<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
(Mark One)
     [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2001

                                       or

     [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission file number 1-31219

                         SUNOCO LOGISTICS PARTNERS L.P.
             (Exact name of registrant as specified in its charter)


                   Delaware                                   23-3096839
        (State or other jurisdiction of                     (IRS Employer
        incorporation or organization)                   Identification No.)

                Ten Penn Center
     1801 Market Street, Philadelphia, PA                     19103-1699
   (Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (215) 977-3000

           Securities registered pursuant to Section 12(b) of the Act:



<TABLE>
<S>                                                              <C>
                                                                          Name of each
        Title of each class                                      exchange on which registered
        -------------------                                      ----------------------------
Common Units representing limited partnership interests             New York Stock Exchange
</TABLE>


        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [_] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments of
this Form 10-K. [X]

The aggregate value of the Common Units held by non-affiliates of the registrant
(treating all executive officers and directors of the registrant and holders of
10% or more of the Common Units outstanding (including the General Partner of
the registrant, Sunoco Partners LLC) as if they may be affiliates of the
registrant) was approximately $118.5 million on February 28, 2002, based on
$20.75 per unit, the closing price of the Common Units as reported on the New
York Stock Exchange on that date.

The number of the registrant's Common Units held by non-affiliates and
outstanding at February 28, 2002 was 5,712,800.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


<PAGE>

                                TABLE OF CONTENTS


<TABLE>
<S>                                                                                                       <C>

PART I..................................................................................................    1


   ITEM 1. BUSINESS.....................................................................................    1

   ITEM 2. PROPERTIES...................................................................................   31

   ITEM 3. LEGAL PROCEEDINGS............................................................................   31

   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................   32


PART II.................................................................................................   33


   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................   33

   ITEM 6.  SELECTED FINANCIAL DATA.....................................................................   35

   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......   37

   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................   60

   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................   61

   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........   80


PART III................................................................................................   81


   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................................   81

   ITEM 11.  EXECUTIVE COMPENSATION.....................................................................   83

   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................   84

   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................   85


PART IV.................................................................................................   92


   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K.............................   92

SIGNATURES..............................................................................................   94
</TABLE>


Forward-Looking Statements

Certain matters discussed in this report, excluding historical information,
include forward-looking statements that discuss our expected future results
based on current and pending business operations. Forward-looking statements can
be identified by words such as "anticipates", "believes", "expects", "planned",
"scheduled" or similar expressions. Although we believe these forward-looking
statements are based on reasonable assumptions, statements made regarding future
results are subject to numerous assumptions, uncertainties and risks that may
cause future results to be materially different from the results stated or
implied in this document. The following are among the important factors that
could cause actual results to differ materially from any results projected,
forecasted, estimated or budgeted:

.     Changes in demand for crude oil and refined petroleum products that we
      store and distribute;

.     Changes in demand for storage in our petroleum product terminals;

.     The loss of Sunoco, Inc. (R&M) as a customer or a significant reduction in
      its current level of throughput and storage with us;

.     An increase in the competition encountered by our petroleum products
      terminals, pipelines and crude oil acquisition and marketing operations;


<PAGE>

.     Changes in the throughput on petroleum product pipelines owned and
      operated by third parties and connected to our petroleum product pipelines
      and terminals;

.     Changes in the general economic conditions in the United States;

.     Changes in laws and regulations to which we are subject, including
      federal, state, and local tax laws, safety, environmental and employment
      laws;

.     Changes to existing or future state or federal government regulations
      banning or restricting the use of MTBE in gasoline;

.     Improvements in energy efficiency and technology resulting in reduced
      demand;

.     Our ability to manage rapid growth;

.     Our ability to control costs;

.     The effect of changes in accounting principles;

.     Global and domestic economic repercussions from terrorist activities and
      the government's response thereto;

.     The occurrence of operational hazards or unforeseen interruptions for
      which we may not be adequately insured;

.     Changes in the reliability and efficiency of our operating facilities or
      those of Sunoco, Inc.(R&M) or third parties;

.     Changes in the expected level of environmental remediation spending;

.     Changes in insurance markets resulting in increased costs and reductions
      in the level and types of coverage available; and

.     Changes in the status of litigation to which we are a party.

These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events.


<PAGE>


                                     PART I

ITEM 1. BUSINESS

(a) General Development of Business

We are a Delaware limited partnership formed on October 15, 2001. The principal
executive offices of Sunoco Partners LLC, our general partner, are located at
Ten Penn Center, 1801 Market Street, Philadelphia, Pennsylvania 19103 (telephone
(215) 977-3000).

On October 22, 2001, we filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 related to an initial public offering of
common units. In February 2002, 5,750,000 common units, representing
approximately 24.8 % of our partnership interests, were sold to the public.
Sunoco, Inc., through its wholly owned subsidiaries, currently owns
approximately 75.2 % of our partnership interests, including the 2% general
partner interest.

(b) Financial Information about Segments

See Part II, Item 8.  Financial Statements and Supplementary Data.

(c) Narrative Description of Business

We are a limited partnership formed by Sunoco, Inc. to own, operate and acquire
a geographically diversified portfolio of complementary energy assets. We are
principally engaged in the transport, terminalling and storage of refined
products and crude oil. Sunoco, Inc. (R&M), a wholly owned refining and
marketing subsidiary of Sunoco, Inc. ("Sunoco R&M"), accounted for approximately
66% of our combined revenues for the year ended December 31, 2001. Our business
comprises three segments:

.    Our Eastern Pipeline System primarily serves the Northeast and Midwest
     United States operations of Sunoco R&M and includes: approximately 1,900
     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.

.    Our Terminal Facilities consist of 32 inland refined product terminals with
     an aggregate storage capacity of 4.8 million barrels, primarily serving 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 ("LPG") terminal near Detroit, Michigan.

.    Our Western Pipeline System gathers, purchases, sells, and transports crude
     oil principally in Oklahoma and Texas and consists of approximately 1,900
     miles of crude oil trunk pipelines and approximately 870 miles of crude oil
     gathering lines that supply the trunk pipelines, approximately 140 crude
     oil transport trucks and approximately 130 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.

                                       1


<PAGE>

Upon the closing of our initial public offering in February 2002, our Eastern
Pipeline System, Terminal Facilities and Western Pipeline System were
transferred to us, including certain related liabilities. Certain other
liabilities, including environmental and toxic tort liabilities have been
retained by Sunoco, Inc. under the indemnification provisions of an omnibus
agreement (see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations- Agreements with Sunoco R&M and Sunoco,
Inc."). The following discussion has been prepared as if the assets were
operated as a stand-alone business throughout the periods presented. Unless
otherwise noted, we own and operate all of the assets described.

Eastern Pipeline System

Sunoco R&M accounted for approximately 73% of our Eastern Pipeline segment
revenues for the year ended December 31, 2001.

Refined Product Pipelines

Our refined product pipelines transport refined products from Sunoco R&M's
Philadelphia, Pennsylvania, Marcus Hook, Pennsylvania and Toledo, Ohio
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 multiple grades of gasoline, 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). 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
Federal Energy Regulatory Commission ("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.

The following table details the average aggregate daily number of barrels of
refined products transported on our refined product pipelines in each of the
years 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,
                                             -----------------------------------------------------
                                              1997        1998       1999       2000        2001
                                             -------     -------    -------    -------     -------
<S>                                          <C>         <C>        <C>        <C>         <C>
Refined products transported (bpd).....      433,222     431,989    461,379    444,046     446,648
</TABLE>


The mix of refined petroleum products delivered varies seasonally, with gasoline
demand peaking during the summer months, and demand for heating oil and other
distillate fuels being higher in the winter. In addition, weather conditions in
the areas served by our Eastern Pipeline System affect both the demand for, and
the mix of, the refined petroleum products delivered through the Eastern
Pipeline System, although historically any overall impact on the total volumes
shipped has been short term.

                                       2


<PAGE>

The following table sets forth, for each of our refined product pipeline
systems, the origin and destination, miles of pipeline and diameter. Except as
shown below, we own 100% of our refined product pipeline systems.


<TABLE>
<CAPTION>
                                                              Miles of
      Origin and Destination                                  Pipeline  Diameter
      ---------------------------------                       --------  --------
                                                                        (inches)

      <S>                                                      <C>       <C>
      Philadelphia, PA to Montello, PA ......................     210     12,8
      Montello, PA to Buffalo, NY ...........................     300     14,8
      Montello, PA to Kingston, PA ..........................      84        6
      Montello, PA to Syracuse, NY ..........................     230      8,6
      Montello, PA to Pittsburgh, PA ........................     221        8
      Toledo, OH to Blawnox, PA .............................     260     10,8
      Toledo, OH to Sarnia, Canada ..........................     241      8,6
      Twin Oaks, PA to Newark, NJ ...........................     118       14
      Philadelphia, PA to Linden, NJ(1) .....................      88    16,12
                                                                -----    -----
      Subtotal ..............................................   1,752     N.M.

      Interrefinery Pipelines(2) ............................      58    8,6,4
      Transfer Pipelines(3) .................................      85     N.M.
                                                                -----    -----
      Total .................................................   1,895     N.M.
                                                                =====    =====
</TABLE>


      ----------
      N.M.  Not meaningful.

      (1)   We own a one-third interest in 80 miles of this pipeline.

      (2)   We lease these pipelines to Sunoco R&M.

      (3)   Consist of our Toledo, Twin Oaks, and Linden transfer pipelines.


The following text provides additional information about each of our refined
product pipelines.

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.

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.

Sunoco R&M accounted for approximately three quarters of the volumes transported
on this pipeline system for 2001. Other shippers on this system include
ExxonMobil, Gulf Oil, Major Oil, Delphi Petroleum, CITGO, El Paso,

                                       3


<PAGE>

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 one-half of the volumes transported on
this pipeline system for 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 most of the volumes
transported on this system for 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 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 most of
the volumes transported on this pipeline system for 2001.

                                       4


<PAGE>

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 ("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 approximately half of the volume on this system for
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 most of the volumes transported for 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 2001 and for all of the volumes
transported on the 12-inch segment for the same period.

Interrefinery Pipelines

We 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 LPG 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.

                                       5


<PAGE>

Crude Oil Pipeline

This 123-mile, 16-inch crude oil pipeline runs from Marysville, Michigan to
Toledo, Ohio. 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. 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.

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



<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                             ----------------------------------------------------
                                              1997        1998       1999       2000        2001
                                             ------      ------     ------     ------      ------
<S>                                          <C>         <C>        <C>        <C>         <C>
Crude oil transported (bpd)..........        88,948      88,638     81,464     91,464      98,226
</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 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. In 2000, the FERC approved Explorer's
application for market-based rates for all its tariffs.

We receive a quarterly cash dividend from Explorer that is commensurate with our
ownership interest. For 2001, we received approximately $4.3 million in cash
dividends.

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 board of directors.

Terminal Facilities

Sunoco R&M accounted for approximately 59% of our Terminal Facilities segment
revenues for the year ended December 31, 2001.

Refined Product Terminals

Our 32 inland 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, 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.

                                       6


<PAGE>

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.

Our pipelines supply the majority of our inland refined product terminals.
Third-party pipelines supply the remainder of our inland refined product
terminals.

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


<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                             -----------------------------------------------------
                                              1997        1998       1999       2000        2001
                                             -------     -------    -------    -------     -------
<S>                                          <C>         <C>        <C>        <C>         <C>
Refined products terminalled (bpd).....      242,570     234,058    251,627    266,212     272,698
</TABLE>


                                       7


<PAGE>

The following table outlines the location of our inland refined product
terminals and their storage capacities, supply source and mode of delivery:


<TABLE>
<CAPTION>
Location                  Storage Capacity       Supply Source     Mode of Delivery
--------                  ----------------       -------------     ----------------
                               (bbls)
<S>                       <C>                  <C>                <C>
Akron, OH ...............      98,200               Pipeline             Truck
Altoona, PA .............     103,400               Pipeline             Truck
Belmont, PA(1) ..........           0               Refinery             Truck
Binghamton, NY ..........      60,000               Pipeline             Truck
Blawnox, PA .............      72,100               Pipeline             Truck
Buffalo, NY .............     358,500               Pipeline             Truck
Cleveland, OH ...........     255,000             Pipeline/Rail          Truck
Columbus, OH ............      78,900               Pipeline             Truck
Dayton, OH ..............     248,700               Pipeline             Truck
Delmont, PA .............     233,900               Pipeline             Truck
Exton, PA ...............     132,200               Pipeline             Truck
Fullerton, PA ...........     161,700               Pipeline             Truck
Huntington, IN ..........     207,000               Pipeline             Truck
Inwood, NY(2) ...........      54,200               Pipeline             Truck
Kingston, PA ............     148,800               Pipeline             Truck
Malvern, PA .............      62,900               Pipeline             Truck
Mechanicsburg, PA .......     166,200               Pipeline             Truck
Montello, PA ............      67,900               Pipeline             Truck
Newark, NJ ..............     581,100            Pipeline/Marine      Truck/Marine
Northumberland, PA ......     170,300               Pipeline             Truck
Owosso, MI ..............     233,300               Pipeline             Truck
Paulsboro, NJ ...........      81,000               Pipeline         Truck/Pipeline
Piscataway, NJ ..........      95,000               Pipeline             Truck
Pittsburgh, PA ..........     205,500             Pipeline/Rail          Truck
River Rouge, MI .........     178,400               Pipeline             Truck
Rochester, NY ...........     173,000               Pipeline             Truck
Tamaqua, PA .............     113,600               Pipeline             Truck
Toledo, OH ..............     102,400             Refinery/Rail          Truck
Twin Oaks, PA ...........      90,000               Refinery             Truck
Vanport, PA .............     179,300            Pipeline/Marine      Truck/Marine
Willow Grove, PA ........      85,000               Pipeline             Truck
Youngstown, OH ..........      22,700               Pipeline             Truck
                            ---------
Total ...................   4,820,200
                            =========
</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 has leased 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.

                                       8


<PAGE>

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.

The Nederland Terminal, which is located on the Sabine-Neches waterway between
Beaumont and Port Arthur, Texas, 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.

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 Department of Energy ("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 11 connecting
pipelines.

The table below sets forth the total average throughput for the Nederland
Terminal in each of the years presented:


<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                             -----------------------------------------------------
                                              1997        1998       1999       2000        2001
                                             -------     -------    -------    -------     -------
<S>                                          <C>         <C>        <C>        <C>         <C>
Crude oil and refined
products terminalled (bpd)...............    467,025     475,796    544,624    566,941     427,194
</TABLE>


                                       9




<PAGE>

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


                                       10


<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. Approximately 88% of the terminal's total revenues in
2001 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.

Fort Mifflin Terminal Complex

The Fort Mifflin Terminal Complex is 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 from the Fort Mifflin Terminal
Complex are derived from Sunoco R&M.

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.

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

                                       11


<PAGE>

.     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 years
presented.


<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                             -----------------------------------------------------
                                              1997        1998       1999       2000        2001
                                             -------     -------    -------    -------     -------
<S>                                          <C>         <C>        <C>        <C>         <C>
Crude oil transported (bpd) ............     310,853     306,181    297,271    306,121     309,435
Refined products transported (bpd) .....       8,540       9,316      9,263      8,502       9,110
                                             -------     -------    -------    -------     -------
Total (bpd) ............................     319,393     315,497    306,534    314,623     318,545
                                             =======     =======    =======    =======     =======
</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.

The table below sets forth the total average throughput for our Marcus Hook Tank
Farm in each of the years presented:


<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                             -----------------------------------------------------
                                              1997        1998       1999       2000        2001
                                             -------     -------    -------    -------     -------
<S>                                          <C>         <C>        <C>        <C>         <C>
Refined products terminalled (bpd).....      137,673     138,556    142,404    133,455     138,490
</TABLE>


The Inkster Terminal

Our Inkster Terminal, located near Detroit, Michigan, consists 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.

Western Pipeline System

Sunoco R&M accounted for approximately 66% of our Western Pipeline System
segment revenues for the year ended December 31, 2001.

                                       12



<PAGE>

Crude Oil Pipelines

We own and operate approximately 1,900 miles of crude oil trunk pipelines and
approximately 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, Oklahoma 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.

The table below sets forth the average aggregate daily number of barrels of
crude oil transported on our crude oil pipelines in each of the years presented.


<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                             -----------------------------------------------------
                                              1997        1998       1999       2000        2001
                                             -------     -------    -------    -------     -------
<S>                                          <C>         <C>        <C>        <C>         <C>
Crude oil transported (bpd)(1)..........     258,931     253,124    252,098    295,991     287,237

</TABLE>


---------
(1) Includes lube extracted feedstocks transported from Sunoco, Inc.'s Tulsa,
Oklahoma refinery.

                                       13


<PAGE>

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 diameter for the pipelines in each major
crude oil trunk line system. We transported most 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 year ended December 31, 2001.


<TABLE>
<CAPTION>
      Major System                                       Miles of Pipeline        Diameter
      --------------------------------------------       -----------------        --------
                                                                                  (inches)
      <S>                                                        <C>            <C>
      Oklahoma
      Enid to Tulsa ..............................               316            4,6,8,10,12
      Velma to Tulsa .............................               248             4,6,8,10
      Other ......................................               129             4,6,8,12

      West Texas
      Jameson and Salt Creek to Colorado City ....                93               6,8
      Hearne to Hawley ...........................               453             6,8,12,16
      Hawley to Dixon ............................               242               8,10
      Other ......................................                32                8

      Texas Gulf Coast and East Texas
      Seabreeze and Orange to Nederland ..........                39               6,10
      Nederland to Longview ......................               199              10,12
      Baytown to Nederland .......................               124               6,8
      Thomas to Longview .........................                 3                8
      Other ......................................                 5                8
</TABLE>



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.

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.

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.

                                       14


<PAGE>

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.

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.

We are the shipper of substantially all the volumes on this system. We generate
revenues in West Texas from tariffs paid by shippers utilizing our
transportation services. We file these tariffs with the Texas Railroad
Commission.

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.

                                       15


<PAGE>

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.

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.

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.

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.

                                       16


<PAGE>

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.

Baytown, Texas to Nederland, Texas. The Baytown to Nederland crude oil pipeline
passes through Sour Lake, Texas where it makes deliveries to our Nederland to
Longview pipeline and the CITGO tank farm and pipeline that supplies CITGO's
Lake Charles, Louisiana refinery. The system also delivers to the ExonMobil
Baytown, Texas refinery.

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.

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.

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 year ended December 31, 2001, we purchased approximately 181,000
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.

                                       17


<PAGE>

The following table shows our average daily volume for our crude oil lease
purchases and exchanges for the years presented.


<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                           --------------------------------
                                           1997   1998    1999   2000   2001
                                           ----   ----    ----   ----   ----
                                                  (in thousands of bpd)
  <S>                                      <C>    <C>     <C>    <C>    <C>
  Lease purchases:
       Available for sale ...............    93     98     107    141    148
       Exchanges ........................    71     58      38     36     33
  Other exchanges and bulk purchases ....   147    144     141    230    211
                                            ---    ---     ---    ---    ---
  Total .................................   311    300     286    407    392
                                            ===    ===     ===    ===    ===
</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 years presented:


<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                            --------------------------------
                                            1997   1998    1999   2000   2001
                                            ----   ----    ----   ----   ----
                                                   (in thousands of bpd)
   <S>                                      <C>    <C>     <C>    <C>    <C>
   Sunoco R&M refineries:
        Toledo ...........................   41     30      26     29     28
        Tulsa ............................   46     57      63     73     71
   Third parties .........................    7     14      20     41     52
   Exchanges:
        Purchased at the lease ...........   71     58      38     36     33
        Other ............................  147    141     139    227    208
                                            ---    ---     ---    ---    ---
   Total .................................  312    300     286    406    392
                                            ===    ===     ===    ===    ===
</TABLE>


Market Conditions

Market conditions impact our sales and marketing strategies. 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
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.

                                       18


<PAGE>

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 approximately 130 crude oil truck unloading facilities in Oklahoma,
Texas, and New Mexico, of which approximately 90 are on our pipeline system and
approximately 40 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 approximately 270 crude oil truck
drivers and own approximately 140 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.

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 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.

                                       19


<PAGE>

Acquisitions

Pride Companies, L.P. Acquisition On October 1, 1999, we 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.

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.

We are principally engaged in the transport, terminalling and storage of refined
products and crude oil. 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.

Competition

As a result of our physical integration with Sunoco R&M's refineries and
terminals, and related agreements with Sunoco, Inc., 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.
For further information on this agreement, please see Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Agreements with Sunoco R&M and Sunoco, Inc." For the year ended
December 31, 2001, Sunoco R&M accounted for approximately 66 % of our combined
revenues.

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.

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; the Seaway pipeline, a large diameter pipeline from Houston to Cushing,
Oklahoma; and Centennial Pipeline, a natural gas pipeline that is being
converted into a refined products pipeline and which originates near Beaumont,
Texas and terminates in southern Illinois.

                                       20




<PAGE>

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 inland 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 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.

The Inkster Terminal's primary competition comes from the Marysville Underground
Storage Terminal, MAP's LPG storage facility in Trenton, Michigan and BP's
facilities in St. Clair, Michigan and Windsor, Canada. 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. We own three pipelines running between Toledo and the Inkster
Terminal, which provide Sunoco R&M with additional flexibility.

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 includes 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.

Inactive Assets

We 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.

Affiliates of Sunoco, Inc. have transfered to us most of the pipeline,
terminalling, storage, and related assets that support Sunoco R&M's refinery
operations. Sunoco, Inc. or its affiliates have retained 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. 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.

                                       21


<PAGE>

.     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. has granted 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 is 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.

.     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. has granted 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 have entered into with Sunoco, Inc., Sunoco R&M and
our general partner. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Agreements with Sunoco R&M and
Sunoco, Inc." 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.

                                       22


<PAGE>

Safety Regulation

Certain of our pipelines are subject to regulation by the United States
Department of Transportation ("DOT") under the Hazardous Liquid Pipeline Safety
Act of 1979 ("HLPSA") relating to the design, installation, testing,
construction, operation, replacement and management of pipeline facilities. The
HLPSA covers petroleum and petroleum products pipelines and requires any entity
that owns or operates pipeline facilities to comply with such safety regulations
and to permit access to and copying of records and to make certain reports and
provide information as required by the Secretary of Transportation.

Effective in August 1999, the DOT issued its Operator Qualification Rule, which
required a written program by April 27, 2001 to ensure that operators were
qualified to perform tasks covered by the pipeline safety rules. All persons
performing covered tasks must be qualified under the program by October 28,
2002. We have identified the tasks that must be performed to comply with this
rule and have a written plan in place as required.

On December 1, 2000, the DOT issued new regulations intended by the DOT to
assess the integrity of hazardous liquid pipeline segments that, in the event of
a leak or failure, could adversely affect highly populated areas, areas
unusually sensitive to environmental impact and commercially navigable
waterways. Under the regulations, an operator is required, among other things,
to conduct baseline integrity assessment tests (such as internal inspections)
within seven years, conduct future integrity tests at typically five year
intervals and develop and follow a written risk-based integrity management
program covering the designated high consequence areas. Under the rule, pipeline
operators are required to identify line segments which could impact high
consequence areas by December 31, 2001, develop "Baseline Assessment Plans" for
evaluating the integrity of each pipeline segment by March 31, 2002 and complete
an assessment of the highest risk 50 percent of line segments by September 30,
2004, with full assessment of the remaining 50 percent by March 31, 2008. We
have identified the line segments that could impact high consequence areas and
have developed Baseline Assessment Plans.

Employee Safety

We are subject to the requirements of the United States Federal Occupational
Safety and Health Act ("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 certain information be maintained about
hazardous materials used or produced in operations and that this information be
provided to employees, state and local authorities and citizens. We believe that
we are in general compliance with OSHA requirements, including general industry
standards, record keeping requirements and monitoring of occupational exposure
to benzene.

The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the Federal Superfund Amendment and
Reauthorization Act, and comparable state statutes require us to organize
information about the hazardous materials used in our operations. Certain parts
of this information must be reported to employees, state and local governmental
authorities, and local citizens upon request.

Rate Regulation

General Interstate Regulation. Our interstate common carrier pipeline operations
are subject to rate regulation by the Federal Energy Regulatory Commission
("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"), 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. 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.

                                       23


<PAGE>

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 adopted a new indexed 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 ("PPI-1"). 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. The FERC recently concluded that the PPI-1 index should be continued
for another five-year period. However, the U.S. Court of Appeals for the
District of Columbia found the decision to be flawed in certain respects and
remanded the matter to the FERC for further consideration.

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, 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.

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.

                                       24


<PAGE>

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. In January, 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. In subsequent decisions on rehearing, the FERC 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.

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
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 be certain 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) we
have a reasonable basis to assert that we lack significant market power and
therefore are entitled to market based rates, or (3) the revenue amounts
involved do not materially affect our performance.

                                       25


<PAGE>

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;

.     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 the term of the
pipelines and terminals storage and throughput agreement.

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, our 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.
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 the closing of our initial public offering on
February 8, 2002. Sunoco, Inc. is 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 events and conditions associated with the operation of
our assets that occur on or after the closing of the initial public offering and
for environmental and toxic tort liabilities related to our assets to the extent
Sunoco, Inc. is not required to indemnify us.

                                       26


<PAGE>

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. Pursuant
to the NSR/PSD enforcement initiative, on December 20, 2001, Sunoco R&M received
notices of violation from the EPA relating to its Marcus Hook, Philadelphia, and
Toledo refineries. Although Sunoco R&M believes that it has not violated the
related Clean Air Act requirements, it is currently evaluating the notices of
violation for all three refineries to determine how it will respond. In
resolving these notices of violation, Sunoco R&M could be required to make
significant capital expenditures, operate these refineries at reduced levels,
and pay significant penalties. If Sunoco R&M determines it is uneconomical to
operate its refineries under such conditions and as a result shuts down or
reconfigures all or a portion of one of more of its refineries, its obligations
under the pipelines and terminals storage and throughput agreement would be
reduced, which would reduce our ability to make distributions to our
unitholders.

                                       27



<PAGE>

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 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.

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.

It is uncertain what Sunoco, Inc. or Sunoco R&M's responses to these emerging
issues will be. Those responses could reduce Sunoco R&M's obligations under the
pipelines and terminals storage and throughput agreement, thereby reducing the
throughput in our pipelines, our cash flow, and our ability to make
distributions.

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

                                       28


<PAGE>

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 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 see "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 see "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, 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.

                                       29


<PAGE>

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.

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, at December 31, 2001, 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, 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 $8.6
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 be certain that the
actual remediation costs or associated remediation liabilities will not exceed
this $8.6 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 the closing
of our initial public offering and are asserted within 30 years after the
closing of our initial public 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.

                                       30


<PAGE>

Title to Properties

Substantially all of our pipelines were 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.

Some of the leases, easements, rights-of-way, permits, and licenses transferred
to us upon the completion of our initial public offering in February 2002
required the consent of the grantor to transfer these rights, which in some
instances is a governmental entity. We have obtained or are in the process of
obtaining third-party consents, permits, and authorizations sufficient for the
transfer to us of the assets necessary for us to operate our business in all
material respects. With respect to any consents, permits, or authorizations that
have not been obtained, the failure to obtain these consents, permits, or
authorizations will have no material adverse effect on the operation of our
business.

We have satisfactory title to all of our assets, or are entitled to
indemnification from Sunoco, Inc. under the omnibus agreement for title defects
to the assets contributed to us and for failures to obtain certain consents and
permits necessary to conduct our business that arise within ten years after the
closing of our initial public offering. 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 were not obtained prior to the closing
of our initial public 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, 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 employ
approximately 1,160 people who provide direct support to our operations. Labor
unions or associations represent approximately 660 of these employees. Our
general partner considers its employee relations to be good. Our partnership has
no employees

(d) Financial Information about Geographical Areas

We have no significant amounts of revenue or segment profit or loss attributable
to international activities.


I
TEM 2. PROPERTIES

See Item 1.(c) for a description of the locations and general character of our
material properties.


ITEM 3. LEGAL PROCEEDINGS

With respect to a pipeline release of crude oil in February 2000 in the John
Heinz National Wildlife Refuge in Philadelphia, we have conducted remedial
activities at the release area and have initiated restoration efforts in the

                                       31


<PAGE>

area. We expect the Environmental Protection Agency ("EPA") to assess a penalty
with respect to this release that could exceed $100,000. Sunoco, Inc. has agreed
to indemnify us, among other things, for any penalty that may be assessed. See

Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations-Agreements with Sunoco R&M and Sunoco, Inc."

There are other legal and administrative proceedings pending against our Sunoco,
Inc. affiliated predecessors and us (as successor to certain liabilities of
those predecessors). Although the ultimate outcome of these proceedings cannot
be ascertained at this time, it is reasonably possible that some of them may be
resolved unfavorably. Sunoco, Inc. has agreed to indemnify us for any losses we
may suffer as a result of such currently pending legal actions. As a result, we
believe that any liabilities arising from such currently pending proceedings are
not likely to be material in relation to our consolidated financial position at
December 31, 2001.


I
TEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders, through
solicitation of proxies or otherwise.

                                       32


<PAGE>


                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common units were listed on the New York Stock Exchange under the symbol
"SXL" beginning on February 5, 2002. Prior to February 5, 2002, our equity
securities were not traded on any public trading market. At the close of
business on February 28, 2002, we had 12 holders of record of our common units.
These holders of record included our general partner with 5,633,639 common units
registered in its name, and Cede & Co. with 5,745,300 common units (representing
approximately 5,000 beneficial owners) registered to it. The high and low sales
price ranges (composite transactions) from February 5, 2002 (the day our common
units began trading) through March 25, 2002, are set forth below. No cash
distributions have been declared.

                                                                   High     Low
                                                                   ----     ---
      February 5, 2002 through March 25, 2002 ..................  $23.70  $19.70


We have also issued 11,383,639 subordinated units, all of which are held by our
general partner and for which there is no established public trading market.

We will distribute all of our cash on hand within 45 days after the end of each
quarter, beginning with the quarter ending March 31, 2002, less reserves
established by our general partner in its discretion. This is defined as
"available cash" in our partnership agreement. Our general partner has broad
discretion to establish cash reserves that it determines are necessary or
appropriate to properly conduct our business.

We will 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. We will prorate and adjust the minimum quarterly distribution for the
period from February 8, 2002 (the closing date of our initial public offering)
through March 31, 2002 based on the actual number of days in the period.

During the subordination period we will, in general, pay cash distributions 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

.     Thereafter, in the manner described in the table below.

The subordination period is generally defined as the period that ends on the
first day of any quarter beginning after December 31, 2006 if (1) we have
distributed at least the minimum quarterly distribution on all outstanding units
with respect to each of the immediately preceding three consecutive,
non-overlapping four quarter periods; and (2) our adjusted operating surplus, as
defined in our partnership agreement, during such periods equals or exceeds the
amount that would have been sufficient to enable us to distribute the minimum
quarterly distribution on all outstanding units on a fully diluted basis and the
related distribution on the 2% general partner interest during those periods. In
addition, one-quarter of the subordinated units may convert to common units on a
one-for-one basis after December 31, 2004, and one-quarter of the subordinated
units may convert to common units on a one-for-one basis after December 31,
2005, if we meet the tests set forth in our partnership agreement. If the
subordination period ends, the rights of the holders of subordinated units will
no longer be subordinated to the rights of the holders of common units and the
subordinated units may be converted into common units.

                                       33


<PAGE>

After the subordination period we will, in general, pay cash distributions each
quarter 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, as described in the paragraph and table below.

As presented in the table below, 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." The amounts shown in the table below
under "Percentage of 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 "Quarterly
Distribution Amount per Unit," until the available cash that 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.


<TABLE>
<CAPTION>
        Quarterly Distribution           Percentage of Distribution
      --------------------------     ----------------------------------
            Amount per Unit
            ---------------          Unitholders        General Partner
                                     -----------        ---------------
      <S>                                <C>                  <C>
      ------------------------------------------------------------------
      $0.450                             98%                  2%
      ------------------------------------------------------------------
      Up to $0.500                       98%                  2%
      ------------------------------------------------------------------
      Above $0.500 up to $0.575          85%                  15%
      ------------------------------------------------------------------
      Above $0.575 up to $0.700          75%                  25%
      ------------------------------------------------------------------
      Above $0.700                       50%                  50%
      ------------------------------------------------------------------
</TABLE>


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 (Please
see Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources").

Use of Proceeds

On February 4, 2002, our Registration Statement on Form S-1 (Registration No.
333-71968), filed with the Securities and Exchange Commission, became effective.
Pursuant to the Registration Statement, on February 4, 2002, we sold 5,000,000
common units to the public at a price of $20.25 per unit for aggregate gross
proceeds of $101.3 million. Subsequent to the initial public offering, the
underwriters exercised their over-allotment option for 750,000 additional common
units at a price of $20.25 per unit for aggregate gross proceeds of $15.1
million. Underwriting fees paid in connection with these transactions were $6.7
million and $1.0 million, respectively. On February 8, 2002, the closing date of
our initial public offering, we received net proceeds of $108.7 million
(including proceeds of the over-allotment option). The aggregate offering price
of 5,750,000 Common Units was $116.4 million, and the aggregate underwriting
fees were $7.7 million. We used approximately $6.4 million of the net proceeds
to pay expenses associated with the initial public offering and related
formation transactions, which consisted primarily of legal, accounting and other
professional services costs. The remaining $102.3 million of net proceeds is
being 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. The underwriters of our
initial public offering were Lehman Brothers, Salomon Smith Barney, UBS Warburg,
Banc of America Securities, Wachovia Securities and Credit Suisse First Boston.

In addition, concurrent with the closing of the initial public offering, Sunoco
Logistics Partners Operations L.P., our wholly owned operating subsidiary,
issued $250.0 million of 7.25% Senior Notes due 2012 ("Notes") in an offering
exempt from registration under the Securities Act of 1933. The notes were issued
at a price of 99.325% of their principal amount. Gross proceeds from this
offering were $248.3 million and aggregate underwriting discounts and
commissions were $1.6 million. Net proceeds were $246.7 million. Expenses
incurred in connection with the issuance of the Notes were approximately $1.4
million, which consisted primarily of legal, accounting and other professional
services costs. The initial purchasers of the Notes were Lehman Brothers, Credit
Suisse First Boston, Salomon Smith Barney, UBS Warburg, Banc of America
Securities and Wachovia Securities.

The $245.3 million of net proceeds from the sale of the Notes were distributed
to Sunoco, Inc. and its affiliates.

                                       34


<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

On February 8, 2002, we completed our initial public offering and related
transactions whereby we became the successor to a substantial portion of the
wholly-owned logistics operations of Sunoco, Inc. and its subsidiaries.

The selected financial data for Sunoco Logistics Partners L.P. for 1998, 1999,
2000 and 2001 are derived from the audited combined financial statements of
Sunoco Logistics Partners L.P., which reflect historical cost-basis amounts of
Sunoco Logistics (Predecessor), our predecessor. The selected financial data for
Sunoco Logistics Partners L.P. for 1997 are derived from the unaudited combined
financial statements of our predecessor.

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
inland 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.

                                       35


<PAGE>

The following table should be read together with, and is qualified in its
entirety by reference to, the financial statements and accompanying notes of
Sunoco Logistics Partners L.P. included in Item 8. "Financial Statements and
Supplementary Data." The table should be read together with Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

                         SUNOCO LOGISTICS PARTNERS L.P.

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                      ---------------------------------------------------------------------------
                                                          1997           1998           1999/1/           2000           2001
                                                      -----------    -----------     -----------       -----------    -----------
                                                                            (in thousands, except operating data)
<S>                                                   <C>            <C>             <C>               <C>            <C>
Income Statement Data:
Revenues:
  Sales and other operating revenue
    Affiliates ....................................   $   766,151    $   570,332     $   764,133       $ 1,301,079    $ 1,067,182
    Unaffiliated customers ........................       108,493        124,869         210,069           507,532        545,822
  Other income/2/ .................................         3,894          5,022           6,133             5,574          4,774
                                                      -----------    -----------     -----------       -----------    -----------
Total revenues ....................................       878,538        700,223         980,335         1,814,185      1,617,778
                                                      -----------    -----------     -----------       -----------    -----------
Costs and expenses:
  Cost of products sold and operating
    Expenses ......................................       770,091        583,587         866,610         1,699,541      1,503,156
  Depreciation and amortization ...................        18,194         18,622          19,911            20,654         25,325
  Selling, general and administrative
    Expenses ......................................        29,811         29,890          27,461            34,683         35,956
                                                      -----------    -----------     -----------       -----------    -----------
Total costs and expenses ..........................       818,096        632,099         913,982         1,754,878      1,564,437
                                                      -----------    -----------     -----------       -----------    -----------
Operating income ..................................        60,442         68,124          66,353            59,307         53,341
Net interest cost and debt expense ................         8,675          7,117           6,487            10,304         10,980
                                                      -----------    -----------     -----------       -----------    -----------
Income before income tax expense ..................        51,767         61,007          59,866            49,003         42,361
Income tax expense ................................        19,494         23,116          22,488            18,483         15,594
                                                      -----------    -----------     -----------       -----------    -----------
Net income ........................................   $    32,273    $    37,891     $    37,378       $    30,520    $    26,767
                                                      ===========    ===========     ===========       ===========    ===========

Cash Flow Data:
Net cash provided by operating activities .........   $    36,313    $    44,950     $   125,165       $    79,116    $    27,238
Net cash used in investing activities .............   $   (36,594)   $   (36,933)    $   (75,120)      $   (77,292)   $   (73,079)
Net cash provided by (used in) financing
  Activities ......................................   $       281    $    (8,017)    $   (50,045)      $    (1,824)   $    45,841
Capital expenditures:
  Maintenance .....................................   $    26,680    $    28,420     $    32,312       $    39,067    $    53,628
  Expansion .......................................         8,428          8,527          49,556/1/         18,854         19,055
                                                      -----------    -----------     -----------       -----------    -----------
Total capital expenditures ........................   $    35,108    $    36,947     $    81,868/1/    $    57,921    $    72,683
                                                      ===========    ===========     ===========       ===========    ===========

EBITDA ............................................   $    78,636    $    86,746     $    86,264       $    79,961    $    78,666

Balance Sheet Data (at period end):
Net properties, plants and equipment ..............   $   412,312    $   430,848     $   481,967       $   518,605    $   566,359
Total assets ......................................   $   596,478    $   528,279     $   712,149       $   845,956    $   789,201
Total debt /3/ ....................................   $    90,000    $    90,225     $    95,287       $   190,043    $   144,781
Net parent investment .............................   $   205,604    $   235,478     $   223,083       $   157,023    $   274,893

Operating Data (bpd):
Eastern Pipeline System throughput/4/ .............       522,170        520,627         542,843           535,510        544,874
Terminal Facilities throughput ....................     1,166,661      1,163,907       1,245,189         1,281,231      1,156,927
Western Pipeline System throughput ................       258,931        253,124         252,098           295,991        287,237
Crude oil purchases at wellhead ...................       163,736        155,606         145,425           176,964        181,448
</TABLE>

----------
/1/   On October 1, 1999, Sunoco Logistics Partners L.P. 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. 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/   Includes current portion and debt due affiliate.
/4/   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.

                                       36


<PAGE>


ITEM 7. 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 L.P. should be read in conjunction with the combined financial
statements of Sunoco Logistics Partners L.P. Among other things, those 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. (R&M), a wholly owned refining and marketing subsidiary of Sunoco, Inc.
("Sunoco R&M").

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 a liquefied petroleum gas ("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, New York.

The tariffs for our interstate common carrier pipelines are regulated by the
Federal Energy Regulatory Commission ("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 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.

                                       37


<PAGE>

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 our initial public offering in
February 2002, we entered into a pipelines and terminals storage and throughput
agreement with Sunoco R&M under which we charge Sunoco R&M fees comparable to
those charged in arm's-length, third-party transactions. Under this agreement,
Sunoco R&M pays us a minimum level of revenues for terminalling refined products
and crude oil and agrees to certain minimum throughputs at our Inkster Terminal,
Fort Mifflin Terminal Complex, and Marcus Hook Tank Farm. (See "Agreements with
Sunoco R&M and Sunoco, Inc." and Item 13. "Certain Relationships and Related
Transactions.") Under this agreement, operating income from terminalling and
storage activities depends 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. The absolute price level of crude oil and refined products does
not directly affect terminalling and storage fees, 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
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

                                       38


<PAGE>

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.

Upon the closing of our initial public offering, we entered into the following
agreements:

Pipelines and Terminals Storage and Throughput Agreement

Under this agreement, Sunoco R&M is paying 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;

.     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;

.     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;

                                       39


<PAGE>

.     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; 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.

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 see "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
$9.0 million, $10.1 million, and $10.8 million for the years ended December 31,
1999, 2000 and 2001.

Under an omnibus agreement with Sunoco, Inc. we are paying Sunoco, Inc. or our
general partner an annual 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 the
initial public 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 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 have no employees. We will also reimburse Sunoco, Inc. and its
affiliates for direct expenses they incur on our behalf. We are currently
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.

                                       40


<PAGE>

The omnibus agreement also requires 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.

The omnibus agreement also provides that Sunoco, Inc. will indemnify us for
certain environmental, toxic tort and other liabilities. For a further
description of this indemnification, please see "Environmental Matters."

Please see Item 13. "Certain Relationships and Related Transactions", for a
more complete description of the Omnibus Agreement.

Interrefinery Lease Agreement

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.

Crude Oil Purchase Agreement

Sunoco R&M will 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. These agreements, which will have an initial term of two
months, 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.

License Agreement

We have granted to Sunoco, Inc. and certain of its affiliates, including our
general partner, a license to our intellectual property so that our general
partner can manage our operations and create intellectual property using our
intellectual property. Our general partner will assign to us the new
intellectual property it creates in operating our business. Our general partner
has also licensed to us certain of its own intellectual property for use in the
conduct of our business and we have licensed to our general partner certain of
our intellectual property for use in the conduct of its business. The license
agreement has also granted to us a license to use the trademarks, trade names,
and service marks of Sunoco, Inc. in the conduct of our business.

Treasury Services Agreement

We have entered into a treasury services agreement with Sunoco, Inc. pursuant to
which, among other things, we are participating in Sunoco, Inc.'s centralized
cash management program. Under this program, all of our cash receipts and cash
disbursements are 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 balance will be settled
periodically, but no less frequently than at the end of each month. Amounts due
from Sunoco, Inc. and its subsidiaries 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.

                                       41


<PAGE>

Results of Operations


<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                   -----------------------------------
                                                                     1999         2000          2001
                                                                   --------   ----------   -----------
                                                                             (in thousands)
<S>                                                                <C>        <C>          <C>
Combined Statements of Income
Sales and other operating revenue:
  Affiliates ...................................................   $764,133   $1,301,079   $ 1,067,182
  Unaffiliated customers .......................................    210,069      507,532       545,822
Other income ...................................................      6,133        5,574         4,774
                                                                   --------   ----------   -----------
Total revenues .................................................    980,335    1,814,185     1,617,778
                                                                   --------   ----------   -----------
Cost of products sold and operating expenses ...................    866,610    1,699,541     1,503,156
Depreciation and amortization ..................................     19,911       20,654        25,325
Selling, general and administrative expenses ...................     27,461       34,683        35,956
                                                                   --------   ----------   -----------
Total costs and expenses .......................................    913,982    1,754,878     1,564,437
                                                                   --------   ----------   -----------
Operating income ...............................................     66,353       59,307        53,341
Net interest expense ...........................................      6,487       10,304        10,980
                                                                   --------   ----------   -----------
Income before income tax expense ...............................     59,866       49,003        42,361
Income tax expense .............................................     22,488       18,483        15,594
                                                                   --------   ----------   -----------
Net income .....................................................   $ 37,378   $   30,520   $    26,767
                                                                   ========   ==========   ===========

Segment Operating Income

Eastern Pipeline System
Sales and other operating revenue:
  Affiliates ...................................................   $ 70,177   $   69,027   $    69,631
  Unaffiliated customers .......................................     19,472       19,323        21,059
Other income ...................................................      5,500        4,592         4,749
                                                                   --------   ----------   -----------
Total revenues .................................................     95,149       92,942        95,439
                                                                   --------   ----------   -----------
Cost of products sold and operating expenses ...................     38,633       41,174        42,784
Depreciation and amortization ..................................      7,929        8,272         9,778
Selling, general and administrative expenses ...................     10,086       12,432        12,984
                                                                   --------   ----------   -----------
Total costs and expenses .......................................     56,648       61,878        65,546
                                                                   --------   ----------   -----------
Operating income ...............................................   $ 38,501   $   31,064   $    29,893
                                                                   ========   ==========   ===========

Terminal Facilities
Sales and other operating revenue:
  Affiliates ...................................................   $ 38,329   $   44,356   $    43,628
  Unaffiliated customers .......................................     29,166       31,042        30,273
Other income (loss) ............................................        356          430           (85)
                                                                   --------   ----------   -----------
Total revenues .................................................     67,851       75,828        73,816
                                                                   --------   ----------   -----------
Cost of products sold and operating expenses ...................     33,588       39,390        36,488
Depreciation and amortization ..................................      8,457        8,616        11,094
Selling, general and administrative expenses ...................      9,039       10,666        10,158
                                                                   --------   ----------   -----------
Total costs and expenses .......................................     51,084       58,672        57,740
                                                                   --------   ----------   -----------
Operating income ...............................................   $ 16,767   $   17,156   $    16,076
                                                                   ========   ==========   ===========

Western Pipeline System
Sales and other operating revenue:
  Affiliates ...................................................   $655,627   $1,187,696   $   953,923
  Unaffiliated customers .......................................    161,431      457,167       494,490
Other income ...................................................        277          552           110
                                                                   --------   ----------   -----------
Total revenues .................................................    817,335    1,645,415     1,448,523
                                                                   --------   ----------   -----------
Cost of products sold and operating expenses ...................    794,389    1,618,977     1,423,884
Depreciation and amortization ..................................      3,525        3,766         4,453
Selling, general and administrative expenses ...................      8,336       11,585        12,814
                                                                   --------   ----------   -----------
Total costs and expenses .......................................    806,250    1,634,328     1,441,151
                                                                   --------   ----------   -----------
Operating income ...............................................   $ 11,085   $   11,087   $     7,372
                                                                   ========   ==========   ===========
</TABLE>


                                       42


<PAGE>

Operating Highlights

                                                     Year Ended December 31,
                                            ------------------------------------
                                                1999         2000         2001
                                            ----------   ----------   ----------
Eastern Pipeline System/1/:
Pipeline throughput (bpd):
  Refined products/2/ ...................      461,379      444,046      446,648
  Crude oil .............................       81,464       91,464       98,226
Total shipments (barrel miles per day)/3/   56,136,819   54,910,640   55,198,189
Tariffs per barrel mile((cent)) .........        0.438        0.440        0.450

Terminal Facilities:
Terminal throughput (bpd):
  Refined product terminals .............      251,627      266,212      272,698
  Nederland Terminal ....................      544,624      566,941      427,194
  Fort Mifflin Terminal Complex .........      306,534      314,623      318,545
  Marcus Hook Tank Farm .................      142,404      133,455      138,490

Western Pipeline System:
Crude oil pipeline throughput (bpd) .....      252,098      295,991      287,237
Crude oil purchases at wellhead (bpd) ...      145,425      176,964      181,448
Gross margin per barrel((cent))/4/ ......         20.8         20.4         19.1

----------
/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.


Year Ended December 31, 2001 versus Year Ended December 31, 2000

Analysis of Combined Statements of Income

Sales and other operating revenue for 2001 were $1,613.0 million as compared to
$1,808.6 million for 2000, a decrease of $195.6 million. This decrease was
primarily due to lower crude oil sales revenue resulting from a decline in crude
oil prices. During 2001, the average price of West Texas Intermediate ("WTI")
crude oil, at Cushing, Oklahoma, the benchmark crude oil in the United States,
dropped to $25.92 per barrel from $30.20 per barrel.

Other income was $4.8 million for 2001 versus $5.6 million for 2000. This $0.8
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 $0.5 million increase in Explorer
equity income to $4.3 million for 2001 from $3.8 million for 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 product spill that occurred in March 2000.

Total cost of products sold and operating expenses decreased $196.3 million to
$1,503.2 million for 2001 from $1,699.5 million 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.

                                       43


<PAGE>

Depreciation and amortization was $25.3 million for 2001 compared to $20.7
million in 2000. This $4.6 million increase was primarily due to recent capital
expenditures. A $1.4 million write-off of refined product terminal equipment
also contributed to the increase.

Selling, general and administrative expenses were $36.0 million in 2001 compared
to $34.7 million in 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 $10.8 million
and $10.1 million in 2001 and 2000, respectively.

Net interest expense was $11.0 million for 2001 versus $10.3 million in 2000.
This $0.7 million increase was primarily due to lower capitalized interest.
Income tax expense decreased as a result of the decrease in pretax earnings. The
effective tax rate decreased to 37% in 2001 from 38% in 2000.

Analysis of Segment Operating Income

Eastern Pipeline System. Operating income in our Eastern Pipeline System was
$29.9 million in 2001 compared to $31.1 million in 2000. This $1.2 million
decrease was due to a $3.7 million increase in total costs and expenses,
partially offset by a $2.4 million increase in sales and other operating revenue
and a $0.1 million increase in other income. Total pipeline throughput for 2001
increased 9,364 bpd, or 2% compared to 2000, while shipments in barrel miles
increased 1%. The average tariff per barrel mile increased to 0.450(cent) per
barrel for 2001 from 0.440(cent) per barrel for 2000.

The $3.7 million increase in total costs and expenses was due to increases in
operating expenses of $1.6 million primarily due to additional environmental
remediation costs associated with a prior-period pipeline leak, increases in
depreciation and amortization of $1.5 million due to recent capital
expenditures, increases in selling, general and administrative expenses of $0.6
million.

The $2.4 million increase in sales and other operating revenue was primarily due
to increased tariff revenue on our Marysville to Toledo crude oil pipeline and
our Twin Oaks to Montello, Twin Oaks to Newark, and Toledo to Blawnox refined
product pipelines. The higher revenue from the Marysville to Toledo pipeline was
due to a 6,762 bpd increase in volumes resulting from higher Canadian crude oil
purchases by Sunoco R&M and third parties, a larger percentage of higher-tariff
crude oil shipments, and a tariff increase in mid-2001. The increase in revenue
on the Twin Oaks to Montello and Twin Oaks to Newark pipelines was attributable
to a 4,732 bpd increase in shipments from Sunoco R&M's Marcus Hook refinery,
which had a major catcracker turnaround in 2000. The increase in revenue on the
Toledo to Blawnox pipeline was due to higher average tariff rates.

The $0.1 million increase in other income was primarily due to the $0.5 million
increase in equity income from Explorer discussed above, partially offset by
lower allocated insurance-related gains.

Terminal Facilities. Operating income in our Terminal Facilities was $16.1
million in 2001 compared to $17.2 million in 2000. This $1.1 million decrease
was primarily due to a 25% decrease in terminal throughput at our Nederland
Terminal largely resulting from the absence of Department of Energy sales of
crude oil from the Strategic Petroleum Reserve, which occurred primarily during
the fourth quarter of 2000. The decline in Nederland Terminal throughput was
also due to a reduction in low-tariff throughput at this facility attributable
to reduced volumes from one customer of approximately 75,000 bpd. Partially
offsetting these factors were storage revenue attributable to a new 660,000
barrel tank placed into service at our Nederland Terminal in September 2000 and
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 $0.9 million decrease in these costs
and expenses during 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 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, other environmental remediation expenses, and other general
cost increases. The increase in depreciation and amortization was largely due to
a $1.4 million write-off of refined product terminal equipment. Recent capital
expenditures also contributed to the increase.

                                       44


<PAGE>

Throughput volumes at our inland refined product terminals increased 2% in 2001
primarily due to stronger heating oil and other distillate fuel demand resulting
from colder weather. For our refinery-related assets, the average throughput in
2001 increased by 1% at the Fort Mifflin Terminal Complex and 3% at the Marcus
Hook Tank Farm.

Western Pipeline System. Operating income in our Western Pipeline System was
$7.4 million in 2001 compared to $11.1 million in 2000. This $3.7 million
decrease was primarily due to a $2.1 million decrease in gross margin, a $1.2
million increase in selling, general and administrative expenses and a $0.4
million decrease in other income. Crude oil pipeline throughput volumes
decreased 3% 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 1.3(cent) in 2001 versus 2000.

The $2.1 million decrease in gross margin was due to a decrease in margins from
crude oil pipeline operations. Crude oil acquisition and marketing margins were
essentially unchanged versus 2000. 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 $1.2 million increase in selling, general and administrative expenses was
primarily due to higher allocated costs from Sunoco, Inc. and other general cost
increases.

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.

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.

                                       45


<PAGE>

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
0.440(cent) per barrel in 2000 from 0.438(cent) 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.

Total costs and corresponding revenues attributable to our inland 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 inland 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.

                                       46


<PAGE>

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.

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Net cash provided by operating activities in 2001 was $27.2 million compared to
$79.1 million in 2000 and $125.2 million in 1999. The $51.9 million decrease in
net cash provided by operating activities in 2001 was primarily due to a $57.8
million increase in working capital uses pertaining to operating activities,
partially offset by an increase in depreciation and amortization of $4.7
million, and deferred income taxes of $3.5 million.

The $57.8 million increase in working capital uses pertaining to operating
activities was due to a $33.5 million increase in working capital in 2001
compared to a $24.3 million decrease in working capital in 2000. 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 initial public offering in February 2002, payment terms
in our crude oil supply contracts with Sunoco R&M now 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.

                                       47


<PAGE>

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 decrease in working capital sources during 2000 was 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, 2001,
2000,and 1999 was $73.1 million, $77.3 million, and $75.1 million, respectively.
Capital expenditures were $72.7 million in 2001, $57.9 million in 2000, and
$47.0 million in 1999. 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 provided by (used in) financing activities for the years ended December
31, 2001, 2000 and 1999 was $45.8 million, $(1.8) million, and $(50.0) million,
respectively. Contributions from (distributions to) Sunoco, Inc. and its
affiliates were $91.1 million, $(96.6) million, and $(49.8) million in 2001,
2000 and 1999, respectively. Net proceeds from (repayments of) borrowings from
The Claymont Investment Company were $(45.0) million in 2001 and $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 the predecessor to Sunoco
Logistics Partners L.P., 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 Predecessor's combined
balance sheets were not assumed by or contributed to Sunoco Logistics Partners
L.P. 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 years presented:



                                                      Year Ended December 31,
                                                 ------------------------------
                                                  1999         2000       2001
                                                 -------      -------   -------
                                                          (in thousands)

      Maintenance .............................  $32,312      $39,067   $53,628
      Expansion ...............................   49,556/1/    18,854    19,055
                                                 -------      -------   -------
      Total ...................................  $81,868/1/   $57,921   $72,683
                                                 =======      =======   =======
      ----------
      /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
$14.7 million lower than the average annual outlays for 1999-2001. 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

                                       48


<PAGE>

reconfigurations, rebuilds on three pump stations, replacement and upgrade of
vapor recovery units at our product terminals 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 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 is, at its expense, completing 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 initial public
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 are reflecting outlays for these programs as operating expenses or capital
expenditures, as appropriate. Capital expenditures are being depreciated over
their useful lives. Reimbursements by Sunoco R&M are being reflected as capital
contributions.

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.

Initial Public Offering

On February 8, 2002, we issued 5.75 million common units (including 750,000
units issued pursuant to the underwriters' over-allotment option), representing
a 24.8% limited partnership interest, in an initial public offering at a price
of $20.25 per unit. Proceeds from this offering, which totaled approximately
$102 million net of underwriting discounts and offering expenses, were used by
us to establish working capital that was not contributed to us by Sunoco, Inc.

Credit Facility

In conjunction with our initial public offering, our operating partnership has
entered into a three-year $150.0 million revolving credit facility, which is
available to fund our working capital requirements, to finance future
acquisitions, and for general partnership purposes. This credit facility
includes a $20.0 million distribution sublimit that is 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. Currently, we have no borrowings under this credit
facility.

Our obligations under the credit facility are 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.

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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;

.     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 our management and that of our
      operating partnership.

Senior Notes

Also in connection with our initial public offering, our operating partnership
has issued $250 million of senior notes, the net proceeds of which have been
distributed to Sunoco, Inc. as additional consideration for its contribution of
assets to us. The senior notes were issued pursuant to an indenture, and our
obligations under the senior notes are unsecured. Indebtedness under the senior
notes rank equally with the credit facility and all the outstanding unsecured

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and unsubordinated debt of our operating partnership. The senior notes and
revolving credit facility have been guaranteed by us and our operating
partnership's subsidiaries. The senior notes will mature on February 15, 2012
and bear interest at a rate of 7.25% per annum, payable semi-annually on
February 15 and August 15, commencing August 15, 2002. The senior notes are
redeemable, at our option, at a make-whole premium 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 25
basis points. The senior notes are not subject to any sinking fund provisions.

In addition, the senior notes 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.

Each of the following is 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 was not
registered under the Securities Act. However, the holders of the senior notes
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 combined
financial statements included in Item 8. "Financial Statements and Supplementary
Data."

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. is 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

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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 events
and conditions associated with the operation of our assets that occur on or
after the closing of the initial public offering and 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.

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 inland-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.

Another significant environmental uncertainty relates to Sunoco R&M's potential
capital expenditures to comply with new fuel specifications required under the
Clean Air Act, and to respond to the EPA's enforcement initiative under the
authority of the Clean Air Act's New Source Review and Prevention of Significant
Deterioration, or NSR/PSD, program, including the notices of violation recently
received by Sunoco R&M. It is uncertain what Sunoco, Inc. or Sunoco R&M's
responses to these emerging issues will be. We cannot assure you that those
responses will not reduce Sunoco R&M's obligations under the pipelines and
terminals storage and throughput agreement, thereby reducing the throughput in
our pipelines, our cash flow, and our ability to make distributions to you.

For more information concerning environmental matters, please see Item 1.
"Business- Environmental Regulation."

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, we have and will continue to pass along increased costs to our
customers in the form of higher fees.

Critical Accounting Policies

Disclosures of our significant accounting policies is included in Note 1 to the
combined financial statements. Certain of these policies are particularly
sensitive and require significant judgments, estimates and assumptions to be
made by us. A discussion of these policies is set forth below.

Properties, Plants and Equipment and Impairment of Long-Lived Assets. We
calculate depreciation and amortization of our properties, plants and equipment
based on estimated useful lives and salvage values of the assets. Factors
impacting these estimates include normal wear and tear, maintenance levels and
economic conditions impacting the demand for these assets. In addition,
long-lived assets are subject to testing for impairment whenever circumstances
indicate that their carrying amount may not be recoverable. For example, a
significant decrease in an asset's market value, a major adverse change in the
business climate in which it operates or a history of operating or cash flow
losses may be an indication of impairment. Impairment testing involves
estimating future net cash flows relating to the asset, including assumptions
about future market conditions, operating and capital expenditures and other
factors.

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Environmental Remediation. We accrue 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. Accruals may require adjustment as new sites are identified or
additional information about current sites becomes available. Technology
changes, new environmental laws and regulations and other factors may also
impact future environmental expenditures. For a further discussion of our
environmental remediation activities, please see "Environmental Matters."

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 during 2001.

In July 2001, Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"), was issued. Sunoco Logistics Partners
L.P. 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 Partners L.P. 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.

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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.

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 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 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.

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 the three years from our
initial public 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.

We depend upon Sunoco R&M for a substantial portion of the crude oil and refined
products transported on our pipelines and handled at our terminals, and any
reduction in these quantities could reduce our ability to make distributions to
unitholders.

For the year ended December 30, 2001, Sunoco R&M accounted for approximately 73%
of our Eastern Pipeline System revenues, 59% of our Terminal Facilities
revenues, and 66% of our Western Pipeline System revenues. 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.

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. If Sunoco R&M were to decrease the throughput transported on our
pipelines for any reason, our revenues would decline and our ability to make
distributions to unitholders would be adversely affected.

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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.

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;

      .  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. Pursuant to this enforcement
         initiative, Sunoco R&M recently has received notices of violation from
         the EPA relating to its Marcus Hook, Philadelphia, and Toledo
         refineries. Sunoco R&M is currently evaluating the notices of violation
         for all three refineries to determine how it will respond. In
         resolving these notices of violation, Sunoco R&M could be required to
         make significant capital expenditures, operate these refineries at
         reduced levels, and pay significant penalties. See Item 1.
         "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. Sunoco R&M's
obligations under the pipelines and terminals storage and throughput agreement
would be reduced in this event and our ability to make distributions to our
unitholders would also be reduced.

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

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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 or sustained 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.

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

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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.

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 in effect during the term of the
pipelines and terminals storage and throughput agreement. This agreement does
not prevent other current or future shippers from challenging our tariff rates.
At the end of the term of the agreement, Sunoco R&M will be free to challenge,
or to cause other parties to challenge or assist others in challenging, our
tariff rates in effect at that time. 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.

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 $8.6 million to assess, monitor, and remediate 19 sites where
releases of crude oil or petroleum products have occurred.

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.

                                       57


<PAGE>

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 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

                                       58


<PAGE>

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 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.

                                       59


<PAGE>

As of February 28, 2002, our total outstanding long-term indebtedness was
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.
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.
owns and controls 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.

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. 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.

Terrorist attacks aimed at our facilities could adversely affect our business.

On September 11, 2001, the United States was the target of terrorist attacks of
unprecedented scale. Since the September 11 attacks, the U.S. government has
issued warnings that energy assets, specifically our nation's pipeline
infrastructure, may be the future targets of terrorist organizations. These
developments have subjected our operations to increased risks. Any future
terrorist attack at our facilities, those of our customers and, in some cases,
those of our pipelines, could have a material adverse effect on our business.


ITEM 7A. 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 have not entered
into derivative transactions that would expose us to price risk.

Concurrent with the initial public offering, we entered into a $150 million
credit facility. Although currently undrawn, we would pay interest on the drawn
portion of this credit facility which would expose us to interest rate risk,
since this credit facilty bears variable interest.

                                       60


<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Sunoco Partners LLC:

      We have audited the accompanying combined balance sheets of Sunoco
Logistics Partners L.P. (the "Partnership") as of December 31, 2001 and 2000 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, 2001. These
financial statements, which reflect the cost-basis accounts of Sunoco Logistics
(Predecessor), the predecessor to the Partnership, are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

      We conducted our audits in accordance with 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
Partners L.P. at December 31, 2001 and 2000 and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.


                                        ERNST & YOUNG LLP

Philadelphia, Pennsylvania
March 15, 2002


                                       61


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

                             COMBINED BALANCE SHEETS
                                 (in thousands)

                                                                December 31,
                                                             -------------------
                                                               2000       2001
                                                             --------   --------
ASSETS
Current Assets
Accounts receivable, affiliated companies (Note 2) .......   $  6,753   $  6,245
Accounts receivable, net .................................    258,044    151,264
Note receivable from affiliate (Note 2) ..................         --     20,000
Inventories (Note 3) .....................................     18,683     20,606
Deferred income taxes (Note 4) ...........................      4,426      2,821
                                                             --------   --------
Total Current Assets .....................................    287,906    200,936
Properties, plants and equipment, net (Note 5) ...........    518,605    566,359
Note receivable from affiliate (Note 2) ..................     20,000         --
Deferred charges and other assets ........................     19,445     21,906
                                                             --------   --------
Total Assets .............................................   $845,956   $789,201
                                                             ========   ========

LIABILITIES AND NET PARENT INVESTMENT
Current Liabilities
Accounts payable .........................................   $372,460   $235,061
Accrued liabilities ......................................     26,299     26,628
Short-term borrowings due affiliate (Note 2) .............     45,000         --
Current portion of long-term debt due affiliate (Note 2) .         --     75,000
Current portion of long-term debt (Note 6) ...............        205        228
Taxes payable ............................................     18,958     20,373
                                                             --------   --------
Total Current Liabilities ................................    462,922    357,290
Long-term debt due affiliate (Note 2) ....................    140,000     65,000
Long-term debt (Note 6) ..................................      4,838      4,553
Deferred income taxes (Note 4) ...........................     70,932     78,140
Other deferred credits and liabilities ...................     10,241      9,325
Commitments and contingent liabilities (Note 7)
Net parent investment (Note 2) ...........................    157,023    274,893
                                                             --------   --------
Total Liabilities and Net Parent Investment ..............   $845,956   $789,201
                                                             ========   ========

                            (See Accompanying Notes)

                                       62


<PAGE>

                          SUNOCO LOGISTICS PARTNERS L.P

             COMBINED STATEMENTS OF INCOME AND NET PARENT INVESTMENT
                                 (in thousands)


<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                ---------------------------------------
                                                  1999           2000           2001
                                                ---------    -----------    -----------
<S>                                             <C>          <C>            <C>
REVENUES
Sales and other operating revenue:
     Affiliates (Note 2) ....................   $ 764,133    $ 1,301,079    $ 1,067,182
     Unaffiliated customers .................     210,069        507,532        545,822
Other income ................................       6,133          5,574          4,774
                                                ---------    -----------    -----------
Total Revenues ..............................     980,335      1,814,185      1,617,778

COSTS AND EXPENSES
Cost of products sold and operating expenses      866,610      1,699,541      1,503,156
Depreciation and amortization ...............      19,911         20,654         25,325
Selling, general and administrative expenses       27,461         34,683         35,956
                                                ---------    -----------    -----------
Total Costs and Expenses ....................     913,982      1,754,878      1,564,437
                                                ---------    -----------    -----------
Operating Income ............................      66,353         59,307         53,341
Net interest cost paid to affiliates (Note 2)       7,196         11,537         11,727
Other interest cost .........................         110            426            393
Capitalized interest ........................        (819)        (1,659)        (1,140)
                                                ---------    -----------    -----------
Income before income tax expense ............      59,866         49,003         42,361
Income tax expense (Note 4) .................      22,488         18,483         15,594
                                                ---------    -----------    -----------
Net Income ..................................   $  37,378    $    30,520    $    26,767
                                                =========    ===========    ===========

NET PARENT INVESTMENT
At beginning of period ......................   $ 235,478    $   223,083    $   157,023
Net income ..................................      37,378         30,520         26,767
Contributions from (distributions to) parent      (49,773)       (96,580)        91,103
                                                ---------    -----------    -----------
At end of period ............................   $ 223,083    $   157,023    $   274,893
                                                =========    ===========    ===========
</TABLE>


                            (See Accompanying Notes)

                                       63




<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

                        COMBINED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                       ----------------------------------
                                                         1999        2000         2001
                                                       ---------    --------    ---------
<S>                                                    <C>          <C>         <C>
Increases (Decreases) in Cash
Cash Flows from Operating Activities:
  Net Income .......................................   $  37,378    $ 30,520    $  26,767
  Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization ...............      19,911      20,654       25,325
       Deferred income tax expense .................       4,046       5,340        8,813
       Changes in working capital pertaining to
         operating activities:
           Accounts receivable, affiliated companies      (5,556)      2,253          508
           Accounts receivable .....................    (125,624)    (70,052)     106,780
           Inventories .............................       9,943      (6,014)      (1,923)
           Accounts payable and accrued liabilities      177,054      96,408     (140,340)
           Taxes payable ...........................       3,930       1,668        1,415
       Other .......................................       4,083      (1,661)        (107)
                                                       ---------    --------    ---------
Net cash provided by operating activities ..........     125,165      79,116       27,238
                                                       ---------    --------    ---------

Cash Flows from Investing Activities:
  Capital expenditures .............................     (46,958)    (57,921)     (72,683)
  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 ............................................       1,414         629         (396)
                                                       ---------    --------    ---------
Net cash used in investing activities ..............     (75,120)    (77,292)     (73,079)
                                                       ---------    --------    ---------

Cash Flows from Financing Activities:
  Net proceeds from (repayments of) short-term
     borrowings due affiliate ......................          --      45,000      (45,000)
  Proceeds from issuance of long-term debt to
     affiliate .....................................          --      50,000           --
  Repayments of long-term debt .....................        (272)       (244)        (262)
  Contributions from (distributions to) parent .....     (49,773)    (96,580)      91,103
                                                       ---------    --------    ---------
Net cash provided by (used in) financing activities      (50,045)     (1,824)      45,841
                                                       ---------    --------    ---------
Net change in cash .................................          --          --           --
Cash at beginning of year ..........................          --          --           --
                                                       ---------    --------    ---------
Cash at end of year ................................   $      --    $     --    $      --
                                                       =========    ========    =========
</TABLE>


                            (See Accompanying Notes)

                                       64




<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

                NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Combination

Sunoco Logistics Partners L.P. (the "Partnership") is a Delaware limited
partnership formed by Sunoco, Inc. in October 2001 to acquire, own and operate a
substantial portion of Sunoco, Inc.'s logistics business, consisting of 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 (collectively, "Sunoco Logistics (Predecessor)" or the
"Predecessor"). In February 2002, Sunoco, Inc., through its subsidiary Sunoco
Partners LLC, the general partner of the Partnership, contributed the
Predecessor to the Partnership in exchange for: (i) its 2% general partner
interest in the Partnership; (ii) incentive distribution rights (as defined in
the Partnership Agreement); (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 of the Offering the net proceeds from the
issuance of $250 million of ten-year senior notes by Sunoco Logistics Partners
Operations L.P. (the "Operating Partnership"). The net proceeds are estimated to
be $245.3 million. The Partnership concurrently issued 5.75 million common units
(including 750,000 units issued pursuant to the underwriters' over-allotment
option), representing a 24.8% limited partnership interest in the Partnership,
in an initial public offering (the "Offering") at a price of $20.25 per unit.
Proceeds from the Offering, which totalled approximately $102 million net of
underwriting discounts and offering expenses, were used by the Partnership to
establish working capital that was not contributed to the Partnership by Sunoco,
Inc.

The accompanying combined financial statements of Sunoco Logistics Partners L.P.
consist of the historical cost-basis accounts of the Predecessor, after
elimination of all balances and transactions within the combined group of
operations. The combined financial statements also include the 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 financial statements include charges from Sunoco, Inc. and its
subsidiaries (collectively, "Sunoco") for direct costs and allocations of
indirect corporate overhead. Management of the Partnership 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.

Description of Business

Most of the assets of the Partnership support Sunoco, Inc.'s refining and
marketing operations which are conducted primarily by Sunoco, Inc. (R&M)
("Sunoco R&M"). The Partnership 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.

                                       65


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

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.

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 Partnership'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 Partnership 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 is maintaining a separate LIFO
pool and all LIFO computations are being made on a stand-alone basis. The cost
of materials, supplies and other inventories is determined using principally the
average cost method.

                                       66




<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

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.

Impairment of Long-Lived Assets

Long-lived assets other than those held for sale are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. An asset is considered to be impaired when
the undiscounted estimated net cash flows expected to be generated by the asset
are less than its carrying amount. The impairment recognized is the amount by
which the carrying amount exceeds the fair market value of the impaired asset.
Long-lived assets held for sale are carried at the lower of their carrying
amount or fair market value less cost to sell the assets. Effective January 1,
2002, the Partnership will adopt Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
changes the method of accounting for the impairment of long-lived assets (see
New Accounting Principles below).

Environmental Remediation

The Partnership 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. Effective with the Offering, substantially all income taxes
are the responsibility of the unitholders and not the Partnership.

New Accounting Principles

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.

                                       67


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

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 during 2001.

In July 2001, Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"), was issued. The Partnership 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 Partnership 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
Partnership 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. The Partnership 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 Partnership is currently assessing the impact of
adopting SFAS No. 144 on its combined financial statements.

2. Related Party Transactions

Accounts Receivable, Affiliated Companies

Substantially all of the related party transactions discussed below were 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 Partnership
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 were generally equal
to all of the costs incurred for these activities, including operating,
maintenance and environmental remediation expenditures.

                                       68


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

Concurrently with the closing of the Offering, the Partnership entered into a
pipelines and terminals storage and throughput agreement and various other
agreements with Sunoco R&M under which the Partnership is charging Sunoco R&M
fees for services provided under these agreements comparable to those charged in
arm's-length, third-party transactions. Under the pipelines and terminals
storage and throughput agreement, Sunoco R&M has agreed to pay the Partnership a
minimum level of revenues for transporting and terminalling refined products.
Sunoco R&M also has agreed 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. In addition, effective January
1, 2002, Sunoco, Inc. adopted fee arrangements consistent with this contract as
the basis for the transfer prices to be used in preparation of its segment
information. Accordingly, such fees will be reflected in the Predecessor's
financial statements for the period January 1, 2002 through the closing of the
Offering.

Under various other agreements entered into at the closing of the Offering,
Sunoco R&M is, among other things, purchasing 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 has also agreed 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.

Selling, general and administrative expenses in the combined statements of
income and net parent investment include costs allocated to the Predecessor
totaling $9.0 million, $10.1 million and $10.8 million for the years ended
December 31, 1999, 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.

Under an omnibus agreement with Sunoco, Inc. that the Partnership entered into
at the closing of the Offering, Sunoco, Inc. is continuing 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 the 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 the centralized corporate
functions described above. 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 is also reimbursing Sunoco, Inc. and
its affiliates for these costs and other direct expenses incurred on the
Partnership's behalf. 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.

                                       69


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

The Partnership entered into a treasury services agreement with Sunoco, Inc. at
the closing of the Offering pursuant to which it, among other things,
participates in Sunoco, Inc.'s centralized cash management program. Under this
program, all of the Partnership's cash receipts and cash disbursements are
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 are settled periodically, but no
less frequently than at the end of each month. Amounts due from Sunoco earn
interest at a rate equal to the average rate of the Partnership's third-party
money market investments, while amounts due to Sunoco bear interest at a rate
equal to the interest rate provided in the Partnership's revolving credit
facility.

The Partnership entered into a license agreement at the closing of the Offering
with Sunoco, Inc. and certain of its affiliates, including its general partner,
Sunoco Partners LLC, pursuant to which the Partnership granted to Sunoco
Partners LLC a license to the Partnership's intellectual property so that Sunoco
Partners LLC can manage the Partnership's operations and create intellectual
property using the Partnership's intellectual property. Sunoco Partners LLC will
assign to the Partnership the new intellectual property it creates in operating
the Partnership's business. Sunoco Partners LLC has also licensed to the
Partnership certain of its own intellectual property for use in the conduct of
the Partnership's business and the Partnership licensed to Sunoco Partners LLC
certain of the Partnership's intellectual property for use in the conduct of its
business. The license agreement also grants to the Partnership a license to use
the trademarks, trade names, and service marks of Sunoco, Inc. in the conduct of
the Partnership's business.

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 $13.3 million, $18.7 million and $19.6 million for the
years ended December 31, 1999, 2000 and 2001, respectively. These expenses are
reflected primarily in cost of 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, became employees of the Partnership's general
partner or its affiliates, wholly owned subsidiaries of Sunoco, Inc. The
Partnership has no employees.

Note Receivable from Affiliate

Effective October 1, 2000, the Predecessor loaned $20.0 million to Sunoco. The
loan, which was evidenced by a note repaid on January 1, 2002, earned 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, 2001
was 5.41%.

Short-Term Borrowings due Affiliate

At December 31, 2000, the Predecessor had two short-term notes totaling $45.0
million due Sunoco, which were repaid during 2001. The notes bore 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.

                                       70


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

Long-term Debt due Affiliate

The Predecessor has the following notes payable to Sunoco (in thousands of
dollars):
                                                                December 31,
                                                           ---------------------
                                                             2000         2001
                                                           --------     --------

Variable-rate note due 2002
  (5.12% at December 31, 2001) .......................     $ 50,000     $ 50,000
Variable-rate note due 2002
  (4.75% at December 31, 2001) .......................       25,000       25,000
Variable-rate note due 2004
  (4.75% at December 31, 2001) .......................       25,000       25,000
Variable-rate note due 2005
  (4.75% at December 31, 2001) .......................       40,000       40,000
                                                           --------     --------
                                                            140,000      140,000
Less: current portion ................................           --       75,000
                                                           --------     --------
                                                           $140,000     $ 65,000
                                                           ========     ========

The 5.12% note bears interest at a rate based on the short-term applicable
federal rate established by the Internal Revenue Service, while the 4.75% notes
bear interest based on the prime rate. This debt was not assumed by the
Partnership.

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):

                                                                 December 31,
                                                             -------------------
                                                              2000        2001
                                                             -------     -------

Crude oil ..............................................     $17,456     $19,367
Materials, supplies and other ..........................       1,227       1,239
                                                             -------     -------
                                                             $18,683     $20,606
                                                             =======     =======

The current replacement cost of all crude oil inventory exceeded its carrying
value by $34.4 million and $16.0 million at December 31, 2000 and 2001,
respectively.

                                       71


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

4.  Income Taxes

The components of income tax expense are as follows (in thousands of dollars):

                                                 1999        2000        2001
                                               --------    --------    --------

 Income taxes currently payable:
     U.S. federal ..........................   $ 15,386    $ 10,965    $  5,657
     State .................................      3,056       2,178       1,124
                                               --------    --------    --------
                                                 18,442      13,143       6,781
                                               --------    --------    --------
 Deferred taxes:
     U.S. federal ..........................      3,376       4,455       7,352
     State .................................        670         885       1,461
                                               --------    --------    --------
                                                  4,046       5,340       8,813
                                               --------    --------    --------
                                               $ 22,488    $ 18,483    $ 15,594
                                               ========    ========    ========

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):

                                                 1999        2000        2001
                                               --------    --------    --------

Income tax expense at U.S. statutory rate
  of 35% ...................................   $ 20,953    $ 17,151    $ 14,826
Increase (reduction) in income taxes
  resulting from:
    State income taxes net of Federal
      income tax effects ...................      2,422       1,991       1,680
    Dividend exclusion for joint venture
      pipeline operation ...................     (1,125)       (923)     (1,059)
    Other ..................................        238         264         147
                                               --------    --------    --------
                                               $ 22,488    $ 18,483    $ 15,594
                                               ========    ========    ========

The effects of temporary differences that comprise the net deferred income tax
liability are as follows (in thousands of dollars):

                                                               December 31,
                                                        -----------------------
                                                          2000           2001
                                                        --------       --------
Deferred tax assets:
   Environmental remediation liabilities .........      $  6,519       $  6,742
   Other liabilities not yet deductible ..........         4,426          4,895
   Other .........................................         3,426          2,390
                                                        --------       --------
                                                          14,371         14,027
                                                        --------       --------
Deferred tax liabilities:
   Inventories ...................................        (1,836)        (2,930)
   Properties, plants and equipment ..............       (79,041)       (86,416)
                                                        --------       --------
                                                         (80,877)       (89,346)
                                                        --------       --------

Net deferred income tax liability ................      $(66,506)      $(75,319)
                                                        ========       ========

Cash payments for income taxes (including amounts paid to Sunoco) amounted to
$16.7 million, $11.9 million and $6.2 million in 1999, 2000 and 2001,
respectively.

                                       72


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

The net deferred income tax liability is classified in the combined balance
sheets as follows (in thousands of dollars):

                                                              December 31,
                                                        -----------------------
                                                          2000           2001
                                                        --------       --------
Current asset ....................................      $  4,426       $  2,821
Noncurrent liability .............................       (70,932)       (78,140)
                                                        --------       --------
                                                        $(66,506)      $(75,319)
                                                        ========       ========

5.  Properties, Plants and Equipment

The components of net properties, plants and equipment were as follows (in
thousands of dollars):


                                                                December 31,
                                               Estimated    --------------------
                                             Useful Lives     2000        2001
                                             ------------   --------    --------
Land and land improvements
  (including rights of way) .............        20-60      $ 50,183    $ 52,033
Pipeline and related assets .............        38-60       425,093     461,425
Terminals and storage facilities ........         5-44       296,898     314,228
Other ...................................         5-48        61,542      70,473
Construction-in-progress ................          --         38,249      39,146
                                                            --------    --------
                                                             871,965     937,305
Less: Accumulated depreciation
  and amortization ......................                    353,360     370,946
                                                            --------    --------
                                                            $518,605    $566,359
                                                            ========    ========

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 2002 through 2006 is as follows (in thousands of dollars):

                               Pride          Long-Term Debt
                                Note           Due Affiliate           Total
                               -----          --------------          -------
   2002...................      $228             $75,000              $75,228
   2003...................      $246             $    --              $   246
   2004...................      $269             $25,000              $25,269
   2005...................      $289             $40,000              $40,289
   2006...................      $313             $    --              $   313

The long-term debt due affiliate was not assumed by the Partnership. In
conjunction with the Offering, Sunoco Logistics Partners Operations L.P., the
operating partnership of the Partnership, issued $250.0 million of ten-year
senior notes and established a three-year $150.0 million revolving credit
facility. The net proceeds of the senior notes were distributed to Sunoco, Inc.
in connection with the contribution by Sunoco, Inc. of the Predecessor to the
Partnership. The Partnership and the operating subsidiaries of Sunoco Logistics
Partners Operations L.P. serve as guarantors of the ten-year senior notes and of
any borrowings under the revolving credit facility.

Cash payments for interest related to the Pride note and amounts due affiliates
were $7.3 million, $12.4 million and $13.7 million in 1999, 2000 and 2001,
respectively.

                                       73


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         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 1999, 2000 and 2001 amounted to
$3.6 million, $5.4 million and $3.7 million, respectively. The aggregate amount
of future minimum annual rentals as of December 31, 2001 applicable to
noncancelable operating leases is as follows (in thousands of dollars):

Year Ending December 31:
        2002...........................................................   $1,744
        2003...........................................................    1,336
        2004...........................................................      841
        2005...........................................................      231
        2006...........................................................        3
                                                                          ------
        Total..........................................................   $4,155
                                                                          ======

The Partnership 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 Partnership'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):

                                                                December 31,
                                                           ---------------------
                                                             2000          2001
                                                           -------       -------
Accrued liabilities ................................       $ 6,333       $ 8,363
Other deferred credits and liabilities .............         9,082         7,888
                                                           -------       -------
                                                           $15,415       $16,251
                                                           =======       =======

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 income for environmental remediation totaled $3.9
million, $8.5 million and $6.2 million in the years ended December 31, 1999,
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 Partnership'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. As discussed below, the Partnership's
future costs will also be impacted by an indemnification from Sunoco, Inc.

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 Partnership does not believe that any
liabilities which may 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, 2001. Furthermore, management of the Partnership
does not believe that the overall costs for such matters will have a material
impact, over an extended period of time, on the Partnership's operations, cash
flows or liquidity.

                                       74


<PAGE>

                         SUNOCO LOGISTICS PARTNERS, L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

Under the omnibus agreement entered into at the closing of the Offering, Sunoco
R&M is reimbursing 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 is, at its expense, completing for Sunoco Logistics
Partners L.P.'s Darby Creek Tank Farm certain tank maintenance and inspection
projects expected to be completed within one year from the closing of the
Offering. Sunoco R&M is also reimbursing 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 is reflecting outlays for these
programs as operating expenses or capital expenditures, as appropriate. Capital
expenditures are being depreciated over their useful lives. Reimbursements by
Sunoco R&M are being reflected as capital contributions.

Sunoco, Inc. has indemnified 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 the Offering. Sunoco, Inc. has indemnified 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 for events and conditions associated with the operation of the
Partnership's assets that occur on or after the closing of the Offering and for
environmental and toxic tort liabilities to the extent Sunoco, Inc. is not
required to indemnify the Partnership.

Sunoco, Inc. also has indemnified 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 the
Offering and that are asserted within 10 years after closing. In addition,
Sunoco, Inc. has indemnified 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.

                                       75


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

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):

                                                  1999        2000        2001
                                                --------    --------    --------
Income Statement Data:
Total revenues .............................    $150,776    $146,719    $178,082
Income before income taxes .................    $ 78,886    $ 61,655    $ 80,047
Net income .................................    $ 50,170    $ 38,859    $ 50,610

Balance Sheet Data (as of year end):
Current assets .............................    $ 27,601    $ 35,012    $ 44,075
Non-current assets .........................    $132,010    $129,935    $132,327
Current liabilities ........................    $ 17,328    $ 24,320    $ 20,976
Non-current liabilities ....................    $140,573    $139,953    $149,407
Net equity .................................    $  1,710    $    674    $  6,019

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, 2000 and 2001 were $146.6 million and $71.7 million, respectively,
compared to the carrying amounts of $144.8 million and $69.6 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 66% of the sales and other operating revenue recognized by the
Predecessor during 2001 is derived from Sunoco R&M. The Partnership 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 Partnership does not believe that the transactions with Sunoco R&M expose it
to significant credit risk.

The Partnership'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 Partnership'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 Partnership's customers'
credit positions are analyzed prior to extending credit. The Partnership 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.

10. Acquisition of Pride Companies, L.P. Crude Oil Transportation 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

                                       76


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

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):

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
                                                                       ========

The unaudited pro forma net income for the year ended December 31, 1999,
assuming the acquisition had occurred on January 1, 1999, was $34.8 million. 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.

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, 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.

                                       77


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

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.

Segment Information (in thousands)


<TABLE>
<CAPTION>
                                                                            Year Ended December 31, 2001
                                                      --------------------------------------------------------------------------
                                                       Eastern                                    Western
                                                       Pipeline             Terminal             Pipeline
                                                        System             Facilities             System                Total
                                                      -----------          -----------          -----------          -----------
<S>                                                   <C>                  <C>                  <C>                  <C>
Sales and other operating revenue:
   Affiliates ..............................          $    69,631          $    43,628/1/       $   953,923          $ 1,067,182
                                                      ===========          ===========          ===========          ===========
   Unaffiliated customers ..................          $    21,059          $    30,273          $   494,490          $   545,822
                                                      ===========          ===========          ===========          ===========
Operating income ...........................          $    29,893/2/       $    16,076          $     7,372          $    53,341
                                                      ===========          ===========          ===========
Net interest expense .......................                                                                             (10,980)
Income tax expense .........................                                                                             (15,594)
                                                                                                                     -----------
Net income .................................                                                                         $    26,767
                                                                                                                     ===========
Depreciation and amortization ..............          $     9,778          $    11,094          $     4,453          $    25,325
                                                      ===========          ===========          ===========          ===========
Capital expenditures .......................          $    28,618          $    25,203          $    18,862          $    72,683
                                                      ===========          ===========          ===========          ===========
Identifiable assets ........................          $   303,685          $   189,378          $   293,317          $   789,201/3/
                                                      ===========          ===========          ===========          ===========
</TABLE>


 ----------
/1/   Substantially all of these revenues reflect transfer prices which are
      equal to the costs incurred for these activities. Includes $3,008 thousand
      reimbursement of costs incurred for environmental remediation and other
      unusual items.
/2/   Includes equity income of $4,323 thousand attributable to the
      Predecessor's ownership interest in the Explorer Pipeline Company
      corporate joint venture.
/3/   Identifiable assets include the Predecessor's unallocated $2,821 thousand
      deferred income tax asset.

                                       78


<PAGE>

                         SUNOCO LOGISTICS PARTNERS L.P.

         NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS--(Continued)

The following table sets forth the Predecessor's total sales and other operating
revenue by product or service (in thousands of dollars):

                                                  Year Ended December 31,
                                      ------------------------------------------
                                         1999            2000            2001
                                      ----------      ----------      ----------

Affiliates:
   Crude oil ...................      $  651,805      $1,178,004      $  944,400
   Pipeline ....................          73,999          78,719          79,154
   Terminalling and other ......          38,329          44,356          43,628
                                      ----------      ----------      ----------
                                      $  764,133      $1,301,079      $1,067,182
                                      ==========      ==========      ==========

Unaffiliated Customers:
   Crude oil ...................      $  155,997      $  452,650      $  491,238
   Pipeline ....................          24,906          23,840          24,311
   Terminalling and other ......          29,166          31,042          30,273
                                      ----------      ----------      ----------
                                      $  210,069      $  507,532      $  545,822
                                      ==========      ==========      ==========

12. Quarterly Financial Data (Unaudited)

      Summarized quarterly financial data is as follows (in thousands):

                                         First     Second      Third      Fourth
                                        Quarter    Quarter    Quarter    Quarter
                                       --------   --------   --------   --------
2000
----
Sales and other operating revenue:
    Affiliates .....................   $304,945   $315,382   $344,558   $336,194
    Unaffiliated customers .........   $104,458   $128,888   $131,129   $143,057

Gross margin/1/ ....................   $ 15,829   $ 26,502   $ 24,409   $ 21,676

Operating income ...................   $  9,549   $ 18,740   $ 16,512   $ 14,506

Net income .........................   $  4,922   $ 10,426   $  8,402   $  6,770

2001
----
Sales and other operating revenue:
    Affiliates .....................   $290,538   $310,220   $236,366   $230,058
    Unaffiliated customers .........   $123,866   $133,395   $156,126   $132,435

Gross margin/1/ ....................   $ 20,763   $ 26,327   $ 21,358   $ 16,075

Operating income ...................   $ 13,637   $ 18,028   $ 14,044   $  7,632

Net income .........................   $  6,989   $  9,068   $  7,228   $  3,482

----------
/1/   Gross margin equals sales and other operating revenue less cost of
      products sold and operating expenses and depreciation and amortization.

                                       79


<PAGE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None

                                       80


<PAGE>



                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Sunoco Partners LLC, as our general partner, manages our operations and
activities on our behalf. Our general partner is not elected by our unitholders
and is not subject to re-election on a regular basis in the future. Unitholders
do not directly or indirectly participate in our management or operation. Our
general partner owes a fiduciary duty to our unitholders. Our general partner is
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.

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 board of directors of our
general partner 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 committee.

We are managed and operated by the directors and officers of Sunoco Partners
LLC, our general partner. Most of our operational personnel are employees of our
general partner.

The officers of Sunoco Partners LLC, other than Paul A. Mulholland, our
Treasurer, and Joseph P. Krott who is acting as our Comptroller on an interim
basis, spend substantially all of their time managing our business and affairs.
Our non-executive directors are devoting 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 (Our General Partner)

The following table shows information for the directors and executive officers
of Sunoco Partners LLC, our general partner. Executive officers and directors
are elected for one-year terms.

Name                      Age    Position with the General Partner
-----------------------   ---    -----------------------------------------------
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            50    Vice President, Eastern Operations
Joseph P. Krott            38    Comptroller
Paul A. Mulholland         49    Treasurer
Colin A. Oerton            38    Vice President and Chief Financial Officer
Jeffrey W. Wagner          45    General Counsel and Secretary

                                       81


<PAGE>

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. Mulholland was elected our Treasurer in January 2002. He has been Treasurer
of Sunoco, Inc. since March 2000. Prior to that, from August 1997 through
February 2000, he was Director, Corporate Finance for Sunoco, Inc. Previously he
served as Manager of Finance, Mergers and Acquisitions for Sunoco, Inc. from
August 1993 through July 1997.

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.

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.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and persons who beneficially own more than 10 percent of our
units to file certain reports with the Securities and Exchange Commission and
the New York Stock Exchange concerning their beneficial ownership of our equity
securities. The Securities and Exchange Commission regulations also require that
a copy of all such Section 16 (a) forms must be furnished to us by the
directors, executive officers and greater than 10 percent unitholders. Since we
did not complete our initial public offering until February 2002, no Section
16(a) forms or amendments were required to be filed for the period ended
December 31, 2001.

                                       82


<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

Sunoco Logistics Partners L.P. and Sunoco Partners LLC, the general partner,
were formed on October 15, 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 during 2001. 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

Directors who are employees of Sunoco Partners LLC or its affiliates receive no
additional compensation for service on our general partner's board of directors
or any committees of the board. Non-employee directors will receive an annual
retainer of $15,000 in cash, to be paid quarterly, and a number of restricted
units to be paid quarterly under the Sunoco Partners LLC Long-Term Incentive
Plan, having an aggregate fair market value equal to $15,000 on an annual basis
(the fair market value of each such quarterly payment of restricted units being
calculated as of the date of such payment). Chairpersons of any standing
committee of the board will receive an annual committee chair retainer of $1,500
in cash. Non-employee directors will receive $1,500 in cash for each board
meeting attended, and $1,000 in cash for each committee meeting attended. In
addition, each non-employee 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 general partner's board of directors administers the plan.

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
general partner's board of directors, cash equivalent to the value of a common
unit. We expect to make an initial grant of 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
board may determine to make additional grants under the plan to employees and
directors containing such terms as the board shall determine under the plan. The
general partner's board of directors will determine the period over which
restricted units granted to employees and directors will vest. The board 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 L.P., 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 general partner's board of directors provides
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

                                       83


<PAGE>

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 general partner's board of directors , 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 general partner's board of directors may
determine to make grants under the plan to employees and directors containing
such terms as the board of directors 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 general partner's board of directors. In addition,
the unit options will become exercisable upon a change in control of Sunoco
Logistics Partners L.P., 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 any other person or us 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 general partner's board of directors 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.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of units of Sunoco
Logistics Partners L.P. 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 as
of February 28, 2002. 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.

                                       84


<PAGE>


<TABLE>
<CAPTION>
                                                       Percentage
                                          Common       of Common        Subordinated       Percentage of       Percentage of
                                          Units          Units              Units       Subordinated Units      Total Units
               Name of                  Beneficially   Beneficially     Beneficially      Beneficially         Beneficially
         Beneficial Owner /1/              Owned         Owned              Owned             Owned              Owned
------------------------------------    ------------   ------------     ------------      ------------         ------------
<S>                                     <C>              <C>              <C>                 <C>                 <C>
Sunoco Partners LLC /2/ ............    5,633,639        49.5%            11,383,639          100.0%              74.7%
John G. Drosdick ...................       20,000           *                      0              0                  *
Deborah M. Fretz ...................        1,600           *                      0              0                  *
Thomas W. Hofmann ..................        2,500           *                      0              0                  *
Paul S. Broker .....................          500           *                      0              0                  *
James L. Fidler ....................        1,600           *                      0              0                  *
David A. Justin ....................        1,000           *                      0              0                  *
Joseph P. Krott ....................        2,000           *                      0              0                  *
Paul A. Mulholland .................        2,000           *                      0              0                  *
Colin A. Oerton ....................        5,000           *                      0              0                  *
Jeffrey W. Wagner ..................        1,000           *                      0              0                  *
All directors and executive officers
    as a group (10 persons) ........       37,200           *                      0              0                  *
</TABLE>


----------
*     Less than 0.5%.
/1/   The address of each person named herein is 1801 Market Street,
      Philadelphia, PA 19103
/2/   Sunoco, Inc. is the ultimate parent company of Sunoco Partners LLC and
      may, therefore, be deemed to beneficially own the units that are held by
      Sunoco Partners LLC.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The general partner owns 5,633,639 common units and 11,383,639 subordinated
units, representing a 73.2% limited partner interest in us. In addition, the
general partner also owns 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 73.2% limited partner interest in us effectively gives the
general partner the ability to veto some actions of Sunoco Logistics Partners
L.P. and to control the management of Sunoco Logistics Partners L.P.

Distribution and Payments to the General Partner and Its Affiliates

The following table summarizes the distribution and payments made and to be made
by us to our general partner and its affiliates in connection with our
formation, ongoing operation, and liquidation. These distributions and payments
were made among affiliated entities and, consequently, are not the result of
arm's-length negotiations.

                                       85


<PAGE>

                                Formation Stage

The consideration received by our
 general partner and its affiliates
 for the contribution of the assets
 and liabilities Sunoco Logistics
 (Predecessor)......................   .     5,633,639 common units;

                                       .     11,383,639 subordinated
                                             units;

                                       .     2% general partner interest
                                             in Sunoco Logistics Partners
                                             L.P.;

                                       .     the incentive distribution
                                             rights; and

                                       .     approximately $245.3 million
                                             from the proceeds of the
                                             issuance of the senior notes.


                                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 5,633,639 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 $30.6 million on its
                                       common units and subordinated
                                       units.


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, as
                                       provided in the 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 as provided in the
                                       Partnership Agreement.


                                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.

                                       86


<PAGE>

Other Agreements

We have entered into various agreements with Sunoco, Inc., Sunoco R&M and our
general partner. Those agreements did not result from arm's-length negotiations
and they, or any of the transactions they provide for, may be effected on terms
at least as favorable to the parties to those agreements as they could have
obtained from unaffiliated third parties.

Omnibus Agreement

Upon the closing of our initial public offering, we entered into an omnibus
agreement with Sunoco, Inc., Sunoco R&M, and our general partner that addresses
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 or acquire an asset if
      requested by Sunoco, Inc.;

.     an indemnity by Sunoco, Inc. for certain environmental, toxic tort and
      other liabilities;

.     our obligation to indemnify Sunoco, Inc. and its affiliates for events and
      conditions associated with the operation of our assets that occur on or
      after the closing of the initial public offering and 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 requires 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.

                                       87


<PAGE>

We are reflecting outlays for these programs as operating expenses or capital
expenditures, as appropriate. Capital expenditures are depreciated over their
useful lives. Reimbursements by Sunoco R&M are reflected as capital
contributions.

Payment of General and Administrative Services Fee

In addition, under the omnibus agreement we are paying 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 the initial public 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 "Management's
Discussion and Analysis of Financial Conditions and Results of Operations--Risks
Inherent our Business."

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 are also reimbursing 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.

Development or Acquisition of an Asset By Us

The omnibus agreement also contains 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. and its affiliates have agreed, 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 does not apply
to:

.     any business operated by Sunoco, Inc. or any of its subsidiaries at the
      closing of our initial public 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.

                                       88


<PAGE>

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.

Indemnification

Under the omnibus agreement, Sunoco, Inc. has agreed to indemnify us for 30
years after the closing of our initial public offering against certain
environmental and toxic tort liabilities associated with the operation of the
assets and occurring before the closing date of our initial public offering.
This indemnity obligation will be reduced by 10% per year beginning with the
22nd year after the closing of our initial public offering. We have agreed to
indemnify Sunoco, Inc. and its affiliates for events and conditions associated
with the operation of our assets that occur on or after the closing of our
initial public offering and for environmental and toxic tort liabilities related
to our assets to the extent Sunoco, Inc. is not required to indemnify us.

Sunoco, Inc. has also agreed to 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 our initial public offering and that are asserted within ten
      years after the closing of our initial public 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 our initial public 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.

Pipelines and Terminals Storage and Throughput Agreement

Concurrently with the closing of our initial public offering, we entered into a
pipelines and terminals storage and throughput agreement with Sunoco R&M. Under
that agreement, Sunoco R&M has agreed to 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;

.     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;

.     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;

                                       89


<PAGE>

.     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; 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..

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 be required to give at least 90 days advance notice of any
      planned prohibition on using MTBE in the gasoline it produces. 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 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 in effect during the term of the
agreement. This agreement does not prevent other current or future shippers from
challenging our tariff rates. At the end of the term of the agreement, Sunoco
R&M will be free to challenge, or to cause others to challenge or assist others
in challenging, our tariff rates in effect at that time.

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,

                                       90


<PAGE>

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.

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 has agreed 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 entered into a license agreement with Sunoco, Inc. and certain of its
affiliates, including our general partner, pursuant to which we granted to our
general partner a license to our intellectual property so that our general
partner can manage our operations and create intellectual property using our
intellectual property. Our general partner will assign to us the new
intellectual property it creates in operating our business. Our general partner
also licensed to us certain of its own intellectual property for use in the
conduct of our business and we licensed to our general partner certain of our
intellectual property for use in the conduct of its business. The license
agreement also granted to us a license to use the trademarks, trade names, and
service marks of Sunoco, Inc. in the conduct of our business.

We entered into a treasury services agreement with Sunoco, Inc. pursuant to
which we, 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 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.

                                       91


<PAGE>


                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   The following documents are filed as part of this report:

      (1)   The combined financial statements are included in Item 8. Financial
            Statements and Supplementary Data.
      (2)   No financial statement schedules are required to be filed.

(b)   We did not file any reports on Form 8-K during the quarter ended December
      31, 2001.

(a)(3) & (c) The exhibits listed below are filed as part of this report:


Exhibit No.   Description
-----------   -----------

   3.1*     Certificate of Limited Partnership of Sunoco Logistics Partners L.P.
            (incorporated by reference to Exhibit 3.1 to the Form S-1
            Registration Statement, File No. 333-71968, filed October 22, 2001.

   3.2      First Amended and Restated Agreement of Limited Partnership of
            Sunoco Logistics Partners L.P., dated as of February 8, 2002.

   3.3*     Certificate of Limited Partnership of Sunoco Logistics Operations
            L.P. (incorporated by reference to Exhibit 3.1 to AmendmentNo. 1 to
            Form S-1 filed December 18, 2001).

   3.4      First Amended and Restated Agreement of Limited Partnership of
            Sunoco Logistics Partners Operations L.P., dated as of February 8,
            2002

   3.5*     Certificate of Organization of Sunoco Partners LLC (incorporated by
            reference to Exhibit 3.5 to the Form S-1 Registration Statement
            filed October 22, 2001)

   3.6      First Amended and Restated Limited Liability Company Agreement of
            Sunoco Partners LLC, dated as of February 8, 2002.

   10.1     Credit Agreement dated as of February 1, 2002, among Sunoco
            Logistics Partners Operations L.P., Sunoco Logistics Partners L.P.,
            Bank of America, N.A., First Union National Bank, Credit Suisse
            First Boston, Lehman Commercial Paper Inc., Citibank, N.A., and UBS
            AG.

   10.2     Indenture, dated as of February 7, 2002, between Sunoco Logistics
            Partners Operations L.P. and First Union National Bank.

   10.3     Registration Rights Agreement, dated as of February 8, 2002, among
            Sunoco Logistics Partners Operations L.P., Sunoco Logistics Partners
            L.P., Sunoco Pipeline L.P., Sunoco Partners Marketing & Terminals
            L.P., and the following Initial Purchasers: Lehman Brothers Inc.,
            Credit Suisse First Boston Corporation, Banc of America Securities
            LLC, Salomon Smith Barney Inc., UBS Warburg LLC and First Union
            Securities, Inc.

   10.4     Contribution, Conveyance and Assumption Agreement, dated as of
            February 8, 2002, among Sunoco, Inc., Sun Pipe Line Company of
            Delaware, Sunoco, Inc. (R&M), Atlantic Petroleum Corporation; Sunoco
            Texas Pipe Line Company, Sun Oil Line of Michigan (Out) LLC,
            Mid-Continent Pipe Line (Out) LLC, Sun Pipe Line Services (Out) LLC,
            Atlantic Petroleum Delaware Corporation, Atlantic Pipeline (Out)
            L.P, Sunoco Partners LLC, Sunoco Partners Lease Acquisition &
            Marketing LLC, Sunoco Logistics Partners L.P., Sunoco Logistics
            Partners GP LLC, Sunoco Logistics Partners Operations L.P, Sunoco
            Logistics Partners Operations GP LLC,

                                       92


<PAGE>

            Sunoco Pipeline L.P., Sunoco Partners Marketing & Terminals L.P.,
            Sunoco Mid-Con (In) LLC, Atlantic (In) L.P, Atlantic R&M (In) L.P.,
            Sun Pipe Line Services (In) L.P., Sunoco Michigan (In) LLC, Atlantic
            (In) LLC, Sun Pipe Line GP LLC, Sunoco R&M (In) LLC, and Atlantic
            Refining & Marketing Corp.

   10.5     Omnibus Agreement, dated as of February 8, 2002, among Sunoco, Inc.,
            Sunoco, Inc. (R&M), Sun Pipe Line Company of Delaware, Atlantic
            Petroleum Corporation, Sunoco Texas Pipe Line Company, Sun Pipe Line
            Services (Out) LLC, Sunoco Logistics Partners L.P., Sunoco Logistics
            Partners Operations L.P., and Sunoco Partners LLC.

   10.6     Pipelines and Terminals Storage and Throughput Agreement, dated as
            of February 8, 2002, among Sunoco, Inc. (R&M), Sunoco Logistics
            Partners L.P., Sunoco Logistics Partners Operations L.P., Sunoco
            Partners LLC, Sunoco Partners Marketing & Terminals L.P., Sunoco
            Pipeline L.P., Sunoco Logistics Partners GP LLC, and Sunoco
            Logistics Partners Operations GP LLC

   10.7     Treasury Services Agreement, dated as of February 8, 2002, among
            Sunoco, Inc., Sunoco Logistics Partners L.P., and Sunoco Logistics
            Partners Operations L.P.

   10.8     Intellectual Property and Trademark License Agreement, dated as of
            February 8, 2002 among Sunoco, Inc., ("Sunoco"), Sunoco, Inc. (R&M),
            Sunmarks, Inc., Sunoco Logistics Partners L.P., Sunoco Logistics
            Partners Operations L.P., Sunoco Partners Marketing & Terminals
            L.P., Sunoco Pipeline L.P., and Sunoco Partners LLC

   10.9     Interrefinery Lease, dated as of February 8, 2002, between Sunoco
            Pipeline L.P., and Sunoco, Inc.(R&M).

   10.10*   Sunoco Partners LLC Long-Term Incentive Plan (incorporated by
            reference to Exhibit 10.3 to Amendment No. 2 to the Form S-1
            Registration Statement filed January 11, 2002).

   10.11*   Sunoco Partners LLC Annual Incentive Plan (incorporated by reference
            to Exhibit 10.4 to Amendment No. 2 to the Form S-1 Registration
            Statement filed January 11, 2002).

   10.12*   Revolving Credit Agreement of Sunoco, Inc. (incorporated by
            reference to Exhibit 10.7 to Amendment No. 1 to the Form S-1
            Registration Statement filed December 18, 2001).

   10.12.1* Amendment to Revolving Credit Agreement of Sunoco, Inc.
            (incorporated by reference to Exhibit 10.7.1 to Amendment No. 1 to
            the Form S-1 Registration Statement filed December 18, 2001).

   21.1*    Subsidiaries of Sunoco Logistics Partners L.P.

   24.1     Power of Attorney, together with Unanimous Written Consent.

----------
*     Each such exhibit has heretofore been filed with the Securities and
      Exchange Commission as part of the filing indicated and is incorporated
      herein by reference.

Note: Copies of each Exhibit to the Form 10-K are available upon request.

                                       93


<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Sunoco Logistics Partners L.P.
(Registrant)
         By: Sunoco Partners LLC,
             (Its General Partner)
             By    /s/  Colin A. Oerton
                   --------------------
                   Colin A. Oerton, Vice President and Chief Financial Officer

April 1, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by or on behalf of the following persons on behalf of the
registrant and in the capacities indicated on March __, 2002



<TABLE>
<S>                                            <C>
/s/ John G. Drosdick*                          /s/ Joseph P. Krott*
-----------------                              ----------------
John G. Drosdick, Chairman and Director        Joseph P. Krott, Comptroller of Sunoco
of Sunoco Partners LLC, General Partner        Partners LLC, General Partner of Sunoco
of Sunoco Logistics Partners L.P.              Logistics Partners L.P. (Principal
                                               Accounting Officer)


/s/ Deborah M. Fretz*                          /s/ Colin A. Oerton*
-----------------                              ----------------
Deborah M. Fretz, President, Chief             Colin A. Oerton, Vice President and
Executive Officer and Director of Sunoco       Chief Financial Officer of Sunoco
Partners LLC, General Partner of Sunoco        Partners LLC, General Partner of Sunoco
Logistics Partners L.P.(Principal              Logistics Partners L.P. (Principal
Executive Officer)                             Financial Officer)

/s/ Thomas W. Hofmann*
------------------
Thomas W. Hofmann, Director of Sunoco
Partners LLC, General Partner of Sunoco
Logistics Partners L.P.

                                               *By  /s/ Colin A. Oerton
                                                    --------------------
                                                    Colin A. Oerton, Individually and as
                                                    Attorney-in-Fact of Sunoco Partners LLC,
                                                    General Partner of Sunoco Logistics
                                                    Partners L.P.
</TABLE>


                                       94





<PAGE>

                                                                     Exhibit 3.2

                                                                  Execution Copy
================================================================================

                           FIRST AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                         SUNOCO LOGISTICS PARTNERS L.P.

================================================================================


<PAGE>

                                TABLE OF CONTENTS

                                    ARTICLE I

                                   DEFINITIONS


<TABLE>
<S>               <C>
Section 1.1       Definitions.....................................................................................1
Section 1.2       Construction...................................................................................20

                                   ARTICLE II

                                  ORGANIZATION

Section 2.1       Formation......................................................................................20
Section 2.2       Name...........................................................................................21
Section 2.3       Registered Office; Registered Agent; Principal Office; Other Offices...........................21
Section 2.4       Purpose and Business...........................................................................21
Section 2.5       Powers.........................................................................................22
Section 2.6       Power of Attorney..............................................................................22
Section 2.7       Term...........................................................................................23
Section 2.8       Title to Partnership Assets....................................................................23

                                   ARTICLE III

                           RIGHTS OF LIMITED PARTNERS

Section 3.1       Limitation of Liability........................................................................24
Section 3.2       Management of Business.........................................................................24
Section 3.3       Outside Activities of the Limited Partners.....................................................24
Section 3.4       Rights of Limited Partners.....................................................................25

                                   ARTICLE IV

                    CERTIFICATES; RECORD HOLDERS; TRANSFER OF
                      PARTNERSHIP INTERESTS; REDEMPTION OF
                              PARTNERSHIP INTERESTS

Section 4.1       Certificates...................................................................................26
Section 4.2       Mutilated, Destroyed, Lost or Stolen Certificates..............................................26
Section 4.3       Record Holders.................................................................................27
Section 4.4       Transfer Generally.............................................................................27
Section 4.5       Registration and Transfer of Limited Partner Interests.........................................28
Section 4.6       Transfer of the General Partner's General Partner Interest.....................................29
Section 4.7       Transfer of Incentive Distribution
 Rights......................................................29
Section 4.8       Restrictions on Transfers......................................................................30
Section 4.9       Citizenship Certificates; Non-citizen Assignees................................................30
Section 4.10      Redemption of Partnership Interests of Non-citizen Assignees...................................31
</TABLE>


                         SUNOCO LOGISTICS PARTNERS L.P.
           FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP


<PAGE>

                                    ARTICLE V

           CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS


<TABLE>
<S>               <C>
Section 5.1       Organizational Contributions...................................................................32
Section 5.2       Contributions by the General Partner and its Affiliates........................................33
Section 5.3       Contributions by Initial Limited Partners and Distributions to the General Partner.............33
Section 5.4       Interest and Withdrawal........................................................................34
Section 5.5       Capital Accounts...............................................................................34
Section 5.6       Issuances of Additional Partnership Securities.................................................37
Section 5.7       Limitations on Issuance of Additional Partnership Securities...................................38
Section 5.8       Conversion of Subordinated Units...............................................................40
Section 5.9       Limited Preemptive Right.......................................................................42
Section 5.10      Splits and Combinations........................................................................42
Section 5.11      Fully Paid and Non-Assessable Nature of Limited Partner Interests..............................43

                                   ARTICLE VI

                          ALLOCATIONS AND DISTRIBUTIONS

Section 6.1       Allocations for Capital Account Purposes.......................................................43
Section 6.2       Allocations for Tax Purposes...................................................................51
Section 6.3       Requirement and Characterization of Distributions; Distributions to Record Holders.............53
Section 6.4       Distributions of Available Cash from Operating Surplus.........................................54
Section 6.5       Distributions of Available Cash from Capital Surplus...........................................55
Section 6.6       Adjustment of Minimum Quarterly Distribution and Target Distribution Levels....................56
Section 6.7       Special Provisions Relating to the Holders of Subordinated Units...............................56
Section 6.8       Special Provisions Relating to the Holders of Incentive Distribution Rights....................57
Section 6.9       Entity-Level Taxation..........................................................................57

                                   ARTICLE VII

                      MANAGEMENT AND OPERATION OF BUSINESS

Section 7.1       Management.....................................................................................58
Section 7.2       Certificate of Limited Partnership.............................................................60
Section 7.3       Restrictions on the General Partner's Authority................................................60
Section 7.4       Reimbursement of the General Partner...........................................................61
Section 7.5       Outside Activities.............................................................................62
</TABLE>


                         SUNOCO LOGISTICS PARTNERS L.P.
           FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

                                       ii


<PAGE>


<TABLE>
<S>               <C>
Section 7.6       Loans from the General Partner; Loans or Contributions from the Partnership; Contracts
                  with Affiliates; Certain Restrictions on the General Partner...................................63
Section 7.7       Indemnification................................................................................65
Section 7.8       Liability of Indemnitees.......................................................................66
Section 7.9       Resolution of Conflicts of Interest............................................................67
Section 7.10      Other Matters Concerning the General Partner...................................................69
Section 7.11      Purchase or Sale of Partnership Securities.....................................................69
Section 7.12      Registration Rights of the General Partner and its Affiliates..................................69
Section 7.13      Reliance by Third Parties......................................................................71

                                  ARTICLE VIII

                     BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 8.1       Records and Accounting.........................................................................72
Section 8.2       Fiscal Year....................................................................................72
Section 8.3       Reports........................................................................................72

                                   ARTICLE IX

                                   TAX MATTERS

Section 9.1       Tax Returns and Information....................................................................73
Section 9.2       Tax Elections..................................................................................73
Section 9.3       Tax Controversies..............................................................................73
Section 9.4       Withholding....................................................................................74

                                    ARTICLE X

                              ADMISSION OF PARTNERS

Section 10.1      Admission of Initial Limited Partners..........................................................74
Section 10.2      Admission of Substituted Limited Partner.......................................................74
Section 10.3      Admission of Successor General Partner.........................................................75
Section 10.4      Admission of Additional Limited Partners.......................................................75
Section 10.5      Amendment of Agreement and Certificate of Limited Partnership..................................75

                                   ARTICLE XI

                        WITHDRAWAL OR REMOVAL OF PARTNERS

Section 11.1      Withdrawal of the General Partner..............................................................76
Section 11.2      Removal of the General Partner.................................................................77
Section 11.3      Interest of Departing Partner and Successor General Partner....................................78
</TABLE>


                         SUNOCO LOGISTICS PARTNERS L.P.
           FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

                                       iii


<PAGE>


<TABLE>
<S>               <C>
Section 11.4      Termination of Subordination Period, Conversion of Subordinated Units and
                  Extinguishment of Cumulative Common Unit Arrearages............................................79
Section 11.5      Withdrawal of Limited Partners.................................................................79

                                   ARTICLE XII

                           DISSOLUTION AND LIQUIDATION

Section 12.1      Dissolution....................................................................................80
Section 12.2      Continuation of the Business of the Partnership After Dissolution..............................80
Section 12.3      Liquidator.....................................................................................81
Section 12.4      Liquidation....................................................................................81
Section 12.5      Cancellation of Certificate of Limited Partnership.............................................82
Section 12.6      Return of Contributions........................................................................82
Section 12.7      Waiver of Partition............................................................................82
Section 12.8      Capital Account Restoration....................................................................83

                                  ARTICLE XIII

            AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE

Section 13.1      Amendment to be Adopted Solely by the General Partner..........................................83
Section 13.2      Amendment Procedures...........................................................................84
Section 13.3      Amendment Requirements.........................................................................85
Section 13.4      Special Meetings...............................................................................85
Section 13.5      Notice of a Meeting............................................................................86
Section 13.6      Record Date....................................................................................86
Section 13.7      Adjournment....................................................................................86
Section 13.8      Waiver of Notice; Approval of Meeting; Approval of Minutes.....................................86
Section 13.9      Quorum.........................................................................................87
Section 13.10     Conduct of a Meeting...........................................................................87
Section 13.11     Action Without a Meeting.......................................................................88
Section 13.12     Voting and Other Rights........................................................................88

                                   ARTICLE XIV

                                     MERGER

Section 14.1      Authority......................................................................................89
Section 14.2      Procedure for Merger or Consolidation..........................................................89
Section 14.3      Approval by Limited Partners of Merger or Consolidation........................................90
Section 14.4      Certificate of Merger..........................................................................91
Section 14.5      Effect of Merger...............................................................................91
</TABLE>


                         SUNOCO LOGISTICS PARTNERS L.P.
           FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

                                       iv


<PAGE>

                                   ARTICLE XV

                   RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS


<TABLE>
<S>               <C>
Section 15.1      Right to Acquire Limited Partner Interests.....................................................91

                                   ARTICLE XVI

                               GENERAL PROVISIONS

Section 16.1      Addresses and Notices..........................................................................93
Section 16.2      Further Action.................................................................................94
Section 16.3      Binding Effect.................................................................................94
Section 16.4      Integration....................................................................................94
Section 16.5      Creditors......................................................................................94
Section 16.6      Waiver.........................................................................................94
Section 16.7      Counterparts...................................................................................94
Section 16.8      Applicable Law.................................................................................94
Section 16.9      Invalidity of Provisions.......................................................................95
Section 16.10     Consent of Partners............................................................................95
</TABLE>


                         SUNOCO LOGISTICS PARTNERS L.P.
           FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

                                        v


<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 8, 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).

                         SUNOCO LOGISTICS PARTNERS L.P.
           FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP


<PAGE>

     "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.

     "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.

                                        2


<PAGE>

     "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 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

                                        3


<PAGE>

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 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.

                                        4


<PAGE>

     "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.

                                        5


<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.

                                        6


<PAGE>

     "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, Sunoco, Inc., Sunoco, Inc. (R&M) 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 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.

                                        7


<PAGE>

     "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 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., Sunoco Michigan (In) LLC, Explorer Pipeline Company, Sunoco Mid-Con
(In) LLC, Sun Pipe Line GP LLC, Sunoco

                                        8


<PAGE>

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.

     "Indenture" means that certain Indenture, dated as of February 7, 2002,
among the Partnership, the Operating Partnership, Sun Partners Marketing &
Terminals L.P., Sunoco Pipeline L.P. and First Union National Bank, as trustee.

     "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.

     "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.

                                       9


<PAGE>

     "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.

     "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

                                       10


<PAGE>

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).

                                       11


<PAGE>

     "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 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 7.25% 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.

                                       12


<PAGE>

     "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.

     "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

                                       13


<PAGE>

(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.

     "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.

                                       14


<PAGE>

     "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) and Sunoco Pipeline L.P.

     "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.

                                       15


<PAGE>

     "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 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

                                       16


<PAGE>

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 Activities" has the meaning assigned to such term in the
Omnibus Agreement.

     "Retained Assets" means the pipeline, terminal and other logistics 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 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

                                       17


<PAGE>

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.

     "Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).

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     "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
4, 2002, among the Underwriters, the Partnership, the General Partner, the
Operating Partnership, the general partner of 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).

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<PAGE>

     "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
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

                                       20


<PAGE>

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 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,

                                       21


<PAGE>

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 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

                                       22


<PAGE>

          (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 Section 13.3 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

                                       23


<PAGE>

of the Partnership, the General Partner, one or more of its Affiliates 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

                                       24


<PAGE>

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;

          (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).

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<PAGE>

                                   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:

          (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

                                       26


<PAGE>

     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.

                                       27


<PAGE>

     (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.

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.

                                       28


<PAGE>

     (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).

     (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 December 31, 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 December 31, 2011, the General
Partner or any

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<PAGE>

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).

     (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,

                                       30


<PAGE>

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 deemed to have been given when

                                       31


<PAGE>

     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,

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<PAGE>

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., Sunoco 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. 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
$245.3 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 V of the Omnibus Agreement or payments
made pursuant to Section 5.2, 5.4 or 5.5 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

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<PAGE>

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 "Option 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 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

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<PAGE>

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 Section 6.1, 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

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<PAGE>

     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 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) hereinabove, 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) hereinabove.

     (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

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<PAGE>

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 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

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<PAGE>

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 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

                                       38


<PAGE>

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).

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<PAGE>

     (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 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

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<PAGE>

     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 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

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<PAGE>

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 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

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<PAGE>

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;

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<PAGE>

          (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:

          (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):

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<PAGE>

               (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 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");

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<PAGE>

               (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

                                       46


<PAGE>

     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 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 2/98ths 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

                                       47


<PAGE>

          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.

          (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.

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<PAGE>

          (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.

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<PAGE>

          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 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

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<PAGE>

          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 Section 3.1(a), 3.3 and 3.4(a) 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 V of the Omnibus Agreement or any payment pursuant to Section
     5.2, 5.4 or 5.5 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.

     (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

                                       51


<PAGE>

     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 Section 704(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.

     (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

                                       52


<PAGE>

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.

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<PAGE>

     (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.

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

                                       54


<PAGE>

          (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;

          (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

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<PAGE>

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 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).

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<PAGE>

     (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.

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<PAGE>

                                   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 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 Section 7.3);

          (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;

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<PAGE>

          (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);

          (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, the Indenture 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

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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 Article
XV), 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.

     (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

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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 indirectly, for the benefit
of the Partnership Group. The Partnership agrees to issue and sell to the
General Partner or any of its Affiliates any Partnership Securities that the
General Partner or such Affiliates are obligated to provide to any employees
pursuant to any such employee benefit plans, employee programs or employee
practices. Expenses incurred by the General Partner in connection with any such
plans, programs and practices (including the net cost to the General Partner or
such Affiliates of Partnership Securities purchased by the General Partner or
such Affiliates from the Partnership to fulfill options or awards under such
plans, programs and practices) shall be reimbursed in accordance with Section
7.4(b). Any and all obligations of the General Partner under any employee
benefit plans, employee programs or employee practices adopted by the General
Partner as permitted by this Section 7.4(c) shall constitute obligations of

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the General Partner hereunder and shall be assumed by any successor General
Partner approved pursuant to Section 11.1 or 11.2 or the transferee of or
successor to all of the General Partner's General Partner Interest pursuant to
Section 4.6.

Section 7.5 Outside Activities.

     (a) After the Closing Date, the General Partner, for so long as it is the
General Partner of the Partnership (i) agrees that its sole business will be to
act as a general partner or managing member, as the case may be, of the
Partnership and any other partnership or limited liability company of which the
Partnership or the Operating Partnership is, directly or indirectly, a partner
or member and to undertake activities that are ancillary or related thereto
(including being a limited partner in the Partnership), (ii) except to the
extent permitted in the Omnibus Agreement, shall not engage in any business or
activity or incur any debts or liabilities except in connection with or
incidental to (A) its performance as general partner of one or more Group
Members or as described in or contemplated by the Registration Statement, (B)
the acquiring, owning or disposing of debt or equity securities in any Group
Member or (C) the operation, maintenance and administration of the Retained
Assets and the businesses conducted by or related to them and (iii) except to
the extent permitted in the Omnibus Agreement, shall not, and shall cause its
Affiliates not to, engage in any Restricted Activities.

     (b) Sunoco, Inc. and certain of its Affiliates have entered into the
Omnibus Agreement with the General Partner, the Partnership and the Operating
Partnership, which agreement sets forth certain restrictions on the ability of
Sunoco, Inc. and its Affiliates to engage in Restricted Activities.

     (c) Except as specifically restricted by Section 7.5(a) and the Omnibus
Agreement, each Indemnitee (other than the General Partner) shall have the right
to engage in businesses of every type and description and other activities for
profit and to engage in and possess an interest in other business ventures of
any and every type or description, whether in businesses engaged in or
anticipated to be engaged in by any Group Member, independently or with others,
including business interests and activities in direct competition with the
business and activities of any Group Member, and none of the same shall
constitute a breach of this Agreement or any duty express or implied by law to
any Group Member or any Partner or Assignee. Neither any Group Member, any
Limited Partner nor any other Person shall have any rights by virtue of this
Agreement, the Operating Partnership Agreement or the partnership relationship
established hereby or thereby in any business ventures of any Indemnitee.

     (d) Subject to the terms of Section 7.5(a), Section 7.5(b), Section 7.5(c)
and the Omnibus Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the General Partner) in accordance with the provisions
of this Section 7.5 is hereby approved by the Partnership and all Partners, (ii)
it shall be deemed not to be a breach of the General Partner's fiduciary duty or
any other obligation of any type whatsoever of the General Partner for the
Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the Partnership
and (iii) except as set forth in the Omnibus Agreement, the General Partner and
the Indemnitees shall have no obligation to present business opportunities to
the Partnership.

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     (e) The General Partner and any of its Affiliates may acquire Units or
other Partnership Securities in addition to those acquired on the Closing Date
and, except as otherwise provided in this Agreement, shall be entitled to
exercise all rights of the General Partner or Limited Partner, as applicable,
relating to such Units or Partnership Securities.

     (f) The term "Affiliates" when used in Section 7.5(a) and Section 7.5(e)
with respect to the General Partner shall not include any Group Member or any
Subsidiary of the Group Member.

     (g) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partner to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partner has complied with its
fiduciary duties in connection with determinations made by it under this Section
7.5.

Section7.6 Loans from the General Partner; Loans or Contributions from the
           Partnership; Contracts with Affiliates; Certain Restrictions on the
           General Partner.

     (a) The General Partner or any of its Affiliates may lend to any Group
Member, and any Group Member may borrow from the General Partner or any of its
Affiliates, funds needed or desired by the Group Member for such periods of time
and in such amounts as the General Partner may determine; provided, however,
that in any such case the lending party may not charge the borrowing party
interest at a rate greater than the rate that would be charged the borrowing
party or impose terms less favorable to the borrowing party than would be
charged or imposed on the borrowing party by unrelated lenders on comparable
loans made on an arm's-length basis (without reference to the lending party's
financial abilities or guarantees). The borrowing party shall reimburse the
lending party for any costs (other than any additional interest costs) incurred
by the lending party in connection with the borrowing of such funds. For
purposes of this Section 7.6(a) and Section 7.6(b), the term "Group Member"
shall include any Affiliate of a Group Member that is controlled by the Group
Member. No Group Member may lend funds to the General Partner or any of its
Affiliates (other than another Group Member), otherwise than as provided in the
Treasury Services Agreement.

     (b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.

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     (c) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as General Partner of the Partnership.
Any services rendered to a Group Member by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 7.6(c) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction, the terms of which are no less favorable to the Partnership Group
than those generally being provided to or available from unrelated third parties
or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership Group. The provisions of Section 7.4 shall apply to
the rendering of services described in this Section 7.6(c).

     (d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.

     (e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
Agreement and any other transactions described in or contemplated by the
Registration Statement, (ii) any transaction approved by Special Approval, (iii)
any transaction, the terms of which are no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties, or (iv) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership), is equitable
to the Partnership. With respect to any contribution of assets to the
Partnership in exchange for Partnership Securities, the Conflicts Committee, in
determining whether the appropriate number of Partnership Securities are being
issued, may take into account, among other things, the fair market value of the
assets, the liquidated and contingent liabilities assumed, the tax basis in the
assets, the extent to which tax-only allocations to the transferor will protect
the existing partners of the Partnership against a low tax basis, and such other
factors as the Conflicts Committee deems relevant under the circumstances.

     (f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.

     (g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.

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Section 7.7 Indemnification.

     (a) To the fullest extent permitted by law but subject to the limitations
expressly provided in this Agreement, all Indemnitees shall be indemnified and
held harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees and
expenses), judgments, fines, penalties, interest, settlements or other amounts
arising from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as an Indemnitee; provided, that in each case the Indemnitee acted in
good faith and in a manner that such Indemnitee reasonably believed to be in, or
(in the case of a Person other than the General Partner) not opposed to, the
best interests of the Partnership and, with respect to any criminal proceeding,
had no reasonable cause to believe its conduct was unlawful; provided, further,
no indemnification pursuant to this Section 7.7 shall be available to the
General Partner with respect to its obligations incurred pursuant to the
Underwriting Agreement, the Omnibus Agreement or the Contribution Agreement
(other than obligations incurred by the General Partner on behalf of the
Partnership). The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that the Indemnitee acted in a manner
contrary to that specified above. Any indemnification pursuant to this Section
7.7 shall be made only out of the assets of the Partnership, it being agreed
that the General Partner shall not be personally liable for such indemnification
and shall have no obligation to contribute or loan any monies or property to the
Partnership to enable it to effectuate such indemnification.

     (b) To the fullest extent permitted by law, expenses (including legal fees
and expenses) incurred by an Indemnitee who is indemnified pursuant to Section
7.7(a) in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Partnership
of any undertaking by or on behalf of the Indemnitee to repay such amount if it
shall be determined that the Indemnitee is not entitled to be indemnified as
authorized in this Section 7.7.

     (c) The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Limited Partner Interests, as
a matter of law or otherwise, both as to actions in the Indemnitee's capacity as
an Indemnitee and as to actions in any other capacity (including any capacity
under the Underwriting Agreement), and shall continue as to an Indemnitee who
has ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of the Indemnitee.

     (d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner, its Affiliates and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expense that
may be incurred by such Person in connection with the Partnership's activities
or such Person's activities on behalf of the Partnership, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.

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     (e) For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute "fines"
within the meaning of Section 7.7(a); and action taken or omitted by it with
respect to any employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is in, or
not opposed to, the best interests of the Partnership.

     (f) In no event may an Indemnitee subject the Limited Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.

     (g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.

     (h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.

     (i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.

Section 7.8 Liability of Indemnitees.

     (a) Notwithstanding anything to the contrary set forth in this Agreement,
no Indemnitee shall be liable for monetary damages to the Partnership, the
Limited Partners, the Assignees or any other Persons who have acquired interests
in the Partnership Securities, for losses sustained or liabilities incurred as a
result of any act or omission if such Indemnitee acted in good faith.

     (b) Subject to its obligations and duties as General Partner set forth in
Section 7.1(a), the General Partner may exercise any of the powers granted to it
by this Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.

     (c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Partners, the General Partner and any other Indemnitee acting in
connection with the Partnership's business or affairs shall not be liable to the
Partnership or to any Partner for its good faith reliance on the provisions

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of this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.

     (d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partner, and the Partnership's and General Partner's directors, officers
and employees under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.

Section 7.9 Resolution of Conflicts of Interest.

     (a) Unless otherwise expressly provided in this Agreement or the Operating
Partnership Agreement, whenever a potential conflict of interest exists or
arises between the General Partner or any of its Affiliates, on the one hand,
and the Partnership, the Operating Partnership, any Partner or any Assignee, on
the other, any resolution or course of action by the General Partner or its
Affiliates in respect of such conflict of interest shall be permitted and deemed
approved by all Partners, and shall not constitute a breach of this Agreement,
of the Operating Partnership Agreement, of any agreement contemplated herein or
therein, or of any duty stated or implied by law or equity, if the resolution or
course of action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The General Partner shall be authorized but not
required in connection with its resolution of such conflict of interest to seek
Special Approval of such resolution. Any such approval shall be subject to the
presumption that, in making its decision, the Conflicts Committee acted on an
informed basis, in good faith, and in the honest belief that the action taken
was in the best interests of the Partnership, and in any proceeding brought by
any Unitholder or by or on behalf of such Unitholder or any other Unitholders or
the Partnership challenging such approval, the Person bringing or prosecuting
such proceeding shall have the burden of overcoming such presumption. Any
conflict of interest and any resolution of such conflict of interest shall be
conclusively deemed fair and reasonable to the Partnership if such conflict of
interest or resolution is (i) approved by Special Approval, (ii) on terms no
less favorable to the Partnership than those generally being provided to or
available from unrelated third parties or (iii) fair to the Partnership, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner may also adopt a resolution or course
of action that has not received Special Approval. The General Partner (including
the Conflicts Committee in connection with Special Approval) shall be authorized
in connection with its determination of what is "fair and reasonable" to the
Partnership and in connection with its resolution of any conflict of interest to
consider (A) the relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such interest;
(B) any customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Conflicts Committee) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances. In
any proceeding brought by any Unitholder by or on behalf of such Unitholder or
any other Unitholders or the Partnership alleging that such a

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resolution by the General Partner (and not by the Conflicts Committee, whose
resolution shall be conclusive as provided above) is not fair to the
Partnership, such Unitholder shall have the burden of proof of overcoming such
conclusion. Nothing contained in this Agreement, however, is intended to nor
shall it be construed to require the General Partner (including the Conflicts
Committee) to consider the interests of any Person other than the Partnership.
In the absence of bad faith by the General Partner, the resolution, action or
terms so made, taken or provided by the General Partner with respect to such
matter shall not constitute a breach of this Agreement or any other agreement
contemplated herein or a breach of any standard of care or duty imposed herein
or therein or, to the extent permitted by law, under the Delaware Act or any
other law, rule or regulation.

     (b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, the Partnership, the
Operating Partnership, any Limited Partner or any Assignee, (ii) it may make
such decision in its sole discretion (regardless of whether there is a reference
to "sole discretion" or "discretion") unless another express standard is
provided for, or (iii) in "good faith" or under another express standard, the
General Partner or such Affiliate shall act under such express standard and
shall not be subject to any other or different standards imposed by this
Agreement, the Operating Partnership Agreement, any other agreement contemplated
hereby or under the Delaware Act or any other law, rule or regulation. In
addition, any actions taken by the General Partner or such Affiliate consistent
with the standards of "reasonable discretion" set forth in the definitions of
Available Cash or Operating Surplus shall not constitute a breach of any duty of
the General Partner to the Partnership or the Limited Partners. The General
Partner shall have no duty, express or implied, to sell or otherwise dispose of
any asset of the Partnership Group other than in the ordinary course of
business. No borrowing by any Group Member or the approval thereof by the
General Partner shall be deemed to constitute a breach of any duty of the
General Partner to the Partnership or the Limited Partners by reason of the fact
that the purpose or effect of such borrowing is directly or indirectly to (A)
enable distributions to the General Partner or its Affiliates (including in
their capacities as Limited Partners) to exceed 2% of the total amount
distributed to all partners or (B) hasten the expiration of the Subordination
Period or the conversion of any Subordinated Units into Common Units.

     (c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.

     (d) The Unitholders hereby authorize the General Partner, on behalf of the
Partnership as a partner or member of a Group Member, to approve of actions by
the general partner or managing member of such Group Member similar to those
actions permitted to be taken by the General Partner pursuant to this Section
7.9.

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Section 7.10 Other Matters Concerning the General Partner.

     (a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.

     (b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.

     (c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.

     (d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified, waived
or limited, to the extent permitted by law, as required to permit the General
Partner to act under this Agreement or any other agreement contemplated by this
Agreement and to make any decision pursuant to the authority prescribed in this
Agreement, so long as such action is reasonably believed by the General Partner
to be in, or not inconsistent with, the best interests of the Partnership.

Section 7.11 Purchase or Sale of Partnership Securities.

     The General Partner may cause the Partnership to purchase or otherwise
acquire Partnership Securities; provided that, except as permitted pursuant to
Section 4.10, the General Partner may not cause any Group Member to purchase
Subordinated Units during the Subordination Period. As long as Partnership
Securities are held by any Group Member, such Partnership Securities shall not
be considered Outstanding for any purpose, except as otherwise provided herein.
The General Partner or any Affiliate of the General Partner may also purchase or
otherwise acquire and sell or otherwise dispose of Partnership Securities for
its own account, subject to the provisions of Articles IV and X.

Section 7.12 Registration Rights of the General Partner and its Affiliates.

     (a) If (i) the General Partner or any Affiliate of the General Partner
(including for purposes of this Section 7.12, any Person that is an Affiliate of
the General Partner at the date hereof notwithstanding that it may later cease
to be an Affiliate of the General Partner) holds Partnership Securities that it
desires to sell and (ii) Rule 144 of the Securities Act (or any successor rule
or regulation to Rule 144) or another exemption from registration is not
available to enable such holder of Partnership Securities (the "Holder") to
dispose of the number of Partnership Securities it desires to sell at the time
it desires to do so without registration under the Securities Act, then upon the
request of the General Partner or any of its Affiliates, the Partnership shall
file with the Commission as promptly as practicable after receiving such
request, and use all reasonable efforts to cause to become effective and remain
effective for a

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period of not less than six months following its effective date or such shorter
period as shall terminate when all Partnership Securities covered by such
registration statement have been sold, a registration statement under the
Securities Act registering the offering and sale of the number of Partnership
Securities specified by the Holder; provided, however, that the Partnership
shall not be required to effect more than three registrations pursuant to this
Section 7.12(a); and provided further, however, that if the Conflicts Committee
determines in its good faith judgment that a postponement of the requested
registration for up to six months would be in the best interests of the
Partnership and its Partners due to a pending transaction, investigation or
other event, the filing of such registration statement or the effectiveness
thereof may be deferred for up to six months, but not thereafter. In connection
with any registration pursuant to the immediately preceding sentence, the
Partnership shall promptly prepare and file (x) such documents as may be
necessary to register or qualify the securities subject to such registration
under the securities laws of such states as the Holder shall reasonably request;
provided, however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Partnership would become subject to
general service of process or to taxation or qualification to do business as a
foreign corporation or partnership doing business in such jurisdiction solely as
a result of such registration, and (y) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject to such
registration on such National Securities Exchange as the Holder shall reasonably
request, and do any and all other acts and things that may reasonably be
necessary or advisable to enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in Section 7.12(c),
all costs and expenses of any such registration and offering (other than the
underwriting discounts and commissions) shall be paid by the Partnership,
without reimbursement by the Holder.

     (b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of equity securities of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan), the Partnership shall use all reasonable efforts to include such
number or amount of securities held by the Holder in such registration statement
as the Holder shall request. If the proposed offering pursuant to this Section
7.12(b) shall be an underwritten offering, then, in the event that the managing
underwriter or managing underwriters of such offering advise the Partnership and
the Holder in writing that in their opinion the inclusion of all or some of the
Holder's Partnership Securities would adversely and materially affect the
success of the offering, the Partnership shall include in such offering only
that number or amount, if any, of securities held by the Holder which, in the
opinion of the managing underwriter or managing underwriters, will not so
adversely and materially affect the offering. Except as set forth in Section
7.12(c), all costs and expenses of any such registration and offering (other
than the underwriting discounts and commissions) shall be paid by the
Partnership, without reimbursement by the Holder.

     (c) If underwriters are engaged in connection with any registration
referred to in this Section 7.12, the Partnership shall provide indemnification,
representations, covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters. Further, in
addition to and not in limitation of the Partnership's obligation under Section
7.7, the Partnership shall, to the fullest extent permitted by law, indemnify
and hold harmless the Holder, its officers, directors and each Person who
controls the Holder (within the meaning of the Securities Act) and any agent
thereof (collectively, "Indemnified Persons") against any losses, claims,
demands, actions, causes of action, assessments, damages, liabilities

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(joint or several), costs and expenses (including interest, penalties and
reasonable attorneys' fees and disbursements), resulting to, imposed upon, or
incurred by the Indemnified Persons, directly or indirectly, under the
Securities Act or otherwise (hereinafter referred to in this Section 7.12(c) as
a "claim" and in the plural as "claims") based upon, arising out of or resulting
from any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which any Partnership Securities
were registered under the Securities Act or any state securities or Blue Sky
laws, in any preliminary prospectus (if used prior to the effective date of such
registration statement), or in any summary or final prospectus or in any
amendment or supplement thereto (if used during the period the Partnership is
required to keep the registration statement current), or arising out of, based
upon or resulting from the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
made therein not misleading; provided, however, that the Partnership shall not
be liable to any Indemnified Person to the extent that any such claim arises out
of, is based upon or results from an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
such preliminary, summary or final prospectus or such amendment or supplement,
in reliance upon and in conformity with written information furnished to the
Partnership by or on behalf of such Indemnified Person specifically for use in
the preparation thereof.

     (d) The provisions of Section 7.12(a) and 7.12(b) shall continue to be
applicable with respect to the General Partner (and any of the General Partner's
Affiliates) after it ceases to be a Partner of the Partnership, during a period
of two years subsequent to the effective date of such cessation and for so long
thereafter as is required for the Holder to sell all of the Partnership
Securities with respect to which it has requested during such two-year period
inclusion in a registration statement otherwise filed or that a registration
statement be filed; provided, however, that the Partnership shall not be
required to file successive registration statements covering the same
Partnership Securities for which registration was demanded during such two-year
period. The provisions of Section 7.12(c) shall continue in effect thereafter.

     (e) Any request to register Partnership Securities pursuant to this Section
7.12 shall (i) specify the Partnership Securities intended to be offered and
sold by the Person making the request, (ii) express such Person's present intent
to offer such shares for distribution, (iii) describe the nature or method of
the proposed offer and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and materials and
take all action as may be required in order to permit the Partnership to comply
with all applicable requirements in connection with the registration of such
Partnership Securities.

Section 7.13 Reliance by Third Parties.

     Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General Partner
to act on behalf of and in the name of the Partnership has full power and
authority to encumber, sell or otherwise use in any manner any and all assets of
the Partnership and to enter into any authorized contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to

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contest, negate or disaffirm any action of the General Partner or any such
officer in connection with any such dealing. In no event shall any Person
dealing with the General Partner or any such officer or its representatives be
obligated to ascertain that the terms of the Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
General Partner or any such officer or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (a) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (c)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.

                                  ARTICLE VIII

                     BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 8.1 Records and Accounting.

     The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including the record of the Record Holders
and Assignees of Units or other Partnership Securities, books of account and
records of Partnership proceedings, may be kept on, or be in the form of,
computer disks, hard drives, punch cards, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with U.S. GAAP.

Section 8.2 Fiscal Year.

     The fiscal year of the Partnership shall be a fiscal year ending December
31.

Section 8.3 Reports.

     (a) As soon as practicable, but in no event later than 120 days after the
close of each fiscal year of the Partnership, the General Partner shall cause to
be mailed or made available to each Record Holder of a Unit as of a date
selected by the General Partner in its discretion, an annual report containing
financial statements of the Partnership for such fiscal year of the Partnership,
presented in accordance with U.S. GAAP, including a balance sheet and statements
of operations, Partnership equity and cash flows, such statements to be audited
by a firm of independent public accountants selected by the General Partner.

     (b) As soon as practicable, but in no event later than 90 days after the
close of each Quarter except the last Quarter of each fiscal year, the General
Partner shall cause to be mailed

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or made available to each Record Holder of a Unit, as of a date selected by the
General Partner in its discretion, a report containing unaudited financial
statements of the Partnership and such other information as may be required by
applicable law, regulation or rule of any National Securities Exchange on which
the Units are listed for trading, or as the General Partner determines to be
necessary or appropriate.

                                   ARTICLE IX

                                   TAX MATTERS

Section 9.1 Tax Returns and Information.

     The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by Record Holders for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.

Section 9.2 Tax Elections.

     (a) The Partnership shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the General Partner's
determination that such revocation is in the best interests of the Limited
Partners. Notwithstanding any other provision herein contained, for the purposes
of computing the adjustments under Section 743(b) of the Code, the General
Partner shall be authorized (but not required) to adopt a convention whereby the
price paid by a transferee of a Limited Partner Interest will be deemed to be
the lowest quoted closing price of the Limited Partner Interests on any National
Securities Exchange on which such Limited Partner Interests are traded during
the calendar month in which such transfer is deemed to occur pursuant to Section
6.2(g) without regard to the actual price paid by such transferee.

     (b) The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a sixty-month period as provided in Section 709 of
the Code.

     (c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.

Section 9.3 Tax Controversies.

     Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with all
examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.

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Section 9.4 Withholding.

     Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership and the Operating Partnership
to comply with any withholding requirements established under the Code or any
other federal, state or local law including, without limitation, pursuant to
Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the
Partnership is required or elects to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income to
any Partner or Assignee (including, without limitation, by reason of Section
1446 of the Code), the amount withheld may at the discretion of the General
Partner be treated by the Partnership as a distribution of cash pursuant to
Section 6.3 in the amount of such withholding from such Partner.

                                    ARTICLE X

                              ADMISSION OF PARTNERS

Section 10.1 Admission of Initial Limited Partners.

     Upon the issuance by the Partnership of Common Units, Subordinated Units
and Incentive Distribution Rights to the General Partner and the Underwriters as
described in Section 5.3 in connection with the Initial Offering, the General
Partner shall admit such parties to the Partnership as Initial Limited Partners
in respect of the Common Units, Subordinated Units or Incentive Distribution
Rights issued to them.

Section 10.2 Admission of Substituted Limited Partner.

     By transfer of a Limited Partner Interest in accordance with Article IV,
the transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and in
the manner permitted under, this Agreement. A transferor of a Certificate
representing a Limited Partner Interest shall, however, only have the authority
to convey to a purchaser or other transferee who does not execute and deliver a
Transfer Application (a) the right to negotiate such Certificate to a purchaser
or other transferee and (b) the right to transfer the right to request admission
as a Substituted Limited Partner to such purchaser or other transferee in
respect of the transferred Limited Partner Interests. Each transferee of a
Limited Partner Interest (including any nominee holder or an agent acquiring
such Limited Partner Interest for the account of another Person) who executes
and delivers a Transfer Application shall, by virtue of such execution and
delivery, be an Assignee and be deemed to have applied to become a Substituted
Limited Partner with respect to the Limited Partner Interests so transferred to
such Person. Such Assignee shall become a Substituted Limited Partner (x) at
such time as the General Partner consents thereto, which consent may be given or
withheld in the General Partner's discretion, and (y) when any such admission is
shown on the books and records of the Partnership. If such consent is withheld,
such transferee shall be an Assignee. An Assignee shall have an interest in the
Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions, including liquidating distributions, of the Partnership. With
respect to voting rights attributable to Limited Partner Interests that are held
by Assignees, the General Partner shall be deemed to be the Limited Partner with
respect thereto

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and shall, in exercising the voting rights in respect of such Limited Partner
Interests on any matter, vote such Limited Partner Interests at the written
direction of the Assignee who is the Record Holder of such Limited Partner
Interests. If no such written direction is received, such Limited Partner
Interests will not be voted. An Assignee shall have no other rights of a Limited
Partner.

Section 10.3 Admission of Successor General Partner.

     A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the General Partner Interest pursuant
to Section 4.6 who is proposed to be admitted as a successor General Partner
shall be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner, pursuant to Section 11.1 or 11.2 or the transfer
of the General Partner Interest pursuant to Section 4.6, provided, however, that
no such successor shall be admitted to the Partnership until compliance with the
terms of Section 4.6 has occurred and such successor has executed and delivered
such other documents or instruments as may be required to effect such admission.
Any such successor shall, subject to the terms hereof, carry on the business of
the members of the Partnership Group without dissolution.

Section 10.4 Admission of Additional Limited Partners.

     (a) A Person (other than the General Partner, an Initial Limited Partner or
a Substituted Limited Partner) who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner

          (i) evidence of acceptance in form satisfactory to the General Partner
     of all of the terms and conditions of this Agreement, including the power
     of attorney granted in Section 2.6, and

          (ii) such other documents or instruments as may be required in the
     discretion of the General Partner to effect such Person's admission as an
     Additional Limited Partner.

     (b) Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.

Section 10.5 Amendment of Agreement and Certificate of Limited Partnership.

     To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file

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an amendment to the Certificate of Limited Partnership, and the General Partner
may for this purpose, among others, exercise the power of attorney granted
pursuant to Section 2.6.

                                   ARTICLE XI

                        WITHDRAWAL OR REMOVAL OF PARTNERS

Section 11.1 Withdrawal of the General Partner.

     (a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");

          (i) The General Partner voluntarily withdraws from the Partnership by
     giving written notice to the other Partners;

          (ii) The General Partner transfers all of its rights as General
     Partner pursuant to Section 4.6;

          (iii) The General Partner is removed pursuant to Section 11.2;

          (iv) The General Partner (A) makes a general assignment for the
     benefit of creditors; (B) files a voluntary bankruptcy petition for relief
     under Chapter 7 of the United States Bankruptcy Code; (C) files a petition
     or answer seeking for itself a liquidation, dissolution or similar relief
     (but not a reorganization) under any law; (D) files an answer or other
     pleading admitting or failing to contest the material allegations of a
     petition filed against the General Partner in a proceeding of the type
     described in clauses (A)-(C) of this Section 11.1(a)(iv); or (E) seeks,
     consents to or acquiesces in the appointment of a trustee (but not a
     debtor-in-possession), receiver or liquidator of the General Partner or of
     all or any substantial part of its properties;

          (v) A final and non-appealable order of relief under Chapter 7 of the
     United States Bankruptcy Code is entered by a court with appropriate
     jurisdiction pursuant to a voluntary or involuntary petition by or against
     the General Partner; or

          (vi) (A) in the event the General Partner is a corporation, a
     certificate of dissolution or its equivalent is filed for the General
     Partner, or 90 days expire after the date of notice to the General Partner
     of revocation of its charter without a reinstatement of its charter, under
     the laws of its state of incorporation; (B) in the event the General
     Partner is a partnership or a limited liability company, the dissolution
     and commencement of winding up of the General Partner; (C) in the event the
     General Partner is acting in such capacity by virtue of being a trustee of
     a trust, the termination of the trust; (D) in the event the General Partner
     is a natural person, his death or adjudication of incompetency; and (E)
     otherwise in the event of the termination of the General Partner.

If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B),
(C) or (E) occurs, the withdrawing General Partner shall give notice to the
Limited Partners within 30 days after

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such occurrence. The Partners hereby agree that only the Events of Withdrawal
described in this Section 11.1 shall result in the withdrawal of the General
Partner from the Partnership.

     (b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on December 31, 2011, the General Partner voluntarily withdraws by giving
at least 90 days' advance notice of its intention to withdraw to the Limited
Partners; provided that prior to the effective date of such withdrawal, the
withdrawal is approved by Unitholders holding at least a majority of the
Outstanding Common Units (excluding Common Units held by the General Partner and
its Affiliates) and the General Partner delivers to the Partnership an Opinion
of Counsel ("Withdrawal Opinion of Counsel") that such withdrawal (following the
selection of the successor General Partner) would not result in the loss of the
limited liability of any Limited Partner or any Group Member or cause any Group
Member 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
previously treated as such); (ii) at any time after 12:00 midnight, Eastern
Standard Time, on December 31, 2011, the General Partner voluntarily withdraws
by giving at least 90 days' advance notice to the Unitholders, such withdrawal
to take effect on the date specified in such notice; (iii) at any time that the
General Partner ceases to be the General Partner pursuant to Section 11.1(a)(ii)
or is removed pursuant to Section 11.2; or (iv) notwithstanding clause (i) of
this sentence, at any time that the General Partner voluntarily withdraws by
giving at least 90 days' advance notice of its intention to withdraw to the
Limited Partners, such withdrawal to take effect on the date specified in the
notice, if at the time such notice is given one Person and its Affiliates (other
than the General Partner and its Affiliates) own beneficially or of record or
control at least 50% of the Outstanding Units. The withdrawal of the General
Partner from the Partnership upon the occurrence of an Event of Withdrawal shall
also constitute the withdrawal of the General Partner as general partner or
managing member, to the extent applicable, of the other Group Members. If the
General Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i), the
holders of a Unit Majority, may, prior to the effective date of such withdrawal,
elect a successor General Partner. The Person so elected as successor General
Partner shall automatically become the successor general partner or managing
member, to the extent applicable, of the other Group Members of which the
General Partner is a general partner or a managing member. If, prior to the
effective date of the General Partner's withdrawal, a successor is not selected
by the Unitholders as provided herein or the Partnership does not receive a
Withdrawal Opinion of Counsel, the Partnership shall be dissolved in accordance
with Section 12.1. Any successor General Partner elected in accordance with the
terms of this Section 11.1 shall be subject to the provisions of Section 10.3.

Section 11.2 Removal of the General Partner.

     The General Partner may be removed if such removal is approved by the
Unitholders holding at least 66 2/3% of the Outstanding Units (including Units
held by the General Partner and its Affiliates). Any such action by such holders
for removal of the General Partner must also provide for the election of a
successor General Partner by the Unitholders holding a majority of the
outstanding Common Units voting as a class and a majority of the outstanding
Subordinated Units voting as a class (including Units held by the General
Partner and its Affiliates). Such removal shall be effective immediately
following the admission of a successor General Partner

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pursuant to Section 10.3. The removal of the General Partner shall also
automatically constitute the removal of the General Partner as general partner
or managing member, to the extent applicable, of the other Group Members of
which the General Partner is a general partner or a managing member. If a Person
is elected as a successor General Partner in accordance with the terms of this
Section 11.2, such Person shall, upon admission pursuant to Section 10.3,
automatically become a successor general partner or managing member, to the
extent applicable, of the other Group Members of which the General Partner is a
general partner or a managing member. The right of the holders of Outstanding
Units to remove the General Partner shall not exist or be exercised unless the
Partnership has received an opinion opining as to the matters covered by a
Withdrawal Opinion of Counsel. Any successor General Partner elected in
accordance with the terms of this Section 11.2 shall be subject to the
provisions of Section 10.3.

Section 11.3 Interest of Departing Partner and Successor General Partner.

     (a) In the event of (i) withdrawal of the General Partner under
circumstances where such withdrawal does not violate this Agreement or (ii)
removal of the General Partner by the holders of Outstanding Units under
circumstances where Cause does not exist, if the successor General Partner is
elected in accordance with the terms of Section 11.1 or 11.2, the Departing
Partner shall have the option, exercisable prior to the effective date of the
departure of such Departing Partner, to require its successor to purchase its
General Partner Interest and its general partner interest (or equivalent
interest) in the other Group Members and all of its Incentive Distribution
Rights (collectively, the "Combined Interest") in exchange for an amount in cash
equal to the fair market value of such Combined Interest, such amount to be
determined and payable as of the effective date of its departure. If the General
Partner is removed by the Unitholders under circumstances where Cause exists or
if the General Partner withdraws under circumstances where such withdrawal
violates this Agreement, and if a successor General Partner is elected in
accordance with the terms of Section 11.1 or 11.2, such successor shall have the
option, exercisable prior to the effective date of the departure of such
Departing Partner, to purchase the Combined Interest for such fair market value
of such Combined Interest of the Departing Partner. In either event, the
Departing Partner shall be entitled to receive all reimbursements due such
Departing Partner pursuant to Section 7.4, including any employee-related
liabilities (including severance liabilities), incurred in connection with the
termination of any employees employed by the Departing Partner for the benefit
of the Partnership or the other Group Members.

     For purposes of this Section 11.3(a), the fair market value of the
Departing Partner's Combined Interest shall be determined by agreement between
the Departing Partner and its successor or, failing agreement within 30 days
after the effective date of such Departing Partner's departure, by an
independent investment banking firm or other independent expert selected by the
Departing Partner and its successor, which, in turn, may rely on other experts,
and the determination of which shall be conclusive as to such matter. If such
parties cannot agree upon one independent investment banking firm or other
independent expert within 45 days after the effective date of such departure,
then the Departing Partner shall designate an independent investment banking
firm or other independent expert, the Departing Partner's successor shall
designate an independent investment banking firm or other independent expert,
and such firms or experts shall mutually select a third independent investment
banking firm or independent expert, which third independent investment banking
firm or other independent expert shall determine the

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fair market value of the Combined Interest of the Departing Partner. In making
its determination, such third independent investment banking firm or other
independent expert may consider the then current trading price of Units on any
National Securities Exchange on which Units are then listed, the value of the
Partnership's assets, the rights and obligations of the Departing Partner and
other factors it may deem relevant.

     (b) If the Combined Interest is not purchased in the manner set forth in
Section 11.3(a), the Departing Partner (or its transferee) shall become a
Limited Partner and its Combined Interest shall be converted into Common Units
pursuant to a valuation made by an investment banking firm or other independent
expert selected pursuant to Section 11.3(a), without reduction in such
Partnership Interest (but subject to proportionate dilution by reason of the
admission of its successor). Any successor General Partner shall indemnify the
Departing Partner (or its transferee) as to all debts and liabilities of the
Partnership arising on or after the date on which the Departing Partner (or its
transferee) becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest of the Departing Partner to Common Units
will be characterized as if the Departing Partner (or its transferee)
contributed its Combined Interest to the Partnership in exchange for the newly
issued Common Units.

     (c) If a successor General Partner is elected in accordance with the terms
of Section 11.1 or 11.2 and the option described in Section 11.3(a) is not
exercised by the party entitled to do so, the successor General Partner shall,
at the effective date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to 2/98ths of the Net Agreed Value of the
Partnership's assets on such date. In such event, such successor General Partner
shall, subject to the following sentence, be entitled to 2% of all Partnership
allocations and distributions to which the Departing Partner was entitled. In
addition, the successor General Partner shall cause this Agreement to be amended
to reflect that, from and after the date of such successor General Partner's
admission, the successor General Partner's interest in all Partnership
distributions and allocations shall be 2%.

Section 11.4 Termination of Subordination Period, Conversion of Subordinated
             Units and Extinguishment of Cumulative Common Unit Arrearages.

     Notwithstanding any provision of this Agreement, if the General Partner is
removed as general partner of the Partnership 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, (i) the Subordination Period will end and all
Outstanding Subordinated Units will immediately and automatically convert into
Common Units on a one-for-one basis and (ii) all Cumulative Common Unit
Arrearages on the Common Units will be extinguished.

Section 11.5 Withdrawal of Limited Partners.

     No Limited Partner shall have any right to withdraw from the Partnership;
provided, however, that when a transferee of a Limited Partner's Limited Partner
Interest becomes a Record Holder of the Limited Partner Interest so transferred,
such transferring Limited Partner shall cease to be a Limited Partner with
respect to the Limited Partner Interest so transferred.

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                                   ARTICLE XII

                           DISSOLUTION AND LIQUIDATION

Section 12.1 Dissolution.

     The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:

     (a) an Event of Withdrawal of the General Partner as provided in Section
11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an
Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and such
successor is admitted to the Partnership pursuant to Section 10.3;

     (b) an election to dissolve the Partnership by the General Partner that is
approved by the holders of a Unit Majority;

     (c) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act; or

     (d) the sale of all or substantially all of the assets and properties of
the Partnership Group.

Section 12.2 Continuation of the Business of the Partnership After Dissolution.

     Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
the holders of a Unit Majority may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those set
forth in this Agreement and having as the successor General partner a Person
approved by the holders of a Unit Majority. Unless such an election is made
within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election is
so made, then:

          (i) the reconstituted Partnership shall continue unless earlier
     dissolved in accordance with this Article XII;

          (ii) if the successor General Partner is not the former General
     Partner, then the interest of the former General Partner shall be treated
     in the manner provided in Section 11.3; and

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          (iii) all necessary steps shall be taken to cancel this Agreement and
     the Certificate of Limited Partnership and to enter into and, as necessary,
     to file a new partnership agreement and certificate of limited partnership,
     and the successor General Partner may for this purpose exercise the powers
     of attorney granted the General Partner pursuant to Section 2.6; provided,
     that the right of the holders of a Unit Majority to approve a successor
     General Partner and to reconstitute and to continue the business of the
     Partnership shall not exist and may not be exercised unless the Partnership
     has received an Opinion of Counsel that (x) the exercise of the right would
     not result in the loss of limited liability of any Limited Partner and (y)
     neither the Partnership, the reconstituted limited partnership nor the
     Operating Partnership or any other Group Member 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 such right to
     continue.

Section 12.3 Liquidator.

     Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by holders of
at least a majority of the Outstanding Common Units and Subordinated Units
voting as a single class. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days' prior notice and may be
removed at any time, with or without cause, by notice of removal approved by
holders of at least a majority of the Outstanding Common Units and Subordinated
Units voting as a single class. Upon dissolution, removal or resignation of the
Liquidator, a successor and substitute Liquidator (who shall have and succeed to
all rights, powers and duties of the original Liquidator) shall within 30 days
thereafter be approved by holders of at least a majority of the Outstanding
Common Units and Subordinated Units voting as a single class. The right to
approve a successor or substitute Liquidator in the manner provided herein shall
be deemed to refer also to any such successor or substitute Liquidator approved
in the manner herein provided. Except as expressly provided in this Article XII,
the Liquidator approved in the manner provided herein shall have and may
exercise, without further authorization or consent of any of the parties hereto,
all of the powers conferred upon the General Partner under the terms of this
Agreement (but subject to all of the applicable limitations, contractual and
otherwise, upon the exercise of such powers, other than the limitation on sale
set forth in Section 7.3(b)) to the extent necessary or desirable in the good
faith judgment of the Liquidator to carry out the duties and functions of the
Liquidator hereunder for and during such period of time as shall be reasonably
required in the good faith judgment of the Liquidator to complete the winding up
and liquidation of the Partnership as provided for herein.

Section 12.4 Liquidation.

     The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:

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     (a) The assets may be disposed of by public or private sale or by
distribution in kind to one or more Partners on such terms as the Liquidator and
such Partner or Partners may agree. If any property is distributed in kind, the
Partner receiving the property shall be deemed for purposes of Section 12.4(c)
to have received cash equal to its fair market value; and contemporaneously
therewith, appropriate cash distributions must be made to the other Partners.
The Liquidator may, in its absolute discretion, defer liquidation or
distribution of the Partnership's assets for a reasonable time if it determines
that an immediate sale or distribution of all or some of the Partnership's
assets would be impractical or would cause undue loss to the Partners. The
Liquidator may, in its absolute discretion, distribute the Partnership's assets,
in whole or in part, in kind if it determines that a sale would be impractical
or would cause undue loss to the Partners.

     (b) Liabilities of the Partnership include amounts owed to the Liquidator
as compensation for serving in such capacity (subject to the terms of Section
12.3) and amounts to Partners otherwise than in respect of their distribution
rights under Article VI. With respect to any liability that is contingent,
conditional or unmatured or is otherwise not yet due and payable, the Liquidator
shall either settle such claim for such amount as it thinks appropriate or
establish a reserve of cash or other assets to provide for its payment. When
paid, any unused portion of the reserve shall be distributed as additional
liquidation proceeds.

     (c) All property and all cash in excess of that required to discharge
liabilities as provided in Section 12.4(b) shall be distributed to the Partners
in accordance with, and to the extent of, the positive balances in their
respective Capital Accounts, as determined after taking into account all Capital
Account adjustments (other than those made by reason of distributions pursuant
to this Section 12.4(c)) for the taxable year of the Partnership during which
the liquidation of the Partnership occurs (with such date of occurrence being
determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and
such distribution shall be made by the end of such taxable year (or, if later,
within 90 days after said date of such occurrence).

Section 12.5 Cancellation of Certificate of Limited Partnership.

     Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
the Partnership shall be terminated and the Certificate of Limited Partnership
and all qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.

Section 12.6 Return of Contributions.

     The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners or Unitholders, or any portion thereof, it being expressly understood
that any such return shall be made solely from Partnership assets.

Section 12.7 Waiver of Partition.

     To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.

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Section 12.8 Capital Account Restoration.

     No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.

                                  ARTICLE XIII

            AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE

Section 13.1 Amendment to be Adopted Solely by the General Partner.

     Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:

     (a) a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent of the Partnership or
the registered office of the Partnership;

     (b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;

     (c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure that
the Group Members will not be treated as associations taxable as corporations or
otherwise taxed as entities for federal income tax purposes;

     (d) a change that, in the discretion of the General Partner, (i) does not
adversely affect the Limited Partners (including any particular class of
Partnership Interests as compared to other classes of Partnership Interests) in
any material respect, (ii) is necessary or advisable to (A) 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 (including the Delaware Act) or (B)
facilitate the trading of the Units (including the division of any class or
classes of Outstanding Units into different classes to facilitate uniformity of
tax consequences within such classes of Units) or comply with any rule,
regulation, guideline or requirement of any National Securities Exchange on
which the Units are or will be listed for trading, compliance with any of which
the General Partner determines in its discretion to be in the best interests of
the Partnership and the Limited Partners, (iii) is necessary or advisable in
connection with action taken by the General Partner pursuant to Section 5.10 or
(iv) is required to effect the intent expressed in the Registration Statement or
the intent of the provisions of this Agreement or is otherwise contemplated by
this Agreement;

     (e) a change in the fiscal year or taxable year of the Partnership and any
changes that, in the discretion of the General Partner, are necessary or
advisable as a result of a change in the

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fiscal year or taxable year of the Partnership including, if the General Partner
shall so determine, a change in the definition of "Quarter" and the dates on
which distributions are to be made by the Partnership;

     (f) an amendment that is necessary, in the Opinion of Counsel, to prevent
the Partnership, or the General Partner or its directors, officers, trustees or
agents from in any manner being subjected to the provisions of the Investment
Company Act of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;

     (g) subject to the terms of Section 5.7, an amendment that, in the
discretion of the General Partner, is necessary or advisable in connection with
the authorization of issuance of any class or series of Partnership Securities
pursuant to Section 5.6;

     (h) any amendment expressly permitted in this Agreement to be made by the
General Partner acting alone;

     (i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;

     (j) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;

     (k) a merger or conveyance pursuant to Section 14.3(d); or

     (l) any other amendments substantially similar to the foregoing.

Section 13.2 Amendment Procedures.

     Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this 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. A
proposed amendment shall be effective upon its approval by the holders of a Unit
Majority, unless a greater or different percentage is required under this
Agreement or by Delaware law. Each proposed amendment that requires the approval
of the holders of a specified percentage of Outstanding Units shall be set forth
in a writing that contains the text of the proposed amendment. If such an
amendment is proposed, the General Partner shall seek the written approval of
the requisite percentage of Outstanding Units or call a meeting of the
Unitholders to consider and vote on such proposed amendment. The General Partner
shall notify all Record Holders upon final adoption of any such proposed
amendments.

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Section 13.3 Amendment Requirements.

     (a) Notwithstanding the provisions of Sections 13.1 and 13.2, no provision
of this Agreement that establishes a percentage of Outstanding Units (including
Units deemed owned by the General Partner) required to take any action shall be
amended, altered, changed, repealed or rescinded in any respect that would have
the effect of reducing such voting percentage unless such amendment is approved
by the written consent or the affirmative vote of holders of Outstanding Units
whose aggregate Outstanding Units constitute not less than the voting
requirement sought to be reduced.

     (b) Notwithstanding the provisions of Sections 13.1 and 13.2, no amendment
to this Agreement may (i) enlarge the obligations of any Limited Partner without
its consent, unless such shall be deemed to have occurred as a result of an
amendment approved pursuant to Section 13.3(c), (ii) 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 to, the General Partner or any
of its Affiliates without its consent, which consent may be given or withheld in
its sole discretion, (iii) change Section 12.1(b), or (iv) change the term of
the Partnership or, except as set forth in Section 12.1(b), give any Person the
right to dissolve the Partnership.

     (c) Except as provided in Section 14.3, and without limitation of the
General Partner's authority to adopt amendments to this Agreement without the
approval of any Partners or Assignees as contemplated in Section 13.1, any
amendment that would have a material adverse effect on the rights or preferences
of any class of Partnership Interests in relation to other classes of
Partnership Interests must be approved by the holders of not less than a
majority of the Outstanding Partnership Interests of the class affected.

     (d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 13.1 and except as otherwise provided by Section
14.3(b), no amendments shall become effective without the approval of the
holders of at least 90% of the Outstanding Units voting as a single class unless
the Partnership obtains an Opinion of Counsel to the effect that such amendment
will not affect the limited liability of any Limited Partner under applicable
law.

     (e) Except as provided in Section 13.1, this Section 13.3 shall only be
amended with the approval of the holders of at least 90% of the Outstanding
Units.

Section 13.4 Special Meetings.

     All acts of Limited Partners to be taken pursuant to this Agreement shall
be taken in the manner provided in this Article XIII. Special meetings of the
Limited Partners may be called by the General Partner or by Limited Partners
owning 20% or more of the Outstanding Units of the class or classes for which a
meeting is proposed. Limited Partners shall call a special meeting by delivering
to the General Partner one or more requests in writing stating that the signing
Limited Partners wish to call a special meeting and indicating the general or
specific purposes for which the special meeting is to be called. Within 60 days
after receipt of such a call from Limited Partners or within such greater time
as may be reasonably necessary for the Partnership to comply with any statutes,
rules, regulations, listing agreements or similar requirements

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governing the holding of a meeting or the solicitation of proxies for use at
such a meeting, the General Partner shall send a notice of the meeting to the
Limited Partners either directly or indirectly through the Transfer Agent. A
meeting shall be held at a time and place determined by the General Partner on a
date not less than 10 days nor more than 60 days after the mailing of notice of
the meeting. Limited Partners shall not vote on matters that would cause the
Limited Partners to be deemed to be taking part in the management and control of
the business and affairs of the Partnership so as to jeopardize the Limited
Partners' limited liability under the Delaware Act or the law of any other state
in which the Partnership is qualified to do business.

Section 13.5 Notice of a Meeting.

     Notice of a meeting called pursuant to Section 13.4 shall be given to the
Record Holders of the class or classes of Units for which a meeting is proposed
in writing by mail or other means of written communication in accordance with
Section 16.1. The notice shall be deemed to have been given at the time when
deposited in the mail or sent by other means of written communication.

Section 13.6 Record Date.

     For purposes of determining the Limited Partners entitled to notice of or
to vote at a meeting of the Limited Partners or to give approvals without a
meeting as provided in Section 13.11 the General Partner may set a Record Date,
which shall not be less than 10 nor more than 60 days before (a) the date of the
meeting (unless such requirement conflicts with any rule, regulation, guideline
or requirement of any National Securities Exchange on which the Units are listed
for trading, in which case the rule, regulation, guideline or requirement of
such exchange shall govern) or (b) in the event that approvals are sought
without a meeting, the date by which Limited Partners are requested in writing
by the General Partner to give such approvals.

Section 13.7 Adjournment.

     When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting and a new Record Date need not be fixed, if the
time and place thereof are announced at the meeting at which the adjournment is
taken, unless such adjournment shall be for more than 45 days. At the adjourned
meeting, the Partnership may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 45 days
or if a new Record Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this Article XIII.

Section 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.

     The transactions of any meeting of Limited Partners, however called and
noticed, and whenever held, shall be as valid as if it had occurred at a meeting
duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, Limited Partners
representing such quorum who were present in person or by proxy and entitled to
vote, sign a written waiver of notice or an approval of the holding of the
meeting or an approval of the minutes thereof. All waivers and approvals shall
be filed with the Partnership records or made a part of the minutes of the
meeting. Attendance of a Limited Partner at a

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meeting shall constitute a waiver of notice of the meeting, except when the
Limited Partner does not approve, at the beginning of the meeting, of the
transaction of any business because the meeting is not lawfully called or
convened; and except that attendance at a meeting is not a waiver of any right
to disapprove the consideration of matters required to be included in the notice
of the meeting, but not so included, if the disapproval is expressly made at the
meeting.

Section 13.9 Quorum.

     The holders of a majority of the Outstanding Units of the class or classes
for which a meeting has been called (including Outstanding Units deemed owned by
the General Partner) represented in person or by proxy shall constitute a quorum
at a meeting of Limited Partners of such class or classes unless any such action
by the Limited Partners requires approval by holders of a greater percentage of
such Units, in which case the quorum shall be such greater percentage. At any
meeting of the Limited Partners duly called and held in accordance with this
Agreement at which a quorum is present, the act of Limited Partners holding
Outstanding Units that in the aggregate represent a majority of the Outstanding
Units entitled to vote and be present in person or by proxy at such meeting
shall be deemed to constitute the act of all Limited Partners, unless a greater
or different percentage is required with respect to such action under the
provisions of this Agreement, in which case the act of the Limited Partners
holding Outstanding Units that in the aggregate represent at least such greater
or different percentage shall be required. The Limited Partners present at a
duly called or held meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Limited Partners to leave less than a quorum, if any action taken (other than
adjournment) is approved by the required percentage of Outstanding Units
specified in this Agreement (including Outstanding Units deemed owned by the
General Partner). In the absence of a quorum any meeting of Limited Partners may
be adjourned from time to time by the affirmative vote of holders of at least a
majority of the Outstanding Units entitled to vote at such meeting (including
Outstanding Units deemed owned by the General Partner) represented either in
person or by proxy, but no other business may be transacted, except as provided
in Section 13.7.

Section 13.10 Conduct of a Meeting.

     The General Partner shall have full power and authority concerning the
manner of conducting any meeting of the Limited Partners or solicitation of
approvals in writing, including the determination of Persons entitled to vote,
the existence of a quorum, the satisfaction of the requirements of Section 13.4,
the conduct of voting, the validity and effect of any proxies and the
determination of any controversies, votes or challenges arising in connection
with or during the meeting or voting. The General Partner shall designate a
Person to serve as chairman of any meeting and shall further designate a Person
to take the minutes of any meeting. All minutes shall be kept with the records
of the Partnership maintained by the General Partner. The General Partner may
make such other regulations consistent with applicable law and this Agreement as
it may deem advisable concerning the conduct of any meeting of the Limited
Partners or solicitation of approvals in writing, including regulations in
regard to the appointment of proxies, the appointment and duties of inspectors
of votes and approvals, the submission and examination of proxies and other
evidence of the right to vote, and the revocation of approvals in writing.

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Section 13.11 Action Without a Meeting.

     If authorized by the General Partner, any action that may be taken at a
meeting of the Limited Partners may be taken without a meeting if an approval in
writing setting forth the action so taken is signed by Limited Partners owning
not less than the minimum percentage of the Outstanding Units (including Units
deemed owned by the General Partner) that would be necessary to authorize or
take such action at a meeting at which all the Limited Partners were present and
voted (unless such provision conflicts with any rule, regulation, guideline or
requirement of any National Securities Exchange on which the Units are listed
for trading, in which case the rule, regulation, guideline or requirement of
such exchange shall govern). Prompt notice of the taking of action without a
meeting shall be given to the Limited Partners who have not approved in writing.
The General Partner may specify that any written ballot submitted to Limited
Partners for the purpose of taking any action without a meeting shall be
returned to the Partnership within the time period, which shall be not less than
20 days, specified by the General Partner. If a ballot returned to the
Partnership does not vote all of the Units held by the Limited Partners, the
Partnership shall be deemed to have failed to receive a ballot for the Units
that were not voted. If approval of the taking of any action by the Limited
Partners is solicited by any Person other than by or on behalf of the General
Partner, the written approvals shall have no force and effect unless and until
(a) they are deposited with the Partnership in care of the General Partner, (b)
approvals sufficient to take the action proposed are dated as of a date not more
than 90 days prior to the date sufficient approvals are deposited with the
Partnership and (c) an Opinion of Counsel is delivered to the General Partner to
the effect that the exercise of such right and the action proposed to be taken
with respect to any particular matter (i) will not cause the Limited Partners to
be deemed to be taking part in the management and control of the business and
affairs of the Partnership so as to jeopardize the Limited Partners' limited
liability, and (ii) is otherwise permissible under the state statutes then
governing the rights, duties and liabilities of the Partnership and the
Partners.

Section 13.12 Voting and Other Rights.

     (a) Only those Record Holders of the Units on the Record Date set pursuant
to Section 13.6 (and also subject to the limitations contained in the definition
of "Outstanding") shall be entitled to notice of, and to vote at, a meeting of
Limited Partners or to act with respect to matters as to which the holders of
the Outstanding Units have the right to vote or to act. All references in this
Agreement to votes of, or other acts that may be taken by, the Outstanding Units
shall be deemed to be references to the votes or acts of the Record Holders of
such Outstanding Units.

     (b) With respect to Units that are held for a Person's account by another
Person (such as a broker, dealer, bank, trust company or clearing corporation,
or an agent of any of the foregoing), in whose name such Units are registered,
such other Person shall, in exercising the voting rights in respect of such
Units on any matter, and unless the arrangement between such Persons provides
otherwise, vote such Units in favor of, and at the direction of, the Person who
is the beneficial owner, and the Partnership shall be entitled to assume it is
so acting without further inquiry. The provisions of this Section 13.12(b) (as
well as all other provisions of this Agreement) are subject to the provisions of
Section 4.3.

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                                   ARTICLE XIV

                                     MERGER

Section 14.1 Authority.

     The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.

Section 14.2 Procedure for Merger or Consolidation.

     Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:

     (a) the names and jurisdictions of formation or organization of each of the
business entities proposing to merge or consolidate;

     (b) the name and jurisdiction of formation or organization of the business
entity that is to survive the proposed merger or consolidation (the "Surviving
Business Entity");

     (c) the terms and conditions of the proposed merger or consolidation;

     (d) the manner and basis of exchanging or converting the equity securities
of each constituent business entity for, or into, cash, property or general or
limited partner interests, rights, securities or obligations of the Surviving
Business Entity; and (i) if any general or limited partner interests, securities
or rights of any constituent business entity are not to be exchanged or
converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;

     (e) a statement of any changes in the constituent documents or the adoption
of new constituent documents (the articles or certificate of incorporation,
articles of trust, declaration of trust, certificate or agreement of limited
partnership or other similar charter or governing document) of the Surviving
Business Entity to be effected by such merger or consolidation;

                                       89


<PAGE>

     (f) the effective time of the merger, which may be the date of the filing
of the certificate of merger pursuant to Section 14.4 or a later date specified
in or determinable in accordance with the Merger Agreement (provided, that if
the effective time of the merger is to be later than the date of the filing of
the certificate of merger, the effective time shall be fixed no later than the
time of the filing of the certificate of merger and stated therein); and

     (g) such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.

Section 14.3 Approval by Limited Partners of Merger or Consolidation.

     (a) Except as provided in Section 14.3(d), the General Partner, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.

     (b) Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the holders of a Unit
Majority unless the Merger Agreement contains any provision that, if contained
in an amendment to this Agreement, the provisions of this Agreement or the
Delaware Act would require for its approval the vote or consent of a greater
percentage of the Outstanding Units or of any class of Limited Partners, in
which case such greater percentage vote or consent shall be required for
approval of the Merger Agreement.

     (c) Except as provided in Section 14.3(d), after such approval by vote or
consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.

     (d) Notwithstanding anything else contained in this Article XIV or in this
Agreement, the General Partner is permitted, in its discretion, without Limited
Partner approval, to merge the Partnership or any Group Member into, or convey
all of the Partnership's assets to, another limited liability entity which shall
be newly formed and shall have no assets, liabilities or operations at the time
of such Merger other than those it receives from the Partnership or other Group
Member if (i) the General Partner has received an Opinion of Counsel that the
merger or conveyance, as the case may be, would not result in the loss of the
limited liability of any Limited Partner or any Group Member or cause the
Partnership or any Group Member 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 previously treated as such), (ii) the sole purpose
of such merger or conveyance is to effect a mere change in the legal form of the
Partnership into another limited liability entity and (iii) the governing
instruments of the new entity provide the Limited Partners and the General
Partner with the same rights and obligations as are herein contained.

                                       90


<PAGE>

Section 14.4 Certificate of Merger.

     Upon the required approval by the General Partner and the Unitholders of a
Merger Agreement, a certificate of merger shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with the requirements
of the Delaware Act.

Section 14.5 Effect of Merger.

     (a) At the effective time of the certificate of merger:

          (i) all of the rights, privileges and powers of each of the business
     entities that has merged or consolidated, and all property, real, personal
     and mixed, and all debts due to any of those business entities and all
     other things and causes of action belonging to each of those business
     entities, shall be vested in the Surviving Business Entity and after the
     merger or consolidation shall be the property of the Surviving Business
     Entity to the extent they were of each constituent business entity;

          (ii) the title to any real property vested by deed or otherwise in any
     of those constituent business entities shall not revert and is not in any
     way impaired because of the merger or consolidation;

          (iii) all rights of creditors and all liens on or security interests
     in property of any of those constituent business entities shall be
     preserved unimpaired; and

          (iv) all debts, liabilities and duties of those constituent business
     entities shall attach to the Surviving Business Entity and may be enforced
     against it to the same extent as if the debts, liabilities and duties had
     been incurred or contracted by it.

     (b) A merger or consolidation effected pursuant to this Article shall not
be deemed to result in a transfer or assignment of assets or liabilities from
one entity to another.

                                   ARTICLE XV

                   RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS

Section 15.1 Right to Acquire Limited Partner Interests.

     (a) Notwithstanding any other provision of this Agreement, if at any time
the General Partner and its Affiliates hold more than 80% of the total Limited
Partner Interests of any class then Outstanding, the General Partner shall then
have the right, which right it may assign and transfer in whole or in part to
the Partnership or any Affiliate of the General Partner, exercisable in its sole
discretion, to purchase all, but not less than all, of such Limited Partner
Interests of such class then Outstanding held by Persons other than the General
Partner and its Affiliates, at the greater of (x) the Current Market Price as of
the date three days prior to the date that the notice described in Section
15.1(b) is mailed and (y) the highest price paid by the General Partner or any
of its Affiliates for any such Limited Partner Interest of such class purchased
during the 90-day period preceding the date that the notice described in Section
15.1(b) is mailed. As used in this Agreement, (i) "Current Market Price" as of
any date of any class of

                                       91


<PAGE>

Limited Partner Interests means the average of the daily Closing Prices (as
hereinafter defined) per Limited Partner Interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such
date; (ii) "Closing Price" for any day means the last sale price on such day,
regular way, or in case no such sale takes place on such day, the average of the
closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of such class are listed or admitted to trading or, if such
Limited Partner Interests of such class are not listed or admitted to trading on
any National Securities Exchange (other than the Nasdaq Stock Market), the last
quoted price on such day or, if not so quoted, the average of the high bid and
low asked prices on such day in the over-the-counter market, as reported by the
Nasdaq Stock Market or such other system then in use, or, if on any such day
such Limited Partner Interests of such class are not quoted by any such
organization, the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in such Limited Partner
Interests of such class selected by the General Partner, or if on any such day
no market maker is making a market in such Limited Partner Interests of such
class, the fair value of such Limited Partner Interests on such day as
determined reasonably and in good faith by the General Partner; and (iii)
"Trading Day" means a day on which the principal National Securities Exchange on
which such Limited Partner Interests of any class are listed or admitted to
trading is open for the transaction of business or, if Limited Partner Interests
of a class are not listed or admitted to trading on any National Securities
Exchange, a day on which banking institutions in New York City generally are
open.

     (b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Limited Partner Interests
granted pursuant to Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the "Notice of Election to
Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Limited Partner Interests of such
class (as of a Record Date selected by the General Partner) at least 10, but not
more than 60, days prior to the Purchase Date. Such Notice of Election to
Purchase shall also be published for a period of at least three consecutive days
in at least two daily newspapers of general circulation printed in the English
language and published in the Borough of Manhattan, New York. The Notice of
Election to Purchase shall specify the Purchase Date and the price (determined
in accordance with Section 15.1(a)) at which Limited Partner Interests will be
purchased and state that the General Partner, its Affiliate or the Partnership,
as the case may be, elects to purchase such Limited Partner Interests, upon
surrender of Certificates representing such Limited Partner Interests in
exchange for payment, at such office or offices of the Transfer Agent as the
Transfer Agent may specify, or as may be required by any National Securities
Exchange on which such Limited Partner Interests are listed or admitted to
trading. Any such Notice of Election to Purchase mailed to a Record Holder of
Limited Partner Interests at his address as reflected in the records of the
Transfer Agent shall be conclusively presumed to have been given regardless of
whether the owner receives such notice. On or prior to the Purchase Date, the
General Partner, its Affiliate or the Partnership, as the case may be, shall
deposit with the Transfer Agent cash in an amount sufficient to pay the
aggregate purchase price of all of such Limited Partner Interests to be
purchased in accordance with this Section 15.1. If the Notice of Election to
Purchase shall have been duly given as aforesaid at least 10 days prior to the
Purchase Date, and if on or prior to the Purchase Date the deposit described in
the preceding sentence has been made for the benefit

                                       92


<PAGE>

of the holders of Limited Partner Interests subject to purchase as provided
herein, then from and after the Purchase Date, notwithstanding that any
Certificate shall not have been surrendered for purchase, all rights of the
holders of such Limited Partner Interests (including any rights pursuant to
Articles IV, V, VI, and XII) shall thereupon cease, except the right to receive
the purchase price (determined in accordance with Section 15.1(a)) for Limited
Partner Interests therefor, without interest, upon surrender to the Transfer
Agent of the Certificates representing such Limited Partner Interests, and such
Limited Partner Interests shall thereupon be deemed to be transferred to the
General Partner, its Affiliate or the Partnership, as the case may be, on the
record books of the Transfer Agent and the Partnership, and the General Partner
or any Affiliate of the General Partner, or the Partnership, as the case may be,
shall be deemed to be the owner of all such Limited Partner Interests from and
after the Purchase Date and shall have all rights as the owner of such Limited
Partner Interests (including all rights as owner of such Limited Partner
Interests pursuant to Articles IV, V, VI and XII).

     (c) At any time from and after the Purchase Date, a holder of an
Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such Limited Partner
Interest to the Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.

                                   ARTICLE XVI

                               GENERAL PROVISIONS

Section 16.1 Addresses and Notices.

     Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner or Assignee at the address described below. Any
notice, payment or report to be given or made to a Partner or Assignee hereunder
shall be deemed conclusively to have been given or made, and the obligation to
give such notice or report or to make such payment shall be deemed conclusively
to have been fully satisfied, upon sending of such notice, payment or report to
the Record Holder of such Partnership Securities at his address as shown on the
records of the Transfer Agent or as otherwise shown on the records of the
Partnership, regardless of any claim of any Person who may have an interest in
such Partnership Securities by reason of any assignment or otherwise. An
affidavit or certificate of making of any notice, payment or report in
accordance with the provisions of this Section 16.1 executed by the General
Partner, the Transfer Agent or the mailing organization shall be prima facie
evidence of the giving or making of such notice, payment or report. If any
notice, payment or report addressed to a Record Holder at the address of such
Record Holder appearing on the books and records of the Transfer Agent or the
Partnership is returned by the United States Postal Service marked to indicate
that the United States Postal Service is unable to deliver it, such notice,
payment or report and any subsequent notices, payments and reports shall be
deemed to have been duly given or made without further mailing (until such time
as such Record Holder or another Person notifies the Transfer Agent or the
Partnership of a change in his address) if they are available for the Partner or
Assignee at the principal office of the Partnership for a period of one year
from the date of the giving or making of such notice, payment or report

                                       93


<PAGE>

to the other Partners and Assignees. Any notice to the Partnership shall be
deemed given if received by the General Partner at the principal office of the
Partnership designated pursuant to Section 2.3. The General Partner may rely and
shall be protected in relying on any notice or other document from a Partner,
Assignee or other Person if believed by it to be genuine.

Section 16.2 Further Action.

     The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.

Section 16.3 Binding Effect.

     This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

Section 16.4 Integration.

     This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.

Section 16.5 Creditors.

     None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.

Section 16.6 Waiver.

     No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.

Section 16.7 Counterparts.

     This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto or, in the case of a Person acquiring a Unit, upon accepting
the certificate evidencing such Unit or executing and delivering a Transfer
Application as herein described, independently of the signature of any other
party.

Section 16.8 Applicable Law.

     This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.

                                       94


<PAGE>

Section 16.9 Invalidity of Provisions.

     If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

Section 16.10 Consent of Partners.

     Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.

                                       95


<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

                                               GENERAL PARTNER:

                                               SUNOCO PARTNERS LLC


                                               By:  /s/   David A. Justin
                                                   -----------------------------
                                                   Name:  David A. Justin
                                                   Title: Vice President


                                               ORGANIZATIONAL LIMITED PARTNER:

                                               SUN PIPE LINE COMPANY OF DELAWARE


                                               By:  /S/   David A. Justin
                                                   -----------------------------
                                                   Name:  David A. Justin
                                                   Title: President


                                               LIMITED PARTNERS:

                                               All Limited Partners now
                                               and hereafter admitted as
                                               Limited Partners of the
                                               Partnership, pursuant to
                                               powers of attorney now and
                                               hereafter executed in favor
                                               of, and granted and
                                               delivered to the General
                                               Partner.


                                               SUNOCO PARTNERS LLC


                                               By:  /S/   David A. Justin
                                                   -----------------------------
                                                   Name:  David A. Justin
                                                   Title: Vice President

                                       96


<PAGE>

                                    EXHIBIT A
                            to the First Amended and
                  Restated Agreement of Limited Partnership of
                         Sunoco Logistics Partners L.P.
                       Certificate Evidencing Common Units
                    Representing Limited Partner Interests in
                         Sunoco Logistics Partners L.P.

No.                                                                 Common Units
    ----------                                            ----------

     In accordance with Section 4.1 of the First Amended and Restated Agreement
of Limited Partnership of Sunoco Logistics Partners L.P., as amended,
supplemented or restated from time to time (the "Partnership Agreement"), Sunoco
Logistics Partners L.P., a Delaware limited partnership (the "Partnership"),
hereby certifies that                     (the "Holder") is the registered owner
                      -------------------
of Common Units representing limited partner interests in the Partnership (the
"Common Units") transferable on the books of the Partnership, in person or by
duly authorized attorney, upon surrender of this Certificate properly endorsed
and accompanied by a properly executed application for transfer of the Common
Units represented by this Certificate. The rights, preferences and limitations
of the Common Units are set forth in, and this Certificate and the Common Units
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Partnership Agreement. Copies of the Partnership
Agreement are on file at, and will be furnished without charge on delivery of
written request to the Partnership at, the principal office of the Partnership
located at 1801 Market Street, Philadelphia, Pennsylvania 19103. Capitalized
terms used herein but not defined shall have the meanings given them in the
Partnership Agreement.

     The Holder, by accepting this Certificate, is deemed to have (i) requested
admission as, and agreed to become, a Limited Partner and to have agreed to
comply with and be bound by and to have executed the Partnership Agreement, (ii)
represented and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the Partnership
Agreement, (iii) granted the powers of attorney provided for in the Partnership
Agreement and (iv) made the waivers and given the consents and approvals
contained in the Partnership Agreement.

     This Certificate shall not be valid far any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.

Dated:                                   Sunoco Logistics Partners L.P.
      ---------------


Countersigned and Registered by:         By:    Sunoco Partners LLC, its General
                                                Partner


                                         By:
---------------------------------           ------------------------------------
as Transfer Agent and Registrar          Name:
                                               ---------------------------------


By:                                      By:
   ------------------------------           ------------------------------------
       Authorized Signature                     Secretary

                                        1


<PAGE>

                            [Reverse of Certificate]

                                  ABBREVIATIONS

     The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as follows according to applicable laws or
regulations:

TEN COM -   as tenants in common             UNIF GIFT/TRANSFERS MIN ACT
TEN ENT -   as tenants by the entireties                Custodian
                                             ----------           ---------
                                             (Cust)                  (Minor)
JT TEN -    as joint tenants with right of   under Uniform Gifts/Transfers to CD
            survivorship and not as          Minors Act (State)
            tenants in common

       Additional abbreviations, though not in the above list, may also be
used.

                           ASSIGNMENT OF COMMON UNITS
                                       in
                         SUNOCO LOGISTICS PARTNERS L.P.
              IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
                          DUE TO TAX SHELTER STATUS OF
                         SUNOCO LOGISTICS PARTNERS L.P.

     You have acquired an interest in Sunoco Logistics Partners L.P., 1801
Market Street, Philadelphia, Pennsylvania 19103, whose taxpayer identification
number is 23-3096839. The Internal Revenue Service has issued Sunoco Logistics
Partners L.P. the following tax shelter registration number:                   .
                                                             ------------------

     YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF
YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY INCOME
BY REASON OF YOUR INVESTMENT IN SUNOCO LOGISTICS PARTNERS L.P.

     You must report the registration number as well as the name and taxpayer
identification number of Sunoco Logistics Partners L.P. on Form 8271. FORM 8271
MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT OR
OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN SUNOCO
LOGISTICS PARTNERS L.P.

     If you transfer your interest in Sunoco Logistics Partners L.P. to another
person, you are required by the Internal Revenue Service to keep a list
containing (a) that person's name, address and taxpayer identification number,
(b) the date on which you transferred the interest and (c) the name, address and
tax shelter registration number of Sunoco Logistics Partners L.P. If you do not
want to keep such a list, you must (1) send the information specified above to
the Partnership, which will keep the list for this tax shelter, and (2) give a
copy of this notice to the person to whom you transfer your interest. Your
failure to comply with any of the above-described responsibilities could result
in the imposition of a penalty under Section 6707(b) or

                                        2


<PAGE>

6708(a) of the Internal Revenue Code of 1986, as amended, unless such failure is
shown to be due to reasonable cause.

     ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
INTERNAL REVENUE SERVICE.

     FOR VALUE RECEIVED,            hereby assigns, conveys, sells and transfers
                         ----------
unto

-----------------------------------     ---------------------------------------
(Please print or typewrite name         (Please insert Social Security or other
 and address of Assignee)               identifying number of Assignee)

           Common Units representing limited partner interests evidenced by this
----------
Certificate, subject to the Partnership Agreement, and does hereby irrevocably
constitute and appoint            as its attorney-in-fact with full power of
                       ----------
substitution to transfer the same on the books of Sunoco Logistics Partners L.P.

Date:                              NOTE: The signature to any endorsement hereon
     -----------------
                                        must correspond with the name as written
                                        upon the face of this Certificate in
                                        every particular, without alteration,
                                        enlargement or change.

SIGNATURE(S) MUST BE
GUARANTEED BY A MEMBER FIRM OF          -----------------------------
THE NATIONAL ASSOCIATION OF             (Signature)
SECURITIES DEALERS, INC. OR BY
A COMMERCIAL BANK OR TRUST
COMPANY SIGNATURE(S)                    -----------------------------
GUARANTEED                              (Signature)

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

     No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Common Units shall have
no duty to the transferee with respect to execution of the transfer application
in order for such transferee to obtain registration of the transfer of the
Common Units.

                                        3


<PAGE>

                    APPLICATION FOR TRANSFER OF COMMON UNITS

     The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.

     The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Amended and
Restated Agreement of Limited Partnership of Sunoco Logistics Partners L.P. (the
"Partnership"), as amended, supplemented or restated to the date hereof (the
"Partnership Agreement"), (b) represents and warrants that the Assignee has all
right, power and authority and, if an individual, the capacity necessary to
enter into the Partnership Agreement, (c) appoints the General Partner of the
Partnership and, if a Liquidator shall be appointed, the Liquidator of the
Partnership as the Assignee's attorney-in-fact to execute, swear to, acknowledge
and file any document, including, without limitation, the Partnership Agreement
and any amendment thereto and the Certificate of Limited Partnership of the
Partnership and any amendment thereto, necessary or appropriate for the
Assignee's admission as a Substituted Limited Partner and as a party to the
Partnership Agreement, (d) gives the powers of attorney provided for in the
Partnership Agreement, and (e) makes the waivers and gives the consents and
approvals contained in the Partnership Agreement. Capitalized terms not defined
herein have the meanings assigned to such terms in the Partnership Agreement.

Date:
     ----------------------


---------------------------------------------       ----------------------------
 Social Security or other identifying number           Signature of Assignee

---------------------------------------------       ----------------------------
 Purchase Price including commissions, if any       Name and Address of Assignee

Type of Entity (check one):

     [ ]      Individual      [ ]      Partnership           [ ]     Corporation

     [ ]      Trust           [ ]      Other (specify)

Nationality (check one):

     [ ]      U.S. Citizen, Resident or Domestic Entity

     [ ]      Foreign Corporation       [ ]      Non-resident Alien

     If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.

     Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is

                                        4


<PAGE>

required with respect to the undersigned interestholder's interest in it, the
undersigned hereby certifies the following (or, if applicable, certifies the
following on behalf of the interestholder).

Complete Either A or B:

A.   Individual Interestholder

     1.   I am not a non-resident alien for purposes of U.S. income taxation.

     2.   My U.S. taxpayer identification number (Social Security Number) is
                    .
          ----------

     3.   My home address is                                                   .
                             --------------------------------------------------

B.   Partnership, Corporation or Other Interestholder

     1.                    is not a foreign corporation, foreign partnership,
          ----------------
          foreign trust (Name of Interestholder) or foreign estate (as those
          terms are defined in the Code and Treasury Regulations).

     2.   The interestholder's U.S. employer identification number is
                     .
          -----------

     3.   The interestholder's office address and place of incorporation (if
          applicable) is            .
                         -----------

     The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.

     The interestholder understands that this certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.

     Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete and, if applicable, I further declare that I have authority to sign
this document on behalf of:

                        --------------------------------
                             Name of Interestholder


                        --------------------------------
                               Signature and Date

                        --------------------------------
                              Title (if applicable)

     Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker,

                                        5


<PAGE>

dealer, bank, trust company, clearing corporation, other nominee owner or an
agent of any of the foregoing, the above certification as to any person for whom
the Assignee will hold the Common Units shall be made to the best of the
Assignee's knowledge.

                                        6


<PAGE>

                                                                    Exhibit 3.4

                           FIRST AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                    SUNOCO LOGISTICS PARTNERS OPERATIONS L.P.


<PAGE>


                                TABLE OF CONTENTS


<TABLE>
<S>            <C>                                                                                                 <C>
ARTICLE I.     DEFINITIONS..........................................................................................1
Section 1.1.           Definitions..................................................................................1
Section 1.2.           Construction................................................................................12

ARTICLE II.    ORGANIZATION........................................................................................12
Section 2.1.           Formation...................................................................................12
Section 2.2.           Name........................................................................................12
Section 2.3.           Registered Office; Registered Agent; Principal Office; Other Offices........................12
Section 2.4.           Purpose and Business........................................................................13
Section 2.5.           Powers......................................................................................13
Section 2.6.           Power of Attorney...........................................................................13
Section 2.7.           Term........................................................................................15
Section 2.8.           Title to Partnership Assets.................................................................15

ARTICLE III.   RIGHTS OF LIMITED PARTNERS..........................................................................15
Section 3.1.           Limitation of Liability.....................................................................15
Section 3.2.           Management of Business......................................................................16
Section 3.3.           Outside Activities of the Limited Partners..................................................16
Section 3.4.           Rights of Limited Partners..................................................................16

ARTICLE IV.    TRANSFERS OF PARTNERSHIP INTERESTS..................................................................17
Section 4.1.           Transfer Generally..........................................................................17
Section 4.2.           Transfer of General Partner's General Partner Interest......................................17
Section 4.3.           Transfer of a Limited Partner's Partnership Interest........................................18
Section 4.4.           Restrictions on Transfers...................................................................18

ARTICLE V.     CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS.........................................19
Section 5.1.           Initial Contributions.......................................................................19
Section 5.2.           Contributions Pursuant to the Contribution Agreement........................................19
Section 5.3.
           Additional Capital Contributions............................................................19
Section 5.4.           Interest and Withdrawal.....................................................................19
Section 5.5.           Capital Accounts............................................................................20
Section 5.6.           Loans from Partners.........................................................................22
Section 5.7.           Issuances of Additional Partnership Securities..............................................22
Section 5.8.           Limited Preemptive Rights...................................................................23
Section 5.9.           Fully Paid and Non-Assessable Nature of Limited Partner Interests...........................23

ARTICLE VI.    ALLOCATIONS AND DISTRIBUTIONS.......................................................................24
Section 6.1.           Allocations for Capital Account Purposes....................................................24
Section 6.2.           Allocations for Tax Purposes................................................................28
Section 6.3.           Distributions...............................................................................30
</TABLE>


                                        i


<PAGE>


<TABLE>
<S>            <C>                                                                                                 <C>
ARTICLE VII.   MANAGEMENT AND OPERATION OF BUSINESS................................................................30
Section 7.1.           Management..................................................................................30
Section 7.2.           Certificate of Limited Partnership..........................................................32
Section 7.3.           Restrictions on the General Partner's Authority.............................................32
Section 7.4.           Reimbursement of the General Partner........................................................33
Section 7.5.           Outside Activities..........................................................................34
Section 7.6.           Loans from the General Partner; Loans or Contributions from the Partnership;
                       Contracts with Affiliates; Certain Restrictions on the General Partner......................35
Section 7.7.           Indemnification.............................................................................36
Section 7.8.           Liability of Indemnitees....................................................................38
Section 7.9.           Resolution of Conflicts of Interest.........................................................39
Section 7.10.          Other Matters Concerning the General Partner................................................40
Section 7.11.          Reliance by Third Parties...................................................................41

ARTICLE VIII.  BOOKS, RECORDS AND ACCOUNTING.......................................................................41
Section 8.1.           Records and Accounting......................................................................41
Section 8.2.           Fiscal Year.................................................................................42

ARTICLE IX.    TAX MATTERS.........................................................................................42
Section 9.1.           Tax Returns and Information.................................................................42
Section 9.2.           Tax Elections...............................................................................42
Section 9.3.           Tax Controversies...........................................................................42
Section 9.4.           Withholding.................................................................................43

ARTICLE X.     ADMISSION OF PARTNERS...............................................................................43
Section 10.1.          Admission of Partners.......................................................................43
Section 10.2.          Admission of Substituted Limited Partner....................................................43
Section 10.3.          Admission of Additional Limited Partners....................................................44
Section 10.4.          Admission of Successor or Transferee General Partner........................................44
Section 10.5.          Amendment of Agreement and Certificate of Limited Partnership...............................44

ARTICLE XI.    WITHDRAWAL OR REMOVAL OF PARTNERS...................................................................45
Section 11.1.          Withdrawal of the General Partner...........................................................45
Section 11.2.          Removal of the General Partner..............................................................46
Section 11.3.          Interest of Departing Partner...............................................................46
Section 11.4.          Withdrawal of a Limited Partner.............................................................47

ARTICLE XII.   DISSOLUTION AND LIQUIDATION.........................................................................47
Section 12.1.          Dissolution.................................................................................47
Section 12.2.          Continuation of the Business of the Partnership After Dissolution...........................48
Section 12.3.          Liquidator..................................................................................48
Section 12.4.          Liquidation.................................................................................49
Section 12.5.          Cancellation of Certificate of Limited Partnership..........................................50
Section 12.6.          Return of Contributions.....................................................................50
Section 12.7.          Waiver of Partition.........................................................................50
Section 12.8.          Capital Account Restoration.................................................................50
</TABLE>


                                       ii


<PAGE>


<TABLE>
<S>            <C>                                                                                                 <C>
ARTICLE XIII.  AMENDMENT OF PARTNERSHIP AGREEMENT..................................................................50
Section 13.1.          Amendment to be Adopted Solely by the General Partner.......................................50
Section 13.2.          Amendment Procedures........................................................................52

ARTICLE XIV.   MERGER..............................................................................................52
Section 14.1.          Authority...................................................................................52
Section 14.2.          Procedure for Merger or Consolidation.......................................................52
Section 14.3.          Approval by Limited Partners of Merger or Consolidation.....................................53
Section 14.4.          Certificate of Merger.......................................................................54
Section 14.5.          Effect of Merger............................................................................54

ARTICLE XV.    GENERAL PROVISIONS..................................................................................55
Section 15.1.          Addresses and Notices.......................................................................55
Section 15.2.          Further Action..............................................................................55
Section 15.3.          Binding Effect..............................................................................55
Section 15.4.          Integration.................................................................................55
Section 15.5.          Creditors...................................................................................55
Section 15.6.          Waiver......................................................................................55
Section 15.7.          Counterparts................................................................................56
Section 15.8.          Applicable Law..............................................................................56
Section 15.9.          Invalidity of Provisions....................................................................56
Section 15.10.         Consent of Partners.........................................................................56
</TABLE>


                                       iii


<PAGE>


                           FIRST AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP
                                       OF
                    SUNOCO LOGISTICS PARTNERS OPERATIONS L.P.

     This FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of SUNOCO
LOGISTICS PARTNERS OPERATIONS L.P., dated as of February 8, 2002, is entered
into by and between Sunoco Logistics Partners GP LLC, a Delaware limited
liability company, as the General Partner, and Sunoco Logistics Partners L.P., a
Delaware limited partnership, as the Limited Partner, together with any other
Persons who hereafter become Partners in the Partnership or parties hereto as
provided herein.

                                R E C I T A L S:
                                - - - - - - - -

     WHEREAS, Sunoco Logistics Partners GP LLC and Sunoco Logistics Partners
L.P. formed the Partnership pursuant to the Agreement of Limited Partnership of
Sunoco Logistics Partners Operations L.P. dated as of December 6, 2001 (the
"Prior Agreement") and a Certificate of Limited Partnership, which was filed
 ---------------
with the Secretary of State of the State of Delaware on such date; and

     WHEREAS, the Partners of the Partnership now desire to amend the Prior
Agreement to reflect additional contributions by the Partners and certain other
matters.

     NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, the parties hereto hereby amend the Prior Agreement
and, as so amended, restate it in its entirety 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.
Capitalized terms used herein but not otherwise defined shall have the meanings
assigned to such terms in the MLP Agreement.

          "Additional Limited Partner" means a Person admitted to the
     Partnership as a Limited Partner pursuant to Section 10.3 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


<PAGE>

     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 or any other specified interest in
     the Partnership shall be the amount that such Adjusted Capital Account
     would be if such General Partner Interest 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 or other
     interest in the Partnership was first issued.

          "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.

          "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 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 Operations L.P., as it may be
     amended, supplemented or restated from time to time.

                                        2


<PAGE>

          "Assets" means all assets conveyed, contributed or otherwise
     transferred to the Partnership Group prior to or on the Closing Date
     pursuant to the Contribution Agreement and any assets acquired by the
     Partnership Group pursuant to the exercise of the purchase options granted
     pursuant to the Omnibus Agreement.

          "Assignee" means a Person to whom one or more Limited Partner
     Interests have been transferred in a manner permitted under 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 on hand at the end of such Quarter, and (ii) all additional
     cash and cash equivalents of the Partnership 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 is necessary or
     appropriate in the reasonable discretion of the General Partner to (i)
     provide for the proper conduct of the business of the Partnership
     (including reserves for future capital expenditures and for anticipated
     future credit needs of the Partnership) 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 of the
     MLP Agreement 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
     MLP is unable to distribute the Minimum Quarterly Distribution on all
     Common Units, plus any Cumulative Common Unit Arrearage (as defined in the
     MLP Agreement) 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.

                                        3


<PAGE>

          Notwithstanding the foregoing, "Available Cash" with respect to the
     Quarter in which the Liquidation Date occurs and any subsequent Quarter
     shall equal zero.

          "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
     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.

          "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 or any other Partnership Interest shall be the
     amount that such Capital Account would be if such General Partner Interest
     or other specified 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 or other specified interest in the Partnership 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.

          "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.

          "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 referenced in Section 7.2, as such Certificate of
     Limited Partnership may be amended, supplemented or restated from time to
     time.

          "Closing Date" means the first date on which Common Units are sold by
     the MLP to the Underwriters pursuant to the provisions of the Underwriting
     Agreement.

          "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.

                                        4


<PAGE>

          "Commission" means the United States Securities and Exchange
     Commission.

          "Common Unit" has the meaning assigned to such term in the MLP
     Agreement.

          "Conflicts Committee" has the meaning assigned to such term in the MLP
     Agreement.

          "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 MLP General Partner, the MLP, the Partnership, Sunoco, Inc.,
     Sunoco, Inc. (R&M) and certain other parties, together with the additional
     conveyance documents and instruments contemplated or referenced thereunder.

          "Curative Allocation" means any allocation of an item of income, gain,
     deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).

          "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.

          "Economic Risk of Loss" has the meaning set forth in Treasury
     Regulation Section 1.752-2(a).

          "Event of Withdrawal" has the meaning assigned to such term in Section
     11.1(a).

          "General Partner" means Sunoco Logistics Partners GP 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) 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 Member" means a member of the Partnership Group.

                                        5


<PAGE>

          "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.

          "Indenture" means the Indenture, dated as of February 7, 2002, among
     the Partnership, the MLP, Sun Partners Marketing & Terminals L.P., Sunoco
     Pipeline L.P. and First Union National Bank, as trustee.

          "Initial Notes" means the $250.0 million in aggregate principal amount
     of the Partnership's 7.25% Senior Notes due 2012 to be issued pursuant to
     the terms of the Indenture and offered and sold to the Initial Purchasers
     pursuant to the terms of the Purchase Agreement.

          "Initial Offering" means the initial offering and sale of Common Units
     to the public, as described in the Registration Statement.

          "Initial Purchaser" means each Person named as an initial purchaser in
     Schedule I to the Purchase Agreement who purchases Initial Notes pursuant
     thereto.

          "Limited Partner" means any Person that is admitted to the Partnership
     as a limited partner pursuant to the terms and conditions of this
     Agreement; but the term "Limited Partner" shall not include any Person from
     and after the time such Person withdraws as a Limited Partner from the
     Partnership.

          "Limited Partner Interest" means the ownership interest of a Limited
     Partner or Assignee in the Partnership 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.

          "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 Partners 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.

                                        6


<PAGE>

          "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.

          "Minimum Quarterly Distribution" has the meaning assigned to such term
     in the MLP Agreement.

          "MLP" means Sunoco Logistics Partners L.P.

          "MLP Agreement" means the 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.

          "MLP General Partner" means Sunoco Partners LLC, a Pennsylvania
     limited liability company and the general partner of the MLP.

          "MLP Security" has the meaning assigned to the term "Partnership
     Security" in the MLP Agreement.

          "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).

          "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.

                                        7


<PAGE>

     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).

          "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).

          "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
     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).

          "OLP Subsidiary" means a Subsidiary of the Partnership.

          "Omnibus Agreement" means that Omnibus Agreement, dated as of the
     Closing Date, among Sunoco, Inc., Sunoco, Inc. (R&M), Sun Pipe Line Company
     of Delaware, Atlantic Petroleum Corporation, Sunoco Texas Pipe Line
     Company, Sun Pipe Line Services (Out) LLC, the MLP General Partner, the MLP
     and the Partnership.

          "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.

          "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).

                                        8


<PAGE>

          "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.

          "Partnership" means Sunoco Logistics Partners Operations L.P., a
     Delaware limited partnership, and any successors thereto.

          "Partnership Group" means the Partnership and all OLP Subsidiaries,
     treated as a single consolidated entity.

          "Partnership Interest" means an ownership interest of a Partner in the
     Partnership, which shall include the General Partner Interest and the
     Limited Partner Interest(s).

          "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).

          "Percentage Interest" means the percentage interest in the Partnership
     owned by each Partner upon completion of the transactions in Section 5.2
     and shall mean, (a) as to the General Partner, 0.01% and (b) as to the MLP,
     99.99%.

          "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.

          "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) and Sunoco Pipeline L.P.

          "Prior Agreement" is defined in the Recitals.

          "Purchase Agreement" means the Purchase Agreement, dated February 4,
     2002, among the Initial Purchasers, the Partnership, the MLP, the General
     Partner, the MLP General Partner, Sunoco, Inc., Sunoco Pipeline L.P. and
     Sunoco Partners Marketing & Terminals L.P., providing for the purchase of
     Initial Notes by such Initial Purchasers.

          "Quarter" means, unless the context requires otherwise, a fiscal
     quarter (or, with respect to the fiscal quarter during which the Closing
     Date occurs, the portion of such fiscal quarter remaining after the Closing
     Date) of the Partnership.

                                        9


<PAGE>

          "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.

          "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 MLP with the Commission under
     the Securities Act to register the offering and sale of the Common Units in
     the Initial Offering.

          "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 an 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 Activities" has the meaning assigned to such term in the
     Omnibus Agreement.

          "Securities Act" means the Securities Act of 1933, as amended,
     supplemented or restated from time to time and any successor to such
     statute.

          "Special Approval" has the meaning assigned to such term in the MLP
     Agreement.

          "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.

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<PAGE>

          "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.

          "Surviving Business Entity" has the meaning assigned to such term in
     Section 14.2(b).

          "Treasury Services Agreement" means the Treasury Services Agreement,
     dated as of the Closing Date, among Sunoco, Inc., the Partnership and the
     MLP.

          "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 4, 2002, among the Underwriters, the MLP, the Partnership, the
     General Partner, the MLP General Partner and Sunoco, Inc., providing for
     the purchase of Common Units by such Underwriters.

          "Unit" has the meaning assigned to such term in the MLP Agreement.

          "Unitholders" has the meaning assigned to such term in the MLP
     Agreement.

          "Unit Majority" has the meaning assigned to such term in the MLP
     Agreement.

          "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)).

          "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

                                       11


<PAGE>

     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 MLP previously formed the Partnership as a
limited partnership pursuant to the provisions of the Delaware Act, and hereby
amend and restate the Prior Agreement 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 Operations
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 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

                                       12


<PAGE>

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) acquire, manage, operate and sell the Assets and any similar
assets or properties now or hereafter acquired by the Partnership, (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 Partnership is permitted to engage in, or any type of
business or activity engaged in by the General Partner prior to the Closing Date
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 that 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 (ii) enhances the operations of
an activity of the Partnership that generates qualifying income, and (d) do
anything necessary or appropriate to the foregoing, including the making of
capital contributions or loans to a Group Member, the MLP or any Subsidiary of
the MLP. 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 its 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

                                       13


<PAGE>

     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 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
     Interests issued pursuant hereto; 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 any 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

                                       14


<PAGE>

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 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 any 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.

                                       15


<PAGE>

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) to obtain a copy of the Partnership's federal, state and local
     income tax returns for each year promptly after they become available;

          (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;

                                       16


<PAGE>

          (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 that 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 MLP or the Partnership Group, (B) could damage the MLP or 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.
                       TRANSFERS OF PARTNERSHIP INTERESTS

Section 4.1. 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 the General Partner or 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 issued
and outstanding member interests of the General Partner.

Section 4.2. Transfer of General Partner's General Partner Interest.

     No provision of this Agreement shall be construed to prevent (and the
Limited Partners do hereby expressly consent to) (i) the transfer by the General
Partner of all or a portion of its General Partner Interest to one or more
Affiliates, which transferred General Partner Interest, to the extent not
transferred to a successor General Partner, shall constitute a Limited Partner
Interest or (ii) the transfer by the General Partner, in whole and not in part,
of its General Partner Interest upon (a) its merger, consolidation or other
combination into any other Person or the transfer by it of all or substantially
all of its assets to another Person or (b) sale of all or

                                       17


<PAGE>

substantially all of the membership interests of the General Partner by its
members if, in the case of a transfer described in either clause (i) or (ii) of
this sentence, the rights and duties of the General Partner with respect to the
General Partner Interest so transferred are assumed by the transferee and the
transferee agrees to be bound by the provisions of this Agreement; provided,
however, that in either such case, the transferee is primarily controlled,
directly or indirectly, by the MLP or the MLP General Partner or any Person
primarily controlling, directly or indirectly, the MLP or the MLP General
Partner; provided, further, that in either such case, such transferee furnishes
to the Partnership an Opinion of Counsel that such merger, consolidation,
combination, transfer or assumption will not result in a loss of limited
liability of any Limited Partner or cause the Partnership to be 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). In the case of a
transfer pursuant to this Section 4.2 to a Person proposed as a successor
general partner of the Partnership, the transferee or successor (as the case may
be) shall, subject to compliance with the terms of Section 10.4, 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 4.3. Transfer of a Limited Partner's Partnership Interest.

     A Limited Partner may transfer all, but not less than all, of its
Partnership Interest as a Limited Partner in connection with the merger,
consolidation or other combination of such Limited Partner with or into any
other Person or the transfer by such Limited Partner of all or substantially all
of its assets to another Person and, following any such transfer, such Person
may become a Substituted Limited Partner pursuant to Article X. Except as set
forth in the immediately preceding sentence, or in connection with any pledge of
(or any related foreclosure on) a Partnership Interest of a Limited Partner
solely for the purpose of securing, directly or indirectly, indebtedness of the
Partnership or the MLP, a Limited Partner may not transfer all or any part of
its Partnership Interest or withdraw from the Partnership.

Section 4.4. Restrictions on Transfers.

          (a) Notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or the 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 MLP under the laws of the
jurisdiction of its formation or (iii) cause the Partnership or the MLP 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
MLP 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.

                                       18


<PAGE>

                                   ARTICLE V.
           CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS

Section 5.1. Initial 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 $0.10 in exchange for an interest in the Partnership and was
admitted as General Partner, and the MLP made an initial Capital Contribution to
the Partnership in the amount of $999.90 in exchange for an interest in the
Partnership and was admitted as a Limited Partner.

Section 5.2. Contributions Pursuant to the Contribution Agreement.

          (a) Pursuant to the Contribution Agreement, the General Partner
contributed to the Partnership all of its membership interest in Sunoco
Logistics Partners Operations GP LLC as an additional Capital Contribution.

          (b) Pursuant to the Contribution Agreement, the MLP contributed to the
Partnership all of its direct interests in Sunoco Pipeline L.P., Sun Pipe Line
Services (In) L.P., Sunoco Michigan (In) LLC, Sunoco Mid-Con (In) LLC, Atlantic
(In) L.P., Atlantic RM (In) L.P. and Sunoco Partners Marketing & Terminals L.P.
(i) in exchange for a special interest giving the MLP the right to receive
approximately $245.3 million in cash from the OLP upon redemption of the special
interest on the Closing Date and (ii) as a Capital Contribution on its behalf
(99.99%) and on behalf of the General Partner (0.01%) with respect to the
membership interests in Sunoco Michigan (In) LLC and Sunoco Mid-Con (In) LLC.

          (c) Following the foregoing transactions, the General Partner owns a
0.01% Partnership Interest as General Partner and the MLP owns a 99.99%
Partnership Interest as a Limited Partner.

Section 5.3. Additional Capital Contributions.

     With the consent of the General Partner, any Limited Partner may, but shall
not be obligated to, make additional Capital Contributions to the Partnership.
Contemporaneously with the making of any Capital Contributions by a Limited
Partner, in addition to those provided in Sections 5.1 and 5.2, the General
Partner shall be obligated to make an additional Capital Contribution to the
Partnership in an amount equal to 0.01 divided by 99.99 times the amount of the
additional Capital Contribution then made by such Limited Partner. Except as set
forth in the immediately preceding sentence and in Article XII, the General
Partner shall not be obligated to make any additional Capital Contributions to
the Partnership.

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 then only to the extent provided for in this Agreement. Except to the
extent expressly provided in this Agreement, no Partner or Assignee

                                       19


<PAGE>

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
Section 6.1, 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 that 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) of all property owned by any OLP 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), computation of all items of income, gain, loss and
     deduction shall be made without regard to any election under Section 754 of
     the Code that 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

                                       20


<PAGE>

     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 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) 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.

          (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, the Capital Accounts 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

                                       21


<PAGE>

     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 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(c) 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 that 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. Loans from Partners.

     Loans by a Partner to the Partnership shall not constitute Capital
Contributions. If any Partner shall advance funds to the Partnership in excess
of the amounts required hereunder to be contributed by it to the capital of the
Partnership, the making of such excess advances shall not result in any increase
in the amount of the Capital Account of such Partner. The amount of any such
excess advances shall be a debt obligation of the Partnership to such Partner
and shall be payable or collectible only out of the Partnership assets in
accordance with the terms and conditions upon which such advances are made.

Section 5.7. Issuances of Additional Partnership Securities.

          (a) 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. The issuance by the
Partnership of Partnership Securities or rights, warrants or appreciation rights
in respect thereof shall be deemed an amendment to this Agreement.

                                       22


<PAGE>

          (b) Each additional Partnership Security authorized to be issued by
the Partnership pursuant to Section 5.7(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 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 such 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 the holder of each such Partnership Security to vote on
Partnership matters, including matters relating to the relative designations,
preferences, rights, powers and duties 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
5.7, (ii) the admission of Additional Limited Partners and (iii) 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 Partnership Interests 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 necessary or advisable
in connection with any future issuance of Partnership Securities, including
compliance with any statute, rule, regulation or guideline of any federal, state
or other governmental agency.

Section 5.8. Limited Preemptive Rights.

     Except as provided in Section 5.3, no Person shall have preemptive,
preferential or other similar rights with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Partnership
Interests, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Partnership convertible into or exchangeable for, or carrying or accompanied
by any rights to receive, purchase or subscribe to, any such Partnership
Interests; (d) issuance of any right of subscription to or right to receive, or
any warrant or option for the purchase of, any such Partnership Interests; or
(e) issuance or sale of any other securities that may be issued or sold by the
Partnership.

Section 5.9. 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, except as such non-assessability may be affected by
Section 17-607 of the Delaware Act.

                                       23


<PAGE>

                                   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 among the Partners as follows:

          (i) First, 100% to the General Partner, 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)(ii) for all previous taxable years;

          (ii) Second, 0.01% to the General Partner and 99.99% to the Limited
     Partners in accordance with their respective Percentage Interests.

          (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 among the Partners as follows:

          (i) First, 0.01% to the General Partner and 99.99% to the Limited
     Partners, in accordance with their respective Percentage Interests;
     provided, however, that Net Losses shall not be allocated to a Limited
     Partner pursuant to this Section 6.1(b)(i) to the extent that such
     allocation would cause a Limited Partner to have a deficit balance in its
     Adjusted Capital Account at the end of such taxable year (or increase any
     existing deficit balance in such Limited Partner's Adjusted Capital
     Account);

          (ii) Second, 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 Section 6.4
have been made with respect to the taxable period ending on or before the
Liquidation Date; 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.

                                       24


<PAGE>

          (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; and

               (B) Second, 0.01% to the General Partner and 99.99% to the
          Limited Partners, in accordance with their respective Percentage
          Interests.

          (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, to the General Partner and the Limited Partners in
          proportion to, and to the extent of, the positive balances in their
          respective Capital Accounts; and

               (B) Second, the balance, if any, 100% to the General Partner.

          (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 such taxable period (other than an
     allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi)). 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

                                       25


<PAGE>

     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)(v) and 6.1(d)(vi), 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) 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).

          (iv) 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)(iv) 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)(iv) were not in this Agreement.

          (v) 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.

          (vi) 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

                                       26


<PAGE>

     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.

          (vii) 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.

          (viii) 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.

          (ix) 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 Gain. Allocations
          pursuant to this Section 6.1(d)(ix)(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)(ix)(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)(ix)(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

                                       27


<PAGE>

          pursuant to Section 6.1(d)(ix)(A) among the Partners in a manner that
          is likely to minimize such economic distortions.

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.

          (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 Units or other limited partner interests of
the MLP (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 Section 704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Units or other limited
partner interests of the MLP (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

                                       28


<PAGE>

amendments would not have a material adverse effect on the Partners, the holders
of any class or classes of Units or other limited partner interests of the MLP
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 of the MLP 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 of the MLP that would not have a material adverse effect on the
Partners or the holders of any class or classes of limited partner interests of
the MLP.

          (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.

          (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 that 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) The General Partner may adopt such methods of allocation of
income, gain, loss or deduction between a transferor and a transferee of a
Partnership Interest 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 Partner under the
provisions of this Article VI shall instead be made to the 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.

                                       29


<PAGE>

Section 6.3. Distributions.

          (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 in accordance with their respective Percentage Interests. The
immediately preceding sentence shall not require any distribution of cash if and
to the extent such distribution would be prohibited by applicable law or by any
loan agreement, security agreement, mortgage, debt instrument or other agreement
or obligation to which the Partnership is a party or by which it is bound or its
assets are subject. All distributions required to be made under this Agreement
shall be made subject to Section 17-607 of the Delaware Act.

          (b) 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.

                                  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
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 that 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 a Partnership Interest, 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;

                                       30


<PAGE>

          (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 Section 7.3);

          (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, the lending of funds to other Persons (including
     the MLP and any member of the Partnership Group); the repayment of
     obligations of the MLP or any member 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 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; and

          (xi) the indemnification of any Person against liabilities and
     contingencies to the extent permitted by law.

          (b) Notwithstanding any other provision of this Agreement, the MLP
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 the Partnership hereby (i)

                                       31


<PAGE>

approves, ratifies and confirms the execution, delivery and performance by the
parties thereto of this Agreement, the Underwriting Agreement, the Indenture,
the Omnibus Agreement, the Purchase Agreement, the Contribution Agreement, the
Pipelines and Terminals Storage and Throughput Agreement and the other
agreements and documents 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, as applicable, 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 the Partnership; and (iii) agrees that the execution,
delivery or performance by the General Partner, the MLP, 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 Article
XV), 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 or Assignee.

Section 7.3. Restrictions on the General Partner's Authority.

          (a) The General Partner may not, without written approval of the
specific act by the Limited Partners or by other written instrument executed and
delivered by the Limited Partners 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 General
Partner Interest.

                                       32


<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 Partnership, without the approval of the
Limited Partners; 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
and shall not apply to any forced sale of any or all of the assets of the
Partnership pursuant to the foreclosure of, or other realization upon, any such
encumbrance.

Section 7.4. Reimbursement of the General Partner.

          (a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or in the Omnibus Agreement, the General Partner shall not be
compensated for its services as General Partner or as 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 5.8, 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, or
cause the Partnership to issue Partnership Interests 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
indirectly, for the benefit of the Partnership Group. Expenses incurred by the
General Partner in connection with any such plans, programs and practices shall
be reimbursed in accordance with Section 7.4(b). Any and all obligations of the
General Partner under any employee benefit plans, employee programs or employee
practices adopted by the General Partner as permitted by this Section 7.4(c)
shall constitute obligations of the General Partner hereunder and shall be
assumed by any successor General Partner approved pursuant to Section 11.1 or
11.2 or the transferee of or successor to all of the General Partner's General
Partner Interest pursuant to Section 4.2.

                                       33


<PAGE>

Section 7.5. Outside Activities.

          (a) After the Closing Date, the General Partner, for so long as it is
the General Partner of the Partnership, (i) agrees that its sole business will
be to act as the General Partner of the Partnership and a general partner or
managing member, as the case may be, of any other partnership or limited
liability company of which the Partnership is, directly or indirectly, a partner
or member, and to undertake activities that are ancillary or related thereto,
(ii) except to the extent permitted in the Omnibus Agreement, shall not engage
in any business or activity or incur any debts or liabilities except in
connection with or incidental to (A) its performance as general partner of the
Partnership or one or more Group Members or as described in or contemplated by
the Registration Statement or (B) the acquiring, owning or disposing of debt or
equity securities in any Group Member and (iii) except to the extent permitted
in the Omnibus Agreement, shall not, and shall cause its Affiliates not to,
engage in any Restricted Activities.

          (b) Sunoco, Inc. and certain of its Affiliates have entered into the
Omnibus Agreement with the Partnership and the MLP, which agreement sets forth
certain restrictions on the ability of Sunoco, Inc. and its Affiliates to engage
in Restricted Activities.

          (c) Except as specifically restricted by Section 7.5(a) and the
Omnibus Agreement, each Indemnitee (other than the General Partner) shall have
the right to engage in businesses of every type and description and other
activities for profit and to engage in and possess an interest in other business
ventures of any and every type or description, whether in businesses engaged in
or anticipated to be engaged in by the MLP or any Group Member, independently or
with others, including business interests and activities in direct competition
with the business and activities of the MLP or any Group Member, and none of the
same shall constitute a breach of this Agreement or any duty express or implied
by law to the MLP or any Group Member or any Partner or Assignee. Neither the
MLP nor any Group Member, any Limited Partner nor any other Person shall have
any rights by virtue of this Agreement, the MLP Agreement or the partnership
relationship established hereby or thereby in any business ventures of any
Indemnitee.

          (d) Subject to the terms of Section 7.5(a), Section 7.5(b), Section
7.5(c) and the Omnibus Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitee (other than the General Partner) in accordance with the provisions of
this Section 7.5 is hereby approved by the Partnership and all Partners, (ii) it
shall be deemed not to be a breach of the General Partner's fiduciary duty or
any other obligation of any type whatsoever of the General Partner for the
Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the Partnership
and (iii) except as set forth in the Omnibus Agreement, the General Partner and
the Indemnitees shall have no obligation to present business opportunities to
the Partnership.

          (e) The General Partner and any of its Affiliates may acquire Units or
other MLP Securities in addition to those acquired on the Closing Date and,
except as otherwise provided in this Agreement, shall be entitled to exercise
all rights relating to such Units or MLP Securities.

                                       34


<PAGE>

          (f) The term "Affiliates" when used in Section 7.5(a) and Section
7.5(e) with respect to the General Partner shall not include any Group Member or
any Subsidiary of the MLP or any Group Member.

          (g) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partner to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partner has complied with its
fiduciary duties in connection with determinations made by it under this Section
7.5.

Section 7.6. Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the General
Partner.

          (a) The General Partner or any of its Affiliates may lend to the MLP
or any Group Member, and the MLP or any Group Member may borrow from the General
Partner or any of its Affiliates, funds needed or desired by the MLP or the
Group Member for such periods of time and in such amounts as the General Partner
may determine; provided, however, that in any such case the lending party may
not charge the borrowing party interest at a rate greater than the rate that
would be charged the borrowing party or impose terms less favorable to the
borrowing party than would be charged or imposed on the borrowing party by
unrelated lenders on comparable loans made on an arm's-length basis (without
reference to the lending party's financial abilities or guarantees). The
borrowing party shall reimburse the lending party for any costs (other than any
additional interest costs) incurred by the lending party in connection with the
borrowing of such funds. For purposes of this Section 7.6(a) and Section 7.6(b),
the term "Group Member" shall include any Affiliate of a Group Member that is
controlled by the Group Member. No Group Member may lend funds to the General
Partner or any of its Affiliates (other than the MLP, a subsidiary of the MLP or
a subsidiary of another Group Member), otherwise than as provided in the
Treasury Services Agreement.

          (b) The Partnership may lend or contribute to any Group Member, and
any Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.

          (c) The General Partner may itself, or may enter into an agreement
with the MLP General Partner or any of its Affiliates to, render services to a
Group Member or to the General Partner in the discharge of its duties as general
partner of the Partnership. Any services rendered to a Group Member by the
General Partner, the MLP General Partner or any of their Affiliates shall be on
terms that are fair and reasonable to the Partnership; provided, however, that
the requirements of this Section 7.6(c) shall be deemed satisfied as to (i) any
transaction

                                       35


<PAGE>

approved by Special Approval, (ii) any transaction, the terms of which are no
less favorable to the Partnership Group than those generally being provided to
or available from unrelated third parties or (iii) any transaction that, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership Group), is equitable to the Partnership Group. The provisions
of Section 7.4 shall apply to the rendering of services described in this
Section 7.6(c).

          (d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.

          (e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
Agreement and any other transactions described in or contemplated by the
Registration Statement, (ii) any transaction approved by Special Approval, (iii)
any transaction, the terms of which are no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties, or (iv) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership.

          (f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.

          (g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.

Section 7.7. Indemnification.

          (a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the Partnership from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest, settlements or
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
any Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided, that in each case
the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in, or (in the case of a Person other than the General
Partner) not opposed to, the best interests of the Partnership and, with respect
to any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful; provided, further, no

                                       36


<PAGE>

indemnification pursuant to this Section 7.7 shall be available to the General
Partner with respect to its obligations incurred pursuant to the Underwriting
Agreement or the Contribution Agreement (other than obligations incurred by the
General Partner on behalf of the Partnership). The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere, or its equivalent, shall not create a presumption that the
Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, it being agreed that the General Partner shall not be
personally liable for such indemnification and shall have no obligation to
contribute or loan any monies or property to the Partnership to enable it to
effectuate such indemnification.

          (b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of any undertaking by or on behalf of the Indemnitee to repay such
amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.7.

          (c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and
as to actions in any other capacity (including any capacity under the
Underwriting Agreement), and shall continue as to an Indemnitee who has ceased
to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.

          (d) The Partnership may purchase and maintain (or reimburse the
General Partner or its Affiliates for the cost of) insurance, on behalf of the
General Partner, its Affiliates and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Partnership's
activities or such Person's activities on behalf of the Partnership, regardless
of whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.

          (e) For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 7.7(a); and action taken
or omitted by it with respect to any employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
that is in, or not opposed to, the best interests of the Partnership.

          (f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.

                                       37


<PAGE>

          (g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.

          (h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.

          (i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.

Section 7.8. Liability of Indemnitees.

          (a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the
Partnership, the Limited Partners, the Assignees or any other Persons who have
acquired interests in the Units or other MLP Securities, for losses sustained or
liabilities incurred as a result of any act or omission if such Indemnitee acted
in good faith.

          (b) Subject to its obligations and duties as General Partner set forth
in Section 7.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.

          (c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Partners, the General Partner and any other Indemnitee acting in
connection with the Partnership's business or affairs shall not be liable to the
Partnership or to any Partner for its good faith reliance on the provisions of
this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.

          (d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partner, and the Partnership's and General Partner's directors, officers
and employees under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.

                                       38


<PAGE>

Section 7.9. Resolution of Conflicts of Interest.

          (a) Unless otherwise expressly provided in this Agreement or the MLP
Agreement, whenever a potential conflict of interest exists or arises between
the General Partner or any of its Affiliates, on the one hand, and the
Partnership, the MLP, any Partner or any Assignee, on the other, any resolution
or course of action by the General Partner or its Affiliates in respect of such
conflict of interest shall be permitted and deemed approved by all Partners, and
shall not constitute a breach of this Agreement, of the MLP Agreement, of any
agreement contemplated herein or therein, or of any duty stated or implied by
law or equity, if the resolution or course of action is, or by operation of this
Agreement is deemed to be, fair and reasonable to the Partnership. The General
Partner shall be authorized but not required in connection with its resolution
of such conflict of interest to seek Special Approval of such resolution. Any
such approval shall be subject to the presumption that, in making its decision,
the Conflicts Committee acted on an informed basis, in good faith and in the
honest belief that the action taken was in the best interests of the Partnership
and the MLP and, in any proceeding brought by any Limited Partner or by or on
behalf of such Limited Partner or any other Limited Partners or the Partnership
challenging such approval, the Person bringing or prosecuting such proceeding
shall have the burden of overcoming such presumption. Any conflict of interest
and any resolution of such conflict of interest shall be conclusively deemed
fair and reasonable to the Partnership if such conflict of interest or
resolution is (i) approved by Special Approval, (ii) on terms no less favorable
to the Partnership than those generally being provided to or available from
unrelated third parties or (iii) fair to the Partnership, taking into account
the totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership). The General Partner may also adopt a resolution or course of
action that has not received Special Approval. The General Partner (including
the Conflicts Committee in connection with Special Approval) shall be authorized
in connection with its determination of what is "fair and reasonable" to the
Partnership and in connection with its resolution of any conflict of interest to
consider (A) the relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such interest;
(B) any customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Conflicts Committee) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances. In
any proceeding brought by any Limited Partner or by or on behalf of such Limited
Partner or any other Limited Partners or the Partnership alleging that such a
resolution by the General Partner (and not by the Conflicts Committee, whose
resolution shall be conclusive as provided above) is not fair to the
Partnership, such Limited Partner shall have the burden of proof of overcoming
such conclusion. Nothing contained in this Agreement, however, is intended to
nor shall it be construed to require the General Partner (including the
Conflicts Committee) to consider the interests of any Person other than the
Partnership. In the absence of bad faith by the General Partner, the resolution,
action or terms so made, taken or provided by the General Partner with respect
to such matter shall not constitute a breach of this Agreement or any other
agreement contemplated herein or a breach of any standard of care or duty
imposed herein or therein or, to the extent permitted by law, under the Delaware
Act or any other law, rule or regulation.

                                       39


<PAGE>

          (b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, the Partnership, the
MLP, any Limited Partner or any Assignee, (ii) it may make such decision in its
sole discretion (regardless of whether there is a reference to "sole discretion"
or "discretion") unless another express standard is provided for, or (iii) in
"good faith" or under another express standard, the General Partner or such
Affiliate shall act under such express standard and shall not be subject to any
other or different standards imposed by this Agreement, the MLP Agreement, any
other agreement contemplated hereby or under the Delaware Act or any other law,
rule or regulation. In addition, any actions taken by the General Partner or
such Affiliate consistent with the standards of "reasonable discretion" set
forth in the definition of Available Cash shall not constitute a breach of any
duty of the General Partner to the Partnership or the Limited Partners. The
General Partner shall have no duty, express or implied, to sell or otherwise
dispose of any asset of the Partnership Group other than in the ordinary course
of business. No borrowing by any Group Member or the approval thereof by the
General Partner shall be deemed to constitute a breach of any duty of the
General Partner to the Partnership or the Limited Partners by reason of the fact
that the purpose or effect of such borrowing is directly or indirectly to (A)
enable distributions to the General Partner or its Affiliates to exceed 0.01% of
the total amount distributed to all Partners or (B) hasten the expiration of the
Subordination Period or the conversion of any Subordinated Units into Common
Units.

          (c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.

          (d) The Limited Partner hereby authorizes the General Partner, on
behalf of the Partnership as a partner or member of a Group Member, to approve
of actions by the general partner or managing member of such Group Member
similar to those actions permitted to be taken by the General Partner pursuant
to this Section 7.9.

Section 7.10. Other Matters Concerning the General Partner.

          (a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.

          (b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the General Partner reasonably believes to

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<PAGE>

be within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.

          (c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.

          (d) Any standard of care and duty imposed by this Agreement or under
the Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited, to the extent permitted by law, as required to permit the
General Partner to act under this Agreement or any other agreement contemplated
by this Agreement and to make any decision pursuant to the authority prescribed
in this Agreement, so long as such action is reasonably believed by the General
Partner to be in, or not inconsistent with, the best interests of the
Partnership.

Section 7.11. Reliance by Third Parties.

     Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General Partner
to act on behalf of and in the name of the Partnership has full power and
authority to encumber, sell or otherwise use in any manner any and all assets of
the Partnership and to enter into any authorized contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or any such officer or its representatives be obligated to
ascertain that the terms of the Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
any such officer or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner or
its representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.

                                  ARTICLE VIII.
                          BOOKS, RECORDS AND ACCOUNTING

Section 8.1. Records and Accounting.

     The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be

                                       41


<PAGE>

provided pursuant to Section 3.4(a). Any books and records maintained by or on
behalf of the Partnership in the regular course of its business, including books
of account and records of Partnership proceedings, may be kept on, or be in the
form of, computer disks, hard drives, punch cards, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with U.S. GAAP.

Section 8.2. Fiscal Year.

     The fiscal year of the Partnership shall be a fiscal year ending December
31.

                                   ARTICLE IX.
                                   TAX MATTERS

Section 9.1. Tax Returns and Information.

     The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by the Partners for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.

Section 9.2. Tax Elections.

          (a) To the extent applicable for federal income tax purposes, the
Partnership shall make the election under Section 754 of the Code in accordance
with applicable regulations thereunder, subject to the reservation of the right
to seek to revoke any such election upon the General Partner's determination
that such revocation is in the best interests of the Limited Partners.

          (b) To the extent applicable for federal income tax purposes, the
Partnership shall elect to deduct expenses incurred in organizing the
Partnership ratably over a sixty-month period as provided in Section 709 of the
Code.

          (c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.

Section 9.3. Tax Controversies.

     Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with all
examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees

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<PAGE>

to cooperate with the General Partner and to do or refrain from doing any or all
things reasonably required by the General Partner to conduct such proceedings.

Section 9.4. Withholding.

     Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld may at
the discretion of the General Partner be treated by the Partnership as a
distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.

                                   ARTICLE X.
                              ADMISSION OF PARTNERS

Section 10.1. Admission of Partners.

     Upon the consummation of the transfers and conveyances described in Section
5.2, the General Partner shall be the sole general partner of the Partnership
and the MLP shall be the sole limited partner of the Partnership.

Section 10.2. Admission of Substituted Limited Partner.

     By transfer of a Limited Partner Interest in accordance with Article IV,
the transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and in
the manner permitted under, this Agreement. A transferor of a Limited Partner
Interest shall, however, only have the authority to convey to a purchaser or
other transferee (a) the right to negotiate such Limited Partner Interest to a
purchaser or other transferee and (b) the right to request admission as a
Substituted Limited Partner to such purchaser or other transferee in respect of
the transferred Limited Partner Interests. Each transferee of a Limited Partner
Interest shall be an Assignee and be deemed to have applied to become a
Substituted Limited Partner with respect to the Limited Partner Interests so
transferred to such Person. Such Assignee shall become a Substituted Limited
Partner (x) at such time as the General Partner consents thereto, which consent
may be given or withheld in the General Partner's discretion, and (y) when any
such admission is shown on the books and records of the Partnership. If such
consent is withheld, such transferee shall remain an Assignee. An Assignee shall
have an interest in the Partnership equivalent to that of a Limited Partner with
respect to allocations and distributions, including liquidating distributions,
of the Partnership. With respect to voting rights attributable to Limited
Partner Interests that are held by Assignees, the General Partner shall be
deemed to be the Limited Partner with respect thereto and shall, in exercising
the voting rights in respect of such Limited Partner Interests on any matter,
vote such Limited Partner Interests at the written direction of the Assignee. If
no such written direction is received, such Partnership Interests will not be
voted. An Assignee shall have no other rights of a Limited Partner.

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<PAGE>

Section 10.3. Admission of Additional Limited Partners.

          (a) A Person (other than the General Partner, the MLP or a Substituted
Limited Partner) who makes a Capital Contribution to the Partnership in
accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner:

               (i)  evidence of acceptance in form satisfactory to the General
                    Partner of all of the terms and conditions of this
                    Agreement, including the power of attorney granted in
                    Section 2.6, and

               (ii) such other documents or instruments as may be required in
                    the discretion of the General Partner to effect such
                    Person's admission as an Additional Limited Partner.

          (b) Notwithstanding anything to the contrary in this Section 10.3, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.

Section 10.4. Admission of Successor or Transferee General Partner.

     A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the General Partner's Partnership
Interest pursuant to Section 4.2 who is proposed to be admitted as a successor
General Partner shall, subject to compliance with the terms of Section 11.3, if
applicable, be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of
the General Partner Interest pursuant to Section 4.2, provided, however, that no
such successor shall be admitted to the Partnership until compliance with the
terms of Section 4.2 has occurred and such successor has executed and delivered
such other documents or instruments as may be required to effect such admission.
Any such successor shall, subject to the terms hereof, carry on the business of
the members of the Partnership Group without dissolution.

Section 10.5. Amendment of Agreement and Certificate of Limited Partnership.

     To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.

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<PAGE>

                                   ARTICLE XI.
                        WITHDRAWAL OR REMOVAL OF PARTNERS

Section 11.1. Withdrawal of the General Partner.

          (a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
                                -------------------

          (i) The General Partner voluntarily withdraws from the Partnership by
     giving written notice to the other Partners;

          (ii) The General Partner transfers all of its rights as General
     Partner pursuant to Section 4.2;

          (iii) The General Partner is removed pursuant to Section 11.2;

          (iv) The General Partner (A) makes a general assignment for the
     benefit of creditors; (B) files a voluntary bankruptcy petition for relief
     under Chapter 7 of the United States Bankruptcy Code; (C) files a petition
     or answer seeking for itself a liquidation, dissolution or similar relief
     (but not a reorganization) under any law; (D) files an answer or other
     pleading admitting or failing to contest the material allegations of a
     petition filed against the General Partner in a proceeding of the type
     described in clauses (A)-(C) of this Section 11.1(a)(iv); or (E) seeks,
     consents to or acquiesces in the appointment of a trustee (but not a
     debtor-in-possession), receiver or liquidator of the General Partner or of
     all or any substantial part of its properties;

          (v) A final and non-appealable order of relief under Chapter 7 of the
     United States Bankruptcy Code is entered by a court with appropriate
     jurisdiction pursuant to a voluntary or involuntary petition by or against
     the General Partner; or

          (vi) (A) in the event the General Partner is a corporation, a
     certificate of dissolution or its equivalent is filed for the General
     Partner, or 90 days expire after the date of notice to the General Partner
     of revocation of its charter without a reinstatement of its charter, under
     the laws of its state of incorporation; (B) in the event the General
     Partner is a partnership or limited liability company, the dissolution and
     commencement of winding up of the General Partner; (C) in the event the
     General Partner is acting in such capacity by virtue of being a trustee of
     a trust, the termination of the trust; (D) in the event the General Partner
     is a natural person, his death or adjudication of incompetency; and (E)
     otherwise in the event of the termination of the General Partner.

     If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A),
(B), (C) or (E) occurs, the withdrawing General Partner shall give notice to the
Limited Partners within 30 days after such occurrence. The Partners hereby agree
that only the Events of Withdrawal described in this Section 11.1 shall result
in the withdrawal of the General Partner from the Partnership.

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<PAGE>

          (b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on December 31, 2011, the General Partner voluntarily withdraws by giving
at least 90 days' advance notice of its intention to withdraw to the Limited
Partners; provided that prior to the effective date of such withdrawal, the
withdrawal is approved by the Limited Partners and the General Partner delivers
to the Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that
                                           -----------------------------
such withdrawal (following the selection of the successor General Partner) would
not result in the loss of the limited liability of any Limited Partner or of the
limited partners of the MLP or cause the Partnership or the MLP 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 previously treated as such);
(ii) at any time after 12:00 midnight, Eastern Standard Time, on December 31,
2011, the General Partner voluntarily withdraws by giving at least 90 days'
advance notice to the Limited Partners, such withdrawal to take effect on the
date specified in such notice; (iii) at any time that the General Partner ceases
to be the General Partner pursuant to Section 11.1(a)(ii) or (iii). If the
General Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i)
hereof, the Limited Partners may, prior to the effective date of such
withdrawal, elect a successor General Partner. If, prior to the effective date
of the General Partner's withdrawal, a successor is not selected by the Limited
Partners as provided herein or the Partnership does not receive a Withdrawal
Opinion of Counsel, the Partnership shall be dissolved in accordance with
Section 12.1. Any successor General Partner elected in accordance with the terms
of this Section 11.1 shall be subject to the provisions of Section 10.3.

Section 11.2. Removal of the General Partner.

     The General Partner may be removed by the MLP. Upon the removal of the
General Partner by the MLP, the MLP shall elect a successor general partner for
the Partnership. The admission of any such successor General Partner to the
Partnership shall be subject to the provisions of Section 10.3.

Section 11.3. Interest of Departing Partner.

          (a) The Partnership Interest of the Departing Partner departing as a
result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall be
purchased by the successor to the Departing Partner for an amount in cash equal
to the fair market value of such Partnership Interest, such amount to be
determined and payable as of the effective date of the Departing Partner's
departure. Such purchase shall be a condition to the admission to the
Partnership of the successor as the General Partner. Any successor General
Partner shall indemnify the Departing Partner as to all debts and liabilities of
the Partnership arising on or after the effective date of the withdrawal or
removal of the Departing Partner.

          For purposes of this Section 11.3(a), the fair market value of the
Departing Partner's General Partner Interest shall be determined by agreement
between the Departing Partner and its successor or, failing agreement within 30
days after the effective date of such Departing Partner's departure, by an
independent investment banking firm or other independent expert selected by the
Departing Partner and its successor, which, in turn, may rely on other

                                       46


<PAGE>

experts, and the determination of which shall be conclusive as to such matter.
If such parties cannot agree upon one independent investment banking firm or
other independent expert within 45 days after the effective date of such
departure, then the Departing Partner shall designate an independent investment
banking firm or other independent expert, the Departing Partner's successor
shall designate an independent investment banking firm or other independent
expert, and such firms or experts shall mutually select a third independent
investment banking firm or independent expert, which third independent
investment banking firm or other independent expert shall determine the fair
market value of the General Partner Interest of the Departing Partner. In making
its determination, such third independent investment banking firm or other
independent expert may consider the value of the Partnership's assets, the
rights and obligations of the Departing Partner and other factors it may deem
relevant.

          (b) The Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Partner for the benefit of the Partnership.

Section 11.4. Withdrawal of a Limited Partner.

     Without the prior written consent of the General Partner, which may be
granted or withheld in its sole discretion, and except as provided in Section
10.1, no Limited Partner shall have the right to withdraw from the Partnership.

                                  ARTICLE XII.
                           DISSOLUTION AND LIQUIDATION

Section 12.1. Dissolution.

     The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:

          (a) an Event of Withdrawal of the General Partner as provided in
Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected
and an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and
such successor is admitted to the Partnership pursuant to Section 10.4;

          (b) an election to dissolve the Partnership by the General Partner
that is approved by all of the Limited Partners;

          (c) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act;

          (d) the sale of all or substantially all of the assets and properties
of the Partnership Group; or

                                       47


<PAGE>

          (e) the dissolution of the MLP.

Section 12.2. Continuation of the Business of the Partnership After Dissolution.

     Upon dissolution of the Partnership following an Event of Withdrawal caused
by the withdrawal or removal of the General Partner as provided in Section
11.1(a)(i) or (iii) and the failure of the Partners to select a successor to
such Departing Partner pursuant to Section 11.1 or 11.2, then within 90 days
thereafter, all of the Limited Partners may elect to reconstitute the
Partnership and continue its business on the same terms and conditions set forth
in this Agreement by forming a new limited partnership on terms identical to
those set forth in this Agreement and having as a general partner a Person
approved by a majority in interest of the Limited Partners. In addition, upon
dissolution of the Partnership pursuant to Section 12.1(e), if the MLP is
reconstituted pursuant to Section 12.2 of the MLP Agreement, the reconstituted
MLP may, within 180 days after such event of dissolution, acting alone,
regardless of whether there are any other Limited Partners, elect to
reconstitute the Partnership in accordance with the immediately preceding
sentence. Upon any such election by the Limited Partners or the MLP, as the case
may be, all Partners shall be bound thereby and shall be deemed to have approved
same. Unless such an election is made within the applicable time period as set
forth above, the Partnership shall conduct only activities necessary to wind up
its affairs. If such an election is so made, then:

          (a) the reconstituted Partnership shall continue unless earlier
dissolved in accordance with this Article XII;

          (b) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be purchased by
the successor General Partner; and

          (c) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary, to
file, a new partnership agreement and certificate of limited partnership, and
the successor General Partner may for this purpose exercise the powers of
attorney granted the General Partner pursuant to Section 2.6; provided, that the
right to approve a successor General Partner and to reconstitute and to continue
the business of the Partnership shall not exist and may not be exercised unless
the Partnership has received an Opinion of Counsel that (x) the exercise of the
right would not result in the loss of limited liability of the Limited Partners
or any limited partner of the MLP and (y) neither the Partnership, the
reconstituted limited partnership, the MLP nor any Group Member 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 such right to continue.

Section 12.3. Liquidator.

     Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by a majority
of the Limited Partners. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days' prior notice and may be
removed at any time, with or

                                       48


<PAGE>

without cause, by notice of removal approved by a majority in interest of the
Limited Partners. Upon dissolution, removal or resignation of the Liquidator, a
successor and substitute Liquidator (who shall have and succeed to all rights,
powers and duties of the original Liquidator) shall within 30 days thereafter be
approved by at least a majority in interest of the Limited Partners. The right
to approve a successor or substitute Liquidator in the manner provided herein
shall be deemed to refer also to any such successor or substitute Liquidator
approved in the manner herein provided. Except as expressly provided in this
Article XII, the Liquidator approved in the manner provided herein shall have
and may exercise, without further authorization or consent of any of the parties
hereto, all of the powers conferred upon the General Partner under the terms of
this Agreement (but subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers, other than the limitation on
sale set forth in Section 7.3(b)) to the extent necessary or desirable in the
good faith judgment of the Liquidator to carry out the duties and functions of
the Liquidator hereunder for and during such period of time as shall be
reasonably required in the good faith judgment of the Liquidator to complete the
winding up and liquidation of the Partnership as provided for herein.

Section 12.4. Liquidation.

     The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:

          (a) Disposition of Assets. The assets may be disposed of by public or
              ---------------------
private sale or by distribution in kind to one or more Partners on such terms as
the Liquidator and such Partner or Partners may agree. If any property is
distributed in kind, the Partner receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute discretion,
defer liquidation or distribution of the Partnership's assets for a reasonable
time if it determines that an immediate sale or distribution of all or some of
the Partnership's assets would be impractical or would cause undue loss to the
Partners. The Liquidator may, in its absolute discretion, distribute the
Partnership's assets, in whole or in part, in kind if it determines that a sale
would be impractical or would cause undue loss to the Partners.

          (b) Discharge of Liabilities. Liabilities of the Partnership include
              ------------------------
amounts owed to the Liquidator as compensation for serving in such capacity
(subject to the terms of Section 12.3) and amounts owed to Partners otherwise
than in respect of their distribution rights under Article VI. With respect to
any liability that is contingent, conditional or unmatured or is otherwise not
yet due and payable, the Liquidator shall either settle such claim for such
amount as it thinks appropriate or establish a reserve of cash or other assets
to provide for its payment. When paid, any unused portion of the reserve shall
be distributed as additional liquidation proceeds.

          (c) Liquidation Distributions. All property and all cash in excess of
              -------------------------
that required to discharge liabilities as provided in Section 12.4(b) shall be
distributed to the Partners in accordance with, and to the extent of, the
positive balances in their respective Capital

                                       49


<PAGE>

Accounts, as determined after taking into account all Capital Account
adjustments (other than those made by reason of distributions pursuant to this
Section 12.4(c)) for the taxable year of the Partnership during which the
liquidation of the Partnership occurs (with such date of occurrence being
determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and
such distribution shall be made by the end of such taxable year (or, if later,
within 90 days after said date of such occurrence).

Section 12.5. Cancellation of Certificate of Limited Partnership.

     Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
the Partnership shall be terminated and the Certificate of Limited Partnership,
and all qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware, shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.

Section 12.6. Return of Contributions.

     The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners, or any portion thereof, it being expressly understood that any such
return shall be made solely from Partnership assets.

Section 12.7. Waiver of Partition.

     To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.

Section 12.8. Capital Account Restoration.

     No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.

                                  ARTICLE XIII.
                       AMENDMENT OF PARTNERSHIP AGREEMENT

Section 13.1. Amendment to be Adopted Solely by the General Partner.

     Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:

          (a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;

                                       50


<PAGE>

          (b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;

          (c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure that no
Group Member will be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes;

          (d) a change that, in the discretion of the General Partner, (i) does
not adversely affect the Limited Partners (including any particular class of
Partnership Interests as compared to other classes of Partnership Interests) in
any material respect, (ii) is necessary or advisable to (A) 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 (including the Delaware Act) or (B)
facilitate the trading of limited partner interests of the MLP (including the
division of any class or classes of outstanding limited partner interests of the
MLP into different classes to facilitate uniformity of tax consequences within
such classes of limited partner interests of the MLP) or comply with any rule,
regulation, guideline or requirement of any National Securities Exchange (as
defined in the MLP Agreement) on which such limited partner interests are or
will be listed for trading, compliance with any of which the General Partner
determines in its discretion to be in the best interests of the MLP and the
limited partners of the MLP, (iii) is required to effect the intent expressed in
the Registration Statement or the intent of the provisions of this Agreement or
is otherwise contemplated by this Agreement or (iv) is required to conform the
provisions of this Agreement with the provisions of the MLP Agreement as the
provisions of the MLP Agreement may be amended, supplemented or restated from
time to time;

          (e) a change in the fiscal year or taxable year of the Partnership and
any changes that, in the discretion of the General Partner, are necessary or
advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the General Partner shall so determine, a change in
the definition of "Quarter" and the dates on which distributions are to be made
by the Partnership;

          (f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership, or the General Partner or its members, directors,
officers, trustees or agents from in any manner being subjected to the
provisions of the Investment Company Act of 1940, as amended, the Investment
Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended, regardless of
whether such are substantially similar to plan asset regulations currently
applied or proposed by the United States Department of Labor;

          (g) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;

          (h) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;

                                       51


<PAGE>

          (i) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;

          (j) a merger or conveyance pursuant to Section 14.3(d); or

          (k) any other amendments substantially similar to the foregoing.

Section 13.2. Amendment Procedures.

     Except with respect to amendments of the type described in Section 13.1,
all amendments to this Agreement shall be made in accordance with the following
requirements: Amendments to this 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. A proposed amendment shall be effective upon its approval by
the Limited Partners.

                                  ARTICLE XIV.
                                     MERGER

Section 14.1. Authority.

     The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
                                               ----------------
with this Article XIV.

Section 14.2. Procedure for Merger or Consolidation.

     Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:

          (a) the names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;

          (b) the name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
 -------------------------

          (c) the terms and conditions of the proposed merger or consolidation;

          (d) the manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partner interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited

                                       52


<PAGE>

partner interests, securities or rights of any constituent business entity are
not to be exchanged or converted solely for, or into, cash, property or general
or limited partner interests, rights, securities or obligations of the Surviving
Business Entity, the cash, property or general or limited partner interests,
rights, securities or obligations of any limited partnership, corporation, trust
or other entity (other than the Surviving Business Entity) that the holders of
such general or limited partner interests, securities or rights are to receive
in exchange for, or upon conversion of their general or limited partner
interests, securities or rights, and (ii) in the case of securities represented
by certificates, upon the surrender of such certificates, which cash, property
or general or limited partner interests, rights, securities or obligations of
the Surviving Business Entity or any general or limited partnership,
corporation, trust or other entity (other than the Surviving Business Entity),
or evidences thereof, are to be delivered;

          (e) a statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership or other similar charter or governing document) of the
Surviving Business Entity to be effected by such merger or consolidation;

          (f) the effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, the effective time shall be fixed no later
than the time of the filing of the certificate of merger and stated therein);
and

          (g) such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.

Section 14.3. Approval by Limited Partners of Merger or Consolidation.

          (a) Except as provided in Section 14.3(d), the General Partner, upon
its approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of the Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.

          (b) Except as provided in Section 14.3(d), the Merger Agreement shall
be approved upon receiving the affirmative vote or consent of the Limited
Partners.

          (c) Except as provided in Section 14.3(d), after such approval by vote
or consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.

          (d) Notwithstanding anything else contained in this Article XIV or in
this Agreement, the General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into, or
convey all of the Partnership's assets to, another limited liability entity that
shall be newly formed and shall have no assets, liabilities or

                                       53


<PAGE>

operations at the time of such Merger other than those it receives from the
Partnership or other Group Member if (i) the General Partner has received an
Opinion of Counsel that the merger or conveyance, as the case may be, would not
result in the loss of the limited liability of any Limited Partner or any
limited partner in the MLP or cause the Partnership or the MLP 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 previously treated as such),
(ii) the sole purpose of such merger or conveyance is to effect a mere change in
the legal form of the Partnership into another limited liability entity and
(iii) the governing instruments of the new entity provide the Limited Partners
and the General Partner with substantially the same rights and obligations as
are herein contained.

Section 14.4. Certificate of Merger.

     Upon the required approval by the General Partner and the Limited Partners
of a Merger Agreement, a certificate of merger shall be executed and filed with
the Secretary of State of the State of Delaware in conformity with the
requirements of the Delaware Act.

Section 14.5. Effect of Merger.

          (a) At the effective time of the certificate of merger:

          (i) all of the rights, privileges and powers of each of the business
     entities that has merged or consolidated, and all property, real, personal
     and mixed, and all debts due to any of those business entities and all
     other things and causes of action belonging to each of those business
     entities, shall be vested in the Surviving Business Entity and after the
     merger or consolidation shall be the property of the Surviving Business
     Entity to the extent they were of each constituent business entity;

          (ii) the title to any real property vested by deed or otherwise in any
     of those constituent business entities shall not revert and is not in any
     way impaired because of the merger or consolidation;

          (iii) all rights of creditors and all liens on or security interests
     in property of any of those constituent business entities shall be
     preserved unimpaired; and

          (iv) all debts, liabilities and duties of those constituent business
     entities shall attach to the Surviving Business Entity and may be enforced
     against it to the same extent as if the debts, liabilities and duties had
     been incurred or contracted by it.

          (b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another.

                                       54


<PAGE>

                                   ARTICLE XV.
                               GENERAL PROVISIONS

Section 15.1. Addresses and Notices.

     Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner or Assignee at the address appearing on the books
and records of the Partnership. Any notice to the Partnership shall be deemed
given if received by the General Partner at the principal office of the
Partnership designated pursuant to Section 2.3. The General Partner may rely and
shall be protected in relying on any notice or other document from a Partner,
Assignee or other Person if believed by it to be genuine.

Section 15.2. Further Action.

     The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.

Section 15.3. Binding Effect.

     This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

Section 15.4. Integration.

     This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.

Section 15.5. Creditors.

     None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.

Section 15.6. Waiver.

     No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
breach of any other covenant, duty, agreement or condition.

                                       55


<PAGE>

Section 15.7. Counterparts.

     This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto, independently of the signature of any other party.

Section 15.8. Applicable Law.

     This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.

Section 15.9. Invalidity of Provisions.

     If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

Section 15.10. Consent of Partners.

     Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.

                  [Remainder of Page Intentionally Left Blank]

                                       56


<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

                                            GENERAL PARTNER:

                                            Sunoco Logistics Partners GP LLC


                                            By: /s/   David A. Justin
                                                --------------------------------
                                                Name: David A. Justin
                                                Its:  Vice President


                                            LIMITED PARTNERS:

                                            Sunoco Logistics Partners L.P.


                                            By: Sunoco Partners LLC
                                            Its: General Partner


                                                By: /s/   David A. Justin
                                                    ----------------------------
                                                    Name: David A. Justin
                                                    Its:  Vice President

               Signature Page of to the First Amended and Restated
                        Agreement of Limited Partnership
                  of Sunoco Logistics Partners Operations L.P.


<PAGE>

                                                                     EXHIBIT 3.6

================================================================================

                           FIRST AMENDED AND RESTATED

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                               SUNOCO PARTNERS LLC

                    A Pennsylvania Limited Liability Company

                                   Dated as of

                                February 8, 2002

================================================================================


<PAGE>



                                TABLE OF CONTENTS

<TABLE>
                                   ARTICLE I.
                                   DEFINITIONS
<S>             <C>                                                             <C>
Section 1.01    Definitions..................................................    1
Section 1.02    Construction.................................................    9

                                   ARTICLE II.
                                  ORGANIZATION

Section 2.01    Formation....................................................    9
Section 2.02    Name.........................................................    9
Section 2.03    Registered Office; Registered Agent; Principal Office........    9
Section 2.04    Purposes.....................................................    9
Section 2.05    Foreign Qualification........................................   10
Section 2.06    Term.........................................................   11
Section 2.07    No State Law Partnership.....................................   11

                                  ARTICLE III.
                                   MEMBERSHIP

Section 3.01    Membership Interests; Additional Members.....................   11
Section 3.02    Access to Information........................................   11
Section 3.03    Liability....................................................   11
Section 3.04    Withdrawal...................................................   12

                                   ARTICLE IV.
                       DISPOSITION OF MEMBERSHIP INTERESTS

Section 4.01    General Restriction..........................................   12
Section 4.02    Admission of Assignee as a Member............................   12
Section 4.03    Requirements Applicable to All Dispositions and Admissions...   12

                                   ARTICLE V.
                              CAPITAL CONTRIBUTIONS

Section 5.01    Initial Capital Contributions................................   13
Section 5.02    Loans........................................................   14
Section 5.03    Return of Contributions......................................   14
Section 5.04    Capital Accounts.............................................   14

                                   ARTICLE VI.
                          DISTRIBUTIONS AND ALLOCATIONS

Section 6.01    Distributions................................................   14
Section 6.02    Distributions on Dissolution
 and Winding Up..................   14
Section 6.03    Allocations..................................................   15
Section 6.04    Varying Interests............................................   17
Section 6.05    Tax Distributions............................................   17
Section 6.06    Withheld Taxes...............................................   17
Section 6.07    Limitations on Distributions.................................   18
</TABLE>


                                        i


<PAGE>


<TABLE>
                                  ARTICLE VII.
                                   MANAGEMENT
<S>             <C>                                                             <C>
Section 7.01    Management by Board of Directors and Executive Officers......   18
Section 7.02    Number; Qualification; Tenure................................   18
Section 7.03    Regular Meetings.............................................   18
Section 7.04    Special Meetings.............................................   19
Section 7.05    Notice.......................................................   19
Section 7.06    Action by Consent of Board or Committee of Board.............   19
Section 7.07    Conference Telephone Meetings................................   19
Section 7.08    Quorum.......................................................   19
Section 7.09    Vacancies; Increases in the Number of Directors..............   20
Section 7.10    Committees...................................................   20
Section 7.11    Removal......................................................   21

                                  ARTICLE VIII.
                                    OFFICERS

Section 8.01    Elected Officers.............................................   21
Section 8.02    Election and Term of Office..................................   21
Section 8.03    Chairman of the Board........................................   21
Section 8.04    Chief Executive Officer......................................   21
Section 8.05    President....................................................   22
Section 8.06    Chief Financial Officer......................................   22
Section 8.07    Vice Presidents..............................................   22
Section 8.08    Treasurer....................................................   22
Section 8.09    Secretary....................................................   23
Section 8.10    Removal......................................................   23
Section 8.11    Vacancies....................................................   23

                                   ARTICLE IX.
                          INDEMNIFICATION OF DIRECTORS,
                         OFFICERS, EMPLOYEES AND AGENTS

Section 9.01    Indemnification..............................................   23
Section 9.02    Liability of Indemnitees.....................................   25

                                   ARTICLE X.
                                      TAXES

Section 10.01   Tax Returns..................................................   25
Section 10.02   Tax Elections................................................   25
Section 10.03   Tax Matters Partner..........................................   26

                                   ARTICLE XI.
                    BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS

Section 11.01   Maintenance of Books.........................................   27
Section 11.02   Reports......................................................   27
Section 11.03   Bank Accounts................................................   27
</TABLE>


                                       ii


<PAGE>


<TABLE>
                                  ARTICLE XII.
                     DISSOLUTION, WINDING-UP AND TERMINATION
<S>             <C>                                                             <C>
Section 12.01   Dissolution..................................................   28
Section 12.02   Winding-Up and Termination...................................   28
Section 12.03   Deficit Capital Accounts.....................................   29
Section 12.04   Certificate of Dissolution...................................   29

                                  ARTICLE XIII.
                               GENERAL PROVISIONS

Section 13.01   Offset.......................................................   29
Section 13.02   Notices......................................................   29
Section 13.03   Entire Agreement; Superseding Effect.........................   31
Section 13.04   Effect of Waiver or Consent..................................   31
Section 13.05   Amendment or Restatement.....................................   31
Section 13.06   Binding Effect...............................................   31
Section 13.07   Governing Law; Severability..................................   32
Section 13.08   Further Assurances...........................................   32
Section 13.09   Waiver of Certain Rights.....................................   32
Section 13.10   Counterparts.................................................   32
Section 13.11   Jurisdiction.................................................   33
</TABLE>


                                       iii


<PAGE>





                           FIRST AMENDED AND RESTATED
                       LIMITED LIABILITY COMPANY AGREEMENT
                                       OF
                               SUNOCO PARTNERS LLC
                    A Pennsylvania Limited Liability Company

     This FIRST AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of
SUNOCO PARTNERS LLC (the "Company"), dated as of February 8, 2002, is adopted,
                          -------
executed and agreed to by Sun Pipe Line Company of Delaware, a Delaware
corporation ("Sun Delaware"), Sunoco Texas Pipe Line Company, a Texas
              ------------
corporation ("Sunoco Texas"), Sunoco, Inc. (R&M), a Pennsylvania corporation
              ------------
("Sunoco R&M"), Atlantic Petroleum Corporation, a Delaware corporation
  ----------
("Atlantic Petroleum"), and Atlantic Refining & Marketing Corp., a Delaware
  ------------------
corporation ("Atlantic Refining"), as the Members (as defined herein) of the
              -----------------
Company.

                                R E C I T A L S:
                                - - - - - - - -

     WHEREAS, the Company was formed as a Pennsylvania limited liability company
under and pursuant to the Pennsylvania Limited Liability Company Law of 1994, as
amended (the "Act"), on October 12, 2001 (the "Original Filing Date") by the
              ---                              --------------------
filing of a Certificate of Organization of a Domestic Limited Liability Company
(the "Pennsylvania Certificate") with the Pennsylvania Department of State on
      ------------------------
such date; and

     WHEREAS, Sun Delaware, as the sole member, adopted, executed and agreed to
a Limited Liability Company Agreement (the "Prior Agreement") relating to the
                                            ---------------
Company on October 15, 2001; and

     WHEREAS, Sun Delaware and the Company desire to admit Sunoco Texas, Sunoco
R&M, Atlantic Petroleum and Atlantic Refining as members of the Company in
exchange for their capital contributions as set forth in Section 5.01 and to
amend and restate the Prior Agreement to, among other things, provide for a
board of directors and officers of the Company.

     NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, the parties hereto hereby amend the Prior Agreement
and, as so amended, restate it in its entirety as follows:

                                   ARTICLE I.
                                  DEFINITIONS

     Section 1.01 Definitions.

     (a) As used in this Agreement, the following terms have the respective
meanings set forth below or set forth in the Sections referred to below:

     "Act" has the meaning given such term in the Recitals.
      ---


<PAGE>

     "Adjusted Capital Account Deficit" means, with respect to any Member, the
      --------------------------------
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments:

          (i) credit to such Capital Account any amounts that such Member is
     obligated to restore pursuant to any provision of this Agreement or
     pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c) or is deemed
     to be obligated to restore pursuant to the penultimate sentences of
     Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

          (ii) debit to such Capital Account the items described in Treasury
     Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
     1.704-1(b)(2)(ii)(d)(6).

     The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.

     "Affiliate" means, with respect to any Person, any other Person directly or
      ---------
indirectly controlling, controlled by or under direct or indirect common control
with, such Person. For the purposes of this definition, "control" when used with
                                                         -------
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
                                                     -----------
"controlled" have meanings correlative to the foregoing.
 ----------

     "Agreement" means this First Amended and Restated Limited Liability Company
      ---------
Agreement of Sunoco Partners LLC.

     "Applicable Law" means (a) any United States federal, state, local or
      --------------
foreign law, statute, rule, regulation, order, writ, injunction, judgment,
decree or permit of any Governmental Authority and (b) any rule or listing
requirement of any applicable national stock exchange or listing requirement of
any national stock exchange or Securities and Exchange Commission recognized
trading market on which securities issued by the MLP are listed or quoted.

     "Assignee" means any Person that acquires a Membership Interest or any
      --------
portion thereof through a Disposition; provided, however, that an Assignee shall
have no right to be admitted to the Company as a Member except in accordance
with Article IV. The Assignee of a dissolved Member is the shareholder, partner,
member or other equity owner or owners of the dissolved Member to whom such
Member's Membership Interest is assigned by the Person conducting the
liquidation or winding up of such Member. The Assignee of a Bankrupt Member is
(a) the Person or Persons (if any) to whom such Bankrupt Member's Membership
Interest is assigned by order of the court or other Governmental Authority
having jurisdiction over the related Bankruptcy, or (b) in the event of a
general assignment for the benefit of creditors, the creditor to which such
Membership Interest is assigned.

     "Atlantic Petroleum" has the meaning given such term in the introductory
      ------------------
paragraph of this Agreement.

                                       2


<PAGE>

     "Atlantic Refining" has the meaning given to such term in the introductory
      -----------------
paragraph of this Agreement.

     "Bankruptcy" or "Bankrupt" means, with respect to any Person, that (a) such
      ----------      --------
Person (i) makes a general assignment for the benefit of creditors; (ii) files a
voluntary bankruptcy petition; (iii) becomes the subject of an order for relief
or is declared insolvent in any federal or state bankruptcy or insolvency
proceedings; (iv) files a petition or answer seeking for such Person a
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any Applicable Law; (v) files an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against such Person in a proceeding of the type described in subclauses
(i) through (iv) of this clause (a); or (vi) seeks, consents to or acquiesces in
the appointment of a trustee, receiver or liquidator of such Person or of all or
any substantial part of such Person's properties; or (b) a proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any Applicable Law has been commenced against such
Person and 120 Days have expired without dismissal thereof or with respect to
which, without such Person's consent or acquiescence, a trustee, receiver or
liquidator of such Person or of all or any substantial part of such Person's
properties has been appointed and 90 Days have expired without the appointment's
having been vacated or stayed, or 90 Days have expired after the date of
expiration of a stay, if the appointment has not previously been vacated.

     "Board" has the meaning given such term in Section 7.01.
      -----

     "Business Day" means any day other than a Saturday, a Sunday or a day when
      ------------
banks in New York, New York are authorized or required by Applicable Law to be
closed.

     "Capital Account" means, with respect to any Member, the Capital Account
      ---------------
maintained for such Member in accordance with the following provisions:

          (i) To each Member's Capital Account there shall be credited such
     Member's Capital Contributions, such Member's distributive share of Profits
     and any items in the nature of income or gain that are specially allocated
     pursuant to Section 6.03 hereof, and the amount of any Company liabilities
     assumed by such Member or that are secured by any property (other than
     money) distributed to such Member.

          (ii) To each Member's Capital Account there shall be debited the
     amount of cash and the Gross Asset Value of any property (other than money)
     distributed to such Member pursuant to any provision of this Agreement,
     such Member's distributive share of Losses and any items in the nature of
     expenses or losses that are specially allocated pursuant to Section 6.03
     hereof, and the amount of any liabilities of such Member assumed by the
     Company or that are secured by any property (other than money) contributed
     by such Member to the Company.

          (iii) In the event all or a portion of a Membership Interest is
     transferred in accordance with the terms of this Agreement, the transferee
     shall succeed to the Capital Account of the transferor to the extent it
     relates to the Membership Interest so transferred.

                                       3


<PAGE>

          (iv) In determining the amount of any liability for purposes of the
     foregoing subparagraphs (i) and (ii) of this definition of "Capital
     Account," there shall be taken into account Section 752(c) of the Code and
     any other applicable provisions of the Code and the Treasury Regulations.

     The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b) and shall be interpreted and applied in a
manner consistent with the Treasury Regulations.

     "Capital Contribution" means, with respect to any Member, the amount of
      --------------------
money and the net agreed value of any property (other than money) contributed to
the Company by such Member. Any reference in this Agreement to the Capital
Contribution of a Member shall include a Capital Contribution of its
predecessors in interest.

     "Certified Public Accountants" means a firm of independent public
      ----------------------------
accountants selected from time to time by the Board.

     "Claim" means any and all judgments, claims, causes of action, demands,
      -----
lawsuits, suits, proceedings, Governmental investigations or audits, losses,
assessments, fines, penalties, administrative orders, obligations, costs,
expenses, liabilities and damages (whether actual, consequential or punitive),
including interest, penalties, reasonable attorneys' fees, disbursements and
costs of investigations, deficiencies, levies, duties and imposts.

     "Code" means the Internal Revenue Code of 1986, as amended from time to
      ----
time.

     "Common Units" means the common units of the MLP.
      ------------

     "Company" has the meaning given such term in the introductory paragraph of
      -------
this Agreement.

     "Compensation Committee" has the meaning given such term in Section
      ----------------------
7.10(d).

     "Conflicts Committee" has the meaning given such term in Section 7.10(c).
      -------------------

     "Contribution Agreement" means that certain Contribution, Conveyance and
      ----------------------
Assumption Agreement, dated as of February 8, 2002, among the Company, the MLP,
the Operating Partnership and certain other parties, together with the
additional conveyance documents and instruments contemplated or referenced
thereunder.

     "Day" means a calendar day; provided, however, that, if any period of Days
      ---
referred to in this Agreement shall end on a Day that is not a Business Day,
then the expiration of such period shall be automatically extended until the end
of the next succeeding Business Day.

         "Depreciation" means, for each fiscal year or other period, an amount
          ------------
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period,

                                       4


<PAGE>

"Depreciation" shall be an amount that bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that, if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Board.

     "Director" or "Directors" has the meaning given such term in Section 7.02.
      --------      ---------

     "Dispose," "Disposing" or "Disposition" means, with respect to any asset
      -------    ---------      -----------
(including a Membership Interest or any portion thereof), a sale, assignment,
transfer, conveyance, gift, exchange or other disposition of such asset, whether
such disposition be voluntary, involuntary or by operation of Applicable Law.

     "Disposing Member" has the meaning given such term in Section 4.02.
      ----------------

     "Dissolution Event" has the meaning given such term in Section 12.01(a).
      -----------------

     "Encumber," "Encumbering" or "Encumbrance" means the creation of a security
      --------    -----------      -----------
interest, lien, pledge, mortgage or other encumbrance, whether such encumbrance
be voluntary, involuntary or by operation of Applicable Law.

     "GAAP" means generally accepted accounting principles.
      ----

     "Governmental Authority" or "Governmental" means any federal, state, local
      ----------------------      ------------
or foreign court or governmental or regulatory agency or authority or any
arbitration board, tribunal or mediator having jurisdiction over the Company or
its assets or Members.

     "Gross Asset Value" means, with respect to any asset, the asset's adjusted
      -----------------
basis for federal income tax purposes, except as follows:

          (i) the initial Gross Asset Value of any asset contributed by a Member
     to the Company shall be the gross fair market value of said asset, as
     determined by the contributing Member and the Board, in a manner that is
     consisted with Section 7701(g) of the Code;

          (ii) the Gross Asset Values of all Company assets shall be adjusted to
     equal their respective gross fair market values, as determined by the
     Board, in a manner that is consistent with Section 7701(g) of the Code, as
     of the following times: (a) the acquisition of an additional Membership
     Interest by any new or existing Member in exchange for more than a de
     minimis Capital Contribution; (b) the distribution by the Company to a
     Member of more than a de minimis amount of property other than money as
     consideration for an Membership Interest; and (c) the liquidation of the
     Company within the meaning of Treasury Regulation Section
     1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
     clauses (a) and (b) above shall be made only if the Tax Matters Partner
     reasonably determines that such adjustments are necessary or appropriate to
     reflect the relative economic interests of the Members in the Company;

                                       5


<PAGE>

          (iii) the Gross Asset Value of any Company asset distributed to any
     Member shall be the gross fair market value (taking Section 7701(g) of the
     Code into account) of such asset on the date of distribution; and

          (iv) the Gross Asset Values of any Company assets shall be increased
     (or decreased) to reflect any adjustments to the adjusted basis of such
     assets pursuant to Section 734(b) of the Code or Section 743(b) of the
     Code, but only to the extent that such adjustments are taken into account
     in determining Capital Accounts pursuant to Treasury Regulation Section
     1.704-1 (b)(2)(iv)(m) and the definition of Capital Account hereof;
     provided, however, that Gross Asset Values shall not be adjusted pursuant
     to this subparagraph (iv) to the extent the Tax Matters Partner determines
     that an adjustment pursuant to the foregoing subparagraph (ii) of this
     definition is necessary or appropriate in connection with a transaction
     that would otherwise result in an adjustment pursuant to this subparagraph
     (iv).

     If the Gross Asset Value of an asset has been determined or adjusted
pursuant to the foregoing subparagraphs (i), (ii) or (iv), such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Profits and Losses.

     "Incentive Plan" means any plan or arrangement pursuant to which the
      --------------
Company may compensate its employees, consultants, directors and/or service
providers.

     "Indemnitee" means (a) any Person who is or was an Affiliate of the
      ----------
Company, (b) any Person who is or was a member, partner, officer, director,
employee, agent or trustee of the Company or any Affiliate of the Company and
(c) any Person who is or was serving at the request of the Company or any
Affiliate of the Company 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.

     "Independent Director" has the meaning given such term in Section 7.10(b).
      --------------------

     "Majority Interest" means greater than 50% of the Sharing Ratios.
      -----------------

     "Member" means any Person executing this Agreement as of the date of this
      ------
Agreement as a member of the Company or hereafter admitted to the Company as a
member as provided in this Agreement, but such term does not include any Person
who has ceased to be a member in the Company.

     "Membership Interest" means, with respect to any Member, (a) that Member's
      -------------------
status as a Member; (b) that Member's share of the income, gain, loss, deduction
and credits of, and the right to receive distributions from, the Company; (c)
all other rights, benefits and privileges enjoyed by that Member (under the Act,
this Agreement or otherwise) in its capacity as a Member, including that
Member's rights to vote, consent and approve and otherwise to participate in the
management of the Company, including through the Board; and (d) all obligations,
duties and liabilities imposed on that Member (under the Act, this Agreement or
otherwise) in its capacity as a Member, including any obligations to make
Capital Contributions.

                                       6


<PAGE>

     "MLP" means Sunoco Logistics Partners L.P., a Delaware limited partnership.
      ---

     "Notices" has the meaning given such term in Section 13.02.
      -------

     "NYSE" has the meaning given such term in Section 7.02.
      ----

     "Operating Partnership" means Sunoco Logistics Partners Operations L.P., a
      ---------------------
Delaware limited partnership, and any successors thereto.

     "Original Filing Date" has the meaning given such term in the Recitals.
      --------------------

     "Partnership Agreement" means the First Amended and Restated Agreement of
      ---------------------
Limited Partnership of the MLP, dated February 8, 2002, as amended, or any
successor agreement.

     "Pennsylvania Certificate" has the meaning given such term in the Recitals.
      ------------------------

     "Person" means any individual, firm, partnership, corporation, limited
      ------
liability company, association, joint-stock company, unincorporated
organization, joint venture, trust, court, Governmental agency or any political
subdivision thereof, or any other entity.

     "Prior Agreement" has the meaning given such term in the Recitals.
      ---------------

     "Profits" and "Losses" means, for each fiscal year or other period, an
      -------       ------
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Section 703(a) of the Code (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(1) of the Code shall be included in taxable income or
loss), with the following adjustments:

          (i) any income of the Company that is exempt from federal income tax
     and not otherwise taken into account in computing Profits or Losses
     pursuant to this definition shall be added to such taxable income or loss;

          (ii) any expenditures of the Company described in Section 705(a)(2)(B)
     of the Code and not otherwise taken into account in computing Profits or
     Losses pursuant to this definition shall be subtracted from such taxable
     income or loss;

          (iii) in the event the Gross Asset Value of any Company asset is
     adjusted pursuant to subparagraph (ii) or (iv) of the definition of Gross
     Asset Value hereof, the amount of such adjustment shall be taken into
     account as gain or loss from the disposition of such asset for purposes of
     computing Profits or Losses;

          (iv) gain or loss resulting from any disposition of property (other
     than money) with respect to which gain or loss is recognized for federal
     income tax purposes shall be computed by reference to the Gross Asset Value
     of the property disposed of notwithstanding that the adjusted tax basis of
     such property differs from its Gross Asset Value;

                                       7


<PAGE>

          (v) in lieu of the depreciation, amortization and other cost recovery
     deductions taken into account in computing such taxable income or loss,
     there shall be taken into account Depreciation for such fiscal year or
     other period, computed in accordance with the definition of Depreciation
     hereof; and

          (vi) notwithstanding any other provision of this definition of
     "Profits" and "Losses," any items that are specially allocated pursuant to
     Section 6.03(d) and Section 6.03(e) hereof shall not be taken into account
     in computing Profits or Losses.

     "Proper Officers" means those officers authorized by the Board to act on
      ---------------
behalf of the Company.

     "Retained Assets" means the pipeline, terminal and other logistics assets
      ---------------
and investments owned by Sunoco, Inc. and its affiliates that were not conveyed
or contributed to the MLP pursuant to the Contribution Agreement, including
Mid-Valley Pipeline, West Texas Gulf Pipeline Company, Mesa Pipeline and Inland
Corporation.

     "Sharing Ratio" means, subject in each case to adjustments in accordance
      -------------
with this Agreement or in connection with Dispositions of Membership Interests,
(a) in the case of a Member executing this Agreement as of the date of this
Agreement or a Person acquiring such Member's Membership Interest, the
percentage specified for that Member as its Sharing Ratio on Exhibit A, and (b)
                                                             ---------
in the case of Membership Interests issued pursuant to Section 3.01, the Sharing
Ratio established pursuant thereto; provided, however, that the total of all
Sharing Ratios shall always equal 100%.

     "Sun Delaware" has the meaning given such term in the introductory
      ------------
paragraph of this Agreement.

     "Sunoco R&M" has the meaning given such term in the introductory paragraph
      ----------
of this Agreement.

     "Sunoco Texas" has the meaning given such term in the introductory
      ------------
paragraph of this Agreement.

     "Target Capital Account Amount" means, with respect to a Member, the
      -----------------------------
distribution the Member would receive pursuant to Section 6.02 if the amount to
be distributed to the Member equaled the product of (i) the amount described in
Section 12.02(a)(iii)(C) multiplied by (ii) the Member's Sharing Ratio.

     "Tax Matters Partner" has the meaning given such term in Section 10.03(a).
      -------------------

     "Term" has the meaning given such term in Section 2.06.
      ----

     "Treasury Regulations" means the regulations (including temporary
      --------------------
regulations) promulgated by the United States Department of the Treasury
pursuant to and in respect of provisions of the Code. All references herein to
sections of the Treasury Regulations shall include any corresponding provision
or provisions of succeeding, similar or substitute, temporary or final, Treasury
Regulations.

                                       8


<PAGE>

     "Withdraw," "Withdrawing" or "Withdrawal" means the withdrawal, resignation
      --------    -----------      ----------
or retirement of a Member from the Company as a Member. Such terms shall not
include any Dispositions of Membership Interest (which are governed by Article
IV), even though the Member making a Disposition may cease to be a Member as a
result of such Disposition.

     (b) Other terms defined herein have the meanings so given them.

     Section 1.02 Construction.

     Whenever the context requires, (a) the gender of all words used in this
Agreement includes the masculine, feminine and neuter, (b) the singular forms of
nouns, pronouns and verbs shall include the plural and vice versa, (c) all
references to Articles and Sections refer to articles and sections in this
Agreement, each of which is made a part for all purposes, and (d) the term
"include" or "includes" means includes, without limitation, and "including"
means including, without limitation.

                                  ARTICLE II.
                                  ORGANIZATION

     Section 2.01 Formation.

     Sun Delaware formed the Company as a Pennsylvania limited liability company
by the filing of the Pennsylvania Certificate, dated as of the Original Filing
Date, with the Pennsylvania Department of State pursuant to the Act.

     Section 2.02 Name.

     The name of the Company is "Sunoco Partners LLC" and all Company business
must be conducted in that name or such other names that comply with Applicable
Law as the Board may select.

     Section 2.03 Registered Office; Registered Agent; Principal Office.

     The name of the Company's registered agent for service of process is CT
Corporation System, and the address of the Company's registered office in the
Commonwealth of Pennsylvania is 1515 Market Street, #1210, Philadelphia,
Pennsylvania 19103. The principal place of business of the Company shall be
located at 1801 Market Street, Philadelphia, Pennsylvania 19103. The Board may
change the Company's registered agent or the location of the Company's
registered office or principal place of business as the Board may from time to
time determine.

     Section 2.04 Purposes.

     (a) The Company may carry on any lawful business or activity permitted by
the Act. The Company shall be authorized to engage in any and all other
activities, whether or not related to the foregoing, that in the judgment of the
Board may be beneficial or desirable.

                                       9


<PAGE>

     (b) Subject to the limitations expressly set forth in this Agreement, the
Company shall have the power and authority to do any and all acts and things
deemed necessary or desirable by the Board to further the Company's purposes and
carry on its business, including, without limitation, the following:

          (i) acting as the general partner of the MLP;

          (ii) operating, maintaining and administering the Retained Assets and
     the businesses conducted by or related to them;

          (iii) entering into any kind of activity and performing contracts of
     any kind necessary or desirable for the accomplishment of its business
     (including the business of the MLP);

          (iv) acquiring any property, real or personal, in fee or under lease
     or license, or any rights therein or appurtenant thereto, necessary or
     desirable for the accomplishment of its business;

          (v) borrowing money and issuing evidences of indebtedness and securing
     any such indebtedness by mortgage or pledge of, or other lien on, the
     assets of the Company;

          (vi) entering into any such instruments and agreements as the Board
     may deem necessary or desirable for the ownership, management, operation,
     leasing and sale of the Company's property; and

          (vii) negotiating and concluding agreements for the sale, exchange or
     other disposition of all or substantially all of the properties of the
     Company, or for the refinancing of any loan or payment obtained by the
     Company.

     The Members hereby specifically consent to and approve the execution and
delivery by the Proper Officers on behalf of the Company of all loan agreements,
guarantees, notes, security agreements or other documents or instruments, if
any, as required by any lender providing funds to the Company, the MLP or the
Operating Partnership and ancillary documents contemplated thereby.

     Section 2.05 Foreign Qualification.

     Prior to the Company's conducting business in any jurisdiction other than
Pennsylvania, the Proper Officers shall cause the Company to comply, to the
extent procedures are available and those matters are reasonably within the
control of such officers, with all requirements necessary to qualify the Company
as a foreign limited liability company in that jurisdiction. At the request of
the Proper Officers, the Members shall execute, acknowledge, swear to and
deliver all certificates and other instruments conforming with this Agreement
that are necessary or appropriate to qualify, continue and terminate the Company
as a foreign limited liability company in all such jurisdictions in which the
Company may conduct business.

                                       10


<PAGE>

     Section 2.06 Term.

     The period of existence of the Company (the "Term") commenced on the
                                                  ----
Original Filing Date and shall end at such time as a certificate of dissolution
is filed with the Pennsylvania Department of State in accordance with Section
12.04.

     Section 2.07 No State Law Partnership.

     The Members intend that the Company not be a partnership (including a
limited partnership) or joint venture, and that no Member be a partner or joint
venturer of any other Member, for any purposes other than federal, state, local
and foreign income tax purposes, and this Agreement may not be construed to
suggest otherwise.

                                  ARTICLE III.
                                   MEMBERSHIP

     Section 3.01 Membership Interests; Additional Members.

     The Members own Membership Interests in the Company as reflected in Exhibit
                                                                         -------
A attached hereto. Persons may be admitted to the Company as Members, on such
-
terms and conditions as the Board determines at the time of admission. The terms
of admission or issuance must specify the Sharing Ratios applicable thereto and
may provide for the creation of different classes or groups of Members having
different rights, powers and duties. The Board may reflect the creation of any
new class or group in an amendment to this Agreement indicating the different
rights, powers and duties, and such an amendment shall be approved by the Board
and executed by the Proper Officers. Any such admission is effective only after
such new Member has executed and delivered to the Members and the Company an
instrument containing the notice address of the new Member, the Member's
ratification of this Agreement and agreement to be bound by it.

     Section 3.02 Access to Information.

     Each Member shall be entitled to receive any information that it may
request concerning the Company; provided, however, that this Section 3.02 shall
not obligate the Company to create any information that does not already exist
at the time of such request (other than to convert existing information from one
medium to another, such as providing a printout of information that is stored in
a computer database). Each Member shall also have the right, upon reasonable
notice and at all reasonable times during usual business hours, to inspect the
properties of the Company and to audit, examine and make copies of the books of
account and other records of the Company. Such right may be exercised through
any agent or employee of such Member designated in writing by it or by an
independent public accountant, engineer, attorney or other consultant so
designated. All costs and expenses incurred in any inspection, examination or
audit made on such Member's behalf shall be borne by such Member.

     Section 3.03 Liability.

     (a) No Member shall be liable for the debts, obligations or liabilities of
the Company.

                                       11


<PAGE>

     (b) The Company and the Members agree that the rights, duties and
obligations of the Members in their capacities as members of the Company are
only as set forth in this Agreement and as otherwise arise under the Act.
Furthermore, the Members agree that the existence of any rights of a Member, or
the exercise or forbearance from exercise of any such rights, shall not create
any duties or obligations of the Member in their capacities as members of the
Company, nor shall such rights be construed to enlarge or otherwise alter in any
manner the duties and obligations of the Members.

     Section 3.04 Withdrawal.

     A Member does not have the right or power to Withdraw.

                                  ARTICLE IV.
                       DISPOSITION OF MEMBERSHIP INTERESTS

     Section 4.01 General Restriction.

     A Member may not Dispose of all or any portion of its Membership Interests
except in strict accordance with this Article IV. References in this Article IV
to Dispositions of a Membership Interest shall also refer to Dispositions of a
portion of a Membership Interest. Any attempted Disposition of a Membership
Interest, other than in strict accordance with this Article IV, shall be, and is
hereby declared, null and void ab initio. The Members agree that a breach of the
provisions of this Article IV may cause irreparable injury to the Company and to
the other Members for which monetary damages (or other remedy at law) are
inadequate in view of (a) the complexities and uncertainties in measuring the
actual damages that would be sustained by reason of the failure of a Member to
comply with such provision and (b) the uniqueness of the business and the
relationship among the Members. Accordingly, the Members agree that the
provisions of this Article IV may be enforced by specific performance.

     Section 4.02 Admission of Assignee as a Member.

     An Assignee has the right to be admitted to the Company as a Member, with
the Membership Interests (and attendant Sharing Ratio) so transferred to such
Assignee, only if (a) the Member making the Disposition (a "Disposing Member")
                                                            ----------------
has granted the Assignee either (i) all, but not less than all, of such
Disposing Member's Membership Interests or (ii) the express right to be so
admitted; and (b) such Disposition is effected in strict compliance with this
Article IV.

     Section 4.03 Requirements Applicable to All Dispositions and Admissions.

     Any Disposition of Membership Interests and any admission of an Assignee as
a Member shall also be subject to the following requirements, and such
Disposition (and admission, if applicable) shall not be effective unless such
requirements are complied with; provided, however, that the Board, in its sole
and absolute discretion, may waive any of the following requirements:

     (a) Disposition Documents. The following documents must be delivered to the
Board and must be satisfactory, in form and substance, to the Board:

                                       12


<PAGE>

          (i) Disposition Instrument. A copy of the instrument pursuant to which
              ----------------------
     the Disposition is effected.

          (ii) Ratification of this Agreement. With respect to any Disposition,
               ------------------------------
     an instrument, executed by the Disposing Member and its Assignee,
     containing the following information and agreements, to the extent they are
     not contained in the instrument described in Section 4.03(a)(i): (A) the
     notice address of the Assignee; (B) the Sharing Ratios after the
     Disposition of the Disposing Member and its Assignee (which together must
     total the Sharing Ratio of the Disposing Member before the Disposition);
     (C) the Assignee's ratification of this Agreement and agreement to be bound
     by it; and (D) representations and warranties by the Disposing Member and
     its Assignee that (1) the Disposition and admission is being made in
     accordance with Applicable Laws, and (2) the matters set forth in Section
     4.03(a)(i) and this Section 4.03(a)(ii) are true and correct.

          (iii) Opinions. With respect to any Disposition, such opinions of
                --------
     counsel regarding tax and securities law matters as the Board, in its sole
     discretion, may require.

     (b) Payment of Expenses. The Disposing Member and its Assignee shall pay,
or reimburse the Company for, all reasonable costs and expenses incurred by the
Company in connection with the Disposition and admission of the Assignee as a
Member, including the legal fees incurred in connection with the legal opinions
referred to in Section 4.03(a)(iii).

     (c) No Release. No Disposition of Membership Interests shall effect a
release of the Disposing Member from any liabilities to the Company or the other
Members arising from events occurring prior to the Disposition.

                                   ARTICLE V.
                              CAPITAL CONTRIBUTIONS

     Section 5.01 Initial Capital Contributions.

     At the time of the formation of the Company or contemporaneously with the
adoption by the Members of this Agreement, as appropriate, each Member, as a
result of its initial Capital Contribution, shall be deemed to have the
Membership Interest in the Company as set forth next to the Member's name on
Exhibit A.
----------

     The Members hereby agree that their Membership Interests shall be adjusted
to reflect a final determination of the value of their Capital Contributions and
the Company's assets. Any such adjustment shall be effective as of the date
hereof and shall be implemented by the revision of Exhibit A hereto to reflect
                                                   ---------
the final determination of the value of the Members' Capital Contributions and
the Company's assets. The final determination of the value of the Members'
Capital Contributions and the Company's assets shall be made upon the unanimous
agreement of the Members and the Company.

                                       13


<PAGE>

     Section 5.02 Loans.

     If the Company does not have sufficient cash to pay its obligations, any
Member(s) that may agree to do so with the consent of the Board may advance all
or part of the needed funds to or on behalf of the Company. An advance described
in this Section 5.02 constitutes a loan from the Member to the Company, bears
interest at a rate determined by the Board from the date of the advance until
the date of payment and is not a Capital Contribution.

     Section 5.03 Return of Contributions.

     Except as expressly provided herein, no Member is entitled to the return of
any part of its Capital Contributions or to be paid interest in respect of
either its Capital Account or its Capital Contributions. An unrepaid Capital
Contribution is not a liability of the Company or of any Member. A Member is not
required to contribute or to lend any cash or property to the Company to enable
the Company to return any Member's Capital Contributions.

     Section 5.04 Capital Accounts.

     An individual Capital Account shall be established and maintained for each
Member. A Member that has more than one class or series of Membership Interest
shall have a single Capital Account that reflects all such class, classes or
series of Membership Interests, regardless of the classes or series of
Membership Interests owned by such Member and regardless of the time or manner
in which such Membership Interests were acquired. Upon the Disposition of all or
a portion of a Membership Interest, the Capital Account of the Disposing Member
that is attributable to such Membership Interest shall carry over to the
Assignee in accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(l).

                                  ARTICLE VI.
                          DISTRIBUTIONS AND ALLOCATIONS

     Section 6.01 Distributions.

     Except as otherwise provided in Section 6.02 and Section 6.05,
distributions to the Members shall be made only to all Members simultaneously in
proportion to their respective Sharing Ratios (at the time the amounts of such
distributions are determined) and in such aggregate amounts and at such times as
shall be determined by the Board; provided, however, any loans from Members
pursuant to Section 5.02 shall be repaid prior to any distributions to Members
pursuant to this Section 6.01.

     Section 6.02 Distributions on Dissolution and Winding Up.

     Upon the dissolution and winding up of the Company, after adjusting the
Capital Accounts for all distributions made under Section 6.01 and all
allocations under this Article VI, all available proceeds distributable to the
Members as determined under Section 12.02 shall be distributed to all of the
Members in amounts equal to the Members' positive Capital Account balances.

                                       14


<PAGE>

     Section 6.03 Allocations.

     Subject to the allocation rules of Section 6.03(c), (d) and (e) hereof,
Profits and Losses of the Company for any fiscal year shall be allocated as
follows:

     (a) Profits for any fiscal year shall be allocated in the following order
of priority:

          (i) first, to all Members, in proportion to the deficit balances (if
     any) in their Capital Accounts, in an amount necessary to eliminate any
     deficits in the Members' Capital Accounts and restore such Capital Accounts
     balances to zero;

          (ii) second, to the Members until each Member has been allocated an
     amount equal to the amount distributed to such Member pursuant to Section
     6.01 in the current and in all previous fiscal years in excess of amounts
     previously allocated to such Members pursuant to this Section 6.03(a)(ii);

          (iii) third, to the Members, to the greatest extent possible, an
     amount required to cause the positive Capital Account balances of each of
     the Members to be in the same proportion as the Member's respective Sharing
     Ratios; and

          (iv) thereafter, to the Members in proportion their respective Sharing
     Ratios.

     (b) Losses for any fiscal year shall be allocated in the following order of
priority:

          (i) first, to the Members, to the greatest extent possible, an amount
     required to cause the positive Capital Account balances of each of the
     Members to be in the same proportion as the Member's respective Sharing
     Ratios;

          (ii) next, to the Members in proportion to their respective Sharing
     Ratios until the Capital Account balances of such Members have been reduced
     to zero;

          (iii) next, to any Member that has a positive Capital Account balance
     until the Capital Account balances of all of the Members have been reduced
     to zero; and

          (iv) thereafter, to the Members in proportion to their respective
     Sharing Ratios.

     (c) Notwithstanding the allocation provisions of Section 6.03(a) and (b),
if the allocation of Profits or Losses to a Member pursuant to Sections 6.03(a)
and (b) in the current fiscal year would cause a Member to have a positive
Capital Account balance that is greater than or less than the amount that has
been distributed to such Member in the current fiscal year pursuant to Section
6.01, then the allocations of Profits and Losses in the current fiscal year
shall be adjusted, to the greatest extent possible, to cause the positive
Capital Account balances of each Member to equal the amount of distributions
made to such Member in the current fiscal year. In addition, in the event of the
dissolution of the Company pursuant to Section 12.01 hereof, if the allocation
of Profits or Losses to a Member pursuant to Sections 6.03(a) and (b) would
cause a Member to have a Capital Account balance in an amount that is greater
than or less than the Member's Target Capital Account Amount, then the
allocations of Profits and

                                       15


<PAGE>

Losses shall be adjusted, to the greatest extent possible, to cause the positive
Capital Account balances of each Member to equal such an amount.

     (d) The following special allocations shall be made in the following order:

          (i) Qualified Income Offset. In the event any Member 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 Company income
     and gain shall be specially allocated to such Member in an amount and
     manner sufficient to restore, to the extent required by the Treasury
     Regulations, the Adjusted Capital Account Deficit of such Member as quickly
     as possible, provided that an allocation pursuant to this Section
     6.03(d)(i) shall be made only if and to the extent that such Member would
     have an Adjusted Capital Account Deficit after all other allocations
     provided for in this Article VI have been tentatively made as if this
     Section 6.03(d)(i) was not in this Agreement.

          (ii) Gross Income Allocation. In the event any Member has a deficit
               -----------------------
     Capital Account at the end of any Company fiscal year that is in excess of
     the sum of (x) the amount such Member is obligated to restore pursuant to
     any provision of this Agreement and (y) the amount such Member is deemed to
     be obligated to restore pursuant to the penultimate sentence of Treasury
     Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), such Member shall be
     specially allocated items of Company income and gain in the amount of such
     excess as quickly as possible, provided that an allocation pursuant to this
     Section 6.03(d)(ii) shall be made only if and to the extent that such
     Member would have a deficit Capital Account balance in excess of such sum
     after all other allocations provided for in this Article VI have been made
     as if Section 6.03(d)(i) hereof and this Section 6.03(d)(ii) were not in
     this Agreement.

          (iii) Section 754 Adjustments. To the extent an adjustment of the
                -----------------------
     adjusted tax basis of any Company asset pursuant to Section 734(b) of the
     Code or Section 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 am