in 1967, and its tariffs are
regulated by the FERC. This pipeline is regularly maintained, and we believe
that it is in good repair.

                                      69


<PAGE>

   The table below sets forth the average daily number of barrels of crude oil
transported through this crude oil pipeline in each of the periods presented.


<TABLE>
<CAPTION>


                                 Year Ended December 31,         Twelve Months
                            ----------------------------------       Ended
                             1996   1997   1998   1999   2000  September 30, 2001
                            ------ ------ ------ ------ ------ ------------------
<S>                         <C>    <C>    <C>    <C>    <C>    <C>
Crude oil transported (bpd) 80,108 88,948 88,638 81,464 91,464       93,971
</TABLE>


Explorer Pipeline

   We own a 9.4% interest in Explorer Pipeline Company, a joint venture that
owns and operates a 1,413-mile common carrier refined product pipeline. Other
owners of Explorer include Equilon, MAP, ChevronTexaco, Conoco, CITGO, and
Phillips. The system originates from the refining centers of Lake Charles,
Louisiana and Beaumont, Port Arthur and Houston, Texas, and extends to Chicago,
Illinois, with delivery points in the Houston, Dallas/Fort Worth, Tulsa, St.
Louis, and Chicago areas. The pipeline system consists of a 12-inch segment
from Lake Charles to Port Arthur, a 28-inch segment from Port Arthur to Tulsa,
and a 24-inch segment from Tulsa to Hammond, Illinois. The 28-inch segment has
capacity of 560,000 bpd, and the 24-inch segment has capacity of 350,000 bpd.

   We receive a quarterly cash dividend from Explorer that is commensurate with
our ownership interest. For the twelve months ended September 30, 2001, we
received approximately $4.2 million in cash dividends.

   The pipeline was built in 1972. Refined products transported on this system
primarily include gasoline, jet fuel, diesel fuel, and heating oil. Shippers on
the pipeline include most of the owners other than Sunoco, Inc. and several
non-affiliated customers. For the year ended December 31, 2000, interest owners
transporting refined products on the pipeline system accounted for
approximately 42% of operating revenues, and the top ten non-affiliated
customers accounted for approximately 40%. In 2000, the FERC approved
Explorer's application for market-based rates for all its tariffs.

   Volumes transported on this system have increased as the refining centers in
the Gulf Coast region have increased shipments to meet higher demand. Explorer
recently announced two expansions of the system's capacity by 130,000 bpd from
Port Arthur to Tulsa and by 100,000 bpd from Tulsa to Chicago. The expansions,
planned to be completed by early 2003, are currently projected to cost more
than $100 million. Based on current plans, we will not be required to make an
equity contribution to finance these capital expenditures. A member of our
management team serves on Explorer's eight-member board of directors.

   Explorer's primary competition is the TEPPCO pipeline, which transports
petroleum products from the Beaumont, Port Arthur and Houston, Texas refining
centers to Little Rock, Indianapolis, Chicago, and other markets along its
route. Another competitor is the Seaway pipeline, a large diameter pipeline
from Houston to Cushing, Oklahoma owned by BP and Phillips, which connects to
the Phillips pipeline system to Chicago. Centennial Pipeline, a 26-inch natural
gas pipeline owned by MAP, TEPPCO, and CMS Energy that is scheduled to be
converted into a refined product pipeline by early 2002, will also provide
competition. Centennial originates near Beaumont, Texas and terminates in
southern Illinois.

                                      70


<PAGE>

Terminal Facilities

Refined Product Terminals

   Our refined product terminals receive refined products from pipelines and
distribute them to Sunoco R&M and to third parties, who in turn deliver them to
end-users and retail outlets. Terminals play a key role in moving product to
the end-user market by providing the following services:

   . storage and inventory management;

   . distribution;

   . blending to achieve specified grades of gasoline; and

   . other ancillary services that include the injection of additives and
     filtering of jet fuel.

   Typically, our terminal facilities consist of multiple storage tanks and are
equipped with automated truck loading equipment that is available 24 hours a
day. This automated system provides for control of allocations, and credit and
carrier certification by remote input of data by our customers. In addition,
all of our terminals are equipped with truck loading racks capable of providing
automated blending to individual customer specifications.

   Our refined product terminals derive most of their revenues from
terminalling fees paid by customers. A fee is charged for transferring refined
products from the terminal to trucks, barges, or pipelines. In addition to
terminalling fees, we generate revenues by charging our customers fees for
blending, injecting additives, and filtering jet fuel. We generate the balance
of our revenues from other hydrocarbons handled for Sunoco R&M in Vanport,
Pennsylvania and Toledo, Ohio and for lubricants handled for Sunoco R&M in
Cleveland, Ohio. Sunoco R&M accounts for substantially all of our refined
product terminal revenues.

   The majority of our refined product terminals are supplied by our pipelines.
The remainder of our refined product terminals are supplied by third-party
pipelines. For the twelve months ended September 30, 2001, gasoline represented
approximately 68% of the total volume of refined products distributed through
our product terminals, while distillates represented approximately 31%.

   The table below sets forth the total average throughput for our refined
product terminals in each of the periods presented:


<TABLE>
<CAPTION>


                                                                              Twelve
                                                                              Months
                                           Year Ended December 31,             Ended
                                   --------------------------------------- September 30,
                                    1996    1997    1998    1999    2000       2001
                                   ------- ------- ------- ------- ------- -------------
<S>                                <C>     <C>     <C>     <C>     <C>     <C>
Refined products terminalled (bpd) 246,599 242,570 234,058 251,627 266,212    274,840
</TABLE>




                                      71


<PAGE>

   The following table outlines the location of our refined product terminals
and their storage capacities, number of tanks, supply source, mode of delivery,
and average throughput for the twelve months ended September 30, 2001:


<TABLE>
<CAPTION>
                   Storage        Number of                                     Average
                   Capacity         Tanks      Supply Source  Mode of Delivery Throughput
                   ---------      ---------   --------------- ---------------- ----------
                    (bbls)                                                       (bpd)
<S>                <C>            <C>         <C>             <C>              <C>
Akron, OH.........    98,200           8         Pipeline          Truck          5,452
Altoona, PA.......   103,400           9         Pipeline          Truck          3,824
Belmont, PA/(1)/..         0/(1)/      0/(1)/    Refinery          Truck         26,120
Binghamton, NY....    60,000           4         Pipeline          Truck          2,567
Blawnox, PA.......    72,100           4         Pipeline          Truck          2,250
Buffalo, NY.......   358,500           8         Pipeline          Truck          8,106
Cleveland, OH.....   255,000          10       Pipeline/Rail       Truck         14,259
Columbus, OH......    78,900           6         Pipeline          Truck          7,630
Dayton, OH........   248,700          15         Pipeline          Truck          9,183
Delmont, PA.......   233,900           8         Pipeline          Truck         10,598
Exton, PA.........   132,200           7         Pipeline          Truck          2,787
Fullerton, PA.....   161,700           7         Pipeline          Truck          6,639
Huntington, IN....   207,000           8         Pipeline          Truck          3,079
Inwood, NY/(2)/...    54,200          18         Pipeline          Truck          9,988
Kingston, PA......   148,800           7         Pipeline          Truck          6,130
Malvern, PA.......    62,900           5         Pipeline          Truck          5,472
Mechanicsburg, PA.   166,200           9         Pipeline          Truck          9,947
Montello, PA......    67,900           7         Pipeline          Truck          8,006
Newark, NJ........   581,100          16      Pipeline/Marine   Truck/Marine     23,219
Northumberland, PA   170,300           6         Pipeline          Truck          5,553
Owosso, MI........   233,300           8         Pipeline          Truck          7,970
Paulsboro, NJ.....    81,000           6         Pipeline      Truck/Pipeline    14,246
Piscataway, NJ....    95,000           4         Pipeline          Truck          8,027
Pittsburgh, PA....   205,500           5       Pipeline/Rail       Truck         12,301
River Rouge, MI...   178,400          10         Pipeline          Truck         14,956
Rochester, NY.....   173,000           7         Pipeline          Truck          4,550
Tamaqua, PA.......   113,600           8         Pipeline          Truck          2,555
Toledo, OH........   102,400          10       Refinery/Rail       Truck         15,799
Twin Oaks, PA.....    90,000           4         Refinery          Truck         11,906
Vanport, PA.......   179,300           8      Pipeline/Marine   Truck/Marine      1,656
Willow Grove, PA..    85,000           7         Pipeline          Truck          6,887
Youngstown, OH....    22,700           5         Pipeline          Truck          3,178
                   ---------         ---                                        -------
   Total.......... 4,820,200         244                                        274,840
                   =========         ===                                        =======
</TABLE>

--------

(1)This terminal receives product from Sunoco R&M's Philadelphia refinery and
   does not have any tankage. This terminal is part of the Philadelphia
   refinery and is owned by an affiliate of Sunoco, Inc. That affiliate will
   lease the terminal to us until the terminal can be platted as a separate
   lot. If the terminal is platted as a separate lot, the terminal will be
   conveyed to us for nominal consideration.

(2)We have a 45% ownership interest in this terminal. The capacity represents
   the proportionate share of capacity attributable to our ownership interest.

The Nederland Terminal

   The Texas Gulf Coast region is the major hub for petroleum refining in the
United States, representing approximately 40% of total United States daily
refining capacity and 66% of total United States refining capacity expansion
from 1990 to 1999. The growth in Gulf Coast refining capacity has resulted in
part from consolidation in the petroleum industry in order to achieve economies
of scale from operating larger refineries. According to the EIA, imports of
crude oil through the Gulf Coast increased 4.8% annually from 1995 to 2000. The
growth in refining capacity, including new heavy oil conversion projects, and
increased product flow from the Gulf Coast region to other regions has created
a need for additional transportation, storage, and distribution facilities on
the Gulf Coast. We believe that demand for imported crude oil and for petroleum
products refined in the Gulf Coast region will continue to increase.

                                      72


<PAGE>

   We own and operate the Nederland Terminal, which is located on the
Sabine-Neches waterway between Beaumont and Port Arthur, Texas. The Nederland
Terminal is a large marine terminal that provides inventory management,
storage, and distribution services for refiners and other large end-users of
crude oil. The Nederland Terminal receives, stores, and distributes crude oil,
feedstocks, lubricants, petrochemicals, and bunker oils (used for fueling ships
and other marine vessels). In addition, the Nederland Terminal also blends and
packages lubricants and is equipped with petroleum laboratory facilities.

   The Nederland Terminal has a total storage capacity of approximately 11.2
million barrels in 126 above-ground storage tanks with individual capacities of
up to 660,000 barrels. The terminal currently uses its aggregate storage
capacity as follows:

   . 10.3 million barrels for crude oil;

   . 400,000 barrels for feedstocks;

   . 272,000 barrels for lubricants;

   . 150,000 barrels for bunker oils; and

   . 80,000 barrels for petrochemicals.

     [Graphic E- Diagram depicting our Nederland Terminal and its pipeline
                                 connections.]




                                      73


<PAGE>

   The terminal can receive crude oil at each of its five ship docks and three
barge berths, which can accommodate any vessel capable of navigating the
40-foot freshwater draft of the Sabine-Neches Ship Channel. The five ship docks
are capable of receiving a total of 1.0 million bpd of crude oil. The terminal
can also receive crude oil through a number of pipelines, including the Equilon
pipeline from Louisiana, the DOE Big Hill pipeline, the DOE West Hackberry
pipeline, the EOTT Louisiana pipeline system, and our Western Pipeline System.
The DOE pipelines connect the Nederland Terminal to the United States Strategic
Petroleum Reserve's West Hackberry caverns at Hackberry, Louisiana and Big Hill
caverns near Winnie, Texas, which have an aggregate storage capacity of 370
million barrels. The Nederland Terminal's pipeline connections to major markets
in the Lake Charles, Beaumont, Port Arthur, Houston, and Midwest areas provide
customers with maximum flexibility and liquidity.

   The Nederland Terminal can deliver crude oil and other petroleum products
via pipeline, barge, ship, rail, or truck. In the aggregate, the Nederland
Terminal is capable of delivering over 1.0 million bpd of crude oil to
connecting pipelines. The following table describes the Nederland Terminal's
pipeline delivery connections, including the destination of the pipelines to
which we can deliver, the diameter of each pipeline, the rate at which we can
make deliveries, and key delivery points along each pipeline's route:



<TABLE>
<CAPTION>
                                                   Delivery
Pipeline               Destination        Diameter   Rate              Key Delivery Points
--------         ------------------------ -------- -------- ------------------------------------------
                                          (inches)  (bpd)
<S>              <C>                      <C>      <C>      <C>
ExxonMobil...... Beaumont, Texas             24    300,000  ExxonMobil'sBeaumont refinery
ExxonMobil...... Wichita Falls, Texas and    20    225,000  Basin'spipeline to Cushing, Oklahoma
                 Patoka, Illinois                           ValeroEnergy Corporation's pipeline to its
                                                                  McKee, Texas refinery
                                                            Valero,L.P.'s pipeline to Valero's
                                                                   Ardmore, Oklahoma refinery
                                                            Conoco'spipeline to its Ponca City,
                                                                    Oklahoma refinery
                                                            Pipelinessupplying Midwest refineries
Equilon......... Houston, Texas              20    200,000  Houstonarea refineries
Premcor......... Port Arthur, Texas          32    250,000  Premcor'sPort Arthur refinery
West Texas Gulf. Longview, Texas             26    250,000  Mid-Valleypipeline to Midwest refineries
                                                            CITGO'spipeline to its Lake Charles,
                                                                   Louisiana refinery
                                                            BP'spipeline to Cushing
                                                            McMurrey'spipeline to Crown Central's
                                                                      Tyler, Texas refinery
Alon............ Big Springs, Texas          10     25,000  Alon'sBig Springs refinery
TotalFinaElf.... Port Arthur, Texas          10     50,000  TotalFinaElf'sPort Arthur refinery
                                              8     35,000  TotalFinaElf'sPort Arthur refinery
DOE............. Big Hill caverns            36    250,000  DOE'sStrategic Petroleum Reserve
DOE............. West Hackberry              42    250,000  DOE'sStrategic Petroleum Reserve
                 caverns
Sunoco Logistics Longview, Texas             10     50,000  Mid-Valleypipeline to Midwest refineries
                                                            CITGO'spipeline to its Lake Charles
                                                                   refinery
                                                            BP'spipeline to Cushing
                                                            McMurrey'spipeline to Crown Central's
                                                                      Tyler refinery
Sunoco Logistics Seabreeze, Texas            10     35,000  TEPPCO'spipeline to BASF/Fina's Port
                                                                    Arthur steam cracker
</TABLE>




                                      74


<PAGE>


   We generate revenues at the Nederland Terminal primarily by providing
long-term and short-term, or spot, storage services and throughput capability
to a broad spectrum of customers such as ExxonMobil, Premcor, TotalFinaElf,
BASF/Fina, the DOE, Valero Energy Corporation, MAP, Sunoco R&M, and BP. For the
twelve months ended September 30, 2001, approximately 88% of the terminal's
total revenues came from unaffiliated third parties. We derive a significant
portion of our Nederland Terminal's revenues from long-term contracts, which
enhance the stability and predictability of its revenue stream. For the twelve
months ended September 30, 2001, 41% of the terminal's total revenues were
generated under contracts that expire in more than three years. The terminal's
long standing relationships with its spot-contract customers generally lead to
repeat business and the renewal of short-term contracts.


   Our terminal is currently operating at or near capacity. We believe that the
strong demand for our marine terminal facilities results from our
cost-effective transportation services, efficiency, connectivity, and customer
service. Because the Nederland Terminal's docks are operating at approximately
50% capacity, we believe that we can take advantage of increasing demand for
terminalling and storage services by building additional tankage.

Fort Mifflin Terminal Complex

   We own and operate the Fort Mifflin Terminal Complex located on the Delaware
River in Philadelphia. Our Fort Mifflin Terminal Complex supplies Sunoco R&M's
Philadelphia refinery with all of its crude oil. These assets include the Fort
Mifflin Terminal, the Hog Island Wharf, the Darby Creek Tank Farm, and
connecting pipelines. We generate revenues from our Fort Mifflin Terminal
Complex by charging Sunoco R&M and others a storage fee based on tank capacity
and throughput. Substantially all of our revenues are derived from Sunoco R&M.


     [GRAPHIC F- Diagram depicting our Fort Mifflin Terminal Complex and its
   location relative to Sunoco R&M's Philadelphia and Marcus Hook refineries]



   Fort Mifflin Terminal.  Our Fort Mifflin Terminal consists of two ship docks
with 40-foot freshwater drafts and nine tanks with a total storage capacity of
570,000 barrels. Six 80,000-barrel tanks are used to store crude oil, and three
30,000-barrel tanks are used to provide fuel to ships. Two of the 80,000-barrel
tanks can be used to store refined products. This terminal also has a
connection with the Colonial Pipeline System.

   Crude oil and some refined products enter our Fort Mifflin Terminal
primarily from marine vessels on the Delaware River. One Fort Mifflin dock is
designed to handle crude oil from very large crude carrier-class tankers and
smaller crude oil vessels. Our other dock can accommodate only smaller crude
oil vessels.

                                      75


<PAGE>

   Hog Island Wharf.  Our Hog Island Wharf is located next to the Fort Mifflin
Terminal on the Delaware River. Our Hog Island Wharf receives crude oil via two
ship docks, one of which can accommodate crude oil tankers and smaller crude
oil vessels and the other of which can accommodate some smaller crude oil
vessels. Hog Island Wharf supplies our Darby Creek Tank Farm and Fort Mifflin
Terminal with crude oil. Crude oil from our Hog Island Wharf is delivered to
Sunoco R&M's Philadelphia refinery via our Darby Creek Tank Farm.

   Darby Creek Tank Farm.  Our Darby Creek Tank Farm is a primary crude oil
storage terminal for Sunoco R&M's Philadelphia refinery. This facility has 21
tanks with a total storage capacity of 2.4 million barrels. Darby Creek
receives crude oil from our Fort Mifflin Terminal and Hog Island Wharf via our
24-inch pipelines. The tank farm then stores the crude oil and pumps it to the
Philadelphia refinery via our 16-inch pipeline. The multiple tanks in this
storage facility provide us with added flexibility in blending crude oil to
achieve the optimal crude oil slate for the Philadelphia refinery.

   Crude Oil and Refined Product Delivery.  Our Fort Mifflin Terminal Complex
includes a number of crude oil pipelines:

   . one 30-inch pipeline and one 16-inch pipeline that deliver crude oil from
     our Fort Mifflin Terminal to Sunoco R&M's Philadelphia refinery;

   . two 24-inch pipelines that deliver crude oil from our Hog Island Wharf to
     our Darby Creek Tank Farm;

   . one 16-inch pipeline that delivers crude oil from our Darby Creek Tank
     Farm to Sunoco R&M's Philadelphia refinery; and

   . one 30-inch bi-directional pipeline that delivers crude oil between our
     Hog Island Wharf and our Fort Mifflin Terminal.

   Our Fort Mifflin Terminal Complex also includes several pipelines that
deliver refined products to Sunoco R&M's Philadelphia refinery:

   . one 30-inch pipeline and one 16-inch pipeline that deliver refined
     products from our Fort Mifflin Terminal to Sunoco R&M's Philadelphia
     refinery for transportation on our Eastern Pipeline System; and

   . one dual diameter, 24- and 26-inch pipeline that delivers refined products
     from our Hog Island Wharf to Sunoco R&M's Philadelphia refinery.

   We charge Sunoco R&M a fee for each barrel delivered to its Philadelphia
refinery via our Fort Mifflin Terminal or our Darby Creek Tank Farm. The table
below sets forth the average daily number of barrels of crude oil and refined
products delivered to Sunoco R&M's Philadelphia refinery in each of the periods
presented.


<TABLE>
<CAPTION>


                                           Year Ended December 31,           Twelve Months
                                   ---------------------------------------       Ended
                                    1996    1997    1998    1999    2000   September 30, 2001
                                   ------- ------- ------- ------- ------- ------------------
<S>                                <C>     <C>     <C>     <C>     <C>     <C>
Crude oil transported (bpd)....... 295,713 310,853 306,181 297,271 306,121      302,731
Refined products transported (bpd)   4,214   8,540   9,316   9,263   8,502        8,880
                                   ------- ------- ------- ------- -------      -------
   Total (bpd).................... 299,927 319,393 315,497 306,534 314,623      311,611
                                   ======= ======= ======= ======= =======      =======
</TABLE>



Marcus Hook Tank Farm

   The Marcus Hook Tank Farm stores substantially all of the refined products
that Sunoco R&M ships from its Marcus Hook refinery. This facility has 17 tanks
with a total storage capacity of approximately 2.0 million barrels. After
receipt of refined products from the Marcus Hook refinery, the tank farm either
stores them or delivers them to our Twin Oaks terminal or to the Twin Oaks pump
station, which supplies our Eastern Pipeline System.


                                      76


<PAGE>

The Inkster Terminal

   We own and operate the Inkster Terminal, a large terminal located in
Inkster, Michigan consisting of eight salt caverns with a total storage
capacity of 975,000 barrels. We use the Inkster Terminal's storage in
connection with our Toledo, Ohio to Sarnia, Canada pipeline system and for the
storage of LPGs from Sunoco R&M's Toledo refinery and from Canada. The terminal
can receive and ship LPGs in both directions at the same time and has a propane
truck loading rack that can load two trucks simultaneously. For the last five
years, Sunoco R&M has used the full capacity of our Inkster Terminal. Buckeye
has access to the terminal through our spur line to Joan Junction in Taylor,
Michigan.

   The Inkster Terminal enjoys a competitive advantage with respect to volumes
from Sunoco R&M's Toledo refinery due to the relatively short distance between
Toledo and the Inkster Terminal. The short distance helps keep the
transportation cost of LPG lower than to the Consumers Power Marysville
Underground Storage Terminal or to BP's storage facility at St. Clair,
Michigan. We own three pipelines running between Toledo and the Inkster
Terminal, which provide Sunoco R&M with additional flexibility.

Western Pipeline System

Crude Oil Pipelines


   We own and operate 1,883 miles of crude oil trunk pipelines and 870 miles of
crude oil gathering lines in three primary geographic regions -- Oklahoma, West
Texas, and the Texas Gulf Coast and East Texas region. We are the primary
shipper on our Western Pipeline System. We also deliver crude oil for Sunoco
R&M and for various third parties from points in Texas and Oklahoma. Delivery
points on our Western Pipeline System include Sunoco R&M's and Sinclair's Tulsa
refineries and the Gary-Williams refinery in Wynnewood, Oklahoma.


   Our pipelines also access several trading hubs, including the largest and
most significant trading hub for crude oil in the United States located in
Cushing, Oklahoma, as well as other trading hubs located in Colorado City and
Longview, Texas. Our crude oil pipelines also connect with other pipelines that
deliver crude oil to a number of third-party refineries. The majority of the
pipelines in our Western Pipeline System were constructed between 1925 and
1967. Our pipelines are subject to ongoing maintenance, and we believe they are
in good repair.


                                      77


<PAGE>


 [Graphic G - Map of Oklahoma and Texas depicting our Western Pipeline System]

   In each geographic region, we have major crude oil trunk line systems that
ship crude oil across a number of different-sized trunk pipeline segments. The
following table details the mileage and volumes delivered for each major system
and, therefore, eliminates double counting of barrels transported across more
than one of our pipeline segments. We transported 71% of the crude oil and lube
extracted feedstock transported to or originating from Sunoco R&M's Tulsa,
Oklahoma, and Toledo, Ohio refineries for the twelve months ended September 30,
2001.

<TABLE>
<CAPTION>
                                                              Twelve Months
                                                                  Ended
                                                            September 30, 2001
  Major System                            Miles of Pipeline     Throughput
  ------------                            ----------------- ------------------
                                                                  (bpd)
  <S>                                     <C>               <C>
  Oklahoma:
  Enid to Tulsa..........................        316              72,958
  Velma to Tulsa.........................        248              34,692
  Other..................................        129              17,341
  West Texas:
  Jameson and Salt Creek to Colorado City         93              28,171
  Hearne to Hawley.......................        453              16,891/(1)/
  Hawley to Dixon........................        242              33,279
  Other..................................         32                 -- /(2)/
  Texas Gulf Coast and East Texas/(3)/:
  Seabreeze and Orange to Nederland......         39               9,024
  Nederland to Longview..................        199              35,252
  Mt. Belvieu to Nederland...............         70              12,310
  Thomas to Longview.....................          3               9,058
  Other..................................          5                 -- /(2)/
</TABLE>

--------
(1)Volume excludes 17,659 bpd that is delivered to and included in the Hawley
   to Dixon pipeline segment.
(2)Throughput included in another segment.
(3)Does not include the 54-mile pipeline we acquired on November 1, 2001 from
   GulfMark Energy, Inc.


                                      78


<PAGE>

   The following table sets forth the origin and destination, length, diameter,
and throughput for approximately 95% of our trunk pipeline segments in each of
the three regions we serve. We own 100% of these pipelines.


<TABLE>
<CAPTION>
                                                                    Twelve Months
                                                                        Ended
                                                                    September 30,
                                                                        2001
                                         Miles of Pipeline Diameter  Throughput
Origin and Destination                   ----------------- -------- -------------
----------------------                                     (inches)     (bpd)
<S>                                      <C>               <C>      <C>
Oklahoma System:
Enid to Tulsa:
   Bottleman to Enid....................         44           4,6       5,174
   Ringwood to Enid.....................         28           4,6       1,516
   Dover to Enid........................         32           4,6       1,963
   Oklahoma City to Douglas.............         56             8       3,009
   Enid to Morris.......................         36             8       3,105
   Enid to Cushing......................         75             8      14,223
   Cushing to Tulsa.....................         45         10,12      69,853
Velma to Tulsa:
   Velma to Eola........................         15             6       7,221
   Eola to Maysville....................         18            10         990
   Eola to Wynnewood....................         17             6       8,028
   Maysville to Seminole................         61             6       5,746
   Seminole to Bad Creek................         32           6,8       9,957
   Fitts to Bad Creek...................         52         4,6,8       8,015
   Bad Creek to Tulsa...................         53          8,10      26,625
Other:
   Tulsa to Cushing.....................         45            12      14,587
   Barnsdall to Tulsa...................         34             8       1,342
West Texas System:
Jameson and Salt Creek to Colorado City:
   Jameson to Colorado City.............         35             8       5,528
   Salt Creek to Colorado City..........         58           6,8      22,643
Hearne to Hawley:
   Hearne to Comyn......................        143          8,12      14,633
   Ballinger to Comyn...................         83             8       4,842
   Comyn to Ranger......................         30             8       5,751
   Ranger to South Bend.................         52           6,8      15,369
   Comyn to Hawley......................         90            16      15,060
   Hamlin to Hawley.....................         41             8       2,784
   Tye to Hawley........................         14             6       1,327
Hawley to Dixon:
   Hawley to Dixon......................        242          8,10      33,279
Texas Gulf Coast and East Texas System:
Seabreeze and Orange to Nederland:
   Seabreeze to Nederland...............         28            10       5,722
   Orange to Nederland..................         11             6       3,302
Nederland to Longview:
   Nederland to Longview................        199         10,12      36,780
Mt. Belvieu to Nederland:
   Mt. Belvieu to Sour Lake.............         43           6,8      11,239
   Sour Lake to Nederland...............         27             8       3,254
Thomas to Longview:
   Thomas to Longview...................          3             8       9,058
</TABLE>



                                      79


<PAGE>

   Oklahoma


   We own and operate a large crude oil pipeline and gathering system in
Oklahoma. This system contains 693 miles of crude oil trunk pipelines and 459
miles of crude oil gathering lines. We have the ability to deliver all of the
crude oil gathered on our Oklahoma system to Cushing. Additionally, we make
deliveries on the Oklahoma system to:


   . Sunoco R&M's Tulsa refinery;

   . Sinclair's Tulsa refinery;

   . Gary-Williams' Wynnewood refinery; and

   . Conoco's pipeline to its Ponca City refinery.

   Throughput on our Oklahoma system for the twelve months ended September 30,
2001 was 124,991 bpd. We generate revenues on our Oklahoma system from tariffs
paid by shippers utilizing our transportation services. We file these tariffs
with the Oklahoma Corporation Commission and the FERC. We are the largest
purchaser of crude oil from producers in the state, and we are the primary
shipper on our Oklahoma system. Other significant shippers are Sunoco R&M and
Sinclair, which ship primarily on the Cushing to Tulsa segment.

   Our Oklahoma crude oil pipelines consist of two major systems, the Enid to
Tulsa system and the Velma to Tulsa system, and several smaller pipelines.

   [GRAPHIC H- Map of Oklahoma depicting the Oklahoma portion of our Western
                               Pipleine System.]



   Enid, Oklahoma to Tulsa, Oklahoma.  The Enid to Tulsa crude oil pipeline
system originates in Northwestern Oklahoma, connects to the Cushing, Oklahoma
trading hub, and terminates in Tulsa at the Sunoco R&M and Sinclair refineries.
This system consists of seven major segments.

   Three segments deliver crude oil received from trucks and gathering systems
to Enid for further delivery on our system. Enid is a hub from which we
transport crude oil on our two east-bound pipelines to third-party pipelines
and refineries, and to the Cushing trading hub. The two east-bound pipelines
from Enid include our Enid to Morris pipeline, which connects Conoco's pipeline
to its Ponca City refinery, and our Enid to Cushing pipeline, which receives
crude oil from our Oklahoma City to Douglas segment and delivers crude oil to
our storage tanks at the Cushing trading hub.

                                      80


<PAGE>

   Shippers utilizing our pipeline may also access the BP, Equilon, Plains All
American, and TEPPCO storage terminals in Cushing. Our Cushing to Tulsa
pipeline provides transportation services, under tariffs filed with the FERC,
from third-party terminals and our tanks in Cushing to the Sunoco R&M and
Sinclair refineries in Tulsa.

   Velma, Oklahoma to Tulsa, Oklahoma.  The Velma to Tulsa crude oil pipeline
system originates in Southwestern Oklahoma, moves eastward to the Gary-Williams
refinery at Wynnewood, and terminates at the Sunoco R&M and Sinclair refineries
in Tulsa. This system consists of seven major segments.

   The Velma to Eola, Eola to Maysville, and Eola to Wynnewood segments are
used to transport crude oil from trucks and gathering systems owned by us and
third parties to Gary-Williams' Wynnewood refinery and to our pipeline that
delivers to Cushing and Sunoco R&M's Tulsa refinery. The Maysville to Seminole,
Seminole to Bad Creek, Fitts to Bad Creek, and Bad Creek to Tulsa pipelines are
primarily used to transport crude oil to the Sunoco R&M and Sinclair refineries
in Tulsa. These pipelines are supplied by our gathering systems and trucks, as
well as EOTT and STG gathering lines. We ship substantially all of the volumes
on these pipelines.

   Other Oklahoma Pipelines.  Our other Oklahoma pipelines include the Tulsa to
Cushing segment that transports lube extracted feedstock from Sunoco R&M's
Tulsa refinery to Cushing for ultimate delivery by third-party pipelines to
other refineries for further processing. Our Barnsdall to Tulsa segment
receives crude oil gathered by our trucks for shipment to Sunoco R&M's Tulsa
refinery.

   West Texas


   We own and operate approximately 820 miles of crude oil trunk pipelines and
258 miles of crude oil gathering lines in West and North Central Texas. We make
deliveries on our West Texas system to:



   . a Valero, L.P. pipeline at Dixon, Texas that delivers crude oil to Valero
     Energy Corporation's refinery in McKee, Texas;


   . a Conoco pipeline at South Bend, Texas that makes deliveries to Conoco's
     Ponca City refinery;

   . a TEPPCO pipeline at South Bend that makes deliveries to Gary-Williams'
     Wynnewood refinery;

   . the West Texas Gulf pipeline at Tye and Colorado City, Texas that connects
     to Mid-Valley pipeline in Longview, Texas, which makes deliveries to
     Sunoco R&M's Toledo refinery and other Midwest refineries; and

   . other third-party pipelines at Colorado City that deliver crude oil to
     Sunoco R&M's Tulsa and Toledo refineries, among others.

   Throughput on this system during the twelve months ended September 30, 2001
was 78,341 bpd. We were the shipper of substantially all of these volumes. We
generate revenues in West Texas from tariffs paid by shippers utilizing our
transportation services. We file these tariffs with the Texas Railroad
Commission.


                                      81


<PAGE>

 [GRAPHIC I- Map of Texas depicting the West Texas portion of our Western
                               Pipeline System.]



   Our West Texas pipelines consist of the three following systems:

   Jameson and Salt Creek, Texas to Colorado City, Texas.  The Jameson and Salt
Creek to Colorado City crude oil pipeline system consists of two pipeline
segments. Crude oil is gathered or trucked into this system and transported
from Jameson to Colorado City, or from Salt Creek to Colorado City, where it
can be delivered into BP, Basin, ChevronTexaco, EOTT, or West Texas Gulf
pipelines. These connections allow us to deliver crude oil to Sunoco R&M's
Tulsa and Toledo refineries and other unaffiliated third-party destinations.

   Hearne, Texas to Hawley, Texas.  The Hearne to Hawley system is comprised of
seven pipeline segments. The two segments delivering into Comyn, Texas are
supplied with crude oil from our trucks, third-party trucks, and pipelines,
including the Genesis, Koch, and Plains All American pipelines located in
Hearne. From Comyn, crude oil can be shipped to:

   . the West Texas Gulf pipeline at Tye;

   . the Conoco and TEPPCO pipelines at South Bend; or

   . our pipeline in Hawley.

                                      82


<PAGE>

   At Tye, we have tankage and a bi-directional connection with the West Texas
Gulf pipeline that allows us to receive and deliver crude oil.

   Hawley, Texas to Dixon, Texas.  On the Hawley to Dixon system, we receive
crude oil from the following sources:

   . our Hearne to Hawley system, including West Texas Gulf's system through
     Tye, Texas;

   . Plains All American and Equilon pipeline interconnections; and

   . truck injection locations and pipeline-connected lease gathering sites.


   We deliver this crude oil to Dixon, where we connect with the Valero, L.P.
pipeline that delivers crude oil to the Valero Energy Corporation refinery at
McKee. Crude oil received from our Hearne to Hawley system accounts for a
majority of the volumes transported on this system.


   Texas Gulf Coast and East Texas


   Our Texas Gulf Coast and East Texas pipeline system includes 370 miles of
crude oil trunk pipelines and 153 miles of crude oil gathering lines that
extend between the Texas Gulf Coast region near Beaumont and Mt. Belvieu, Texas
and the East Texas field near Longview, Texas. We transport multiple grades of
crude oil, including foreign imports, and other refinery and petrochemical
feedstocks, such as condensate and naphtha, on these pipelines. We receive
crude oil for these systems from other pipelines, our Nederland Terminal, our
trucks, third-party trucks, and our pipeline gathering systems. This system
provides access to major delivery points with interconnecting pipelines in
Texas at Longview, Sour Lake, and Nederland.


   Throughput on this system for the twelve months ended September 30, 2001 was
65,644 bpd. We generate revenues from tariffs paid by shippers utilizing our
transportation services. These tariffs are filed with the Texas Railroad
Commission and the FERC. We are the primary shipper on the Texas Gulf Coast and
East Texas system. Sunoco R&M ships on the Nederland to Longview segment, which
connects with the Mid-Valley pipeline for deliveries to Sunoco R&M's Toledo
refinery.

                                      83


<PAGE>

   [GRAPHIC J- Map of East Texas depicting the Texas Gulf Coast and East Texas
                    portion of our Western Pipeline System.]


   Our Texas Gulf Coast and East Texas system consists of these pipelines:

   Seabreeze and Orange, Texas to Nederland, Texas.  The Seabreeze and Orange
to Nederland crude oil pipeline system consists of two pipelines:

   . a bi-directional 28-mile pipeline from Seabreeze to Nederland; and

   . an 11-mile pipeline from Orange to Nederland.

The Seabreeze pipeline transports condensate received from TransTexas' Winnie,
Texas plant and by truck to our Nederland Terminal. The Seabreeze pipeline also
transports naphtha for BASF/Fina from our Nederland Terminal to the TEPPCO
pipeline for delivery to BASF/Fina's new steam cracker in Port Arthur. Crude
oil gathered or trucked to the Orange pipeline is transported to our Nederland
Terminal for delivery to a number of destinations.

   Nederland, Texas to Longview, Texas.  The Nederland to Longview pipeline
transports primarily foreign crude oil from our Nederland Terminal to the
240,000 bpd Mid-Valley pipeline in Longview, Texas. Other connections in the
Longview area include BP's pipeline from Longview to Cushing, Oklahoma,
McMurrey's pipeline that supplies Crown Central's Tyler, Texas refinery, and
ExxonMobil's pipeline that delivers to Wichita Falls, Texas and Patoka,
Illinois.

                                      84


<PAGE>

   Mt. Belvieu, Texas to Nederland, Texas.  The Mt. Belvieu to Nederland crude
oil pipeline passes through Sour Lake, Texas where it makes deliveries to our
Nederland to Longview pipeline, the CITGO tank farm and pipeline that supplies
CITGO's Lake Charles, Louisiana refinery, and our recently acquired GulfMark
pipeline to Baytown, Texas.

   Thomas, Texas to Longview, Texas.  The Thomas to Longview crude oil pipeline
originates in Thomas, Texas and makes deliveries to all of the connections in
Longview, Texas described above. The pipeline receives crude oil from our
pipeline gathering system in the East Texas field.

   GulfMark Acquisition.  On November 1, 2001, we acquired a 54-mile 8-inch
bi-directional crude oil pipeline and a related crude oil acquisition business
from GulfMark Energy, Inc. for $5.0 million in cash. The pipeline extends from
Sour Lake, Texas to Baytown, Texas and complements our existing Texas Gulf
Coast and East Texas pipeline system. The crude oil acquisition business
handles approximately 12,000 bpd and complements our existing crude oil
acquisition and marketing business.

Crude Oil Acquisition and Marketing

   In addition to receiving tariff revenues for transporting crude oil on our
Western Pipeline System, we also generate revenues through our crude oil
acquisition and marketing operations, primarily in Oklahoma and Texas. These
activities include:

    .  purchasing crude oil from producers at the wellhead and in bulk from
       aggregators at major pipeline interconnections and trading locations;

    .  transporting crude oil on our pipelines and trucks or, when necessary or
       cost effective, pipelines or trucks owned and operated by third parties;
       and

    .  marketing crude oil to refiners or resellers.

   The marketing of crude oil is complex and requires detailed knowledge of the
crude oil market and a familiarity with a number of factors, including types of
crude oil, individual refinery demand for specific grades of crude oil, area
market price structures for different grades of crude oil, location of
customers, availability of transportation facilities, timing, and customers'
costs (including storage). We sell our crude oil to major integrated oil
companies, independent refiners, including Sunoco R&M for its Tulsa and Toledo
refineries, and other resellers in various types of sale and exchange
transactions, at market prices for terms generally ranging from one month to
one year.

                                      85


<PAGE>

   We enter into contracts with producers at market prices generally for a term
of one year or less, with a majority of the transactions on a 30-day renewable
basis. For the twelve months ended September 30, 2001, we purchased
approximately 176,000 bpd from approximately 3,300 producers from approximately
33,000 leases.

   Crude Oil Lease Purchases and Exchanges

   In a typical producer's operation, crude oil flows from the wellhead to a
separator where the petroleum gases are removed. After separation, the producer
treats the crude oil to remove water, sand, and other contaminants and then
moves it to an on-site storage tank. When the tank is full, the producer
contacts our field personnel to purchase and transport the crude oil to market.
The crude oil in producers' tanks is then either delivered to our pipeline or
transported via truck to our pipeline or a third party's pipeline. Our truck
fleet generally performs the trucking service.

   We also enter into exchange agreements to enhance margins throughout the
acquisition and marketing process. When opportunities arise to increase our
margin or to acquire a grade of crude oil that more nearly matches our delivery
requirement or the preferences of our refinery customers, we exchange physical
crude oil with third parties. Generally, we enter into exchanges to acquire
crude oil of a desired quality in exchange for a common grade crude oil or to
acquire crude oil at locations that are closer to our end markets, thereby
reducing transportation costs.

   The following table shows our average daily volume for our crude oil lease
purchases and exchanges for the periods presented.


<TABLE>
<CAPTION>


                                 Year Ended December 31,    Twelve Months
                                 ------------------------       Ended
                                 1996 1997 1998 1999 2000 September 30, 2001
   -                             ---- ---- ---- ---- ---- ------------------
                                            (in thousands of bpd)
   <S>                           <C>  <C>  <C>  <C>  <C>  <C>
   Lease purchases:
      Available for sale........  87   93   98  107  141         142
      Exchanges.................  62   71   58   38   36          33
   Other exchanges and bulk
     purchases.................. 129  147  144  141  230         220
                                 ---  ---  ---  ---  ---         ---
      Total..................... 278  311  300  286  407         395
                                 ===  ===  ===  ===  ===         ===
</TABLE>


   Our business practice is generally to purchase only crude oil for which we
have a corresponding sale agreement for physical delivery of crude oil to a
third party or a Sunoco R&M refinery. Through this process, we seek to maintain
a position that is substantially balanced between crude oil purchases and
future delivery obligations. We do not acquire and hold crude oil futures
contracts or enter into other derivative contracts for the purpose of
speculating on crude oil prices.

   The following table shows our average daily sales and exchange volumes of
crude oil for the periods presented:


<TABLE>
<CAPTION>


                                Year Ended December 31,    Twelve Months
                                ------------------------       Ended
                                1996 1997 1998 1999 2000 September 30, 2001
                                ---- ---- ---- ---- ---- ------------------
                                           (in thousands of bpd)
     <S>                        <C>  <C>  <C>  <C>  <C>  <C>
     Sunoco R&M refineries:
        Toledo.................  41   41   30   26   29          27
        Tulsa..................  42   46   57   63   73          70
     Third parties.............  13    7   14   20   41          47
     Exchanges:
        Purchased at the lease.  62   71   58   38   36          34
        Other.................. 120  147  141  139  227         215
                                ---  ---  ---  ---  ---         ---
        Total.................. 278  312  300  286  406         393
                                ===  ===  ===  ===  ===         ===
</TABLE>


   Market Conditions

   During periods when demand for crude oil is weak, the market for crude oil
is often in contango, meaning that the price of crude oil in a given month is
less than the price of crude oil for delivery in a subsequent month. In a
contango market, storing crude oil is favorable because storage owners at major
trading locations can

                                      86


<PAGE>

simultaneously purchase production at low current prices for storage and sell
at higher prices for future delivery. When there is a higher demand than supply
of crude oil in the near term, the market is backwardated, meaning that the
price of crude oil in a given month exceeds the price of crude oil for delivery
in a subsequent month. A backwardated market has a positive impact on marketing
margins because crude oil marketers can continue to purchase crude oil from
producers at a fixed premium to posted prices while selling crude oil at a
higher premium to such prices.

   Producer Services

   Crude oil purchasers who buy from producers compete on the basis of
competitive prices and highly responsive services. Through our team of crude
oil purchasing representatives, we maintain ongoing relationships with more
than 3,300 producers. We believe that our ability to offer competitive pricing
and high-quality field and administrative services to producers is a key factor
in our ability to maintain volumes of purchased crude oil and to obtain new
volumes. Field services include efficient gathering capabilities, availability
of trucks, willingness to construct gathering pipelines where economically
justified, timely pickup of crude oil from storage tanks at the lease or
production point, accurate measurement of crude oil volumes received, avoidance
of spills, and effective management of pipeline deliveries. Accounting and
other administrative services include securing division orders (statements from
interest owners affirming the division of ownership in crude oil purchased by
us), providing statements of the crude oil purchased each month, disbursing
production proceeds to interest owners, and calculating and paying production
taxes on behalf of interest owners. In order to compete effectively, we must
maintain records of title and division order interests in an accurate and
timely manner for purposes of making prompt and correct payment of crude oil
production proceeds, together with the correct payment of all production taxes
associated with these proceeds.

   Credit with Customers

   When we market crude oil, we must determine the amount of any line of credit
to be extended to a customer. Since our typical sales transactions can involve
tens of thousands of barrels of crude oil, the risk of nonpayment and
nonperformance by customers is a major consideration in our business. We
believe our sales are made to creditworthy entities or entities with adequate
credit support. Credit review and analysis are also integral to our lease
purchases. Payment for substantially all of the monthly lease production is
sometimes made to the operator of the lease. The operator, in turn, is
responsible for the correct payment and distribution of such production
proceeds to the proper parties. In these situations, we must determine whether
the operator has sufficient financial resources to make such payments and
distributions and to indemnify and defend us in the event a third party brings
a protest, action, or complaint in connection with the ultimate distribution of
production proceeds by the operator.

   Crude Oil Trucking

   We operate 127 crude oil truck unloading facilities in Oklahoma, Texas, and
New Mexico, of which 89 are on our pipeline system and 38 are on third-party
pipeline systems. We also own and operate a one-mile crude oil gathering line
in New Mexico, which is associated with our crude oil trucking operations
there. We employ 272 crude oil truck drivers and own 143 crude oil transport
trucks. The crude oil truck drivers pick up crude oil at production lease sites
and transport it to various truck unloading facilities on our pipelines and on
third-party pipelines.

Other Business Opportunities

   Although we do not currently engage in business unrelated to the
transportation or storage of crude oil and refined products and the other
businesses described above, we may in the future consider and make acquisitions
in other business areas.

Pipeline and Terminal Control Operations

   All of our refined products and crude oil pipelines are operated via
satellite, microwave, and frame relay communication systems from central
control rooms located in Philadelphia and Tulsa. The Philadelphia control

                                      87


<PAGE>

center primarily monitors and controls our refined product pipelines, and the
Tulsa control center primarily monitors and controls our crude oil pipelines.
The Philadelphia control center has a backup control center at our Montello,
Pennsylvania pipeline facility located approximately 50 miles from
Philadelphia. The Nederland Terminal has its own control center.

   The control centers operate with modern, state-of-the-art System Control and
Data Acquisition, or SCADA, systems. Our control centers are equipped with
computer systems designed to continuously monitor real time operational data,
including refined product and crude oil throughput, flow rates, and pressures.
In addition, the control centers monitor alarms and throughput balances. The
control centers operate remote pumps, motors, engines, and valves associated
with the delivery of refined products and crude oil. The computer systems are
designed to enhance leak-detection capabilities, sound automatic alarms if
operational conditions outside of pre-established parameters occur, and provide
for remote-controlled shutdown of pump stations on the pipelines. Pump stations
and meter-measurement points along the pipelines are linked by satellite or
telephone communication systems for remote monitoring and control, which
reduces our requirement for full-time on-site personnel at most of these
locations.

Safety and Maintenance

   We perform preventive and normal maintenance on all of our pipeline systems
and make repairs and replacements when necessary or appropriate. We also
conduct routine and required inspections of our pipelines and other assets as
required by code or regulation. We inject corrosion inhibitors into our crude
oil mainlines to help control internal corrosion. Cleaning and de-waxing pigs
are also run through our crude oil pipelines to help prohibit internal
corrosion. External coatings and impressed current cathodic protection systems
are used to protect against external corrosion. We conduct all cathodic
protection work in accordance with National Association of Corrosion Engineers
standards. We continually monitor, test, and record the effectiveness of these
corrosion inhibiting systems.

   We monitor the structural integrity of selected segments of our pipeline
systems through a program of periodic internal inspections using both "dent
pigs" and electronic "smart pigs." We follow these inspections with a review of
the data, and we make repairs as required to ensure the integrity of the
pipeline. We have initiated a risk-based approach to prioritizing the pipeline
segments for future smart pig runs or other approved integrity testing methods.
This will ensure that the pipelines that have the greatest risk potential
receive the highest priority in being scheduled for inspections or pressure
tests for integrity.

   We started our smart pigging program in 1988. Beginning in 2002, the DOT
will require smart pigging or other integrity testing of all DOT-regulated
crude oil and refined product pipelines. This requirement will be phased in
over a five-year period. To date, we have inspected 80% of the total
DOT-regulated miles of our refined product pipelines and 35% of the total
DOT-regulated miles of our crude oil pipelines. We anticipate spending $8.0
million per year for each of the next five years to comply with these
regulations. Please read ''Certain Relationships and Related
Transactions--Omnibus Agreement.''

   Maintenance facilities containing equipment for pipe repairs, spare parts,
and trained response personnel are strategically located along the pipelines.
Employees participate in simulated spill deployment exercises on a regular
basis. They also participate in actual spill response boom deployment exercises
in both planned and unannounced spill scenarios in accordance with Oil
Pollution Act of 1990 requirements. We believe that all of our pipelines have
been constructed and are maintained in all material respects in accordance with
applicable federal, state, and local laws and the regulations and standards
prescribed by the American Petroleum Institute, the DOT, and accepted industry
practice.

   Sunoco R&M will, at its expense, complete for the Darby Creek and Marcus
Hook Tank Farms certain tank maintenance and inspection projects now in
progress or expected to be completed within one year from the closing of the
offering. Sunoco R&M estimates total costs to complete these projects will be
approximately $4.0 million.

   At our terminals, tanks designed for gasoline storage are equipped with
internal or external floating roofs that minimize emissions and prevent
potentially flammable vapor accumulation between fluid levels and the roof of
the tank. Our terminal facilities have facility response plans, spill
prevention and control plans, and other plans and programs to respond to
emergencies.

                                      88


<PAGE>

   Many of our terminal loading racks are protected with water deluge systems
activated by vapor sensors, heat sensors, or an emergency switch. Several of
our terminals are also protected by foam systems that are activated in case of
fire. Our Inkster Terminal is our only terminal that stores and loads propane.
Our propane truck loading rack is protected against fire hazards with a deluge
system. This system automatically activates with heat sensors in the event of a
fire. All of our terminals are subject to participation in a comprehensive
environmental management program to assure compliance with applicable air,
solid waste, and wastewater regulations.

Competition

   As a result of our physical integration with Sunoco R&M's refineries and our
contractual relationship with Sunoco, Inc. pursuant to the omnibus agreement
and Sunoco R&M pursuant to the pipelines and terminals storage and throughput
agreement, we believe that we will not face significant competition for crude
oil transported to the Philadelphia, Toledo, and Tulsa refineries, or refined
products transported from the Philadelphia, Marcus Hook, and Toledo refineries,
particularly during the term of our pipelines and terminals storage and
throughput agreement with Sunoco R&M. See "--Our Relationship with Sunoco,
Inc.--Pipelines and Terminals Storage and Throughput Agreement with Sunoco R&M"
and "Certain Relationships and Related Transactions--Omnibus Agreement."

Eastern Pipeline System

   Nearly all of our Eastern Pipeline System is directly linked to Sunoco R&M's
refineries. Sunoco R&M constructed or acquired these assets as the most
cost-effective means to access raw materials and distribute refined products.
Generally, pipelines are the lowest cost method for long-haul, overland
movement of refined products. Therefore, our most significant competitors for
large volume shipments in the area served by our Eastern Pipeline System are
other pipelines. We believe that high capital requirements, environmental
considerations, and the difficulty in acquiring rights-of-way and related
permits make it hard for other companies to build competing pipelines in areas
served by our pipelines. As a result, competing pipelines are likely to be
built only in those cases in which strong market demand and attractive tariff
rates support additional capacity in an area.

   Although it is unlikely that a pipeline system comparable in size and scope
to our Eastern Pipeline System will be built in the foreseeable future, new
pipelines (including pipeline segments that connect with existing pipeline
systems, such as those operated by Colonial, Buckeye, ExxonMobil, and Inland)
could be built to effectively compete with us in particular locations.

   In addition, we face competition from trucks that deliver product in a
number of areas we serve. While their costs may not be competitive for longer
hauls or large volume shipments, trucks compete effectively for incremental and
marginal volumes in many areas we serve. The availability of truck
transportation places a significant competitive constraint on our ability to
increase our tariff rates.

Terminal Facilities

   Historically, except for our Nederland Terminal, essentially all of the
throughput at our terminal facilities has come from Sunoco R&M. Under the terms
of our pipelines and terminals storage and throughput agreement, we will
continue to receive a significant portion of the throughput at these facilities
from Sunoco R&M.

   Our 32 refined product terminals compete with other independent terminal
operators as well as integrated oil companies on the basis of terminal
location, price, versatility, and services provided. Our competition primarily
comes from integrated petroleum companies, refining and marketing companies,
independent terminal companies, and distribution companies with marketing and
trading arms.

   The Inkster Terminal's primary competition comes from the Marysville
Underground Storage Terminal, or MUST, which is owned by Consumers Power. MUST
is a third-party facility located in Marysville, Michigan with approximately 12
million barrels of underground storage. This facility serves the refining
markets in Sarnia, Canada and Toledo, Ohio and has extensive rail car loading
and unloading operations, which could be used by other refineries. In addition
to MUST, MAP operates a similar LPG storage facility in Trenton, Michigan,
primarily serving its refinery in Detroit, Michigan. BP also operates a similar
facility in St. Clair, Michigan, as well as one in Windsor, Canada that is
served by pipeline and rail connections from the Sarnia refineries.

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<PAGE>

   The primary competitors for the Nederland Terminal are its refinery
customers' docks and terminal facilities, and the Unocal terminal and the Oil
Tanking terminal, both located in Beaumont. We believe the Nederland Terminal
has superior docking capabilities and tankage facilities, and is better
connected to supply and distribution pipelines than these competing terminals.

Western Pipeline System

   Our Western Pipeline System faces competition from a number of major oil
companies and smaller entities. Pipeline competition among common carrier
pipelines is based primarily on transportation charges, access to producing
areas, and demand for the crude oil by end users. We believe that high capital
costs make it unlikely for other companies to build competing crude oil
pipeline systems in areas served by our pipelines. Crude oil purchasing and
marketing competitive factors include price and contract flexibility, quantity
and quality of services, and accessibility to end markets. The principal
competitors of the Western Pipeline System are EOTT, Plains All American,
Conoco, Seminole Trading and Gathering, and TEPPCO.

Retained Assets

   We do not expect any significant competition from Sunoco, Inc. utilizing the
retained assets described below under "--Pipeline, Terminalling, and Storage
Assets Retained by Sunoco, Inc."

Sunoco R&M's Refining and Marketing Operations


   Although we do not own or operate any refining or marketing assets, our
pipeline systems are located within Sunoco R&M's refining and marketing supply
chain. Sunoco, Inc., through its subsidiaries, is principally a petroleum
refiner and marketer and chemicals manufacturer with interests in cokemaking.
Sunoco R&M's petroleum refining and marketing operations include the
manufacturing and marketing of a full range of petroleum products, including
fuels, lubricants, and petrochemicals. Sunoco R&M's chemical operations
comprise the manufacturing, distribution, and marketing of commodity and
intermediate petrochemicals. The petroleum refining and marketing and chemical
operations are conducted principally in the Northeast and Midwest United
States. Sunoco, Inc. currently employs approximately 14,200 people.



   Sunoco R&M owns and operates four refineries located in Marcus Hook and
Philadelphia, Pennsylvania, Toledo, Ohio, and Tulsa, Oklahoma. Sunoco R&M also
markets gasoline and middle distillates, and offers a broad range of
convenience store merchandise through a network of approximately 4,150 retail
outlets in 21 states on the East Coast and in the Midwest United States.


Refineries


   Our pipelines deliver crude oil to and transport refined products from
Sunoco R&M's four refineries.


Philadelphia

   The Philadelphia refinery can process 330,000 bpd of crude oil and is the
largest refinery in the Northeast United States. For the twelve months ended
September 30, 2001, its total input to crude oil processing units was 305,800
bpd, all of which was supplied by our Fort Mifflin Terminal Complex. The
refinery processes predominantly sweet crude oils from foreign sources. The
refinery produces primarily gasoline (including reformulated and premium
grades), middle distillates, residual fuel, and petrochemical feedstocks. For
the twelve months ended September 30, 2001, 63% of the refined products
produced in the Philadelphia refinery were distributed through our refined
product pipelines or our refined product terminals.

   The table below sets forth the refinery's total input to crude oil
processing units in each of the periods presented.


<TABLE>
<CAPTION>


                                                  Year Ended December 31,           Twelve Months
                                          ---------------------------------------       Ended
                                           1996    1997    1998    1999    2000   September 30, 2001
                                          ------- ------- ------- ------- ------- ------------------
<S>                                       <C>     <C>     <C>     <C>     <C>     <C>
Input to crude oil processing units (bpd) 294,700 313,300 303,200 300,200 304,700      305,800
</TABLE>


                                      90


<PAGE>

Marcus Hook

   The Marcus Hook refinery can process 175,000 bpd of crude oil. For the
twelve months ended September 30, 2001, its total input to crude oil processing
units was 157,800 bpd. The refinery processes predominantly light sweet crude
oils from foreign sources that it receives directly from its docks. The
refinery produces primarily gasoline (including reformulated and premium
grades), middle distillates, residual fuel, and petrochemical feedstocks. For
the twelve months ended September 30, 2001, 93% of the refined products
produced in the Marcus Hook refinery were distributed through our refined
product pipelines or our refined product terminals.

   The table below sets forth the refinery's total input to crude oil
processing units in each of the periods presented.


<TABLE>
<CAPTION>


                                                  Year Ended December 31,           Twelve Months
                                          ---------------------------------------       Ended
                                           1996    1997    1998    1999    2000   September 30, 2001
                                          ------- ------- ------- ------- ------- ------------------
<S>                                       <C>     <C>     <C>     <C>     <C>     <C>
Input to crude oil processing units (bpd) 150,900 165,300 166,200 168,700 155,800      157,800
</TABLE>


Toledo

   The Toledo refinery can process 140,000 bpd of crude oil. For the twelve
months ended September 30, 2001, its total input of crude oil and other
feedstocks to crude oil processing units was 139,400 bpd, of which 52% was
supplied by our Marysville, Michigan to Toledo, Ohio crude pipeline systems.
The Toledo refinery is a high conversion refinery that refines predominantly
light, low-sulfur crude oil. The refinery produces primarily gasoline, middle
distillates, residual fuel, and petrochemicals. For the twelve months ended
September 30, 2001, 88% of the refined products produced in the Toledo refinery
were distributed through our refined product pipelines or our refined product
terminals.

   The table below sets forth the refinery's total input of crude oil and other
feedstocks to crude oil processing units in each of the periods presented.


<TABLE>
<CAPTION>


                                                  Year Ended December 31,           Twelve Months
                                          ---------------------------------------       Ended
                                           1996    1997    1998    1999    2000   September 30, 2001
                                          ------- ------- ------- ------- ------- ------------------
<S>                                       <C>     <C>     <C>     <C>     <C>     <C>
Input to crude oil processing units (bpd) 124,700 132,600 132,200 133,400 133,600      139,400
</TABLE>


   The Toledo refinery has access to crude oil from a number of sources,
including foreign crude oil imported through the Gulf Coast, Canadian crude oil
through our Marysville to Toledo pipeline system, and domestic crude oil from
Texas, Louisiana, Oklahoma, and Michigan.

Tulsa

   The Tulsa refinery can process 85,000 bpd of crude oil. For the twelve
months ended September 30, 2001, its total input to crude oil processing units
was 79,800 bpd, all of which was supplied by our Western Pipeline System. The
Tulsa refinery refines predominantly light, low-sulfur crude oil and produces
primarily gasoline, middle distillates, base oil lubricants, waxes, petroleum
coke, and lube extracted feedstocks. For the twelve months ended September 30,
2001, all lube extracted feedstocks, which represented 22% of the petroleum
products produced in the Tulsa refinery, were transported from the refinery
through our refined product pipelines. Other refined products are transported
via third-party pipelines.

   The table below sets forth the refinery's total input to crude oil
processing units in each of the periods presented.


<TABLE>
<CAPTION>


                                               Year Ended December 31,         Twelve Months
                                          ----------------------------------       Ended
                                           1996   1997   1998   1999   2000  September 30, 2001
                                          ------ ------ ------ ------ ------ ------------------
<S>                                       <C>    <C>    <C>    <C>    <C>    <C>
Input to crude oil processing units (bpd) 81,900 79,700 78,800 75,900 79,200       79,800
</TABLE>


                                      91


<PAGE>

   The Tulsa refinery has access to crude oil from a number of sources,
including production from Oklahoma and Texas and foreign crude oil.

Marketing

   We believe that our pipeline, terminalling, and storage assets are
well-positioned for future growth because these assets are located in
attractive market regions and many of these assets are associated with Sunoco
R&M, a significant participant in those market regions. We believe that the
population growth and the growth in demand for refined products in the
Northeast and Midwest United States will lead to increased throughput.

   The table below sets forth total branded sales by Sunoco R&M in all states
in each of the periods presented. Middle distillates include high- and
low-sulfur diesel, heating oil, and kerosene.


<TABLE>
<CAPTION>


                                     At December 31                Twelve Months
                         ---------------------------------------       Ended
                          1996    1997    1998    1999    2000   September 30, 2001
                         ------- ------- ------- ------- ------- ------------------
<S>                      <C>     <C>     <C>     <C>     <C>     <C>
Gasoline (bpd).......... 205,700 201,800 208,600 216,600 225,300      239,700
Middle distillates (bpd)  20,500  21,900  22,800  28,900  31,700       34,200
                         ------- ------- ------- ------- -------      -------
   Total (bpd).......... 226,200 223,700 231,400 245,500 257,000      273,900
                         ======= ======= ======= ======= =======      =======
</TABLE>


   The following table sets forth market share information in certain key
states served by our refined product terminals and pipelines:


<TABLE>
<CAPTION>
                                                       Total Number of Sunoco's Rank
                                Number of    Market    Branded Retail      Among
                              Branded Sites Share/(1)/    Marketers    Marketers/(1)/
                              ------------- ---------  --------------- -------------
<S>                           <C>           <C>        <C>             <C>
Pennsylvania.................      757         37%           24              1
New York.....................      832         30%           21              1
Ohio.........................      485         18%           14              3
Michigan.....................      300         13%           18              4
New Jersey...................      278          9%           14              2
</TABLE>

--------
(1)Source: National Petroleum News (Mid-July 2001). Market share and ranking
   based upon Sunoco R&M branded sites versus total branded sites in each state.

   Sunoco R&M's convenience stores are located principally in Pennsylvania, New
York, Massachusetts, Michigan, Ohio, and Florida. These stores supplement sales
of fuel products with a broad mix of high-margin merchandise such as groceries,
fast foods, and beverages. Sunoco R&M intends to grow its convenience store
business through acquisitions, new site construction, and redesign of
traditional gasoline outlets in an effort to reduce its dependence on gasoline
margins. Following this strategy, in 2001, Sunoco R&M acquired from The Coastal
Corporation 310 direct retail sites and supply contracts with 24 Coastal
distributors for 163 distributor sites located in eight Eastern states with the
largest concentration in Pennsylvania, New Jersey, Virginia, and Florida.

   In the fourth quarter of 2000, Sunoco R&M entered into an agreement with
Wal-Mart Stores, Inc. that will enable Sunoco R&M to build and operate retail
gasoline outlets on sites at selected existing and future Wal-Mart locations in
nine Eastern states. Sunoco R&M expects to commence building 20 to 40 of these
facilities during the initial year of the agreement and up to 100 new sites per
year during the next four to five years at an estimated cost of $50 to $80
million per year depending on configuration and store size. In addition to
gasoline, these sites will offer customers a limited selection of convenience
store merchandise. In conjunction with Wal-Mart, Sunoco R&M is developing a new
brand that is planned for use at these facilities. This agreement will enable
Sunoco R&M to market significantly more of its own gasoline production directly
to the consumer and to take further advantage of our refined product pipelines
and terminals in the region.

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<PAGE>


Inactive Assets



   At the closing of this offering, we will own approximately 367 miles of
inactive trunk lines. Of those inactive trunk lines, approximately 217 miles
are located in our Oklahoma pipeline system, approximately 117 miles are
located in our West Texas pipeline system and approximately 32 miles are
located in our Texas Gulf Coast and East Texas pipeline system. We are
evaluating placing some of these pipelines back in service in the future either
for the transportation of crude oil or as alternative service pipelines.


Pipeline, Terminalling, and Storage Assets Retained by Sunoco, Inc.

   At the closing of this offering, affiliates of Sunoco, Inc. will transfer to
us most of the pipeline, terminalling, storage, and related assets that support
Sunoco R&M's refinery operations. Sunoco, Inc. or its affiliates will retain
the assets described below because they are either interests in crude oil
pipelines that may not provide consistent revenues and cash flows or are
inactive.

Assets That May Not Provide Consistent Revenues and Cash Flows

   . Mid-Valley Pipeline.  A subsidiary of Sunoco, Inc. owns a 55% interest in
     the Mid-Valley Pipeline Company (a 50% voting interest), which owns and
     operates a 994-mile crude oil pipeline from Longview, Texas to Samaria,
     Michigan. For the twelve months ended September 30, 2001, Mid-Valley
     supplied 48% of the crude oil refined by Sunoco, Inc.'s Toledo, Ohio
     refinery. The Mid-Valley pipeline serves a number of refineries in the
     Midwest United States. Because of our concern that the closure of one or
     more of these refineries could result in a material decline in the
     revenues and cash flows of Mid-Valley, we have elected not to acquire
     Sunoco, Inc.'s interest in Mid-Valley. We believe that Mid-Valley could be
     converted to a refined product pipeline and we will continue to evaluate
     its future prospects.

   . West Texas Gulf Pipeline.  A subsidiary of Sunoco, Inc. owns a 17%
     interest in West Texas Gulf Pipeline Company, which owns and operates a
     581-mile crude oil pipeline from Colorado City, Texas and Nederland, Texas
     to Longview, Texas. West Texas Gulf supplies crude oil to Mid-Valley
     Pipeline. We have elected not to acquire Sunoco, Inc.'s interest in this
     pipeline for the reasons discussed above.

   . Mesa Pipeline.  A subsidiary of Sunoco, Inc. owns an undivided 6% interest
     in the Mesa pipeline, an 80-mile crude oil pipeline from Midland, Texas to
     Colorado City. Mesa Pipeline connects to West Texas Gulf's pipeline, which
     supplies crude oil to Mid-Valley. We have elected not to acquire Sunoco,
     Inc.'s interest in this pipeline for the reasons discussed above.

   . Inland Pipeline.  A subsidiary of Sunoco, Inc. owns a 10% interest in
     Inland Corporation, which owns and operates a 611-mile refined products
     pipeline from Lima and Toledo, Ohio to Canton, Cleveland, Columbus, and
     Dayton, Ohio. This pipeline transports refined products for Sunoco R&M
     from its Toledo, Ohio refinery and for the other owners. The Inland
     pipeline is a private intrastate pipeline that is operated at cost by the
     shipper-owners and does not generate profits to its owners. As a result,
     it will not be included in the assets transferred to us.


   Sunoco, Inc. will grant us a ten-year option to purchase its interest in any
of the preceding assets for fair market value at the time of purchase. Sunoco,
Inc.'s interests in these assets are subject to agreements with the other
interest owners that include, among other things, consent requirements and
rights of first refusal that may be triggered upon certain transfers. The
exercise of the option with respect to any of these assets will be subject to
the terms and conditions of those agreements, which may or may not require
consents or trigger rights of first refusal, depending on the facts and
circumstances existing at the time of the option exercise. We have no current
intention to purchase these assets.


Assets That Are Inactive

   . A subsidiary of Sunoco, Inc. owns an idled 370-mile, 6-inch refined
     product pipeline from Icedale, Pennsylvania to Cleveland, Ohio.

   . A subsidiary of Sunoco, Inc. owns various crude oil pipelines and
     gathering systems in Louisiana, Oklahoma, and Texas that are no longer
     used because of a lack of crude oil supply.

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<PAGE>

   . A subsidiary of Sunoco, Inc. owns various refined product pipelines in the
     Northeast and Midwest that are no longer used because they are no longer
     economical to operate. Most of these lines have been idle for several
     years.

   . A subsidiary of Sunoco, Inc. owns two inactive refined product terminals
     in Maryland and Pennsylvania. Sunoco, Inc. idled these terminals because
     they were not economical to operate.

   Sunoco, Inc. will grant us a ten-year option to purchase the pipeline from
Icedale, Pennsylvania to Cleveland, Ohio for fair market value at the time of
purchase. We have no current intention to purchase this pipeline.

   Both of the ten-year option agreements described above are contained in the
omnibus agreement that we will enter into with Sunoco, Inc., Sunoco R&M and our
general partner. In accordance with this agreement, if we decide to exercise
our option to purchase any of the assets described above, we must provide
written notice to Sunoco, Inc. setting forth the fair market value we propose
to pay for the asset. If Sunoco, Inc. does not agree with our proposed fair
market value, we and Sunoco, Inc. will appoint a mutually agreed-upon,
nationally recognized investment banking firm to determine the fair market
value of the asset. Once the investment bank submits its valuation of the
asset, we will have the right, but not the obligation, to purchase the asset at
the price determined by the investment bank.

Rate Regulation

   General Interstate Regulation.  Our interstate common carrier pipeline
operations are subject to rate regulation by the FERC under the Interstate
Commerce Act. The Interstate Commerce Act requires that tariff rates for oil
pipelines, a category that includes crude oil, petroleum products, and
petrochemical pipelines (crude oil, petroleum product, and petrochemical
pipelines are referred to collectively as "petroleum pipelines" in this
prospectus), be just and reasonable and non-discriminatory. The Interstate
Commerce Act permits challenges to proposed new or changed rates by protest,
and challenges to rates that are already on file and in effect by complaint.
Upon the appropriate showing, a successful complainant may obtain damages or
reparations for generally up to two years prior to the filing of a complaint.

   The FERC is authorized to suspend the effectiveness of a new or changed
tariff rate for a period of up to seven months and to investigate the rate. The
FERC may also permit a new or changed tariff rate to go into effect on at least
one days' notice, subject to refund and investigation. If upon the completion
of an investigation the FERC finds that the rate is unlawful, it may require
the pipeline operator to refund to shippers, with interest, any difference
between the rates the FERC determines to be lawful and the rates under
investigation. The FERC will order the pipeline to change its rates
prospectively to the lawful level. Interstate petroleum pipeline rates may be
defended on the basis of the pipeline's cost of service, although, as discussed
below, rates may also be justified based upon the FERC's indexing methodology,
or deemed "grandfathered," under the Energy Policy Act. Settlement rates, which
are rates that have been agreed to by all shippers, are permitted, and
market-based rates may be permitted in certain circumstances.

   From 1906 until October 1, 1977, the Interstate Commerce Commission, rather
than the FERC, was charged with exercising regulatory authority over petroleum
pipeline rates. During the latter years of this period, the Interstate Commerce
Commission determined pipeline rates on a "valuation" methodology under which
pipeline rate base was calculated on "fair value" rather than on depreciated
original cost. The valuation rate base approach was applied by the Interstate
Commerce Commission until 1977, when its oversight authority for petroleum
pipeline rates was transferred to the FERC. The FERC was then required by a
federal court to reevaluate its petroleum pipeline ratemaking methods.

   In 1985, the FERC issued an opinion in a case involving Williams Pipe Line
Co. (Opinion No. 154-B) which adopted the trended original cost methodology for
determining the justness and reasonableness of petroleum pipeline tariff rates.
The trended original cost methodology provides that in calculating a petroleum
pipeline's rate base, after a starting rate base has been determined, the
pipeline's rate base is to be:

   . increased by property additions at cost plus an amount equal to the equity
     portion of the rate base multiplied or "trended" by an inflation factor;
     and

                                      94


<PAGE>

   . decreased by property retirements and depreciation and amortization of the
     rate base write-ups reflecting inflation and amortization of the starting
     rate base write-up.

   The starting rate base must be determined for pipelines that previously were
regulated under the Interstate Commerce Commission valuation methodology in
order to provide a transition from the valuation methodology to the trended
original cost methodology. For these pipelines, a portion of the starting rate
base will continue to reflect reproduction costs in excess of the depreciated
original cost of the pipeline's assets. The Williams opinion provides that the
starting rate base is to be the sum of the following components:

   . the depreciated original cost of the carrier's property, multiplied by the
     ratio of debt to total capitalization;

   . the net depreciated reproduction cost based on the FERC reproduction cost
     rate base (as of 1983) derived under the Interstate Commerce Commission
     valuation methodology, multiplied by the ratio of equity to total
     capitalization; and

   . the original cost of land, the net book value of rights-of-way and allowed
     working capital.

   The difference between the starting rate base and the depreciated original
cost rate base is referred to as the starting rate base write-up. This write-up
is amortized over the useful life of the facilities. The Williams opinion
expressly provides that the use of a starting rate base in excess of the
original cost of the assets is subject to challenge by showing that the
investors in the carrier had not relied on the Interstate Commerce Commission
valuation rate base methodology. Some of our rates involve rate base components
built or acquired prior to 1983, and, if our rates were challenged, defending
these rates on a cost-of-service basis may require technical rate base
calculations.

   Index-Based Rates and Other Subsequent Developments.  In October 1992,
Congress passed the Energy Policy Act of 1992. The Energy Policy Act deemed
interstate petroleum pipeline rates in effect for the 365-day period ending on
the date of enactment of the Energy Policy Act, or that were in effect on the
365th day preceding enactment and had not been subject to complaint, protest,
or investigation during the 365-day period, to be just and reasonable under the
Interstate Commerce Act. These rates are commonly referred to as "grandfathered
rates." All of our interstate pipeline rates were deemed just and reasonable
and therefore are grandfathered under the Energy Policy Act. The Energy Policy
Act provides that the FERC may change grandfathered rates upon complaints only
under the following limited circumstances:

   . a substantial change has occurred since enactment in either the economic
     circumstances or the nature of the services that were a basis for the rate;

   . the complainant was contractually barred from challenging the rate prior
     to enactment of the Energy Policy Act and filed the complaint within 30
     days of the expiration of the contractual bar; or

   . a provision of the tariff is unduly discriminatory or preferential.

   The Energy Policy Act further required the FERC to issue rules establishing
a simplified and generally applicable ratemaking methodology for interstate
petroleum pipelines and to streamline procedures in petroleum pipeline
proceedings. On October 22, 1993, the FERC responded to the Energy Policy Act
directive by issuing Order No. 561, which adopts a new indexing rate
methodology for interstate petroleum pipelines. Under the resulting
regulations, effective January 1, 1995, petroleum pipelines are able to change
their rates within prescribed ceiling levels that are tied to changes in the
Producer Price Index for Finished Goods, minus one percent. Rate increases made
under the index will be subject to protest, but the scope of the protest
proceeding will be limited to an inquiry into whether the portion of the rate
increase resulting from application of the index is substantially in excess of
the pipeline's increase in costs. The indexing methodology is applicable to any
existing rate, whether grandfathered or whether established after enactment of
the Energy Policy Act.

   In Order No. 561, the FERC said that as a general rule pipelines must
utilize the indexing methodology to change their rates. Indexing includes the
requirement that, in any year in which the index is negative, pipelines must
file to lower their rates if they would otherwise be above the reduced ceiling.
However, the pipeline is not required to reduce its rates below the level
deemed just and reasonable under the Energy Policy Act. The FERC further
indicated in Order No. 561, however, that it is retaining cost-of-service
ratemaking, market-based rates,

                                      95


<PAGE>

and settlement rates as alternatives to the indexing approach. A pipeline can
follow a cost-of-service approach when seeking to increase its rates above
index levels (or when seeking to avoid lowering rates to index levels) provided
that the pipeline can establish that there is a substantial divergence between
the actual costs experienced by the pipeline and the rate resulting from
application of the index. A pipeline can charge market-based rates if it
establishes that it lacks significant market power in the affected markets. In
addition, a pipeline can establish rates under settlement if agreed upon by all
current shippers. As specified in Order 561 and subsequent decisions, a
pipeline can seek to establish initial rates for new services through a
cost-of-service showing, by establishing that it lacks significant market power
in the affected markets, or through an agreement between the pipeline and at
least one shipper not affiliated with the pipeline who intends to use the new
service.

   The Court of Appeals for the District of Columbia Circuit affirmed Order No.
561, concluding that the general indexing methodology, along with the limited
exceptions to indexed rates, reasonably balances the FERC's dual
responsibilities of ensuring just and reasonable rates and streamlining
ratemaking through generally applicable procedures. The FERC indicated in Order
No. 561 that it would assess in 2000 how the rate-indexing method was
operating. The FERC issued a Notice of Inquiry on July 27, 2000 seeking
comments on whether to retain or to change the existing index. On December 14,
2000, the FERC issued an order concluding the initial review of the petroleum
pipeline pricing index. In this order, the FERC found that the existing index
has closely approximated the actual cost changes in the petroleum pipeline
industry and that use of the rate index continues to satisfy the mandates of
the Energy Policy Act. The Association of Oil Pipe Lines has petitioned for
judicial review of that decision, arguing that the annual adjustment should be
based on the full producer price index, without the one percentage point
deduction. That petition is currently pending before the U.S. Court of Appeals
for the District of Columbia Circuit. The next review of the FERC index is
scheduled for July 2005.

   Another development affecting petroleum pipeline ratemaking arose in Opinion
No. 397, involving a partnership operating a crude oil pipeline. In Opinion No.
397, the FERC concluded that there should not be a corporate income tax
allowance built into a petroleum pipeline's rates for income attributable to
noncorporate partners because those partners, unlike corporate partners, do not
pay a corporate income tax on partnership distributions. Opinion No. 397 was
affirmed by the FERC on rehearing in May 1996. The parties subsequently settled
the case, so no judicial review of the tax ruling took place.

   A current proceeding, however, is pending at the FERC that could result in
changes to the FERC's income tax method announced in Opinion No. 397 as well as
to other elements of the FERC's rate methods for petroleum pipelines. This
proceeding involves another publicly traded limited partnership engaged in
petroleum products pipeline transportation. More specifically, on January 13,
1999, the FERC issued Opinion No. 435 in this proceeding, which, among other
things, affirmed Opinion No. 397's determination that there should not be a
corporate income tax allowance built into a petroleum pipeline's rates for
income attributable to noncorporate partners. Requests for rehearing of Opinion
No. 435 were filed with the FERC on the tax issue and on other aspects of the
FERC's crude oil pipeline ratemaking methodology. Petitions for review of
Opinion No. 435 are before the Court of Appeals for the District of Columbia
Circuit. On May 17, 2000, the FERC issued Opinion No. 435-A which, with respect
to the substance of the income tax allowance issue, denied rehearing requests.
Petitions for review of Opinion No. 435-A are before the Court of Appeals for
the District of Columbia. Petitions for rehearing of Opinion No. 435-A were
decided by the FERC in Opinion 435-B, issued on September 13, 2001. That
decision further defined the scope of the income tax allowance for publicly
traded limited partnerships, and resolved a number of other cost of service
issues as well. Two parties sought rehearing of Opinion 435-B. On November 7,
2001, the FERC issued a decision that, among other things, further clarified
the income tax allowance issue. We do not know if any party will seek rehearing
of the November 7th decision; if so, those petitions would need to be resolved
by the FERC before the Court of Appeals will consider the petitions for review
of Opinions 435, 435-A and 435-B. We cannot assume that the ultimate outcome of
the income tax allowance issue and other issues subject to judicial review will
not adversely affect our pipeline rates.

   Market-Based Rates.  In a proceeding involving Buckeye Pipeline Company,
L.P., the FERC found that a petroleum pipeline able to demonstrate a lack of
market power may be allowed a lighter standard of regulation than that imposed
by the trended original cost methodology. In such a case, the pipeline company
has the

                                      96


<PAGE>

opportunity to establish that it faces sufficient competition to justify relief
from the strict application of the cost-based principles. In Buckeye, the FERC
determined, based on the existing level of market concentration in the
pipeline's market areas, that Buckeye exercised significant market power in
only five of its 21 market areas and therefore was entitled to charge
market-based rates in the other 16 market areas. The opportunity to charge
market-based rates means that the pipeline may charge what the market will
bear. Order No. 572, a companion order to Order No. 561, was issued by the FERC
on October 25, 1994 and established procedural rules governing petroleum
pipelines' applications for a finding that the pipeline lacks significant
market power in the relevant market.

   Settlement Rates.  In Order No. 561, the FERC specifically held that it
would also permit changes in rates that are the product of unanimous agreement
between the pipeline and all the shippers using the service to which the rate
applies. The rationale behind allowing this type of rate change is to further
the FERC's policy of favoring settlements among parties and to lessen the
regulatory burdens on all concerned. The FERC, however, will also entertain a
challenge to settlement rates, in response to a protest or a complaint that
alleges the same circumstances required to challenge an indexed rate. An
example of this type of challenge is that there is a discrepancy between the
rate and the pipeline's cost of service that is so substantial as to render the
settlement (or indexed) rate unjust and unreasonable.

   Intrastate Regulation.  Some of our pipeline operations are subject to
regulation by the Texas Railroad Commission, the Pennsylvania Public Utility
Commission, the Ohio Public Utility Commission, and the Oklahoma Corporation
Commission. The applicable state statutes require that pipeline rates be
non-discriminatory and provide no more than a fair return on the aggregate
value of the pipeline property used to render services. State commissions have
generally not been aggressive in regulating common carrier pipelines and have
generally not investigated the rates or practices of petroleum pipelines in the
absence of shipper complaints. Complaints to state agencies have been
infrequent and are usually resolved informally. Although we cannot assure you
that our intrastate rates would ultimately be upheld if challenged, we believe
that, given this history, the tariffs now in effect are not likely to be
challenged or, if challenged, are not likely to be ordered to be reduced.

   Our Pipelines.  The FERC generally has not investigated interstate rates on
its own initiative when those rates, like ours, have not been the subject of a
protest or a complaint by a shipper. In addition, as discussed above,
intrastate pipelines generally are subject to "light-handed" regulation by
state commissions and we do not believe the intrastate tariffs now in effect
are likely to be challenged. However, the FERC or a state regulatory commission
could investigate our rates at the urging of a third party if the third party
is either a current shipper or is able to show that it has a substantial
economic interest in our tariff rate level. If an interstate rate were
challenged, we would defend that rate as grandfathered under the Energy Policy
Act. As that Act applies to our rates, a person challenging a grandfathered
rate must, as a threshold matter, establish a substantial change since the date
of enactment of the Act, in either the economic circumstances or the nature of
the service that formed the basis for the rate. A complainant might assert that
the creation of the partnership itself constitutes such a change, an argument
that has not previously been specifically addressed by the FERC and to which we
believe there are valid defenses. If the FERC were to find a substantial change
in circumstances, then the existing rates could be subject to detailed review.
We believe that most such rates can be supported on a cost of service basis,
even recognizing the reduction in our income tax allowance that is likely to
result from our conversion from a corporation to a partnership. Although there
are some rates that might not be defensible on that basis, we believe that all
of those rates involve movements as to which (1) Sunoco R&M is the only
shipper, (2) the partnership has a reasonable basis to assert that it lacks
significant market power and therefore is entitled to market based rates, or
(3) the revenue amounts involved do not materially affect our performance.

   If the FERC investigated our rate levels, it could inquire into our costs,
including:

   . the overall cost of service, including operating costs and overhead;

   . the allocation of overhead and other administrative and general expenses
     to the rate;

   . the appropriate capital structure to be utilized in calculating rates;

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   . the appropriate rate of return on equity;

   . the rate base, including the proper starting rate base;

   . the throughput underlying the rate; and

   . the proper allowance for federal and state income taxes.

   We do not believe that it is likely that there will be a challenge to our
rates by a current shipper that would materially affect our revenues or cash
flows. Sunoco R&M and its subsidiaries are the only current shippers in many of
our pipelines. Sunoco R&M has agreed not to challenge, or to cause others to
challenge or assist others in challenging, our tariff rates for seven years.

   Because most of our pipelines are common carrier pipelines, we may be
required to accept new shippers who wish to transport in our pipelines. It is
possible that any new shippers, current shippers, or other interested parties,
may decide to challenge our tariff rates. If any rate challenge or challenges
were successful, cash available for distribution could be materially reduced.

Environmental Regulation

General

   Our operation of pipelines, terminals, and associated facilities in
connection with the storage and transportation of refined products, crude oil,
and other liquid hydrocarbons are subject to stringent and complex federal,
state, and local laws and regulations governing the discharge of materials into
the environment, or otherwise relating to the protection of the environment. As
with the industry generally, compliance with existing and anticipated laws and
regulations increases our overall cost of business, including our capital costs
to construct, maintain, and upgrade equipment and facilities. While these laws
and regulations affect our maintenance capital expenditures and net income, we
believe that they do not affect our competitive position in that the operations
of our competitors are similarly affected. We believe that our operations are
in substantial compliance with applicable environmental laws and regulations.
However, these laws and regulations are subject to frequent change by
regulatory authorities, and we are unable to predict the ongoing cost to us of
complying with these laws and regulations or the future impact of these laws
and regulations on our operations. Violation of environmental laws,
regulations, and permits can result in the imposition of significant
administrative, civil and criminal penalties, injunctions, and construction
bans or delays. A discharge of hydrocarbons or hazardous substances into the
environment could, to the extent the event is not insured, subject us to
substantial expense, including both the cost to comply with applicable laws and
regulations and claims made by neighboring landowners and other third parties
for personal injury and property damage.

   Under the terms of our omnibus agreement with Sunoco, Inc., and in
connection with the contribution of our assets by affiliates of Sunoco, Inc.,
Sunoco, Inc. has agreed to indemnify us for 30 years from environmental and
toxic tort liabilities related to the assets transferred to us that arise from
the operation of such assets prior to closing. Sunoco, Inc. will be obligated
to indemnify us for 100% of all such losses asserted within the first 21 years
of closing. Sunoco, Inc.'s share of liability for claims asserted thereafter
will decrease by 10% a year. For example, for a claim asserted during the
twenty-third year after closing, Sunoco, Inc. would be required to indemnify us
for 80% of our loss. There is no monetary cap on the amount of indemnity
coverage provided by Sunoco, Inc. Any remediation liabilities not covered by
this indemnity will be our responsibility. Total future costs for environmental
remediation activities will depend upon, among other things, the identification
of any additional sites, the determination of the extent of the contamination
at each site, the timing and nature of required remedial actions, the
technology available and needed to meet the various existing legal
requirements, the nature and extent of future environmental laws, inflation
rates, and the determination of our liability at multi-party sites, if any, in
light of the number, participation levels, and financial viability of other
parties. We have agreed to indemnify Sunoco, Inc. and its affiliates for
environmental and toxic tort liabilities related to our assets to the extent
Sunoco, Inc. is not required to indemnify us.

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Air Emissions

   Our operations are subject to the Clean Air Act and comparable state and
local statutes. Amendments to the Clean Air Act enacted in late 1990 as well as
recent or soon to be adopted changes to state implementation plans for
controlling air emissions in regional, non-attainment areas require or will
require most industrial operations in the United States to incur capital
expenditures in order to meet air emission control standards developed by the
Environmental Protection Agency and state environmental agencies. As a result
of these amendments, our facilities that emit volatile organic compounds or
nitrogen oxides are subject to increasingly stringent regulations, including
requirements that some sources install maximum or reasonably available control
technology. In addition, the 1990 Clean Air Act Amendments established a new
operating permit for major sources, which applies to some of our facilities. We
will be required to incur certain capital expenditures in the next several
years for air pollution control equipment in connection with maintaining or
obtaining permits and approvals addressing air emission related issues.
Although we can give no assurances, we believe implementation of the 1990 Clean
Air Act Amendments will not have a material adverse effect on our financial
condition or results of operations.

   Our customers are also subject to, and affected by, environmental
regulations. Since the late 1990s, the EPA has undertaken significant
enforcement initiatives under authority of the Clean Air Act's New Source
Review and Prevention of Significant Deterioration, or NSR/PSD, program in an
effort to further reduce annual emissions of volatile organic compounds,
nitrogen oxides, sulfur dioxide, and particulate matter. These enforcement
initiatives have been targeted at industries that have large manufacturing
facilities and that are significant sources of emissions, such as refining,
paper and pulp, and electric power generating industries. The basic premise of
the enforcement initiative is the EPA's assertion that many of these industrial
establishments have modified or expanded their operations over time without
complying with NSR/PSD regulations adopted by the EPA that require permits and
new emission controls in connection with any significant facility modifications
or expansions that can result in emissions increases above certain thresholds.
Where the EPA finds that a company or facility has modified or expanded its
operations without complying with the requirements of the NSR/PSD program, it
may bring an enforcement action against the company or facility to require
installation of the emissions controls that the agency deems necessary, and it
may also seek to impose fines and penalties for failure to comply with NSR/PSD
requirements.


   As part of this on-going NSR/PSD enforcement initiative, the EPA has entered
into consent agreements with several refiners that require the refiners to make
significant capital expenditures to install emissions control equipment at
selected facilities. In certain instances, these additional controls would be
required to comply with other provisions of the Clean Air Act or other federal
or state regulations at a later date, but the effect of these consent
agreements is to require the installation of air emission controls earlier than
they might otherwise be required. The cost of the required emissions control
equipment can be significant, depending on the size, age, and configuration of
the refinery. Sunoco R&M received information requests from the EPA relating to
capital projects that have taken place at Sunoco R&M's refineries since 1980.
Sunoco R&M has received notices of violation from the EPA relating to its
Marcus Hook, Philadelphia, and Toledo refineries and is currently evaluating
its position. Although Sunoco R&M does not believe that it has violated any
NSR/PSD requirements, as part of this initiative, Sunoco R&M could be required
to make significant capital expenditures.



   Under the Clean Air Act, the EPA and state agencies acting with authority
delegated by the EPA have announced new rules or the intent to strengthen
existing rules affecting the composition of motor vehicle fuels and automobile
emissions. The EPA's Gasoline Sulfur Control Requirements require that the
sulfur content of motor vehicle gasoline be reduced to 80 parts per million and
the corporate average sulfur content be reduced to 30 parts per million by
2006. Likewise, the EPA's Diesel Fuel Sulfur Control Requirements require that
the sulfur content of diesel fuel be reduced to 15 parts per million by 2006.
The rules include banking and trading credit systems, which could provide
refiners flexibility until 2006 for the low-sulfur gasoline and until 2010 for
the low-sulfur diesel. These rules are expected to have a significant impact on
Sunoco R&M and its operations primarily with respect to the capital and
operating expenditures at the Philadelphia, Marcus Hook, and Toledo


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refineries. Most of the capital spending is likely to occur in the 2002-2006
period, while the higher operating costs will be incurred when the low-sulfur
fuels are produced. Sunoco R&M estimates that the total capital outlays to
comply with the new gasoline and diesel requirements will be in the range of
$300-$400 million. The ultimate impact of the rules may be affected by such
factors as technology selection, the effectiveness of the banking and trading
credit systems, production mix, timing uncertainties created by permitting
requirements and construction schedules, and any effect on prices created by
changes in the level of gasoline and diesel fuel production.



   The EPA is also reportedly considering limiting the levels of benzene and
other toxic substances in gasoline as well as banning methyl tertiary-butyl
ether, also known as MTBE, in gasoline, which may require the use of other
chemical additives to serve as oxygenates instead of MTBE. Legal mandates to
use alternative fuels may also have a direct and potentially adverse impact on
our revenues. For example, under the Energy Policy Act of 1992, 75% of new
vehicles purchased by certain federal and state government fleets must use
alternative fuels and New York has adopted standards requiring that by the year
2003, 10% of fleets delivered be zero-emissions vehicles; and under the Clean
Air Act, 50% to 70% (depending on vehicle weight) of new vehicles in clean air
non-attainment areas purchased by certain federal, state, municipal, and
private fleets must use some type of alternative fuels beginning in 2001. Also,
some states and local governments, including, for example, Texas, have adopted
"boutique" fuel standards to comply with clean air requirements. "Boutique"
fuels pose distribution problems because refiners must produce different blends
for different communities. We have no control over Sunoco, Inc.'s responses to
these emerging requirements, and we cannot assure you that those responses will
not reduce the throughput in our pipelines, our cash flow, and our ability to
make distributions to you.



   During 2001, the EPA issued its final rule addressing emissions of toxic air
pollutants from mobile sources (the Mobile Source Air Toxics ("MSAT") Rule).
The rule is currently being challenged by certain environmental organizations
and a number of states, and by a member of the petroleum industry. It requires
refiners to produce gasoline that maintains their average 1998-2000 gasoline
toxic emission performance level. If the rule survives the challenges and if
MTBE is banned, it could result in additional expenditures by Sunoco R&M or
reductions in its reformulated gasoline production levels.


Hazardous Substances and Waste

   To a large extent, the environmental laws and regulations affecting our
operations relate to the release of hazardous substances or solid wastes into
soils, groundwater, and surface water, and include measures to control
pollution of the environment. These laws generally regulate the generation,
storage, treatment, transportation, and disposal of solid and hazardous waste.
They also require corrective action, including the investigation and
remediation, of certain units at a facility where such waste may have been
released or disposed. For instance, the Comprehensive Environmental Response,
Compensation, and Liability Act, referred to as CERCLA and also known as
Superfund, and comparable state laws impose liability, without regard to fault
or the legality of the original conduct, on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of the site where the release
occurred and companies that disposed or arranged for the disposal of the
hazardous substances found at the site. Under CERCLA, these persons may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment, for damages
to natural resources, and for the costs of certain health studies. CERCLA also
authorizes the EPA and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to recover from the
responsible classes of persons the costs they incur. It is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by hazardous substances or other
pollutants released into the environment. In the course of our ordinary
operations, we may generate waste that falls within CERCLA's definition of a
"hazardous substance" and, as a result, may be jointly and severally liable
under CERCLA for all or part of the costs required to clean up sites at which
these hazardous substances have been released into the environment. We are
currently identified as a potentially responsible party ("PRP") at two sites in
Michigan by the Michigan Department of Natural Resources and at one site in New
York by the EPA in connection with alleged past

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transport of petroleum product wastes to, and subsequent release of such wastes
at, these sites. We believe that any costs incurred by us in connection with
remedial action at these sites will not have a material adverse impact on our
operations. In addition, while we are not identified as a PRP at the Higgins
Farm Superfund site in Somerset County, New Jersey, a PRP-defendant group has
filed a suit against us, seeking contribution for remediation costs in
connection with an ongoing cleanup of that site. We believe this cost recovery
suit to be without merit and are vigorously contesting this matter. Costs for
these remedial actions, if any as well as any related claims are all covered by
an indemnity from Sunoco, Inc. For more information, please read
"--Environmental Remediation."

   We also generate solid wastes, including hazardous wastes, that are subject
to the requirements of the federal Resource Conservation and Recovery Act,
referred to as RCRA, and comparable state statutes. From time to time, the EPA
considers the adoption of stricter disposal standards for non-hazardous wastes,
including crude oil and gas wastes. We are not currently required to comply
with a substantial portion of the RCRA requirements because our operations
generate minimal quantities of hazardous wastes. However, it is possible that
additional wastes, which could include wastes currently generated during
operations, will in the future be designated as "hazardous wastes." Hazardous
wastes are subject to more rigorous and costly disposal requirements than are
non-hazardous wastes. Any changes in the regulations could have a material
adverse effect on our maintenance capital expenditures and operating expenses.

   We currently own or lease, and our predecessor has in the past owned or
leased, properties where hydrocarbons are being or have been handled for many
years. Although we have utilized operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other waste may have been
disposed of or released on or under the properties owned or leased by us or on
or under other locations where these wastes have been taken for disposal. In
addition, many of these properties have been operated by third parties whose
treatment and disposal or release of hydrocarbons or other wastes was not under
our control. These properties and wastes disposed thereon may be subject to
CERCLA, RCRA, and analogous state laws. Under these laws, we could be required
to remove or remediate previously disposed wastes (including wastes disposed of
or released by prior owners or operators), to clean up contaminated property
(including contaminated groundwater), or to perform remedial operations to
prevent future contamination.

   We are currently involved in remediation activities at numerous sites, which
involve significant expense. These remediation activities are all covered by an
indemnity from Sunoco, Inc. For more information, please read "--Environmental
Remediation."

Water

   Our operations can result in the discharge of pollutants, including crude
oil. The Oil Pollution Act was enacted in 1990 and amends provisions of the
Water Pollution Control Act of 1972 and other statutes as they pertain to
prevention and response to oil spills. The Oil Pollution Act subjects owners of
covered facilities to strict, joint, and potentially unlimited liability for
removal costs and other consequences of an oil spill, where the spill is into
navigable waters, along shorelines or in the exclusive economic zone of the
United States. In the event of an oil spill into navigable waters, substantial
liabilities could be imposed upon us. States in which we operate have also
enacted similar laws. Regulations are currently being developed under the Oil
Pollution Act and state laws that may also impose additional regulatory burdens
on our operations. Spill prevention control and countermeasure requirements of
federal laws and some state laws require diking and similar structures to help
prevent contamination of navigable waters in the event of an oil overflow,
rupture, or leak. We are in substantial compliance with these laws.
Additionally, the Office of Pipeline Safety of the DOT has approved our oil
spill emergency response plans.

   The Water Pollution Control Act of 1972 imposes restrictions and strict
controls regarding the discharge of pollutants into navigable waters. Permits
must be obtained to discharge pollutants into state and federal waters. The
Water Pollution Control Act of 1972 imposes substantial potential liability for
the costs of removal,

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remediation, and damages. In addition, some states maintain groundwater
protection programs that require permits for discharges or operations that may
impact groundwater conditions. We believe that compliance with existing permits
and compliance with foreseeable new permit requirements will not have a
material adverse effect on our financial condition or results of operations.

Employee Safety

   We are subject to the requirements of the Occupational Safety and Health
Act, referred to as OSHA, and comparable state statutes that regulate the
protection of the health and safety of workers. In addition, the OSHA hazard
communication standard requires that information be maintained about hazardous
materials used or produced in operations and that this information be provided
to employees, state, and local government authorities and citizens. We believe
that our operations are in substantial compliance with the OSHA requirements,
including general industry standards, record keeping requirements, and
monitoring of occupational exposure to regulated substances.

Endangered Species Act

   The Endangered Species Act restricts activities that may affect endangered
species or their habitats. While some of our facilities are in areas that may
be designated as habitat for endangered species, we believe that we are in
substantial compliance with the Endangered Species Act. However, the discovery
of previously unidentified endangered species could cause us to incur
additional costs or become subject to operating restrictions or bans in the
affected area.

Hazardous Materials Transportation Requirements

   The DOT regulations affecting pipeline safety require pipeline operators to
implement measures designed to reduce the environmental impact of crude oil
discharge from onshore crude oil pipelines. These regulations require operators
to maintain comprehensive spill response plans, including extensive spill
response training for pipeline personnel. In addition, the DOT regulations
contain detailed specifications for pipeline operation and maintenance. We
believe our operations are in substantial compliance with these regulations.
The DOT has recently adopted a pipeline integrity management rule. We have
analyzed the impact of this rule and, based on historical integrity tests
conducted since 1989, have estimated that compliance with this rule will cost
us approximately $8.0 million a year for five years, for a total of $40.0
million for all pipelines in our Eastern and Western Pipeline Systems that are
subject to this rule. Sunoco, Inc. has agreed to indemnify us for costs in
excess of $8.0 million per year, up to a maximum of $15.0 million over the next
five years in connection with compliance with this DOT pipeline integrity
management rule. Please read "Certain Relationships and Related
Transactions--Omnibus Agreement."

Environmental Remediation

   Contamination resulting from spills of refined products and crude oil is not
unusual within the petroleum pipeline industry. Historic spills along our
pipelines, gathering systems, and terminals as a result of past operations have
resulted in contamination of the environment, including soils and groundwater.
Site conditions, including soils and groundwater, are being evaluated at a
number of our properties where operations may have resulted in releases of
hydrocarbons and other wastes.

   Moreover, potentially significant assessment, monitoring, and remediation
programs are being performed at some 19 sites in Michigan, New Jersey, New
York, Ohio, and Pennsylvania. These 19 sites include eight terminals and two
tank farms owned by us (River Rouge and Owosso Terminals in Michigan; Newark
Terminal in New Jersey; Dayton Terminal in Ohio; and Belmont, Kingston,
Montello, and Pittsburgh Terminals and Darby Creek Tank Farm and Marcus Hook
Tank Farm in Pennsylvania) and nine third-party locations (in Camden County in
New Jersey; in Livingston and Chemung Counties in New York; and in Chester,
Delaware, Lancaster,

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Lebanon, and Luzerne Counties, in Pennsylvania) that were impacted by pipe line
or pump station releases of crude oil or petroleum products. We estimate that
the total aggregate cost of performing the currently anticipated assessment,
monitoring and remediation at these 19 sites to be $8.8 million. This estimate
assumes that we will be able to achieve regulatory closure at these sites
between the years 2002 and 2010 by using common remedial and monitoring methods
or associated engineering or institutional controls to demonstrate compliance
with applicable cleanup standards. This estimate covers the costs of performing
assessment, remediation, and/or monitoring of impacted soils, groundwater and
surface water conditions, but does not include any costs for potential claims
by others with respect to these sites. While we do not expect any such
potential claims by others to be materially adverse to our operations,
financial position, or cash flows, we cannot assure you that the actual
remediation costs or associated remediation liabilities will not exceed this
$8.8 million amount.

   With respect to the February 2000 pipeline release of crude oil into the
John Heinz National Wildlife Refuge in Philadelphia, one of the 19 sites where
potentially significant environmental liability exists, we have conducted
remedial activities at the release area and have initiated restoration efforts
in the area, including establishment of a new wetlands area. We expect the EPA
to assess a penalty with respect to the February 2000 pipeline release which
could exceed $100,000.

   Sunoco, Inc. has agreed to indemnify us from environmental and toxic tort
liabilities related to the assets transferred to us to the extent such
liabilities exist or arise from operation of these assets prior to closing and
are asserted within 30 years after the closing of this offering. This indemnity
will cover the costs associated with performance of the assessment, monitoring,
and remediation programs, as well as any related claims and penalties, at the
19 sites referenced above. See "--Environmental Regulation--General."

   We may experience future releases of refined products or crude oil into the
environment from our pipelines, gathering systems, and terminals, or discover
historical releases that were previously unidentified or not assessed. While we
maintain an extensive inspection and audit program designed, as applicable, to
prevent and to detect and address these releases promptly, damages and
liabilities incurred due to any future environmental releases from our assets
nevertheless have the potential to substantially affect our business.

Title to Properties


   Substantially all of our pipelines are constructed on rights-of-way granted
by the apparent record owners of the property and in some instances these
rights-of-way are revocable at the election of the grantor. Several
rights-of-way for our pipelines and other real property assets are shared with
other pipelines and other assets owned by affiliates of Sunoco, Inc. and by
third parties. In many instances, lands over which rights-of-way have been
obtained are subject to prior liens that have not been subordinated to the
right-of-way grants. We have obtained permits from public authorities to cross
over or under, or to lay facilities in or along, watercourses, county roads,
municipal streets, and state highways and, in some instances, these permits are
revocable at the election of the grantor. We have also obtained permits from
railroad companies to cross over or under lands or rights-of-way, many of which
are also revocable at the grantor's election. In some cases, property for
pipeline purposes was purchased in fee. In some states and under some
circumstances, we have the right of eminent domain to acquire rights-of-way and
lands necessary for our common carrier pipelines. The previous owners of the
applicable pipelines may not have commenced or concluded eminent domain
proceedings for some rights-of-way. We will commence or conclude such
proceedings after the completion of this offering to the extent we deem
necessary.


   Some of the leases, easements, rights-of-way, permits, and licenses that
will be transferred to us will require the consent of the grantor to transfer
these rights, which in some instances is a governmental entity. Our general
partner believes that it has obtained or will obtain sufficient third-party
consents, permits, and authorizations for the transfer of the assets necessary
for us to operate our business in all material respects as described in this
prospectus. With respect to any consents, permits, or authorizations that have
not been obtained, our general partner believes that these consents, permits,
or authorizations will be obtained after the closing of this offering, or that
the failure to obtain these consents, permits, or authorizations will have no
material adverse effect on the operation of our business.

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   Our general partner believes that we have satisfactory title to all of our
assets. To the extent certain defects in title to the assets contributed to us
or failures to obtain certain consents and permits necessary to conduct our
business arise within ten years after the closing of this offering, we are
entitled to indemnification from Sunoco, Inc. under the omnibus agreement.
Record title to some of our assets may continue to be held by affiliates of
Sunoco, Inc. until we have made the appropriate filings in the jurisdictions in
which such assets are located and obtained any consents and approvals that are
not obtained prior to transfer. We will make these filings and obtain these
consents upon completion of this offering. Although title to these properties
is subject to encumbrances in some cases, such as customary interests generally
retained in connection with acquisition of real property, liens that can be
imposed in some jurisdictions for government-initiated action to clean up
environmental contamination, liens for current taxes and other burdens, and
easements, restrictions, and other encumbrances to which the underlying
properties were subject at the time of acquisition by our predecessor or us,
our general partner believes that none of these burdens should materially
detract from the value of these properties or from our interest in these
properties or should materially interfere with their use in the operation of
our business.


Employees

   To carry out our operations, our general partner and its affiliates will
employ approximately 1,170 people who will provide direct support to our
operations. Approximately 620 of these employees are represented by labor
unions or associations. Our general partner considers its employee relations to
be good. Our partnership has no employees.

Legal Proceedings

   We will be a party to various legal actions that arise in the ordinary
course of our business. Sunoco, Inc. has agreed to indemnify us for any losses
we may suffer as a result of currently pending legal actions against our
predecessors.

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                                  MANAGEMENT

Management of Sunoco Logistics Partners

   Sunoco Partners LLC, as our general partner, will manage our operations and
activities on our behalf. Our general partner is not elected by our unitholders
and will not be subject to re-election on a regular basis in the future.
Unitholders will not directly or indirectly participate in our management or
operation. Our general partner owes a fiduciary duty to our unitholders. Our
general partner will be liable, as general partner, for all of our debts (to
the extent not paid from our assets), except for indebtedness or other
obligations that are made specifically nonrecourse to it. Whenever possible,
our general partner intends to incur indebtedness or other obligations that are
nonrecourse.

   At least two members of the board of directors of our general partner will
serve on a conflicts committee to review specific matters that the board
believes may involve conflicts of interest. The conflicts committee will
determine if the resolution of the conflict of interest is fair and reasonable
to us. The members of the conflicts committee may not be officers or employees
of our general partner or directors, officers, or employees of its affiliates,
and must meet the independence and experience standards to serve on an audit
committee of a board of directors established by the New York Stock Exchange.
Any matters approved by the conflicts committee will be conclusively deemed to
be fair and reasonable to us, approved by all of our partners, and not a breach
by our general partner of any duties it may owe us or our unitholders. In
addition, the members of the conflicts committee will also serve on an audit
committee that will review our external financial reporting, recommend
engagement of our independent auditors, and review procedures for internal
auditing and the adequacy of our internal accounting controls. The members of
the conflicts committee will also serve on the compensation committee, which
will oversee compensation decisions for the officers of our general partner as
well as the compensation plans described below.

   In compliance with the rules of the New York Stock Exchange, the members of
the board of directors named below will appoint two independent members within
three months of the listing of the common units on the New York Stock Exchange
and one additional independent member within 12 months of that listing. The
three newly appointed members will serve as the initial members of the audit
and compensation committees.

   We are managed and operated by the directors and officers of Sunoco Partners
LLC, our general partner. Most of our operational personnel will be employees
of our general partner.


   The officers of Sunoco Partners LLC, other than Joseph P. Krott who is
acting as our Comptroller on an interim basis, will spend substantially all of
their time managing our business and affairs. Our non-executive directors will
devote as much time as is necessary to prepare for and attend board of
directors and committee meetings.


Directors and Executive Officers of Sunoco Partners LLC

   The following table shows information for the directors and executive
officers of Sunoco Partners LLC. Executive officers and directors are elected
for one-year terms.



<TABLE>
<CAPTION>
Name                        Age        Position with the General Partner
----                        --- -----------------------------------------------
<S>                         <C> <C>
John G. Drosdick........... 58  Chairman and Director
Deborah M. Fretz........... 53  President, Chief Executive Officer and Director
Thomas W. Hofmann.......... 50  Director
Paul S. Broker............. 41  Vice President, Western Operations
James L. Fidler............ 54  Vice President, Business Development
David A. Justin............ 49  Vice President, Eastern Operations
Joseph P. Krott............ 38  Comptroller
Colin A. Oerton............ 38  Vice President and Chief Financial Officer
Jeffrey W. Wagner.......... 44  General Counsel and Secretary
</TABLE>



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   Mr. Drosdick was elected Chairman of our Board of Directors in October 2001.
He has been Chairman of the Board of Directors, President and Chief Executive
Officer of Sunoco, Inc. since May 2000. Prior to that, he was a director,
President and Chief Operating Officer of Sunoco, Inc. from December 1996 to May
2000. He was President and Chief Operating Officer of Ultramar Corporation from
June 1992 to August 1996. Mr. Drosdick is also a director of Hercules
Incorporated and Lincoln National Corp.

   Ms. Fretz was elected our President, Chief Executive Officer and a director
in October 2001. Prior to assuming her positions with us, she was Senior Vice
President, MidContinent Refining, Marketing and Logistics of Sunoco, Inc. from
November 2000. Prior to that, she was Senior Vice President, Logistics of
Sunoco, Inc. from August 1994 to November 2000 and also held the position of
Senior Vice President, Lubricants of Sunoco, Inc. from January 1997 to November
2000. In addition, she has been President of Sun Pipe Line Company, a
subsidiary of Sunoco, Inc., since October 1991. Ms. Fretz is also a director of
GATX Corporation and Cooper Tire & Rubber Company.


   Mr. Hofmann was elected to our Board of Directors in October 2001. He has
been Senior Vice President and Chief Financial Officer of Sunoco, Inc. since
January 2002. Prior to that, he was Vice President and Chief Financial Officer
of Sunoco, Inc. from July 1998 to January 2002. He was Comptroller of Sunoco,
Inc. from July 1995 to July 1998.


   Mr. Broker was elected Vice President, Western Operations in November 2001.
Prior to that, he had been Manager, Western Area Operations for Sun Pipe Line
Company since September 2000. Mr. Broker served as an Area Superintendent of
Eastern Area Operations for Sun Pipe Line Company from March 1997 through
September 2000. From 1994 through March 1997, Mr. Broker was Manager of
Operations Engineering, Eastern Area Operations.

   Mr. Fidler was elected Vice President, Business Development in November
2001. Mr. Fidler had been Vice President/General Manager of Sunoco Distribution
Operations for the Sunoco Logistics and Lubricants business units of Sunoco,
Inc. since 1995.

   Mr. Justin was elected Vice President, Eastern Operations in November 2001.
From September 2000 to November 2001, Mr. Justin served as Manager, Eastern
Area Operations for Sun Pipe Line Company. Prior to that, he had been Manager,
Western Area Operations for Sun Pipe Line Company from 1998 through September
2000. Mr. Justin was Manager, Capital Projects/Engineering and Construction for
Sun Pipe Line Company from 1996 through 1998.


   Mr. Krott was elected our Comptroller in October 2001. He has been
Comptroller of Sunoco, Inc. since July 1998. Prior to that, from September 1997
to July 1998, he served as Director, Compensation, Benefits & HR Systems at
Sunoco, Inc., and from July 1996 to September 1997 as Manager, Compensation &
HR Systems of Sunoco, Inc.





   Mr. Oerton was elected Vice President and Chief Financial Officer in January
2002. Prior to that, from August 1996 to October 2001, he was Senior Vice
President--Natural Resources Group for Lehman Brothers Holdings, Inc.
Previously he served as Vice President--Corporate Finance for Barclays de Zoete
Wedd Ltd. from 1990 through July 1996.


   Mr. Wagner was elected General Counsel and Secretary in November 2001. Prior
to assuming his positions with us, Mr. Wagner had been Chief Counsel for Sun
Pipe Line Company from 1990 to 2001.

Reimbursement of Expenses of the General Partner

   The general partner will not receive any management fee or other
compensation for its management of Sunoco Logistics Partners. The general
partner and its affiliates will be reimbursed for expenses incurred on our
behalf. These expenses include the costs of employee, officer, and director
compensation and benefits properly

                                      106


<PAGE>

allocable to Sunoco Logistics Partners, and all other expenses necessary or
appropriate to the conduct of the business of, and allocable to, Sunoco
Logistics Partners. The partnership agreement provides that the general partner
will determine the expenses that are allocable to Sunoco Logistics Partners in
any reasonable manner determined by the general partner in its sole discretion.


Executive Compensation

   Sunoco Logistics Partners and the general partner were formed in October
2001, but the general partner paid no compensation to its directors and
officers with respect to the 2001 fiscal year. We have not accrued any
obligations with respect to management incentive or retirement benefits for the
directors and officers for the 2001 fiscal year. Officers and employees of the
general partner may participate in employee benefit plans and arrangements
sponsored by the general partner or its affiliates, including plans that may be
established by the general partner or its affiliates in the future.

Compensation of Directors

   Officers or employees of the general partner who also serve as directors
will not receive additional compensation. The general partner anticipates that
each independent director will receive compensation for attending meetings of
the board of directors as well as committee meetings. The amount of
compensation to be paid to the independent directors has not yet been
determined. In addition, each independent director will be reimbursed for
out-of-pocket expenses in connection with attending meetings of the board of
directors or committees. Each director will be fully indemnified by us for
actions associated with being a director to the extent permitted under Delaware
law.

Long-Term Incentive Plan


   The general partner has adopted the Sunoco Partners LLC Long-Term Incentive
Plan for employees and directors of the general partner and employees of its
affiliates who perform services for us. The long-term incentive plan consists
of two components: restricted units and unit options. The long-term incentive
plan currently permits the grant of awards covering an aggregate of 1,250,000
units. The plan is administered by the compensation committee of the general
partner's board of directors.


   The general partner's board of directors in its discretion may terminate or
amend the long-term incentive plan at any time with respect to any units for
which a grant has not yet been made. The general partner's board of directors
also has the right to alter or amend the long-term incentive plan or any part
of the plan from time to time, including increasing the number of units that
may be granted subject to unitholder approval as required by the exchange upon
which the common units are listed at that time. However, no change in any
outstanding grant may be made that would materially impair the rights of the
participant without the consent of the participant.


   Restricted Units.  A restricted unit is a "phantom" unit that entitles the
grantee to receive a common unit upon the vesting of the phantom unit or, in
the discretion of the compensation committee, cash equivalent to the value of a
common unit. At the time of the closing of this offering, we expect to grant an
aggregate of approximately 125,000 restricted units to employees and directors
of the general partner and employees of its affiliates who perform services for
us. In the future, the compensation committee may determine to make additional
grants under the plan to employees and directors containing such terms as the
compensation committee shall determine under the plan. The compensation
committee will determine the period over which restricted units granted to
employees and directors will vest. The committee may base its determination
upon the achievement of specified financial objectives. In addition, the
restricted units will vest upon a change of control of Sunoco Logistics
Partners, the general partner, or Sunoco, Inc.


   If a grantee's employment or membership on the board of directors terminates
for any reason, the grantee's restricted units will be automatically forfeited
unless, and to the extent, the compensation committee provides

                                      107


<PAGE>

otherwise. Common units to be delivered upon the vesting of restricted units
may be common units acquired by the general partner in the open market, common
units already owned by the general partner, common units acquired by the
general partner directly from us or any other person or any combination of the
foregoing. The general partner will be entitled to reimbursement by us for the
cost incurred in acquiring common units. If we issue new common units upon
vesting of the restricted units, the total number of common units outstanding
will increase. The compensation committee, in its discretion, may grant tandem
distribution equivalent rights with respect to restricted units.

   We intend the issuance of the common units upon vesting of the restricted
units under the plan to serve as a means of incentive compensation for
performance and not primarily as an opportunity to participate in the equity
appreciation of the common units. Therefore, plan participants will not pay any
consideration for the common units they receive, and we will receive no
remuneration for the units.

   Unit Options.  The long-term incentive plan currently permits the grant of
options covering common units. In the future, the compensation committee may
determine to make grants under the plan to employees and directors containing
such terms as the committee shall determine. Unit options will have an exercise
price that may not be less than the fair market value of the units on the date
of grant. In general, unit options granted will become exercisable over a
period determined by the compensation committee. In addition, the unit options
will become exercisable upon a change in control of Sunoco Logistics Partners,
the general partner, or Sunoco, Inc. or upon the achievement of specified
financial objectives.

   Upon exercise of a unit option, the general partner will acquire common
units in the open market or directly from us or any other person or use common
units already owned by the general partner, or any combination of the
foregoing. The general partner will be entitled to reimbursement by us for the
difference between the cost incurred by the general partner in acquiring these
common units and the proceeds received by the general partner from an optionee
at the time of exercise. Thus, the cost of the unit options will be borne by
us. If we issue new common units upon exercise of the unit options, the total
number of common units outstanding will increase, and the general partner will
pay us the proceeds it received from the optionee upon exercise of the unit
option. The unit option plan has been designed to furnish additional
compensation to employees and directors and to align their economic interests
with those of common unitholders.

Management Incentive Plan

   The general partner has adopted the Sunoco Partners LLC Annual Incentive
Compensation Plan. The management incentive plan is designed to enhance the
performance of the general partner's key employees by rewarding them with cash
awards for achieving annual financial and operational performance objectives.
The compensation committee in its discretion may determine individual
participants and payments, if any, for each fiscal year. The board of directors
of the general partner may amend or change the management incentive plan at any
time. We will reimburse the general partner for payments and costs incurred
under the plan.

                                      108


<PAGE>


        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


   The following table sets forth the beneficial ownership of units of Sunoco
Logistics Partners that will be issued upon the consummation of this offering
and the related transactions and held by beneficial owners of 5% or more of the
units, by directors of Sunoco Partners LLC (our general partner), by each named
executive officer and by all directors and officers of Sunoco Partners LLC as a
group. Sunoco Partners LLC is owned by Sun Pipe Line Company of Delaware,
Sunoco Texas Pipe Line Company, Sunoco R&M, Atlantic Petroleum Corporation, and
Atlantic Refining & Marketing Corp., each of which is a direct or indirect
wholly owned subsidiary of Sunoco, Inc.




<TABLE>
<CAPTION>
                                                       Percentage of              Percentage of Percentage of
                                             Common       Common     Subordinated Subordinated   Total Units
                                          Units to be   Units to be  Units to be   Units to be      to be
                Name of                   Beneficially Beneficially  Beneficially Beneficially  Beneficially
            Beneficial Owner                 Owned         Owned        Owned         Owned         Owned
            ----------------              ------------ ------------- ------------ ------------- -------------
<S>                                       <C>          <C>           <C>          <C>           <C>
Sunoco Partners LLC/(1)/.................  6,383,639       56.1%      11,383,639     100.0%         78.0%
John G. Drosdick.........................          0           0               0          0             0
Deborah M. Fretz.........................          0           0               0          0             0
Thomas W. Hofmann........................          0           0               0          0             0
Paul S. Broker...........................          0           0               0          0             0
James L. Fidler..........................          0           0               0          0             0
David A. Justin..........................          0           0               0          0             0
Joseph P. Krott..........................          0           0               0          0             0
Colin A. Oerton..........................          0           0               0          0             0
Jeffrey W. Wagner........................          0           0               0          0             0
All directors and executive officers as a
  group (9 persons)......................          0           0               0          0             0
</TABLE>


--------
(1)Sunoco, Inc. is the ultimate parent company of Sunoco Partners LLC and may,
   therefore, be deemed to beneficially own the units held by Sunoco Partners
   LLC.

                                      109


<PAGE>


                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


   After this offering, the general partner will own 6,383,639 common units and
11,383,639 subordinated units representing a 76.5% limited partner interest in
us. In addition, the general partner will own a 2% general partner interest in
us. The general partner's ability, as general partner, to manage and operate us
and its ownership of a 76.5% limited partner interest in us effectively gives
the general partner the ability to veto some actions of Sunoco Logistics
Partners and to control the management of Sunoco Logistics Partners.


Distributions and Payments to the General Partner and Its Affiliates

   The following table summarizes the distributions and payments to be made by
us to our general partner and its affiliates in connection with the formation,
ongoing operation, and liquidation of Sunoco Logistics Partners. These
distributions and payments were determined by and among affiliated entities
and, consequently, are not the result of arm's-length negotiations.

                                Formation Stage


The consideration received
  by our general partner and
  its affiliates for the
  contribution of the assets
  and liabilities of Sunoco
  Logistics (Predecessor)...  .  5,633,639 common units;



                              .  11,383,639 subordinated units;


                              .  2% general partner interest in Sunoco
                                Logistics Partners;

                              .  the incentive distribution rights; and

                              .  approximately $247.0 million from the proceeds
                                of the issuance of  the senior notes.

Additional units to be
  purchased by our general
  partner...................  .  750,000 common units

                               Operational Stage


Distributions of available
  cash to our general
  partner...................  We will generally make cash distributions 98% to
                              the unitholders, including our general partner,
                              as holder of an aggregate of 6,383,639 common
                              units and all of the subordinated units, and 2%
                              to the general partner. In addition, if
                              distributions exceed the minimum quarterly
                              distribution and other higher target levels, our
                              general partner will be entitled to increasing
                              percentages of the distributions, up to 50% of
                              the distributions above the highest target level.



                              Assuming we have sufficient available cash to pay
                              the full minimum quarterly distribution on all of
                              our outstanding units for four quarters, our
                              general partner would receive an annual
                              distribution of approximately $0.8 million on its
                              2% general partner interest and $32.0 million on
                              its common units and subordinated units.


                                      110


<PAGE>

Payments to our general
  partner and its
  affiliates................  We will pay Sunoco, Inc. or its affiliates an
                              administrative fee, initially $8.0 million per
                              year, for the provision of various general and
                              administrative services for our benefit. In
                              addition, the general partner
                              will be entitled to reimbursement for all
                              expenses it incurs on our behalf, including other
                              general and administrative expenses. These
                              reimbursable expenses include the salaries and
                              the cost of employee benefits of employees of the
                              general partner who provide services to us.
                              Please read "--Omnibus Agreement." Our general
                              partner has sole discretion in determining the
                              amount of these expenses.

Withdrawal or removal of our
  general partner...........  If our general partner withdraws or is removed,
                              its general partner interest and its incentive
                              distribution rights will either be sold to the
                              new general partner for cash or converted into
                              common units, in each case for an amount equal to
                              the fair market value of those interests. Please
                              read "The Partnership Agreement--Withdrawal or
                              Removal of the General Partner."

                               Liquidation Stage

Liquidation.................  Upon our liquidation, the partners, including our
                              general partner, will be entitled to receive
                              liquidating distributions according to their
                              particular capital account balances.

Agreements Governing the Transactions

   We and other parties have entered into or will enter into the various
documents and agreements that will effect transactions, including the vesting
of assets in, and the assumption of liabilities by, us and our subsidiaries,
and the application of the proceeds of this offering. These agreements will not
be the result of arm's-length negotiations, and they, or any of the
transactions that they provide for, may be effected on terms at least as
favorable to the parties to these agreements as they could have been obtained
from unaffiliated third parties. All of the transaction expenses incurred in
connection with these transactions, including the expenses associated with
vesting assets into our subsidiaries, will be paid from the proceeds of this
offering. Our general partner has agreed that if, during the term of the
pipelines and terminals storage and throughput agreement, we are required by
the FERC to reduce any of our tariffs, our general partner will contribute an
amount to us equal to the resulting shortfall in revenues from Sunoco R&M
movements for the remaining term of the agreement.

Omnibus Agreement

   Upon the closing of this offering, we will enter into an omnibus agreement
with Sunoco, Inc., Sunoco R&M, and our general partner that will address the
following matters:

   . Sunoco R&M's obligation to reimburse us for specified operating expenses
     and capital expenditures or otherwise to complete certain tank maintenance
     and inspection projects;

   . our obligation to pay our general partner or Sunoco, Inc. an annual
     administrative fee, initially in the amount of $8.0 million, for the
     provision by Sunoco, Inc. of certain general and administrative services;

   . Sunoco, Inc.'s and its affiliates' agreement not to compete with us under
     certain circumstances;

   . our agreement to undertake to develop and construct an asset if requested
     by Sunoco, Inc.;

   . an indemnity by Sunoco, Inc. for certain environmental, toxic tort and
     other liabilities;

                                      111


<PAGE>

   . our obligation to indemnify Sunoco, Inc. for environmental and toxic tort
     liabilities related to our assets to the extent Sunoco, Inc. is not
     required to indemnify us; and

   . our option to purchase certain pipeline, terminalling, and storage assets
     retained by Sunoco, Inc. or its affiliates.

Reimbursement of Expenses and Completion of Certain Projects by Sunoco, Inc.

   The omnibus agreement will require Sunoco R&M to:

   . reimburse us for any operating expenses and capital expenditures in excess
     of $8.0 million per year in each year from 2002 to 2006 that are made to
     comply with the DOT's pipeline integrity management rule, subject to a
     maximum aggregate reimbursement of $15.0 million over this five-year
     period;


   . complete, at its expense, certain tank maintenance and inspection projects
     currently in progress or expected to be completed at the Darby Creek Tank
     Farm within one year; and


   . reimburse us for up to $10.0 million of expenditures required at the
     Marcus Hook Tank Farm and the Darby Creek Tank Farm to maintain compliance
     with existing industry standards and regulatory requirements, including:


     -- cathodic protection upgrades at these facilities;



    -- raising tank farm pipelines above ground level at these facilities; and



    -- repairing or demolishing two riveted tanks at the Marcus Hook Tank Farm.


   We will reflect outlays for these programs as operating expenses or capital
expenditures, as appropriate. Capital expenditures would be depreciated over
their useful lives. The reimbursement by Sunoco R&M will be reflected as a
capital contribution.

Payment of General and Administrative Services Fee

   In addition, under the omnibus agreement we will pay Sunoco, Inc. or our
general partner an annual administrative fee, initially in the amount of $8.0
million, for the provision of various general and administrative services for
our benefit. The contract provides that this amount may be increased in the
second and third years following this offering by the lesser of 2.5% or the
consumer price index for the applicable year. Our general partner, with the
approval and consent of its conflict committee, will also have the right to
agree to further increases in connection with expansions of our operations
through the acquisition or construction of new assets or businesses. After this
three-year period, our general partner will determine the general and
administrative expenses that will be allocated to us. Please read "Risk
Factors--Risks Inherent in an Investment in Us" and "Conflicts of Interest and
Fiduciary Responsibilities--Conflicts of Interest--We will reimburse the
general partner and its affiliates for expenses."


   The $8.0 million fee includes expenses incurred by Sunoco, Inc. and its
affiliates to perform centralized corporate functions, such as legal,
accounting, treasury, engineering, information technology, insurance, and other
corporate services, including the administration of employee benefit plans. The
fee does not include salaries of pipeline and terminal personnel or other
employees of our general partner, including senior executives, or the cost of
their employee benefits, such as 401(k), pension, and health insurance
benefits. We will also reimburse Sunoco, Inc. and its affiliates for direct
expenses they incur on our behalf. In addition, we anticipate incurring
approximately $4.0 million of additional general and administrative costs,
including costs relating to operating as a separate publicly held entity, such
as costs for tax return preparation, annual and quarterly reports to
unitholders, and investor relations and registrar and transfer agent fees, as
well as incremental insurance costs.


                                      112


<PAGE>


Development or Acquisition of an Asset By Us



   The omnibus agreement will also contain a provision pursuant to which
Sunoco, Inc. may at any time propose to us that we undertake a project to
develop and construct or acquire an asset. If our general partner determines in
its good faith judgment, with the concurrence of its conflicts committee, that
the project, including the terms on which Sunoco, Inc. would agree to use such
asset, will be beneficial on the whole to us and that proceeding with the
project will not effectively preclude us from undertaking another project that
will be more beneficial to us, we will be required to use commercially
reasonable efforts to finance, develop, and construct or acquire the asset.


Noncompetition

   Sunoco, Inc. will agree, and will cause its affiliates to agree, for so long
as Sunoco, Inc. controls the general partner, not to engage in, whether by
acquisition or otherwise, the business of purchasing crude oil at the wellhead
or operating crude oil pipelines or terminals, refined products pipelines or
terminals, or LPG terminals in the continental United States. This restriction
will not apply to:

   . any business operated by Sunoco, Inc. or any of its subsidiaries at the
     closing of this offering;

   . any logistics asset constructed by Sunoco, Inc. or any of its subsidiaries
     within a manufacturing or refining facility in connection with the
     operation of that facility;

   . any business that Sunoco, Inc. or any of its subsidiaries acquires or
     constructs that has a fair market value of less than $5.0 million; and


   . any business that Sunoco, Inc. or any of its subsidiaries acquires or
     constructs that has a fair market value of $5.0 million or more if we have
     been offered the opportunity to purchase the business for fair market
     value not later than six months after completion of such acquisition or
     construction, and we decline to do so with the concurrence of our
     conflicts committee.



   In addition, the limitations on the ability of Sunoco, Inc. and its
affiliates to compete with us will terminate upon a change of control of
Sunoco, Inc.


Options to Purchase Assets Retained by Sunoco, Inc.

   The omnibus agreement also contains the terms under which we have the
options to purchase Sunoco, Inc.'s interests in Mid-Valley Pipeline Company,
West Texas Gulf Pipeline Company, Mesa Pipeline and Inland Corporation, as well
as the Icedale pipeline, as described under "Business--Pipeline, Terminalling,
and Storage Assets Retained by Sunoco, Inc."

Indemnification

   Under the omnibus agreement, Sunoco, Inc. will indemnify us for 30 years
after the closing of this offering against certain environmental and toxic tort
liabilities associated with the operation of the assets and occurring before
the closing date of this offering. This indemnity obligation will be reduced by
10% per year beginning with the 22nd year after the closing of this offering.
We have agreed to indemnify Sunoco, Inc. and its affiliates against
environmental and toxic tort liabilities related to our assets to the extent
Sunoco, Inc. is not required to indemnify us. Please read
"Business--Environmental Regulation--General."

   Sunoco, Inc. will also indemnify us for liabilities relating to:

   . the assets contributed to us, other than environmental and toxic tort
     liabilities, that arise out of the operation of the assets prior to the
     closing of this offering and that are asserted within ten years after the
     closing of this offering;

   . certain defects in title to the assets contributed to us and failure to
     obtain certain consents and permits necessary to conduct our business that
     arise within ten years after the closing of this offering;

   . legal actions currently pending against Sunoco, Inc. or its affiliates; and

   . events and conditions associated with any assets retained by Sunoco, Inc.
     or its affiliates.

                                      113


<PAGE>

Pipelines and Terminals Storage and Throughput Agreement

   Concurrently with the closing of this offering, we will enter into a
pipelines and terminals storage and throughput agreement with Sunoco R&M as
described under "Business--Our Relationship with Sunoco, Inc."

   Sunoco R&M's obligations under this agreement will not terminate if Sunoco,
Inc. and its affiliates no longer own the general partner. This agreement may
be assigned by Sunoco R&M only with the consent of our conflicts committee.

Other Agreements with Sunoco R&M and Sunoco, Inc.

   Under a 20-year lease agreement, Sunoco R&M will pay us $5.1 million in the
first year to lease 58 miles of interrefinery pipelines between Sunoco R&M's
Philadelphia and Marcus Hook refineries, escalating at 1.67% per year, for the
next 19 years.


   Sunoco R&M will agree to purchase from us at market-based rates particular
grades of crude oil that our crude oil acquisition and marketing business
purchases for delivery to pipelines in: Longview, Trent, Tye, and Colorado
City, Texas; Haynesville, Louisiana; Marysville and Lewiston, Michigan; and
Tulsa, Oklahoma. The initial term of these agreements is two months. At
Marysville and Lewiston, Michigan, we exchange Michigan sweet and Michigan sour
crude oil we own for domestic sweet crude oil supplied by Sunoco R&M at
market-based rates. These agreements will automatically renew on a monthly
basis unless terminated by either party on 30 days' written notice. Sunoco R&M
has indicated that it has no current intention to terminate these agreements.


   We will enter into a treasury services agreement with Sunoco, Inc. pursuant
to which we will, among other things, participate in Sunoco, Inc.'s centralized
cash management program. Under this program, all of our cash receipts and cash
disbursements will be processed, together with those of Sunoco, Inc. and its
other subsidiaries, through Sunoco, Inc.'s cash accounts with a corresponding
credit or charge to an intercompany account. The intercompany balances will be
settled periodically, but no less frequently than at the end of each month.
Amounts due from Sunoco, Inc. and its subsidiaries will earn interest at a rate
equal to the average rate of our third-party money market investments, while
amounts due to Sunoco, Inc. and its subsidiaries bear interest at a rate equal
to the interest rate provided in our revolving credit facility.


   We will enter into a lease with an affiliate of Sunoco, Inc. for a portion
of the land on which our Exton, Pennsylvania terminal is located. The lease
will allow an affiliate of Sunoco, Inc., as tenant, to continue owning and
operating a service station located on such portion of the land. The lease is a
net lease for $10 per year, and the tenant is responsible for all costs
relating to the ownership and operation of such service station and the land on
which it is located.


                                      114


<PAGE>

             CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES

Conflicts of Interest

   Conflicts of interest exist and may arise in the future as a result of the
relationships between our general partner and its affiliates, including Sunoco,
Inc., on the one hand, and us and our limited partners, on the other hand. The
directors and officers of our general partner have fiduciary duties to manage
the general partner in a manner beneficial to its owners. At the same time, our
general partner has a fiduciary duty to manage us in a manner beneficial to us
and our unitholders.

   Our partnership agreement contains provisions that allow our general partner
to take into account the interests of other parties in addition to our
interests when resolving conflicts of interest. In effect, these provisions
limit our general partner's fiduciary duties to the unitholders. Our
partnership agreement also restricts the remedies available to unitholders for
actions taken that, without those limitations, might constitute breaches of
fiduciary duty. Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us or any other partner, on the other, the
general partner will resolve that conflict. At the request of the general
partner, a conflicts committee of the board of directors of the general partner
will review conflicts of interest. Our general partner will not be in breach of
its obligations under the partnership agreement or its duties to us or the
unitholders if the resolution of the conflict is considered fair and reasonable
to us. Any resolution is considered fair and reasonable to us if that
resolution is:

   . approved by the conflicts committee, although no party is obligated to
     seek approval and the general partner may adopt a resolution or course of
     action that has not received approval;

   . on terms no less favorable to us than those generally being provided to or
     available from unrelated third parties; or

   . fair to us, taking into account the totality of the relationships between
     the parties involved, including other transactions that may be
     particularly favorable or advantageous to us.

   Unless the resolution is specifically provided for in our partnership
agreement, when resolving a conflict, our general partner may consider:

   . the relative interests of the parties involved in the conflict or affected
     by the action;

   . any customary or accepted industry practices or historical dealings with a
     particular person or entity; and

   . generally accepted accounting practices or principles and other factors it
     considers relevant, if applicable.

   Conflicts of interest could arise in the situations described below, among
others.

Actions taken by our general partner may affect the amount of cash available
for distribution to unitholders or accelerate the right to convert subordinated
units.

   The amount of cash that is available for distribution to unitholders is
affected by decisions of our general partner regarding such matters as:

   . amount and timing of asset purchases and sales;

   . cash expenditures;

   . borrowings;

   . issuance of additional units; and

   . the creation, reduction, or increase of reserves in any quarter.

                                      115


<PAGE>

   In addition, borrowings by us and our affiliates do not constitute a breach
of any duty owed by the general partner to our unitholders, including
borrowings that have the purpose or effect of:

   . enabling our general partner to receive distributions on any subordinated
     units held by it or the incentive distribution rights; or

   . hastening the expiration of the subordination period.

   For example, in the event we have not generated sufficient cash from our
operations to pay the minimum quarterly distribution on our common units and
our subordinated units, our partnership agreement permits us to borrow funds,
which would enable us to make this distribution on all outstanding units.
Please read "Cash Distribution Policy--Subordination Period."

   Our partnership agreement provides that we and our subsidiaries may borrow
funds from our general partner and its affiliates. Our general partner and its
affiliates may not borrow funds from us, the operating partnership, or its
operating subsidiaries, other than in connection with Sunoco, Inc's centralized
cash management program.

We do not have any officers or employees and rely solely on officers and
employees of our general partner and its affiliates.

   Affiliates of our general partner conduct businesses and activities of their
own in which we have no economic interest. If these separate activities are
significantly greater than our activities, there could be material competition
for the time and effort of the officers and employees who provide services to
our general partner. The officers of our general partner are not required to
work full time on our affairs. These officers are required to devote time to
the affairs of Sunoco, Inc. or its affiliates and are compensated by them for
the services rendered to them.

We will reimburse the general partner and its affiliates for expenses.

   We will reimburse the general partner and its affiliates for costs incurred
in managing and operating us, including costs incurred in rendering corporate
staff and support services to us. Our partnership agreement provides that the
general partner will determine the expenses that are allocable to us in any
reasonable manner determined by the general partner in its sole discretion.

Our general partner intends to limit its liability regarding our obligations.

   Our general partner intends to limit its liability under contractual
arrangements so that the other party has recourse only to our assets and not
against the general partner or its assets or any affiliate of the general
partner or its assets. Our partnership agreement provides that any action taken
by our general partner to limit its or our liability is not a breach of the
general partner's fiduciary duties, even if we could have obtained terms that
are more favorable without the limitation on liability.

Common unitholders will have no right to enforce obligations of our general
partner and its affiliates under agreements with us.

   Any agreements between us, on the one hand, and our general partner and its
affiliates, on the other, will not grant to the unitholders, separate and apart
from us, the right to enforce the obligations of our general partner and its
affiliates in our favor.

Contracts between us, on the one hand, and our general partner and its
affiliates, on the other, will not be the result of arm's-length negotiations.

   Our partnership agreement allows our general partner to pay itself or its
affiliates for any services rendered, provided these services are rendered on
terms that are fair and reasonable to us. Our general partner may also

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enter into additional contractual arrangements with any of its affiliates on
our behalf. Neither our partnership agreement nor any of the other agreements,
contracts, and arrangements between us and the general partner and its
affiliates are or will be the result of arm's-length negotiations.

   All of these transactions entered into after the sale of the common units
offered in this offering are to be on terms that are fair and reasonable to us.

   Our general partner and its affiliates will have no obligation to permit us
to use any facilities or assets of the general partner and its affiliates,
except as may be provided in contracts entered into specifically dealing with
that use. There is no obligation of our general partner and its affiliates to
enter into any contracts of this kind.

Common units are subject to our general partner's limited call right.

   Our general partner may exercise its right to call and purchase common units
as provided in the partnership agreement or assign this right to one of its
affiliates or to us. Our general partner may use its own discretion, free of
fiduciary duty restrictions, in determining whether to exercise this right. As
a result, a common unitholder may have his common units purchased from him at
an undesirable time or price. Please read "The Partnership Agreement--Limited
Call Right."

We may not choose to retain separate counsel for ourselves or for the holders
of common units.

   The attorneys, independent accountants, and others who perform services for
us have been retained by our general partner. Attorneys, independent
accountants, and others who perform services for us are selected by our general
partner or the conflicts committee and may perform services for our general
partner and its affiliates. We may retain separate counsel for ourselves or the
holders of common units in the event of a conflict of interest between our
general partner and its affiliates, on the one hand, and us or the holders of
common units, on the other, depending on the nature of the conflict. We do not
intend to do so in most cases.

Our general partner's affiliates may compete with us.

   Our partnership agreement provides that the general partner will be
restricted from engaging in any business activities other than those incidental
to its ownership of interests in us and certain services the employees of our
general partner are currently providing to Sunoco, Inc. and its affiliates.
Except as provided in our partnership agreement and the omnibus agreement,
affiliates of our general partner are not prohibited from engaging in other
businesses or activities, including those that might be in direct competition
with us.

Fiduciary Responsibilities

   Our general partner is accountable to us and our unitholders as a fiduciary.
Fiduciary duties owed to unitholders by our general partner are prescribed by
law and the partnership agreement. The Delaware Revised Uniform Limited
Partnership Act, which we refer to in this prospectus as the Delaware Act,
provides that Delaware limited partnerships may, in their partnership
agreements, restrict or expand the fiduciary duties owed by the general partner
to limited partners and the partnership.

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   Our partnership agreement contains various provisions restricting the
fiduciary duties that might otherwise be owed by the general partner. The
following is a summary of the material restrictions of the fiduciary duties
owed by our general partner to the limited partners:

State law fiduciary duty
  standards.................  Fiduciary duties are generally considered to
                              include an obligation to act with due care and
                              loyalty. The duty of care, in the absence of a
                              provision in a partnership agreement providing
                              otherwise, would generally require a general
                              partner to act for the partnership in the same
                              manner as a prudent person would act on his own
                              behalf. The duty of loyalty, in the absence of a
                              provision in a partnership agreement providing
                              otherwise, would generally prohibit a general
                              partner of a Delaware limited partnership from
                              taking any action or engaging in any transaction
                              where a conflict of interest is present.

                              The Delaware Act generally provides that a
                              limited partner may institute legal action on
                              behalf of the partnership to recover damages from
                              a third party where a general partner has refused
                              to institute the action or where an effort to
                              cause a general partner to do so is not likely to
                              succeed. In addition, the statutory or case law
                              of some jurisdictions may permit a limited
                              partner to institute legal action on behalf of
                              himself and all other similarly situated limited
                              partners to recover damages from a general
                              partner for violations of its fiduciary duties to
                              the limited partners.
Partnership agreement
  modified standards........  Our partnership agreement contains provisions
                              that waive or consent to conduct by our general
                              partner and its affiliates that might otherwise
                              raise issues as to compliance with fiduciary
                              duties or applicable law. For example, our
                              partnership agreement permits our general partner
                              to make a number of decisions in its "sole
                              discretion." This entitles the general partner to
                              consider only the interests and factors that it
                              desires, and it has no duty or obligation to give
                              any consideration to any interest of, or factors
                              affecting, us, our affiliates or any limited
                              partner. Other provisions of the partnership
                              agreement provide that the general partner's
                              actions must be made in its reasonable
                              discretion. These standards reduce the
                              obligations to which the general partner would
                              otherwise be held.

                              Our partnership agreement generally provides that
                              affiliated transactions and resolutions of
                              conflicts of interest not involving a required
                              vote of unitholders must be "fair and reasonable"
                              to us under the factors previously set forth. In
                              determining whether a transaction or resolution
                              is "fair and reasonable," our general partner may
                              consider interests of all parties involved,
                              including its own. Unless our general partner has
                              acted in bad faith, the action taken by our
                              general partner will not constitute a breach of
                              its fiduciary duty. These standards reduce the
                              obligations to which our general partner would
                              otherwise be held.

                              In addition to the other more specific provisions
                              limiting the obligations of our general partner,
                              our partnership agreement further provides that
                              our general partner and its officers and
                              directors will not be liable for monetary damages
                              to us, our limited partners, or assignees for
                              errors of judgment or for any acts or omissions
                              if the general partner and those other persons
                              acted in good faith.

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   In order to become one of our limited partners, a common unitholder is
required to agree to be bound by the provisions in the partnership agreement,
including the provisions discussed above. This is in accordance with the policy
of the Delaware Act favoring the principle of freedom of contract and the
enforceability of partnership agreements. The failure of a limited partner or
assignee to sign a partnership agreement does not render the partnership
agreement unenforceable against that person.

   We must indemnify our general partner and its officers, directors,
employees, affiliates, members, agents and trustees, to the fullest extent
permitted by law, against liabilities, costs and expenses incurred by the
general partner or these other persons. We must provide this indemnification if
our general partner or these persons acted in good faith and in a manner they
reasonably believed to be in, or (in the case of a person other than the
general partner) not opposed to, our best interests. We also must provide this
indemnification for criminal proceedings if our general partner or these other
persons had no reasonable cause to believe their conduct was unlawful. Thus,
our general partner could be indemnified for its negligent acts if it met these
requirements concerning good faith and our best interests. Please read "The
Partnership Agreement--Indemnification."

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                        DESCRIPTION OF THE COMMON UNITS

The Units

   The common units and the subordinated units represent limited partner
interests in us. The holders of units are entitled to participate in
partnership distributions and exercise the rights or privileges available to
limited partners under our partnership agreement. For a description of the
relative rights and preferences of holders of common units and subordinated
units in and to partnership distributions, please read this section, "Cash
Distribution Policy," and "Description of the Subordinated Units." For a
description of the rights and privileges of limited partners under our
partnership agreement, including voting rights, please read "The Partnership
Agreement."

Transfer Agent and Registrar

Duties

   American Stock Transfer & Trust Company will serve as registrar and transfer
agent for the common units. We pay all fees charged by the transfer agent for
transfers of common units, except the following that must be paid by
unitholders:

   . surety bond premiums to replace lost or stolen certificates, taxes and
     other governmental charges;

   . special charges for services requested by a holder of a common unit; and

   . other similar fees or charges.

   There is no charge to unitholders for disbursements of our cash
distributions. We will indemnify the transfer agent, its agents and each of
their stockholders, directors, officers and employees against all claims and
losses that may arise out of acts performed or omitted for its activities in
that capacity, except for any liability due to any gross negligence or
intentional misconduct of the indemnified person or entity.

Resignation or Removal

   The transfer agent may resign, by notice to us, or be removed by us. The
resignation or removal of the transfer agent will become effective upon our
appointment of a successor transfer agent and registrar and its acceptance of
the appointment. If no successor has been appointed and has accepted the
appointment within 30 days after notice of the resignation or removal, the
general partner may act as the transfer agent and registrar until a successor
is appointed.

Transfer of Common Units

   The transfer of the common units to persons that purchase directly from the
underwriters will be accomplished through the completion, execution and
delivery of a transfer application by the investor. Any later transfers of a
common unit will not be recorded by the transfer agent or recognized by us
unless the transferee executes and delivers a transfer application. By
executing and delivering a transfer application, the transferee of common units:

   . becomes the record holder of the common units and is an assignee until
     admitted into our partnership as a substituted limited partner;

   . automatically requests admission as a substituted limited partner in our
     partnership;

   . agrees to be bound by the terms and conditions of, and executes, our
     partnership agreement;

   . represents that the transferee has the capacity, power and authority to
     enter into the partnership agreement;

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   . grants powers of attorney to officers of our general partner and any
     liquidator of us as specified in the partnership agreement; and

   . makes the consents and waivers contained in the partnership agreement.

   An assignee will become a substituted limited partner of our partnership for
the transferred common units upon the consent of our general partner and the
recording of the name of the assignee on our books and records. The general
partner may withhold its consent in its sole discretion.

   A transferee's broker, agent or nominee may complete, execute and deliver a
transfer application. We are entitled to treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial holder's rights are
limited solely to those that it has against the nominee holder as a result of
any agreement between the beneficial owner and the nominee holder.

   Common units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner in our partnership for the transferred common
units. A purchaser or transferee of common units who does not execute and
deliver a transfer application obtains only:

   . the right to assign the common unit to a purchaser or other transferee; and

   . the right to transfer the right to seek admission as a substituted limited
     partner in our partnership for the transferred common units.

   Thus, a purchaser or transferee of common units who does not execute and
deliver a transfer application:

   . will not receive cash distributions or federal income tax allocations,
     unless the common units are held in a nominee or "street name" account and
     the nominee or broker has executed and delivered a transfer application;
     and

   . may not receive some federal income tax information or reports furnished
     to record holders of common units.

   The transferor of common units has a duty to provide the transferee with all
information that may be necessary to transfer the common units. The transferor
does not have a duty to insure the execution of the transfer application by the
transferee and has no liability or responsibility if the transferee neglects or
chooses not to execute and forward the transfer application to the transfer
agent. Please read "The Partnership Agreement--Status as Limited Partner or
Assignee."

   Until a common unit has been transferred on our books, we and the transfer
agent may treat the record holder of the unit as the absolute owner for all
purposes, except as otherwise required by law or stock exchange regulations.

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                     DESCRIPTION OF THE SUBORDINATED UNITS

   The subordinated units are a separate class of limited partner interests in
our partnership, and the rights of holders to participate in distributions to
partners differ from, and are subordinate to, the rights of the holders of
common units. For any given quarter, any available cash will first be
distributed to the general partner and to the holders of common units, until
the holders of common units have received the minimum quarterly distribution
plus any arrearages, and then will be distributed to the holders of
subordinated units. Please read "Cash Distribution Policy."

Conversion of Subordinated Units

   The subordination period will generally extend until the first day of any
quarter beginning after December 31, 2006, in which each of the following
events occurs:

      (1) distributions of available cash from operating surplus on each of the
   outstanding common units and subordinated units equaled or exceeded the
   minimum quarterly distribution for each of the three consecutive,
   non-overlapping four-quarter periods immediately preceding that date;

      (2) the adjusted operating surplus generated during each of the three
   consecutive, non-overlapping four-quarter periods immediately preceding that
   date equaled or exceeded the sum of the minimum quarterly distributions on
   all of the outstanding common units and subordinated units during those
   periods on a fully diluted basis and the related distribution on the 2%
   general partner interest during those periods; and

      (3) there are no arrearages in payment of the minimum quarterly
   distribution on the common units.


   Before the end of the subordination period, 25% of the subordinated units
(up to 2,845,910 subordinated units) will convert early into common units on a
one-for-one basis immediately after the distribution of available cash to the
partners in respect of any quarter ending on or after December 31, 2004, and
25% of the subordinated units (up to 2,845,910 subordinated units) will convert
early into common units on a one-for-one basis on the first day after the
record date established for the distribution for any quarter ending on or after
December 31, 2005, if at the end of the applicable quarter each of the
following three events occurs:


      (1) distributions of available cash from operating surplus on each of the
   outstanding common units and subordinated units equaled or exceeded the sum
   of the minimum quarterly distributions on all of the outstanding common
   units and subordinated units for each of the three consecutive,
   non-overlapping four-quarter periods immediately preceding that date;

      (2) the adjusted operating surplus generated during each of the three
   consecutive, non-overlapping four-quarter periods immediately preceding that
   date equaled or exceeded the sum of the minimum quarterly distributions on
   all of the outstanding common units and subordinated units during those
   periods on a fully diluted basis and the related distribution on the 2%
   general partner interest during those periods; and

      (3) there are no arrearages in payment of the minimum quarterly
   distribution on the common units;

provided, however, that the second early conversion of the subordinated units
may not occur until at least one year following the first early conversion of
the subordinated units.

   Upon expiration of the subordination period, all remaining subordinated
units will convert into common units on a one-for-one basis and will then
participate, pro rata, with the other common units in distributions of
available cash. In addition, if Sunoco Partners LLC is removed as our general
partner under circumstances where cause does not exist and units held by the
general partner and its affiliates are not voted in favor of that removal:

   . the subordination period will end and all outstanding subordinated units
     will immediately convert into common units on a one-for-one basis;

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   . any existing arrearages in payment of the minimum quarterly distribution
     on the common units will be extinguished; and

   . the general partner will have the right to convert its general partner
     interests and its incentive distribution rights into common units or to
     receive cash in exchange for those interests.

Limited Voting Rights

   Holders of subordinated units sometimes vote as a single class together with
the common units and sometimes vote as a class separate from the holders of
common units. Holders of subordinated units like holders of common units have
very limited voting rights. During the subordination period, common units and
subordinated units each vote separately as a class on the following matters:

   . a sale or exchange of all or substantially all of our assets;

   . the election of a successor general partner in connection with the removal
     of the general partner;

   . dissolution or reconstitution of our partnership;

   . a merger of our partnership;

   . issuance of limited partner interests in some circumstances; and

   . some amendments to the partnership agreement, including any amendment that
     would cause us to be treated as an association taxable as a corporation.

   The subordinated units are not entitled to vote on approval of the
withdrawal of the general partner or the transfer by the general partner of its
general partner interest or incentive distribution rights under some
circumstances. Removal of our general partner requires:

   . a 66 2/3% vote of all outstanding units voting as a single class; and

   . the election of a successor general partner by the holders of a majority
     of the outstanding common units and subordinated units voting as separate
     classes.

   Under our partnership agreement, our general partner generally will be
permitted to effect amendments to the partnership agreement that do not
materially adversely affect unitholders without the approval of any unitholders.

Distributions upon Liquidation

   If we liquidate during the subordination period, in some circumstances,
holders of outstanding common units will be entitled to receive more per unit
in liquidating distributions than holders of outstanding subordinated units.
The per-unit difference will be dependent upon the amount of gain or loss that
we recognize in liquidating our assets. Following conversion of the
subordinated units into common units, all units will be treated the same upon
liquidation.

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                           THE PARTNERSHIP AGREEMENT

   The following is a summary of the material provisions of our partnership
agreement. Our partnership agreement and the partnership agreement of the
operating partnership are included as exhibits to the registration statement of
which this prospectus constitutes a part. We will provide prospective investors
with a copy of these agreements upon request at no charge.

   We summarize the following provisions of the partnership agreement elsewhere
in this prospectus:

   . with regard to distributions of available cash, please read "Cash
     Distribution Policy";

   . with regard to the transfer of common units, please read "Description of
     the Common Units--Transfer of Common Units"; and

   . with regard to allocations of taxable income and taxable loss, please read
     "Material Tax Consequences."

Organization and Duration

   We were organized on October 15, 2001 and have a perpetual existence.

Purpose

   Our purpose under the partnership agreement is limited to serving as the
limited partner of the operating partnership and engaging in any business
activities that may be engaged in by the operating partnership or that are
approved by our general partner. The partnership agreement of the operating
partnership provides that the operating partnership may, directly or
indirectly, engage in:

      (1) its operations as conducted immediately before our initial public
   offering;

      (2) any other activity approved by the general partner but only to the
   extent that the general partner reasonably determines that, as of the date
   of the acquisition or commencement of the activity, the activity generates
   "qualifying income" as this term is defined in Section 7704 of the Internal
   Revenue Code; or

      (3) any activity that enhances the operations of an activity that is
   described in (1) or (2) above.

   Although the general partner has the ability to cause us, the operating
partnership or its subsidiaries to engage in activities other than the storage,
terminalling, transportation and distribution of crude oil petroleum products
and LPG, our general partner has no current plans to do so. The 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 limited partner, and each person who acquires a unit from a unitholder
and executes and delivers a transfer application, 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. The power of attorney also grants the general partner the
authority to amend, and to make consents and waivers under, the partnership
agreement.

Capital Contributions

   Unitholders are not obligated to make additional capital contributions,
except as described below under "--Limited Liability."

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Limited Liability

   Assuming that a limited partner does not participate in the control of our
business within the meaning of the Delaware Act and that he otherwise acts in
conformity with the provisions of the partnership agreement, his liability
under the Delaware Act will be limited, subject to possible exceptions, to the
amount of capital he is obligated to contribute to us for his common units plus
his share of any undistributed profits and assets. If it were determined,
however, that the right, or exercise of the right, by the limited partners as a
group:

   . to remove or replace the general partner;

   . to approve some amendments to the partnership agreement; or

   . to take other action under the partnership agreement;

constituted "participation in the control" of our business for the purposes of
the Delaware Act, then the limited partners could be held personally liable for
our obligations under the laws of Delaware, to the same extent as the general
partner. This liability would extend to persons who transact business with us
who reasonably believe that the limited partner is a general partner. Neither
the partnership agreement nor the Delaware Act specifically provides for legal
recourse against the general partner if a limited partner were to lose limited
liability through any fault of the general partner. While 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 Delaware Act, 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 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 Delaware Act provides that the fair
value of property subject to liability for which recourse of creditors is
limited shall 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 Delaware Act 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 Delaware Act shall be liable to the limited partnership for the amount
of the distribution for three years. Under the Delaware Act, an assignee who
becomes a substituted limited partner of a limited partnership is liable for
the obligations of his assignor to make contributions to the partnership,
except the assignee is not obligated for liabilities unknown to him at the time
he became a limited partner and that could not be ascertained from the
partnership agreement.

   Our subsidiaries conduct business in 11 states and Canada. Maintenance of
our limited liability as a limited partner of the operating partnership may
require compliance with legal requirements in the jurisdictions in which the
operating partnership conducts business, including qualifying our subsidiaries
to do business there. Limitations on the liability of limited partners for the
obligations of a limited partner have not been clearly established in many
jurisdictions. If, by virtue of our limited partner interest in the operating
partnership or otherwise, it were determined that we were 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 remove or replace the general partner, to
approve some amendments to the partnership agreement, or to take other action
under the 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 the general partner under
the circumstances. We will operate in a manner that the general partner
considers reasonable and necessary or appropriate to preserve the limited
liability of the limited partners.

Issuance of Additional Securities

   The partnership agreement authorizes us to issue an unlimited number of
additional partnership securities and rights to buy partnership securities for
the consideration and on the terms and conditions established by the

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general partner in its sole discretion without the approval of the unitholders.
During the subordination period, however, except as we discuss in the following
paragraph, we may not issue equity securities ranking senior to the common
units or an aggregate of more than 5,691,820 additional common units or units
on a parity with the common units, in each case, without the approval of the
holders of a majority of the outstanding common units and subordinated units,
voting as separate classes.


   During or after the subordination period, we may issue an unlimited number
of common units as follows:

   . upon exercise of the underwriters' over-allotment option;

   . upon conversion of the subordinated units;

   . under employee benefit plans;

   . upon conversion of the general partner interest and incentive distribution
     rights as a result of a withdrawal of the general partner;

   . in the event of a combination or subdivision of common units;

   . in connection with an acquisition or a capital improvement that increases
     cash flow from operations per unit on a pro forma basis; or

   . if the proceeds of the issuance are used exclusively to repay up to $40.0
     million of certain of our indebtedness.

   It is possible that we will fund acquisitions through the issuance of
additional common units or other equity securities. Holders of any additional
common units we issue will be entitled to share equally with the then-existing
holders of common units in our distributions of available cash. In addition,
the issuance of additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our net assets.

   In accordance with Delaware law and the provisions of our partnership
agreement, we may also issue additional partnership securities interests that,
in the sole discretion of the general partner, have special voting rights to
which the common units are not entitled.

   Upon issuance of additional partnership securities, the general partner will
be required to make additional capital contributions to the extent necessary to
maintain its 2% general partner interest in us. Moreover, the general partner
will have the right, which it may from time to time assign in whole or in part
to any of its affiliates, to purchase common units, subordinated units or other
equity securities whenever, and on the same terms that, we issue those
securities to persons other than the general partner and its affiliates, to the
extent necessary to maintain its percentage interest, including its interest
represented by common units and subordinated units, that existed immediately
prior to each issuance. The holders of common units will not have preemptive
rights to acquire additional common units or other partnership securities.

Amendment of the Partnership Agreement

General

   Amendments to the partnership agreement may be proposed only by or with the
consent of the general partner, which consent may be given or withheld in its
sole discretion, except as discussed below. In order to adopt a proposed
amendment, other than the amendments discussed below, the 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 we describe below, an amendment must be
approved:

   . during the subordination period, by a majority of the common units,
     excluding those common units held by our general partner and its
     affiliates, and a majority of the subordinated units, voting as separate
     classes; and

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   . after the subordination period, by a majority of the common units.

   We refer to the voting provisions described above as a "unit majority."

Prohibited Amendments

   No amendment may be made that would:

      (1) enlarge the obligations of any limited partner without its consent,
   unless approved by at least a majority of the type or class of limited
   partner interests so affected;

      (2) enlarge the obligations of, restrict in any way any action by or
   rights of, or reduce in any way the amounts distributable, reimbursable or
   otherwise payable by us to the general partner or any of its affiliates
   without the consent of the general partner, which may be given or withheld
   in its sole discretion;

      (3) change the term of our partnership;

      (4) provide that our partnership is not dissolved upon an election to
   dissolve our partnership by the general partner that is approved by the
   holders of a majority of the outstanding common units and subordinated units
   voting as separate classes; or

      (5) give any person the right to dissolve our partnership other than the
   general partner's right to dissolve our partnership with the approval of the
   holders of a majority of the outstanding common units and subordinated units
   voting as separate classes.


The provision of the partnership agreement preventing the amendments having the
effects described in clauses (1) through (5) above can be amended upon the
approval of the holders of at least 90% of the outstanding units voting
together as a single class. Upon completion of this offering, our general
partner will own 78.0% of the outstanding units.


No Unitholder Approval

   The general partner may generally make amendments to the partnership
agreement without the approval of any limited partner or assignee to reflect:

      (1) a change in our name, the location of our principal place of
   business, our registered agent or our registered office;

      (2) the admission, substitution, withdrawal, or removal of partners in
   accordance with the partnership agreement;

      (3) a change that, in the sole discretion of the general partner, is
   necessary or advisable 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 to ensure that neither we,
   the operating partnership, nor its subsidiaries will be treated as an
   association taxable as a corporation or otherwise taxed as an entity for
   federal income tax purposes;

      (4) an amendment that is necessary, in the opinion of our counsel, to
   prevent us or our general partner or its directors, officers, agents, or
   trustees 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, or ERISA, whether or not substantially similar to plan asset
   regulations currently applied or proposed;

      (5) subject to the limitations on the issuance of additional partnership
   securities described above, an amendment that in the discretion of the
   general partner is necessary or advisable for the authorization of
   additional partnership securities or rights to acquire partnership
   securities;

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      (6) any amendment expressly permitted in the partnership agreement to be
   made by the general partner acting alone;

      (7) an amendment effected, necessitated, or contemplated by a merger
   agreement that has been approved under the terms of the partnership
   agreement;

      (8) any amendment that, in the discretion of the general partner, is
   necessary or advisable for the formation by us of, or our investment in, any
   corporation, partnership, or other entity, as otherwise permitted by the
   partnership agreement;

      (9) a change in our fiscal year or taxable year and related changes; or

      (10) any other amendments substantially similar to any of the matters
   described in (1) through (9) above.

   In addition, the general partner may make amendments to the partnership
agreement without the approval of any limited partner or assignee if those
amendments, in the discretion of the general partner:

      (1) do not adversely affect the limited partners (or any particular class
   of limited partners) in any material respect;

      (2) are necessary or advisable to satisfy any requirements, conditions,
   or guidelines contained in any opinion, directive, order, ruling, or
   regulation of any federal or state agency or judicial authority or contained
   in any federal or state statute;

      (3) are necessary or advisable to facilitate the trading of limited
   partner interests or to comply with any rule, regulation, guideline, or
   requirement of any securities exchange on which the limited partner
   interests are or will be listed for trading, compliance with any of which
   the general partner deems to be in our best interest and the best interest
   of limited partners;

      (4) are necessary or advisable for any action taken by the general
   partner relating to splits or combinations of units under the provisions of
   the partnership agreement; or

      (5) are required to effect the intent expressed in this prospectus or the
   intent of the provisions of the partnership agreement or are otherwise
   contemplated by the partnership agreement.

Opinion of Counsel and Unitholder Approval

   Our general partner will not be required to obtain an opinion of counsel
that an amendment will not result in a loss of limited liability to the limited
partners or result in our being treated as an entity for federal income tax
purposes if one of the amendments described above under "--No Unitholder
Approval" should occur. No other amendments to the partnership agreement will
become effective without the approval of holders of at least 90% of the units
unless we obtain an opinion of counsel to the effect that the amendment will
not affect the limited liability under applicable law of any of our limited
partners or cause us, the operating partnership, or its subsidiaries to be
taxable as a corporation or otherwise to be taxed as an entity for federal
income tax purposes (to the extent not previously taxed as such).

   In addition to the above restrictions, any amendment that would have a
material adverse effect on the rights or preferences of any type or class of
outstanding units in relation to other classes of units will require the
approval of at least a majority of the type or class of units so affected. Any
amendment that reduces the voting percentage required to take any action must
be approved by the affirmative vote of limited partners constituting not less
than the voting requirement sought to be reduced.

Action Relating to the Operating Partnership

   Without the approval of the holders of units representing a unit majority,
our general partner is prohibited from consenting on our behalf, as the limited
partner of the operating partnership, to any amendment to the

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partnership agreement of the operating partnership or taking any action on our
behalf permitted to be taken by a limited partner of the operating partnership
in each case that would adversely affect our limited partners (or any
particular class of limited partners) in any material respect.

Merger, Sale, or Other Disposition of Assets

   The partnership agreement generally prohibits the general partner, without
the prior approval of the holders of units representing a unit majority, from
causing us to, among other things, sell, exchange, or otherwise dispose of all
or substantially all of our assets in a single transaction or a series of
related transactions, including by way of merger, consolidation, or other
combination, or approving on our behalf the sale, exchange, or other
disposition of all or substantially all of the assets of our subsidiaries. The
general partner may, however, mortgage, pledge, hypothecate, or grant a
security interest in all or substantially all of our assets without that
approval. The general partner may also sell all or substantially all of our
assets under a foreclosure or other realization upon those encumbrances without
that approval.

   If conditions specified in the partnership agreement are satisfied, the
general partner may merge us or any of our subsidiaries into, or convey some or
all of our assets to, a newly formed entity if the sole purpose of that merger
or conveyance is to change our legal form into another limited liability
entity. The unitholders are not entitled to dissenters' rights of appraisal
under the partnership agreement or applicable Delaware law in the event of a
merger or consolidation, a sale of substantially all of our assets, or any
other transaction or event.

Termination and Dissolution

   We will continue as a limited partnership until terminated under the
partnership agreement. We will dissolve upon:

      (1) the election of the general partner to dissolve us, if approved by
   the holders of units representing a unit majority;

      (2) the sale, exchange, or other disposition of all or substantially all
   of our assets and properties and our subsidiaries;

      (3) the entry of a decree of judicial dissolution of Sunoco Logistics
   Partners; or

      (4) the withdrawal or removal of our general partner or any other event
   that results in its ceasing to be the general partner other than by reason
   of a transfer of its general partner interest in accordance with the
   partnership agreement or withdrawal or removal following approval and
   admission of a successor.

   Upon a dissolution under clause (4), the holders of a majority of the
outstanding common units and subordinated units, voting as separate classes,
may also elect, within specific time limitations, to reconstitute us and
continue our business on the same terms and conditions described in the
partnership agreement by forming a new limited partnership on terms identical
to those in the partnership agreement and having as general partner an entity
approved by the holders of units representing a unit majority, subject to our
receipt of an opinion of counsel to the effect that:

      (1) the action would not result in the loss of limited liability of any
   limited partner; and

      (2) neither Sunoco Logistics Partners, the reconstituted limited
   partnership, nor the operating partnership would be treated as an
   association taxable as a corporation or otherwise be taxable as an entity
   for federal income tax purposes upon the exercise of that right to continue.

Liquidation and Distribution of Proceeds

   Upon our dissolution, unless we are reconstituted and continued as a new
limited partnership, the liquidator authorized to wind up our affairs will,
acting with all of the powers of the general partner that the liquidator

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deems necessary or desirable in its judgment, liquidate our assets and apply
the proceeds of the liquidation as provided in "Cash Distribution
Policy--Distributions of Cash Upon Liquidation." The liquidator may defer
liquidation of our assets for a reasonable period or distribute assets to
partners in kind if it determines that a sale would be impractical or would
cause undue loss to the partners.

Withdrawal or Removal of the General Partner


   Except as described below, our general partner has agreed not to withdraw
voluntarily as our general partner prior to December 31, 2011 without obtaining
the approval of the holders of at least a majority of the outstanding common
units, excluding common units held by the general partner and its affiliates,
and furnishing an opinion of counsel regarding limited liability and tax
matters. On or after December 31, 2011, our general partner may withdraw as
general partner without first obtaining approval of any unitholder by giving 90
days' written notice, and that withdrawal will not constitute a violation of
the partnership agreement. Notwithstanding the information above, our general
partner may withdraw without unitholder approval upon 90 days' notice to the
limited partners if at least 50% of the outstanding common units are held or
controlled by one person and its affiliates other than the general partner and
its affiliates. In addition, the partnership agreement permits our general
partner in some instances to sell or otherwise transfer all of its general
partner interest in us without the approval of the unitholders. Please read
"--Transfer of General Partner Interests and Incentive Distribution Rights."


   Upon withdrawal of our general partner under any circumstances, other than
as a result of a transfer by the general partner of all or a part of its
general partner interest in us, the holders of a majority of the outstanding
common units and subordinated units, voting as separate classes, may select a
successor to that withdrawing general partner. If a successor is not elected,
or is elected but an opinion of counsel regarding limited liability and tax
matters cannot be obtained, we will be dissolved, wound up, and liquidated,
unless within 180 days after that withdrawal, the holders of a majority of the
outstanding common units and subordinated units, voting as separate classes,
agree in writing to continue our business and to appoint a successor general
partner. Please read "--Termination and Dissolution."


   Our general partner may not be removed unless that removal is approved by
the vote of the holders of not less than 66 2/3% of the outstanding units,
voting together as a single class, including units held by the general partner
and its affiliates, and we receive an opinion of counsel regarding limited
liability and tax matters. 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 common units and subordinated units, voting as
separate classes. The ownership of more than 33 1/3% of the outstanding units
by our general partner and its affiliates would give it the practical ability
to prevent its removal. At the closing of this offering, our general partner
and its affiliates will own 78.0% of the outstanding units.


   Our partnership agreement also provides that if Sunoco Partners LLC is
removed as our general partner under circumstances where cause does not exist
and units held by the general partner and its affiliates are not voted in favor
of that removal:

      . the subordination period will end and all outstanding subordinated
   units will immediately convert into common units on a one-for-one basis;

      . any existing arrearages in payment of the minimum quarterly
   distribution on the common units will be extinguished; and

      . the general partner will have the right to convert its general partner
   interest and its incentive distribution rights into common units or to
   receive cash in exchange for those interests.

   In the event of removal of the general partner under circumstances where
cause exists or withdrawal of the general partner where that withdrawal
violates the partnership agreement, a successor general partner will have the
option to purchase the general partner interest and incentive distribution
rights of the departing general

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partner for a cash payment equal to the fair market value of those interests.
Under all other circumstances where the general partner withdraws or is removed
by the limited partners, the departing general partner will have the option to
require the successor general partner to purchase the general partner interest
of the departing general partner and its incentive distribution rights for the
fair market value. In each case, this fair market value will be determined by
agreement between the departing general partner and the successor general
partner. If no agreement is reached, an independent investment banking firm or
other independent expert selected by the departing general partner and the
successor general partner will determine the fair market value. Or, if the
departing general partner and the successor general partner cannot agree upon
an expert, then an expert chosen by agreement of the experts selected by each
of them will determine the fair market value.

   If the option described above is not exercised by either the departing
general partner or the successor general partner, the departing general
partner's general partner interest and its incentive distribution rights will
automatically convert into common units equal to the fair market value of those
interests as determined by an investment banking firm or other independent
expert selected in the manner described in the preceding paragraph.

   In addition, we will be required to reimburse the departing general partner
for all amounts due the departing general partner, including, without
limitation, all employee-related liabilities, including severance liabilities,
incurred for the termination of any employees employed by the departing general
partner or its affiliates for our benefit.

Transfer of General Partner Interests

   Except for transfer by our general partner of all, but not less than all, of
its general partner interest in us to:

       . an affiliate of the general partner (other than an individual), or

       . another entity as part of the merger or consolidation of the general
         partner with or into another entity or the transfer by the general
         partner of all or substantially all of its assets to another entity,

our general partner may not transfer all or any part of its general partner
interest in us to another person prior to December 31, 2011 without the
approval of the holders of at least a majority of the outstanding common units,
excluding common units held by the general partner and its affiliates. As a
condition of this transfer, the transferee must, among other things, assume the
rights and duties of the general partner, agree to be bound by the provisions
of the partnership agreement, and furnish an opinion of counsel regarding
limited liability and tax matters. Our general partner and its affiliates may
at any time transfer units to one or more persons, without unitholder approval,
except that they may not transfer subordinated units to us.

Transfer of Ownership Interests in General Partner

   At any time, the members of our general partner may sell or transfer all or
part of their membership interests in our general partner to an affiliate or a
third party without the approval of our unitholders.

Transfer of Incentive Distribution Rights

   Our general partner or its affiliates or a subsequent holder may transfer
its incentive distribution rights to an affiliate or another person as part of
its merger or consolidation with or into, or sale of all or substantially all
of its assets to, or sale of all or substantially all of its equity interests
to, that person without the prior approval of the unitholders; but, in each
case, the transferee must agree to be bound by the provisions of the
partnership agreement. Prior to December 31, 2011, other transfers of the
incentive distribution rights will require the affirmative vote of holders of a
majority of the outstanding common units and subordinated units, voting as
separate classes. On or after December 31, 2011, the incentive distribution
rights will be freely transferable.

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Change of Management Provisions

   The partnership agreement contains specific provisions that are intended to
discourage a person or group from attempting to remove Sunoco Partners LLC as
our general partner or otherwise change management. If any person or group
other than the general partner and its affiliates acquires beneficial ownership
of 20% or more of any class of units, that person or group loses voting rights
on all of its units. This loss of voting rights does not apply to any person or
group that acquires the units from our general partner or its affiliates and
any transferees of that person or group approved by our general partner or to
any person or group who acquires the units with the prior approval of the board
of directors.

   The partnership agreement also provides that if the general partner is
removed under circumstances where cause does not exist and units held by the
general partner and its affiliates are not voted in favor of that removal:

      (1) the subordination period will end and all outstanding subordinated
   units will immediately convert into common units on a one-for-one basis;

      (2) any existing arrearages in payment of the minimum quarterly
   distribution on the common units will be extinguished; and

      (3) the general partner will have the right to convert its general
   partner interest and its incentive distribution rights into common units or
   to receive cash in exchange for those interests.

Limited Call Right

   If at any time the general partner and its affiliates hold more than 80% of
the then-issued and outstanding partnership securities of any class, the
general partner will have the right, which it may assign in whole or in part to
any of its affiliates or to us, to acquire all, but not less than all, of the
remaining partnership securities of the class held by unaffiliated persons as
of a record date to be selected by the general partner, on at least ten but not
more than 60 days notice. The purchase price in the event of this purchase is
the greater of:

      (1) the highest cash price paid by either of the general partner or any
   of its affiliates for any partnership securities of the class purchased
   within the 90 days preceding the date on which the general partner first
   mails notice of its election to purchase those partnership securities; and

      (2) the current market price as of the date three days before the date
   the notice is mailed.

As a result of the general partner's right to purchase outstanding partnership
securities, a holder of partnership securities may have his partnership
securities purchased at an undesirable time or price. The tax consequences to a
unitholder of the exercise of this call right are the same as a sale by that
unitholder of his common units in the market. Please read "Material Tax
Consequences--Disposition of Common Units."

Meetings; Voting

   Except as described below regarding a person or group owning 20% or more of
any class of units then outstanding, unitholders or assignees who are record
holders of units on the record date will be entitled to notice of, and to vote
at, meetings of our limited partners and to act upon matters for which
approvals may be solicited. Common units that are owned by an assignee who is a
record holder, but who has not yet been admitted as a limited partner, will be
voted by the general partner at the written direction of the record holder.
Absent direction of this kind, the common units will not be voted, except that,
in the case of common units held by the general partner on behalf of
non-citizen assignees, the general partner will distribute the votes on those
common units in the same ratios as the votes of limited partners on other units
are cast.

   The general partner does not anticipate that any meeting of unitholders will
be called in the foreseeable future. Any action that is required or permitted
to be taken by the unitholders may be taken either at a meeting of the
unitholders or without a meeting if consents in writing describing the action
so taken are signed by holders of

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the number of units necessary to authorize or take that action at a meeting.
Meetings of the unitholders may be called by the general partner or by
unitholders owning at least 20% of the outstanding units of the class for which
a meeting is proposed. Unitholders may vote either in person or by proxy at
meetings. The holders of a majority of the outstanding units of the class or
classes for which a meeting has been called, represented in person or by proxy,
will constitute a quorum unless any action by the unitholders requires approval
by holders of a greater percentage of the units, in which case the quorum will
be the greater percentage.

   Each record holder of a unit has a vote according to his percentage interest
in us, although additional limited partner interests having special voting
rights could be issued. Please read "--Issuance of Additional Securities."
However, if at any time any person or group, other than the general partner and
its affiliates, or a direct or subsequently approved transferee of the general
partner or its affiliates, acquires, in the aggregate, beneficial ownership of
20% or more of any class of units then outstanding, that person or group will
lose voting rights on all of its units and the units may not be voted on any
matter and will not be considered to be outstanding when sending notices of a
meeting of unitholders, calculating required votes, determining the presence of
a quorum, or for other similar purposes. Common 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 his nominee provides otherwise. Except as the partnership
agreement otherwise provides, subordinated units will vote together with common
units as a single class.

   Any notice, demand, request, report, or proxy material required or permitted
to be given or made to record holders of common units under the partnership
agreement will be delivered to the record holder by us or by the transfer agent.

Status as Limited Partner or Assignee

   Except as described above under "--Limited Liability," the common units will
be fully paid, and unitholders will not be required to make additional
contributions.

   An assignee of a common unit, after executing and delivering a transfer
application, but pending its admission as a substituted limited partner, is
entitled to an interest equivalent to that of a limited partner for the right
to share in allocations and distributions from us, including liquidating
distributions. The general partner will vote and exercise other powers
attributable to common units owned by an assignee that has not become a
substitute limited partner at the written direction of the assignee. Please
read "--Meetings; Voting." Transferees that do not execute and deliver a
transfer application will not be treated as assignees or as record holders of
common units, and will not receive cash distributions, federal income tax
allocations, or reports furnished to holders of common units. Please read
"Description of the Common Units--Transfer of Common Units."

Non-citizen Assignees; Redemption

   If we are or become subject to federal, state, or local laws or regulations
that, in the reasonable determination of the general partner, create a
substantial risk of cancellation or forfeiture of any property that we have an
interest in because of the nationality, citizenship, or other related status of
any limited partner or assignee, we may redeem the units held by the limited
partner or assignee at their current market price. In order to avoid any
cancellation or forfeiture, the general partner may require each limited
partner or assignee to furnish information about his nationality, citizenship,
or related status. If a limited partner or assignee fails to furnish
information about his nationality, citizenship, or other related status within
30 days after a request for the information or the general partner determines
after receipt of the information that the limited partner or assignee is not an
eligible citizen, the limited partner or assignee may be treated as a
non-citizen assignee. In addition to other limitations on the rights of an
assignee that is not a substituted limited partner, a non-citizen assignee does
not have the right to direct the voting of his units and may not receive
distributions in kind upon our liquidation.

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Indemnification

   Under the partnership agreement, in most circumstances, we will indemnify
the following persons, to the fullest extent permitted by law, from and against
all losses, claims, damages, or similar events:

      (1) the general partner;

      (2) any departing general partner;

      (3) any person who is or was an affiliate of a general partner or any
   departing general partner;

      (4) any person who is or was a member, partner, officer, director,
   employee, agent, or trustee of the general partner or any departing general
   partner or any affiliate of a general partner or any departing general
   partner; or

      (5) any person who is or was serving at the request of a general partner
   or any departing general partner or any affiliate of a general partner or
   any departing general partner as an officer, director, employee, member,
   partner, agent, or trustee of another person.

   Any indemnification under these provisions will only be out of our assets.
Unless it otherwise agrees in its sole discretion, the general partner will not
be personally liable for, or have any obligation to contribute or loan funds or
assets to us to enable us to effectuate, indemnification. We may purchase
insurance against liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the power to indemnify
the person against liabilities under the partnership agreement.

Books and Reports

   The general partner is required to keep appropriate books of our business at
our principal offices. The books will be maintained for both tax and financial
reporting purposes on an accrual basis. For tax and fiscal reporting purposes,
our fiscal year is the calendar year.

   We will furnish or make available to record holders of common units, within
120 days after the close of each fiscal year, an annual report containing
audited financial statements and a report on those financial statements by our
independent public accountants. Except for our fourth quarter, we will also
furnish or make available summary financial information within 90 days after
the close of each quarter.

   We will furnish each record holder of a unit with information reasonably
required for tax reporting purposes within 90 days after the close of each
calendar year. This information is expected to be furnished in summary form so
that some complex calculations normally required of partners can be avoided.
Our ability to furnish this summary information to unitholders will depend on
the cooperation of unitholders in supplying us with specific information. Every
unitholder will receive information to assist him in determining his federal
and state tax liability and filing his federal and state income tax returns,
regardless of whether he supplies us with information.

Right to Inspect Our Books and Records

   The partnership agreement provides that a limited partner can, for a purpose
reasonably related to his interest as a limited partner, upon reasonable demand
and at his own expense, have furnished to him:

      (1) a current list of the name and last known address of each partner;

      (2) a copy of our tax returns;

      (3) information as to the amount of cash, and a description and statement
   of the agreed value of any other property or services, contributed or to be
   contributed by each partner and the date on which each became a partner;

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      (4) copies of the partnership agreement, the certificate of limited
   partnership of the partnership, related amendments, and powers of attorney
   under which they have been executed;

      (5) information regarding the status of our business and financial
   condition; and

      (6) any other information regarding our affairs as is just and reasonable.

   The general partner may, and intends to, keep confidential from the limited
partners trade secrets or other information the disclosure of which the general
partner believes in good faith is not in our best interests or that we are
required by law or by agreements with third parties to keep confidential.

Registration Rights

   Under the partnership agreement, we have agreed to register for resale under
the Securities Act of 1933 and applicable state securities laws any common
units, subordinated units, or other partnership securities proposed to be sold
by the general partner or any of its affiliates or their assignees if an
exemption from the registration requirements is not otherwise available. These
registration rights continue for two years following any withdrawal or removal
of Sunoco Partners LLC as our general partner. We are obligated to pay all
expenses incidental to the registration, excluding underwriting discounts and
commissions. Please read "Units Eligible for Future Sale."

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                        UNITS ELIGIBLE FOR FUTURE SALE


   After the sale of the common units offered by this prospectus, the general
partner will hold an aggregate of 6,383,639 common units and 11,383,639
subordinated units. All of the subordinated units will convert into common
units at the end of the subordination period, and some may convert earlier. The
sale of these common and subordinated units could have an adverse impact on the
price of the common units or on any trading market that may develop.


   The common units sold in the offering will generally be freely transferable
without restriction or further registration under the Securities Act, except
that any common units held by an "affiliate" of ours may not be resold publicly
except in compliance with the registration requirements of the Securities Act
or under an exemption under Rule 144 or otherwise. Rule 144 permits securities
acquired by an affiliate of the issuer to be sold into the market in an amount
that does not exceed, during any three months period, the greater of:

   . 1% of the total number of the securities outstanding; or

   . the average weekly reported trading volume of the common units for the
     four calendar weeks prior to the sale.

   Sales under Rule 144 are also subject to specific manner of sale provisions,
notice requirements, and the availability of current public information about
us. A person who is not deemed to have been an affiliate of ours at any time
during the three months preceding a sale, and who has beneficially owned his
common units for are least two years, would be entitled to sell common units
under Rule 144 without regard to the public information requirements, volume
limitations, manner of sale provisions, and notice requirements of Rule 144.


   Prior to the end of the subordination period, we may not issue equity
securities of the partnership ranking prior or senior to the common units or an
aggregate of more than 5,691,820 additional common units or an equivalent
amount of securities ranking on a parity with the common units without the
approval of the holders of a majority of the outstanding common units and
subordinated units, voting as separate classes, subject to certain exceptions
described under "The Partnership Agreement--Issuance of Additional Securities."


   The partnership agreement provides that, after the subordination period, we
may issue an unlimited number of limited partner interests of any type without
a vote of the unitholders. The partnership agreement does not restrict our
ability to issue equity securities ranking junior to the common units at any
time. Any issuance of additional common units or other equity securities would
result in a corresponding decrease in the proportionate ownership interest in
us represented by, and could adversely affect the cash distributions to and
market price of, common units then outstanding. Please read "The Partnership
Agreement--Issuance of Additional Securities."

   Under the partnership agreement, the general partner and its affiliates have
the right to cause us to register under the Securities Act and applicable state
securities laws the offer and sale of any units that they hold. Subject to the
terms and conditions of the partnership agreement, these registration rights
allow the general partner and its affiliates or their assignees holding any
units to require registration of any of these units and to include any of these
units in a registration by us of other units, including units offered by us or
by any unitholder. The general partner will continue to have these registration
rights for two years following its withdrawal or removal as a general partner.
In connection with any registration of this kind, we will indemnify each
unitholder participating in the registration and its officers, directors, and
controlling persons from and against any liabilities under the Securities Act
or any applicable state securities laws arising from the registration statement
or prospectus. We will bear all costs and expenses incidental to any
registration, excluding any underwriting discounts and commissions. Except as
described below, the general partner and its affiliates may sell their units in
private transactions at any time, subject to compliance with applicable laws.

   Sunoco, Inc., Sunoco Logistics Partners, our general partner, and the
directors and executive officers of the general partner have agreed not to sell
any common units they beneficially own for a period of 180 days from the date
of this prospectus. Please read "Underwriting" for a description of these
lock-up provisions.

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                           MATERIAL TAX CONSEQUENCES

   This section is a summary of all the material tax considerations that may be
relevant to prospective unitholders who are individual citizens or residents of
the United States and, unless otherwise noted in the following discussion, is
the opinion of Vinson & Elkins L.L.P., special counsel to the general partner
and us, insofar as it relates to matters of United States federal income tax
law and legal conclusions with respect to those matters. This section is based
upon current provisions of the Internal Revenue Code, existing and proposed
regulations, and current administrative rulings and court decisions, all of
which are subject to change. Later changes in these authorities may cause the
tax consequences to vary substantially from the consequences described below.
Unless the context otherwise requires, references in this section to "us" or
"we" are references to Sunoco Logistics Partners and the operating partnership.

   No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or residents of
the United States and has only limited application to corporations, estates,
trusts, 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, or REITs, or mutual
funds. Accordingly, we recommend that each prospective unitholder consult, and
depend on, his own tax advisor in analyzing the federal, state, local and
foreign tax consequences particular to him of the ownership or disposition of
common units.

   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.

   No ruling has been or will be requested from the IRS regarding any matter
affecting us or prospective unitholders. An opinion of counsel represents only
that counsel's best legal judgment and does not bind the IRS or the courts.
Accordingly, the opinions and statements made here 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 the common units and the prices
at which common units trade. In addition, the costs of any contest with the IRS
will be borne directly or indirectly by the unitholders and the general
partner. Furthermore, the tax treatment of us, 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.

   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 unitholder whose common units are loaned to a
   short seller to cover a short sale of common units (please read "--Tax
   Consequences of Unit Ownership--Treatment of Short Sales");

      (2) whether our monthly convention for allocating taxable income and
   losses is permitted by existing Treasury Regulations (please read
   "--Disposition of Common Units--Allocations Between Transferors and
   Transferees"); and

      (3) whether our method for depreciating Section 743 adjustments is
   sustainable (please read "--Tax Consequences of Unit Ownership--Section 754
   Election").

Partnership Status

   A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his share of items of income, gain, loss and deduction of the
partnership in computing his federal income tax liability, regardless of
whether cash distributions are made to him by the partnership. Distributions by
a partnership to a partner are generally not taxable unless the amount of cash
distributed is in excess of the partner's adjusted basis in his partnership
interest.

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   No ruling has been or will be sought from the IRS and the IRS has made no
determination as to our status for federal income tax purposes or whether our
operations generate "qualifying income" under Section 7704 of the Internal
Revenue Code. Instead, we will rely on the opinion of Vinson & Elkins L.L.P.
that, based upon the Internal Revenue Code, its regulations, published revenue
rulings and court decisions and the representations described below, we will be
classified as a partnership and the operating partnership will be disregarded
as an entity separate from us for federal income tax purposes.

   In rendering its opinion, counsel has relied on factual representations made
by us and the general partner. The representations made by us and our general
partner upon which Vinson & Elkins L.L.P. has relied are:

      (a) Neither we, the general partner of the operating partnership nor the
   operating partnership will elect to be treated as a corporation; and

      (b) For each taxable year, more than 90% of our gross income will be
   income from sources that, in our counsel's opinion, generate "qualifying
   income" within the meaning of Section 7704(d) of the Internal Revenue Code.


   Section 7704 of the Internal Revenue Code provides that publicly traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception," exists with
respect to publicly traded partnerships of which 90% or more of the gross
income for every taxable year consists of "qualifying income." Qualifying
income includes income and gains derived from the transportation, storage and
processing of crude oil, natural 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 assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 5% of our current
income is not qualifying income; however, this estimate could change from time
to time. Based upon and subject to this estimate, the factual representations
made by us and the general partner and a review of the applicable legal
authorities, Vinson & Elkins L.L.P. is of the opinion that at least 90% of our
current gross income constitutes qualifying income.


   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, we will be treated as if we had transferred
all of our assets, subject to liabilities, to a newly formed corporation, on
the first day of the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then distributed that
stock to the unitholders in liquidation of their interests in us. This
contribution and liquidation should be tax-free to 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 were 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 the unitholders, and our net income would
be taxed to us at corporate rates. In addition, any distribution made to a
unitholder would be treated as either taxable dividend income, to the extent of
our current or accumulated earnings and profits, or, in the absence of earnings
and profits, a nontaxable return of capital, to the extent of the unitholder's
tax basis in his common units, or taxable capital gain, after the unitholder's
tax basis in his common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a unitholder's cash flow
and after-tax return and thus would likely result in a substantial reduction of
the value of the units.

   The discussion below 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 have become limited partners of Sunoco Logistics Partners
will be treated as partners of Sunoco Logistics Partners for federal income tax
purposes. Also:

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      (a) assignees who have executed and delivered transfer applications, and
   are awaiting admission as limited partners; and

      (b) unitholders whose common 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 common units;

will be treated as partners of Sunoco Logistics Partners for federal income tax
purposes. As there is no direct authority addressing assignees of common units
who are entitled to execute and deliver transfer applications and become
entitled to direct the exercise of attendant rights, but who fail to execute
and deliver transfer applications, Vinson & Elkins L.L.P.'s opinion does not
extend to these persons. Furthermore, a purchaser or other transferee of common
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
common units unless the common units are held in a nominee or street name
account and the nominee or broker has executed and delivered a transfer
application for those common units.

   A beneficial owner of common units whose units have been transferred to a
short seller to complete a short sale would appear to lose his status as a
partner with respect to those units for federal income tax purposes. Please
read "--Tax Consequences of Unit Ownership--Treatment of Short Sales."

   Income, gain, deductions or losses would not appear to be reportable by a
unitholder who is not a partner for federal income tax purposes, and any cash
distributions received by a unitholder who is not a partner for federal income
tax purposes would therefore be fully taxable as ordinary income. These holders
are urged to consult their own tax advisors with respect to their status as
partners in Sunoco Logistics Partners for federal income tax purposes.

Tax Consequences of Unit Ownership

   Flow-through of Taxable Income.  We will not pay any federal income tax.
Instead, each unitholder will be required to report on his income tax return
his share of our income, gains, losses and deductions without regard to whether
corresponding cash distributions are received by him. Consequently, we may
allocate income to a unitholder even if he has not received a cash
distribution. Each unitholder will be required to include in income his
allocable share of our income, gains, losses and deductions for our taxable
year ending with or within his taxable year.

   Treatment of Distributions.  Distributions by us to a unitholder generally
will not be taxable to the unitholder for federal income tax purposes to the
extent of his tax basis in his common units immediately before the
distribution. Our cash distributions in excess of a unitholder's tax basis
generally will be considered to be gain from the sale or exchange of the common
units, taxable in accordance with the rules described under "--Disposition of
Common Units" below. Any reduction in a unitholder's share of our liabilities
for which no partner, including the general partner, bears the economic risk of
loss, known as "nonrecourse liabilities," will be treated as a distribution of
cash to that unitholder. To the extent our distributions cause a unitholder's
"at risk" amount to be less than zero at the end of any taxable year, he must
recapture any losses deducted in previous years. Please read "--Limitations on
Deductibility of Losses."

   A decrease in a unitholder's percentage interest in us because of our
issuance of additional common units will decrease his share of our nonrecourse
liabilities, and thus will result in a corresponding deemed distribution of
cash. A non-pro rata distribution of money or property may result in ordinary
income to a unitholder, regardless of his tax basis in his common units, if the
distribution reduces the unitholder's share of our "unrealized receivables,"
including depreciation recapture, and/or substantially appreciated "inventory
items," both as defined in the Internal Revenue Code, and collectively,
"Section 751 Assets." To that extent, he will be treated as having been
distributed his proportionate share of the Section 751 Assets and having
exchanged those assets with us in return for the non-pro rata portion of the
actual distribution made to him. This latter deemed

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exchange will generally result in the unitholder's realization of ordinary
income, which will equal the excess of (1) the non-pro rata portion of that
distribution over (2) the unitholder's tax basis for the share of Section 751
Assets deemed relinquished in the exchange.


   Ratio of Taxable Income to Distributions.  We estimate that a purchaser of
common units in this offering who owns those common units from the date of
closing of this offering through December 31, 2004, will be allocated an amount
of federal taxable income for that period that will be 20% or less of the cash
distributed with respect to that period. We anticipate that after the taxable
year ending December 31, 2004, the ratio of allocable taxable income to cash
distributions to the unitholders will increase. These estimates are based upon
the assumption that gross income from operations will approximate the amount
required to make the minimum quarterly distribution on all units and other
assumptions with respect to capital expenditures, cash flow and anticipated
cash distributions. These estimates and assumptions are subject to, among other
things, numerous business, economic, regulatory, competitive and political
uncertainties beyond our control. Further, the estimates are based on current
tax law and tax reporting positions that we will adopt and with which the IRS
could disagree. Accordingly, we cannot assure you that these estimates will
prove to be correct. The actual percentage of distributions that will
constitute taxable income could be higher or lower, and any differences could
be material and could materially affect the value of the common units.


   Basis of Common Units.  A unitholder's initial tax basis for his common
units will be the amount he paid for the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse liabilities. That
basis will be decreased, but not below zero, by distributions from us, by the
unitholder's share of our losses, by any decreases in his share of our
nonrecourse liabilities and by his share of our expenditures that are not
deductible in computing taxable income and are not required to be capitalized.
A limited partner will have no share of our debt that is recourse to the
general partner, but will have a share, generally based on his share of
profits, of our nonrecourse liabilities. Please read "--Disposition of Common
Units--Recognition of Gain or Loss."

   Limitations on Deductibility of Losses.  The deduction by a unitholder of
his share of our losses will be limited to the tax basis in his units and, in
the case of an individual unitholder or a corporate unitholder, if more than
50% of the value of the corporate unitholder's stock is owned directly or
indirectly by five or fewer individuals or some tax-exempt organizations, to
the amount for which the unitholder is considered to be "at risk" with respect
to our activities, if that is less than his tax basis. A unitholder must
recapture losses deducted in previous years to the extent that distributions
cause his at risk amount to be less than zero at the end of any taxable year.
Losses disallowed to a unitholder or recaptured as a result of these
limitations will carry forward and will be allowable to the extent that his tax
basis or at risk amount, whichever is the limiting factor, is subsequently
increased. Upon the taxable disposition of a unit, any gain recognized by a
unitholder can be offset by losses that were previously suspended by the at
risk limitation but may not be offset by losses suspended by the basis
limitation. Any excess loss above that gain previously suspended by the at risk
or basis limitations is no longer utilizable.

   In general, a unitholder will be at risk to the extent of the tax basis of
his units, excluding any portion of that basis attributable to his share of our
nonrecourse liabilities, reduced by any amount of money he borrows to acquire
or hold his units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units for repayment. A
unitholder's at risk amount will increase or decrease as the tax basis of the
unitholder's units increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of our
nonrecourse liabilities.

   The passive loss limitations generally provide that individuals, estates,
trusts and some closely-held corporations and personal service corporations can
deduct losses from passive activities, which are generally activities in which
the taxpayer does not materially participate, only to the extent of the
taxpayer's income from those passive activities. The passive loss limitations
are applied separately with respect to each publicly traded partnership.
Consequently, any passive losses we generate will only be available to offset
our passive income

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generated in the future and will not be available to offset income from other
passive activities or investments, including our investments or investments in
other publicly traded partnerships, or salary or active business income.
Passive losses that are not deductible because they exceed a unitholder's share
of income we generate may be deducted in full when he disposes of his entire
investment in us in a fully taxable transaction with an unrelated party. The
passive activity loss rules are applied after other applicable limitations on
deductions, including the at risk rules and the basis limitation.

   A unitholder's share of our net income may be offset by any suspended
passive losses, but it may not be offset by any other current or carryover
losses from other passive activities, including those attributable to other
publicly traded partnerships.

   Limitations on Interest Deductions.  The deductibility of a non-corporate
taxpayer's "investment interest expense" is generally limited to the amount of
that taxpayer's "net investment income." The IRS has indicated that net passive
income from a publicly traded partnership constitutes investment income for
purposes of the limitations on the deductibility of investment interest. In
addition, the unitholder's share of our portfolio income will be treated as
investment income. Investment interest expense includes:

   . interest on indebtedness properly allocable to property held for
     investment;

   . our interest expense attributed to portfolio income; and

   . the portion of interest expense incurred to purchase or carry an interest
     in a passive activity to the extent attributable to portfolio income.

   The computation of a unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit. Net investment income includes gross income from
property held for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not
include gains attributable to the disposition of property held for investment.

   Entity-Level Collections.  If we are required or elect under applicable law
to pay any federal, state, local or foreign income tax on behalf of any
unitholder or the general partner or any former unitholder, we are authorized
to pay those taxes from our funds. That payment, if made, will be treated as a
distribution of cash to the partner on whose behalf the payment was made. If
the payment is made on behalf of a person whose identity cannot be determined,
we are authorized to treat the payment as a distribution to all current
unitholders. We are authorized to amend the partnership agreement in the manner
necessary to maintain uniformity of intrinsic tax characteristics of units and
to adjust later distributions, so that after giving effect to these
distributions, the priority and characterization of distributions otherwise
applicable under the partnership agreement is maintained as nearly as is
practicable. Payments by us as described above could give rise to an
overpayment of tax on behalf of an individual partner in which event the
partner would be required to file a claim in order to obtain a credit or refund.

   Allocation of Income, Gain, Loss and Deduction.  In general, if we have a
net profit, our items of income, gain, loss and deduction will be allocated
among the general partner and the unitholders in accordance with their
percentage interests in us. At any time that distributions are made to the
common units in excess of distributions to the subordinated units, or incentive
distributions are made to the general partner, gross income will be allocated
to the recipients to the extent of these distributions. If we have a net loss
for the entire year, that loss will be allocated first to the general partner
and the unitholders in accordance with their percentage interests in us to the
extent of their positive capital accounts and, second, to the general partner.

   Specified items of our income, gain, loss and deduction will be allocated to
account for the difference between the tax basis and fair market value of
property contributed to us by the general partner and its affiliates, referred
to in this discussion as "Contributed Property." The effect of these
allocations to a unitholder purchasing

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common units in this offering will be essentially the same as if the tax basis
of our assets were equal to their fair market value at the time of this
offering. In addition, items of recapture income will be allocated to the
extent possible to the partner who was allocated the deduction giving rise to
the treatment of that gain as recapture income in order to minimize the
recognition of ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of negative capital
accounts, if negative capital accounts nevertheless result, items of our income
and gain will be allocated in an amount and manner 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 partner's "book" capital account, credited with the fair market value
of Contributed Property, and "tax" capital account, credited with the tax basis
of Contributed Property, referred to in this discussion as the "Book-Tax
Disparity," will generally be given effect for federal income tax purposes in
determining a partner's share of an item of income, gain, loss or deduction
only if the allocation has substantial economic effect. In any other case, a
partner's share of an item will be determined on the basis of his interest in
us, which will be determined by taking into account all the facts and
circumstances, including:

   . his relative contributions to us;

   . the interests of all the partners in profits and losses;

   . the interest of all the partners in cash flow; and

   . the rights of all the partners to distributions of capital upon
     liquidation.

   Vinson & Elkins L.L.P. is of the opinion that, with the exception of the
issues described in "--Tax Consequences of Unit Ownership--Section 754
Election" and "--Disposition of Common Units--Allocations Between Transferors
and Transferees," allocations under our partnership agreement will be given
effect for federal income tax purposes in determining a partner's share of an
item of income, gain, loss or deduction.

   Treatment of Short Sales.  A unitholder whose units are loaned to a "short
seller" to cover a short sale of units may be considered as having disposed of
those units. If so, he would no longer be a partner for those units during the
period of the loan and may recognize gain or loss from the disposition. As a
result, during this period:

   . any of our income, gain, loss or deduction with respect to those units
     would not be reportable by the unitholder;

   . any cash distributions received by the unitholder as to those units would
     be fully taxable; and

   . all of these distributions would appear to be ordinary income.

   Vinson & Elkins L.L.P. has not rendered an opinion regarding the treatment
of a unitholder where common units are loaned to a short seller to cover a
short sale of common units; therefore, unitholders desiring to assure their
status as partners and avoid the risk of gain recognition from a loan to a
short seller should modify any applicable brokerage account agreements to
prohibit their brokers from borrowing their units. The IRS has announced that
it is actively studying issues relating to the tax treatment of short sales of
partnership interests. Please also read "--Disposition of Common
Units--Recognition of Gain or Loss."

   Alternative Minimum Tax.  Each unitholder will be required to take into
account his 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 noncorporate 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 unitholders should
consult with their tax advisors as to the impact of an investment in units on
their liability for the alternative minimum tax.

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   Tax Rates.  Effective July 1, 2001, the highest effective United States
federal income tax rate for individuals for 2002 is 38.6% and the maximum
United States federal income tax rate for net capital gains of an individual
for 2002 is 20% if the asset disposed of was held for more than 12 months at
the time of disposition.


   Section 754 Election.  We will make the election permitted by Section 754 of
the Internal Revenue Code. That election is irrevocable without the consent of
the IRS. The election will generally permit us to adjust a common unit
purchaser's tax basis in our assets ("inside basis") under Section 743(b) of
the Internal Revenue Code to reflect his purchase price. This election does not
apply to a person who purchases common units directly from us. The Section
743(b) adjustment belongs to the purchaser and not to other partners. For
purposes of this discussion, a partner's inside basis in our assets will be
considered to have two components: (1) his share of our tax basis in our assets
("common basis") and (2) his Section 743(b) adjustment to that basis.

   Treasury regulations under Section 743 of the Internal Revenue Code require,
if the remedial allocation method is adopted (which we will adopt), a portion
of the Section 743(b) adjustment attributable to recovery property to be
depreciated over the remaining cost recovery period for the Section 704(c)
built-in gain. Under Treasury Regulation Section 1.l67(c)-l(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
partnership agreement, the general partner is authorized to take a position to
preserve the uniformity of units even if that position is not consistent with
these Treasury Regulations. Please read "--Uniformity of Units."

   Although counsel is unable to opine as to the validity of this approach
because there is no clear 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 common basis
of the property, or treat that portion as non-amortizable to the extent
attributable to property the common basis of which is not amortizable. This
method is consistent with the regulations under Section 743 of the Internal
Revenue Code but is arguably inconsistent with Treasury Regulation Section
1.167(c)-l(a)(6), which is not expected to directly apply to a material portion
of our assets. To the extent this Section 743(b) adjustment is attributable to
appreciation in value in excess of the unamortized Book-Tax Disparity, we will
apply the rules described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken, we may take a
depreciation or amortization position under which all purchasers acquiring
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 unitholders.
Please read "--Uniformity of Units."

   A Section 754 election is advantageous if the transferee's tax basis in his
units is higher than the 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
and depletion deductions and his share of any gain or loss on a sale of our
assets would be less. Conversely, a Section 754 election is disadvantageous if
the transferee's tax basis in his units is lower than those units' share of the
aggregate tax basis of our assets immediately prior to the transfer. Thus, the
fair market value of the units may be affected either favorably or unfavorably
by the election.

   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 allocated by us
to our tangible assets to goodwill instead. Goodwill, as an intangible asset,
is generally amortizable over a longer period of time or under a less
accelerated method than our tangible assets. We cannot assure you that the
determinations we make will not be successfully

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challenged by the IRS and that the deductions resulting from them will not be
reduced or disallowed altogether. Should the IRS require a different basis
adjustment to be made, and should, in our opinion, the expense of compliance
exceed the benefit of the election, we may seek permission from the IRS to
revoke our Section 754 election. If permission is granted, a subsequent
purchaser of units may be allocated more income than he would have been
allocated had the election not been revoked.

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 unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending within or with
his taxable year. In addition, a unitholder who has a taxable year ending on a
date other than December 31 and who disposes of all of his units following the
close of our taxable year but before the close of his taxable year must include
his share of our income, gain, loss and deduction in income for his taxable
year, with the result that he will be required to include in income for his
taxable year his share of more than one year of our income, gain, loss and
deduction. Please read "--Disposition of Common Units--Allocations Between
Transferors and Transferees."

   Initial Tax Basis, Depreciation and Amortization.  The tax basis of our
assets will be used for purposes of computing depreciation and cost recovery
deductions and, ultimately, gain or loss on the disposition of these assets.
The federal income tax burden associated with the difference between the fair
market value of our assets and their tax basis immediately prior to this
offering will be borne by the general partner and its affiliates. Please read
"--Tax Consequences of Unit Ownership--Allocation of Income, Gain, Loss and
Deduction."

   To the extent allowable, we may elect to use the depreciation and cost
recovery methods that will result in the largest deductions being taken in the
early years after assets are placed in service. We are not entitled to any
amortization deductions with respect to any goodwill conveyed to us on
formation. 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 partner 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 his interest in us.
Please read "--Tax Consequences of Unit Ownership--Allocation of Income, Gain,
Loss and Deduction" and "--Disposition of Common Units--Recognition of Gain or
Loss."

   The costs incurred in selling our 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 may be amortized by us, and as syndication
expenses, which may not be amortized by us. The underwriting discounts and
commissions we incur will be treated as syndication expenses.

   Valuation and Tax Basis of Our Properties.  The federal income tax
consequences of the ownership and disposition of units will depend in part on
our estimates of the relative fair market values, and the initial tax bases, of
our assets. Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the relative fair
market value estimates ourselves. These estimates 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 deductions previously reported by
unitholders might change, and unitholders might be required to adjust their tax
liability for prior years and incur interest and penalties with respect to
those adjustments.

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<PAGE>

Disposition of Common Units

   Recognition of Gain or Loss.  Gain or loss will be recognized on a sale of
units equal to the difference between the amount realized and the unitholder's
tax basis for the units sold. A unitholder's amount realized will be measured
by the sum of the cash or the fair market value of other property received by
him plus his share of our nonrecourse liabilities. Because the amount realized
includes a unitholder's share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability in excess of
any cash received from the sale.

   Prior distributions from us in excess of cumulative net taxable income for a
common unit that decreased a unitholder's tax basis in that common unit will,
in effect, become taxable income if the common unit is sold at a price greater
than the unitholder's tax basis in that common unit, even if the price received
is less than his original cost.

   Except as noted below, gain or loss recognized by a unitholder, other than a
"dealer" in units, on the sale or exchange of a unit held for more than one
year will generally be taxable as capital gain or loss. Capital gain recognized
by an individual on the sale of units held more than 12 months will generally
be taxed at a maximum rate of 20%. However, a portion of this gain or loss,
which will likely be substantial, will be separately computed and taxed as
ordinary income or loss under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" we own. The term "unrealized
receivables" includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory
items and depreciation recapture may exceed net taxable gain realized upon the
sale of a unit and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize both ordinary
income and a capital loss upon a sale of units. Capital losses may offset
capital gains and no more than $3,000 of ordinary income, in the case of
individuals, and may only be used to offset 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. Treasury
Regulations under Section 1223 of the Internal Revenue Code allow a selling
unitholder who can identify common units transferred with an ascertainable
holding period to elect to use the actual holding period of the common units
transferred. Thus, according to the ruling, a common unitholder will be unable
to select high or low basis common units to sell as would be the case with
corporate stock, but, according to the regulations, may designate specific
common units sold for purposes of determining the holding period of units
transferred. A unitholder electing to use the actual holding period of common
units transferred must consistently use that identification method for all
subsequent sales or exchanges of common units. A unitholder considering the
purchase of additional units or a sale of common units purchased in separate
transactions should consult his tax advisor as to the possible consequences of
this ruling and application of the 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, one in which
gain would be recognized if it were sold, assigned or terminated at its fair
market value, if the taxpayer or related persons enter(s) into:

   . a short sale;

   . an offsetting notional principal contract; or

   . a futures or forward contract with respect to the partnership interest or
     substantially identical property.

   Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having
sold that

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<PAGE>

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 and losses will be determined annually, will be prorated on a monthly
basis and will be subsequently apportioned among the unitholders in proportion
to the number of units owned by each of them as of the opening of the
applicable exchange on the first business day of the month, which we refer to
in this prospectus as the "Allocation Date". However, gain or loss realized on
a sale or other disposition of our assets other than in the ordinary course of
business will be allocated among the unitholders on the Allocation Date in the
month in which that gain or loss is recognized. As a result, a unitholder
transferring units may be allocated income, gain, loss and deduction realized
after the date of transfer.

   The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, Vinson & Elkins L.L.P. is unable to opine on the
validity of this method of allocating income and deductions between
unitholders. If this method is not allowed under the Treasury Regulations, or
only applies to transfers of less than all of the unitholder's interest, our
taxable income or losses might be reallocated among the unitholders. We are
authorized to revise our method of allocation between unitholders to conform to
a method permitted under future Treasury Regulations.

   A unitholder who owns units at any time during a quarter and who disposes of
them prior to the record date set for a cash distribution for that quarter will
be allocated items of our income, gain, loss and deductions attributable to
that quarter but will not be entitled to receive that cash distribution.

   Notification Requirements.  A purchaser of units who purchases units for
another unitholder is required to notify us in writing of that purchase within
30 days after the purchase. We are required to notify the IRS of that
transaction and to furnish specified information to the transferor and
transferee. However, these reporting requirements do not apply to a sale by an
individual who is a citizen of the United States and who effects the sale or
exchange through a broker.

   Constructive Termination.  We will be considered to have been terminated for
tax purposes if there is a sale or exchange of 50% or more of the total
interests in our capital and profits within a 12-month period. A constructive
termination results in the closing of our taxable year for all unitholders. In
the case of a unitholder reporting on a taxable year other than a fiscal year
ending December 31, the closing of our taxable year may result in more than 12
months of our taxable income or loss being includable in his taxable income for
the year of termination. We would be required to make new tax elections after a
termination, including a new election under Section 754 of the Internal Revenue
Code, and a termination 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.

Uniformity of Units

   Because we cannot match transferors and transferees of units, we must
maintain uniformity of the economic and tax characteristics of the units to a
purchaser of these 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 units. Please read
"--Tax Consequences of Unit Ownership--Section 754 Election."

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<PAGE>

   We intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property,
to the extent of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or amortization
method and useful life applied to the common basis of that property, 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. Please read
"--Tax Consequences of Unit Ownership--Section 754 Election." To the extent
that the Section 743(b) adjustment is attributable to appreciation in value in
excess of the unamortized Book-Tax Disparity, we will apply the rules described
in the Treasury Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation and
amortization position under which all purchasers acquiring units in the same
month would receive depreciation and amortization deductions, whether
attributable to a common basis or Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest in our
property. If this position is adopted, it may result in lower annual
depreciation and amortization deductions than would otherwise be allowable to
some unitholders and risk the loss of depreciation and amortization deductions
not taken in the year that these deductions are otherwise allowable. This
position will not be adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on the unitholders.
If we choose not to utilize this aggregate method, we may use any other
reasonable depreciation and amortization method to preserve the uniformity of
the intrinsic tax characteristics of any units that would not have a material
adverse effect on the unitholders. The IRS may challenge any method of
depreciating the Section 743(b) adjustment described in this paragraph. If this
challenge were sustained, the uniformity of units might be affected, and the
gain from the sale of units might be increased without the benefit of
additional deductions. Please read "--Disposition of Common Units--Recognition
of Gain or Loss."

Tax-Exempt Organizations and Other Investors

   Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to those investors and,
as described below, may have substantially adverse tax consequences to them.

   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 unitholder that is a tax-exempt
organization will be unrelated business taxable income and will be taxable to
them.

   A regulated investment company or "mutual fund" is required to derive 90% or
more of its gross income from interest, dividends and gains from the sale of
stocks or securities or foreign currency or specified related sources. It is
not anticipated that any significant amount of our gross income will include
that type of income.

   Non-resident aliens and foreign corporations, trusts or estates that own
units will be considered to be engaged in business in the United States because
of the ownership of 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. Moreover, under rules applicable to publicly traded
partnerships, we will withhold at the highest effective tax rate applicable to
individuals from cash distributions made quarterly to foreign unitholders. Each
foreign unitholder must obtain a taxpayer identification number from the IRS
and submit that number to our transfer agent on a Form W-8BEN or applicable
substitute form in order to obtain credit for these withholding taxes.

   In addition, because a foreign corporation that owns 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 corporation's "U.S. net equity," which are
effectively connected with the conduct of a United States trade or

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<PAGE>

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 unitholder is subject to
special information reporting requirements under Section 6038C of the Internal
Revenue Code.

   Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on
the sale or disposition of that unit to the extent that this gain is
effectively connected with a United States trade or business of the foreign
unitholder. Apart from the ruling, a foreign unitholder will not be taxed or
subject to withholding upon the sale or disposition of a unit if he has owned
less than 5% in value of the units during the five-year period ending on the
date of the disposition and if the units are regularly traded on an established
securities market at the time of the sale or disposition.

Administrative Matters

   Information Returns and Audit Procedures.  We intend to furnish to each
unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-1, which describes his 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 his share of income, gain, loss and deduction. We cannot assure
you that those positions will yield a result that conforms to the requirements
of the Internal Revenue Code, Treasury Regulations or administrative
interpretations of the IRS. Neither we nor Vinson & Elkins L.L.P. can assure
prospective 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 units.

   The IRS may audit our federal income tax information returns. Adjustments
resulting from an IRS audit may require each unitholder to adjust a prior
year's tax liability, and possibly may result in an audit of his return. Any
audit of a unitholder's return could result in adjustments not related to our
returns as well as those related to our returns.

   Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS
and tax settlement proceedings. The tax treatment of partnership items of
income, gain, loss and deduction are determined in a partnership proceeding
rather than in separate proceedings with the partners. The Internal Revenue
Code requires that one partner be designated as the "Tax Matters Partner" for
these purposes. The partnership agreement names Sunoco Partners LLC as our Tax
Matters Partner.

   The Tax Matters Partner will make some elections on our behalf and on behalf
of unitholders. In addition, the Tax Matters Partner can extend the statute of
limitations for assessment of tax deficiencies against unitholders for items in
our returns. The Tax Matters Partner may bind a unitholder with less than a 1%
profits interest in us to a settlement with the IRS unless that unitholder
elects, by filing a statement with the IRS, not to give that authority to the
Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which
all the unitholders are bound, of a final partnership administrative adjustment
and, if the Tax Matters Partner fails to seek judicial review, judicial review
may be sought by any unitholder having at least a 1% interest in profits or by
any group of unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go forward, and each
unitholder with an interest in the outcome may participate.

   A unitholder must file a statement with the IRS identifying the treatment of
any item on his federal income tax return that is not consistent with the
treatment of the item on our return. Intentional or negligent disregard of this
consistency requirement may subject a unitholder to substantial penalties.

   Nominee Reporting.  Persons who hold an interest in us as a nominee for
another person are required to furnish to us:

      (a) the name, address and taxpayer identification number of the
   beneficial owner and the nominee;

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<PAGE>

      (b) whether the beneficial owner is:

          (1) a person that is not a United States person;

          (2) a foreign government, an international organization or any wholly
       owned agency or instrumentality of either of the foregoing; or

          (3) a tax-exempt entity;

      (c) the amount and description of units held, acquired or transferred for
   the beneficial owner; and

      (d) specific information including the dates of acquisitions and
   transfers, means of acquisitions and transfers, and acquisition cost for
   purchases, as well as the amount of net proceeds from sales.

   Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and specific
information on 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 units with
the information furnished to us.

   Registration as a Tax Shelter.  The Internal Revenue Code requires that "tax
shelters" be registered with the Secretary of the Treasury. The temporary
Treasury Regulations interpreting the tax shelter registration provisions of
the Internal Revenue Code are extremely broad. It is arguable that we are not
subject to the registration requirement on the basis that we will not
constitute a tax shelter. However, we will register as a tax shelter with the
Secretary of the Treasury in the absence of assurance that we will not be
subject to tax shelter registration and in light of the substantial penalties
that might be imposed if registration is required and not undertaken.

   Issuance of a tax shelter registration number does not indicate that
investment in us or the claimed tax benefits have been reviewed, examined or
approved by the IRS.

   We will supply our tax shelter registration number to you when one has been
assigned to us. A unitholder who sells or otherwise transfers a unit in a later
transaction must furnish the registration number to the transferee. The penalty
for failure of the transferor of a unit to furnish the registration number to
the transferee is $100 for each failure. The unitholders must disclose our tax
shelter registration number on Form 8271 to be attached to the tax return on
which any deduction, loss or other benefit we generate is claimed or on which
any of our income is included. A unitholder who fails to disclose the tax
shelter registration number on his return, without reasonable cause for that
failure, will be subject to a $250 penalty for each failure. Any penalties
discussed are not deductible for federal income tax purposes.

   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.

   A substantial understatement of income tax in any taxable year exists if the
amount of the understatement exceeds the greater of 10% of the tax required to
be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on the return:

      (1) for which there is, or was, "substantial authority"; or

      (2) as to which there is a reasonable basis and the pertinent facts of
   that position are disclosed on the return.

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<PAGE>

   More stringent rules apply to "tax shelters," a term that in this context
does not appear to include us. If any item of income, gain, loss or deduction
included in the distributive shares of unitholders might result in that kind of
an "understatement" of income for which no "substantial authority" exists, we
must disclose the pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns to avoid liability for this penalty.

   A substantial valuation misstatement exists if the value of any property, or
the adjusted basis of any property, claimed on a tax return is 200% or more of
the amount determined to be the correct amount of the valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000
for most corporations). If the valuation claimed on a return is 400% or more
than the correct valuation, the penalty imposed increases to 40%.

State, Local, Foreign and Other Tax Considerations

   In addition to federal income taxes, you will be subject to other taxes,
including state, local and foreign income taxes, unincorporated business taxes,
and estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in which you are a
resident. Although an analysis of those various taxes is not presented here,
each prospective unitholder should consider their potential impact on his
investment in us. We will initially own property or do business in Indiana,
Kansas, Louisiana, Michigan, New Jersey, New Mexico, New York, Ohio, Oklahoma,
Pennsylvania, Texas and Ontario, Canada. We may also own property or do
business in other jurisdictions in the future. Although you may not be required
to file a return and pay taxes in some jurisdictions because your income from
that jurisdiction falls below the filing and payment requirement, you will be
required to file income tax returns and to pay income taxes in many of these
jurisdictions in which we do business or own property and may be subject to
penalties for failure to comply with those requirements. In some jurisdictions,
tax losses may not produce a tax benefit in the year incurred and may not be
available to offset income in subsequent taxable years. Some of the
jurisdictions may require us, or we may elect, to withhold a percentage of
income from amounts to be distributed to a unitholder who is not a resident of
the jurisdiction. Withholding, the amount of which may be greater or less than
a particular unitholder's income tax liability to the jurisdiction, generally
does not relieve a nonresident unitholder from the obligation to file an income
tax return. Amounts withheld will be treated as if distributed to unitholders
for purposes of determining the amounts distributed by us. Please read "--Tax
Consequences of Unit Ownership--Entity-Level Collections." Based on current law
and our estimate of our future operations, the general partner anticipates that
any amounts required to be withheld will not be material.

   It is the responsibility of each unitholder to investigate the legal and tax
consequences, under the laws of pertinent jurisdictions, of his investment in
us. Accordingly, each prospective unitholder is urged to consult, and must
depend upon, his tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all state, local
and foreign, as well as United States federal tax returns, that may be required
of him. Vinson & Elkins L.L.P. has not rendered an opinion on the state, local
or foreign tax consequences of an investment in us.

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<PAGE>

       INVESTMENT IN SUNOCO LOGISTICS PARTNERS BY EMPLOYEE BENEFIT PLANS

   An investment in us by an employee benefit plan is subject to additional
considerations because the investments of these plans are subject to the
fiduciary responsibility and prohibited transaction provisions of ERISA, and
restrictions imposed by Section 4975 of the Internal Revenue Code. For these
purposes, the term "employee benefit plan" includes, but is not limited to,
qualified pension, profit-sharing and stock bonus plans, Keogh plans,
simplified employee pension plans and tax deferred annuities or IRAs
established or maintained by an employer or employee organization. Among other
things, consideration should be given to:

      (a) whether the investment is prudent under Section 404(a)(1)(B) of ERISA;

      (b) whether in making the investment, that plan will satisfy the
   diversification requirements of Section 404(a)(l)(C) of ERISA; and

      (c) whether the investment will result in recognition of unrelated
   business taxable income by the plan and, if so, the potential after-tax
   investment return.

   The person with investment discretion with respect to the assets of an
employee benefit plan, often called a fiduciary, should determine whether an
investment in us is authorized by the appropriate governing instrument and is a
proper investment for the plan.

   Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibits
employee benefit plans, and IRAs that are not considered part of an employee
benefit plan, from engaging in specified transactions involving "plan assets"
with parties that are "parties in interest" under ERISA or "disqualified
persons" under the Internal Revenue Code with respect to the plan.

   In addition to considering whether the purchase of common units is a
prohibited transaction, a fiduciary of an employee benefit plan should consider
whether the plan will, by investing in us, be deemed to own an undivided
interest in our assets, with the result that the general partner also would be
fiduciaries of the plan and our operations would be subject to the regulatory
restrictions of ERISA, including its prohibited transaction rules, as well as
the prohibited transaction rules of the Internal Revenue Code.

   The Department of Labor regulations provide guidance with respect to whether
the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under some circumstances. Under these
regulations, an entity's assets would not be considered to be "plan assets" if,
among other things:

      (a) the equity interests acquired by employee benefit plans are publicly
   offered securities; i.e., the equity interests are widely held by 100 or
   more investors independent of the issuer and each other, freely transferable
   and registered under some provisions of the federal securities laws;

      (b) the entity is an "operating company," --i.e., it is primarily engaged
   in the production or sale of a product or service other than the investment
   of capital either directly or through a majority owned subsidiary or
   subsidiaries; or

      (c) there is no significant investment by benefit plan investors, which
   is defined to mean that less than 25% of the value of each class of equity
   interest, disregarding some interests held by the general partner, its
   affiliates, and some other persons, is held by the employee benefit plans
   referred to above, IRAs and other employee benefit plans not subject to
   ERISA, including governmental plans.

   Our assets should not be considered "plan assets" under these regulations
because it is expected that the investment will satisfy the requirements in (a)
above.

   Plan fiduciaries contemplating a purchase of common units should consult
with their own counsel regarding the consequences under ERISA and the Internal
Revenue Code in light of the serious penalties imposed on persons who engage in
prohibited transactions or other violations.

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<PAGE>


                                 UNDERWRITING

   Under the terms of an underwriting agreement, a form of which is filed as an
exhibit to the registration statement relating to this prospectus, each of the
underwriters named below for whom Lehman Brothers Inc., Salomon Smith Barney
Inc., UBS Warburg LLC, Banc of America Securities LLC, First Union Securities,
Inc., and Credit Suisse First Boston Corporation are acting as representatives,
have severally agreed to purchase from us the respective number of common units
opposite their names below.


<TABLE>
<CAPTION>
                                        Number of
Underwriters                           Common Units
------------                           ------------
<S>                                    <C>
Lehman Brothers Inc...................
Salomon Smith Barney Inc..............
UBS Warburg LLC.......................
Banc of America Securities LLC........
First Union Securities, Inc...........
Credit Suisse First Boston Corporation
                                        ---------
   Total..............................  5,000,000
                                        =========
</TABLE>


   The underwriting agreement provides that the underwriters' obligations to
purchase the common units depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the common units
are purchased by the underwriters, all of the common units must be purchased.
The conditions contained in the underwriting agreement include the condition
that all the representations and warranties made by us to the underwriters are
true, that there has been no material adverse change in the condition of us or
in the financial markets and that Sunoco Logistics Partners deliver to the
underwriters customary closing documents.

   The following table shows the underwriting fees to be paid to the
underwriters by Sunoco Logistics Partners in connection with this offering.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional common units. This underwriting fee
is the difference between the initial price to the public and the amount the
underwriters pay to Sunoco Logistics Partners to purchase the common units. On
a per unit basis, the underwriting fee is   % of the initial price to public.


<TABLE>
<CAPTION>
          No Exercise Full Exercise
          ----------- -------------
<S>       <C>         <C>
Per unit.      $            $
   Total.      $            $
</TABLE>



   We will pay an advisory fee equal to 0.375% of the gross proceeds of this
offering (including any exercise of the underwriters' over-allotment option) to
Lehman Brothers Inc. for evaluation, analysis, and structuring of our
partnership.


   We have been advised by the underwriters that the underwriters propose to
offer the common units directly to the public at the initial price to the
public set forth on the cover page of this prospectus and to dealers (who may
include the underwriters) at this price to the public less a concession not in
excess of $      per unit. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $      per unit to certain brokers and
dealers. After the offering, the underwriters may change the offering price and
other selling terms.

   Sunoco, Inc., Sunoco Logistics Partners, our general partner, the operating
partnership, and certain other parties have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement, or to contribute to
payments that may be required to be made in respect of these liabilities.

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<PAGE>

   We have granted to the underwriters an option to purchase up to an aggregate
of 750,000 additional common units at the initial price to the public less the
underwriting discount set forth on the cover page of this prospectus
exercisable solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of this prospectus. If this
option is exercised, each underwriter will be committed, subject to
satisfaction of the conditions specified in the underwriting agreement, to
purchase a number of additional common units proportionate to the underwriter's
initial commitment as indicated in the preceding table, and we will be
obligated, pursuant to the option, to sell these common units to the
underwriters. To the extent that the underwriters do not exercise this option,
our general partner will be obligated to purchase these common units at the
initial public offering price.

   Sunoco, Inc., Sunoco Logistics Partners and our general partner and the
directors and executive officers of the general partner have agreed that they
will not, directly or indirectly, sell, offer or otherwise dispose of any
common units or enter into any derivative transaction with similar effect as a
sale of common units for a period of 180 days after the date of this prospectus
without the prior written consent of Lehman Brothers Inc. The restrictions
described in this paragraph do not apply to:

   . The sale of common units to the underwriters; or

   . Restricted units issued by Sunoco Logistics Partners under the long-term
     incentive plan or upon the exercise of options issued under the long-term
     incentive plan.

   Lehman Brothers Inc., in its sole discretion, may release the units subject
to lock-up agreements in whole or in part at any time with or without notice.
When determining whether or not to release units from lock-up agreements,
Lehman Brothers Inc. will consider, among other factors, the unitholders'
reasons for requesting the release, the number of units for which the release
is being requested and market conditions at the time.

   In connection with this offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.

   . Stabilizing transactions permit bids to purchase the underlying security
     so long as the stabilizing bids do not exceed a specified maximum.

   . Over-allotment transactions involve sales by the underwriters of the
     common units in excess of the number of units the underwriters are
     obligated to purchase, which creates a syndicate short position. The short
     position may be either a covered short position or a naked short position.
     In a covered short position, the number of units over-allotted by the
     underwriters is not greater than the number of units they may purchase in
     the over-allotment option. In a naked short position, the number of units
     involved is greater than the number of units in the over-allotment option.
     The underwriters may close out any short position by either exercising
     their over-allotment option and/or purchasing common units in the open
     market.

   . Syndicate covering transactions involve purchases of the common units in
     the open market after the distribution has been completed in order to
     cover syndicate short positions. In determining the source of the common
     units to close out the short position, the underwriters will consider,
     among other things, the price of common units available for purchase in
     the open market as compared to the price at which they may purchase common
     units through the over-allotment option. If the underwriters sell more
     common units than could be covered by the over-allotment option, which we
     refer to in this prospectus as a naked short position, the position can
     only be closed out by buying common units in the open market. A naked
     short position is more likely to be created if the underwriters are
     concerned that there could be downward pressure on the price of the common
     units in the open market after pricing that could adversely affect
     investors who purchase in the offering.

   . Penalty bids permit the representatives to reclaim a selling concession
     from a syndicate member when the common units originally sold by the
     syndicate member are purchased in a stabilizing or syndicate covering
     transaction to cover syndicate short positions.

                                      153


<PAGE>

   Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of the common units or preventing or retarding a decline in the
market price of the common units. As a result, the price of the common units
may be higher than the price that might otherwise exist in the open market.

   These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common units or preventing or retarding a decline in the market price of the
common units. As a result, the price of the common units may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

   Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common units. In addition, neither we nor
any of the underwriters make representation that the representatives will
engage in these stabilizing transactions or that any transaction, if commenced,
will not be discontinued without notice.


   The common units have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "SXL."


   Prior to this offering, there has been no public market for the common
units. The initial public offering price was determined by negotiation between
us and the representatives. The principal factors considered in determining the
public offering price included the following:

   . the information set forth in this prospectus and otherwise available to
     the representatives;

   . market conditions for initial public offerings;

   . the history and the prospects for the industry in which we will compete;

   . the ability of our management;

   . our prospects for future earnings;

   . the present state of our development and our current financial condition;

   . the general condition of the securities markets at the time of this
     offering; and

   . the recent market prices of, and the demand for, publicly traded common
     units of generally comparable entities.

   We estimate that total expenses of the offering, other than underwriting
discounts and commissions, will be approximately $6.0 million.


   Bank of America, N.A., an affiliate of Banc of America Securities LLC, which
is one of the underwriters, is administrative agent, letter of credit issuer
and a lender under our credit facility, for which it will receive customary
compensation. In addition, Banc of America Securities LLC is sole lead arranger
and book manager under the credit facility. First Union National Bank, an
affiliate of First Union Securities, Inc., which is one of the underwriters, is
syndication agent and a lender under the credit facility, for which it will
receive customary compensation. Lehman Brothers Inc., which is one of the
underwriters, is co-documentation agent and a lender under our credit facility,
for which it will receive customary compensation. The other underwriters or
their affiliates will act as lenders under our credit facility and as initial
purchasers of the senior notes, for which they will receive customary
compensation. Some of the underwriters and their affiliates may in the future
perform various financial advisory, investment banking and other commercial
banking services in the ordinary course of business for us for which they will
receive customary compensation. Certain underwriters and their affiliates have
performed, and may in the future perform, various financial advisory,
investment banking and other commercial banking services in the ordinary course
of business with Sunoco, Inc. and its other affiliates for which they received
or will receive customary compensation.


                                      154


<PAGE>

   Because the National Association of Securities Dealers, Inc. views the
common units offered hereby as interests in a direct participation program, the
offering is being made in compliance with Rule 2810 of the NASD's Conduct
Rules. Investor suitability with respect to the common units should be judged
similarly to the suitability with respect to other securities that are listed
for trading on a national securities exchange.

   No sales to accounts over which any underwriter exercises discretionary
authority may be made without the prior written approval of the customer.

   A prospectus in electronic format may be made available on the Internet
sites or through other online services maintained by one or more of the
underwriters and/or selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view offering terms
online and, depending upon the particular underwriter or selling group member,
prospective investors may be allowed to place orders online. The underwriters
may agree with us to allocate a specific number of shares for sale to online
brokerage account holders. Any such allocation for online distributions will be
made by the representatives on the same basis as other allocations.

   Other than the prospectus in electronic format, information contained in any
other web site maintained by an underwriter or selling group member is not part
of this prospectus or the registration statement of which this prospectus forms
a part, has not been endorsed by us and should not be relied on by investors in
deciding whether to purchase any shares. The underwriters and selling group
members are not responsible for information contained in web sites that they do
not maintain.


   At our request, the underwriters have reserved up to 250,000 of the common
units offered by this prospectus for sale under a directed unit program to our
officers and directors, as well as key employees of Sunoco, Inc. and its
affiliates. The number of units available for sale to the general public will
be reduced to the extent these persons purchase the reserved units.


   Wachovia Corporation conducts its investment banking, institutional and
capital markets business through its various bank, broker-dealer and non-bank
subsidiaries (including one of the underwriters, First Union Securities, Inc.)
under the trade name of Wachovia Securities. Any references to Wachovia
Securities in this prospectus, however, do not include Wachovia Securities,
Inc., member NASD/SIPC and a separate broker-dealer subsidiary of Wachovia
Corporation and sister affiliate of the underwriter that may or may not be
participating as a selling dealer in the distribution of the securities.

                         VALIDITY OF THE COMMON UNITS

   The validity of the common units will be passed upon for us by Vinson &
Elkins L.L.P., Houston, Texas. Certain legal matters in connection with the
common units offered hereby will be passed upon for the underwriters by Baker
Botts L.L.P., Houston, Texas.


                                    EXPERTS

   The balance sheets of Sunoco Logistics Partners L.P. and Sunoco Partners LLC
as of October 18, 2001 appearing in this prospectus and the registration
statement of which this prospectus forms a part have been audited by Ernst &
Young LLP, independent auditors, to the extent indicated in their reports
thereon appearing elsewhere herein, and have been included herein in reliance
upon such reports given on the authority of such firm as experts in accounting
and auditing.

   The financial statements of Sunoco Logistics (Predecessor) as of December
31, 1999 and 2000 and for each of the three years in the period ending December
31, 2000 appearing in this prospectus and the registration statement of which
this prospectus forms a part have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their report thereon appearing
elsewhere herein, and have been included herein in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.

                                      155


<PAGE>

                      WHERE YOU CAN FIND MORE INFORMATION

   We have filed with the Securities and Exchange Commission a registration
statement on Form S-l regarding the common units. This prospectus does not
contain all of the information found in the registration statement. For further
information regarding us and the common units offered by this prospectus, you
may desire to review the full registration statement, including its exhibits
and schedules, filed under the Securities Act. The registration statement of
which this prospectus forms a part, including its exhibits and schedules, may
be inspected and copied at the public reference room maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
materials may also be obtained from the SEC at prescribed rates by writing to
the public reference room maintained by the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the public reference room by calling the SEC at l-800-SEC-0330.

   The SEC maintains a web site on the Internet at http://www.sec.gov. Our
registration statement, of which this prospectus constitutes a part, can be
downloaded from the SEC's web site and can also be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.

   We intend to furnish our unitholders annual reports containing our audited
financial statements and furnish or make available quarterly reports containing
our unaudited interim financial information for the first three fiscal quarters
of each of our fiscal years.

                          FORWARD-LOOKING STATEMENTS

   Some of the information in this prospectus may contain forward-looking
statements. These statements can be identified by the use of forward-looking
terminology including "may," "believe," "will," "expect," "anticipate,"
"estimate," "continue," or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition, or state other "forward-looking" information. These forward-looking
statements involve risks and uncertainties. When considering these
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus. The risk factors and other factors
noted throughout this prospectus could cause our actual results to differ
materially from those contained in any forward-looking statement.

                                      156


<PAGE>


                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
<S>                                                                                             <C>
SUNOCO LOGISTICS PARTNERS L.P.
 PRO FORMA FINANCIAL STATEMENTS (Unaudited)
   Introduction................................................................................  F-2
   Pro Forma Balance Sheet as of September 30, 2001............................................  F-3
   Pro Forma Statements of Income for the Year Ended December 31, 2000 and the Nine Months
     Ended September 30, 2001..................................................................  F-4
   Notes to Pro Forma Financial Statements.....................................................  F-5

SUNOCO LOGISTICS (PREDECESSOR)
 HISTORICAL COMBINED FINANCIAL STATEMENTS
   Report of Independent Auditors.............................................................. F-10
   Combined Balance Sheets as of December 31, 1999 and 2000 and September 30, 2001 (unaudited). F-11
   Combined Statements of Income and Net Parent Investment for the Years Ended December 31,
     1998, 1999 and 2000 and the Nine Months Ended September 30, 2000 and 2001 (unaudited)..... F-12
   Combined Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000 and
     for the Nine Months Ended September 30, 2000 and 2001 (unaudited)......................... F-13
   Notes to Historical Combined Financial Statements........................................... F-14

SUNOCO LOGISTICS PARTNERS L.P.
 HISTORICAL BALANCE SHEET
   Report of Independent Auditors.............................................................. F-29
   Balance Sheet as of October 18, 2001........................................................ F-30
   Note to Balance Sheet....................................................................... F-31

SUNOCO PARTNERS LLC
 HISTORICAL BALANCE SHEET
   Report of Independent Auditors.............................................................. F-32
   Balance Sheet as of October 18, 2001........................................................ F-33
   Note to Balance Sheet....................................................................... F-34
</TABLE>


                                      F-1


<PAGE>

                   UNAUDITED PRO FORMA FINANCIAL STATEMENTS

Introduction

   Effective with the closing of this offering, the assets and liabilities of
Sunoco Logistics (Predecessor) will be transferred to Sunoco Logistics Partners
L.P. (the "Partnership"), a newly formed Delaware limited partnership. The
accompanying unaudited pro forma financial statements give effect to this
transfer and related transactions. The pro forma information assumes that the
transfer occurred on September 30, 2001 for the pro forma balance sheet and
January 1, 2000 for the pro forma statements of income. The transfer will be
recorded at historical cost as it is considered to be a reorganization of
entities under common control. Please read Note 1: Basis of Presentation, the
Offering and Other Transactions in the accompanying notes to pro forma
financial statements for further explanation of the offering, the transfer and
the related transactions.

   Sunoco Logistics Partners L.P.'s unaudited pro forma financial statements
and accompanying notes should be read together with the historical financial
statements and related notes of Sunoco Logistics (Predecessor) included
elsewhere in this prospectus. The pro forma balance sheet and the pro forma
statements of income were derived by adjusting the historical financial
statements of Sunoco Logistics (Predecessor). The adjustments are based on
currently available information and certain estimates and assumptions;
therefore, the actual adjustments may differ from the pro forma adjustments.
However, management believes that the assumptions provide a reasonable basis
for presenting the significant effects of the offering and the other
transactions as contemplated and that the pro forma adjustments give
appropriate effect to the assumptions made and are properly applied in the pro
forma financial statements.

   The unaudited pro forma financial statements do not purport to present the
financial position or results of operations of Sunoco Logistics Partners L.P.
had the offering and the related transactions to be effected at the closing
actually been completed as of the dates indicated. Moreover, they do not
project Sunoco Logistics Partners L.P.'s financial position or results of
operations for any future date or period.

                                      F-2


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

                      PRO FORMA BALANCE SHEET (Unaudited)

                              SEPTEMBER 30, 2001

                                (in thousands)



<TABLE>
<CAPTION>
                                                            Sunoco Logistics                 Offering and
                                                             (Predecessor)                   Transaction
                                                               Historical    Eliminations(A) Adjustments     Pro Forma
                                                            ---------------- --------------- ------------    ---------
<S>                                                         <C>              <C>             <C>             <C>
Assets
Current Assets:
Cash.......................................................     $     --        $      --     $ 115,000  (B) $     --
                                                                                                250,000  (C)
                                                                                                (13,000) (D)
                                                                                                 (3,000) (D)
                                                                                               (247,000) (E)
                                                                                               (102,000) (F)
Accounts receivable, affiliated companies..................        5,924               --        58,967  (F)   64,891
Accounts receivable, net...................................      183,796          (15,020)       15,020  (F)  183,796
Note receivable from affiliate.............................       20,000          (20,000)           --            --
Inventories................................................       25,623          (12,187)       28,013  (F)   41,449
                                                                --------        ---------     ---------      --------
   Total Current Assets....................................      235,343          (47,207)      102,000       290,136
Properties, plants and equipment, net......................      541,441               --            --       541,441
Deferred charges and other assets..........................       20,864               --         3,000  (D)   23,864
                                                                --------        ---------     ---------      --------
   Total Assets............................................     $797,648        $ (47,207)    $ 105,000      $855,441
                                                                ========        =========     =========      ========
Liabilities and Equity
Current Liabilities:
Accounts payable...........................................     $279,251        $      --     $      --      $279,251
Accrued liabilities........................................       20,227          (10,679)           --         9,548
Short-term borrowings due affiliate........................       50,000          (50,000)           --            --
Current portion of long-term debt due affiliate............       50,000          (50,000)           --            --
Current portion of long-term debt..........................          226               --            --           226
Taxes payable..............................................       18,314          (13,258)           --         5,056
Deferred income taxes......................................          138             (138)           --           ---
                                                                --------        ---------     ---------      --------
   Total Current Liabilities...............................      418,156         (124,075)           --       294,081
Long-term debt due affiliate...............................       90,000          (90,000)           --            --
Long-term debt.............................................        4,617               --       250,000  (C)  254,617
Deferred income taxes......................................       75,790          (75,790)           --            --
Other deferred credits and liabilities.....................       10,135           (8,672)           --         1,463

Equity:
Net parent investment......................................      198,950          251,330      (247,000) (E)       --
                                                                                               (203,280) (G)
Held by Public:
Common units (subject to a limited call right if more than
 80% of all outstanding common units are held by the
 general partner and its affiliates).......................           --               --       100,000  (B)   88,696
                                                                                                (11,304) (D)
Held Indirectly by Sunoco, Inc.:
Common units...............................................           --               --        15,000  (B)   79,255
                                                                                                 (1,696) (D)
                                                                                                 65,951  (G)
Subordinated units.........................................           --               --       133,263  (G)  133,263
General partner interest...................................           --               --         4,066  (G)    4,066
                                                                --------        ---------     ---------      --------
   Total Equity............................................      198,950          251,330      (145,000)      305,280
                                                                --------        ---------     ---------      --------
   Total Liabilities and Equity............................     $797,648        $ (47,207)    $ 105,000      $855,441
                                                                ========        =========     =========      ========
</TABLE>



                           (See Accompanying Notes)

                                      F-3


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

                  PRO FORMA STATEMENTS OF INCOME (Unaudited)
                       (in thousands, except unit data)



<TABLE>
<CAPTION>
                                                 Year Ended                                              Nine Months
                                             December 31, 2000                                     Ended September 30, 2001
                          -------------------------------------------------------  -------------------------------------------
                             Sunoco                      Offering                     Sunoco                      Offering
                            Logistics                       and                      Logistics                       and
                          (Predecessor)                 Transaction                (Predecessor)                 Transaction
                           Historical   Eliminations(H) Adjustments    Pro Forma    Historical   Eliminations(H) Adjustments
                          ------------- --------------- -----------   -----------  ------------- --------------- -----------
<S>                       <C>           <C>             <C>           <C>          <C>           <C>             <C>
Revenues
Sales and other
 operating revenue:
  Affiliates.............  $1,301,079      $     --      $  7,713 (I) $ 1,308,792   $  837,124      $     --       $ 9,707 (I)
  Unaffiliated
   customers.............     507,532            --            --         507,532      413,387            --            --
Other income.............       5,574            --            --           5,574        3,474            --            --
                           ----------      --------      --------     -----------   ----------      --------       -------
   Total Revenues........   1,814,185            --         7,713       1,821,898    1,253,985            --         9,707
Costs and Expenses
Cost of products sold
 and operating
 expenses................   1,699,541            --            --       1,699,541    1,164,381            --            --
Depreciation and
 amortization............      20,654            --            --          20,654       17,682            --            --
Selling, general and
 administrative
 expenses................      34,683            --            --          34,683       26,213            --            --
                           ----------      --------      --------     -----------   ----------      --------       -------
   Total Costs and
    Expenses.............   1,754,878            --            --       1,754,878    1,208,276            --            --
                           ----------      --------      --------     -----------   ----------      --------       -------
Operating Income.........      59,307            --         7,713          67,020       45,709            --         9,707
Net interest cost paid to
 affiliates..............      11,537       (11,537)           --              --        9,308        (9,308)           --
Other interest cost and
 debt expense............         426            --        18,125 (J)      19,226          296            --        13,594 (J)
                                                              375 (K)                                                  281 (K)
                                                              300 (L)                                                  225 (L)
Capitalized interest.....      (1,659)           --            --          (1,659)      (1,100)           --            --
                           ----------      --------      --------     -----------   ----------      --------       -------
Income before income
 tax expense.............      49,003        11,537       (11,087)         49,453       37,205         9,308        (4,393)
Income tax expense.......      18,483       (18,483)           --              --       13,920       (13,920)           --
                           ----------      --------      --------     -----------   ----------      --------       -------
   Net Income............  $   30,520      $ 30,020      $(11,087)         49,453   $   23,285      $ 23,228       $(4,393)
                           ==========      ========      ========                   ==========      ========       =======
General partner's
 interest in net
 income..................                                                    (989)
                                                                      -----------
Limited partners'
 interest in net
 income..................                                             $    48,464
                                                                      ===========
Net income per unit:
  Basic..................                                             $      2.13
                                                                      ===========
  Diluted................                                             $      2.12
                                                                      ===========
Weighted average
 limited partners'
 units outstanding:
  Basic..................                                              22,767,278
                                                                      ===========
  Diluted................                                              22,892,278
                                                                      ===========
</TABLE>




<TABLE>
<CAPTION>






                           Pro Forma
                          -----------
<S>                       <C>
Revenues
Sales and other
 operating revenue:
  Affiliates............. $   846,831
  Unaffiliated
   customers.............     413,387
Other income.............       3,474
                          -----------
   Total Revenues........   1,263,692
Costs and Expenses
Cost of products sold
 and operating
 expenses................   1,164,381
Depreciation and
 amortization............      17,682
Selling, general and
 administrative
 expenses................      26,213
                          -----------
   Total Costs and
    Expenses.............   1,208,276
                          -----------
Operating Income.........      55,416
Net interest cost paid to
 affiliates..............          --
Other interest cost and
 debt expense............      14,396


Capitalized interest.....      (1,100)
                          -----------
Income before income
 tax expense.............      42,120
Income tax expense.......          --
                          -----------
   Net Income............      42,120

General partner's
 interest in net
 income..................        (842)
                          -----------
Limited partners'
 interest in net
 income.................. $    41,278
                          ===========
Net income per unit:
  Basic.................. $      1.81
                          ===========
  Diluted................ $      1.80
                          ===========
Weighted average
 limited partners'
 units outstanding:
  Basic..................  22,767,278
                          ===========
  Diluted................  22,892,278
                          ===========
</TABLE>



                           (See Accompanying Notes)

                                      F-4


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

              NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)

Note 1:  Basis of Presentation, the Offering and Other Transactions

   The historical financial information is derived from the historical
financial statements of Sunoco Logistics (Predecessor). Sunoco Logistics
(Predecessor)'s financial statements are a combination of the accounts of a
substantial portion of the wholly owned logistics operations of Sunoco, Inc.
and subsidiaries (collectively, "Sunoco"). The combined financial statements
also include Sunoco Logistics (Predecessor)'s 9.4% investment in Explorer
Pipeline Company, a corporate joint venture which is accounted for by the
equity method. The equity income from this investment is included in other
income in the pro forma statements of income. Most of the assets of Sunoco
Logistics (Predecessor) support Sunoco, Inc.'s refining and marketing
operations which are conducted primarily by Sunoco, Inc. (R&M) ("Sunoco R&M").
Sunoco Logistics (Predecessor) operates in three principal business segments:
Eastern Pipeline System, Terminal Facilities and Western Pipeline System.

   The pro forma financial statements reflect the following transactions:


   . The contribution of certain assets and liabilities of Sunoco Logistics
     (Predecessor) to Sunoco Logistics Partners L.P. in exchange for the
     issuance by Sunoco Logistics Partners L.P. to Sunoco Partners LLC of
     5,633,639 common units, 11,383,639 subordinated units, the 2% general
     partner interest in Sunoco Logistics Partners L.P. and the incentive
     distribution rights;


   . The issuance by Sunoco Logistics Partners L.P. of 5,000,000 common units
     to the public and 750,000 common units to Sunoco Partners LLC (which
     assumes the underwriters do not exercise their over-allotment option) at
     an assumed initial public offering price of $20.00 per common unit
     resulting in aggregate gross proceeds to Sunoco Logistics Partners L.P. of
     $115 million;

   . The issuance by the operating partnership of Sunoco Logistics Partners
     L.P. of $250 million of ten-year senior notes (the "Senior Notes") and the
     establishment of a three-year $150 million revolving credit facility;

   . The payment of estimated underwriting commissions and offering expenses of
     $13 million and debt financing fees of $3 million;

   . The distribution to Sunoco of the net proceeds from the Senior Notes; and

   . The execution of a pipelines and terminals storage and throughput
     agreement with Sunoco R&M and an omnibus agreement with Sunoco R&M and
     Sunoco, Inc. as described in Note 5 below.

   In connection with the transfer of the operations of Sunoco Logistics
(Predecessor) to the Partnership, the employees who work in the pipeline,
terminalling, storage and crude oil gathering operations, including senior
executives, will become employees of Sunoco Partners LLC or its affiliates,
wholly owned subsidiaries of Sunoco, Inc. The Partnership will have no
employees.


   Upon completion of the offering, Sunoco Logistics Partners L.P. anticipates
incurring incremental general and administrative costs (e.g., cost of tax
return preparation, annual and quarterly reports to unitholders, investor
relations and registrar and transfer agent fees) at an annual rate of
approximately $4.0 million, including incremental insurance costs. The pro
forma financial statements do not reflect any adjustment for these estimated
incremental costs or adjustments in the general and administrative costs
allocated to Sunoco Logistics Partners L.P. by Sunoco, Inc. as described in
Note 5 below.


Note 2:  Pro Forma Adjustments and Assumptions

   (A) Reflects elimination of assets and liabilities that will not be
contributed by Sunoco, Inc. to Sunoco Logistics Partners L.P. and the removal
of current and deferred income tax liabilities which will be

                                      F-5


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

       NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)--(Continued)

retained by Sunoco, Inc. Income taxes will be the responsibility of the
unitholders and not Sunoco Logistics Partners L.P. The amounts eliminated from
accrued liabilities and other deferred credits and liabilities consist of $15.3
million of environmental liabilities and $4.1 million of other liabilities for
which the Partnership will be indemnified by Sunoco, Inc. (see Note 5 below).

   (B) Reflects the estimated proceeds of $115 million from the issuance and
sale of 5,000,000 common units to the public and 750,000 common units to Sunoco
Partners LLC if the underwriters do not exercise their over-allotment option at
an assumed initial public offering price of $20.00 per unit.

   (C) Represents the issuance of the Senior Notes.

   (D) Reflects the payment of underwriting commissions and offering expenses
of $13 million and debt financing fees of $3 million. The underwriting
commissions and offering expenses will be allocated to the common units issued
in the public offering and the debt financing fees will be capitalized and
amortized over the life of the Senior Notes.

   (E) Represents the distribution of $247 million to Sunoco, Inc., the
estimated net proceeds from the issuance of the Senior Notes.

   (F) Reflects the use of net proceeds of $102 million from the issuance and
sale of the common units to establish the anticipated ongoing level of working
capital for the Partnership. The adjustment reflects the replenishment of
accounts receivable and inventory which were not contributed to the Partnership
by Sunoco, Inc. as well as the establishment of accounts receivable from Sunoco
R&M to reflect the payment terms included in the crude oil supply contracts.
Previously, the amounts related to the crude oil supply contracts were settled
immediately through the net parent investment account.


   (G) Represents the allocation of $203.3 million of net partnership equity
contributed by the general partner of which $4.1 million, representing 2% of
the contributed amount, is allocated to the general partner interest, $65.9
million is allocated to the 5,633,639 common units, and $133.3 million is
allocated to the 11,383,639 subordinated units. The amounts allocated to the
common and subordinated units were allocated pro rata based upon the number of
such units issued to Sunoco Partners LLC.


   (H) Reflects removal of net interest cost paid to affiliates as the debt due
affiliate will not be contributed by Sunoco, Inc. to the Partnership (see Note
A above) and the elimination of income tax expense. Income taxes will be the
responsibility of the unitholders and not the Partnership.

   (I)  Reflects an adjustment to terminalling and storage service revenues
generated by the 32 inland refined product terminals, the Marcus Hook Tank
Farm, the Inkster LPG terminal, and the Fort Mifflin Terminal Complex, and
lease revenue attributable to the interrefinery pipeline. Pursuant to a
pipelines and terminals storage and throughput agreement with Sunoco R&M,
Sunoco Logistics Partners L.P. will charge Sunoco R&M fees for these services
generally comparable to those charged in arm's-length, third-party
transactions. Historically, most of the terminalling and throughput services
provided by Sunoco Logistics (Predecessor) for Sunoco R&M's refining and
marketing operations were at fees that enabled it to recover its costs but not
to generate operating income. The pro forma sales and other operating revenue
for terminalling and throughput services was determined using the rates
provided in the pipelines and terminals storage and throughput agreement and
the actual throughput amounts in the respective periods. The 2002 rates in the
contract were reduced to the appropriate rates for 2000 and 2001 using the
escalation factors provided in the contract. Please read "Business--Our
Relationship with Sunoco, Inc.--Pipelines and Terminals Storage and Throughput
Agreement with Sunoco R&M.''

   The following table summarizes the historical and pro forma sales and other
operating revenue attributable to these assets (in thousands of dollars):

                                      F-6


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

       NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)--(Continued)



<TABLE>
<CAPTION>
                                                                            Year Ended        Nine Months Ended
                                                                       December 31, 2000/(1)/ September 30, 2001
                                                                       ---------------------  ------------------
<S>                                                                    <C>                    <C>
Sales and other operating revenue attributable to certain terminalling
 and throughput services and an interrefinery lease:
   Historical (costs incurred in these activities)....................        $48,017              $33,764
   Adjustment.........................................................          7,713                9,707
                                                                              -------              -------
   Pro Forma..........................................................        $55,730              $43,471
                                                                              =======              =======
</TABLE>

      --
  (1) Historical sales and other operating revenue includes $5,994 thousand
      attributable to remediation costs incurred as a result of an oil spill in
      February 2000 at one of Sunoco Logistics (Predecessor)'s crude oil
      transfer lines to the Darby Creek Tank Farm. In accordance with the
      historical transfer pricing methodology, fees charged to Sunoco R&M at
      the Darby Creek Tank Farm are equal to all of the costs incurred at this
      facility. (See Note 2 to the Sunoco Logistics Predecessor's historical
      financial statements.) Pro forma sales and other operating revenue is not
      impacted by this item as it was determined based upon the contract rates
      and actual throughput as described above.

   (J) Reflects interest expense as if the Senior Notes were issued on January
1, 2000 (see Note C above). The interest adjustments were computed using the
assumed interest rate for the Senior Notes of 7.25%.

   (K) Reflects expense attributable to an annual facility fee on the $150
million revolving credit facility.

   (L) Reflects amortization of debt financing fees over the life of the Senior
Notes (see Note C above).



Note 3:  Pro Forma Net Income Per Unit


   Pro forma net income per unit is determined by dividing the pro forma net
income that would have been allocated to the common and subordinated
unitholders, which is 98% of pro forma net income, by the number of common and
subordinated units expected to be outstanding at the closing of the offering.
For purposes of the basic net income per unit calculation, the number of common
and subordinated units assumed to be outstanding was 22,767,278, while the
diluted net income per unit calculation assumed 22,892,278 units were
outstanding. The diluted amount includes 125,000 units expected to be granted
concurrently with this offering under the Sunoco Partners LLC Long-Term
Incentive Plan. All units were assumed to have been outstanding since January
1, 2000. Pursuant to the partnership agreement, to the extent that the
quarterly distribution exceeds certain targets, the general partner is entitled
to certain incentive distributions which will result in less net income
proportionately being allocated to the holders of the common units and
subordinated units. The pro forma net income per unit calculations assume that
no incentive distributions were made to the general partner because no such
distribution would have been paid based upon the pro forma available cash from
operating surplus for the respective periods.


Note 4:  Description of Equity Interest in Sunoco Logistics Partners L.P.

   The common units and the subordinated units represent limited partner
interests in Sunoco Logistics Partners L.P. The holders of units are entitled
to participate in partnership distributions and exercise the rights and
privileges available to limited partners under the Sunoco Logistics Partners
L.P. partnership agreement.

   The common units will have the right to receive a minimum quarterly
distribution of available cash from operating surplus of $0.45 per unit, or
$1.80 on an annualized basis, plus any arrearages on the common units, before
any distribution is made to the holders of subordinated units. In addition, if
at any time Sunoco, Inc. and its affiliates own more than 80% of the
outstanding common units, the general partner has the right to purchase all of
the remaining common units at a price not less than the then-current market
price of the common units.

   The subordinated units generally receive quarterly cash distributions only
when the common units have received a minimum quarterly distribution of $0.45
per unit for each quarter since the commencement of operations. When the
subordination period ends, all subordinated units will convert into common
units on a one-for-one basis and the common units will no longer be entitled to
arrearages. The subordination period will end

                                      F-7


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

       NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)--(Continued)

when Sunoco Logistics Partners L.P. meets financial tests specified in the
partnership agreement but generally cannot end before December 31, 2006.
However, if Sunoco Logistics Partners L.P. meets the financial tests for any
quarter ending on or after December 31, 2004, 25% of the subordinated units
will convert into common units. If these tests are met for any quarter ending
on or after December 31, 2005, an additional 25% of the subordinated units will
convert into common units. The early conversion of the second 25% of the
subordinated units may not occur until at least one year after the early
conversion of the first 25% of the subordinated units.

   The general partner interest is entitled to at least 2% of all distributions
made by Sunoco Logistics Partners L.P. In addition, the general partner holds
incentive distribution rights, which allow the general partner to receive a
higher percentage of quarterly distributions of available cash after the
minimum quarterly distributions have been achieved, and as additional target
levels are met. The higher percentages range from 15% up to 50%. The pro forma
financial statements assume that no incentive distributions were made to the
general partner. In subsequent periods, Sunoco Logistics Partners L.P. will
apply the hypothetical liquidation at book value method in allocating income to
the various partnership interests.

Note 5:  Agreements with Sunoco R&M and Sunoco, Inc.

   Concurrent with the closing of this offering, Sunoco, Inc. and its
affiliates and Sunoco Logistics Partners L.P. intend to enter into the
following agreements.

   Pipelines and Terminals Storage and Throughput Agreement with Sunoco
R&M.  Under this agreement, Sunoco R&M will agree to pay Sunoco Logistics
Partners L.P. a minimum level of revenues for transporting and terminalling
refined products. Sunoco R&M will also agree to minimum throughputs of refined
products and crude oil in the Partnership's Inkster Terminal, Fort Mifflin
Terminal Complex, Marcus Hook Tank Farm and certain crude oil pipelines. Please
read "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview--Agreements with Sunoco R&M and Sunoco, Inc.''

   Omnibus Agreement.  Historically, Sunoco, Inc. has allocated a portion of
its general and administrative expenses to its pipeline, terminalling and
storage operations to cover costs of centralized corporate functions such as
legal, accounting, treasury, engineering, information technology and insurance.
The allocation was $9.1 million, $9.0 million and $10.1 million for the years
ended December 31, 1998, 1999 and 2000, respectively, and $7.2 million and $8.2
million (unaudited) for the first nine months of 2000 and 2001, respectively.


   Under the omnibus agreement, Sunoco, Inc. will continue to provide these
services for three years for an annual administrative fee initially in the
amount of $8.0 million, which may be increased in the second and third years
following this offering by the lesser of 2.5% or the consumer price index for
the applicable year. These costs may also increase if the Partnership makes an
acquisition or constructs additional assets that require an increase in the
level of general and administrative services received by the Partnership from
the general partner or Sunoco, Inc. The $8.0 million fee includes expenses
incurred by Sunoco, Inc. and its affiliates to perform centralized corporate
functions, such as legal, accounting, treasury, engineering, information
technology, insurance and other corporate services, including the
administration of employee benefit plans. This fee does not include salaries of
pipeline and terminal personnel or other employees of the general partner,
including senior executives, or the cost of their employee benefits, such as
401(k), pension, and health insurance benefits. The Partnership will also
reimburse Sunoco Inc. and its affiliates for these costs and other direct
expenses incurred on the Partnership's behalf. The Partnership will have no
employees. In addition, the Partnership anticipates incurring additional
general and administrative costs, including costs for tax return preparation,
annual and quarterly reports to unitholders, investor relations, registrar and
transfer agent fees, and other costs related to operating as a separate
publicly held entity. The Partnership estimates that these incremental costs
will be approximately $4.0 million per year, including incremental insurance
costs.


   Under the omnibus agreement, Sunoco R&M will reimburse Sunoco Logistics
Partners L.P. for operating expenses and capital expenditures in excess of $8.0
million per year (up to an aggregate maximum of $15.0 million over a five-year
period) incurred to comply with the U.S. Department of Transportation's pipeline

                                      F-8


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

       NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)--(Continued)


integrity management rule. Based on historical integrity tests conducted since
1989, Sunoco Logistics Partners L.P. estimates that compliance with this rule
will cost the Partnership approximately $8.0 million per year for five years,
or a total of $40.0 million, for all pipelines in its Eastern and Western
Pipeline Systems that are subject to this rule. In addition, Sunoco R&M will,
at its expense, complete for Sunoco Logistics Partners L.P.'s Darby Creek Tank
Farm certain tank maintenance and inspection projects now in progress or
expected to be completed within one year from the closing of this offering.
Sunoco R&M estimates total costs to complete these projects will be
approximately $4.0 million. Sunoco R&M will also reimburse Sunoco Logistics
Partners L.P. for up to $10.0 million of expenditures required at the Darby
Creek and Marcus Hook Tank Farms to maintain compliance with existing industry
standards and regulatory requirements. The Partnership will reflect outlays for
these programs as operating expenses or capital expenditures, as appropriate.
Capital expenditures would be depreciated over their useful lives. The
reimbursement by Sunoco R&M will be reflected as a capital contribution.


   Sunoco, Inc. will agree to indemnify Sunoco Logistics Partners L.P. for 30
years from environmental and toxic tort liabilities related to the assets
contributed to the Partnership that arise from the operation of such assets
prior to the closing of this offering. Sunoco, Inc. will be obligated to
indemnify the Partnership for 100% of all losses asserted within the first 21
years of closing. Sunoco, Inc.'s share of liability for claims asserted
thereafter will decrease by 10% a year. For example, for a claim asserted
during the twenty-third year after closing, Sunoco, Inc. would be required to
indemnify the Partnership for 80% of its loss. There is no monetary cap on the
amount of indemnity coverage provided by Sunoco, Inc. Sunoco Logistics Partners
L.P. has agreed to indemnify Sunoco, Inc. and its affiliates from environmental
and toxic tort liabilities to the extent Sunoco, Inc. is not required to
indemnify the Partnership.

   Sunoco, Inc. also will indemnify Sunoco Logistics Partners L.P. for
liabilities, other than environmental and toxic tort liabilities related to the
assets contributed to the Partnership, that arise out of Sunoco, Inc. and its
affiliates' ownership and operation of the assets prior to the closing of this
offering and that are asserted within 10 years after closing. In addition,
Sunoco, Inc. will indemnify the Partnership from liabilities relating to
certain defects in title to the assets contributed to the Partnership and
associated with failure to obtain certain consents and permits necessary to
conduct its business that arise within 10 years after closing as well as from
liabilities relating to legal actions currently pending against Sunoco, Inc. or
its affiliates and events and conditions associated with any assets retained by
Sunoco, Inc. or its affiliates.

   In addition, Sunoco, Inc. and its affiliates will agree, subject to certain
exceptions, not to engage in, whether by acquisition or otherwise, the business
of purchasing crude oil at the wellhead, or operating crude oil pipelines or
terminals, refined products pipelines or terminals, or LPG terminals in the
continental United States.


   Other Agreements with Sunoco R&M and Sunoco, Inc.  Under various other
agreements, Sunoco R&M will, among other things, purchase from the Partnership
at market-based rates particular grades of crude oil that the Partnership's
crude oil acquisition and marketing business purchases for delivery to
pipelines in: Longview, Trent, Tye, and Colorado City, Texas; Haynesville,
Louisiana; Marysville and Lewiston, Michigan; and Tulsa, Oklahoma. At
Marysville and Lewiston, Michigan, the Partnership exchanges Michigan sweet and
Michigan sour crude oil it owns for domestic sweet crude oil supplied by Sunoco
R&M at market-based rates. The initial term of these agreements is two months.
These agreements will automatically renew on a monthly basis unless terminated
by either party on 30 days' written notice. Sunoco R&M will also agree to lease
from the Partnership the 58 miles of interrefinery pipelines between Sunoco
R&M's Philadelphia and Marcus Hook refineries for a term of 20 years. The
Partnership will enter into a treasury services agreement with Sunoco, Inc.
pursuant to which it will, among other things, participate in Sunoco, Inc.'s
centralized cash management program. Under this program, all of the
Partnership's cash receipts and cash disbursements will be processed, together
with those of Sunoco, Inc. and its other subsidiaries, through Sunoco, Inc.'s
cash accounts with a corresponding credit or charge to an intercompany account.
The intercompany balances will be settled periodically, but no less frequently
than at the end of each month. Amounts due from Sunoco Inc. and its
subsidiaries will earn interest at a rate equal to the average rate of the
Partnership's third-party money market investments, while amounts due to Sunoco
Inc. and its subsidiaries bear interest at a rate equal to the interest rate
provided in the Partnership's revolving credit facility.


                                      F-9


<PAGE>


                        REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Sunoco Partners LLC:

   We have audited the accompanying combined balance sheets of Sunoco Logistics
(Predecessor) (the "Predecessor") as of December 31, 2000 and 1999 and the
related combined statements of income and net parent investment and of cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Predecessor's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Sunoco Logistics
(Predecessor) at December 31, 2000 and 1999 and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

                                                     ERNST & YOUNG LLP

Philadelphia, Pennsylvania
December 14, 2001


                                     F-10


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

                            COMBINED BALANCE SHEETS
                                (in thousands)


<TABLE>
<CAPTION>
                                                           December 31,    September 30,
                                                         ----------------- -------------
                                                           1999     2000       2001
                                                         -------- -------- -------------
                                                                            (Unaudited)
<S>                                                      <C>      <C>      <C>
Assets
Current Assets
Accounts receivable, affiliated companies (Note 2)...... $  9,006 $  6,753   $  5,924
Accounts receivable, net................................  187,992  258,044    183,796
Note receivable from affiliate (Note 2).................       --       --     20,000
Inventories (Note 3)....................................   12,669   18,683     25,623
Deferred income taxes (Note 4)..........................    2,130    4,426         --
                                                         -------- --------   --------
   Total Current Assets.................................  211,797  287,906    235,343
Properties, plants and equipment, net (Note 5)..........  481,967  518,605    541,441
Note receivable from affiliate (Note 2).................       --   20,000         --
Deferred charges and other assets.......................   18,385   19,445     20,864
                                                         -------- --------   --------
   Total Assets......................................... $712,149 $845,956   $797,648
                                                         ======== ========   ========
Liabilities and Net Parent Investment
Current Liabilities
Accounts payable........................................ $277,975 $372,460   $279,251
Accrued liabilities.....................................   24,249   26,299     20,227
Short-term borrowings due affiliate (Note 2)............       --   45,000     50,000
Current portion of long-term debt due affiliate (Note 2)       --       --     50,000
Current portion of long-term debt (Note 6)..............      186      205        226
Taxes payable...........................................   17,290   18,958     18,314
Deferred income taxes...................................       --       --        138
                                                         -------- --------   --------
   Total Current Liabilities............................  319,700  462,922    418,156
Long-term debt due affiliate (Note 2)...................   90,000  140,000     90,000
Long-term debt (Note 6).................................    5,101    4,838      4,617
Deferred income taxes (Note 4)..........................   63,296   70,932     75,790
Other deferred credits and liabilities..................   10,969   10,241     10,135
Commitments and contingent liabilities (Note 7)
Net parent investment (Note 2)..........................  223,083  157,023    198,950
                                                         -------- --------   --------
   Total Liabilities and Net Parent Investment.......... $712,149 $845,956   $797,648
                                                         ======== ========   ========
</TABLE>


                           (See Accompanying Notes)

                                     F-11


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

            COMBINED STATEMENTS OF INCOME AND NET PARENT INVESTMENT
                                (in thousands)


<TABLE>
<CAPTION>
                                                        Year Ended               Nine Months Ended
                                                       December 31,                September 30,
                                              ------------------------------  ----------------------
                                                1998      1999       2000        2000        2001
                                              --------  --------  ----------  ----------  ----------
                                                                                    (Unaudited)
<S>                                           <C>       <C>       <C>         <C>         <C>
Revenues
Sales and other operating revenue:
   Affiliates (Note 2)....................... $570,332  $764,133  $1,301,079  $  964,885  $  837,124
   Unaffiliated customers....................  124,869   210,069     507,532     364,475     413,387
Other income.................................    5,022     6,133       5,574       4,032       3,474
                                              --------  --------  ----------  ----------  ----------
       Total Revenues........................  700,223   980,335   1,814,185   1,333,392   1,253,985
Costs and Expenses
Cost of products sold and operating expenses.  583,587   866,610   1,699,541   1,247,403   1,164,381
Depreciation and amortization................   18,622    19,911      20,654      15,217      17,682
Selling, general and administrative expenses.   29,890    27,461      34,683      25,971      26,213
                                              --------  --------  ----------  ----------  ----------
       Total Costs and Expenses..............  632,099   913,982   1,754,878   1,288,591   1,208,276
                                              --------  --------  ----------  ----------  ----------
Operating Income.............................   68,124    66,353      59,307      44,801      45,709
Net interest cost paid to affiliates (Note 2)    7,518     7,196      11,537       7,459       9,308
Other interest cost..........................        7       110         426         323         296
Capitalized interest.........................     (408)     (819)     (1,659)     (1,142)     (1,100)
                                              --------  --------  ----------  ----------  ----------
Income before income tax expense.............   61,007    59,866      49,003      38,161      37,205
Income tax expense (Note 4)..................   23,116    22,488      18,483      14,411      13,920
                                              --------  --------  ----------  ----------  ----------
Net Income................................... $ 37,891  $ 37,378  $   30,520  $   23,750  $   23,285
                                              ========  ========  ==========  ==========  ==========
Net Parent Investment
At beginning of period....................... $205,604  $235,478  $  223,083  $  223,083  $  157,023
Net income...................................   37,891    37,378      30,520      23,750      23,285
Contributions from (distributions to) parent.   (8,017)  (49,773)    (96,580)    (69,942)     18,642
                                              --------  --------  ----------  ----------  ----------
At end of period............................. $235,478  $223,083  $  157,023  $  176,891  $  198,950
                                              ========  ========  ==========  ==========  ==========
</TABLE>


                           (See Accompanying Notes)

                                     F-12


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

                       COMBINED STATEMENTS OF CASH FLOWS
                                (in thousands)


<TABLE>
<CAPTION>
                                                                Year Ended             Nine Months Ended
                                                               December 31,              September 30,
                                                      ------------------------------  -------------------
                                                        1998       1999       2000      2000      2001
                                                      ---------  ---------  --------  --------  ---------
                                                                                          (Unaudited)
<S>                                                   <C>        <C>        <C>       <C>       <C>
Increases (Decreases) in Cash
Cash Flows from Operating Activities:
Net Income........................................... $  37,891  $  37,378  $ 30,520  $ 23,750  $  23,285
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization.....................    18,622     19,911    20,654    15,217     17,682
   Deferred income tax expense.......................     5,820      4,046     5,340     4,169      9,422
   Changes in working capital pertaining to
     operating activities:
       Accounts receivable, affiliated companies.....     4,817     (5,556)    2,253     1,886        829
       Accounts receivable...........................    74,775   (125,624)  (70,052)  (96,432)    74,248
       Inventories...................................      (566)     9,943    (6,014)   (4,424)    (6,940)
       Accounts payable and accrued liabilities......  (102,673)   177,054    96,408   122,097   (101,887)
       Taxes payable.................................       878      3,930     1,668      (268)      (644)
   Other.............................................     5,386      4,083    (1,661)   (3,905)     1,081
                                                      ---------  ---------  --------  --------  ---------
Net cash provided by operating activities............    44,950    125,165    79,116    62,090     17,076
                                                      ---------  ---------  --------  --------  ---------

Cash Flows from Investing Activities:
Capital expenditures.................................   (36,947)   (46,958)  (57,921)  (36,075)   (40,222)
Acquisition of crude oil transportation and
  marketing operations of Pride Companies, L.P.,
  net of debt assumed of $5,334 (Note 10)............        --    (29,576)       --        --         --
Loan to affiliate....................................        --         --   (20,000)       --         --
Other................................................        14      1,414       629      (893)      (296)
                                                      ---------  ---------  --------  --------  ---------
Net cash used in investing activities ...............   (36,933)   (75,120)  (77,292)  (36,968)   (40,518)
                                                      ---------  ---------  --------  --------  ---------

Cash Flows from Financing Activities:
Net proceeds from short-term borrowings due
  affiliate..........................................        --         --    45,000    45,000      5,000
Proceeds from issuance of long-term debt to affiliate        --         --    50,000        --         --
Repayments of long-term debt.........................        --       (272)     (244)     (180)      (200)
Contributions from (distributions to) parent.........    (8,017)   (49,773)  (96,580)  (69,942)    18,642
                                                      ---------  ---------  --------  --------  ---------
Net cash provided by (used in) financing activities..    (8,017)   (50,045)   (1,824)  (25,122)    23,442
                                                      ---------  ---------  --------  --------  ---------
Net change in cash...................................        --         --        --        --         --
Cash at beginning of period..........................        --         --        --        --         --
                                                      ---------  ---------  --------  --------  ---------
Cash at end of period................................ $      --  $      --  $     --  $     --  $      --
                                                      =========  =========  ========  ========  =========
</TABLE>


                           (See Accompanying Notes)

                                     F-13


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

               NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS

1.  Summary of Significant Accounting Policies

  Principles of Combination and Description of Business

   The accompanying combined financial statements consist of the accounts of a
substantial portion of the wholly owned logistics operations of Sunoco, Inc.
(collectively, "Sunoco Logistics (Predecessor)" or the "Predecessor"), after
elimination of all balances and transactions within the combined group of
operations. The combined financial statements also include Sunoco Logistics
(Predecessor)'s 9.4% investment in Explorer Pipeline Company, a corporate joint
venture which is accounted for by the equity method. The equity income from
this investment is included in other income in the combined statements of
income and net parent investment. The Predecessor's operations are to be
transferred to Sunoco Logistics Partners L.P. (the "Partnership"), a newly
formed Delaware limited partnership. Most of the assets of Sunoco Logistics
(Predecessor) support Sunoco, Inc.'s refining and marketing operations which
are conducted primarily by Sunoco, Inc. (R&M) ("Sunoco R&M"). The Predecessor
operates in three principal business segments: Eastern Pipeline System,
Terminal Facilities and Western Pipeline System.

   The Eastern Pipeline System transports refined products in the Northeast and
Midwest largely for Sunoco R&M's Philadelphia, PA, Marcus Hook, PA and Toledo,
OH refineries. The Eastern Pipeline System also transports crude oil on a
pipeline in Ohio and Michigan that supplies both Sunoco R&M's Toledo refinery
and third-party refineries. This segment also includes an interrefinery
pipeline between Sunoco R&M's Marcus Hook and Philadelphia refineries and the
equity interest in Explorer Pipeline Company, which transports refined products
from the Gulf Coast to numerous terminals throughout the Midwest.

   The Terminal Facilities segment includes a network of 32 refined product
terminals in the Northeast and Midwest that distribute products primarily to
Sunoco R&M's retail outlets, an 11.2 million-barrel marine crude oil terminal
on the Texas Gulf Coast and a one million barrel liquefied petroleum gas
("LPG") storage facility near Detroit, MI. This segment also owns and operates
one inland and two marine crude oil terminals and the related storage
facilities and pipelines that supply all of the crude oil processed by Sunoco
R&M's Philadelphia refinery. Finally, this segment includes a two million
barrel refined product storage terminal in Marcus Hook, PA that is used by
Sunoco R&M's Marcus Hook refinery to source barrels to the Predecessor's
pipelines.

   The Western Pipeline System acquires, transports and markets crude oil
principally in Oklahoma and Texas for Sunoco R&M's Tulsa, OK and Toledo, OH
refineries and also for other customers.

  Basis of Presentation

   The accompanying combined financial statements reflect historical cost-basis
amounts of the Predecessor and include charges from Sunoco, Inc. and its
subsidiaries (collectively, "Sunoco") for direct costs and allocations of
indirect corporate overhead. Management of the Predecessor believes that the
allocation methods are reasonable, and that the allocations are representative
of the costs that would have been incurred on a stand-alone basis.

  Interim Financial Data

   The interim financial data are unaudited; however, in the opinion of
management, the interim financial data include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results for the nine-month periods ended September 30, 2000 and 2001. The
interim financial data are presented in accordance with the requirements of
accounting principles generally accepted in the United States for interim
financial reporting. The information does not include all disclosures normally
contained in annual financial statements and is not necessarily indicative of
the results for the full year 2001.

                                     F-14


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


  Use of Estimates

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual amounts could differ from these
estimates.

  Revenue Recognition

   Crude oil gathering and marketing revenues are recognized when title to the
crude oil is transferred to the customer. Revenues are not recognized for crude
oil exchange transactions which are entered into primarily to acquire crude oil
of a desired quality or to reduce transportation costs by taking delivery
closer to the Predecessor's end markets. Any net differential for exchange
transactions is recorded as an adjustment of inventory costs in the purchases
component of cost of products sold and operating expenses in the combined
statements of income and net parent investment. Such amounts are not deemed to
be material. Terminalling and storage revenues are recognized at the time the
services are provided. Pipeline revenues are recognized upon delivery of the
barrels to the location designated by the shipper.

   Affiliated revenues consist of sales of crude oil as well as the provision
of crude oil and refined product pipeline transportation, terminalling and
storage services to Sunoco R&M. Affiliated revenues reflect transfer prices
consistently used to prepare segment information for Sunoco, Inc.'s historical
consolidated financial statements. Sales of crude oil to affiliates are
computed using the formula-based pricing mechanism of a supply agreement with
Sunoco R&M. Management of the Predecessor believes these terms to be comparable
to those that could be negotiated with an unrelated third party. Pipeline
revenues from affiliates are generally determined using posted third-party
tariffs. Affiliated revenues from terminalling and storage are generally equal
to all of the costs incurred for these activities, including operating,
maintenance and environmental remediation expenditures.

  Inventories

   Inventories are valued at the lower of cost or market. Crude oil reflects an
allocation to the Predecessor by Sunoco R&M of the Predecessor's share of
Sunoco R&M's crude oil inventory, the cost of which has been determined using
the last-in, first-out method ("LIFO"). Under this allocation methodology, the
cost of products sold consists of the actual crude oil acquisition costs of the
Predecessor. Such costs are adjusted to reflect increases or decreases in crude
oil inventory quantities, which are valued based on the changes in Sunoco,
Inc.'s LIFO inventory layers. Effective with the transfer of the Predecessor's
operations to the Partnership, the Partnership will maintain a separate LIFO
pool and all LIFO computations will be made on a stand-alone basis. The cost of
materials, supplies and other inventories is determined using principally the
average cost method.

  Properties, Plants and Equipment

   Properties, plants and equipment are stated at cost. Additions to
properties, plants and equipment, including replacements and improvements, are
recorded at cost. Repair and maintenance expenditures are charged to expense as
incurred. Depreciation is provided principally using the straight-line method
based on the estimated useful lives of the related assets. For certain
interstate pipelines, the depreciation rate is applied to the net asset value
based on FERC requirements. When FERC-regulated property, plant and equipment
is retired or otherwise disposed of, the cost less net proceeds is charged to
accumulated depreciation and amortization, except that gains and losses for
those groups are reflected in other income in the combined statements of income
and net parent investment for unusual disposals. Gains and losses on the
disposal of non-FERC properties, plants and equipment are reflected in other
income in the combined statements of income and net parent investment.

                                     F-15


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


  Environmental Remediation

   The Predecessor accrues environmental remediation costs for work at
identified sites where an assessment has indicated that cleanup costs are
probable and reasonably estimable. Such accruals are undiscounted and are based
on currently available information, estimated timing of remedial actions and
related inflation assumptions, existing technology and presently enacted laws
and regulations.

  Income Taxes

   The Predecessor is included in the consolidated federal income tax return
filed by Sunoco, Inc. However, the provision for federal income taxes included
in the combined statements of income and net parent investment and the deferred
tax amounts reflected in the combined balance sheets have been determined on a
separate-return basis. Any current federal income tax amounts due on a
separate-return basis are settled with Sunoco, Inc. through the net parent
investment account.

2.  Related Party Transactions

  Accounts Receivable, Affiliated Companies

   Substantially all of the related party transactions discussed below are
settled immediately through the net parent investment account. The balance in
accounts receivable from affiliated companies represents the net amount owed to
the Predecessor by Sunoco R&M related to the remaining intercompany
transactions.

   Affiliated revenues in the combined statements of income and net parent
investment consist of sales of crude oil as well as the provision of crude oil
and refined product pipeline transportation, terminalling and storage services
to Sunoco R&M. Affiliated revenues reflect transfer prices consistently used to
prepare segment information for Sunoco, Inc.'s historical consolidated
financial statements. Sales of crude oil are computed using the formula-based
pricing mechanism of a supply agreement with Sunoco R&M. Management of the
Predecessor believes these terms to be comparable to those that could be
negotiated with an unrelated third party. Pipeline revenues are generally
determined using posted third-party tariffs. Revenues from terminalling and
storage are generally equal to all of the costs incurred for these activities,
including operating, maintenance and environmental remediation expenditures.

   Selling, general and administrative expenses in the combined statements of
income and net parent investment include costs allocated to the Predecessor
totaling $9.1 million, $9.0 million and $10.1 million for the years ended
December 31, 1998, 1999 and 2000, respectively, and $7.2 million and $8.2
million (unaudited) for the nine months ended September 30, 2000 and 2001,
respectively. These expenses incurred by Sunoco cover costs of centralized
corporate functions such as legal, accounting, treasury, engineering,
information technology, insurance and other corporate services. Such expenses
are based on amounts negotiated between the parties, which approximate Sunoco's
cost of providing such services.

   Costs of employees who work in the pipeline, terminalling, storage and crude
oil gathering operations, including senior executives, are charged directly to
the Predecessor and such charges include salary and employee benefit costs.
Employee benefits include non-contributory defined benefit retirement plans,
defined contribution 401(k) plans, employee and retiree medical, dental and
life insurance plans, incentive compensation plans (i.e., cash and stock
awards) and other such benefits. The Predecessor's share of allocated Sunoco
employee benefit plan expenses was $16.3 million, $13.3 million and $18.7
million for the years ended December 31, 1998, 1999 and 2000, respectively, and
$13.9 million and $14.0 million (unaudited) for the nine months ended September
30, 2000 and 2001, respectively. These expenses are reflected primarily in cost
of

                                     F-16


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

products sold and operating expenses in the combined statements of income and
net parent investment. In connection with the transfer of the Predecessor's
operations to the Partnership, these employees, including senior executives,
will become employees of the Partnership's general partner or its affiliates,
wholly owned subsidiaries of Sunoco, Inc. The Partnership will have no
employees.

  Note Receivable from Affiliate

   Effective October 1, 2000, the Predecessor loaned $20.0 million to Sunoco.
The loan, which is evidenced by a note due January 1, 2002, earns interest at a
rate based on the short-term applicable federal rate established by the
Internal Revenue Service. The interest rate on this note at December 31, 2000
was 8.26%.

  Short-Term Borrowings due Affiliate

   At December 31, 2000, the Predecessor had two short-term notes totaling
$45.0 million payable to Sunoco. The notes bear interest at a rate based on the
short-term applicable federal rate established by the Internal Revenue Service.
The weighted-average interest rate related to these notes was 6.86% at December
31, 2000.

  Long-term Debt due Affiliate

   The Predecessor has the following notes payable to Sunoco (in thousands of
dollars):


<TABLE>
<CAPTION>
                                                           December 31,
                                                         ----------------
                                                          1999     2000
                                                         ------- --------
<S>                                                      <C>     <C>
Variable-rate note due 2002 (8.22% at December 31, 2000) $    -- $ 50,000
Variable-rate note due 2002 (9.50% at December 31, 2000)  25,000   25,000
Variable-rate note due 2004 (9.50% at December 31, 2000)  25,000   25,000
Variable-rate note due 2005 (9.50% at December 31, 2000)  40,000   40,000
                                                         ------- --------
                                                         $90,000 $140,000
                                                         ======= ========
</TABLE>


   The 8.22% note bears interest at a rate based on the short-term applicable
federal rate established by the Internal Revenue Service, while the 9.50% notes
bear interest based on the prime rate.

  Net Parent Investment

   The net parent investment represents a net balance resulting from the
settlement of intercompany transactions (including federal income taxes)
between the Predecessor and Sunoco as well as Sunoco's ownership interest in
the net assets of the Predecessor. It also reflects the Predecessor's
participation in Sunoco's central cash management program, wherein all of the
Predecessor's cash receipts are remitted to Sunoco and all cash disbursements
are funded by Sunoco. There are no terms of settlement or interest charges
attributable to this balance. The net parent investment excludes amounts loaned
to/borrowed from Sunoco evidenced by interest-bearing notes.

3.  Inventories

   The components of inventories were as follows (in thousands of dollars):


<TABLE>
<CAPTION>
                               December 31,   September 30,
                              --------------- -------------
                               1999    2000       2001
                              ------- ------- -------------
                                               (Unaudited)
<S>                           <C>     <C>     <C>
Crude oil.................... $11,470 $17,456    $24,374
Materials, supplies and other   1,199   1,227      1,249
                              ------- -------    -------
                              $12,669 $18,683    $25,623
                              ======= =======    =======
</TABLE>


   The current replacement cost of all crude oil inventory exceeded its
carrying value by $30.6 million and $34.4 million at December 31, 1999 and
2000, respectively, and $31.6 million (unaudited) at September 30, 2001.

                                     F-17


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


4.  Income Taxes

   The components of income tax expense are as follows (in thousands of
dollars):


<TABLE>
<CAPTION>
                                 1998    1999    2000
                                ------- ------- -------
<S>                             <C>     <C>     <C>
Income taxes currently payable:
   U.S. federal................ $14,430 $15,386 $10,965
   State.......................   2,866   3,056   2,178
                                ------- ------- -------
                                 17,296  18,442  13,143
                                ------- ------- -------
Deferred taxes:
   U.S. federal................   4,855   3,376   4,455
   State.......................     965     670     885
                                ------- ------- -------
                                  5,820   4,046   5,340
                                ------- ------- -------
                                $23,116 $22,488 $18,483
                                ======= ======= =======
</TABLE>


   The reconciliation of the income tax expense at the U.S. statutory rate to
the income tax expense is as follows (in thousands of dollars):


<TABLE>
<CAPTION>
                                                             1998     1999     2000
                                                            -------  -------  -------
<S>                                                         <C>      <C>      <C>
Income tax expense at U.S. statutory rate of 35%........... $21,352  $20,953  $17,151
Increase (reduction) in income taxes resulting from:
   State income taxes net of Federal income tax effects....   2,490    2,422    1,991
   Dividend exclusion for joint venture pipeline operation.    (952)  (1,125)    (923)
   Other...................................................     226      238      264
                                                            -------  -------  -------
                                                            $23,116  $22,488  $18,483
                                                            =======  =======  =======
</TABLE>


   The effects of temporary differences that comprise the net deferred income
tax liability are as follows (in thousands of dollars):


<TABLE>
<CAPTION>
                                             December 31,
                                          ------------------
                                            1999      2000
                                          --------  --------
<S>                                       <C>       <C>
Deferred tax assets:
   Environmental remediation liabilities. $  6,390  $  6,519
   Other liabilities not yet deductible..    4,148     4,426
   Other.................................    2,847     3,426
                                          --------  --------
                                            13,385    14,371
                                          --------  --------
Deferred tax liabilities:
   Inventories...........................   (3,087)   (1,836)
   Properties, plants and equipment......  (71,464)  (79,041)
                                          --------  --------
                                           (74,551)  (80,877)
                                          --------  --------
Net deferred income tax liability........ $(61,166) $(66,506)
                                          ========  ========
</TABLE>



                                     F-18


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

   Cash payments for income taxes (including amounts paid to Sunoco) amounted
to $16.0 million, $16.7 million and $11.9 million in 1998, 1999 and 2000,
respectively.

   The net deferred income tax liability is classified in the combined balance
sheets as follows (in thousands of dollars):


<TABLE>
<CAPTION>
                                                                   December 31,
                                                                ------------------
                                                                  1999      2000
                                                                --------  --------
<S>                                                             <C>       <C>
Current asset.................................................. $  2,130  $  4,426
Noncurrent liability...........................................  (63,296)  (70,932)
                                                                --------  --------
                                                                $(61,166) $(66,506)
                                                                ========  ========
</TABLE>


5.  Properties, Plants and Equipment

   The components of net properties, plants and equipment were as follows (in
thousands of dollars):


<TABLE>
<CAPTION>

                                                                    December 31,
                                                      Estimated   -----------------
                                                     Useful Lives   1999     2000
                                                     ------------ -------- --------
<S>                                                  <C>          <C>      <C>
Land and land improvements (including rights of way)    20-60     $ 49,705 $ 50,183
Pipeline and related assets.........................    38-60      393,075  425,093
Terminals and storage facilities....................     5-44      280,374  296,898
Other...............................................     5-48       57,982   61,542
Construction-in-progress............................       --       39,879   38,249
                                                                  -------- --------
                                                                   821,015  871,965
Less: Accumulated depreciation and amortization.....               339,048  353,360
                                                                  -------- --------
                                                                  $481,967 $518,605
                                                                  ======== ========
</TABLE>


6.  Long-Term Debt

   In connection with the acquisition of the crude oil transportation and
marketing operations of Pride Companies, L.P. on October 1, 1999 (Note 10), the
Predecessor assumed a $5.3 million note. The note is due in 2014 with interest
payable at an annual rate of 8%. The note is secured by certain of the acquired
assets. The amount of this note and the long-term debt due affiliate (Note 2)
maturing in the years 2001 through 2005 is as follows (in thousands of dollars):


<TABLE>
<CAPTION>
                                                       Pride Long-Term Debt
                                                       Note  Due Affiliate   Total
                                                       ----- -------------- -------
<S>                                                    <C>   <C>            <C>
2001.................................................. $205     $    --     $   205
2002.................................................. $225     $75,000     $75,225
2003.................................................. $243     $    --     $   243
2004.................................................. $265     $25,000     $25,265
2005.................................................. $285     $40,000     $40,285
</TABLE>


   Cash payments for interest related to the Pride note and amounts due
affiliates were $7.5 million, $7.3 million and $12.4 million in 1998, 1999 and
2000, respectively.

                                     F-19


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


7.  Commitments and Contingent Liabilities

   The Predecessor, as lessee, has noncancelable operating leases for land,
office space and equipment. Total rental expense for 1998, 1999 and 2000
amounted to $2.8 million, $3.6 million and $5.4 million, respectively. The
aggregate amount of future minimum annual rentals as of December 31, 2000
applicable to noncancelable operating leases is as follows (in thousands of
dollars):


<TABLE>
                        <S>                      <C>
                        Year Ending December 31:
                           2001................. $1,616
                           2002.................  1,235
                           2003.................    802
                           2004.................    358
                           2005.................     25
                                                 ------
                           Total................ $4,036
                                                 ======
</TABLE>


   The Predecessor is subject to numerous federal, state and local laws which
regulate the discharge of materials into the environment or that otherwise
relate to the protection of the environment. These laws result in liabilities
and loss contingencies for remediation at the Predecessor's facilities and at
third-party or formerly owned sites. The accrued liability for environmental
remediation is classified in the combined balance sheets as follows (in
thousands of dollars):


<TABLE>
<CAPTION>
                                              December 31,   September 30,
                                             --------------- -------------
                                              1999    2000       2001
                                             ------- ------- -------------
                                                              (Unaudited)
      <S>                                    <C>     <C>     <C>
      Accrued liabilities................... $ 5,987 $ 6,333    $ 6,632
      Other deferred credits and liabilities   9,224   9,082      8,672
                                             ------- -------    -------
                                             $15,211 $15,415    $15,304
                                             ======= =======    =======
</TABLE>


   The accrued liability for environmental remediation does not include any
amounts attributable to unasserted claims, nor have any recoveries from
insurance been assumed. It is expected that the amounts accrued will be paid
over approximately ten years.

   Pretax charges against (benefits to) income for environmental remediation
totaled $(0.7) million, $3.9 million and $8.5 million in the years ended
December 31, 1998, 1999 and 2000, respectively, and $8.1 million and $3.9
million (unaudited) in the nine months ended September 30, 2000 and 2001,
respectively.

   Total future costs for environmental remediation activities will depend
upon, among other things, the identification of any additional sites, the
determination of the extent of the contamination at each site, the timing and
nature of required remedial actions, the technology available and needed to
meet the various existing legal requirements, the nature and extent of future
environmental laws, inflation rates and the determination of the Predecessor's
liability at multi-party sites, if any, in light of uncertainties with respect
to joint and several liability, and the number, participation levels and
financial viability of other parties.

   The Predecessor is a party to certain pending and threatened claims.
Although the ultimate outcome of these claims cannot be ascertained at this
time, it is reasonably possible that some portion of them could be resolved
unfavorably to the Predecessor. Management of the Predecessor does not believe
that any liabilities which may

                                     F-20


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

arise from such claims and the environmental matters discussed above would be
material in relation to the financial position of the Predecessor at December
31, 2000 and September 30, 2001. Furthermore, management of the Predecessor
does not believe that the overall costs for such matters will have a material
impact, over an extended period of time, on the Predecessor's operations, cash
flows or liquidity.

   In connection with the contribution of the Predecessor's business to the
Partnership, Sunoco, Inc. has agreed to indemnify the Partnership from
environmental and toxic tort liabilities and certain other liabilities. A
detailed discussion of the terms of this indemnification is contained in Note
13.

8.  Investment in Explorer Pipeline Company

   The following table provides summarized financial information on a 100%
basis for Explorer Pipeline Company (in thousands of dollars):


<TABLE>
<CAPTION>
                                               1998     1999     2000
                                             -------- -------- --------
        <S>                                  <C>      <C>      <C>
        Income Statement Data:
        Total revenues...................... $131,828 $150,776 $146,719
        Income before income taxes.......... $ 64,809 $ 78,886 $ 61,655
        Net income.......................... $ 40,642 $ 50,170 $ 38,859
        Balance Sheet Data (as of year end):
        Current assets...................... $ 23,173 $ 27,601 $ 35,012
        Noncurrent assets................... $135,174 $132,010 $129,935
        Current liabilities................. $ 41,096 $ 17,328 $ 24,320
        Noncurrent liabilities.............. $115,382 $140,573 $139,953
        Net equity.......................... $  1,869 $  1,710 $    674
</TABLE>


9.  Financial Instruments and Concentration of Credit Risk

   The Predecessor's current assets (other than inventories and deferred income
taxes) and current liabilities are financial instruments. The estimated fair
value of these financial instruments approximates their carrying amounts. The
estimated fair values of the long-term debt (primarily amounts due affiliate)
at December 31, 1999 and 2000 were $96.0 million and $146.6 million,
respectively, compared to the carrying amounts of $95.1 million and $144.8
million, respectively. The estimated fair value of the $20.0 million note
receivable from affiliate was $19.9 million at December 31, 2000. The estimated
fair values were based upon the current interest rates at the balance sheet
dates for similar issues.

   Approximately 70% of the sales and other operating revenue recognized by the
Predecessor during 2000 is derived from Sunoco R&M. The Predecessor sells crude
oil to Sunoco R&M, transports crude oil and refined products to/from Sunoco
R&M's refineries and provides terminalling and storage services for Sunoco R&M.
The Predecessor does not believe that the transactions with Sunoco R&M expose
it to significant credit risk.

   The Predecessor's other trade relationships are primarily with major
integrated oil companies, independent oil companies and other pipelines and
wholesalers. These concentrations of customers may affect the Predecessor's
overall credit risk in that the customers (including Sunoco R&M) may be
similarly affected by changes in economic, regulatory or other factors. The
Predecessor's customers' credit positions are analyzed prior to extending
credit. The Predecessor manages its exposure to credit risk through credit
analysis, credit approvals, credit limits and monitoring procedures, and for
certain transactions may utilize letters of credit, prepayments and guarantees.

                                     F-21


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


10.  Acquisition of Pride Companies, L.P. Crude Oil Transportastion and
Marketing Operations

   On October 1, 1999, the Predecessor acquired the crude oil transportation
and marketing operations of Pride Companies, L.P. ("Pride") for $29.6 million
in cash and the assumption of $5.3 million of debt. The acquisition included
Pride's 800-mile crude oil pipeline system, 800,000 barrels of tankage and
related assets, and the right to purchase 35,000 barrels per day of third-party
lease crude oil.

   The acquisition has been accounted for as a purchase. The results of
operations have been included in the combined statements of income and net
parent investment since the date of acquisition. The purchase price has been
allocated to the assets acquired and liabilities assumed based on their
relative fair market values at the acquisition date. The following is a summary
of the effects of this transaction on the Predecessor's financial position as
of the acquisition date (in thousands of dollars):


<TABLE>
            <S>                                            <C>
            Allocation of purchase price:
               Inventories................................ $10,246
               Properties, plants and equipment...........  25,486
               Deferred charges and other assets..........   1,839
               Accrued liabilities........................    (822)
               Long-term debt (including current portion).  (5,334)
               Deferred income taxes......................  (1,839)
                                                           -------
               Cash paid on acquisition date.............. $29,576
                                                           =======
</TABLE>


   The unaudited pro forma net income for the years ended December 31, 1998 and
1999, assuming the acquisition had occurred on January 1, 1998, was $34.4
million and $34.8 million, respectively. The pro forma information does not
purport to be indicative of the results that actually would have been obtained
if the combined operations had been conducted during the periods presented and
is not intended to be a projection of future results.

                                     F-22


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


11.  Business Segment Information

   The Predecessor is comprised of a substantial portion of the logistics
operations of Sunoco, Inc. The Predecessor operates in three principal business
segments: Eastern Pipeline System, Terminal Facilities and Western Pipeline
System. A detailed description of each of these segments is contained in Note 1.

Segment Information (in thousands)


<TABLE>
<CAPTION>
                                                Year Ended December 31, 1998
                                   ------------------------------------------------
                                   Eastern                        Western
                                   Pipeline        Terminal       Pipeline
                                    System        Facilities       System   Total
                                   --------       ----------      -------- --------
<S>                                <C>            <C>             <C>      <C>
Sales and other operating revenue:
   Affiliates..................... $ 68,081        $ 35,263 /(1)/ $466,988 $570,332
                                   ========        ========       ======== ========
   Unaffiliated customers......... $ 22,571        $ 28,307       $ 73,991 $124,869
                                   ========        ========       ======== ========
Operating income.................. $ 42,185 /(2)/  $ 18,796       $  7,143 $ 68,124
                                   ========        ========       ========
Net interest expense..............                                           (7,117)
Income tax expense................                                          (23,116)
                                                                           --------
Net income........................                                         $ 37,891
                                                                           ========
Depreciation and amortization..... $  7,395        $  8,118       $  3,109 $ 18,622
                                   ========        ========       ======== ========
Capital expenditures.............. $ 16,831        $ 12,366       $  7,750 $ 36,947
                                   ========        ========       ======== ========
Identifiable assets............... $242,100        $145,832       $138,585 $528,279 /(3)/
                                   ========        ========       ======== ========
</TABLE>

--------
(1)Substantially all of these revenues reflect transfer prices which are equal
   to the costs incurred for these activities. Includes $1,134 thousand
   reduction in revenues attributable to the reversal of a previously
   established accrual for environmental remediation.
(2)Includes equity income of $3,885 thousand attributable to the Predecessor's
   ownership interest in the Explorer Pipeline Company corporate joint venture.
(3)Identifiable assets include the Predecessor's unallocated $1,762 thousand
   deferred income tax asset.

                                     F-23


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


Segment Information (in thousands)


<TABLE>
<CAPTION>
                                                   Year Ended December 31, 1999
                                   ------------------------------------------------------
                                   Eastern                        Western
                                   Pipeline        Terminal       Pipeline
                                    System        Facilities       System         Total
                                   --------       ----------      --------       --------
<S>                                <C>            <C>             <C>            <C>
Sales and other operating revenue:
   Affiliates..................... $ 70,177        $ 38,329 /(1)/ $655,627       $764,133
                                   ========        ========       ========       ========
   Unaffiliated customers......... $ 19,472        $ 29,166       $161,431       $210,069
                                   ========        ========       ========       ========
Operating income.................. $ 38,501 /(2)/  $ 16,767       $ 11,085       $ 66,353
                                   ========        ========       ========
Net interest expense..............                                                 (6,487)
Income tax expense................                                                (22,488)
                                                                                 --------
Net income........................                                               $ 37,378
                                                                                 ========
Depreciation and amortization..... $  7,929        $  8,457       $  3,525       $ 19,911
                                   ========        ========       ========       ========
Capital expenditures.............. $ 20,697        $ 16,858       $  9,403 /(3)/ $ 46,958
                                   ========        ========       ========       ========
Identifiable assets............... $256,842        $151,497       $301,680       $712,149 /(4)/
                                   ========        ========       ========       ========
</TABLE>

--------
(1)Substantially all of these revenues reflect transfer prices which are equal
   to the costs incurred for these activities. Includes $450 thousand
   reimbursement of costs incurred for environmental remediation and other
   unusual items.
(2)Includes equity income of $4,591 thousand attributable to the Predecessor's
   ownership interest in the Explorer Pipeline Company corporate joint venture.
(3)Excludes $34,910 thousand acquisition of the crude oil transportation and
   marketing operations of Pride Companies, L.P.
(4)Identifiable assets include the Predecessor's unallocated $2,130 thousand
   deferred income tax asset.

Segment Information (in thousands)


<TABLE>
<CAPTION>
                                                  Year Ended December 31, 2000
                                   ----------------------------------------------------
                                   Eastern                         Western
                                   Pipeline        Terminal        Pipeline
                                    System        Facilities        System     Total
                                   --------       ----------      ---------- ----------
<S>                                <C>            <C>             <C>        <C>
Sales and other operating revenue:
   Affiliates..................... $ 69,027        $ 44,356 /(1)/ $1,187,696 $1,301,079
                                   ========        ========       ========== ==========
   Unaffiliated customers......... $ 19,323        $ 31,042       $  457,167 $  507,532
                                   ========        ========       ========== ==========
Operating income.................. $ 31,064 /(2)/  $ 17,156       $   11,087 $   59,307
                                   ========        ========       ==========
Net interest expense..............                                              (10,304)
Income tax expense................                                              (18,483)
                                                                             ----------
Net income........................                                           $   30,520
                                                                             ==========
Depreciation and amortization..... $  8,272        $  8,616       $    3,766 $   20,654
                                   ========        ========       ========== ==========
Capital expenditures.............. $ 21,894        $ 28,488       $    7,539 $   57,921
                                   ========        ========       ========== ==========
Identifiable assets............... $286,319        $175,376       $  379,835 $  845,956 /(3)/
                                   ========        ========       ========== ==========
</TABLE>

--------
(1)Substantially all of these revenues reflect transfer prices which are equal
   to the costs incurred for these activities. Includes $5,671 thousand
   reimbursement of costs incurred for environmental remediation and other
   unusual items.
(2)Includes equity income of $3,766 thousand attributable to the Predecessor's
   ownership interest in the Explorer Pipeline Company corporate joint venture.
(3)Identifiable assets include the Predecessor's unallocated $4,426 thousand
   deferred income tax asset.

                                     F-24


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


Segment Information (in thousands)


<TABLE>
<CAPTION>
                                            Nine Months                                   Nine Months
                               Ended September 30, 2000 (unaudited)          Ended September 30, 2001 (unaudited)
                           --------------------------------------------  --------------------------------------------
                           Eastern                    Western            Eastern                    Western
                           Pipeline      Terminal     Pipeline           Pipeline      Terminal     Pipeline
                            System      Facilities     System   Total     System      Facilities     System   Total
                           --------     ----------    -------- --------  --------     ----------    -------- --------
<S>                        <C>          <C>           <C>      <C>       <C>          <C>           <C>      <C>
Sales and other
  operating revenue:
   Affiliates............. $52,832       $34,238/(1)/ $877,815 $964,885  $52,452       $31,374/(1)/ $753,298 $837,124
                           =======       =======      ======== ========  =======       =======      ======== ========
   Unaffiliated customers. $14,150       $21,046      $329,279 $364,475  $15,544       $22,267      $375,576 $413,387
                           =======       =======      ======== ========  =======       =======      ======== ========
Operating income.......... $23,335/(2)/  $11,112      $ 10,354 $ 44,801  $24,310/(2)/  $13,114      $  8,285 $ 45,709
                           =======       =======      ========           =======       =======      ========
Net interest expense......                                       (6,640)                                       (8,504)
Income tax expense........                                      (14,411)                                      (13,920)
                                                               --------                                      --------
Net income................                                     $ 23,750                                      $ 23,285
                                                               ========                                      ========
Depreciation and
  amortization............ $ 6,164       $ 6,275      $  2,778 $ 15,217  $ 7,235       $ 7,171      $  3,276 $ 17,682
                           =======       =======      ======== ========  =======       =======      ======== ========
Capital expenditures...... $13,014       $18,994      $  4,067 $ 36,075  $16,711       $14,537      $  8,974 $ 40,222
                           =======       =======      ======== ========  =======       =======      ======== ========
</TABLE>

--------
(1)Substantially all of these revenues reflect transfer prices which are equal
   to the costs incurred for these activities. Includes $5,650 thousand and
   $1,350 thousand for the nine months ended September 30, 2000 and 2001,
   respectively, attributable to reimbursement of costs incurred for
   environmental remediation and other unusual items.
(2)Includes equity income of $2,482 thousand and $3,094 thousand for the nine
   months ended September 30, 2000 and 2001, respectively, attributable to the
   Predecessor's ownership interest in the Explorer Pipeline Company corporate
   joint venture.

   Income tax amounts give effect to the tax credits earned by each segment.
Overhead expenses are identified with each segment and included as deductions
in determining the segment's operating income. Identifiable assets are those
assets that are utilized within a specific segment.

   The following table sets forth the Predecessor's total sales and other
operating revenue by product or service (in thousands of dollars):


<TABLE>
<CAPTION>
                                       Year Ended          Nine Months Ended
                                      December 31,           September 30,
                              ---------------------------- -----------------
                                1998     1999      2000      2000     2001
                              -------- -------- ---------- -------- --------
                                                              (Unaudited)
   <S>                        <C>      <C>      <C>        <C>      <C>
   Affiliates:
      Crude oil.............. $463,975 $651,805 $1,178,004 $871,175 $745,755
      Pipeline...............   71,094   73,999     78,719   59,472   59,995
      Terminalling and other.   35,263   38,329     44,356   34,238   31,374
                              -------- -------- ---------- -------- --------
                              $570,332 $764,133 $1,301,079 $964,885 $837,124
                              ======== ======== ========== ======== ========
   Unaffiliated Customers:
      Crude oil.............. $ 68,872 $155,997 $  452,650 $325,701 $373,061
      Pipeline...............   27,690   24,906     23,840   17,728   18,059
      Terminalling and other.   28,307   29,166     31,042   21,046   22,267
                              -------- -------- ---------- -------- --------
                              $124,869 $210,069 $  507,532 $364,475 $413,387
                              ======== ======== ========== ======== ========
</TABLE>


                                     F-25


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


12.  New Accounting Pronouncements

   In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued and,
in June 2000, it was amended by Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" (collectively, "new derivative accounting"). The new derivative
accounting requires recognition of all derivative contracts in the balance
sheet at their fair value. If the derivative contracts qualify for hedge
accounting, depending on their nature, changes in their fair values are either
offset in net income against the changes in the fair values of the items being
hedged or reflected initially as a separate component of the net parent
investment and subsequently recognized in net income when the hedged items are
recognized in net income. The ineffective portions of changes in the fair
values of derivative contracts that qualify for hedge accounting as well as
changes in fair value of all other derivatives are immediately recognized in
net income. The new derivative accounting was adopted effective January 1,
2001. There was no impact on net income or net parent investment for the nine
months ended September 30, 2001.

   In July 2001, Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No. 142"), was issued. Sunoco Logistics
(Predecessor) will adopt SFAS No. 142 effective January 1, 2002 when adoption
is mandatory. SFAS No. 142 will require the testing of goodwill and indefinite-
lived intangible assets for impairment rather than amortizing them. The
Predecessor is currently assessing the impact of adopting SFAS No. 142 on its
combined financial statements. The current level of annual amortization of
goodwill and indefinite-lived intangible assets, which will be eliminated upon
the adoption of SFAS No. 142, is approximately $0.8 million.

   In August 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143"), was issued.
This statement significantly changes the method of accruing for costs
associated with the retirement of fixed assets that an entity is legally
obligated to incur. The Predecessor will evaluate the impact and timing of
implementing SFAS No. 143. Implementation of this standard is required no later
than January 1, 2003.

   In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), was issued. Sunoco Logistics (Predecessor) will adopt SFAS No. 144
effective January 1, 2002 when adoption is mandatory. Among other things, SFAS
No. 144 significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. SFAS No. 144 supersedes Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the
provisions of Accounting Principles Board Opinion 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
that relate to reporting the effects of a disposal of a segment of a business.
The Predecessor is currently assessing the impact of adopting SFAS No. 144 on
its combined financial statements.

13.  Subsequent Events

   On October 15, 2001, Sunoco, Inc. formed Sunoco Logistics Partners L.P. to
ultimately acquire the business of Sunoco Logistics (Predecessor). The
Partnership's general partner is Sunoco Partners LLC, an indirect wholly owned
subsidiary of Sunoco, Inc. Effective with the closing of an initial public
offering of common units of the Partnership expected to occur in the first
quarter of 2002, the ownership of the Predecessor will be transferred to the
Partnership. This transfer represents a reorganization of entities under common
control and will be recorded at historical cost.

                                     F-26


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)


   Prior to the closing of this offering, most of the terminalling and
throughput services provided by the Predecessor for Sunoco R&M's refining and
marketing operations were at fees that enabled the Predecessor to recover its
costs but not to generate operating income (Note 2). Concurrent with the
closing of this offering, the Partnership will enter into a pipelines and
terminals storage and throughput agreement and various other agreements with
Sunoco R&M under which the Partnership will charge Sunoco R&M fees for these
services comparable to those charged in arm's-length, third-party transactions.

   Under the pipelines and terminals storage and throughput agreement, Sunoco
R&M will agree to pay the Partnership a minimum level of revenues for
transporting and terminalling refined products. Sunoco R&M will also agree to
minimum throughputs of refined products and crude oil in the Partnership's
Inkster Terminal, Fort Mifflin Terminal Complex, Marcus Hook Tank Farm and
certain crude oil pipelines.


   Historically, Sunoco has allocated a portion of its general and
administrative expenses to its pipeline, terminalling and storage operations to
cover costs of centralized corporate functions (Note 2). Under an omnibus
agreement with Sunoco, Inc. that the Partnership will enter into at the closing
of this offering, Sunoco, Inc. will continue to provide these services for
three years for an annual administrative fee initially in the amount of $8.0
million, which may be increased in the second and third years following this
offering by the lesser of 2.5% or the consumer price index for the applicable
year. These costs may also increase if the Partnership makes an acquisition or
constructs additional assets that require an increase in the level of general
and administrative services received by the Partnership from the general
partner or Sunoco, Inc. The $8.0 million fee includes expenses incurred by
Sunoco, Inc. and its affiliates to perform centralized corporate functions,
such as legal, accounting, treasury, engineering, information technology,
insurance and other corporate services, including the administration of
employee benefit plans. This fee does not include salaries of pipeline and
terminal personnel or other employees of the general partner, including senior
executives, or the cost of their employee benefits, such as 401(k), pension,
and health insurance benefits. The Partnership will also reimburse Sunoco, Inc.
and its affiliates for these costs and other direct expenses incurred on the
Partnership's behalf. The Partnership will have no employees. In addition, the
Partnership anticipates incurring additional general and administrative costs,
including costs for tax return preparation, annual and quarterly reports to
unitholders, investor relations, registrar and transfer agent fees, and other
costs related to operating as a separate publicly held entity. The Partnership
estimates that these incremental costs will be approximately $4.0 million
(unaudited) per year, including incremental insurance costs.



   Under the omnibus agreement, Sunoco R&M will reimburse Sunoco Logistics
Partners L.P. for operating expenses and capital expenditures in excess of $8.0
million per year (up to an aggregate maximum of $15.0 million over a five-year
period) incurred to comply with the U.S. Department of Transportation's
pipeline integrity management rule. In addition, Sunoco R&M will, at its
expense, complete for Sunoco Logistics Partners L.P.'s Darby Creek Tank Farm
certain tank maintenance and inspection projects now in progress or expected to
be completed within one year from the closing of this offering. Sunoco R&M will
also reimburse Sunoco Logistics Partners L.P. for up to $10.0 million of
expenditures required at the Darby Creek and Marcus Hook Tank Farms to maintain
compliance with existing industry standards and regulatory requirements. The
Partnership will reflect outlays for these programs as operating expenses or
capital expenditures, as appropriate. Capital expenditures would be depreciated
over their useful lives. The reimbursement by Sunoco R&M will be reflected as a
capital contribution.


   In connection with this offering and related transactions, Sunoco, Inc. will
agree to indemnify Sunoco Logistics Partners L.P. for 30 years from
environmental and toxic tort liabilities related to the assets contributed to
the Partnership that arise from the operation of such assets prior to the
closing of this offering. Sunoco, Inc. will be obligated to indemnify the
Partnership for 100% of all losses asserted within the first 21 years of
closing. Sunoco, Inc.'s share of liability for claims asserted thereafter will
decrease by 10% a year. For example, for a claim asserted during the
twenty-third year after closing, Sunoco, Inc. would be required to indemnify the

                                     F-27


<PAGE>

                        SUNOCO LOGISTICS (PREDECESSOR)

        NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

Partnership for 80% of its loss. There is no monetary cap on the amount of
indemnity coverage provided by Sunoco, Inc. Sunoco Logistics Partners L.P. has
agreed to indemnify Sunoco, Inc. and its affiliates from environmental and
toxic tort liabilities to the extent Sunoco, Inc. is not required to indemnify
the Partnership.

   Sunoco, Inc. also will indemnify Sunoco Logistics Partners L.P. for
liabilities, other than environmental and toxic tort liabilities related to the
assets contributed to the Partnership, that arise out of Sunoco, Inc. and its
affiliates' ownership and operation of the assets prior to the closing of this
offering and that are asserted within 10 years after closing. In addition,
Sunoco, Inc. will indemnify the Partnership from liabilities relating to
certain defects in title to the assets contributed to the Partnership and
associated with failure to obtain certain consents and permits necessary to
conduct its business that arise within 10 years after closing as well as from
liabilities relating to legal actions currently pending against Sunoco, Inc. or
its affiliates and events and conditions associated with any assets retained by
Sunoco, Inc. or its affiliates.

   In addition, Sunoco will agree, subject to certain exceptions, not to engage
in, whether by acquisition or otherwise, the business of purchasing crude oil
at the wellhead, or operating crude oil pipelines or terminals, refined
products pipelines or terminals, or LPG terminals in the continental United
States.


   Under various other agreements, Sunoco R&M will, among other things,
purchase from the Partnership at market-based rates particular grades of crude
oil that the Partnership's crude oil acquisition and marketing business
purchases for delivery to pipelines in: Longview, Trent, Tye, and Colorado
City, Texas; Haynesville, Louisiana; Marysville and Lewiston, Michigan; and
Tulsa, Oklahoma. At Marysville and Lewiston, Michigan, the Partnership
exchanges Michigan sweet and Michigan sour crude oil it owns for domestic sweet
crude oil supplied by Sunoco R&M at market-based rates. The initial term of
these agreements is two months. These agreements will automatically renew on a
monthly basis unless terminated by either party on 30 days' written notice.
Sunoco R&M will also agree to lease from the Partnership the 58 miles of
interrefinery pipelines between Sunoco R&M's Philadelphia and Marcus Hook
refineries for a term of 20 years. The Partnership will enter into a treasury
services agreement with Sunoco, Inc. pursuant to which it will, among other
things, participate in Sunoco, Inc.'s centralized cash management program.
Under this program, all of the Partnership's cash receipts and cash
disbursements will be processed, together with those of Sunoco, Inc. and its
other subsidiaries, through Sunoco, Inc.'s cash accounts with a corresponding
credit or charge to an intercompany account. The intercompany balances will be
settled periodically, but no less frequently than at the end of each month.
Amounts due from Sunoco, Inc. and its subsidiaries will earn interest at a rate
equal to the average rate of the Partnership's third-party money market
investments, while amounts due to Sunoco, Inc. and its subsidiaries bear
interest at a rate equal to the interest rate provided in the Partnership's
revolving credit facility.


                                     F-28


<PAGE>


                        REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Sunoco Partners LLC:

   We have audited the accompanying balance sheet of Sunoco Logistics Partners
L.P. (a Delaware limited partnership) (the "Partnership") as of October 18,
2001. This balance sheet is the responsibility of the Partnership's management.
Our responsibility is to express an opinion on this balance sheet based on our
audit.

   We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.

   In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Sunoco Logistics Partners L.P. at
October 18, 2001 in conformity with accounting principles generally accepted in
the United States.

                                          ERNST & YOUNG LLP

Philadelphia, Pennsylvania
October 19, 2001


                                     F-29


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

                                 BALANCE SHEET
                               OCTOBER 18, 2001


<TABLE>
                        <S>                      <C>
                        Assets
                        Current Assets
                        Cash.................... $1,000
                                                 ------
                           Total Assets......... $1,000
                                                 ======
                        Equity
                        Limited partner's equity $  980
                        General partner's equity     20
                                                 ------
                           Total Equity......... $1,000
                                                 ======
</TABLE>


                            (See Accompanying Note)

                                     F-30


<PAGE>

                        SUNOCO LOGISTICS PARTNERS L.P.

                             NOTE TO BALANCE SHEET

1.  Nature of Operations

   Sunoco Logistics Partners L.P., a Delaware limited partnership (the
"Partnership"), was formed on October 15, 2001 to ultimately acquire a
substantial portion of the refined product pipelines, terminalling and storage
assets, and crude oil pipelines and crude oil acquisition and marketing assets
of Sunoco, Inc. (collectively, "Sunoco Logistics (Predecessor)"). Sunoco
Partners LLC, the Partnership's general partner, and the Partnership's limited
partner are both wholly owned subsidiaries of Sunoco, Inc. The Partnership has
adopted a January 1 to December 31 fiscal year. Sunoco Partners LLC contributed
$20 and the wholly owned subsidiary of Sunoco, Inc. contributed $980 to the
Partnership on October 18, 2001. There have been no other transactions
involving the Partnership as of October 18, 2001.


   The Partnership intends to offer 5,000,000 common units to the public and
750,000 common units to Sunoco Partners LLC if the underwriters do not exercise
their over-allotment option, representing limited partner interests, pursuant
to a public offering. It will also concurrently issue to Sunoco Partners LLC
5,633,639 common units and 11,383,639 subordinated units, representing
additional limited partner interests, and a 2% general partner interest and
incentive distribution rights in exchange for the contribution of the assets of
Sunoco Logistics (Predecessor). The contribution of the assets also will
entitle Sunoco Partners LLC to receive $247 million in cash representing the
estimated net proceeds from the $250 million offering of senior notes, which
will be issued concurrently with the public offering.


                                     F-31


<PAGE>


                        REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Sunoco Partners LLC:

   We have audited the accompanying balance sheet of Sunoco Partners LLC as of
October 18, 2001. This balance sheet is the responsibility of Sunoco Partners
LLC's management. Our responsibility is to express an opinion on this balance
sheet based on our audit.

   We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.

   In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Sunoco Partners LLC at October 18,
2001 in conformity with accounting principles generally accepted in the United
States.

                                                     ERNST & YOUNG LLP

Philadelphia, Pennsylvania
October 19, 2001


                                     F-32


<PAGE>

                              SUNOCO PARTNERS LLC

                                 BALANCE SHEET
                               OCTOBER 18, 2001


<TABLE>
              <S>                                          <C>
              Assets
              Current Assets
              Cash........................................ $  980
              Investment in Sunoco Logistics Partners L.P.     20
                                                           ------
                 Total Assets............................. $1,000
                                                           ======
              Equity
              Net parent investment....................... $1,000
                                                           ------
                 Total Equity............................. $1,000
                                                           ======
</TABLE>


                            (See Accompanying Note)

                                     F-33


<PAGE>

                              SUNOCO PARTNERS LLC

                             NOTE TO BALANCE SHEET

1.  Nature of Operations

   Sunoco Partners LLC is a Delaware limited liability company formed on
October 12, 2001 to become the general partner of Sunoco Logistics Partners
L.P. (the "Partnership"). Sunoco Partners LLC is a wholly owned subsidiary of
Sunoco, Inc. On October 18, 2001, another wholly owned subsidiary of Sunoco,
Inc. contributed $1,000 to Sunoco Partners LLC in exchange for a 100% ownership
interest. Sunoco Partners LLC has invested $20 in the Partnership for its 2%
general partner interest. There have been no other transactions involving
Sunoco Partners LLC as of October 18, 2001.

                                     F-34


<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                                                     APPENDIX A



                          FIRST AMENDED AND RESTATED

                       AGREEMENT OF LIMITED PARTNERSHIP

                                      OF

                        SUNOCO LOGISTICS PARTNERS L.P.



--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


<PAGE>

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                             ARTICLE I
<C>          <S>                                                                                <C>
                                            DEFINITIONS
Section 1.1  Definitions.......................................................................  A-1
Section 1.2  Construction...................................................................... A-16


                                             ARTICLE II

                                            ORGANIZATION
Section 2.1  Formation......................................................................... A-16
Section 2.2  Name.............................................................................. A-16
Section 2.3  Registered Office; Registered Agent; Principal Office; Other Offices.............. A-16
Section 2.4  Purpose and Business.............................................................. A-17
Section 2.5  Powers............................................................................ A-17
Section 2.6  Power of Attorney................................................................. A-17
Section 2.7  Term.............................................................................. A-18
Section 2.8  Title to Partnership Assets....................................................... A-18


                                            ARTICLE III

                                     RIGHTS OF LIMITED PARTNERS
Section 3.1  Limitation of Liability........................................................... A-19
Section 3.2  Management of Business............................................................ A-19
Section 3.3  Outside Activities of the Limited Partners........................................ A-19
Section 3.4  Rights of Limited Partners........................................................ A-19


                                             ARTICLE IV

                  CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
                                REDEMPTION OF PARTNERSHIP INTERESTS
Section 4.1  Certificates...................................................................... A-20
Section 4.2  Mutilated, Destroyed, Lost or Stolen Certificates................................. A-20
Section 4.3  Record Holders.................................................................... A-21
Section 4.4  Transfer Generally................................................................ A-21
Section 4.5  Registration and Transfer of Limited Partner Interests............................ A-22
Section 4.6  Transfer of the General Partner's General Partner Interest........................ A-22
Section 4.7  Transfer of Incentive Distribution Rights......................................... A-23
Section 4.8  Restrictions on Transfers......................................................... A-23
Section 4.9  Citizenship Certificates; Non-citizen Assignees................................... A-24
Section 4.10 Redemption of Partnership Interests of Non-citizen Assignees...................... A-24


                                             ARTICLE V

                    CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1  Organizational Contributions...................................................... A-25
Section 5.2  Contributions by the General Partner and its Affiliates........................... A-25
Section 5.3  Contributions by Initial Limited Partners and Distributions to the General Partner A-26
Section 5.4  Interest and Withdrawal........................................................... A-26
Section 5.5  Capital Accounts.................................................................. A-26
Section 5.6  Issuances of Additional Partnership Securities.................................... A-29
</TABLE>


                                     A--i


<PAGE>


<TABLE>
<C>          <S>                                                                                    <C>
Section 5.7  Limitations on Issuance of Additional Partnership Securities.......................... A-29
Section 5.8  Conversion of Subordinated Units...................................................... A-31
Section 5.9  Limited Preemptive Right.............................................................. A-32
Section 5.10 Splits and Combinations............................................................... A-32
Section 5.11 Fully Paid and Non-Assessable Nature of Limited Partner Interests..................... A-33


                                               ARTICLE VI

                                     ALLOCATIONS AND DISTRIBUTIONS
Section 6.1  Allocations for Capital Account Purposes.............................................. A-33
Section 6.2  Allocations for Tax Purposes.......................................................... A-38
Section 6.3  Requirement and Characterization of Distributions; Distributions to Record Holders.... A-40
Section 6.4  Distributions of Available Cash from Operating Surplus................................ A-41
Section 6.5  Distributions of Available Cash from Capital Surplus.................................. A-42
Section 6.6  Adjustment of Minimum Quarterly Distribution and Target Distribution Levels........... A-42
Section 6.7  Special Provisions Relating to the Holders of Subordinated Units...................... A-42
Section 6.8  Special Provisions Relating to the Holders of Incentive Distribution Rights........... A-43
Section 6.9  Entity-Level Taxation................................................................. A-43


                                              ARTICLE VII

                                  MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1  Management............................................................................ A-43
Section 7.2  Certificate of Limited Partnership.................................................... A-45
Section 7.3  Restrictions on the General Partner's Authority....................................... A-45
Section 7.4  Reimbursement of the General Partner.................................................. A-46
Section 7.5  Outside Activities.................................................................... A-46
Section 7.6  Loans from the General Partner; Loans or Contributions from the Partnership; Contracts
               with Affiliates; Certain Restrictions on the General Partner........................ A-48
Section 7.7  Indemnification....................................................................... A-49
Section 7.8  Liability of Indemnitees.............................................................. A-50
Section 7.9  Resolution of Conflicts of Interest................................................... A-50
Section 7.10 Other Matters Concerning the General Partner.......................................... A-52
Section 7.11 Purchase or Sale of Partnership Securities............................................ A-52
Section 7.12 Registration Rights of the General Partner and its Affiliates......................... A-52
Section 7.13 Reliance by Third Parties............................................................. A-54


                                              ARTICLE VIII

                                 BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1  Records and Accounting................................................................ A-54
Section 8.2  Fiscal Year........................................................................... A-55
Section 8.3  Reports............................................................................... A-55


                                               ARTICLE IX

Section 9.1  Tax Returns and Information........................................................... A-55
Section 9.2  Tax Elections......................................................................... A-55
Section 9.3  Tax Controversies..................................................................... A-55
Section 9.4  Withholding........................................................................... A-56
</TABLE>


                                     A--ii


<PAGE>


<TABLE>
<CAPTION>

                                         ARTICLE X
<C>           <S>                                                                       <C>
                                   ADMISSION OF PARTNERS
Section 10.1  Admission of Initial Limited Partners.................................... A-56
Section 10.2  Admission of Substituted Limited Partner................................. A-56
Section 10.3  Admission of Successor General Partner................................... A-56
Section 10.4  Admission of Additional Limited Partners................................. A-57
Section 10.5  Amendment of Agreement and Certificate of Limited Partnership............ A-57


                                         ARTICLE XI

                             WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1  Withdrawal of the General Partner........................................ A-57
Section 11.2  Removal of the General Partner........................................... A-59
Section 11.3  Interest of Departing Partner and Successor General Partner.............. A-59
Section 11.4  Termination of Subordination Period, Conversion of Subordinated Units and
                Extinguishment of Cumulative Common Unit Arrearages.................... A-60
Section 11.5  Withdrawal of Limited Partners........................................... A-60


                                        ARTICLE XII

                                DISSOLUTION AND LIQUIDATION
Section 12.1  Dissolution.............................................................. A-60
Section 12.2  Continuation of the Business of the Partnership After Dissolution........ A-61
Section 12.3  Liquidator............................................................... A-61
Section 12.4  Liquidation.............................................................. A-62
Section 12.5  Cancellation of Certificate of Limited Partnership....................... A-62
Section 12.6  Return of Contributions.................................................. A-62
Section 12.7  Waiver of Partition...................................................... A-63
Section 12.8  Capital Account Restoration.............................................. A-63


                                        ARTICLE XIII

                 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
Section 13.1  Amendment to be Adopted Solely by the General Partner.................... A-63
Section 13.2  Amendment Procedures..................................................... A-64
Section 13.3  Amendment Requirements................................................... A-64
Section 13.4  Special Meetings......................................................... A-65
Section 13.5  Notice of a Meeting...................................................... A-65
Section 13.6  Record Date.............................................................. A-65
Section 13.7  Adjournment.............................................................. A-66
Section 13.8  Waiver of Notice; Approval of Meeting; Approval of Minutes............... A-66
Section 13.9  Quorum................................................................... A-66
Section 13.10 Conduct of a Meeting..................................................... A-66
Section 13.11 Action Without a Meeting................................................. A-67
Section 13.12 Voting and Other Rights.................................................. A-67
</TABLE>


                                    A--iii


<PAGE>


<TABLE>
<CAPTION>

                                  ARTICLE XIV
   <C>           <S>                                                     <C>
                                     MERGER
   Section 14.1  Authority.............................................. A-68
   Section 14.2  Procedure for Merger or Consolidation.................. A-68
   Section 14.3  Approval by Limited Partners of Merger or Consolidation A-68
   Section 14.4  Certificate of Merger.................................. A-69
   Section 14.5  Effect of Merger....................................... A-69


                                   ARTICLE XV

                   RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
   Section 15.1  Right to Acquire Limited Partner Interests............. A-70


                                  ARTICLE XVI

                               GENERAL PROVISIONS
   Section 16.1  Addresses and Notices.................................. A-71
   Section 16.2  Further Action......................................... A-72
   Section 16.3  Binding Effect......................................... A-72
   Section 16.4  Integration............................................ A-72
   Section 16.5  Creditors.............................................. A-72
   Section 16.6  Waiver................................................. A-72
   Section 16.7  Counterparts........................................... A-72
   Section 16.8  Applicable Law......................................... A-72
   Section 16.9  Invalidity of Provisions............................... A-72
   Section 16.10 Consent of Partners.................................... A-72
</TABLE>



                                     A--iv


<PAGE>

                    FIRST AMENDED AND RESTATED AGREEMENT OF
             LIMITED PARTNERSHIP OF SUNOCO LOGISTICS PARTNERS L.P.


   THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SUNOCO
LOGISTICS PARTNERS L.P., dated as of February   , 2002, is entered into by and
among Sunoco Partners LLC, a Pennsylvania limited liability company, as the
General Partner, and Sun Pipe Line Company of Delaware, a Delaware corporation,
as the Organizational Limited Partner, together with any other Persons who
become Partners in the Partnership or parties hereto as provided herein. In
consideration of the covenants, conditions and agreements contained herein, the
parties hereto hereby agree as follows:


                                   ARTICLE I

                                  DEFINITIONS

Section 1.1  Definitions.

   The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

   "Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of
the Partnership Group existing immediately prior to such transaction.

   "Additional Book Basis" means the portion of any remaining Carrying Value of
an Adjusted Property that is attributable to positive adjustments made to such
Carrying Value as a result of Book-Up Events. For purposes of determining the
extent that Carrying Value constitutes Additional Book Basis:

      (i) Any negative adjustment made to the Carrying Value of an Adjusted
   Property as a result of either a Book-Down Event or a Book-Up Event shall
   first be deemed to offset or decrease that portion of the Carrying Value of
   such Adjusted Property that is attributable to any prior positive
   adjustments made thereto pursuant to a Book-Up Event or Book-Down Event.

      (ii) If Carrying Value that constitutes Additional Book Basis is reduced
   as a result of a Book-Down Event and the Carrying Value of other property is
   increased as a result of such Book-Down Event, an allocable portion of any
   such increase in Carrying Value shall be treated as Additional Book Basis;
   provided that the amount treated as Additional Book Basis pursuant hereto as
   a result of such Book-Down Event shall not exceed the amount by which the
   Aggregate Remaining Net Positive Adjustments after such Book-Down Event
   exceeds the remaining Additional Book Basis attributable to all of the
   Partnership's Adjusted Property after such Book-Down Event (determined
   without regard to the application of this clause (ii) to such Book-Down
   Event).

   "Additional Book Basis Derivative Items" means any Book Basis Derivative
Items that are computed with reference to Additional Book Basis. To the extent
that the Additional Book Basis attributable to all of the Partnership's
Adjusted Property as of the beginning of any taxable period exceeds the
Aggregate Remaining Net Positive Adjustments as of the beginning of such period
(the "Excess Additional Book Basis"), the Additional Book Basis Derivative
Items for such period shall be reduced by the amount that bears the same ratio
to the amount of Additional Book Basis Derivative Items determined without
regard to this sentence as the Excess Additional Book Basis bears to the
Additional Book Basis as of the beginning of such period.

                                     A--1


<PAGE>

   "Additional Limited Partner" means a Person admitted to the Partnership as a
Limited Partner pursuant to Section 10.4 and who is shown as such on the books
and records of the Partnership.

   "Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each fiscal year of the Partnership, (a) increased by
any amounts that such Partner is obligated to restore under the standards set
by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and
(b) decreased by (i) the amount of all losses and deductions that, as of the
end of such fiscal year, are reasonably expected to be allocated to such
Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and
Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all
distributions that, as of the end of such fiscal year, are reasonably expected
to be made to such Partner in subsequent years in accordance with the terms of
this Agreement or otherwise to the extent they exceed offsetting increases to
such Partner's Capital Account that are reasonably expected to occur during (or
prior to) the year in which such distributions are reasonably expected to be
made (other than increases as a result of a minimum gain chargeback pursuant to
Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing definition of Adjusted Capital
Account is intended to comply with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
The "Adjusted Capital Account" of a Partner in respect of a General Partner
Interest, a Common Unit, a Subordinated Unit or an Incentive Distribution Right
or any other specified interest in the Partnership shall be the amount which
such Adjusted Capital Account would be if such General Partner Interest, Common
Unit, Subordinated Unit, Incentive Distribution Right or other interest in the
Partnership were the only interest in the Partnership held by such Partner from
and after the date on which such General Partner Interest, Common Unit,
Subordinated Unit, Incentive Distribution Right or other interest was first
issued.

   "Adjusted Operating Surplus" means, with respect to any period, Operating
Surplus generated during such period (a) less (i) any net increase in Working
Capital Borrowings with respect to such period and (ii) any net reduction in
cash reserves for Operating Expenditures with respect to such period not
relating to an Operating Expenditure made with respect to such period, and (b)
plus (i) any net decrease in Working Capital Borrowings with respect to such
period, and (ii) any net increase in cash reserves for Operating Expenditures
with respect to such period required by any debt instrument for the repayment
of principal, interest or premium. Adjusted Operating Surplus does not include
that portion of Operating Surplus included in clause (a)(i) of the definition
of Operating Surplus.

   "Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).

   "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.

   "Aggregate Remaining Net Positive Adjustments" means, as of the end of any
taxable period, the sum of the Remaining Net Positive Adjustments of all the
Partners.

   "Agreed Allocation" means any allocation, other than a Required Allocation,
of an item of income, gain, loss or deduction pursuant to the provisions of
Section 6.1, including, without limitation, a Curative Allocation (if
appropriate to the context in which the term "Agreed Allocation" is used).

   "Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the General Partner using such reasonable method of

                                     A--2


<PAGE>

valuation as it may adopt. The General Partner shall, in its discretion, use
such method as it deems reasonable and appropriate to allocate the aggregate
Agreed Value of Contributed Properties contributed to the Partnership in a
single or integrated transaction among each separate property on a basis
proportional to the fair market value of each Contributed Property.

   "Agreement" means this First Amended and Restated Agreement of Limited
Partnership of Sunoco Logistics Partners L.P., as it may be amended,
supplemented or restated from time to time.

   "Assignee" means a Non-citizen Assignee or a Person to whom one or more
Limited Partner Interests have been transferred in a manner permitted under
this Agreement and who has executed and delivered a Transfer Application as
required by this Agreement, but who has not been admitted as a Substituted
Limited Partner.

   "Associate" means, when used to indicate a relationship with any Person, (a)
any corporation or organization of which such Person is a director, officer or
partner or is, directly or indirectly, the owner of 20% or more of any class of
voting stock or other voting interest; (b) any trust or other estate in which
such Person has at least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same
principal residence as such Person.

   "Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date:

      (a) the sum of (i) all cash and cash equivalents of the Partnership Group
   on hand at the end of such Quarter, and (ii) all additional cash and cash
   equivalents of the Partnership Group on hand on the date of determination of
   Available Cash with respect to such Quarter resulting from Working Capital
   Borrowings made subsequent to the end of such Quarter, less

      (b) the amount of any cash reserves that are necessary or appropriate in
   the reasonable discretion of the General Partner to (i) provide for the
   proper conduct of the business of the Partnership Group (including reserves
   for future capital expenditures and for anticipated future credit needs of
   the Partnership Group) subsequent to such Quarter, (ii) comply with
   applicable law or any loan agreement, security agreement, mortgage, debt
   instrument or other agreement or obligation to which any Group Member is a
   party or by which it is bound or its assets are subject or (iii) provide
   funds for distributions under Section 6.4 or 6.5 in respect of any one or
   more of the next four Quarters; provided, however, that the General Partner
   may not establish cash reserves pursuant to (iii) above if the effect of
   such reserves would be that the Partnership is unable to distribute the
   Minimum Quarterly Distribution on all Common Units, plus any Cumulative
   Common Unit Arrearage on all Common Units, with respect to such Quarter;
   and, provided further, that disbursements made by a Group Member or cash
   reserves established, increased or reduced after the end of such Quarter but
   on or before the date of determination of Available Cash with respect to
   such Quarter shall be deemed to have been made, established, increased or
   reduced, for purposes of determining Available Cash, within such Quarter if
   the General Partner so determines.

   Notwithstanding the foregoing, "Available Cash" with respect to the Quarter
in which the Liquidation Date occurs and any subsequent Quarter shall equal
zero.

   "Book Basis Derivative Items" means any item of income, deduction, gain or
loss included in the determination of Net Income or Net Loss that is computed
with reference to the Carrying Value of an Adjusted Property (e.g.,
depreciation, depletion, or gain or loss with respect to an Adjusted Property).

   "Book-Down Event" means an event which triggers a negative adjustment to the
Capital Accounts of the Partners pursuant to Section 5.5(d).

   "Book-Tax Disparity" means with respect to any item of Contributed Property
or Adjusted Property, as of the date of any determination, the difference
between the Carrying Value of such Contributed Property or

                                     A--3


<PAGE>

Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will be
reflected by the difference between such Partner's Capital Account balance as
maintained pursuant to Section 5.5 and the hypothetical balance of such
Partner's Capital Account computed as if it had been maintained strictly in
accordance with federal income tax accounting principles.

   "Book-Up Event" means an event which triggers a positive adjustment to the
Capital Accounts of the Partners pursuant to Section 5.5(d).

   "Business Day" means Monday through Friday of each week, except that a legal
holiday recognized as such by the government of the United States of America or
the Commonwealth of Pennsylvania shall not be regarded as a Business Day.

   "Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect of a
General Partner Interest, a Common Unit, a Subordinated Unit, an Incentive
Distribution Right or any other Partnership Interest shall be the amount which
such Capital Account would be if such General Partner Interest, Common Unit,
Subordinated Unit, Incentive Distribution Right or other Partnership Interest
were the only interest in the Partnership held by such Partner from and after
the date on which such General Partner Interest, Common Unit, Subordinated
Unit, Incentive Distribution Right or other Partnership Interest was first
issued.


   "Capital Contribution" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Partner contributes to the Partnership
pursuant to this Agreement or the Contribution Agreement, or any payment made
by the General Partner to the Partnership described in Section 5.2(c).


   "Capital Improvement" means any (a) addition or improvement to the capital
assets owned by any Group Member or (b) acquisition of existing, or the
construction of new, capital assets (including, without limitation, pipeline
systems, terminal storage facilities and related assets), in each case if such
addition, improvement, acquisition or construction is made to increase the
operating capacity or revenues of the Partnership Group from the operating
capacity or revenues of the Partnership Group existing immediately prior to
such addition, improvement, acquisition or construction.

   "Capital Surplus" has the meaning assigned to such term in Section 6.3(a).

   "Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' and
Assignees' Capital Accounts in respect of such Contributed Property, and (b)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.

   "Cause" means a court of competent jurisdiction has entered a final,
non-appealable judgment finding the General Partner liable for actual fraud,
gross negligence or willful or wanton misconduct in its capacity as a general
partner of the Partnership.

   "Certificate" means a certificate (i) substantially in the form of Exhibit A
to this Agreement, (ii) issued in global form in accordance with the rules and
regulations of the Depositary or (iii) in such other form as may be adopted by
the General Partner in its discretion, issued by the Partnership evidencing
ownership of one or more Common Units or a certificate, in such form as may be
adopted by the General Partner in its discretion, issued by the Partnership
evidencing ownership of one or more other Partnership Securities.

                                     A--4


<PAGE>

   "Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership filed with the Secretary of State of the State
of Delaware, as such Certificate of Limited Partnership may be amended,
supplemented or restated from time to time.

   "Citizenship Certification" means a properly completed certificate in such
form as may be specified by the General Partner by which an Assignee or a
Limited Partner certifies that he (and if he is a nominee holding for the
account of another Person, that to the best of his knowledge such other Person)
is an Eligible Citizen.

   "Claim" has the meaning assigned to such term in Section 7.12(c).

   "Closing Date" means the first date on which Common Units are sold by the
Partnership to the Underwriters pursuant to the provisions of the Underwriting
Agreement.

   "Closing Price" has the meaning assigned to such term in Section 15.1(a).

   "Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. Any reference herein to a specific section or sections of
the Code shall be deemed to include a reference to any corresponding provision
of any successor law.

   "Combined Interest" has the meaning assigned to such term in Section 11.3(a).

   "Commission" means the United States Securities and Exchange Commission.

   "Common Unit" means a Partnership Security representing a fractional part of
the Partnership Interests of all Limited Partners and Assignees and of the
General Partner, and having the rights and obligations specified with respect
to Common Units in this Agreement. The term "Common Unit" does not refer to a
Subordinated Unit prior to its conversion into a Common Unit pursuant to the
terms hereof.

   "Common Unit Arrearage" means, with respect to any Common Unit, whenever
issued, as to any Quarter within the Subordination Period, the excess, if any,
of (a) the Minimum Quarterly Distribution with respect to a Common Unit in
respect of such Quarter over (b) the sum of all Available Cash distributed with
respect to a Common Unit in respect of such Quarter pursuant to Section
6.4(a)(i).

   "Conflicts Committee" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are not (a)
security holders, officers or employees of the General Partner, (b) officers,
directors or employees of any Affiliate of the General Partner or (c) holders
of any ownership interest in the Partnership Group other than Common Units and
who also meet the independence standards required to serve on an audit
committee of a board of directors by the National Securities Exchange on which
the Common Units are listed for trading.

   "Contributed Property" means each property or other asset, in such form as
may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.

   "Contribution Agreement" means that certain Contribution, Conveyance and
Assumption Agreement, dated as of the Closing Date, among the General Partner,
the Partnership, the Operating Partnership and certain other parties, together
with the additional conveyance documents and instruments contemplated or
referenced thereunder.

   "Cumulative Common Unit Arrearage" means, with respect to any Common Unit,
whenever issued, and as of the end of any Quarter, the excess, if any, of (a)
the sum resulting from adding together the Common Unit

                                     A--5


<PAGE>

Arrearage as to an Initial Common Unit for each of the Quarters within the
Subordination Period ending on or before the last day of such Quarter over (b)
the sum of any distributions theretofore made pursuant to Section 6.4(a)(ii)
and the second sentence of Section 6.5 with respect to an Initial Common Unit
(including any distributions to be made in respect of the last of such
Quarters).

   "Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(xi).

   "Current Market Price" has the meaning assigned to such term in Section
15.1(a).

   "Delaware Act" means the Delaware Revised Uniform Limited Partnership Act, 6
Del. C. Section 17-101, et seq., as amended, supplemented or restated from time
to time, and any successor to such statute.

   "Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.

   "Depositary" means, with respect to any Units issued in global form, The
Depository Trust Company and its successors and permitted assigns.

   "Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).

   "Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member does business or proposes
to do business from time to time, and whose status as a Limited Partner or
Assignee does not or would not subject such Group Member to a significant risk
of cancellation or forfeiture of any of its properties or any interest therein.

   "Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).

   "Final Subordinated Units" has the meaning assigned to such term in Section
6.1(d)(x).

   "First Liquidation Target Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(D).

   "First Target Distribution" means $0.50 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on March 31,
2002, it means the product of $0.50 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the denominator is
90), subject to adjustment in accordance with Sections 6.6 and 6.9.

   "Fully Diluted Basis" means, when calculating the number of Outstanding
Units for any period, a basis that includes, in addition to the Outstanding
Units, all Partnership Securities and options, rights, warrants and
appreciation rights relating to an equity interest in the Partnership (a) that
are convertible into or exercisable or exchangeable for Units that are senior
to or pari passu with the Subordinated Units, (b) whose conversion, exercise or
exchange price is less than the Current Market Price on the date of such
calculation, and (c) that may be converted into or exercised or exchanged for
such Units during the Quarter following the end of the last Quarter contained
in the period for which the calculation is being made without the satisfaction
of any contingency beyond the control of the holder other than the payment of
consideration and the compliance with administrative mechanics applicable to
such conversion, exercise or exchange; provided that for purposes of
determining the number of Outstanding Units on a Fully Diluted Basis when
calculating whether the Subordination Period has ended or Subordinated Units
are entitled to convert into Common Units pursuant to Section 5.8, such
Partnership Securities, options, rights, warrants and appreciation rights shall
be deemed to have been Outstanding Units only for the four Quarters that
comprise the last four Quarters of the measurement period; provided, further,
that if consideration will be paid to any Group Member in connection with such
conversion, exercise or exchange, the number of Units to be included in such
calculation shall be that number

                                     A--6


<PAGE>

equal to the difference between (i) the number of Units issuable upon such
conversion, exercise or exchange and (ii) the number of Units which such
consideration would purchase at the Current Market Price.

   "General Partner" means Sunoco Partners LLC and its successors and permitted
assigns as general partner of the Partnership.

   "General Partner Interest" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it) which may be evidenced by
Partnership Securities or a combination thereof or interest therein, and
includes any and all benefits to which the General Partner is entitled as
provided in this Agreement, together with all obligations of the General
Partner to comply with the terms and provisions of this Agreement.

   "Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation
made to 10 or more Persons) or disposing of any Partnership Securities with any
other Person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly, Partnership Securities.

   "Group Member" means a member of the Partnership Group.

   "Holder" as used in Section 7.12, has the meaning assigned to such term in
Section 7.12(a).

   "Incentive Distribution Right" means a non-voting Limited Partner Interest
issued to the General Partner in connection with the transfer of substantially
all of its interests in Sunoco Logistics Partners GP LLC, Sun Pipe Line
Services (In) L.P., Michigan (In) LLC, Explorer Pipeline Company, Sunoco
Mid-Con (In) LLC, Sun Pipe Line GP LLC, Sunoco Pipeline L.P., Sunoco R&M (In)
LLC, Sunoco Partners Marketing & Terminals L.P., Atlantic (In) LLC, Atlantic
(In) L.P. and Atlantic R&M (In) L.P. to the Partnership pursuant to Section
5.2, which Partnership Interest will confer upon the holder thereof only the
rights and obligations specifically provided in this Agreement with respect to
Incentive Distribution Rights (and no other rights otherwise available to or
other obligations of a holder of a Partnership Interest). Notwithstanding
anything in this Agreement to the contrary, the holder of an Incentive
Distribution Right shall not be entitled to vote such Incentive Distribution
Right on any Partnership matter except as may otherwise be required by law.

   "Incentive Distributions" means any amount of cash distributed to the
holders of the Incentive Distribution Rights pursuant to Sections 6.4(a)(v),
(vi) and (vii) and 6.4(b)(iii), (iv) and (v).

   "Indemnified Persons" has the meaning assigned to such term in Section
7.12(c).

   "Indemnitee" means (a) the General Partner, (b) any Departing Partner, (c)
any Person who is or was an Affiliate of the General Partner or any Departing
Partner, (d) any Person who is or was a member, partner, officer, director,
employee, agent or trustee of any Group Member, the General Partner or any
Departing Partner or any Affiliate of any Group Member, the General Partner or
any Departing Partner, and (e) any Person who is or was serving at the request
of the General Partner or any Departing Partner or any Affiliate of the General
Partner or any Departing Partner as an officer, director, employee, member,
partner, agent, fiduciary or trustee of another Person; provided, that a Person
shall not be an Indemnitee by reason of providing, on a fee-for-services basis,
trustee, fiduciary or custodial services.

   "Initial Common Units" means the Common Units sold in the Initial Offering.

   "Initial Limited Partners" means the General Partner (with respect to the
Incentive Distribution Rights and Subordinated Units received by it pursuant to
Section 5.2) and the Underwriters, in each case upon being admitted to the
Partnership in accordance with Section 10.1.

                                     A--7


<PAGE>

   "Initial Offering" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.

   "Initial Unit Price" means (a) with respect to the Common Units and the
Subordinated Units, the initial public offering price per Common Unit at which
the Underwriters offered the Common Units to the public for sale as set forth
on the cover page of the prospectus included as part of the Registration
Statement and first issued at or after the time the Registration Statement
first became effective or (b) with respect to any other class or series of
Units, the price per Unit at which such class or series of Units is initially
sold by the Partnership, as determined by the General Partner, in each case
adjusted as the General Partner determines to be appropriate to give effect to
any distribution, subdivision or combination of Units.

   "Interim Capital Transactions" means the following transactions if they
occur prior to the Liquidation Date: (a) borrowings, refinancings or refundings
of indebtedness and sales of debt securities (other than Working Capital
Borrowings and other than for items purchased on open account in the ordinary
course of business) by any Group Member; (b) sales of equity interests by any
Group Member (including the Common Units sold to the Underwriters pursuant to
the exercise of their over-allotment option); and (c) sales or other voluntary
or involuntary dispositions of any assets of any Group Member other than (i)
sales or other dispositions of inventory, accounts receivable and other assets
in the ordinary course of business, and (ii) sales or other dispositions of
assets as part of normal retirements or replacements.

   "Issue Price" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.

   "Limited Partner" means, unless the context otherwise requires, (a) the
Organizational Limited Partner prior to its withdrawal from the Partnership,
each Initial Limited Partner, each Substituted Limited Partner, each Additional
Limited Partner and any Departing Partner upon the change of its status from
General Partner to Limited Partner pursuant to Section 11.3 or (b) solely for
purposes of Articles V, VI, VII and IX, each Assignee; provided, however, that
when the term "Limited Partner" is used herein in the context of any vote or
other approval, including without limitation Articles XIII and XIV, such term
shall not, solely for such purpose, include any holder of an Incentive
Distribution Right except as may otherwise be required by law.

   "Limited Partner Interest" means the ownership interest of a Limited Partner
or Assignee in the Partnership, which may be evidenced by Common Units,
Subordinated Units, Incentive Distribution Rights or other Partnership
Securities or a combination thereof or interest therein, and includes any and
all benefits to which such Limited Partner or Assignee is entitled as provided
in this Agreement, together with all obligations of such Limited Partner or
Assignee to comply with the terms and provisions of this Agreement; provided,
however, that when the term "Limited Partner Interest" is used herein in the
context of any vote or other approval, including without limitation Articles
XIII and XIV, such term shall not, solely for such purpose, include any holder
of an Incentive Distribution Right except as may otherwise be required by law.

   "Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time
period during which the holders of Outstanding Units have the right to elect to
reconstitute the Partnership and continue its business has expired without such
an election being made, and (b) in the case of any other event giving rise to
the dissolution of the Partnership, the date on which such event occurs.

   "Liquidator" means one or more Persons selected by the General Partner to
perform the functions described in Section 12.3 as liquidating trustee of the
Partnership within the meaning of the Delaware Act.

   "Merger Agreement" has the meaning assigned to such term in Section 14.1.

                                     A--8


<PAGE>

   "Minimum Quarterly Distribution" means $0.45 per Unit per Quarter (or with
respect to the period commencing on the Closing Date and ending on March 31,
2002, it means the product of $0.45 multiplied by a fraction of which the
numerator is the number of days in such period and of which the denominator is
90), subject to adjustment in accordance with Sections 6.6 and 6.9.

   "National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to such
statute, or the Nasdaq Stock Market or any successor thereto.

   "Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner or
Assignee upon such distribution or to which such property is subject at the
time of distribution, in either case, as determined under Section 752 of the
Code.

   "Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of loss and deduction (other
than those items taken into account in the computation of Net Termination Gain
or Net Termination Loss) for such taxable year. The items included in the
calculation of Net Income shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under Section 6.1(d);
provided that the determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in this
Agreement.

   "Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of income and gain (other than
those items taken into account in the computation of Net Termination Gain or
Net Termination Loss) for such taxable year. The items included in the
calculation of Net Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under Section 6.1(d);
provided that the determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in this
Agreement.

   "Net Positive Adjustments" means, with respect to any Partner, the excess,
if any, of the total positive adjustments over the total negative adjustments
made to the Capital Account of such Partner pursuant to Book-Up Events and
Book-Down Events.

   "Net Termination Gain" means, for any taxable year, the sum, if positive, of
all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Gain shall be determined in accordance with Section 5.5(b) and
shall not include any items of income, gain or loss specially allocated under
Section 6.1(d).

   "Net Termination Loss" means, for any taxable year, the sum, if negative, of
all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Loss shall be determined in accordance with Section 5.5(b) and
shall not include any items of income, gain or loss specially allocated under
Section 6.1(d).

   "Non-citizen Assignee" means a Person whom the General Partner has
determined in its discretion does not constitute an Eligible Citizen and as to
whose Partnership Interest the General Partner has become the Substituted
Limited Partner, pursuant to Section 4.9.

   "Nonrecourse Built-in Gain" means with respect to any Contributed Properties
or Adjusted Properties that are subject to a mortgage or pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would

                                     A--9


<PAGE>

be allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A)
and 6.2(b)(iii) if such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other consideration.

   "Nonrecourse Deductions" means any and all items of loss, deduction or
expenditure (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse
Liability.

   "Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).


   "Notes" means the   % Senior Notes due 2012 issued by the Operating
Partnership on the Closing Date.


   "Notice of Election to Purchase" has the meaning assigned to such term in
Section 15.1(b).


   "Omnibus Agreement" means that Omnibus Agreement, dated as of the Closing
Date, among Sunoco, Inc., Sunoco, Inc. (R&M), the General Partner, the
Partnership, the Operating Partnership and certain other parties.


   "Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the General Partner,
repayment of Working Capital Borrowings, debt service payments and capital
expenditures, subject to the following:

      (a) Payments (including prepayments) of principal of and premium on
   indebtedness other than Working Capital Borrowings shall not constitute
   Operating Expenditures; and

      (b) Operating Expenditures shall not include (i) capital expenditures
   made for Acquisitions or for Capital Improvements, (ii) payment of
   transaction expenses relating to Interim Capital Transactions or (iii)
   distributions to Partners. Where capital expenditures are made in part for
   Acquisitions or for Capital Improvements and in part for other purposes, the
   General Partner's good faith allocation between the amounts paid for each
   shall be conclusive.

   "Operating Partnership" means Sunoco Logistics Partners Operations L.P., a
Delaware limited partnership, and any successors thereto.

   "Operating Partnership Agreement" means the Amended and Restated Partnership
Agreement of the Operating Partnership, as it may be amended, supplemented or
restated from time to time.

   "Operating Surplus" means, with respect to any period ending prior to the
Liquidation Date, on a cumulative basis and without duplication,

      (a) the sum of (i) $15.0 million plus all cash and cash equivalents of
   the Partnership Group on hand as of the close of business on the Closing
   Date, (ii) all cash receipts of the Partnership Group for the period
   beginning on the Closing Date and ending with the last day of such period,
   other than cash receipts from Interim Capital Transactions (except to the
   extent specified in Section 6.5) and (iii) all cash receipts of the
   Partnership Group after the end of such period but on or before the date of
   determination of Operating Surplus with respect to such period resulting
   from Working Capital Borrowings, less

      (b) the sum of (i) Operating Expenditures for the period beginning on the
   Closing Date and ending with the last day of such period and (ii) the amount
   of cash reserves that is necessary or advisable in the reasonable discretion
   of the General Partner to provide funds for future Operating Expenditures;
   provided, however, that disbursements made (including contributions to a
   Group Member or disbursements on behalf of a Group Member) or cash reserves
   established, increased or reduced after the end of such period but on or
   before the date of determination of Available Cash with respect to such
   period shall be deemed to have been made, established, increased or reduced,
   for purposes of determining Operating Surplus, within such period if the
   General Partner so determines.

   Notwithstanding the foregoing, "Operating Surplus" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.

                                     A--10


<PAGE>

   "Opinion of Counsel" means a written opinion of counsel (who may be regular
counsel to the Partnership or the General Partner or any of its Affiliates)
acceptable to the General Partner in its reasonable discretion.

   "Option Closing Date" means the date or dates on which any Common Units are
sold by the Partnership to the Underwriters upon exercise of the Over-Allotment
Option.

   "Organizational Limited Partner" means Sun Pipe Line Company of Delaware in
its capacity as the organizational limited partner of the Partnership pursuant
to this Agreement.

   "Outstanding" means, with respect to Partnership Securities, all Partnership
Securities that are issued by the Partnership and reflected as outstanding on
the Partnership's books and records as of the date of determination; provided,
however, that if at any time any Person or Group (other than the General
Partner or its Affiliates) beneficially owns 20% or more of any Outstanding
Partnership Securities of any class then Outstanding, all Partnership
Securities owned by such Person or Group shall not be voted on any matter and
shall not be considered to be Outstanding when sending notices of a meeting of
Limited Partners to vote on any matter (unless otherwise required by law),
calculating required votes, determining the presence of a quorum or for other
similar purposes under this Agreement, except that Common Units so owned shall
be considered to be Outstanding for purposes of Section 11.1(b)(iv) (such
Common Units shall not, however, be treated as a separate class of Partnership
Securities for purposes of this Agreement); provided, further, that the
foregoing limitation shall not apply (i) to any Person or Group who acquired
20% or more of any Outstanding Partnership Securities of any class then
Outstanding directly from the General Partner or its Affiliates, (ii) to any
Person or Group who acquired 20% or more of any Outstanding Partnership
Securities of any class then Outstanding directly or indirectly from a Person
or Group described in clause (i) provided that the General Partner shall have
notified such Person or Group in writing that such limitation shall not apply,
or (iii) to any Person or Group who acquired 20% or more of any Partnership
Securities issued by the Partnership with the prior approval of the board of
directors of the General Partner.

   "Over-Allotment Option" means the over-allotment option granted to the
Underwriters by the Partnership pursuant to the Underwriting Agreement.

   "Parity Units" means Common Units and all other Units of any other class or
series that have the right (i) to receive distributions of Available Cash from
Operating Surplus pursuant to each of subclauses (a)(i) and (a)(ii) of Section
6.4 in the same order of priority with respect to the participation of Common
Units in such distributions or (ii) to participate in allocations of Net
Termination Gain pursuant to Section 6.1(c)(i)(B) in the same order of priority
with the Common Units, in each case regardless of whether the amounts or value
so distributed or allocated on each Parity Unit equals the amount or value so
distributed or allocated on each Common Unit. Units whose participation in such
(i) distributions of Available Cash from Operating Surplus and (ii) allocations
of Net Termination Gain are subordinate in order of priority to such
distributions and allocations on Common Units shall not constitute Parity Units
even if such Units are convertible under certain circumstances into Common
Units or Parity Units.

   "Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).

   "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).

   "Partner Nonrecourse Deductions" means any and all items of loss, deduction
or expenditure (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(i), are attributable to a Partner
Nonrecourse Debt.

   "Partners" means the General Partner and the Limited Partners.

                                     A--11


<PAGE>

   "Partnership" means Sunoco Logistics Partners L.P., a Delaware limited
partnership, and any successors thereto.

   "Partnership Group" means the Partnership, the Operating Partnership and any
Subsidiary of any such entity, treated as a single consolidated entity.

   "Partnership Interest" means an interest in the Partnership, which shall
include the General Partner Interest and Limited Partner Interests.

   "Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).

   "Partnership Security" means any class or series of equity interest in the
Partnership (but excluding any options, rights, warrants and appreciation
rights relating to an equity interest in the Partnership), including without
limitation, Common Units, Subordinated Units and Incentive Distribution Rights.

   "Percentage Interest" means as of any date of determination (a) as to the
General Partner (in its capacity as General Partner without reference to any
Limited Partner Interests held by it), 2.0%, (b) as to any Unitholder or
Assignee holding Units, the product obtained by multiplying (i) 98% less the
percentage applicable to paragraph (c) by (ii) the quotient obtained by
dividing (A) the number of Units held by such Unitholder or Assignee by (B) the
total number of all Outstanding Units, and (c) as to the holders of additional
Partnership Securities issued by the Partnership in accordance with Section
5.6, the percentage established as a part of such issuance. The Percentage
Interest with respect to an Incentive Distribution Right shall at all times be
zero.

   "Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.

   "Per Unit Capital Amount" means, as of any date of determination, the
Capital Account, stated on a per Unit basis, underlying any Unit held by a
Person other than the General Partner or any Affiliate of the General Partner
who holds Units.

   "Pipelines and Terminals Storage and Throughput Agreement" means that
certain Pipelines and Terminals Storage and Throughput Agreement, dated as of
the Closing Date, among Sunoco, Inc. (R&M), the Partnership, the Operating
Partnership, the General Partner and certain other parties.

   "Pro Rata" means (a) when modifying Units or any class thereof, apportioned
equally among all designated Units in accordance with their relative Percentage
Interests, (b) when modifying Partners and Assignees, apportioned among all
Partners and Assignees in accordance with their relative Percentage Interests
and (c) when modifying holders of Incentive Distribution Rights, apportioned
equally among all holders of Incentive Distribution Rights in accordance with
the relative number of Incentive Distribution Rights held by each such holder.

   "Purchase Date" means the date determined by the General Partner as the date
for purchase of all Outstanding Units of a certain class (other than Units
owned by the General Partner and its Affiliates) pursuant to Article XV.

   "Quarter" means, unless the context requires otherwise, a fiscal quarter,
or, with respect to the first fiscal quarter after the Closing Date, the
portion of such fiscal quarter after the Closing Date, of the Partnership.

   "Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.

   "Record Date" means the date established by the General Partner for
determining (a) the identity of the Record Holders entitled to notice of, or to
vote at, any meeting of Limited Partners or entitled to vote by ballot or

                                     A--12


<PAGE>

give approval of Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited Partners or (b) the
identity of Record Holders entitled to receive any report or distribution or to
participate in any offer.

   "Record Holder" means the Person in whose name a Common Unit is registered
on the books of the Transfer Agent as of the opening of business on a
particular Business Day, or with respect to other Partnership Securities, the
Person in whose name any such other Partnership Security is registered on the
books which the General Partner has caused to be kept as of the opening of
business on such Business Day.

   "Redeemable Interests" means any Partnership Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant to
Section 4.10.

   "Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-71968) as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership with the Commission
under the Securities Act to register the offering and sale of the Common Units
in the Initial Offering.

   "Remaining Net Positive Adjustments" means as of the end of any taxable
period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the excess of (a) the Net Positive Adjustments of the
Unitholders holding Common Units or Subordinated Units as of the end of such
period over (b) the sum of those Partners' Share of Additional Book Basis
Derivative Items for each prior taxable period, (ii) with respect to the
General Partner (as holder of the General Partner Interest), the excess of (a)
the Net Positive Adjustments of the General Partner as of the end of such
period over (b) the sum of the General Partner's Share of Additional Book Basis
Derivative Items with respect to the General Partner Interest for each prior
taxable period, and (iii) with respect to the holders of Incentive Distribution
Rights, the excess of (a) the Net Positive Adjustments of the holders of
Incentive Distribution Rights as of the end of such period over (b) the sum of
the Share of Additional Book Basis Derivative Items of the holders of the
Incentive Distribution Rights for each prior taxable period.

   "Required Allocations" means (a) any limitation imposed on any allocation of
Net Losses or Net Termination Losses under Section 6.1(b) or 6.1(c)(ii) and (b)
any allocation of an item of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or 6.1(d)(ix).

   "Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate
Book-Tax Disparities.

   "Restricted Business" has the meaning assigned to such term in the Omnibus
Agreement.

   "Retained Assets" means the pipeline, terminal and other logistic assets and
investments owned by Sunoco, Inc. and its affiliates that were not conveyed,
contributed or otherwise transferred to the Partnership Group pursuant to the
Contribution Agreement, including, without limitation, Mid-Valley Pipeline
Company, West Texas Gulf Pipeline Company, the Mesa pipeline and Inland
Corporation; provided, however, that the term ''Retained Assets'' shall not
include any pipeline, terminal or other logistics assets or investments that
are sold, transferred or otherwise disposed of after the date of this Agreement
to a Person that is not an Affiliate of Sunoco, Inc.

   "Second Liquidation Target Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(E).

   "Second Target Distribution" means $0.575 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on March 31,
2002, it means the product of $0.575 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 90), subject to adjustment in accordance with Sections 6.6 and
6.9.

   "Securities Act" means the Securities Act of 1933, as amended, supplemented
or restated from time to time and any successor to such statute.

   "Share of Additional Book Basis Derivative Items" means in connection with
any allocation of Additional Book Basis Derivative Items for any taxable
period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the amount that bears the same ratio to such Additional
Book Basis Derivative Items as the

                                     A--13


<PAGE>

Unitholders' Remaining Net Positive Adjustments as of the end of such period
bears to the Aggregate Remaining Net Positive Adjustments as of that time, (ii)
with respect to the General Partner (as holder of the General Partner
Interest), the amount that bears the same ratio to such additional Book Basis
Derivative Items as the General Partner's Remaining Net Positive Adjustments as
of the end of such period bears to the Aggregate Remaining Net Positive
Adjustment as of that time, and (iii) with respect to the Partners holding
Incentive Distribution Rights, the amount that bears the same ratio to such
Additional Book Basis Derivative Items as the Remaining Net Positive
Adjustments of the Partners holding the Incentive Distribution Rights as of the
end of such period bears to the Aggregate Remaining Net Positive Adjustments as
of that time.

   "Special Approval" means approval by a majority of the members of the
Conflicts Committee.

   "Subordinated Unit" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees and having the
rights and obligations specified with respect to Subordinated Units in this
Agreement. The term "Subordinated Unit" as used herein does not include a
Common Unit or Parity Unit. A Subordinated Unit that is convertible into a
Common Unit or a Parity Unit shall not constitute a Common Unit or Parity Unit
until such conversion occurs.

   "Subordination Period" means the period commencing on the Closing Date and
ending on the first to occur of the following dates:

      (a) the first day of any Quarter beginning after December 31, 2006 in
   respect of which (i) (A) distributions of Available Cash from Operating
   Surplus on each of the Outstanding Common Units and Subordinated Units and
   any other Outstanding Units that are senior or equal in right of
   distribution to the Subordinated Units with respect to each of the three
   consecutive, non-overlapping four-Quarter periods immediately preceding such
   date equaled or exceeded the sum of the Minimum Quarterly Distribution (or
   portion thereof for the first fiscal quarter after the Closing Date) on all
   Outstanding Common Units and Subordinated Units and any other Outstanding
   Units that are senior or equal in right of distribution to the Subordinated
   Units during such periods and (B) the Adjusted Operating Surplus generated
   during each of the three consecutive, non-overlapping four-quarter periods
   immediately preceding such date equaled or exceeded the sum of the Minimum
   Quarterly Distribution on all of the Common Units and Subordinated Units and
   any other Units that are senior or equal in right of distribution to the
   Subordinated Units that were Outstanding during such periods on a Fully
   Diluted Basis, plus the related distribution on the General Partner
   Interest, during such periods and (ii) there are no Cumulative Common Unit
   Arrearages; and

      (b) the date on which the General Partner is removed as general partner
   of the Partnership upon the requisite vote by holders of Outstanding Units
   under circumstances where Cause does not exist and Units held by the General
   Partner and its Affiliates are not voted in favor of such removal.

   "Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the
date of determination, by such Person, by one or more Subsidiaries of such
Person or a combination thereof, (b) a partnership (whether general or limited)
in which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but only if
more than 50% of the partnership interests of such partnership (considering all
of the partnership interests of the partnership as a single class) is owned,
directly or indirectly, at the date of determination, by such Person, by one or
more Subsidiaries of such Person, or a combination thereof, or (c) any other
Person (other than a corporation or a partnership) in which such Person, one or
more Subsidiaries of such Person, or a combination thereof, directly or
indirectly, at the date of determination, has (i) at least a majority ownership
interest or (ii) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.

   "Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.2 in place of and with all
the rights of a Limited Partner and who is shown as a Limited Partner on the
books and records of the Partnership.

                                     A--14


<PAGE>

   "Surviving Business Entity" has the meaning assigned to such term in Section
14.2(b).

   "Third Liquidation Target Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(F).

   "Third Target Distribution" means $0.70 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on March 31,
2002, it means the product of $0.70 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 90), subject to adjustment in accordance with Sections 6.6 and
6.9.

   "Trading Day" has the meaning assigned to such term in Section 15.1(a).

   "Transfer" has the meaning assigned to such term in Section 4.4(a).

   "Transfer Agent" means such bank, trust company or other Person (including
the General Partner or one of its Affiliates) as shall be appointed from time
to time by the Partnership to act as registrar and transfer agent for the
Common Units; provided that if no Transfer Agent is specifically designated for
any other Partnership Securities, the General Partner shall act in such
capacity.

   "Transfer Application" means an application and agreement for transfer of
Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument.

   "Treasury Services Agreement" means the Treasury Services Agreement, dated
as of the Closing Date, among Sunoco, Inc., the General Partner and the
Partnership.

   "Underwriter" means each Person named as an underwriter in Schedule I to the
Underwriting Agreement who purchases Common Units pursuant thereto.


   "Underwriting Agreement" means the Underwriting Agreement dated February   ,
2002 among the Underwriters, the Partnership, the General Partner, the
Operating Partnership and Sunoco, Inc. providing for the purchase of Common
Units by such Underwriters.


   "Unit" means a Partnership Security that is designated as a "Unit" and shall
include Common Units and Subordinated Units but shall not include (i) a General
Partner Interest or (ii) Incentive Distribution Rights.

   "Unitholders" means the holders of Units.

   "Unit Majority" means, during the Subordination Period, at least a majority
of the Outstanding Common Units (excluding Common Units owned by the General
Partner and its affiliates) voting as a class and at least a majority of the
Outstanding Subordinated Units voting as a class, and thereafter, at least a
majority of the Outstanding Common Units.

   "Unpaid MQD" has the meaning assigned to such term in Section 6.1(c)(i)(B).

   "Unrealized Gain" attributable to any item of Partnership property means, as
of any date of determination, the excess, if any, of (a) the fair market value
of such property as of such date (as determined under Section 5.5(d)) over (b)
the Carrying Value of such property as of such date (prior to any adjustment to
be made pursuant to Section 5.5(d) as of such date).

   "Unrealized Loss" attributable to any item of Partnership property means, as
of any date of determination, the excess, if any, of (a) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant to
Section 5.5(d) as of such date) over (b) the fair market value of such property
as of such date (as determined under Section 5.5(d)).

   "Unrecovered Capital" means at any time, with respect to a Unit, the Initial
Unit Price less the sum of all distributions constituting Capital Surplus
theretofore made in respect of an Initial Common Unit and any

                                     A--15


<PAGE>

distributions of cash (or the Net Agreed Value of any distributions in kind) in
connection with the dissolution and liquidation of the Partnership theretofore
made in respect of an Initial Common Unit, adjusted as the General Partner
determines to be appropriate to give effect to any distribution, subdivision or
combination of such Units.

   "U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.

   "Withdrawal Opinion of Counsel" has the meaning assigned to such term in
Section 11.1(b).


   "Working Capital Borrowings" means borrowings used solely for working
capital purposes or to pay distributions to Partners made pursuant to a credit
facility or other arrangement to the extent such borrowings are required to be
reduced to a relatively small amount each year (or for the year in which the
Initial Offering is consummated, the 12-month period beginning on the Closing
Date) for an economically meaningful period of time.


Section 1.2  Construction.

   Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) the term "include" or "includes" means
includes, without limitation, and "including" means including, without
limitation.

                                  ARTICLE II

                                 ORGANIZATION

Section 2.1  Formation.

   The General Partner and the Organizational Limited Partner have previously
formed the Partnership as a limited partnership pursuant to the provisions of
the Delaware Act and hereby amend and restate the original Agreement of Limited
Partnership of Sunoco Logistics Partners L.P. in its entirety. This amendment
and restatement shall become effective on the date of this Agreement. Except as
expressly provided to the contrary in this Agreement, the rights, duties
(including fiduciary duties), liabilities and obligations of the Partners and
the administration, dissolution and termination of the Partnership shall be
governed by the Delaware Act. All Partnership Interests shall constitute
personal property of the owner thereof for all purposes and a Partner has no
interest in specific Partnership property.

Section 2.2  Name.

   The name of the Partnership shall be "Sunoco Logistics Partners L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purpose of complying with the laws
of any jurisdiction that so requires. The General Partner in its discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.

Section 2.3  Registered Office; Registered Agent; Principal Office; Other
  Offices

   Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at 1209 Orange
Street, Wilmington, Delaware 19801, and the registered agent for service of
process on the Partnership in the State of Delaware at such registered office
shall be The Corporation

                                     A--16


<PAGE>

Trust Company. The principal office of the Partnership shall be located at 1801
Market Street, Philadelphia, Pennsylvania 19103 or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems necessary
or appropriate. The address of the General Partner shall be 1801 Market Street,
Philadelphia, Pennsylvania 19103 or such other place as the General Partner may
from time to time designate by notice to the Limited Partners.

Section 2.4  Purpose and Business.

   The purpose and nature of the business to be conducted by the Partnership
shall be to (a) serve as a partner of the Operating Partnership and, in
connection therewith, to exercise all the rights and powers conferred upon the
Partnership as a partner of the Operating Partnership pursuant to the Operating
Partnership Agreement or otherwise, (b) engage directly in, or enter into or
form any corporation, partnership, joint venture, limited liability company or
other arrangement to engage indirectly in, any business activity that the
Operating Partnership is permitted to engage in by the Operating Partnership
Agreement or that its subsidiaries are permitted to engage in by their limited
liability company or partnership agreements and, in connection therewith, to
exercise all of the rights and powers conferred upon the Partnership pursuant
to the agreements relating to such business activity, (c) engage directly in,
or enter into or form any corporation, partnership, joint venture, limited
liability company or other arrangement to engage indirectly in, any business
activity that is approved by the General Partner and which lawfully may be
conducted by a limited partnership organized pursuant to the Delaware Act and,
in connection therewith, to exercise all of the rights and powers conferred
upon the Partnership pursuant to the agreements relating to such business
activity; provided, however, that the General Partner reasonably determines, as
of the date of the acquisition or commencement of such activity, that such
activity (i) generates "qualifying income" (as such term is defined pursuant to
Section 7704 of the Code) or a Subsidiary or a Partnership activity that
generates qualifying income or (ii) enhances the operations of an activity of
the Operating Partnership, and (d) do anything necessary or appropriate to the
foregoing, including the making of capital contributions or loans to a Group
Member. The General Partner has no obligation or duty to the Partnership, the
Limited Partners or the Assignees to propose or approve, and in its discretion
may decline to propose or approve, the conduct by the Partnership of any
business.

Section 2.5  Powers.

   The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in
Section 2.4 and for the protection and benefit of the Partnership.

Section 2.6  Power of Attorney.

   (a) Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been selected pursuant to
Section 12.3, the Liquidator (and any successor to the Liquidator by merger,
transfer, assignment, election or otherwise) and each of their authorized
officers and attorneys-in-fact, as the case may be, with full power of
substitution, as his true and lawful agent and attorney-in-fact, with full
power and authority in his name, place and stead, to:

      (i) execute, swear to, acknowledge, deliver, file and record in the
   appropriate public offices (A) all certificates, documents and other
   instruments (including this Agreement and the Certificate of Limited
   Partnership and all amendments or restatements hereof or thereof) that the
   General Partner or the Liquidator deems necessary or appropriate to form,
   qualify or continue the existence or qualification of the Partnership as a
   limited partnership (or a partnership in which the limited partners have
   limited liability) in the State of Delaware and in all other jurisdictions
   in which the Partnership may conduct business or own property; (B) all
   certificates, documents and other instruments that the General Partner or
   the Liquidator deems necessary or appropriate to reflect, in accordance with
   its terms, any amendment, change, modification or restatement

                                     A--17


<PAGE>

   of this Agreement; (C) all certificates, documents and other instruments
   (including conveyances and a certificate of cancellation) that the General
   Partner or the Liquidator deems necessary or appropriate to reflect the
   dissolution and liquidation of the Partnership pursuant to the terms of this
   Agreement; (D) all certificates, documents and other instruments relating to
   the admission, withdrawal, removal or substitution of any Partner pursuant
   to, or other events described in, Article IV, X, XI or XII; (E) all
   certificates, documents and other instruments relating to the determination
   of the rights, preferences and privileges of any class or series of
   Partnership Securities issued pursuant to Section 5.6; and (F) all
   certificates, documents and other instruments (including agreements and a
   certificate of merger) relating to a merger or consolidation of the
   Partnership pursuant to Article XIV; and

      (ii) execute, swear to, acknowledge, deliver, file and record all
   ballots, consents, approvals, waivers, certificates, documents and other
   instruments necessary or appropriate, in the discretion of the General
   Partner or the Liquidator, to make, evidence, give, confirm or ratify any
   vote, consent, approval, agreement or other action that is made or given by
   the Partners hereunder or is consistent with the terms of this Agreement or
   is necessary or appropriate, in the discretion of the General Partner or the
   Liquidator, to effectuate the terms or intent of this Agreement; provided,
   that when required by Section13.3 or any other provision of this Agreement
   that establishes a percentage of the Limited Partners or of the Limited
   Partners of any class or series required to take any action, the General
   Partner and the Liquidator may exercise the power of attorney made in this
   Section 2.6(a)(ii) only after the necessary vote, consent or approval of the
   Limited Partners or of the Limited Partners of such class or series, as
   applicable.

Nothing contained in this Section 2.6(a) shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article XIII
or as may be otherwise expressly provided for in this Agreement.

   (b) The foregoing power of attorney is hereby declared to be irrevocable and
a power coupled with an interest, and it shall survive and, to the maximum
extent permitted by law, not be affected by the subsequent death, incompetency,
disability, incapacity, dissolution, bankruptcy or termination of any Limited
Partner or Assignee and the transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Interest and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be
bound by any representation made by the General Partner or the Liquidator
acting in good faith pursuant to such power of attorney; and each such Limited
Partner or Assignee, to the maximum extent permitted by law, hereby waives any
and all defenses that may be available to contest, negate or disaffirm the
action of the General Partner or the Liquidator taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver
to the General Partner or the Liquidator, within 15 days after receipt of the
request therefor, such further designation, powers of attorney and other
instruments as the General Partner or the Liquidator deems necessary to
effectuate this Agreement and the purposes of the Partnership.

Section 2.7  Term.

   The term of the Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the dissolution of the Partnership in accordance with the
provisions of Article XII. The existence of the Partnership as a separate legal
entity shall continue until the cancellation of the Certificate of Limited
Partnership as provided in the Delaware Act.

Section 2.8  Title to Partnership Assets.

   Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have
any ownership interest in such Partnership assets or any portion thereof. Title
to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner, one or more of its Affiliates

                                     A--18


<PAGE>

or one or more nominees, as the General Partner may determine. The General
Partner hereby declares and warrants that any Partnership assets for which
record title is held in the name of the General Partner or one or more of its
Affiliates or one or more nominees shall be held by the General Partner or such
Affiliate or nominee for the use and benefit of the Partnership in accordance
with the provisions of this Agreement; provided, however, that the General
Partner shall use reasonable efforts to cause record title to such assets
(other than those assets in respect of which the General Partner determines
that the expense and difficulty of conveyancing makes transfer of record title
to the Partnership impracticable) to be vested in the Partnership as soon as
reasonably practicable; provided, further, that, prior to the withdrawal or
removal of the General Partner or as soon thereafter as practicable, the
General Partner shall use reasonable efforts to effect the transfer of record
title to the Partnership and, prior to any such transfer, will provide for the
use of such assets in a manner satisfactory to the General Partner. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which record title to such
Partnership assets is held.

                                  ARTICLE III

                          RIGHTS OF LIMITED PARTNERS

Section 3.1  Limitation of Liability.

   The Limited Partners and the Assignees shall have no liability under this
Agreement except as expressly provided in this Agreement or the Delaware Act.

Section 3.2  Management of Business.

   No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware
Act) of the Partnership's business, transact any business in the Partnership's
name or have the power to sign documents for or otherwise bind the Partnership.
Any action taken by any Affiliate of the General Partner or any officer,
director, employee, manager, member, general partner, agent or trustee of the
General Partner or any of its Affiliates, or any officer, director, employee,
manager, member, general partner, agent or trustee of a Group Member, in its
capacity as such, shall not be deemed to be participation in the control of the
business of the Partnership by a limited partner of the Partnership (within the
meaning of Section 17-303(a) of the Delaware Act) and shall not affect, impair
or eliminate the limitations on the liability of the Limited Partners or
Assignees under this Agreement.

Section 3.3  Outside Activities of the Limited Partners.

   Subject to the provisions of Section 7.5 and the Omnibus Agreement, which
shall continue to be applicable to the Persons referred to therein, regardless
of whether such Persons shall also be Limited Partners or Assignees, any
Limited Partner or Assignee shall be entitled to and may have business
interests and engage in business activities in addition to those relating to
the Partnership, including business interests and activities in direct
competition with the Partnership Group. Neither the Partnership nor any of the
other Partners or Assignees shall have any rights by virtue of this Agreement
in any business ventures of any Limited Partner or Assignee.

Section 3.4  Rights of Limited Partners.

   (a) In addition to other rights provided by this Agreement or by applicable
law, and except as limited by Section 3.4(b), each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon reasonable written demand and at
such Limited Partner's own expense:

      (i) to obtain true and full information regarding the status of the
   business and financial condition of the Partnership;

      (ii) promptly after becoming available, to obtain a copy of the
   Partnership's federal, state and local income tax returns for each year;

                                     A--19


<PAGE>

      (iii) to have furnished to him a current list of the name and last known
   business, residence or mailing address of each Partner;

      (iv) to have furnished to him a copy of this Agreement and the
   Certificate of Limited Partnership and all amendments thereto, together with
   a copy of the executed copies of all powers of attorney pursuant to which
   this Agreement, the Certificate of Limited Partnership and all amendments
   thereto have been executed;

      (v) to obtain true and full information regarding the amount of cash and
   a description and statement of the Net Agreed Value of any other Capital
   Contribution by each Partner and which each Partner has agreed to contribute
   in the future, and the date on which each became a Partner; and

      (vi) to obtain such other information regarding the affairs of the
   Partnership as is just and reasonable.

   (b) The General Partner may keep confidential from the Limited Partners and
Assignees, for such period of time as the General Partner deems reasonable, (i)
any information that the General Partner reasonably believes to be in the
nature of trade secrets or (ii) other information the disclosure of which the
General Partner in good faith believes (A) is not in the best interests of the
Partnership Group, (B) could damage the Partnership Group or (C) that any Group
Member is required by law or by agreement with any third party to keep
confidential (other than agreements with Affiliates of the Partnership the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.4).

                                  ARTICLE IV

CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS; REDEMPTION OF
                             PARTNERSHIP INTERESTS

Section 4.1  Certificates.

   Upon the Partnership's issuance of Common Units or Subordinated Units to any
Person, the Partnership shall issue one or more Certificates in the name of
such Person evidencing the number of such Units being so issued. In addition,
(a) upon the General Partner's request, the Partnership shall issue to it one
or more Certificates in the name of the General Partner evidencing its
interests in the Partnership and (b) upon the request of any Person owning
Incentive Distribution Rights or any other Partnership Securities other than
Common Units or Subordinated Units, the Partnership shall issue to such Person
one or more certificates evidencing such Incentive Distribution Rights or other
Partnership Securities other than Common Units or Subordinated Units.
Certificates shall be executed on behalf of the Partnership by the Chairman of
the Board, President or any Executive Vice President or Vice President and the
Secretary or any Assistant Secretary of the General Partner. No Common Unit
Certificate shall be valid for any purpose until it has been countersigned by
the Transfer Agent; provided, however, that if the General Partner elects to
issue Common Units in global form, the Common Unit Certificates shall be valid
upon receipt of a certificate from the Transfer Agent certifying that the
Common Units have been duly registered in accordance with the directions of the
Partnership and the Underwriters. Subject to the requirements of Section
6.7(b), the Partners holding Certificates evidencing Subordinated Units may
exchange such Certificates for Certificates evidencing Common Units on or after
the date on which such Subordinated Units are converted into Common Units
pursuant to the terms of Section 5.8.

Section 4.2  Mutilated, Destroyed, Lost or Stolen Certificates.

   (a) If any mutilated Certificate is surrendered to the Transfer Agent, the
appropriate officers of the General Partner on behalf of the Partnership shall
execute, and the Transfer Agent shall countersign and deliver in exchange
therefor, a new Certificate evidencing the same number and type of Partnership
Securities as the Certificate so surrendered.

   (b) The appropriate officers of the General Partner on behalf of the
Partnership shall execute and deliver, and the Transfer Agent shall countersign
a new Certificate in place of any Certificate previously issued if the Record
Holder of the Certificate:

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<PAGE>

      (i) makes proof by affidavit, in form and substance satisfactory to the
   Partnership, that a previously issued Certificate has been lost, destroyed
   or stolen;

      (ii) requests the issuance of a new Certificate before the Partnership
   has notice that the Certificate has been acquired by a purchaser for value
   in good faith and without notice of an adverse claim;

      (iii) if requested by the Partnership, delivers to the Partnership a
   bond, in form and substance satisfactory to the Partnership, with surety or
   sureties and with fixed or open penalty as the Partnership may reasonably
   direct, in its sole discretion, to indemnify the Partnership, the Partners,
   the General Partner and the Transfer Agent against any claim that may be
   made on account of the alleged loss, destruction or theft of the
   Certificate; and

      (iv) satisfies any other reasonable requirements imposed by the
   Partnership.

   If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Limited Partner Interests represented by the
Certificate is registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner or Assignee
shall be precluded from making any claim against the Partnership, the General
Partner or the Transfer Agent for such transfer or for a new Certificate.

   (c) As a condition to the issuance of any new Certificate under this Section
4.2, the Partnership may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Transfer Agent)
reasonably connected therewith.

Section 4.3  Record Holders.

   The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of
whether the Partnership shall have actual or other notice thereof, except as
otherwise provided by law or any applicable rule, regulation, guideline or
requirement of any National Securities Exchange on which such Partnership
Interests are listed for trading. Without limiting the foregoing, when a Person
(such as a broker, dealer, bank, trust company or clearing corporation or an
agent of any of the foregoing) is acting as nominee, agent or in some other
representative capacity for another Person in acquiring and/or holding
Partnership Interests, as between the Partnership on the one hand, and such
other Persons on the other, such representative Person (a) shall be the Partner
or Assignee (as the case may be) of record and beneficially, (b) must execute
and deliver a Transfer Application and (c) shall be bound by this Agreement and
shall have the rights and obligations of a Partner or Assignee (as the case may
be) hereunder and as, and to the extent, provided for herein.

Section 4.4  Transfer Generally.

   (a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
General Partner assigns its General Partner Interest to another Person who
becomes a General Partner, by which the holder of a Limited Partner Interest
assigns such Limited Partner Interest to another Person who is or becomes a
Limited Partner or an Assignee, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise.

   (b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article
IV. Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.

   (c) Nothing contained in this Agreement shall be construed to prevent a
disposition by any member of the General Partner of any or all of the
membership interests of the General Partner.

                                     A--21


<PAGE>

Section 4.5  Registration and Transfer of Limited Partner Interests.

   (a) The Partnership shall keep or cause to be kept on behalf of the
Partnership a register in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 4.5(b), the Partnership
will provide for the registration and transfer of Limited Partner Interests.
The Transfer Agent is hereby appointed registrar and transfer agent for the
purpose of registering Common Units and transfers of such Common Units as
herein provided. The Partnership shall not recognize transfers of Certificates
evidencing Limited Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a Certificate for
registration of transfer of any Limited Partner Interests evidenced by a
Certificate, and subject to the provisions of Section 4.5(b), the appropriate
officers of the General Partner on behalf of the Partnership shall execute and
deliver, and in the case of Common Units, the Transfer Agent shall countersign
and deliver, in the name of the holder or the designated transferee or
transferees, as required pursuant to the holder's instructions, one or more new
Certificates evidencing the same aggregate number and type of Limited Partner
Interests as was evidenced by the Certificate so surrendered.

   (b) Except as otherwise provided in Section 4.9, the Partnership shall not
recognize any transfer of Limited Partner Interests until the Certificates
evidencing such Limited Partner Interests are surrendered for registration of
transfer and such Certificates are accompanied by a Transfer Application duly
executed by the transferee (or the transferee's attorney-in-fact duly
authorized in writing). No charge shall be imposed by the Partnership for such
transfer; provided, that as a condition to the issuance of any new Certificate
under this Section 4.5, the Partnership may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
with respect thereto.

   (c) Limited Partner Interests may be transferred only in the manner
described in this Section 4.5. The transfer of any Limited Partner Interests
and the admission of any new Limited Partner shall not constitute an amendment
to this Agreement.

   (d) Until admitted as a Substituted Limited Partner pursuant to Section
10.2, the Record Holder of a Limited Partner Interest shall be an Assignee in
respect of such Limited Partner Interest. Limited Partners may include
custodians, nominees or any other individual or entity in its own or any
representative capacity.

   (e) A transferee of a Limited Partner Interest who has completed and
delivered a Transfer Application shall be deemed to have (i) requested
admission as a Substituted Limited Partner, (ii) agreed to comply with and be
bound by and to have executed this Agreement, (iii) represented and warranted
that such transferee has the right, power and authority and, if an individual,
the capacity to enter into this Agreement, (iv) granted the powers of attorney
set forth in this Agreement and (v) given the consents and approvals and made
the waivers contained in this Agreement.

   (f) The General Partner and its Affiliates shall have the right at any time
to transfer their Subordinated Units and Common Units (whether issued upon
conversion of the Subordinated Units or otherwise) to one or more Persons.

Section 4.6  Transfer of the General Partner's General Partner Interest.

   (a) Subject to Section 4.6(c) below, prior to December 31, 2011, the General
Partner shall not transfer all or any part of its General Partner Interest to a
Person unless such transfer (i) has been approved by the prior written consent
or vote of the holders of at least a majority of the Outstanding Common Units
(excluding Common Units held by the General Partner and its Affiliates) or (ii)
is of all, but not less than all, of its General Partner Interest to (A) an
Affiliate of the General Partner (other than an individual) or (B) another
Person (other than an individual) in connection with the merger or
consolidation of the General Partner with or into another Person (other than an
individual) or the transfer by the General Partner of all or substantially all
of its assets to another Person (other than an individual).

                                     A--22


<PAGE>

   (b) Subject to Section 4.6(c) below, on or after December 31, 2011, the
General Partner may transfer all or any of its General Partner Interest without
Unitholder approval.

   (c) Notwithstanding anything herein to the contrary, no transfer by the
General Partner of all or any part of its General Partner Interest to another
Person shall be permitted unless (i) the transferee agrees to assume the rights
and duties of the General Partner under this Agreement and to be bound by the
provisions of this Agreement, (ii) the Partnership receives an Opinion of
Counsel that such transfer would not result in the loss of limited liability of
any Limited Partner or of any limited partner of the Operating Partnership or
cause the Partnership or the Operating Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not already so treated or taxed) and
(iii) such transferee also agrees to purchase all (or the appropriate portion
thereof, if applicable) of the partnership or membership interest of the
General Partner as the general partner or managing member, if any, of each
other Group Member. In the case of a transfer pursuant to and in compliance
with this Section 4.6, the transferee or successor (as the case may be) shall,
subject to compliance with the terms of Section 10.3, be admitted to the
Partnership as the General Partner immediately prior to the transfer of the
Partnership Interest, and the business of the Partnership shall continue
without dissolution.

Section 4.7  Transfer of Incentive Distribution Rights.

   Prior to December 31, 2011, a holder of Incentive Distribution Rights may
transfer any or all of the Incentive Distribution Rights held by such holder
without any consent of the Unitholders (a) to an Affiliate of such holder
(other than an individual) or (b) to another Person (other than an individual)
in connection with (i) the merger or consolidation of such holder of Incentive
Distribution Rights with or into such other Person or (ii) the transfer by such
holder of all or substantially all of its assets to such other Person or (iii)
the sale of all or substantially all of the equity interests of such holder to
such other Person. Any other transfer of the Incentive Distribution Rights
prior to September 30, 2011, shall require the prior approval of holders of at
least a majority of the Outstanding Common Units (excluding Common Units held
by the General Partner and its Affiliates). On or after September 30, 2011, the
General Partner or any other holder of Incentive Distribution Rights may
transfer any or all of its Incentive Distribution Rights without Unitholder
approval. Notwithstanding anything herein to the contrary, no transfer of
Incentive Distribution Rights to another Person shall be permitted unless the
transferee agrees to be bound by the provisions of this Agreement.

Section 4.8  Restrictions on Transfers.

   (a) Except as provided in Section 4.8(d) below, but notwithstanding the
other provisions of this Article IV, no transfer of any Partnership Interests
shall be made if such transfer would (i) violate the then applicable federal or
state securities laws or rules and regulations of the Commission, any state
securities commission or any other governmental authority with jurisdiction
over such transfer, (ii) terminate the existence or qualification of the
Partnership or the Operating Partnership under the laws of the jurisdiction of
its formation, or (iii) cause the Partnership or the Operating Partnership to
be treated as an association taxable as a corporation or otherwise to be taxed
as an entity for federal income tax purposes (to the extent not already so
treated or taxed).

   (b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership or
the Operating Partnership becoming taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes. The restrictions may be
imposed by making such amendments to this Agreement as the General Partner may
determine to be necessary or appropriate to impose such restrictions; provided,
however, that any amendment that the General Partner believes, in the exercise
of its reasonable discretion, could result in the delisting or suspension of
trading of any class of Limited Partner Interests on the principal National
Securities Exchange on which such class of Limited Partner Interests is then
traded must be approved, prior to such amendment being effected, by the holders
of at least a majority of the Outstanding Limited Partner Interests of such
class.

   (c) The transfer of a Subordinated Unit that has converted into a Common
Unit shall be subject to the restrictions imposed by Section 6.7(b).

                                     A--23


<PAGE>

   (d) Nothing contained in this Article IV, or elsewhere in this Agreement,
shall preclude the settlement of any transactions involving Partnership
Interests entered into through the facilities of any National Securities
Exchange on which such Partnership Interests are listed for trading.

Section 4.9  Citizenship Certificates; Non-citizen Assignees.

   (a) If any Group Member is or becomes subject to any federal, state or local
law or regulation that, in the reasonable determination of the General Partner,
creates a substantial risk of cancellation or forfeiture of any property in
which the Group Member has an interest based on the nationality, citizenship or
other related status of a Limited Partner or Assignee, the General Partner may
request any Limited Partner or Assignee to furnish to the General Partner,
within 30 days after receipt of such request, an executed Citizenship
Certification or such other information concerning his nationality, citizenship
or other related status (or, if the Limited Partner or Assignee is a nominee
holding for the account of another Person, the nationality, citizenship or
other related status of such Person) as the General Partner may request. If a
Limited Partner or Assignee fails to furnish to the General Partner within the
aforementioned 30-day period such Citizenship Certification or other requested
information or if upon receipt of such Citizenship Certification or other
requested information the General Partner determines, with the advice of
counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the
Partnership Interests owned by such Limited Partner or Assignee shall be
subject to redemption in accordance with the provisions of Section 4.10. In
addition, the General Partner may require that the status of any such Partner
or Assignee be changed to that of a Non-citizen Assignee and, thereupon, the
General Partner shall be substituted for such Non-citizen Assignee as the
Limited Partner in respect of his Limited Partner Interests.

   (b) The General Partner shall, in exercising voting rights in respect of
Limited Partner Interests held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the votes of Partners (including
without limitation the General Partner) in respect of Limited Partner Interests
other than those of Non-citizen Assignees are cast, either for, against or
abstaining as to the matter.

   (c) Upon dissolution of the Partnership, a Non-citizen Assignee shall have
no right to receive a distribution in kind pursuant to Section 12.4 but shall
be entitled to the cash equivalent thereof, and the Partnership shall provide
cash in exchange for an assignment of the Non-citizen Assignee's share of the
distribution in kind. Such payment and assignment shall be treated for
Partnership purposes as a purchase by the Partnership from the Non-citizen
Assignee of his Limited Partner Interest (representing his right to receive his
share of such distribution in kind).

   (d) At any time after he can and does certify that he has become an Eligible
Citizen, a Non-citizen Assignee may, upon application to the General Partner,
request admission as a Substituted Limited Partner with respect to any Limited
Partner Interests of such Non-citizen Assignee not redeemed pursuant to Section
4.10, and upon his admission pursuant to Section 10.2, the General Partner
shall cease to be deemed to be the Limited Partner in respect of the
Non-citizen Assignee's Limited Partner Interests.

Section 4.10  Redemption of Partnership Interests of Non-citizen Assignees.

   (a) If at any time a Limited Partner or Assignee fails to furnish a
Citizenship Certification or other information requested within the 30-day
period specified in Section 4.9(a), or if upon receipt of such Citizenship
Certification or other information the General Partner determines, with the
advice of counsel, that a Limited Partner or Assignee is not an Eligible
Citizen, the Partnership may, unless the Limited Partner or Assignee
establishes to the satisfaction of the General Partner that such Limited
Partner or Assignee is an Eligible Citizen or has transferred his Partnership
Interests to a Person who is an Eligible Citizen and who furnishes a
Citizenship Certification to the General Partner prior to the date fixed for
redemption as provided below, redeem the Partnership Interest of such Limited
Partner or Assignee as follows:

      (i) The General Partner shall, not later than the 30th day before the
   date fixed for redemption, give notice of redemption to the Limited Partner
   or Assignee, at his last address designated on the records of the
   Partnership or the Transfer Agent, by registered or certified mail, postage
   prepaid. The notice shall be

                                     A--24


<PAGE>

   deemed to have been given when so mailed. The notice shall specify the
   Redeemable Interests, the date fixed for redemption, the place of payment,
   that payment of the redemption price will be made upon surrender of the
   Certificate evidencing the Redeemable Interests and that on and after the
   date fixed for redemption no further allocations or distributions to which
   the Limited Partner or Assignee would otherwise be entitled in respect of
   the Redeemable Interests will accrue or be made.

      (ii) The aggregate redemption price for Redeemable Interests shall be an
   amount equal to the Current Market Price (the date of determination of which
   shall be the date fixed for redemption) of Limited Partner Interests of the
   class to be so redeemed multiplied by the number of Limited Partner
   Interests of each such class included among the Redeemable Interests. The
   redemption price shall be paid, in the discretion of the General Partner, in
   cash or by delivery of a promissory note of the Partnership in the principal
   amount of the redemption price, bearing interest at the rate of 10% annually
   and payable in three equal annual installments of principal together with
   accrued interest, commencing one year after the redemption date.

      (iii) Upon surrender by or on behalf of the Limited Partner or Assignee,
   at the place specified in the notice of redemption, of the Certificate
   evidencing the Redeemable Interests, duly endorsed in blank or accompanied
   by an assignment duly executed in blank, the Limited Partner or Assignee or
   his duly authorized representative shall be entitled to receive the payment
   therefor.

      (iv) After the redemption date, Redeemable Interests shall no longer
   constitute issued and Outstanding Limited Partner Interests.

   (b) The provisions of this Section 4.10 shall also be applicable to Limited
Partner Interests held by a Limited Partner or Assignee as nominee of a Person
determined to be other than an Eligible Citizen.

   (c) Nothing in this Section 4.10 shall prevent the recipient of a notice of
redemption from transferring his Limited Partner Interest before the redemption
date if such transfer is otherwise permitted under this Agreement. Upon receipt
of notice of such a transfer, the General Partner shall withdraw the notice of
redemption, provided the transferee of such Limited Partner Interest certifies
to the satisfaction of the General Partner in a Citizenship Certification
delivered in connection with the Transfer Application that he is an Eligible
Citizen. If the transferee fails to make such certification, such redemption
shall be effected from the transferee on the original redemption date.

                                   ARTICLE V

          CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS

Section 5.1  Organizational Contributions.

   In connection with the formation of the Partnership under the Delaware Act,
the General Partner made an initial Capital Contribution to the Partnership in
the amount of $20.00, for a certain interest in the Partnership and has been
admitted as a General Partner of the Partnership, and the Organizational
Limited Partner made an initial Capital Contribution to the Partnership in the
amount of $980.00. As of the Closing Date, the interest of the Organizational
Limited Partner shall be redeemed as provided in the Contribution Agreement;
the initial Capital Contributions of each Partner shall thereupon be refunded;
and the Organizational Limited Partner shall cease to be a Limited Partner of
the Partnership. Ninety-eight percent of any interest or other profit that may
have resulted from the investment or other use of such initial Capital
Contributions shall be allocated and distributed to the Organizational Limited
Partner, and the balance thereof shall be allocated and distributed to the
General Partner.

Section 5.2  Contributions by the General Partner and its Affiliates.

   (a) On the Closing Date and pursuant to the Contribution Agreement, the
General Partner shall contribute to the Partnership, as a Capital Contribution,
all of its interest in Sunoco Logistics Partners GP LLC, Sun Pipe Line Services
(In) L.P., Michigan (In) LLC, Explorer Pipeline Company, Sunoco Mid-Con (In)
LLC, Sun Pipe Line

                                     A--25


<PAGE>


GP LLC, Sunoco Pipeline L.P., Sunoco R&M (In) LLC, Sunoco Partners Marketing &
Terminals L.P., Atlantic (In) LLC, Atlantic (In) L.P., and Atlantic R&M (In)
L.P. in exchange for (i)the continuation of its General Partner Interest,
subject to all of the rights, privileges and duties of the General Partner
under this Agreement, (ii) the Incentive Distribution Rights, (iii) 5,633,639
Common Units, (iv) 11,383,639 Subordinated Units and (v) a special interest
representing the right to receive from the Partnership on the Closing Date the
net proceeds from the issuance of the Notes estimated to be $247 million
distributed to it by the Operating Partnership.


   (b) Upon the issuance of any additional Limited Partner Interests by the
Partnership (other than the issuance of the Common Units issued in the Initial
Offering and other than the issuance of the Common Units issued pursuant to the
Over-Allotment Option and other than Common Units purchased by the General
Partner to the extent the Over-Allotment option is not exercised), the General
Partner shall be required to make additional Capital Contributions equal to
2/98ths of any amount contributed to the Partnership by the Limited Partners in
exchange for such additional Limited Partner Interests. Except as set forth in
the immediately preceding sentence and Article XII, the General Partner shall
not be obligated to make any additional Capital Contributions to the
Partnership.


   (c) Any payment made to the Partnership Group by the General Partner or its
Affiliates pursuant to Article III or VI of the Omnibus Agreement or payments
made pursuant to Section 6.3 of the Omnibus Agreement shall be treated for
purposes of this Agreement as a Capital Contribution by the General Partner to
the Partnership.


Section 5.3  Contributions by Initial Limited Partners and Distributions to the
  General Partner.

   (a) On the Closing Date and pursuant to the Underwriting Agreement, each
Underwriter shall contribute to the Partnership cash in an amount equal to the
Issue Price per Initial Common Unit, multiplied by the number of Common Units
specified in the Underwriting Agreement to be purchased by such Underwriter at
the Closing Date. In exchange for such Capital Contributions by the
Underwriters, the Partnership shall issue Common Units to each Underwriter on
whose behalf such Capital Contribution is made in an amount equal to the
quotient obtained by dividing (i) the cash contribution to the Partnership by
or on behalf of such Underwriter by (ii) the Issue Price per Initial Common
Unit.

   (b) Notwithstanding anything else herein contained, the distribution of the
net proceeds of the issuance of the Notes received by the Partnership from the
Operating Partnership will be distributed to the General Partner, in redemption
of its special interest as set forth in Section 5.2(a).

   (c) Upon the exercise of the Over-Allotment Option and pursuant to the
Underwriting Agreement, each Underwriter shall contribute to the Partnership
cash in an amount equal to the Issue Price per Initial Common Unit, multiplied
by the number of Common Units specified in the Underwriting Agreement to be
purchased by such Underwriter at the Option Closing Date. In exchange for such
Capital Contributions by the Underwriters, the Partnership shall issue Common
Units to each Underwriter on whose behalf such Capital Contribution is made in
an amount equal to the quotient obtained by dividing (i) the cash contributions
to the Partnership by or on behalf of such Underwriter by (ii) the Issue Price
per Initial Common Unit.


   (d) No Limited Partner Interests will be issued or issuable as of or at the
Closing Date other than (i) the Common Units issuable pursuant to subparagraph
(a) hereof in aggregate number equal to 5,000,000, (ii) the "Additional Units"
as such term is used in the Underwriting Agreement in an aggregate number up to
750,000 issuable upon exercise of the Over-Allotment Option pursuant to
subparagraph (c) hereof or to the General Partner to the extent the
Over-Allotment Option is not exercised, (iii) the 5,633,639 Common Units
issuable to the General Partner pursuant to Section 5.2 hereof, (iv) the
11,383,639 Subordinated Units issuable to the General Partner pursuant to
Section 5.2 hereof, and (v) the Incentive Distribution Rights.


Section 5.4  Interest and Withdrawal.

   No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent, if any, that distributions made
pursuant to this Agreement or upon termination of the Partnership may be
considered as such by law and

                                     A--26


<PAGE>

then only to the extent provided for in this Agreement. Except to the extent
expressly provided in this Agreement, no Partner or Assignee shall have
priority over any other Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Any such return shall
be a compromise to which all Partners and Assignees agree within the meaning of
Section 17-502(b) of the Delaware Act.

Section 5.5  Capital Accounts.

   (a) The Partnership shall maintain for each Partner (or a beneficial owner
of Partnership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion) owning a Partnership Interest a separate
Capital Account with respect to such Partnership Interest in accordance with
the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement and (ii) all items of Partnership income and gain (including, without
limitation, income and gain exempt from tax) computed in accordance with
Section 5.5(b) and allocated with respect to such Partnership Interest pursuant
to Section6.1, and decreased by (x) the amount of cash or Net Agreed Value of
all actual and deemed distributions of cash or property made with respect to
such Partnership Interest pursuant to this Agreement and (y) all items of
Partnership deduction and loss computed in accordance with Section 5.5(b) and
allocated with respect to such Partnership Interest pursuant to Section 6.1.

   (b) For purposes of computing the amount of any item of income, gain, loss
or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:

      (i) Solely for purposes of this Section 5.5, the Partnership shall be
   treated as owning directly its proportionate share (as determined by the
   General Partner based upon the provisions of the Operating Partnership
   Agreement) of all property owned by the Operating Partnership or any other
   Subsidiary that is classified as a partnership for federal income tax
   purposes.

      (ii) All fees and other expenses incurred by the Partnership to promote
   the sale of (or to sell) a Partnership Interest that can neither be deducted
   nor amortized under Section 709 of the Code, if any, shall, for purposes of
   Capital Account maintenance, be treated as an item of deduction at the time
   such fees and other expenses are incurred and shall be allocated among the
   Partners pursuant to Section 6.1.

      (iii) Except as otherwise provided in Treasury Regulation Section
   1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
   deduction shall be made without regard to any election under Section 754 of
   the Code which may be made by the Partnership and, as to those items
   described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
   regard to the fact that such items are not includable in gross income or are
   neither currently deductible nor capitalized for federal income tax
   purposes. To the extent an adjustment to the adjusted tax basis of any
   Partnership asset pursuant to Section 734(b) or 743(b) of the Code is
   required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
   be taken into account in determining Capital Accounts, the amount of such
   adjustment in the Capital Accounts shall be treated as an item of gain or
   loss.

      (iv) Any income, gain or loss attributable to the taxable disposition of
   any Partnership property shall be determined as if the adjusted basis of
   such property as of such date of disposition were equal in amount to the
   Partnership's Carrying Value with respect to such property as of such date.

      (v) In accordance with the requirements of Section 704(b) of the Code,
   any deductions for depreciation, cost recovery or amortization attributable
   to any Contributed Property shall be determined as if the adjusted basis of
   such property on the date it was acquired by the Partnership were equal to
   the Agreed Value of such property. Upon an adjustment pursuant to Section
   5.5(d) to the Carrying Value of any Partnership property subject to
   depreciation, cost recovery or amortization, any further deductions for such

                                     A--27


<PAGE>

   depreciation, cost recovery or amortization attributable to such property
   shall be determined (A) as if the adjusted basis of such property were equal
   to the Carrying Value of such property immediately following such adjustment
   and (B) using a rate of depreciation, cost recovery or amortization derived
   from the same method and useful life (or, if applicable, the remaining
   useful life) as is applied for federal income tax purposes; provided,
   however, that, if the asset has a zero adjusted basis for federal income tax
   purposes, depreciation, cost recovery or amortization deductions shall be
   determined using any reasonable method that the General Partner may adopt.

      (vi) If the Partnership's adjusted basis in a depreciable or cost
   recovery property is reduced for federal income tax purposes pursuant to
   Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
   shall, solely for purposes hereof, be deemed to be an additional
   depreciation or cost recovery deduction in the year such property is placed
   in service and shall be allocated among the Partners pursuant to Section
   6.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code
   shall, to the extent possible, be allocated in the same manner to the
   Partners to whom such deemed deduction was allocated.

   (c)(i) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Partnership
Interest so transferred.

   (ii) Immediately prior to the transfer of a Subordinated Unit or of a
Subordinated Unit that has converted into a Common Unit pursuant to Section 5.8
by a holder thereof (other than a transfer to an Affiliate unless the General
Partner elects to have this subparagraph 5.5(c)(ii) apply), the Capital Account
maintained for such Person with respect to its Subordinated Units or converted
Subordinated Units will (A) first, be allocated to the Subordinated Units or
converted Subordinated Units to be transferred in an amount equal to the
product of (x) the number of such Subordinated Units or converted Subordinated
Units to be transferred and (y) the Per Unit Capital Amount for a Common Unit,
and (B) second, any remaining balance in such Capital Account will be retained
by the transferor, regardless of whether it has retained any Subordinated Units
or converted Subordinated Units. Following any such allocation, the
transferor's Capital Account, if any, maintained with respect to the retained
Subordinated Units or converted Subordinated Units, if any, will have a balance
equal to the amount allocated under clause (B) herein above, and the
transferee's Capital Account established with respect to the transferred
Subordinated Units or converted Subordinated Units will have a balance equal to
the amount allocated under clause (A) herein above.

   (d)(i) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f),
on an issuance of additional Partnership Interests for cash or Contributed
Property or the conversion of the General Partner's Combined Interest to Common
Units pursuant to Section 11.3(b), the Capital Account of all Partners and the
Carrying Value of each Partnership property immediately prior to such issuance
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of
each such property immediately prior to such issuance and had been allocated to
the Partners at such time pursuant to Section 6.1 in the same manner as any
item of gain or loss actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized Loss, the
aggregate cash amount and fair market value of all Partnership assets
(including, without limitation, cash or cash equivalents) immediately prior to
the issuance of additional Partnership Interests shall be determined by the
General Partner using such reasonable method of valuation as it may adopt;
provided, however, that the General Partner, in arriving at such valuation,
must take fully into account the fair market value of the Partnership Interests
of all Partners at such time. The General Partner shall allocate such aggregate
value among the assets of the Partnership (in such manner as it determines in
its discretion to be reasonable) to arrive at a fair market value for
individual properties.

   (ii) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f),
immediately prior to any actual or deemed distribution to a Partner of any
Partnership property (other than a distribution of cash that is not in
redemption or retirement of a Partnership Interest), the Capital Accounts of
all Partners and the Carrying Value of all Partnership property shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as if such Unrealized Gain or
Unrealized Loss had been

                                     A--28


<PAGE>

recognized in a sale of such property immediately prior to such distribution
for an amount equal to its fair market value, and had been allocated to the
Partners, at such time, pursuant to Section 6.1 in the same manner as any item
of gain or loss actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized Loss the aggregate
cash amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to a distribution shall
(A) in the case of an actual distribution which is not made pursuant to Section
12.4 or in the case of a deemed distribution, be determined and allocated in
the same manner as that provided in Section 5.5(d)(i) or (B) in the case of a
liquidating distribution pursuant to Section 12.4, be determined and allocated
by the Liquidator using such reasonable method of valuation as it may adopt.

Section 5.6  Issuances of Additional Partnership Securities.

   (a) Subject to Section 5.7, the Partnership may issue additional Partnership
Securities and options, rights, warrants and appreciation rights relating to
the Partnership Securities for any Partnership purpose at any time and from
time to time to such Persons for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole
discretion, all without the approval of any Limited Partners.

   (b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.6(a) may be issued in one or more classes, or
one or more series of any such classes, with such designations, preferences,
rights, powers and duties (which may be senior to existing classes and series
of Partnership Securities), as shall be fixed by the General Partner in the
exercise of its sole discretion, including (i) the right to share Partnership
profits and losses or items thereof; (ii) the right to share in Partnership
distributions; (iii) the rights upon dissolution and liquidation of the
Partnership; (iv) whether, and the terms and conditions upon which, the
Partnership may redeem the Partnership Security; (v) whether such Partnership
Security is issued with the privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange; (vi) the terms and
conditions upon which each Partnership Security will be issued, evidenced by
certificates and assigned or transferred; and (vii) the right, if any, of each
such Partnership Security to vote on Partnership matters, including matters
relating to the relative rights, preferences and privileges of such Partnership
Security.

   (c) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities and options, rights, warrants and
appreciation rights relating to Partnership Securities pursuant to this Section
5.6, (ii) the conversion of the General Partner Interest or any Incentive
Distribution Rights into Units pursuant to the terms of this Agreement, (iii)
the admission of Additional Limited Partners and (iv) all additional issuances
of Partnership Securities. The General Partner is further authorized and
directed to specify the relative rights, powers and duties of the holders of
the Units or other Partnership Securities being so issued. The General Partner
shall do all things necessary to comply with the Delaware Act and is authorized
and directed to do all things it deems to be necessary or advisable in
connection with any future issuance of Partnership Securities or in connection
with the conversion of the General Partner Interest or any Incentive
Distribution Rights into Units pursuant to the terms of this Agreement,
including compliance with any statute, rule, regulation or guideline of any
federal, state or other governmental agency or any National Securities Exchange
on which the Units or other Partnership Securities are listed for trading.

Section 5.7  Limitations on Issuance of Additional Partnership Securities.

   Except as otherwise specified in this Section 5.7, the issuance of
Partnership Securities pursuant to Section 5.6 shall be subject to the
following restrictions and limitations:


      (a) During the Subordination Period, the Partnership shall not issue (and
   shall not issue any options, rights, warrants or appreciation rights
   relating to) an aggregate of more than 5,691,820 additional Parity Units
   without the prior approval of the holders of a Unit Majority. In applying
   this limitation, there shall be excluded Common Units and other Parity Units
   issued (A) in connection with the Underwriting Agreement, (B) in accordance
   with Sections 5.7(b) and 5.7(c), (C) upon conversion of Subordinated Units
   pursuant to


                                     A--29


<PAGE>

   Section 5.8, (D) upon conversion of the General Partner Interest or any
   Incentive Distribution Rights pursuant to Section 11.3(b), (D) pursuant to
   the employee benefit plans of the General Partner, the Partnership or any
   other Group Member, (E) upon a conversion or exchange of Parity Units issued
   after the date hereof into Common Units or other Parity Units; provided that
   the total amount of Available Cash required to pay the aggregate Minimum
   Quarterly Distribution on all Common Units and all Parity Units does not
   increase as a result of this conversion or exchange and (F) in the event of
   a combination or subdivision of Common Units.

      (b) During the Subordination Period, the Partnership may also issue an
   unlimited number of Parity Units without the prior approval of the
   Unitholders, if such issuance occurs (i) in connection with an Acquisition
   or a Capital Improvement or (ii) within 365 days of, and the net proceeds
   from such issuance are used to repay debt incurred in connection with, an
   Acquisition or a Capital Improvement, in each case where such Acquisition or
   Capital Improvement involves assets that, if acquired by the Partnership as
   of the date that is one year prior to the first day of the Quarter in which
   such Acquisition is to be consummated or such Capital Improvement is to be
   completed, would have resulted, on a pro forma basis, in an increase in:

          (A) the amount of Adjusted Operating Surplus generated by the
       Partnership on a per-Unit basis (for all Outstanding Units) with respect
       to each of the four most recently completed Quarters (on a pro forma
       basis as described below) as compared to

          (B) the actual amount of Adjusted Operating Surplus generated by the
       Partnership on a per-Unit basis (for all Outstanding Units) (excluding
       Adjusted Operating Surplus attributable to the Acquisition or Capital
       Improvement) with respect to each of such four most recently completed
       Quarters.


   The General Partner's good faith determination that such an increase would
   have resulted shall be conclusive. If the issuance of Parity Units with
   respect to an Acquisition or Capital Improvement occurs within the first
   four full Quarters after the Closing Date, then Adjusted Operating Surplus
   as used in clauses (A) (subject to the succeeding sentence) and (B) above
   shall be calculated (i) for each Quarter, if any, that commenced after the
   Closing Date for which actual results of operations are available, based on
   the actual Adjusted Operating Surplus of the Partnership generated with
   respect to such Quarter, and (ii) for each other Quarter, on a pro forma
   basis consistent with the procedures, as applicable, set forth in Appendix D
   to the Registration Statement. Furthermore, the amount in clause (A) shall
   be determined on a pro forma basis assuming that (1) all of the Parity Units
   to be issued in connection with or within 365 days of such Acquisition or
   Capital Improvement had been issued and outstanding, (2) all indebtedness
   for borrowed money to be incurred or assumed in connection with such
   Acquisition or Capital Improvement (other than any such indebtedness that is
   to be repaid with the proceeds of such issuance of Parity Units) had been
   incurred or assumed, in each case as of the commencement of such
   four-Quarter period, (3) the personnel expenses that would have been
   incurred by the Partnership in the operation of the acquired assets are the
   personnel expenses for employees to be retained by the Partnership in the
   operation of the acquired assets, and (4) the non-personnel costs and
   expenses are computed on the same basis as those incurred by the Partnership
   in the operation of the Partnership's business at similarly situated
   Partnership facilities.


      (c) During the Subordination Period, without the prior approval of the
   holders of a Unit Majority, the Partnership shall not issue any additional
   Partnership Securities (or options, rights, warrants or appreciation rights
   related thereto) (i) that are entitled in any Quarter to receive in respect
   of the Subordination Period any distribution of Available Cash from
   Operating Surplus before the Common Units and any Parity Units have received
   (or amounts have been set aside for payment of) the Minimum Quarterly
   Distribution and any Cumulative Common Unit Arrearage for such Quarter or
   (ii) that are entitled to allocations in respect of the Subordination Period
   of Net Termination Gain before the Common Units and any Parity Units have
   been allocated Net Termination Gain pursuant to Section 6.1(c)(i)(B).

      (d) During the Subordination Period, without the prior approval of the
   Unitholders, the Partnership may issue additional Partnership Securities (or
   options, rights, warrants or appreciation rights related thereto) (i) that
   are not entitled in any Quarter during the Subordination Period to receive
   any distributions of Available Cash from Operating Surplus until after the
   Common Units and any Parity Units have received (or amounts have been set
   aside for payment of) the Minimum Quarterly Distribution and any Cumulative

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   Common Unit Arrearage for such Quarter and (ii) that are not entitled to
   allocations in respect of the Subordination Period of Net Termination Gain
   before the Common Units and Parity Units have been allocated Net Termination
   Gain pursuant to Section 6.1(c)(i)(B), even if (A) the amount of Available
   Cash from Operating Surplus to which each such Partnership Security is
   entitled to receive after the Minimum Quarterly Distribution and any
   Cumulative Common Unit Arrearage have been paid or set aside for payment on
   the Common Units exceeds the Minimum Quarterly Distribution, (B) the amount
   of Net Termination Gain to be allocated to such Partnership Security after
   Net Termination Gain has been allocated to any Common Units and Parity Units
   pursuant to Section 6.1(c)(i)(B) exceeds the amount of such Net Termination
   Gain to be allocated to each Common Unit or Parity Unit or (C) the holders
   of such additional Partnership Securities have the right to require the
   Partnership or its Affiliates to repurchase such Partnership Securities at a
   discount, par or a premium.

      (e) During the Subordination Period, the Partnership may also issue an
   unlimited number of Parity Units without the approval of the Unitholders, if
   the proceeds from such issuance are used exclusively to repay up to $40.0
   million of indebtedness of a Group Member where the aggregate amount of
   distributions that would have been paid with respect to such newly issued
   Units or Partnership Securities, plus the related distributions on the
   General Partner Interest in respect of the four-Quarter period ending prior
   to the first day of the Quarter in which the issuance is to be consummated
   (assuming such additional Units or Partnership Securities had been
   Outstanding throughout such period and that distributions equal to the
   distributions that were actually paid on the Outstanding Units during the
   period were paid on such additional Units or Partnership Securities) did not
   exceed the interest costs actually incurred during such period on the
   indebtedness that is to be repaid (or, if such indebtedness was not
   outstanding throughout the entire period, would have been incurred had such
   indebtedness been outstanding for the entire period). In the event that the
   Partnership is required to pay a prepayment penalty in connection with the
   repayment of such indebtedness, for purposes of the foregoing test the
   number of Parity Units issued to repay such indebtedness shall be deemed
   increased by the number of Parity Units that would need to be issued to pay
   such penalty.

      (f) No fractional Units shall be issued by the Partnership.

Section 5.8  Conversion of Subordinated Units.


   (a) A total of 2,845,910 of the Outstanding Subordinated Units will convert
into Common Units on a one-for-one basis immediately after the distribution of
Available Cash to Partners pursuant to Section 6.3(a) in respect of any Quarter
ending on or after December 31, 2004, in respect of which:


      (i) distributions under Section 6.4 in respect of all Outstanding Common
   Units and Subordinated Units and any other Outstanding Units that are senior
   or equal in right of distribution to the Subordinated Units with respect to
   each of the three consecutive, non-overlapping four-Quarter periods
   immediately preceding such date equaled or exceeded the sum of the Minimum
   Quarterly Distribution on all of the Outstanding Common Units and
   Subordinated Units and any other Outstanding Units that are senior or equal
   in right of distribution to the Subordinated Units during such periods;

      (ii) the Adjusted Operating Surplus generated during each of the three
   consecutive, non-overlapping four-Quarter periods immediately preceding such
   date equaled or exceeded the sum of the Minimum Quarterly Distribution on
   all of the Common Units, Subordinated Units and any other Units that are
   senior or equal in right of distribution to the Subordinated Units that were
   Outstanding during such periods on a Fully Diluted Basis, plus the related
   distribution on the General Partner Interest in the Partnership, during such
   periods; and

      (iii) the Cumulative Common Unit Arrearage on all of the Common Units is
   zero.


   (b) An additional 2,845,910 of the Outstanding Subordinated Units will
convert into Common Units on a one-for-one basis immediately after the
distribution of Available Cash to Partners pursuant to Section 6.3(a) in
respect of any Quarter ending on or after December 31, 2005, in respect of which


      (i) distributions under Section 6.4 in respect of all Outstanding Common
   Units and Subordinated Units and any other Outstanding Units that are senior
   or equal in right of distribution to the Subordinated Units

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<PAGE>

   with respect to each of the three consecutive, non-overlapping four-Quarter
   periods immediately preceding such date equaled or exceeded the sum of the
   Minimum Quarterly Distribution on all of the Outstanding Common Units and
   Subordinated Units and any other Outstanding Units that are senior or equal
   in right of distribution to the Subordinated Units during such periods;

      (ii) the Adjusted Operating Surplus generated during each of the three
   consecutive, non-overlapping four-Quarter periods immediately preceding such
   date equaled or exceeded the sum of the Minimum Quarterly Distribution on
   all of the Common Units, Subordinated Units and any other Units that are
   senior or equal in right of distribution to the Subordinated Units that were
   Outstanding during such periods on a Fully Diluted Basis, plus the related
   distribution on the General Partner Interest during such periods; and

      (iii) the Cumulative Common Unit Arrearage on all of the Common Units is
   zero;

provided, however, that the conversion of Subordinated Units pursuant to this
Section 5.8(b) may not occur until at least one year following the conversion
of Subordinated Units pursuant to Section 5.8(a).

   (c) In the event that less than all of the Outstanding Subordinated Units
shall convert into Common Units pursuant to Section 5.8(a) or 5.8(b) at a time
when there shall be more than one holder of Subordinated Units, then, unless
all of the holders of Subordinated Units shall agree to a different allocation,
the Subordinated Units that are to be converted into Common Units shall be
allocated among the holders of Subordinated Units pro rata based on the number
of Subordinated Units held by each such holder.

   (d) Any Subordinated Units that are not converted into Common Units pursuant
to Section 5.8(a) and (b) shall convert into Common Units on a one-for-one
basis immediately after the distribution of Available Cash to Partners pursuant
to Section 6.3(a) in respect of the final Quarter of the Subordination Period.

   (e) Notwithstanding any other provision of this Agreement, all the then
Outstanding Subordinated Units will automatically convert into Common Units on
a one-for-one basis as set forth in, and pursuant to the terms of, Section 11.4.

   (f) A Subordinated Unit that has converted into a Common Unit shall be
subject to the provisions of Section 6.7(b).

Section 5.9  Limited Preemptive Right.

   Except as provided in this Section 5.9 and in Section 5.2, no Person shall
have any preemptive, preferential or other similar right with respect to the
issuance of any Partnership Security, whether unissued, held in the treasury or
hereafter created. The General Partner shall have the right, which it may from
time to time assign in whole or in part to any of its Affiliates, to purchase
Partnership Securities from the Partnership whenever, and on the same terms
that, the Partnership issues Partnership Securities to Persons other than the
General Partner and its Affiliates, to the extent necessary to maintain the
Percentage Interests of the General Partner and its Affiliates equal to that
which existed immediately prior to the issuance of such Partnership Securities.

Section 5.10  Splits and Combinations.

   (a) Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with adjustments of
distribution levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a subdivision or
combination of Partnership Securities so long as, after any such event, each
Partner shall have the same Percentage Interest in the Partnership as before
such event, and any amounts calculated on a per Unit basis (including any
Common Unit Arrearage or Cumulative Common Unit Arrearage) or stated as a
number of Units (including the number of Subordinated Units that may convert
prior to the end of the Subordination Period and the number of additional
Parity Units that may be issued pursuant to Section 5.7 without a Unitholder
vote) are proportionately adjusted retroactive to the beginning of the
Partnership.

   (b) Whenever such a distribution, subdivision or combination of Partnership
Securities is declared, the General Partner shall select a Record Date as of
which the distribution, subdivision or combination shall be

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<PAGE>

effective and shall send notice thereof at least 20 days prior to such Record
Date to each Record Holder as of a date not less than 10 days prior to the date
of such notice. The General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Partnership Securities to
be held by each Record Holder after giving effect to such distribution,
subdivision or combination. The General Partner shall be entitled to rely on
any certificate provided by such firm as conclusive evidence of the accuracy of
such calculation.

   (c) Promptly following any such distribution, subdivision or combination,
the Partnership may issue Certificates to the Record Holders of Partnership
Securities as of the applicable Record Date representing the new number of
Partnership Securities held by such Record Holders, or the General Partner may
adopt such other procedures as it may deem appropriate to reflect such changes.
If any such combination results in a smaller total number of Partnership
Securities Outstanding, the Partnership shall require, as a condition to the
delivery to a Record Holder of such new Certificate, the surrender of any
Certificate held by such Record Holder immediately prior to such Record Date.

   (d) The Partnership shall not issue fractional Units upon any distribution,
subdivision or combination of Units. If a distribution, subdivision or
combination of Units would result in the issuance of fractional Units but for
the provisions of Section 5.7(e) and this Section 5.10(d), each fractional Unit
shall be rounded to the nearest whole Unit (and a 0.5 Unit shall be rounded to
the next higher Unit).

Section 5.11  Fully Paid and Non-Assessable Nature of Limited Partner Interests.

   All Limited Partner Interests issued pursuant to, and in accordance with the
requirements of, this Article V shall be fully paid and non-assessable Limited
Partner Interests in the Partnership, except as such non-assessability may be
affected by Section 17-607 of the Delaware Act.

                                  ARTICLE VI

                         ALLOCATIONS AND DISTRIBUTIONS

Section 6.1  Allocations for Capital Account Purposes.

   For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.

   (a) Net Income. After giving effect to the special allocations set forth in
Section 6.1(d), Net Income for each taxable year and all items of income, gain,
loss and deduction taken into account in computing Net Income for such taxable
year shall be allocated as follows:

      (i) First, 100% to the General Partner, in an amount equal to the
   aggregate Net Losses allocated to the General Partner pursuant to Section
   6.1(b)(iii) for all previous taxable years until the aggregate Net Income
   allocated to the General Partner pursuant to this Section 6.1(a)(i) for the
   current taxable year and all previous taxable years is equal to the
   aggregate Net Losses allocated to the General Partner pursuant to Section
   6.1(b)(iii) for all previous taxable years;

      (ii) Second, 2% to the General Partner, in an amount equal to the
   aggregate Net Losses allocated to the General Partner pursuant to Section
   6.1(b)(ii) for all previous taxable years and 98% to the Unitholders, in
   accordance with their respective Percentage Interests, until the aggregate
   Net Income allocated to such Partners pursuant to this Section 6.1(a)(ii)
   for the current taxable year and all previous taxable years is equal to the
   aggregate Net Losses allocated to such Partners pursuant to Section
   6.1(b)(ii) for all previous taxable years; and

      (iii) Third, 2% to the General Partner, and 98% to the Unitholders, Pro
   Rata.

   (b) Net Losses. After giving effect to the special allocations set forth in
Section 6.1(d), Net Losses for each taxable period and all items of income,
gain, loss and deduction taken into account in computing Net Losses for such
taxable period shall be allocated as follows:

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<PAGE>

      (i) First, 2% to the General Partner, and 98% to the Unitholders, Pro
   Rata, until the aggregate Net Losses allocated pursuant to this Section
   6.1(b)(i) for the current taxable year and all previous taxable years is
   equal to the aggregate Net Income allocated to such Partners pursuant to
   Section 6.1(a)(iii) for all previous taxable years, provided that the Net
   Losses shall not be allocated pursuant to this Section 6.1(b)(i) to the
   extent that such allocation would cause any Unitholder to have a deficit
   balance in its Adjusted Capital Account at the end of such taxable year (or
   increase any existing deficit balance in its Adjusted Capital Account);

      (ii) Second, 2% to the General Partner, and 98% to the Unitholders, Pro
   Rata; provided, that Net Losses shall not be allocated pursuant to this
   Section 6.1(b)(ii) to the extent that such allocation would cause any
   Unitholder to have a deficit balance in its Adjusted Capital Account at the
   end of such taxable year (or increase any existing deficit balance in its
   Adjusted Capital Account);

      (iii) Third, the balance, if any, 100% to the General Partner.

   (c) Net Termination Gains and Losses. After giving effect to the special
allocations set forth in Section 6.1(d), all items of income, gain, loss and
deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this
Section 6.1 and after all distributions of Available Cash provided under
Sections 6.4 and 6.5 have been made; provided, however, that solely for
purposes of this Section 6.1(c), Capital Accounts shall not be adjusted for
distributions made pursuant to Section 12.4.

      (i) If a Net Termination Gain is recognized (or deemed recognized
   pursuant to Section 5.5(d)), such Net Termination Gain shall be allocated
   among the Partners in the following manner (and the Capital Accounts of the
   Partners shall be increased by the amount so allocated in each of the
   following subclauses, in the order listed, before an allocation is made
   pursuant to the next succeeding subclause):

          (A) First, to each Partner having a deficit balance in its Capital
       Account, in the proportion that such deficit balance bears to the total
       deficit balances in the Capital Accounts of all Partners, until each
       such Partner has been allocated Net Termination Gain equal to any such
       deficit balance in its Capital Account;

          (B) Second, 98% to all Unitholders holding Common Units, Pro Rata,
       and 2% to the General Partner, until the Capital Account in respect of
       each Common Unit then Outstanding is equal to the sum of (1) its
       Unrecovered Capital plus (2) the Minimum Quarterly Distribution for the
       Quarter during which the Liquidation Date occurs, reduced by any
       distribution pursuant to Section 6.4(a)(i) or (b)(i) with respect to
       such Common Unit for such Quarter (the amount determined pursuant to
       this clause (2) is hereinafter defined as the "Unpaid MQD") plus (3) any
       then existing Cumulative Common Unit Arrearage;

          (C) Third, if such Net Termination Gain is recognized (or is deemed
       to be recognized) prior to the expiration of the Subordination Period,
       98% to all Unitholders holding Subordinated Units, Pro Rata, and 2% to
       the General Partner, until the Capital Account in respect of each
       Subordinated Unit then Outstanding equals the sum of (1) its Unrecovered
       Capital, determined for the taxable year (or portion thereof) to which
       this allocation of gain relates, plus (2) the Minimum Quarterly
       Distribution for the Quarter during which the Liquidation Date occurs,
       reduced by any distribution pursuant to Section 6.4(a)(iii) with respect
       to such Subordinated Unit for such Quarter;

          (D) Fourth, 98% to all Unitholders, Pro Rata, and 2% to the General
       Partner, until the Capital Account in respect of each Common Unit then
       Outstanding is equal to the sum of (1) its Unrecovered Capital, plus (2)
       the Unpaid MQD, plus (3) any then existing Cumulative Common Unit
       Arrearage, plus (4) the excess of (aa) the First Target Distribution
       less the Minimum Quarterly Distribution for each Quarter of the
       Partnership's existence over (bb) the cumulative per Unit amount of any
       distributions of Available Cash that is deemed to be Operating Surplus
       made pursuant to Sections

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<PAGE>

       6.4(a)(iv) and 6.4(b)(ii) (the sum of (1) plus (2) plus (3) plus (4) is
       hereinafter defined as the "First Liquidation Target Amount");

          (E) Fifth, 85% to all Unitholders, Pro Rata, 13% to the holders of
       the Incentive Distribution Rights, Pro Rata, and 2% to the General
       Partner, until the Capital Account in respect of each Common Unit then
       Outstanding is equal to the sum of (1) the First Liquidation Target
       Amount, plus (2) the excess of (aa) the Second Target Distribution less
       the First Target Distribution for each Quarter of the Partnership's
       existence over (bb) the cumulative per Unit amount of any distributions
       of Available Cash that is deemed to be Operating Surplus made pursuant
       to Sections 6.4(a)(v) and 6.4(b)(iii) (the sum of (1) plus (2) is
       hereinafter defined as the "Second Liquidation Target Amount");

          (F) Sixth, 75% to all Unitholders, Pro Rata, 23% to the holders of
       the Incentive Distribution Rights, Pro Rata, and 2% to the General
       Partner, until the Capital Account in respect of each Common Unit then
       Outstanding is equal to the sum of (1) the Second Liquidation Target
       Amount, plus (2) the excess of (aa) the Third Target Distribution less
       the Second Target Distribution for each Quarter of the Partnership's
       existence over (bb) the cumulative per Unit amount of any distributions
       of Available Cash that is deemed to be Operating Surplus made pursuant
       to Sections 6.4(a)(vi) and 6.4(b)(iv) (the sum of (1) plus (2) is
       hereinafter defined as the "Third Liquidation Target Amount"); and

          (G) Finally, any remaining amount 50% to all Unitholders, Pro Rata,
       48% to the holders of the Incentive Distribution Rights, Pro Rata, and
       2% to the General Partner.

      (ii) If a Net Termination Loss is recognized (or deemed recognized
   pursuant to Section 5.5(d)), such Net Termination Loss shall be allocated
   among the Partners in the following manner:

          (A) First, if such Net Termination Loss is recognized (or is deemed
       to be recognized) prior to the conversion of the last Outstanding
       Subordinated Unit, 98% to the Unitholders holding Subordinated Units,
       Pro Rata, and 2% to the General Partner, until the Capital Account in
       respect of each Subordinated Unit then Outstanding has been reduced to
       zero;

          (B) Second, 98% to all Unitholders holding Common Units, Pro Rata,
       and 2% to the General Partner, until the Capital Account in respect of
       each Common Unit then Outstanding has been reduced to zero; and

          (C) Third, the balance, if any, 100% to the General Partner.


      (iii) If, immediately prior to the allocation of any Net Termination Gain
   or Net Termination Loss pursuant to Section 6.1(c)(i) and (ii), the
   cumulative amount of Capital Contributions by the General Partner to the
   Partnership described in Section 5.2(c) exceeds the cumulative amount of
   items allocated to the General Partner pursuant to Section 6.1(d)(xiii),
   items of loss and deduction shall be allocated to the General Partner,
   immediately prior to any allocation pursuant to Section 6.1(c)(i) and (ii),
   in an amount equal to such excess. In the event the amount of Partnership
   losses and deductions available to make the allocation described in the
   previous sentence is less than the amount required to satisfy such
   allocation, Net Termination Gain that would otherwise be allocated to the
   General Partner pursuant to Sections 6.1(c)(i)(B), (D), (E), (F) or (G), in
   an amount equal to such shortfall, shall be allocated to the Unitholders
   holding Common Units instead.


   (d) Special Allocations.  Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:

      (i) Partnership Minimum Gain Chargeback.  Notwithstanding any other
   provision of this Section 6.1, if there is a net decrease in Partnership
   Minimum Gain during any Partnership taxable period, each Partner shall be
   allocated items of Partnership income and gain for such period (and, if
   necessary, subsequent periods) in the manner and amounts provided in
   Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and
   1.704-2(j)(2)(i), or any successor provision. For purposes of this Section
   6.1(d), each Partner's Adjusted Capital Account balance shall be determined,
   and the allocation of income or gain required hereunder shall be effected,
   prior to the application of any other allocations pursuant to this Section
   6.1(d) with respect to

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<PAGE>

   such taxable period (other than an allocation pursuant to Sections
   6.1(d)(vi) and 6.1(d)(vii)). This Section 6.1(d)(i) is intended to comply
   with the Partnership Minimum Gain chargeback requirement in Treasury
   Regulation Section 1.704-2(f) and shall be interpreted consistently
   therewith.

      (ii) Chargeback of Partner Nonrecourse Debt Minimum
   Gain.  Notwithstanding the other provisions of this Section 6.1 (other than
   Section 6.1(d)(i)), except as provided in Treasury Regulation Section
   1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
   Minimum Gain during any Partnership taxable period, any Partner with a share
   of Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable
   period shall be allocated items of Partnership income and gain for such
   period (and, if necessary, subsequent periods) in the manner and amounts
   provided in Treasury Regulation Sections 1.704-2(i)(4) and
   1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section
   6.1(d), each Partner's Adjusted Capital Account balance shall be determined,
   and the allocation of income or gain required hereunder shall be effected,
   prior to the application of any other allocations pursuant to this Section
   6.1(d), other than Section 6.1(d)(i) and other than an allocation pursuant
   to Sections 6.1(d)(vi) and 6.1(d)(vii), with respect to such taxable period.
   This Section 6.1(d)(ii) is intended to comply with the chargeback of items
   of income and gain requirement in Treasury Regulation Section 1.704-2(i)(4)
   and shall be interpreted consistently therewith.

      (iii) Priority Allocations.

          (A) If the amount of cash or the Net Agreed Value of any property
       distributed (except cash or property distributed pursuant to Section
       12.4) to any Unitholder with respect to its Units for a taxable year is
       greater (on a per Unit basis) than the amount of cash or the Net Agreed
       Value of property distributed to the other Unitholders with respect to
       their Units (on a per Unit basis), then (1) each Unitholder receiving
       such greater cash or property distribution shall be allocated gross
       income in an amount equal to the product of (aa) the amount by which the
       distribution (on a per Unit basis) to such Unitholder exceeds the
       distribution (on a per Unit basis) to the Unitholders receiving the
       smallest distribution and (bb) the number of Units owned by the
       Unitholder receiving the greater distribution; and (2) the General
       Partner shall be allocated gross income in an aggregate amount equal to
       1/98th of the sum of the amounts allocated in clause (1) above.

          (B) After the application of Section 6.1(d)(iii)(A), all or any
       portion of the remaining items of Partnership gross income or gain for
       the taxable period, if any, shall be allocated 100% to the holders of
       Incentive Distribution Rights, Pro Rata, until the aggregate amount of
       such items allocated to the holders of Incentive Distribution Rights
       pursuant to this paragraph 6.1(d)(iii)(B) for the current taxable year
       and all previous taxable years is equal to the cumulative amount of all
       Incentive Distributions made to the holders of Incentive Distribution
       Rights from the Closing Date to a date 45 days after the end of the
       current taxable year.

      (iv) Qualified Income Offset.  In the event any Partner unexpectedly
   receives any adjustments, allocations or distributions described in Treasury
   Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
   1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be
   specially allocated to such Partner in an amount and manner sufficient to
   eliminate, to the extent required by the Treasury Regulations promulgated
   under Section 704(b) of the Code, the deficit balance, if any, in its
   Adjusted Capital Account created by such adjustments, allocations or
   distributions as quickly as possible unless such deficit balance is
   otherwise eliminated pursuant to Section 6.1(d)(i) or (ii).

      (v) Gross Income Allocations.  In the event any Partner has a deficit
   balance in its Capital Account at the end of any Partnership taxable period
   in excess of the sum of (A) the amount such Partner is required to restore
   pursuant to the provisions of this Agreement and (B) the amount such Partner
   is deemed obligated to restore pursuant to Treasury Regulation Sections
   1.704-2(g) and 1.704-2(i)(5), such Partner shall be specially allocated
   items of Partnership gross income and gain in the amount of such excess as
   quickly as possible; provided, that an allocation pursuant to this Section
   6.1(d)(v) shall be made only if and to the extent that such Partner would
   have a deficit balance in its Capital Account as adjusted after all other
   allocations provided for in this Section 6.1 have been tentatively made as
   if this Section 6.1(d)(v) were not in this Agreement.

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<PAGE>

      (vi) Nonrecourse Deductions.  Nonrecourse Deductions for any taxable
   period shall be allocated to the Partners in accordance with their
   respective Percentage Interests. If the General Partner determines in its
   good faith discretion that the Partnership's Nonrecourse Deductions must be
   allocated in a different ratio to satisfy the safe harbor requirements of
   the Treasury Regulations promulgated under Section 704(b) of the Code, the
   General Partner is authorized, upon notice to the other Partners, to revise
   the prescribed ratio to the numerically closest ratio that does satisfy such
   requirements.

      (vii) Partner Nonrecourse Deductions.  Partner Nonrecourse Deductions for
   any taxable period shall be allocated 100% to the Partner that bears the
   Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which
   such Partner Nonrecourse Deductions are attributable in accordance with
   Treasury Regulation Section 1.704-2(i). If more than one Partner bears the
   Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such
   Partner Nonrecourse Deductions attributable thereto shall be allocated
   between or among such Partners in accordance with the ratios in which they
   share such Economic Risk of Loss.

      (viii) Nonrecourse Liabilities.  For purposes of Treasury Regulation
   Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of
   the Partnership in excess of the sum of (A) the amount of Partnership
   Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be
   allocated among the Partners in accordance with their respective Percentage
   Interests.

      (ix) Code Section 754 Adjustments.  To the extent an adjustment to the
   adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
   743(c) of the Code is required, pursuant to Treasury Regulation Section
   1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
   Accounts, the amount of such adjustment to the Capital Accounts shall be
   treated as an item of gain (if the adjustment increases the basis of the
   asset) or loss (if the adjustment decreases such basis), and such item of
   gain or loss shall be specially allocated to the Partners in a manner
   consistent with the manner in which their Capital Accounts are required to
   be adjusted pursuant to such Section of the Treasury Regulations.

      (x) Economic Uniformity.  At the election of the General Partner with
   respect to any taxable period ending upon, or after, the termination of the
   Subordination Period, all or a portion of the remaining items of Partnership
   gross income or gain for such taxable period, after taking into account
   allocations pursuant to Section 6.1(d)(iii), shall be allocated 100% to each
   Partner holding Subordinated Units that are Outstanding as of the
   termination of the Subordination Period ("Final Subordinated Units") in the
   proportion of the number of Final Subordinated Units held by such Partner to
   the total number of Final Subordinated Units then Outstanding, until each
   such Partner has been allocated an amount of gross income or gain which
   increases the Capital Account maintained with respect to such Final
   Subordinated Units to an amount equal to the product of (A) the number of
   Final Subordinated Units held by such Partner and (B) the Per Unit Capital
   Amount for a Common Unit. The purpose of this allocation is to establish
   uniformity between the Capital Accounts underlying Final Subordinated Units
   and the Capital Accounts underlying Common Units held by Persons other than
   the General Partner and its Affiliates immediately prior to the conversion
   of such Final Subordinated Units into Common Units. This allocation method
   for establishing such economic uniformity will only be available to the
   General Partner if the method for allocating the Capital Account maintained
   with respect to the Subordinated Units between the transferred and retained
   Subordinated Units pursuant to Section 5.5(c)(ii) does not otherwise provide
   such economic uniformity to the Final Subordinated Units.

      (xi) Curative Allocation.

          (A) Notwithstanding any other provision of this Section 6.1, other
       than the Required Allocations, the Required Allocations shall be taken
       into account in making the Agreed Allocations so that, to the extent
       possible, the net amount of items of income, gain, loss and deduction
       allocated to each Partner pursuant to the Required Allocations and the
       Agreed Allocations, together, shall be equal to the net amount of such
       items that would have been allocated to each such Partner under the
       Agreed Allocations had the Required Allocations and the related Curative
       Allocation not otherwise been provided in this Section 6.1.
       Notwithstanding the preceding sentence, Required Allocations relating to
       (1) Nonrecourse Deductions shall not be taken into account except to the
       extent that there has been a decrease in Partnership Minimum Gain and
       (2) Partner Nonrecourse Deductions shall not be taken into account
       except to the extent that there has been a decrease in Partner
       Nonrecourse Debt Minimum

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<PAGE>

       Gain. Allocations pursuant to this Section 6.1(d)(xi)(A) shall only be
       made with respect to Required Allocations to the extent the General
       Partner reasonably determines that such allocations will otherwise be
       inconsistent with the economic agreement among the Partners. Further,
       allocations pursuant to this Section 6.1(d)(xi)(A) shall be deferred
       with respect to allocations pursuant to clauses (1) and (2) hereof to
       the extent the General Partner reasonably determines that such
       allocations are likely to be offset by subsequent Required Allocations.

          (B) The General Partner shall have reasonable discretion, with
       respect to each taxable period, to (1) apply the provisions of Section
       6.1(d)(xi)(A) in whatever order is most likely to minimize the economic
       distortions that might otherwise result from the Required Allocations,
       and (2) divide all allocations pursuant to Section 6.1(d)(xi)(A) among
       the Partners in a manner that is likely to minimize such economic
       distortions.

      (xii) Corrective Allocations.  In the event of any allocation of
   Additional Book Basis Derivative Items or any Book-Down Event or any
   recognition of a Net Termination Loss, the following rules shall apply:

          (A) In the case of any allocation of Additional Book Basis Derivative
       Items (other than an allocation of Unrealized Gain or Unrealized Loss
       under Section 5.5(d) hereof), the General Partner shall allocate
       additional items of gross income and gain away from the holders of
       Incentive Distribution Rights to the Unitholders and the General
       Partner, or additional items of deduction and loss away from the
       Unitholders and the General Partner to the holders of Incentive
       Distribution Rights, to the extent that the Additional Book Basis
       Derivative Items allocated to the Unitholders or the General Partner
       exceed their Share of Additional Book Basis Derivative Items. For this
       purpose, the Unitholders and the General Partner shall be treated as
       being allocated Additional Book Basis Derivative Items to the extent
       that such Additional Book Basis Derivative Items have reduced the amount
       of income that would otherwise have been allocated to the Unitholders or
       the General Partner under the Partnership Agreement (e.g., Additional
       Book Basis Derivative Items taken into account in computing cost of
       goods sold would reduce the amount of book income otherwise available
       for allocation among the Partners). Any allocation made pursuant to this
       Section 6.1(d)(xii)(A) shall be made after all of the other Agreed
       Allocations have been made as if this Section 6.1(d)(xii) were not in
       this Agreement and, to the extent necessary, shall require the
       reallocation of items that have been allocated pursuant to such other
       Agreed Allocations.

          (B) In the case of any negative adjustments to the Capital Accounts
       of the Partners resulting from a Book-Down Event or from the recognition
       of a Net Termination Loss, such negative adjustment (1) shall first be
       allocated, to the extent of the Aggregate Remaining Net Positive
       Adjustments, in such a manner, as reasonably determined by the General
       Partner, that to the extent possible the aggregate Capital Accounts of
       the Partners will equal the amount which would have been the Capital
       Account balance of the Partners if no prior Book-Up Events had occurred,
       and (2) any negative adjustment in excess of the Aggregate Remaining Net
       Positive Adjustments shall be allocated pursuant to Section 6.1(c)
       hereof.

          (C) In making the allocations required under this Section
       6.1(d)(xii), the General Partner, in its sole discretion, may apply
       whatever conventions or other methodology it deems reasonable to satisfy
       the purpose of this Section 6.1(d)(xii).


      (xiii) Allocation of Indemnified Losses.  All losses, costs, penalties,
   damages and expenses described in Sections 3.2(a), 3.4 and 3.5 of the
   Omnibus Agreement, and all deductions and losses resulting from any payment
   made by the General Partner or its Affiliates to the Partnership pursuant to
   Article VI of the Omnibus Agreement or any payment made pursuant to Section
   6.3 of the Omnibus Agreement shall be allocated 100% to the General Partner.


Section 6.2  Allocations for Tax Purposes.

   (a) Except as otherwise provided herein, for federal income tax purposes,
each item of income, gain, loss and deduction shall be allocated among the
Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.


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<PAGE>

   (b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:

      (i) (A) In the case of a Contributed Property, such items attributable
   thereto shall be allocated among the Partners in the manner provided under
   Section 704(c) of the Code that takes into account the variation between the
   Agreed Value of such property and its adjusted basis at the time of
   contribution; and (B) any item of Residual Gain or Residual Loss
   attributable to a Contributed Property shall be allocated among the Partners
   in the same manner as its correlative item of "book" gain or loss is
   allocated pursuant to Section 6.1.

      (ii) (A) In the case of an Adjusted Property, such items shall (1) first,
   be allocated among the Partners in a manner consistent with the principles
   of Section 704(c) of the Code to take into account the Unrealized Gain or
   Unrealized Loss attributable to such property and the allocations thereof
   pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2) second, in the event
   such property was originally a Contributed Property, be allocated among the
   Partners in a manner consistent with Section 6.2(b)(i)(A); and (B) any item
   of Residual Gain or Residual Loss attributable to an Adjusted Property shall
   be allocated among the Partners in the same manner as its correlative item
   of "book" gain or loss is allocated pursuant to Section 6.1.

      (iii) The General Partner shall apply the principles of Treasury
   Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.

   (c) For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (or any class or
classes thereof), the General Partner shall have sole discretion to (i) adopt
such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or promulgation of
Treasury Regulations under Section 704(b) or Section704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Limited Partner Interests
(or any class or classes thereof). The General Partner may adopt such
conventions, make such allocations and make such amendments to this Agreement
as provided in this Section 6.2(c) only if such conventions, allocations or
amendments would not have a material adverse effect on the Partners, the
holders of any class or classes of Limited Partner Interests issued and
Outstanding or the Partnership, and if such allocations are consistent with the
principles of Section 704 of the Code.

   (d) The General Partner in its discretion may determine to depreciate or
amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Treasury Regulation Section 1.167(c)-l(a)(6) or any successor
regulations thereto. If the General Partner determines that such reporting
position cannot reasonably be taken, the General Partner may adopt depreciation
and amortization conventions under which all purchasers acquiring Limited
Partner Interests in the same month would receive depreciation and amortization
deductions, based upon the same applicable rate as if they had purchased a
direct interest in the Partnership's property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may use any other
reasonable depreciation and amortization conventions to preserve the uniformity
of the intrinsic tax characteristics of any Limited Partner Interests that
would not have a material adverse effect on the Limited Partners or the Record
Holders of any class or classes of Limited Partner Interests.

   (e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after
taking into account other required allocations of gain pursuant to this Section
6.2, be characterized as Recapture Income in the same proportions and to the
same extent as such Partners (or their predecessors in interest) have been
allocated any deductions directly or indirectly giving rise to the treatment of
such gains as Recapture Income.


                                     A--39


<PAGE>

   (f) All items of income, gain, loss, deduction and credit recognized by the
Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.

   (g) Each item of Partnership income, gain, loss and deduction shall for
federal income tax purposes, be determined on an annual basis and prorated on a
monthly basis and shall be allocated to the Partners as of the opening of the
New York Stock Exchange on the first Business Day of each month; provided,
however, that (i) such items for the period beginning on the Closing Date and
ending on the last day of the month in which the Option Closing Date or the
expiration of the Over-allotment Option occurs shall be allocated to the
Partners as of the opening of the New York Stock Exchange on the first Business
Day of the next succeeding month; and provided, further, that gain or loss on a
sale or other disposition of any assets of the Partnership or any other
extraordinary item of income or loss realized and recognized other than in the
ordinary course of business, as determined by the General Partner in its sole
discretion, shall be allocated to the Partners as of the opening of the New
York Stock Exchange on the first Business Day of the month in which such gain
or loss is recognized for federal income tax purposes. The General Partner may
revise, alter or otherwise modify such methods of allocation as it determines
necessary or appropriate in its sole discretion, to the extent permitted or
required by Section 706 of the Code and the regulations or rulings promulgated
thereunder.

   (h) Allocations that would otherwise be made to a Limited Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Limited Partner Interests held by a nominee in any case in which the nominee
has furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.

Section 6.3  Requirement and Characterization of Distributions; Distributions
  to Record Holders.

   (a) Within 45 days following the end of each Quarter commencing with the
Quarter ending on March 31, 2002, an amount equal to 100% of Available Cash
with respect to such Quarter shall, subject to Section 17-607 of the Delaware
Act, be distributed in accordance with this Article VI by the Partnership to
the Partners as of the Record Date selected by the General Partner in its
reasonable discretion. All amounts of Available Cash distributed by the
Partnership on any date from any source shall be deemed to be Operating Surplus
until the sum of all amounts of Available Cash theretofore distributed by the
Partnership to the Partners pursuant to Section 6.4 equals the Operating
Surplus from the Closing Date through the close of the immediately preceding
Quarter. Any remaining amounts of Available Cash distributed by the Partnership
on such date shall, except as otherwise provided in Section 6.5, be deemed to
be "Capital Surplus." All distributions required to be made under this
Agreement shall be made subject to Section 17-607 of the Delaware Act.

   (b) Notwithstanding Section 6.3(a), in the event of the dissolution and
liquidation of the Partnership, all receipts received during or after the
Quarter in which the Liquidation Date occurs, other than from borrowings
described in (a)(ii) of the definition of Available Cash, shall be applied and
distributed solely in accordance with, and subject to the terms and conditions
of, Section 12.4.

   (c) The General Partner shall have the discretion to treat taxes paid by the
Partnership on behalf of, or amounts withheld with respect to, all or less than
all of the Partners, as a distribution of Available Cash to such Partners.

   (d) Each distribution in respect of a Partnership Interest shall be paid by
the Partnership, directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such Partnership Interest as of
the Record Date set for such distribution. Such payment shall constitute full
payment and satisfaction of the Partnership's liability in respect of such
payment, regardless of any claim of any Person who may have an interest in such
payment by reason of an assignment or otherwise.


                                     A--40


<PAGE>

Section 6.4  Distributions of Available Cash from Operating Surplus.

   (a) During Subordination Period. Available Cash with respect to any Quarter
within the Subordination Period that is deemed to be Operating Surplus pursuant
to the provisions of Section 6.3 or 6.5 shall, subject to Section 17-607 of the
Delaware Act, be distributed as follows, except as otherwise required by
Section 5.6(b) in respect of additional Partnership Securities issued pursuant
thereto:

      (i) First, 98% to the Unitholders holding Common Units, Pro Rata, and 2%
   to the General Partner, until there has been distributed in respect of each
   Common Unit then Outstanding an amount equal to the Minimum Quarterly
   Distribution for such Quarter;

      (ii) Second, 98% to the Unitholders holding Common Units, Pro Rata, and
   2% to the General Partner, until there has been distributed in respect of
   each Common Unit then Outstanding an amount equal to the Cumulative Common
   Unit Arrearage existing with respect to such Quarter;

      (iii) Third, 98% to the Unitholders holding Subordinated Units, Pro Rata,
   and 2% to the General Partner, until there has been distributed in respect
   of each Subordinated Unit then Outstanding an amount equal to the Minimum
   Quarterly Distribution for such Quarter;

      (iv) Fourth, 98% to all Unitholders, Pro Rata, and 2% to the General
   Partner, until there has been distributed in respect of each Unit then
   Outstanding an amount equal to the excess of the First Target Distribution
   over the Minimum Quarterly Distribution for such Quarter;

      (v) Fifth, 85% to all Unitholders, Pro Rata, 13% to the holders of the
   Incentive Distribution Rights, Pro Rata, and 2% to the General Partner,
   until there has been distributed in respect of each Unit then Outstanding an
   amount equal to the excess of the Second Target Distribution over the First
   Target Distribution for such Quarter;

      (vi) Sixth, 75% to all Unitholders, Pro Rata, 23% to the holders of the
   Incentive Distribution Rights, Pro Rata, and 2% to the General Partner,
   until there has been distributed in respect of each Unit then Outstanding an
   amount equal to the excess of the Third Target Distribution over the Second
   Target Distribution for such Quarter; and

      (vii) Thereafter, 50% to all Unitholders, Pro Rata, 48% to the holders of
   the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner;

provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a),
the distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section
6.4(a)(vii).

   (b) After Subordination Period.  Available Cash with respect to any Quarter
after the Subordination Period that is deemed to be Operating Surplus pursuant
to the provisions of Section 6.3 or 6.5, subject to Section 17-607 of the
Delaware Act, shall be distributed as follows, except as otherwise required by
Section 5.6(b) in respect of additional Partnership Securities issued pursuant
thereto:

      (i) First, 98% to all Unitholders, Pro Rata, and 2% to the General
   Partner, until there has been distributed in respect of each Unit then
   Outstanding an amount equal to the Minimum Quarterly Distribution for such
   Quarter;

      (ii) Second, 98% to all Unitholders, Pro Rata, and 2% to the General
   Partner, until there has been distributed in respect of each Unit then
   Outstanding an amount equal to the excess of the First Target Distribution
   over the Minimum Quarterly Distribution for such Quarter;

      (iii) Third, 85% to all Unitholders, Pro Rata, and 13% to the holders of
   the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner,
   until there has been distributed in respect of each Unit then Outstanding an
   amount equal to the excess of the Second Target Distribution over the First
   Target Distribution for such Quarter;

                                     A--41


<PAGE>

      (iv) Fourth, 75% to all Unitholders Pro Rata, and 23% to the holders of
   the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner,
   until there has been distributed in respect of each Unit then Outstanding an
   amount equal to the excess of the Third Target Distribution over the Second
   Target Distribution for such Quarter; and

      (v) Thereafter, 50% to all Unitholders, Pro Rata, and 48% to the holders
   of the Incentive Distribution Rights, Pro Rata, and 2% to the General
   Partner;

provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a),
the distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section 6.4(b)(v).

Section 6.5  Distributions of Available Cash from Capital Surplus.

   Available Cash that is deemed to be Capital Surplus pursuant to the
provisions of Section 6.3(a) shall, subject to Section 17-607 of the Delaware
Act, be distributed, unless the provisions of Section 6.3 require otherwise,
98% to all Unitholders, Pro Rata, and 2% to the General Partner, until a
hypothetical holder of a Common Unit acquired on the Closing Date has received
with respect to such Common Unit, during the period since the Closing Date
through such date, distributions of Available Cash that are deemed to be
Capital Surplus in an aggregate amount equal to the Initial Unit Price.
Available Cash that is deemed to be Capital Surplus shall then be distributed
98% to all Unitholders holding Common Units, Pro Rata, and 2% to the General
Partner, until there has been distributed in respect of each Common Unit then
Outstanding an amount equal to the Cumulative Common Unit Arrearage.
Thereafter, all Available Cash shall be distributed as if it were Operating
Surplus and shall be distributed in accordance with Section 6.4.

Section 6.6  Adjustment of Minimum Quarterly Distribution and Target
  Distribution Levels.

   (a) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution, Third Target Distribution, Common Unit Arrearages and
Cumulative Common Unit Arrearages shall be proportionately adjusted in the
event of any distribution, combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units or other Partnership
Securities in accordance with Section 5.10. In the event of a distribution of
Available Cash that is deemed to be from Capital Surplus, the then applicable
Minimum Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, shall be adjusted proportionately
downward to equal the product obtained by multiplying the otherwise applicable
Minimum Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, as the case may be, by a fraction
of which the numerator is the Unrecovered Capital of the Common Units
immediately after giving effect to such distribution and of which the
denominator is the Unrecovered Capital of the Common Units immediately prior to
giving effect to such distribution.

   (b) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution, shall also be subject to
adjustment pursuant to Section 6.9.

Section 6.7  Special Provisions Relating to the Holders of Subordinated Units.

   (a) Except with respect to the right to vote on or approve matters requiring
the vote or approval of a percentage of the holders of Outstanding Common Units
and the right to participate in allocations of income, gain, loss and deduction
and distributions made with respect to Common Units, the holder of a
Subordinated Unit shall have all of the rights and obligations of a Unitholder
holding Common Units hereunder; provided, however, that immediately upon the
conversion of Subordinated Units into Common Units pursuant to Section 5.8, the
Unitholder holding a Subordinated Unit shall possess all of the rights and
obligations of a Unitholder holding Common Units hereunder, including the right
to vote as a Common Unitholder and the right to participate in

                                     A--42


<PAGE>

allocations of income, gain, loss and deduction and distributions made with
respect to Common Units; provided, however, that such converted Subordinated
Units shall remain subject to the provisions of Sections 5.5(c)(ii), 6.1(d)(x)
and 6.7(b).

   (b) The Unitholder holding a Subordinated Unit which has converted into a
Common Unit pursuant to Section 5.8 shall not be issued a Common Unit
Certificate pursuant to Section 4.1, and shall not be permitted to transfer its
converted Subordinated Units to a Person which is not an Affiliate of the
holder until such time as the General Partner determines, based on advice of
counsel, that a converted Subordinated Unit should have, as a substantive
matter, like intrinsic economic and federal income tax characteristics, in all
material respects, to the intrinsic economic and federal income tax
characteristics of an Initial Common Unit. In connection with the condition
imposed by this Section 6.7(b), the General Partner may take whatever
reasonable steps are required to provide economic uniformity to the converted
Subordinated Units in preparation for a transfer of such converted Subordinated
Units, including the application of Sections 5.5(c)(ii) and 6.1(d)(x);
provided, however, that no such steps may be taken that would have a material
adverse effect on the Unitholders holding Common Units represented by Common
Unit Certificates.

Section 6.8  Special Provisions Relating to the Holders of Incentive
  Distribution Rights.

   Notwithstanding anything to the contrary set forth in this Agreement, the
holders of the Incentive Distribution Rights (a) shall (i) possess the rights
and obligations provided in this Agreement with respect to a Limited Partner
pursuant to Articles III and VII and (ii) have a Capital Account as a Partner
pursuant to Section 5.5 and all other provisions related thereto and (b) shall
not (i) be entitled to vote on any matters requiring the approval or vote of
the holders of Outstanding Units, (ii) be entitled to any distributions other
than as provided in Sections 6.4(a)(v), (vi) and (vii), 6.4(b)(iii), (iv) and
(v), and 12.4 or (iii) be allocated items of income, gain, loss or deduction
other than as specified in this Article VI.

Section 6.9  Entity-Level Taxation.

   If legislation is enacted or the interpretation of existing language is
modified by the relevant governmental authority which causes a Group Member to
be treated as an association taxable as a corporation or otherwise subjects a
Group Member to entity-level taxation for federal, state or local income tax
purposes, the then applicable Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target Distribution, shall
be adjusted to equal the product obtained by multiplying (a) the amount thereof
by (b) one minus the sum of (i) the highest marginal federal corporate (or
other entity, as applicable) income tax rate of the Group Member for the
taxable year of the Group Member in which such Quarter occurs (expressed as a
percentage) plus (ii) the effective overall state and local income tax rate
(expressed as a percentage) applicable to the Group Member for the calendar
year next preceding the calendar year in which such Quarter occurs (after
taking into account the benefit of any deduction allowable for federal income
tax purposes with respect to the payment of state and local income taxes), but
only to the extent of the increase in such rates resulting from such
legislation or interpretation. Such effective overall state and local income
tax rate shall be determined for the taxable year next preceding the first
taxable year during which the Group Member is taxable for federal income tax
purposes as an association taxable as a corporation or is otherwise subject to
entity-level taxation by determining such rate as if the Group Member had been
subject to such state and local taxes during such preceding taxable year.

                                  ARTICLE VII

                     MANAGEMENT AND OPERATION OF BUSINESS

Section 7.1  Management.

   (a) The General Partner shall conduct, direct and manage all activities of
the Partnership. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the

                                     A--43


<PAGE>

Partnership shall be exclusively vested in the General Partner, and no Limited
Partner or Assignee shall have any management power over the business and
affairs of the Partnership. In addition to the powers now or hereafter granted
a general partner of a limited partnership under applicable law or which are
granted to the General Partner under any other provision of this Agreement, the
General Partner, subject to Section 7.3, shall have full power and authority to
do all things and on such terms as it, in its sole discretion, may deem
necessary or appropriate to conduct the business of the Partnership, to
exercise all powers set forth in Section 2.5 and to effectuate the purposes set
forth in Section 2.4, including the following:

      (i) the making of any expenditures, the lending or borrowing of money,
   the assumption or guarantee of, or other contracting for, indebtedness and
   other liabilities, the issuance of evidences of indebtedness, including
   indebtedness that is convertible into Partnership Securities, and the
   incurring of any other obligations;

      (ii) the making of tax, regulatory and other filings, or rendering of
   periodic or other reports to governmental or other agencies having
   jurisdiction over the business or assets of the Partnership;

      (iii) the acquisition, disposition, mortgage, pledge, encumbrance,
   hypothecation or exchange of any or all of the assets of the Partnership or
   the merger or other combination of the Partnership with or into another
   Person (the matters described in this clause (iii) being subject, however,
   to any prior approval that may be required by Section7.3);

      (iv) the use of the assets of the Partnership (including cash on hand)
   for any purpose consistent with the terms of this Agreement, including the
   financing of the conduct of the operations of the Partnership Group; subject
   to Section 7.6(a), the lending of funds to other Persons (including the
   Operating Partnership); the repayment of obligations of the Partnership
   Group and the making of capital contributions to any member of the
   Partnership Group;

      (v) the negotiation, execution and performance of any contracts,
   conveyances or other instruments (including instruments that limit the
   liability of the Partnership under contractual arrangements to all or
   particular assets of the Partnership, with the other party to the contract
   to have no recourse against the General Partner or its assets other than its
   interest in the Partnership, even if same results in the terms of the
   transaction being less favorable to the Partnership than would otherwise be
   the case);

      (vi) the distribution of Partnership cash;

      (vii) the selection and dismissal of employees (including employees
   having titles such as "president," "vice president," "secretary" and
   "treasurer") and agents, outside attorneys, accountants, consultants and
   contractors and the determination of their compensation and other terms of
   employment or hiring;

      (viii) the maintenance of such insurance for the benefit of the
   Partnership Group and the Partners as it deems necessary or appropriate;

      (ix) the formation of, or acquisition of an interest in, and the
   contribution of property and the making of loans to, any further limited or
   general partnerships, joint ventures, corporations, limited liability
   companies or other relationships (including the acquisition of interests in,
   and the contributions of property to, the Operating Partnership from time to
   time) subject to the restrictions set forth in Section 2.4;

      (x) the control of any matters affecting the rights and obligations of
   the Partnership, including the bringing and defending of actions at law or
   in equity and otherwise engaging in the conduct of litigation and the
   incurring of legal expense and the settlement of claims and litigation;

      (xi) the indemnification of any Person against liabilities and
   contingencies to the extent permitted by law;

      (xii) the entering into of listing agreements with any National
   Securities Exchange and the delisting of some or all of the Limited Partner
   Interests from, or requesting that trading be suspended on, any such
   exchange (subject to any prior approval that may be required under Section
   4.8);

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<PAGE>

      (xiii) unless restricted or prohibited by Section 5.7, the purchase, sale
   or other acquisition or disposition of Partnership Securities, or the
   issuance of additional options, rights, warrants and appreciation rights
   relating to Partnership Securities; and

      (xiv) the undertaking of any action in connection with the Partnership's
   participation in the Operating Partnership or any other subsidiary of the
   Partnership as a member or partner.

   (b) Notwithstanding any other provision of this Agreement, the Operating
Partnership Agreement, the Delaware Act or any applicable law, rule or
regulation, each of the Partners and the Assignees and each other Person who
may acquire an interest in Partnership Securities hereby (i) approves, ratifies
and confirms the execution, delivery and performance by the parties thereto of
the Operating Partnership Agreement, the Underwriting Agreement, the Omnibus
Agreement, the Contribution Agreement, the Pipelines and Terminals Storage and
Throughput Agreement and the other agreements described in or filed as exhibits
to the Registration Statement that are related to the transactions contemplated
by the Registration Statement; (ii) agrees that the General Partner (on its own
or through any officer of the Partnership) is authorized to execute, deliver
and perform the agreements referred to in clause (i) of this sentence and the
other agreements, acts, transactions and matters described in or contemplated
by the Registration Statement on behalf of the Partnership without any further
act, approval or vote of the Partners or the Assignees or the other Persons who
may acquire an interest in Partnership Securities; and (iii) agrees that the
execution, delivery or performance by the General Partner, any Group Member or
any Affiliate of any of them, of this Agreement or any agreement authorized or
permitted under this Agreement (including the exercise by the General Partner
or any Affiliate of the General Partner of the rights accorded pursuant to
ArticleXV), shall not constitute a breach by the General Partner of any duty
that the General Partner may owe the Partnership or the Limited Partners or any
other Persons under this Agreement (or any other agreements) or of any duty
stated or implied by law or equity.

Section 7.2  Certificate of Limited Partnership.

   The General Partner has caused the Certificate of Limited Partnership to be
filed with the Secretary of State of the State of Delaware as required by the
Delaware Act. The General Partner shall use all reasonable efforts to cause to
be filed such other certificates or documents as may be determined by the
General Partner in its sole discretion to be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited partnership (or a partnership in which the limited partners have
limited liability) in the State of Delaware or any other state in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the General Partner in its sole discretion to be
reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate of Limited Partnership and do
all things to maintain the Partnership as a limited partnership (or a
partnership or other entity in which the limited partners have limited
liability) under the laws of the State of Delaware or of any other state in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 3.4(a), the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate of Limited
Partnership, any qualification document or any amendment thereto to any Limited
Partner.

Section 7.3  Restrictions on the General Partner's Authority.

   (a) The General Partner may not, without written approval of the specific
act by holders of all of the Outstanding Limited Partner Interests or by other
written instrument executed and delivered by holders of all of the Outstanding
Limited Partner Interests subsequent to the date of this Agreement, take any
action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it
impossible to carry on the ordinary business of the Partnership; (ii)
possessing Partnership property, or assigning any rights in specific
Partnership property, for other than a Partnership purpose; (iii) admitting a
Person as a Partner; (iv) amending this Agreement in any manner; or (v)
transferring its interest as a general partner of the Partnership.

                                     A--45


<PAGE>

   (b) Except as provided in Articles XII and XIV, the General Partner may not
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related
transactions (including by way of merger, consolidation or other combination)
or approve on behalf of the Partnership the sale, exchange or other disposition
of all or substantially all of the assets of the Operating Partnership without
the approval of holders of a Unit Majority; provided however that this
provision shall not preclude or limit the General Partner's ability to
mortgage, pledge, hypothecate or grant a security interest in all or
substantially all of the assets of the Partnership or the Operating Partnership
and shall not apply to any forced sale of any or all of the assets of the
Partnership or the Operating Partnership pursuant to the foreclosure of, or
other realization upon, any such encumbrance. Without the approval of holders
of a Unit Majority, the General Partner shall not, on behalf of the
Partnership, (i) consent to any amendment to the Operating Partnership
Agreement or, except as expressly permitted by Section 7.9(d), take any action
permitted to be taken by a partner of the Operating Partnership, in either
case, that would adversely affect the Limited Partners (including any
particular class of Partnership Interests as compared to any other class of
Partnership Interests) in any material respect or (ii) except as permitted
under Sections 4.6, 11.1 and 11.2, elect or cause the Partnership to elect a
successor general partner of the Partnership.

Section 7.4  Reimbursement of the General Partner.

   (a) Except as provided in this Section 7.4 and elsewhere in this Agreement,
the General Partner shall not be compensated for its services as a general
partner or managing member of any Group Member.

   (b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of the
General Partner to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.

   (c) Subject to Section 5.7, the General Partner, in its sole discretion and
without the approval of the Limited Partners (who shall have no right to vote
in respect thereof), may propose and adopt on behalf of the Partnership
employee benefit plans, employee programs and employee practices (including
plans, programs and practices involving the issuance of Partnership Securities
or options to purchase Partnership Securities), or cause the Partnership to
issue Partnership Securities in connection with, or pursuant to, any employee
benefit plan, employee program or employee practice maintained or sponsored by
the General Partner or any of its Affiliates, in each case for the benefit of
employees of the General Partner, any Group Member or any Affiliate, or any of
them, in respect of services performed, directly or indir