Buckeye Partners, L.P.February 18, 2003 U.S. Securities and Exchange Commission
Re: File No. S7-02-03 Release Nos. 33-8173; 34-47137; IC-25885
Ladies and Gentlemen: This letter is submitted in response to the request of the Securities and Exchange Commission (the "Commission") for comments on its January 8, 2003 release entitled Standards Relating to Listed Company Audit Committees, Release Nos. 33-8173; 34-47137; IC-25885. This letter focuses only on proposed Rule 10A-3(e)(1) (the "Proposed Rule"). Buckeye Partners, L.P. ("Buckeye") is one of the largest independent pipeline common carriers of refined petroleum products in the United States. We are a master limited partnership organized in 1986 under the laws of the state of Delaware, and our limited partnership units are listed on the New York Stock Exchange. Because the Proposed Rule does not appear to take into account the typical structure of master limited partnerships, we are concerned that, absent some clarification or accommodation, Buckeye and many other listed master limited partnerships will have little choice but to reconsider their stock exchange listings. Buckeye, like most other master limited partnerships, is managed by a corporate general partner, which in our case is Buckeye Pipe Line Company, a Delaware corporation (the "General Partner"). The sole shareholder of the General Partner is Buckeye Management Company, a privately-owned Delaware corporation ("BMC"). As a limited partnership, Buckeye does not have a board of directors, nor do its limited partners have voting rights, except in limited circumstances. The General Partner, however, has a board of directors whose members are elected by the General Partner's sole shareholder, BMC. Simply put, the problem with the Proposed Rule is that it is designed to address a typical public corporation structure, rather than that of a limited partnership. As a result, the Proposed Rule could apply to limited partnerships in some aberrant ways. For instance, the Proposed Rule surely would not preclude a member of the audit committee of a listed corporation from being considered "independent" merely because one or more of the listed corporation's shareholders who elected that director is affiliated with the listed corporation, unless the audit committee member is a designee of such affiliate. By contrast, depending on how it is interpreted, the Proposed Rule could preclude a member of the audit committee of the general partner of a limited partnership from being considered "independent" on the sole basis that such director was elected by one or more affiliated shareholders of the general partner. This anomaly is the result of a simple distinction: Unlike a typical public corporation, a limited partnership itself does not have a board of directors. Rather, the corporate general partner of a limited partnership has a board of directors whose members are elected by the shareholders of the general partner, rather than by the limited partners of the limited partnership. The Proposed Rule would require that Buckeye, as a listed public issuer, have an audit committee comprised of directors that are "independent," as defined by the Proposed Rule. With respect to limited partnerships, the Proposed Rule presumably would apply to the members of the audit committee of the general partner, since limited partnerships do not have a board of directors. In Buckeye's case, the General Partner's audit committee is comprised of four persons who are considered "independent" under current New York Stock Exchange listing standards. They have no stockholder or other equity interest in the General Partner. Further, they receive no direct or indirect compensation from Buckeye, nor any direct or indirect compensation from the General Partner, other than standard directors' fees. We are concerned that the Proposed Rule will unintentionally preclude our General Partner's independent audit committee members from being considered "independent" simply because they are elected to serve as directors by the shareholder of the General Partner. Our concern stems from proposed Rule 10A-3(e)(1)(ii), which states that "[a] director, executive officer, partner, member, principal or designee of an affiliate will be deemed to be an affiliate" (emphasis added). Buckeye's General Partner is an affiliate of Buckeye, the issuer, because of the inherent nature of a limited partnership, as the general partner "controls" the limited partnership. If the mere fact that BMC elects the directors of the General Partner means that such directors have been "designated" by BMC, then they may not be considered "independent" under the Proposed Rule. Accordingly, we recommend that the Commission provide an exception for limited partnerships that permits audit committee members to be considered "independent," without regard to the status of the shareholders who elected them to the board of directors, as long as those audit committee members have no direct or indirect ownership or other financial interest in the general partner or such shareholders, other than the receipt of standard directors' fees. Alternatively, we recommend that the Commission clarify how the Proposed Rule is intended to apply to limited partnerships. In particular, we urge the Commission to confirm that the mere fact that a director is elected by the shareholders of the general partner does not mean that he or she has been "designated" by such shareholders for the purpose of proposed Rule 10A-3(e)(1)(ii). Buckeye currently has approximately 24,000 unitholders, who are principally retail investors, and a market capitalization of approximately $1 billion. Absent a clarification of or exception from the Proposed Rule, Buckeye, as well as many other master limited partnerships, will be faced with the decision of whether to de-list from the relevant exchange. Buckeye's unitholders are served by the General Partner's highly qualified independent current directors, who comprise a majority of the General Partner's board of directors. Our General Partner's current independent audit committee members, who could be disqualified under the Proposed Rule, are:
In addition, the board of directors of the General Partner includes another independent director, Joseph A. LaSala, Jr., the Vice President, General Counsel and Secretary of Novell, Inc., and formerly Vice President, General Counsel and Secretary of Cambridge Technology Partners and Vice President, General Counsel and Secretary of Union Pacific Resources, Inc. We believe that the disqualification of such directors from audit committee service, despite being in all aspects independent save for the fact that they were elected by the sole shareholder of the General Partner, would be a disservice to Buckeye's unitholders and an overly broad application of the Proposed Rule. Thank you for the opportunity to submit these comments. Should the Commission so desire, we would welcome the opportunity to discuss these comments in more detail.
cc: Stephen C. Muther, Esq.
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