sv4
As filed with the Securities and Exchange
Commission on May 18, 2011
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Enterprise Products Partners
L.P.
(Exact name of registrant as
specified in its charter)
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Delaware
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1321
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76-0568219
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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1100 Louisiana Street, 10th
Floor
Houston, Texas 77002
(713) 381-6500
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Stephanie C.
Hildebrandt, Esq.
1100 Louisiana Street, 10th
Floor
Houston, Texas 77002
(713) 381-6500
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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David C. Buck, Esq.
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Donald W. Brodsky, Esq.
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Douglas E. McWilliams, Esq.
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Andrews Kurth LLP
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Baker & Hostetler LLP
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Vinson & Elkins L.L.P.
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600 Travis Street, Suite 4200
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1000 Louisiana Street, Suite 2000
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1001 Fannin Street, Suite 2500
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Houston, Texas 77002
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Houston, Texas 77002
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Houston, Texas 77002
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(713) 220-4200
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(713) 751-1600
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(713) 758-2222
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this registration
statement becomes effective and upon consummation of the merger
described in the enclosed proxy statement/prospectus.
If the securities being registered on this Form are to be
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act
of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender
Offer) o
Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender
Offer) o
CALCULATION
OF REGISTRATION FEE
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Title of Each Class of
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Amount to be
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Proposed Maximum Aggregate
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Amount of
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Securities to be Registered
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Registered(1)
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Offering Price(2)
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Registration Fee
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Common units representing limited partner interests
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24,349,770
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$961,572,411
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$111,639
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(1)
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Represents the estimated maximum
number of common units of the Registrant to be issued in the
merger to holders of common units of Duncan Energy Partners L.P.
(Duncan), based on the product of 1.01 (the exchange
ratio of Enterprise Products Partners L.P.
(Enterprise) common units to be issued for each
Duncan common unit converted in the merger pursuant to the
merger agreement) and 24,108,683 (the number of Duncan common
units as of May 11, 2011 outstanding and eligible for
exchange into Enterprise common units pursuant to the merger
agreement, including (a) 24,008,683 outstanding Duncan
common units exchangeable into Enterprise common units and
(b) up to 100,000 Duncan common units potentially issuable
under Duncans long-term incentive plan, employee unit
purchase plan and distribution reinvestment plan). The foregoing
does not include any Enterprise common units issuable as merger
consideration to Enterprise GTM Holdings L.P. (GTM),
a wholly owned subsidiary of the Registrant, which units the
Registrant has agreed will not be issued pursuant to the merger
agreement and an agreement by GTM to exchange its rights to
merger consideration for a retained limited partner interest in
Duncan immediately following the effective time of the merger.
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(2)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(f)(1)
and Rule 457(c) under the Securities Act of 1933 based on
the average of the high and low sales prices of the
Registrants common units on May 17, 2011 on the New
York Stock Exchange, which was $39.49.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary proxy statement/prospectus is
not complete and may be changed. Enterprise Products Partners
L.P. may not distribute or issue the securities being registered
pursuant to this registration statement until the registration
statement, as filed with the Securities and Exchange Commission
(of which this preliminary proxy statement/prospectus is a
part), is effective. This preliminary proxy statement/prospectus
is not an offer to sell nor should it be considered a
solicitation of an offer to buy the securities described herein
in any state where the offer or sale is not permitted.
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PRELIMINARY
SUBJECT TO COMPLETION DATED MAY 18, 2011
Dear Duncan Energy Partners L.P.
Unitholders:
On April 28, 2011, Enterprise Products Partners L.P.
(Enterprise), Enterprise Products Holdings LLC
(Enterprise GP), which is the general partner of
Enterprise, EPD MergerCo LLC (MergerCo), which is a
wholly owned subsidiary of Enterprise, Duncan Energy Partners
L.P. (Duncan), and DEP Holdings, LLC (Duncan
GP), which is the general partner of Duncan, entered into
a merger agreement (the merger agreement). Pursuant
to the merger agreement, MergerCo will merge with and into
Duncan (the merger), with Duncan surviving the
merger as a wholly owned subsidiary of Enterprise, and all
common units representing limited partner interests in Duncan
outstanding at the effective time of the merger (Duncan
common units) will be cancelled and converted into the
right to receive common units representing limited partner
interests in Enterprise (Enterprise common units)
based on an exchange ratio of 1.01 Enterprise common units per
Duncan common unit. No fractional Enterprise common units will
be issued in the merger, and Duncan unitholders will, instead,
receive cash in lieu of fractional Enterprise common units, if
any.
Pursuant to the merger agreement, the number of votes actually
cast in favor of the proposal by Duncan unaffiliated
unitholders (which consist of Duncan unitholders other
than Enterprise and its affiliates) must exceed the number of
votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. Accordingly, the merger vote is not assured and
your vote is important. In addition, pursuant to the Duncan
partnership agreement, the merger agreement and the merger must
be approved by the affirmative vote of the Duncan unitholders
holding a majority of the outstanding Duncan common units.
Pursuant to a voting agreement between Duncan, Enterprise and
Enterprise GTM Holdings L.P. (GTM) executed in
connection with the merger agreement, Enterprise and GTM have
agreed to vote any Duncan common units owned by them or their
subsidiaries in favor of adoption of the merger agreement and
the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Duncan has scheduled a special meeting of its unitholders to
vote on the merger agreement and the merger
on ,
2011 at a.m., local time, at 1100 Louisiana
Street, 10th Floor, Houston, Texas 77002. Regardless of
the number of units you own or whether you plan to attend the
meeting, it is important that your common units be represented
and voted at the meeting. Voting instructions are set forth
inside this proxy statement/prospectus.
The Audit, Conflicts and Governance Committee (Duncan
ACG Committee) of the Duncan GP board of directors (the
Duncan Board) determined unanimously that the
merger, the merger agreement, and the transactions contemplated
thereby are fair and reasonable, advisable to and in the best
interests of Duncan and the Duncan unaffiliated unitholders. The
Duncan ACG Committee also recommended that the merger be
approved by the Duncan Board. Based on such determination and
recommendation, the Duncan Board has approved the merger and,
together with the Duncan ACG Committee, recommends that the
Duncan unitholders vote in favor of the merger proposal.
This proxy statement/prospectus provides you with detailed
information about the proposed merger and related matters.
Duncan encourages you to read the entire document carefully.
In particular, please read Risk Factors beginning
on page 32 of this proxy statement/prospectus for a
discussion of risks relevant to the merger and Enterprises
business following the merger.
Enterprises common units are listed on the New York Stock
Exchange (NYSE) under the symbol EPD,
and Duncans common units are listed on the NYSE under the
symbol DEP. The last reported sale price of
Enterprises common units on the NYSE
on ,
2011 was $ . The last reported sale
price of Duncan common units on the NYSE
on ,
2011 was $ .
W. Randall Fowler
President and Chief Executive
Officer
DEP Holdings, LLC
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities to be issued under this proxy statement/prospectus or
has determined if this document is truthful or complete. Any
representation to the contrary is a criminal offense.
All information in this document concerning Enterprise has been
furnished by Enterprise. All information in this document
concerning Duncan has been furnished by Duncan. Enterprise has
represented to Duncan, and Duncan has represented to Enterprise,
that the information furnished by and concerning it is true and
correct in all material respects.
This proxy statement/prospectus is
dated ,
2011 and is being first mailed to Duncan unitholders on or
about ,
2011.
Houston,
Texas
,
2011
Notice of
Special Meeting of Unitholders
To the Unitholders of Duncan Energy
Partners L.P.:
A special meeting of unitholders of Duncan Energy Partners L.P.
(Duncan) will be held
on ,
2011 at a.m., local time, at
1100 Louisiana Street, 10th Floor, Houston, Texas 77002,
for the following purposes:
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To consider and vote upon the approval of the Agreement and Plan
of Merger dated as of April 28, 2011, by and among
Enterprise Products Partners L.P. (Enterprise),
Enterprise Products Holdings LLC, EPD MergerCo LLC, Duncan and
DEP Holdings, LLC (Duncan GP), as it may be amended
from time to time (the merger agreement), and the
merger contemplated by the merger agreement (the
merger); and
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To transact such other business as may properly be presented at
the meeting or any adjournments or postponements of the meeting.
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Pursuant to the merger agreement, the number of votes actually
cast in favor of the proposal by Duncan unaffiliated
unitholders (which consist of Duncan unitholders other
than Enterprise and its affiliates) must exceed the number of
votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. Failures to vote, abstentions and broker non-votes
will result in the absence of a vote for or against the merger
for purposes of the vote by the Duncan unaffiliated unitholders
required under the merger agreement.
In addition, pursuant to the Duncan partnership agreement, the
merger agreement and the merger must be approved by the
affirmative vote of the Duncan unitholders holding a majority of
the outstanding common units representing limited partner
interests in Duncan (the Duncan common units).
Pursuant to a voting agreement (the voting
agreement) between Duncan, Enterprise and Enterprise GTM
Holdings L.P. (GTM), an indirect wholly owned
subsidiary of Enterprise, executed in connection with the merger
agreement, Enterprise and GTM have agreed to vote any Duncan
common units owned by them or their subsidiaries in favor of
adoption of the merger agreement and the merger, including the
33,783,587 Duncan common units currently directly owned by GTM
(representing approximately 58.5% of the outstanding Duncan
common units), at any meeting of Duncan unitholders, which is
sufficient to approve the merger agreement and the merger under
the Duncan partnership agreement. Failures to vote, abstentions
and broker non-votes will have the same effect as a vote against
the merger proposal for purposes of the majority vote required
under the Duncan partnership agreement.
The Audit, Conflicts and Governance Committee (Duncan
ACG Committee) of the Duncan GP board of directors (the
Duncan Board) determined unanimously that the
merger, the merger agreement, and the transactions contemplated
thereby are fair and reasonable, advisable to and in the best
interests of Duncan and the Duncan unaffiliated unitholders. The
Duncan ACG Committee also recommended that the merger be
approved by the Duncan Board. Based on such determination and
recommendation, the Duncan Board approved the merger and,
together with the Duncan ACG Committee, recommends that the
Duncan unitholders vote in favor of the merger proposal.
Only unitholders of record at the close of business
on ,
2011 are entitled to notice of and to vote at the meeting and
any adjournments or postponements of the meeting. A list of
unitholders entitled to vote at the meeting will be available
for inspection at Duncans offices in Houston, Texas for
any purpose relevant to the meeting during normal business hours
for a period of 10 days before the meeting and at the
meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING, PLEASE VOTE IN ONE OF THE FOLLOWING WAYS. If
you hold your units in the name of a bank, broker or other
nominee, you should follow the instructions provided by your
bank, broker or nominee when voting your Duncan common units. If
you hold your units in your own name, you may vote by:
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using the toll-free telephone number shown on the proxy card;
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using the Internet website shown on the proxy card; or
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marking, signing, dating and promptly returning the enclosed
proxy card in the postage-paid envelope. It requires no postage
if mailed in the United States.
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By order of the Board of Directors
of DEP Holdings, LLC, as the general partner of Duncan Energy
Partners L.P.
W. Randall Fowler
President and Chief Executive
Officer
DEP Holdings, LLC
IMPORTANT
NOTE ABOUT THIS PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus, which forms part of a
registration statement on
Form S-4
filed with the Securities and Exchange Commission, which is
referred to as the SEC or the
Commission, constitutes a proxy statement of Duncan
under Section 14(a) of the Securities Exchange Act of 1934,
as amended, which is referred to as the Exchange
Act, with respect to the solicitation of proxies for the
special meeting of Duncan unitholders to, among other things,
approve the merger agreement and the merger. This proxy
statement/prospectus is also a prospectus of Enterprise under
Section 5 of the Securities Act of 1933, as amended, which
is referred to as the Securities Act, for Enterprise
common units that will be issued to Duncan unitholders in the
merger pursuant to the merger agreement.
As permitted under the rules of the SEC, this proxy
statement/prospectus incorporates by reference important
business and financial information about Enterprise and Duncan
from other documents filed with the SEC that are not included in
or delivered with this proxy statement/prospectus. Please read
Where You Can Find More Information beginning on
page 145. You can obtain any of the documents incorporated
by reference into this document from Enterprise or Duncan, as
the case may be, or from the SECs website at
http://www.sec.gov.
This information is also available to you without charge upon
your request in writing or by telephone from Enterprise or
Duncan at the following addresses and telephone numbers:
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Enterprise Products Partners L.P.
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Duncan Energy Partners L.P.
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1100 Louisiana Street, 10th Floor
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1100 Louisiana Street, 10th Floor
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Attention: Investor Relations
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Attention: Investor Relations
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Houston, Texas 77002
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Houston, Texas 77002
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Telephone:
(713) 381-6500
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Telephone: (713) 381-6500
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Please note that copies of the documents provided to you will
not include exhibits, unless the exhibits are specifically
incorporated by reference into the documents or this proxy
statement/prospectus.
You may obtain certain of these documents at Enterprises
website, www.epplp.com, by selecting
Investors and then selecting SEC
Filings, and at Duncans website,
www.deplp.com, by selecting Investors and
then selecting SEC Filings. Information contained on
Duncans and Enterprises websites is expressly not
incorporated by reference into this proxy statement/prospectus.
In order to receive timely delivery of requested documents in
advance of the Duncan special meeting of unitholders, your
request should be received no later
than ,
2011. If you request any documents, Enterprise or Duncan will
mail them to you by first class mail, or another equally prompt
means, within one business day after receipt of your request.
Enterprise and Duncan have not authorized anyone to give any
information or make any representation about the merger,
Enterprise or Duncan that is different from, or in addition to,
that contained in this proxy statement/prospectus or in any of
the materials that have been incorporated by reference into this
proxy statement/prospectus. Therefore, if anyone distributes
this type of information, you should not rely on it. If you are
in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities
offered by this proxy statement/prospectus or the solicitation
of proxies is unlawful, or you are a person to whom it is
unlawful to direct these types of activities, then the offer
presented in this proxy statement/prospectus does not extend to
you. The information contained in this proxy
statement/prospectus speaks only as of the date of this proxy
statement/prospectus, or in the case of information in a
document incorporated by reference, as of the date of such
document, unless the information specifically indicates that
another date applies. All information in this document
concerning Enterprise has been furnished by Enterprise. All
information in this document concerning Duncan has been
furnished by Duncan. Enterprise has represented to Duncan, and
Duncan has represented to Enterprise, that the information
furnished by and concerning it is true and correct in all
material respects.
PROXY
STATEMENT/PROSPECTUS
TABLE OF
CONTENTS
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1
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2
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8
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32
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34
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47
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141
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143
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ii
DEFINITIONS
The following terms have the meanings set forth below for
purposes of this proxy statement/prospectus, unless the context
otherwise indicates:
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Duncan means Duncan Energy Partners L.P.
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Duncan ACG Committee means the Audit, Conflicts and
Governance Committee of the Duncan Board.
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Duncan Board means the board of directors of Duncan
GP.
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Duncan GP means DEP Holdings, LLC.
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Duncan unaffiliated unitholders means the Duncan
unitholders other than Enterprise and its affiliates (including
GTM as an Enterprise affiliate).
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Enterprise means Enterprise Products Partners L.P.
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Enterprise Board means the board of directors of
Enterprise GP.
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Enterprise GP means Enterprise Products Holdings
LLC, the general partner of Enterprise.
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EPCO means Enterprise Products Company, a Texas
corporation.
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GTM means Enterprise GTM Holdings L.P., an indirect
wholly owned subsidiary of Enterprise.
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MergerCo means EPD MergerCo LLC, a Delaware limited
liability company and wholly owned subsidiary of Enterprise.
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Special Approval under the Duncan partnership
agreement means the approval of a majority of the members of the
Duncan ACG Committee.
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1
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Important Information and Risks. The
following are brief answers to some questions that you may have
regarding the proposed merger and the proposal being considered
at the special meeting of Duncan unitholders. You should read
and consider carefully the remainder of this proxy
statement/prospectus, including the Risk Factors beginning on
page 32 and the attached Annexes, because the information
in this section does not provide all of the information that
might be important to you. Additional important information and
descriptions of risk factors are also contained in the documents
incorporated by reference in this proxy statement/prospectus.
Please read Where You Can Find More Information
beginning on page 145.
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Q: |
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Why am I receiving these materials? |
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A: |
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Enterprise and Duncan have agreed to combine by merging
MergerCo, a wholly owned subsidiary of Enterprise with and into
Duncan, with Duncan surviving the merger. The merger cannot be
completed without the approval of the Duncan unitholders. |
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Q: |
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Who is soliciting my proxy? |
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Duncan GP, on behalf of the Duncan Board, is sending you this
proxy statement/prospectus in connection with its solicitation
of proxies for use at Duncans special meeting of
unitholders. Certain directors and officers of Duncan GP and
certain employees of EPCO and its affiliates who provide
services to Duncan, and Georgeson Inc. (a proxy solicitor), may
also solicit proxies on Duncans behalf by mail, telephone,
fax or other electronic means, or in person. |
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Q: |
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What are the proposed transactions? |
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A: |
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Enterprise and Duncan have agreed to combine by merging MergerCo
with and into Duncan, under the terms of a merger agreement that
is described in this proxy statement/prospectus and attached as
Annex A to this proxy statement/prospectus. As a result of
the merger, each outstanding Duncan common unit will be
converted into the right to receive 1.01 common units
representing limited partner interests in Enterprise
(Enterprise common units). No Enterprise common
units will be issued as merger consideration to GTM, a wholly
owned subsidiary of Enterprise that owns 33,783,587 Duncan
common units, which represent approximately 58.5% of the
outstanding Duncan common units, pursuant to the merger
agreement and an agreement by GTM to exchange its rights to
merger consideration for a retained limited partner interest in
Duncan immediately following the effective time of the merger. |
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The merger will become effective on the date and at the time
that the certificate of merger is filed with the Secretary of
State of the State of Delaware, or a later date and time if set
forth in the certificate of merger. Throughout this proxy
statement/prospectus, this is referred to as the effective
time of the merger. |
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Q: |
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Why are Enterprise and Duncan proposing the merger? |
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A: |
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Enterprise and Duncan believe that the merger will benefit both
Enterprise and Duncan unitholders by combining into a single
partnership that is better positioned to compete in the
marketplace. |
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Please read The Merger Recommendation of the
Duncan ACG Committee and the Duncan Board and Reasons for the
Merger and The Merger Enterprises
Reasons for the Merger. |
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Q: |
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What will happen to Duncan as a result of the merger? |
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A: |
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As a result of the merger, MergerCo will merge with and into
Duncan, and Duncan will survive as a wholly owned subsidiary of
Enterprise. |
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Q: |
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What will Duncan unitholders receive in the merger? |
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A: |
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If the merger is completed, Duncan unitholders will be entitled
to receive 1.01 Enterprise common units in exchange for each
Duncan common unit owned. This exchange ratio is fixed and will
not be adjusted, regardless of any change in price of either
Enterprise common units or Duncan common units prior to
completion of the merger. If the exchange ratio would result in
a Duncan unitholder being entitled to receive a fraction of an
Enterprise common unit, that unitholder will receive cash from
Enterprise in lieu |
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of such fractional interest in an amount equal to such
fractional interest multiplied by the average of the closing
price of Enterprise common units for the ten consecutive New
York Stock Exchange (NYSE) full trading days ending
at the close of trading on the last NYSE full trading day
immediately preceding the day the merger closes. For additional
information regarding exchange procedures, please read The
Merger Agreement Exchange of Certificates;
Fractional Units. |
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Q: |
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Where will my units trade after the merger? |
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A: |
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Enterprise common units will continue to trade on the NYSE under
the symbol EPD. Duncan common units will no longer
be publicly traded. |
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Q: |
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What will Enterprise common unitholders receive in the
merger? |
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A: |
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Enterprise common unitholders will simply retain the Enterprise
common units they currently own. They will not receive any
additional Enterprise common units in the merger. |
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Q: |
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What happens to my future distributions? |
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A: |
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Once the merger is completed and Duncan common units are
exchanged for Enterprise common units, when distributions are
approved and declared by Enterprise GP and paid by Enterprise,
former Duncan unitholders will receive distributions on
Enterprise common units they receive in the merger in accordance
with Enterprises partnership agreement. Assuming that the
merger will close after August 1, 2011, which is after the
expected record date for determining the holders of Enterprise
common units entitled to receive distributions for the second
quarter of 2011, but during the third quarter of 2011, Duncan
unitholders will receive distributions on their Duncan common
units for the quarter ended June 30, 2011, and will receive
distributions on Enterprise common units they receive in the
merger for the quarter ended September 30, 2011 to be
declared and paid during the fourth quarter of 2011. Duncan
unitholders will not receive distributions from both Duncan and
Enterprise for the same quarter. For additional information,
please read Market Prices and Distribution
Information. |
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Current Enterprise common unitholders will continue to receive
distributions on their common units in accordance with
Enterprises partnership agreement and at the discretion of
the Enterprise Board. For a description of the distribution
provisions of Enterprises partnership agreement, please
read Comparison of the Rights of Enterprise and Duncan
Unitholders. |
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The current annualized distribution rate per Duncan common unit
is $1.83 (based on the quarterly distribution rate of $0.4575
per Duncan common unit paid on May 6, 2011 with respect to
the first quarter of 2011). Based on the exchange ratio, the
annualized distribution rate for each Duncan common unit
exchanged for 1.01 Enterprise common units would be
approximately $2.41 (based on the quarterly distribution rate of
$0.5975 per Enterprise common unit paid on May 6, 2011 with
respect to the first quarter of 2011). Accordingly, based on
current distribution rates and the 1.01x exchange ratio, a
Duncan unitholder would initially receive approximately 32% more
in quarterly cash distributions on an annualized basis after
giving effect to the merger. For additional information, please
read Comparative Per Unit Information and
Market Prices and Distribution Information. |
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Q: |
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If I am a holder of Duncan common units represented by a unit
certificate, should I send in my certificates representing
Duncan common units now? |
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A: |
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No. After the merger is completed, Duncan unitholders who
hold their units in certificated form will receive written
instructions for exchanging their certificates representing
Duncan common units. Please do not send in your certificates
representing Duncan common units with your proxy card. If you
own Duncan common units in street name, the merger
consideration should be credited by your broker to your account
within a few days following the closing date of the merger. |
3
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What constitutes a quorum? |
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The presence in person or by proxy at the special meeting of the
holders of a majority of Duncans outstanding common units
on the record date will constitute a quorum and will permit
Duncan to conduct the proposed business at the special meeting.
Your units will be counted as present at the special meeting if
you: |
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are present in person at the meeting; or
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have submitted a properly executed proxy card or
properly submitted your proxy by telephone or Internet.
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Proxies received but marked as abstentions will be counted as
units that are present and entitled to vote for purposes of
determining the presence of a quorum. If an executed proxy is
returned by a broker or other nominee holding units in
street name indicating that the broker does not have
discretionary authority as to certain units to vote on the
proposals (a broker non-vote), such units will be
considered present at the meeting for purposes of determining
the presence of a quorum but cannot be included in the vote;
therefore, broker non-votes have the same effect as a vote
against the merger for purposes of the vote required under the
partnership agreement and will result in the absence of a vote
for or against the merger proposal for purposes of the vote
required under the merger agreement. |
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Q: |
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What is the vote required of Duncan unitholders to approve
the merger agreement and the merger? |
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Pursuant to the merger agreement, the number of votes actually
cast in favor of the proposal by Duncan unaffiliated unitholders
must exceed the number of votes actually cast against the
proposal by the Duncan unaffiliated unitholders in order for the
proposal to be approved. Failures to vote, abstentions and
broker non-votes will result in the absence of a vote for or
against the merger proposal for purposes of the vote by the
Duncan unaffiliated unitholders required under the merger
agreement. Accordingly, the merger vote is not assured and
your vote is important. |
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In addition, pursuant to the Duncan partnership agreement, the
merger agreement and the merger must be approved by the
affirmative vote of the Duncan unitholders holding a majority of
the outstanding Duncan common units. Pursuant to a voting
agreement between Duncan, Enterprise and GTM executed in
connection with the merger agreement, Enterprise and GTM have
agreed to vote any Duncan common units owned by them or their
subsidiaries in favor of adoption of the merger agreement and
the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Failures to vote, abstentions and broker non-votes will have the
same effect as a vote against the merger proposal for purposes
of the vote required under the Duncan partnership agreement. |
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Q: |
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When do you expect the merger to be completed? |
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A number of conditions must be satisfied before Enterprise and
Duncan can complete the merger, including approval of the merger
agreement and the merger by the common unitholders of Duncan.
Although Enterprise and Duncan cannot be sure when all of the
conditions to the merger will be satisfied, Enterprise and
Duncan expect to complete the merger as soon as practicable
following the Duncan unitholder meeting (assuming the merger
proposal is approved by the common unitholders). For additional
information, please read The Merger Agreement
Conditions to the Merger. |
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Q: |
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What is the recommendation of the Duncan ACG Committee and
the Duncan Board? |
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The Duncan ACG Committee and the Duncan Board recommend that you
vote FOR the merger proposal. |
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On April 28, 2011, the Duncan ACG Committee determined
unanimously that the merger agreement and the merger are fair
and reasonable, advisable to and in the best interests of Duncan
and the Duncan unaffiliated unitholders and recommended that the
merger, the merger agreement and the transactions contemplated
thereby be approved by the Duncan Board and the Duncan
unitholders. |
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Based on the Duncan ACG Committees determination and
recommendation, the Duncan Board approved the merger agreement
and the merger and recommended that the Duncan unitholders vote
in favor of the merger proposal. |
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Q: |
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What are the expected U.S. federal income tax consequences to
a Duncan unitholder as a result of the transactions contemplated
by the merger agreement? |
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A: |
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Under current law, it is anticipated that for U.S. federal
income tax purposes no income or gain should be recognized by a
Duncan unitholder solely as a result of the merger, other than
an amount of income or gain, which Duncan expects to be
relatively small on a per unit basis, due to (i) any
decrease in a Duncan unitholders share of partnership
liabilities pursuant to Section 752 of the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code)
or (ii) any cash received in lieu of any fractional
Enterprise common unit in the merger. |
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Please read Risk Factors Tax Risks Related to
the Merger and Material U.S. Federal Income Tax
Consequences of the Merger Tax Consequences of the
Merger to Duncan and Its Common Unitholders. |
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Q: |
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Under what circumstances could the merger result in a Duncan
unitholder recognizing taxable income or gain? |
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A: |
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As a result of the merger, Duncan unitholders who receive
Enterprise common units will become limited partners of
Enterprise and will be allocated a share of Enterprises
nonrecourse liabilities. Each Duncan unitholder will be treated
as receiving a deemed cash distribution equal to the excess, if
any, of such unitholders share of nonrecourse liabilities
of Duncan immediately before the merger over such
unitholders share of nonrecourse liabilities of Enterprise
immediately following the merger. If the amount of the deemed
cash distribution received by a Duncan unitholder exceeds the
unitholders basis in his Duncan common units, such
unitholder will recognize gain in an amount equal to such
excess. Enterprise and Duncan do not expect any Duncan
unitholders to recognize gain in this manner. For additional
information, please read Material U.S. Federal Income Tax
Consequences of the Merger. |
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To the extent holders of Duncan common units receive cash in
lieu of fractional Enterprise common units in the merger, such
unitholders will recognize gain or loss equal to the difference
between the cash received and the unitholders adjusted tax
basis allocated to such fractional Enterprise common units. |
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Q: |
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What are the expected U.S. federal income tax consequences
for a Duncan unitholder of the ownership of Enterprise common
units after the merger is completed? |
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A: |
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Each Duncan unitholder who becomes an Enterprise unitholder as a
result of the merger will, as is the case for existing
Enterprise common unitholders, be required to report on its U.S.
federal income tax return such unitholders distributive
share of Enterprises income, gains, losses, deductions and
credits. In addition to U.S. federal income taxes, such a holder
will be subject to other taxes, including state and local income
taxes, unincorporated business taxes, and estate, inheritance or
intangibles taxes that may be imposed by the various
jurisdictions in which Enterprise conducts business or owns
property or in which the unitholder is resident. Please read
U.S. Federal Income Taxation of Ownership of Enterprise
Common Units. |
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Are Duncan unitholders entitled to appraisal rights? |
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A: |
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No. Duncan unitholders do not have appraisal rights under
applicable law or contractual appraisal rights under the Duncan
partnership agreement or the merger agreement. |
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Q: |
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How do I vote my common units if I hold my common units in my
own name? |
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After you have read this proxy statement/prospectus carefully,
please respond by completing, signing and dating your proxy card
and returning it in the enclosed postage-paid envelope, or by
submitting your proxy by telephone or the Internet as soon as
possible in accordance with the instructions provided under
The Special Unitholder Meeting Voting
Procedures Voting by Duncan Unitholders
beginning on page 37. |
5
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If my Duncan common units are held in street name
by my broker or other nominee, will my broker or other nominee
vote my common units for me? |
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No. Your broker cannot vote your Duncan common units held
in street name for or against the merger proposal
unless you tell the broker or other nominee how you wish to
vote. To tell your broker or other nominee how to vote, you
should follow the directions that your broker or other nominee
provides to you. Please note that you may not vote your Duncan
common units held in street name by returning a
proxy card directly to Duncan or by voting in person at the
special meeting of Duncan unitholders unless you provide a
legal proxy, which you must obtain from your broker
or other nominee. If you do not instruct your broker or other
nominee on how to vote your Duncan common units, your broker or
other nominee may not vote your Duncan common units, which will
have the same effect as a vote against the merger for purposes
of the vote required under the Duncan partnership agreement and
will result in the absence of a vote for or against the merger
proposal for purposes of the vote by the Duncan unaffiliated
unitholders required under the merger agreement. You should
therefore provide your broker or other nominee with instructions
as to how to vote your Duncan common units. |
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What if I do not vote? |
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If you do not vote in person or by proxy or if you abstain from
voting, or a broker non-vote is made, it will have the same
effect as a vote against the merger proposal for purposes of the
vote required under the Duncan partnership agreement, and these
actions will result in the absence of a vote for or against the
merger proposal for purposes of the vote by the Duncan
unaffiliated unitholders required under the merger agreement. If
you sign and return your proxy card but do not indicate how you
want to vote, your proxy will be counted as a vote in favor of
the merger proposal. |
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Who can attend and vote at the special meeting of Duncan
unitholders? |
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All Duncan unitholders of record as of the close of business
on ,
2011, the record date for the special meeting of Duncan
unitholders, are entitled to receive notice of and vote at the
special meeting of Duncan unitholders. |
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Q: |
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When and where is the special meeting? |
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The special meeting will be held
on ,
2011, at a.m., local time, at 1100 Louisiana
Street, 10th Floor, Houston, Texas 77002. |
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Q: |
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If I am planning to attend the special meeting in person,
should I still vote by proxy? |
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Yes. Whether or not you plan to attend the special meeting, you
should vote by proxy. Your common units will not be voted if you
do not vote by proxy and do not vote in person at the scheduled
special meeting of the common unitholders of Duncan to be held
on ,
2011. |
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Can I change my vote after I have voted by proxy? |
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Yes. If you own your common units in your own name, you may
revoke your proxy at any time prior to its exercise by: |
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giving written notice of revocation to the Secretary
of Duncan GP at or before the special meeting;
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appearing and voting in person at the special
meeting; or
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properly completing and executing a later dated
proxy and delivering it to the Secretary of Duncan GP at or
before the special meeting.
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Your presence without voting at the meeting will not
automatically revoke your proxy, and any revocation during the
meeting will not affect votes previously taken. |
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Q: |
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What should I do if I receive more than one set of voting
materials for the special meeting of Duncan unitholders? |
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You may receive more than one set of voting materials for the
special meeting of Duncan unitholders and the materials may
include multiple proxy cards or voting instruction cards. For
example, you will receive a separate voting instruction card for
each brokerage account in which you hold units. If you are a
holder of record registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date
and return each proxy card and voting instruction card that you
receive according to the instructions on it. |
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Whom do I call if I have further questions about voting, the
meeting or the merger? |
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Duncan unitholders may call Duncans Investor Relations
department at
(866) 230-0745.
If you would like additional copies, without charge, of this
proxy statement/prospectus or if you have questions about the
merger, including the procedures for voting your units, you
should contact Georgeson Inc., which is assisting Duncan in the
solicitation of proxies, at: |
199 Water Street,
26th Floor
New York, NY 10038-3560
Banks and Brokers Call (212) 806-6859
All Others Call Toll Free (888) 264-7035
7
SUMMARY
This summary highlights some of the information in this proxy
statement/prospectus. It may not contain all of the information
that is important to you. To understand the merger fully and for
a more complete description of the terms of the merger, you
should read carefully this document, the documents incorporated
by reference, and the Annexes to this document, including the
full text of the merger agreement included as Annex A.
Please also read Where You Can Find More
Information.
The
Merger Parties Businesses (page 89)
Enterprise
Products Partners L.P.
Enterprise is a publicly traded Delaware limited partnership,
the common units of which are listed on the NYSE under the
ticker symbol EPD. Enterprise was formed in April
1998 to own and operate certain natural gas liquids
(NGLs) related businesses of EPCO. Enterprise is a
leading North American provider of midstream energy services to
producers and consumers of natural gas, NGLs, crude oil, refined
products and certain petrochemicals. Enterprises midstream
energy asset network links producers of natural gas, NGLs and
crude oil from some of the largest supply basins in the United
States, Canada and the Gulf of Mexico with domestic consumers
and international markets. Enterprises assets include
approximately: 50,200 miles of onshore and offshore
pipelines; 192 million barrels (MMBbls) of
storage capacity for NGLs, refined products and crude oil; and
27 billion cubic feet (Bcf) of natural gas
storage capacity.
Enterprises midstream energy operations include: natural
gas gathering, treating, processing, transportation and storage;
NGL transportation, fractionation, storage, and import and
export terminaling; crude oil and refined products
transportation, storage and terminaling; offshore production
platforms; petrochemical transportation and services; and a
marine transportation business that operates primarily on the
United States inland and Intracoastal Waterway systems and in
the Gulf of Mexico.
Enterprise is owned 100% by its limited partners from an
economic perspective. Enterprise is managed and controlled by
Enterprise GP, which has a non-economic general partner interest
in Enterprise. Enterprise GP is a wholly owned subsidiary of Dan
Duncan LLC (DDLLC). Enterprise conducts
substantially all of its business through its operating company,
Enterprise Products Operating LLC (EPO).
Enterprises principal executive offices are located at
1100 Louisiana Street, 10th Floor, Houston, Texas 77002,
and its telephone number is
(713) 381-6500.
Duncan
Energy Partners L.P.
Duncan is a publicly traded Delaware limited partnership, the
common units of which are listed on the NYSE under the ticker
symbol DEP. Duncans business purpose is to
acquire, own and operate a diversified portfolio of midstream
energy assets and to support the growth objectives of EPO and
other affiliates of EPCO that are under common control. Duncan
is engaged in the business of: (i) NGL transportation,
fractionation and marketing; (ii) storage of NGL,
petrochemical and refined products; (iii) transportation of
petrochemical products; and (iv) the gathering,
transportation, marketing and storage of natural gas.
Duncans assets, located primarily in Texas and Louisiana,
include approximately: 11,200 miles of natural gas, NGL and
petrochemical pipelines; two NGL fractionation facilities;
17.3 MMBbls of leased NGL storage capacity; 8.1 Bcf of
leased natural gas storage capacity; and 34 underground salt
dome caverns with approximately 100 MMBbls of NGL and
related product storage capacity. Duncans assets are
integral to EPOs midstream energy operations and are
located near significant natural gas production basins such as
the Eagle Ford Shale, Barnett Shale and Haynesville Shale.
At March 31, 2011, Duncan was owned 99.3% by its limited
partners and 0.7% by its general partner, Duncan GP. Enterprise
indirectly beneficially owned approximately 58.5% of the limited
partner interests in Duncan and 100% of Duncan GP. Duncan GP is
responsible for managing Duncans business and operations.
Duncans principal executive offices are located at 1100
Louisiana Street, 10th Floor, Houston, Texas 77002, and its
telephone number is
(713) 381-6500.
8
Relationship
of Enterprise and Duncan (page 91)
Enterprise and Duncan are closely related. Duncans general
partner is an indirect wholly owned subsidiary of Enterprise. In
addition, approximately 59.9% of Duncans common units are
owned by Enterprise and its affiliates, including GTM, the
directors and officers of Enterprise GP and Duncan GP, EPCO and
certain of EPCOs privately held affiliates.
Enterprise is controlled by DDLLC and EPCO. EPCO and DDLLC, a
private affiliate of EPCO, are each controlled by three voting
trustees, pursuant to the EPCO Inc. Voting Trust Agreement
dated April 26, 2006 (the EPCO Voting
Trust Agreement) and the Dan Duncan LLC Voting
Trust Agreement dated April 26, 2006 (the DDLLC
Voting Trust Agreement), respectively. The current
EPCO voting trustees are Randa Duncan Williams, Ralph S.
Cunningham and Richard H. Bachmann. The current DDLLC voting
trustees are also Ms. Williams, Dr. Cunningham and
Mr. Bachmann.
Enterprises operating subsidiary, EPO, was the sponsor of
Duncans drop down transactions in 2007 and 2008, and has
continuing involvement with Duncans subsidiaries, as
described further in Certain Relationships; Interests of
Certain Persons in the Merger Relationship of
Enterprise and Duncan Relationship of Duncan and
EPO.
Neither Duncan nor Enterprise has employees. All of the
operating functions and general and administrative support
services of Duncan and Enterprise are provided by employees of
EPCO pursuant to an administrative services agreement
(ASA) or by other service providers.
All of the executive officers of Duncan GP are also executive
officers of Enterprise GP including W. Randall Fowler, A. James
Teague, William Ordemann, Bryan F. Bulawa, Stephanie C.
Hildebrandt and Michael J. Knesek. For information about the
common executive officers of Enterprise GP and Duncan GP and
these executive officers relationships with EPCO and its
affiliates and the resulting interests of Duncan GP directors
and officers in the merger, please read Certain
Relationships; Interests of Certain Persons in the Merger.
Structure
of the Merger (page 65)
Pursuant to the merger agreement, at the effective time of the
merger, a wholly owned subsidiary of Enterprise will merge with
and into Duncan, with Duncan surviving the merger as a wholly
owned subsidiary of Enterprise, and each outstanding common unit
of Duncan will be cancelled and converted into the right to
receive 1.01 Enterprise common units. This merger consideration
represented a 35% premium to the closing price of Duncan common
units based on the closing prices of Duncan common units and
Enterprise common units on February 22, 2011, the last
trading day before Enterprise announced its initial proposal to
acquire all of the Duncan common units owned by the public.
Immediately following the effective time of the merger, the
consideration that GTM is entitled to receive in the merger will
be exchanged pursuant to the merger agreement and the Exchange
and Contribution Agreement for the assignment by Enterprise of a
limited partner interest in Duncan equal to the limited partner
interest represented by the Duncan common units owned by GTM
immediately prior to the effective time of the merger.
Accordingly, no Enterprise common units will be issued as
consideration to GTM for its 33,783,587 Duncan common units,
which represent approximately 58.5% of the outstanding Duncan
common units.
If the exchange ratio would result in a Duncan unitholder being
entitled to receive a fraction of an Enterprise common unit,
that Duncan common unitholder will receive cash from Enterprise
in lieu of such fractional interest in an amount equal to such
fractional interest multiplied by the average of the closing
price of Enterprise common units for the ten consecutive NYSE
full trading days ending at the close of trading on the last
NYSE full trading day immediately preceding the day the merger
closes.
Once the merger is completed and Duncan common units are
exchanged for Enterprise common units (and cash in lieu of
fractional units, if applicable), when distributions are
declared by the general partner of Enterprise and paid by
Enterprise, former Duncan unitholders will receive distributions
on their Enterprise
9
common units in accordance with Enterprises partnership
agreement. For a description of the distribution provisions of
Enterprises partnership agreement, please read
Comparison of the Rights of Enterprise and Duncan
Unitholders.
As of May 11, 2011, there were 845,986,984 Enterprise
common units and 4,520,431 Class B units of Enterprise
outstanding. Based on the 24,008,683 Duncan common units
outstanding at May 11, 2011 (other than those owned by GTM)
and an assumed additional 100,000 common units issued under
the DEP Unit Purchase Plan and distribution reinvestment plan
through the closing of the merger, Enterprise expects to issue
approximately 24,349,770 Enterprise common units in connection
with the merger.
Other
Transactions Related to the Merger (page 64)
Voting
Agreement
In connection with the merger agreement, Duncan, Enterprise and
GTM entered into the voting agreement, dated as of
April 28, 2011. Pursuant to the voting agreement,
Enterprise and GTM have agreed to vote any Duncan common units
owned by them or their subsidiaries in favor of adoption of the
merger agreement and the merger, including the 33,783,587 Duncan
common units currently directly owned by GTM (representing
approximately 58.5% of the outstanding Duncan common units), at
any meeting of Duncan unitholders. The voting agreement will
terminate upon the completion of the merger or the termination
of the merger agreement.
Directors
and Officers of Enterprise GP and Duncan GP
(page 102)
DDLLC, the sole member of Enterprise GP, has the power to
appoint and remove all of the directors of Enterprise GP.
Enterprise GP has indirect power to cause the appointment or
removal of the directors of Duncan GP, an indirect wholly owned
subsidiary of Enterprise. DDLLC is controlled by the DDLLC
voting trustees under the DDLLC Voting Trust Agreement.
Each of the executive officers of Enterprise GP is currently
expected to remain an executive officer of Enterprise GP
following the merger. The DDLLC voting trustees have not yet
determined whether any directors of Duncan GP will serve as
directors of Enterprise GP following the merger. In the absence
of any changes, the current directors of Enterprise GP will
continue as directors following the merger.
The following individuals are currently executive officers of
Enterprise GP and those persons signified with an asterisk (*)
also currently serve as executive officers of Duncan GP. All of
the current executive officers of Duncan GP are also
executive officers of Enterprise GP.
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Michael A. Creel
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W. Randall Fowler*
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A. James Teague*
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William Ordemann*
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Lynn L. Bourdon, III
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Bryan F. Bulawa*
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G. R. Cardillo
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James M. Collingsworth
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Stephanie C. Hildebrandt*
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Mark A. Hurley
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Michael J. Knesek*
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Christopher Skoog
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Thomas M. Zulim
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Market
Prices of Enterprise Common Units and Duncan Common Units Prior
to Announcing the Proposed Merger (page 30)
Enterprises common units are traded on the NYSE under the
ticker symbol EPD. Duncans common units are
traded on the NYSE under the ticker symbol DEP. The
following table shows the closing prices of Enterprise common
units and Duncan common units on February 22, 2011 (the
last full trading day before Enterprise announced its initial
proposal to acquire all of the Duncan common units owned by the
public) and the average closing price of Enterprise common units
and Duncan common units during the
20-day
trading period prior to and including February 22, 2011.
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Enterprise
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Duncan
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Date/Period
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Common Units
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Common Units
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February 22, 2011
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$
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43.70
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$
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32.56
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20-day
Average
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$
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43.40
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$
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32.59
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The
Special Unitholder Meeting (page 37)
Where and when: The Duncan special unitholder
meeting will take place at 1100 Louisiana Street,
10th Floor, Houston, Texas 77002
on ,
2011 at a.m., local time.
What you are being asked to vote on: At the
Duncan meeting, Duncan unitholders will vote on the approval of
the merger agreement and the merger. Duncan unitholders also may
be asked to consider other matters as may properly come before
the meeting. At this time, Duncan knows of no other matters that
will be presented for the consideration of its unitholders at
the meeting.
Who may vote: You may vote at the Duncan
meeting if you owned Duncan common units at the close of
business on the record
date, ,
2011. On that date, there
were Duncan common units
outstanding. You may cast one vote for each outstanding Duncan
common unit that you owned on the record date.
What vote is needed: Under the merger
agreement, the number of votes actually cast in favor of the
proposal by the Duncan unaffiliated unitholders must exceed the
number of votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. In addition, pursuant to the Duncan partnership
agreement, the merger agreement and the merger must be approved
by the affirmative vote of the Duncan unitholders holding a
majority of the outstanding Duncan common units. Enterprise and
GTM have agreed to vote any Duncan common units owned by them or
their subsidiaries in favor of adoption of the merger agreement
and the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Recommendation
to Duncan Unitholders (page 47)
The members of the Duncan ACG Committee considered the benefits
of the merger and the related transactions as well as the
associated risks and determined unanimously that the merger
agreement and the merger are fair and reasonable, advisable to
and in the best interests of Duncan and the Duncan unaffiliated
unitholders. The Duncan ACG Committee also recommended that the
merger agreement and the merger be approved by the Duncan Board
and the Duncan unitholders. Based on the Duncan ACG
Committees determination and recommendation, the Duncan
Board has also approved the merger agreement and the merger and,
together with the Duncan ACG Committee, recommends that the
Duncan unitholders vote to approve the merger agreement and the
merger.
Duncan unitholders are urged to review carefully the background
and reasons for the merger described under The
Merger and the risks associated with the merger described
under Risk Factors.
11
Duncans
Reasons for the Merger (page 47)
The Duncan ACG Committee considered many factors in determining
that the merger agreement and the merger are fair and
reasonable, advisable to and in the best interests of Duncan and
the Duncan unaffiliated unitholders. The Duncan ACG Committee
viewed the following factors, among others described in greater
detail under The Merger Recommendation of the
Duncan ACG Committee and the Duncan Board and Reasons for the
Merger, as being generally positive or favorable in coming
to this determination and its related recommendations:
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The exchange ratio of 1.01 Enterprise common units for each
Duncan common unit in the merger, which represented a
premium of:
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approximately 34% above the $32.56 closing price of Duncan
common units on February 22, 2011, based on the $43.32
closing price of Enterprise common units on April 27, 2011
(the day before the merger agreement was approved and
executed); and
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approximately 36% above the ratio of closing prices of Duncan
common units to Enterprise common units of 0.7451 on
February 22, 2011.
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The pro forma increase of approximately 32% and 36% in quarterly
cash distributions expected to be received by Duncan unitholders
in 2011 and 2012, respectively, based upon the 1.01x exchange
ratio and quarterly cash distribution rates paid by Duncan and
Enterprise in May 2011.
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In the merger, Duncan unitholders will receive common units
representing limited partner interests in Enterprise, which have
substantially more liquidity than Duncan common units because of
the Enterprise common units significantly larger average
daily trading volume, as well as Enterprise having a broader
investor base and a larger public float.
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The current and prospective environment and growth prospects for
Duncan if it continues as a stand-alone entity, as compared to
the asset base, financial condition and growth prospects of the
combined entity, including the likelihood that future asset drop
downs to Duncan from Enterprise would diminish because of the
reduction in Enterprises cost of equity capital in
connection with Enterprises November 2010 acquisition of
Enterprise GP Holdings L.P. (Holdings).
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Enterprises stronger balance sheet and credit profile
relative to Duncans.
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That the merger provides Duncan unitholders with an opportunity
to benefit from unit price appreciation and increased
distributions through ownership of Enterprise common units,
which should benefit from Enterprises much larger and more
diversified asset and cash flow base and lower dependence on
individual capital projects, and Enterprises greater
ability to compete for future acquisitions and finance organic
growth projects.
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The Duncan unaffiliated unitholders have an opportunity to
determine whether the merger will be approved, because the
merger agreement provides that the unitholder voting conditions
(including the majority of votes cast by Duncan unaffiliated
unitholders condition) may not be waived.
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The opinion of Morgan Stanley rendered to the Duncan ACG
Committee on April 28, 2011 to the effect that, as of that
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
written opinion, the exchange ratio pursuant to the merger
agreement was fair, from a financial point of view, to the
Duncan unaffiliated unitholders.
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The committees belief that the merger and the exchange
ratio present the best opportunity to maximize value for
Duncans unitholders and achieve the highest value
obtainable for Duncans unitholders.
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The Duncan ACG Committee considered the following factors to be
generally negative or unfavorable in making its determination
and recommendations:
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That the exchange ratio is fixed and there is a possibility that
the Enterprise common unit price could decline relative to the
Duncan common unit price prior to closing, reducing the premium
available to Duncan unitholders.
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The risk that potential benefits sought in the merger might not
be fully realized.
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That pro forma, the merger is expected to be dilutive to Duncan
unitholders distributable cash flow on a per unit basis.
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The risk that the merger might not be completed in a timely
manner, or that the merger might not be consummated as a result
of a failure to satisfy the conditions contained in the merger
agreement, and that a failure to complete the merger could
negatively affect the trading price of the Duncan common units.
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The limitations on Duncan considering unsolicited offers from
third parties not affiliated with Duncan GP.
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That certain members of management of Duncan GP and the Duncan
Board may have interests that are different from those of the
Duncan unaffiliated unitholders.
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Overall, the Duncan ACG Committee believed that the advantages
of the merger outweighed the negative factors.
Opinion
of Duncan ACG Committees Financial Advisor
(page 53)
In connection with the merger, the Duncan ACG Committee retained
Morgan Stanley as its financial advisor. On April 28, 2011,
Morgan Stanley rendered to the Duncan ACG Committee its oral
opinion, subsequently confirmed in writing, that, as of such
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the Duncan
unaffiliated unitholders. The full text of the written opinion
of Morgan Stanley, which sets forth, among other things, the
assumptions made, specified work performed, procedures followed,
matters considered and qualifications and limitations on the
scope of the review undertaken by Morgan Stanley in rendering
its opinion, is attached as Annex B to this proxy
statement/prospectus. The opinion was directed to the Duncan ACG
Committee and addresses only the fairness from a financial point
of view of the exchange ratio pursuant to the merger agreement
to the Duncan unaffiliated unitholders as of the date of the
opinion. The opinion does not address any other aspect of the
merger or related transactions and does not constitute a
recommendation to any Duncan unitholder as to how to vote or act
on any matter with respect to the merger or related transactions.
Certain
Relationships; Interests of Certain Persons in the Merger
(page 91)
Enterprise and Duncan have extensive and ongoing relationships
with EPCO and its affiliates, which include both Enterprise GP
and Duncan GP. Enterprise GP is a wholly owned subsidiary of
DDLLC, which is controlled by the three DDLLC voting trustees
under the DDLLC Voting Trust Agreement. EPCO is also
controlled by the three EPCO voting trustees under the EPCO
Voting Trust Agreement. The EPCO voting trustees and the
DDLLC voting trustees are the same three individuals: Randa
Duncan Williams, Richard H. Bachmann and Ralph S. Cunningham.
Ms. Williams, Mr. Bachmann and Dr. Cunningham are
also executors of the estate of Dan L. Duncan (the
Estate).
As of May 11, 2011, the DDLLC voting trustees, the EPCO
voting trustees and the executors of the Estate, in their
capacities as such trustees, as executors and individually,
collectively owned or controlled approximately 40.1% of
Enterprises outstanding common units and 100% of the
limited liability company interests in Enterprise GP. Enterprise
and GTM, both of which have agreed to vote in favor of the
merger and the merger agreement, currently own approximately
58.5% of Duncans outstanding common units. The directors,
executive officers and other affiliates of Enterprise
collectively owned or controlled an additional 1.4% of
Duncans outstanding common units.
The officers of Duncan GP are employees of EPCO. A number of
EPCO employees who provide services to Duncan also provide
services to Enterprise, often serving in the same positions.
Enterprise GP also has indirect power to cause the appointment
or removal of the directors of Duncan GP, an indirect wholly
owned
13
subsidiary of Enterprise. Duncan has an extensive and ongoing
relationship with Enterprise, EPCO and other entities controlled
by the DDLLC voting trustees and the EPCO voting trustees.
Further, Duncan GPs directors and executive officers have
interests in the merger that may be different from, or in
addition to, your interests as a unitholder of Duncan, including:
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All of the directors and executive officers of Duncan GP will
receive continued indemnification for their actions as directors
and executive officers.
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All of the directors of Duncan GP own Enterprise common units.
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Some of Duncan GPs directors (none of whom is a member of
the Duncan ACG Committee) and all of Duncan GPs executive
officers also serve as directors or executive officers of
Enterprise GP, have certain duties to the limited partners of
Enterprise and are compensated, in part, based on the
performance of Enterprise. In addition to serving as a director
and President and Chief Executive Officer of Duncan GP,
Mr. Fowler also serves as the Executive Vice President and
Chief Financial Officer of Enterprise GP; Mr. Bulawa serves
as a director and Senior Vice President, Treasurer and Chief
Financial Officer of Duncan GP and also as Senior Vice President
and Treasurer of Enterprise GP; Mr. Teague serves as
Executive Vice President and Chief Operating Officer of Duncan
GP and also as a director and Executive Vice President and Chief
Operating Officer of Enterprise GP; Mr. Ordemann serves as
an Executive Vice President for both of Duncan GP and Enterprise
GP; Ms. Hildebrandt serves as Senior Vice President, Chief
Legal Officer and Secretary for Duncan GP and as Senior Vice
President, General Counsel and Secretary for Enterprise GP; and
Mr. Knesek serves as Senior Vice President, Controller and
Principal Accounting Officer for both Duncan GP and
Enterprise GP.
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Each of the executive officers and directors of Enterprise GP is
currently expected to remain an executive officer of Enterprise
GP following the merger.
The
Merger Agreement (page 65)
The merger agreement is attached to this proxy
statement/prospectus as Annex A and is incorporated by
reference into this document. You are encouraged to read the
merger agreement because it is the legal document that governs
the merger.
What
Needs to Be Done to Complete the Merger
Enterprise and Duncan will complete the merger only if the
conditions set forth in the merger agreement are satisfied or,
in some cases, waived. The obligations of Enterprise and Duncan
to complete the merger are subject to, among other things, the
following conditions:
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the approval of the merger agreement and the merger by the
affirmative vote or consent of holders (as of the record date
for the Duncan special meeting) of (i) a majority of the
outstanding Duncan common units held by the Duncan unaffiliated
unitholders that actually vote for or against the merger
proposal (i.e., the votes cast by Duncan unaffiliated
unitholders in favor of the proposal must exceed the votes cast
by Duncan unaffiliated unitholders against the proposal) and
(ii) a majority of the outstanding Duncan common units;
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the making of all required filings and the receipt of all
required governmental consents, approvals, permits and
authorizations from any applicable governmental authorities
prior to the merger effective time, except where the failure to
obtain such consent, approval, permit or authorization would not
be reasonably likely to result in a material adverse effect (as
defined in the merger agreement) on Duncan or Enterprise;
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the absence of any order, decree, injunction or law that
enjoins, prohibits or makes illegal the consummation of any of
the transactions contemplated by the merger agreement, and any
action, proceeding or investigation by any governmental
authority seeking to restrain, enjoin, prohibit or delay such
consummation;
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14
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the continued effectiveness of the registration statement of
which this proxy statement/prospectus is a part; and
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the approval for listing on the NYSE of Enterprise common units
to be issued in the merger, subject to official notice of
issuance.
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Enterprises obligation to complete the merger is further
subject to the following conditions:
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the representations and warranties of each of Duncan and Duncan
GP set forth in the merger agreement being true and correct in
all material respects, and Duncan and Duncan GP having performed
all of their obligations under the merger agreement in all
material respects;
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Enterprise having received an opinion of Andrews Kurth LLP,
counsel to Enterprise (Andrews Kurth), as to the
treatment of the merger for U.S. federal income tax
purposes and as to certain other tax matters; and
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No material adverse effect (as defined in the merger agreement)
having occurred with respect to Duncan.
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Duncans obligation to complete the merger is further
subject to the following conditions:
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the representations and warranties of each of Enterprise and
Enterprise GP set forth in the merger agreement being true and
correct in all material respects, and Enterprise and Enterprise
GP having performed all of their obligations under the merger
agreement in all material respects;
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Duncan having received an opinion of Vinson & Elkins
L.L.P., counsel to Duncan (Vinson &
Elkins), as to the treatment of the merger for
U.S. federal income tax purposes and as to certain other
tax matters; and
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No material adverse effect (as defined under the merger
agreement) having occurred with respect to Enterprise.
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The merger agreement provides that the unitholder voting
conditions (including the majority of votes cast by Duncan
unaffiliated unitholders condition) may not be waived. Each of
Enterprise and Duncan (with the consent of the Duncan ACG
Committee and the Duncan Board) may choose to complete the
merger even though any condition to its obligation has not been
satisfied if the necessary unitholder approval has been obtained
and the law allows it to do so.
No
Solicitation
Duncan GP and Duncan have agreed that they will not, and they
will use their commercially reasonable best efforts to cause
their representatives not to, directly or indirectly, initiate,
solicit, knowingly encourage or facilitate any inquiries or the
making or submission of any proposal that constitutes, or may
reasonably be expected to lead to, an acquisition proposal, or
participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect
to, any acquisition proposal, unless the Duncan ACG Committee,
after consultation with its outside legal counsel and financial
advisors, determines in good faith that such acquisition
proposal constitutes or is likely to result in a superior
proposal and the failure to do so would be inconsistent with its
duties under the Duncan partnership agreement and applicable
law. Please read The Merger Agreement
Covenants Acquisition Proposals; Change in
Recommendation for more information about what constitutes
an acquisition proposal and a superior proposal.
Change
in Recommendation
The Duncan ACG Committee is permitted to withdraw, modify or
qualify in any manner adverse to Enterprise its recommendation
of the merger or publicly approve or recommend, or publicly
propose to approve or recommend, any acquisition proposal,
referred to in this proxy statement/prospectus as a change
in recommendation, in certain circumstances. Specifically,
if, prior to receipt of Duncan unitholder approval, the Duncan
ACG Committee concludes in good faith, after consultation with
its outside legal counsel and financial advisors, that a failure
to change its recommendation would be inconsistent with its
duties under the
15
Duncan partnership agreement and applicable law, the Duncan ACG
Committee may determine to make a change in recommendation.
Termination
of the Merger Agreement
Enterprise and Duncan can agree to terminate the merger
agreement by mutual written consent at any time without
completing the merger, even after the Duncan unitholders have
approved the merger agreement and the merger. In addition,
either party may terminate the merger agreement on its own upon
written notice to the other without completing the
merger if:
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the merger is not completed on or before October 31, 2011;
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any legal prohibition to completing the merger has become final
and non-appealable, provided that the terminating party is not
in breach of its covenant to use commercially reasonable best
efforts to complete the merger promptly; or
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any condition to the terminating partys obligation to
close the merger cannot be satisfied.
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Enterprise may terminate the merger agreement at any time if
(i) the Duncan ACG Committee, upon written notice to
Enterprise, determines to make a change in recommendation in
accordance with the merger agreement and subsequently determines
not to hold, or otherwise fails to hold, the Duncan special
meeting or (ii) Duncan does not obtain the necessary
unitholder approval at the Duncan special meeting.
Duncan may terminate the merger agreement if (i) the Duncan
ACG Committee determines, in accordance with the merger
agreement, to make a change in recommendation and subsequently
determines not to hold, or otherwise fails to hold, the Duncan
special meeting or (ii) Duncan does not obtain the
necessary unitholder approval at the Duncan special meeting.
Duncan may terminate the merger agreement upon written notice to
Enterprise, at any time prior to the Duncan special meeting, if
Duncan receives an acquisition proposal from a third party, the
Duncan ACG Committee concludes in good faith that such
acquisition proposal constitutes a superior proposal, the Duncan
ACG Committee has made a change in recommendation pursuant to
the merger agreement with respect to such superior proposal,
Duncan has not knowingly and intentionally breached the no
solicitation covenants contained in the merger agreement, and
the Duncan ACG Committee concurrently approves, and Duncan
concurrently enters into, a definitive agreement with respect to
such superior proposal.
Material
U.S. Federal Income Tax Consequences of the Merger
(page 124)
Tax matters associated with the merger are complicated. The
U.S. federal income tax consequences of the merger to a
Duncan unitholder will depend on such common unitholders
own situation. The tax discussions in this proxy
statement/prospectus focus on the U.S. federal income tax
consequences generally applicable to individuals who are
residents or citizens of the United States that hold their
Duncan common units as capital assets, and these discussions
have only limited application to other unitholders, including
those subject to special tax treatment. Duncan unitholders are
urged to consult their tax advisors for a full understanding of
the U.S. federal, state, local and foreign tax consequences
of the merger that will be applicable to them.
Duncan expects to receive an opinion from Vinson &
Elkins to the effect that no gain or loss should be recognized
by the holders of Duncan common units to the extent Enterprise
common units are received in exchange therefor as a result of
the merger, other than gain resulting from either (i) any
decrease in partnership liabilities pursuant to Section 752
of the Internal Revenue Code, or (ii) any cash received in
lieu of any fractional Enterprise common units. Enterprise
expects to receive an opinion from Andrews Kurth to the effect
that no gain or loss should be recognized by Enterprise
unaffiliated unitholders as a result of the merger (other than
gain resulting from any decrease in partnership liabilities
pursuant to Section 752 of the Internal Revenue Code).
Enterprise unaffiliated unitholders means Enterprise
common unitholders other than those controlling, controlled by
or under common control with Enterprise GP. Opinions of counsel,
however, are subject to certain limitations and are not binding
on the Internal Revenue Service, or IRS, and no
assurance
16
can be given that the IRS would not successfully assert a
contrary position regarding the merger and the opinions of
counsel.
The U.S. federal income tax consequences described above
may not apply to some holders of Enterprise common units and
Duncan common units. Please read Material
U.S. Federal Income Tax Consequences of the Merger
beginning on page 124 for a more complete discussion of the
U.S. federal income tax consequences of the merger.
Other
Information Related to the Merger
No
Appraisal Rights (page 62)
Duncan unitholders do not have appraisal rights under applicable
law or contractual appraisal rights under the Duncan partnership
agreement or the merger agreement.
Antitrust
and Regulatory Matters (page 62)
The merger is subject to both state and federal antitrust laws.
Under the rules applicable to partnerships, no filing is
required under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the HSR Act).
However, Enterprise or Duncan may receive requests for
information concerning the proposed merger and related
transactions from the Federal Trade Commission, or FTC, the
Antitrust Division of the Department of Justice, or DOJ, or
individual states.
Listing
of Common Units to be Issued in the Merger
(page 63)
Enterprise expects to obtain approval to list on the NYSE the
Enterprise common units to be issued pursuant to the merger
agreement, which approval is a condition to the merger.
Accounting
Treatment (page 63)
The merger will be accounted for in accordance with Financial
Accounting Standards Board Accounting Standards Codification
810, Consolidations Overall Changes
in Parents Ownership Interest in a Subsidiary, which
is referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger for financial reporting purposes.
Comparison
of the Rights of Enterprise and Duncan Unitholders
(page 109)
Duncan unitholders will own Enterprise common units following
the completion of the merger, and their rights associated with
Enterprise common units will be governed by, in addition to
Delaware law, Enterprises partnership agreement, which
differs in a number of respects from Duncans partnership
agreement.
Pending
Litigation (page 63)
On March 8, 2011, Michael Crowley, a purported unitholder
of Duncan, filed a complaint in the Court of Chancery of the
State of Delaware, as a putative class action on behalf of the
public unitholders of Duncan, captioned Michael
Crowley v. Duncan Energy Partners L.P., DEP Holdings, LLC,
W. Randall Fowler, Bryan F. Bulawa, William A.
Bruckmann, III, Larry J. Casey, Richard S. Snell,
Enterprise Products Partners L.P., Enterprise Product Holdings
LLC, and Enterprise Production Operating LLC, Civil Action
No. 6252-VCN
(the Crowley Complaint). The Crowley Complaint
alleges, among other things, that the named directors of Duncan
GP have breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units, that Duncan and Duncan
GP aided and abetted in these alleged breaches of fiduciary
duties and that Enterprise, as the majority and controlling
unitholder, along with EPO, has breached fiduciary duties by not
acting in the minority unitholders best interests to
ensure the transaction resulting from Enterprises proposal
is entirely fair.
17
On March 11, 2011, Sanjay Israni, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Sanjay Israni v. Duncan
Energy Partners, L.P., DEP Holdings, LLC, Enterprise Products
Partners L.P., Enterprise Product Holdings LLC, Enterprise
Production Operating LLC, W. Randall Fowler, Bryan F. Bulawa,
William A. Bruckmann, III, Larry J. Casey, and Richard S.
Snell, Civil Action
No. 6270-VCN
(the Israni Complaint). The Israni Complaint
alleges, among other things, that the named directors of Duncan
GP have breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units and that Duncan along
with all of the other named defendants aided and abetted in
these alleged breaches of fiduciary duties.
On March 28, 2011, Michael Rubin, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Michael Rubin v. Duncan
Energy Partners L.P., DEP Holdings, LLC, W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
Richard S. Snell, Enterprise Products Partners L.P., Enterprise
Products Holdings LLC, and Enterprise Products Operating LLC,
Civil Action
No. 6320-VCS
(the Rubin Complaint). The Rubin Complaint alleges,
among other things, that the named directors of Duncan GP have
breached fiduciary duties in connection with Enterprises
initial proposal to acquire Duncans outstanding publicly
held common units, that Duncan and Duncan GP aided and abetted
in these alleged breaches of fiduciary duties and that
Enterprise, as the majority and controlling unitholder, along
with EPO, has breached fiduciary duties by not acting in the
best interests of the minority unitholders to ensure the
transaction resulting from Enterprises proposal is
entirely fair.
On April 5, 2011, the plaintiffs in the Crowley Complaint,
the Israni Complaint and the Rubin Complaint filed a Proposed
Order of Consolidation and Appointment of Lead Counsel in the
Court of Chancery of the State of Delaware. The Court granted
that Order on the same day consolidating the three actions into
a single consolidated action captioned In re Duncan Energy
Partners L.P. Unitholders Litigation, Consolidated Civil
Action
No. 6252-VCN.
On March 7, 2011, Merle Davis, a purported unitholder of
Duncan, filed a petition in the 269th District Court of Harris
County, Texas, as a putative class action on behalf of the
unitholders of Duncan, captioned Merle Davis, on Behalf of
Himself and All Others Similarly Situated v. Duncan Energy
Partners L.P., W. Randall Fowler, Bryan F. Bulawa, William A.
Bruckmann, III, Larry J. Casey, Richard S. Snell, DEP
Holdings, LLC, and Enterprise Products Partners L.P. (the
Davis Petition). The Davis Petition alleges, among
other things, that Enterprise and the named directors of Duncan
GP have breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units and that Duncan and
Enterprise aided and abetted in these alleged breaches of
fiduciary duties.
On March 9, 2011, Donald Weilersbacher, a purported
unitholder of Duncan, filed a petition in the 334th District
Court of Harris County, Texas, as a putative class action on
behalf of the unitholders of Duncan, captioned Donald
Weilersbacher, on Behalf of Himself and All Others Similarly
Situated v. Duncan Energy Partners L.P., Enterprise
Products Partners L.P., DEP Holdings, LLC, W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
and Richard S. Snell (the Weilersbacher
Petition). The Weilersbacher Petition alleges, among other
things, that the named directors of Duncan GP have breached
fiduciary duties in connection with Enterprises initial
proposal to acquire Duncans outstanding publicly held
common units and that Enterprise aided and abetted in these
alleged breaches of fiduciary duties.
On March 17, 2011, the plaintiffs in the Davis Petition and
the Weilersbacher Petition filed a motion and proposed Order for
Consolidation of Related Actions, Appointment of Interim Co-Lead
Counsel, and Order Compelling Limited Expedited Discovery.
Plaintiffs and defendants subsequently agreed to postpone
discovery until after the plaintiffs file a consolidated
petition. On March 28, 2011, the plaintiffs filed an
amended motion and proposed Order for Consolidation of Related
Actions and Appointment of Interim Co-Lead Counsel. On
May 4, 2011, the court entered an order consolidating the
cases and appointing interim lead counsel. On May 11, 2011,
plaintiffs filed their consolidated petition.
Enterprise and Duncan cannot predict the outcome of these or any
other lawsuits that might be filed subsequent to the date of the
filing of this proxy statement/prospectus, nor can Enterprise
and Duncan predict
18
the amount of time and expense that will be required to resolve
these lawsuits. Enterprise, Duncan and the other defendants
named in these lawsuits intend to defend vigorously against
these and any other actions.
Summary
of Risk Factors (page 32)
You should consider carefully all the risk factors together with
all of the other information included in this proxy
statement/prospectus before deciding how to vote. The risks
related to the merger and the related transactions,
Enterprises business, Enterprise common units and risks
resulting from Enterprises organizational structure are
described under the caption Risk Factors beginning
on page 32 of this proxy statement/prospectus. Some of
these risks include, but are not limited to, those described
below:
|
|
|
|
|
Duncans partnership agreement limits the fiduciary duties
of Duncan GP to unitholders and restricts the remedies available
to unitholders for actions taken by Duncan GP that might
otherwise constitute breaches of fiduciary duty.
|
|
|
|
The directors and executive officers of Duncan GP have interests
relating to the merger that differ in certain respects from the
interests of the Duncan unaffiliated unitholders.
|
|
|
|
The exchange ratio is fixed and the market value of the merger
consideration to Duncan unitholders will be equal to 1.01 times
the price of Enterprise common units at the closing of the
merger, which market value will decrease if the market value of
Enterprises common units decreases.
|
|
|
|
The transactions contemplated by the merger agreement may not be
consummated even if Duncan unitholders approve the merger
agreement and the merger.
|
|
|
|
Financial projections by Enterprise and Duncan may not prove
accurate.
|
|
|
|
While the merger agreement is in effect, both Duncan and
Enterprise may lose opportunities to enter into different
business combination transactions with other parties on more
favorable terms and may be limited in their ability to pursue
other attractive business opportunities.
|
|
|
|
No ruling has been requested with respect to the
U.S. federal income tax consequences of the merger.
|
|
|
|
The intended U.S. federal income tax consequences of the
merger are dependent upon each of Enterprise and Duncan being
treated as a partnership for U.S. federal income tax
purposes.
|
|
|
|
The U.S. federal income tax treatment of the merger is
subject to potential legislative change and differing judicial
or administrative interpretations.
|
|
|
|
Duncan unitholders could recognize taxable income or gain for
U.S. federal income tax purposes as a result of the merger.
|
19
Organizational
Chart
Before
the Merger
The following diagram depicts the organizational structure of
Enterprise and Duncan as of May 6, 2011 before the
consummation of the merger and the other transactions
contemplated by the merger agreement.
GP = General Partner Interest
LP = Limited Partner Interest
LLC = Limited Liability Company Interest
|
|
|
(1) |
|
Includes certain Duncan common units beneficially owned by the
Estate, Randa Duncan Williams and certain trusts and privately
held affiliates other than DDLLC. |
|
(2) |
|
Enterprise percentage includes 4,520,431 Class B units of
Enterprise owned by a privately held affiliate of EPCO. |
|
(3) |
|
Includes directors and executive officers of Duncan GP and of
Enterprise GP other than Randa Duncan Williams, representing an
aggregate of approximately 0.3% of the outstanding Duncan common
units. |
20
After
the Merger
The following diagram depicts the organizational structure of
Enterprise and Duncan immediately after giving effect to the
merger, the other transactions contemplated by the merger
agreement and a planned contribution by Enterprise of limited
partner interests in Duncan to GTM and Enterprise Products
OLPGP, Inc. (OLPGP) immediately thereafter, pursuant
to the Exchange and Contribution Agreement.
|
|
|
(1) |
|
Enterprise percentage includes 4,520,431 Class B units of
Enterprise owned by a privately held affiliate of EPCO. |
21
SUMMARY
HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION OF
ENTERPRISE AND DUNCAN
The following tables set forth, for the periods and at the dates
indicated, summary historical financial and operating
information for Enterprise and Duncan and summary unaudited pro
forma financial information for Enterprise after giving effect
to the proposed merger with Duncan. The summary historical
financial data as of and for each of the years ended
December 31, 2008, 2009 and 2010 are derived from and
should be read in conjunction with the audited financial
statements and accompanying footnotes of Enterprise and Duncan,
respectively. The summary historical financial data as of and
for the three-month periods ended March 31, 2010 and 2011
are derived from and should be read in conjunction with the
unaudited financial statements and accompanying footnotes of
Enterprise and Duncan, respectively. Enterprises and
Duncans consolidated balance sheets as of
December 31, 2009 and 2010 and as of March 31, 2011,
and the related statements of consolidated operations,
comprehensive income, cash flows and equity for each of the
three years in the period ended December 31, 2010 and the
three months ended March 31, 2011 and 2010 are incorporated
by reference into this proxy statement/prospectus from
Enterprises and Duncans respective annual reports on
Form 10-K
for the year ended December 31, 2010, and their quarterly
reports on
Form 10-Q
for the three months ended March 31, 2011.
The summary unaudited pro forma condensed consolidated financial
statements of Enterprise show the pro forma effect of
Enterprises proposed merger with Duncan. In addition to
the proposed merger, the historical consolidated statement of
operations for the year ended December 31, 2010 has been
adjusted to give effect to the merger of Holdings with a wholly
owned subsidiary of Enterprise in November 2010 (the
Holdings Merger). For a complete discussion of the
pro forma adjustments underlying the amounts in the table on the
following page, please read Unaudited Pro Forma Condensed
Consolidated Financial Statements beginning on
page F-2
of this document.
Duncan is a consolidated subsidiary of Enterprise for financial
accounting and reporting purposes. The proposed merger will be
accounted for in accordance with Financial Accounting Standards
Board Accounting Standards Codification 810,
Consolidations Overall Changes in
Parents Ownership Interest in a Subsidiary, which is
referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger.
The unaudited pro forma condensed consolidated financial
statements have been prepared to assist in the analysis of
financial effects of the proposed merger between Enterprise and
Duncan. The unaudited pro forma condensed statements of
consolidated operations for the year ended December 31,
2010 and the three months ended March 31, 2011 assume the
proposed merger-related transactions occurred on January 1,
2010. The unaudited pro forma condensed consolidated balance
sheet assumes the proposed merger-related transactions occurred
on March 31, 2011. The unaudited pro forma condensed
consolidated financial statements are based upon assumptions
that Enterprise and Duncan believe are reasonable under the
circumstances, and are intended for informational purposes only.
They are not necessarily indicative of the financial results
that would have occurred if the transactions described herein
had taken place on the dates indicated, nor are they indicative
of the future consolidated results of the combined entity.
Enterprises non-generally accepted accounting principles,
or non-GAAP, financial measures of gross operating margin and
Adjusted EBITDA are presented in the summary historical and pro
forma financial information. Please read
Non-GAAP Financial Measures, which
provides the necessary explanations for these non-GAAP financial
measures and reconciliations to their most closely related GAAP
financial measures.
For information regarding the effect of the merger on pro forma
distributions to Duncan unitholders, please read
Comparative Per Unit Information. For additional
financial information, please read Selected Financial Data
and Pro Forma Information of Enterprise and Duncan on
page 87.
22
Summary
Historical and Pro Forma Financial and Operating Information of
Enterprise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Consolidated Historical
|
|
|
Enterprise Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
Months
|
|
|
|
|
|
|
For the Three Months
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
35,469.6
|
|
|
$
|
25,510.9
|
|
|
$
|
33,739.3
|
|
|
$
|
8,544.5
|
|
|
$
|
10,183.7
|
|
|
$
|
33,739.3
|
|
|
$
|
10,183.7
|
|
Cost and expenses
|
|
|
33,763.7
|
|
|
|
23,748.6
|
|
|
|
31,654.1
|
|
|
|
8,012.2
|
|
|
|
9,575.0
|
|
|
|
31,654.1
|
|
|
|
9,575.0
|
|
Equity in income of unconsolidated affiliates
|
|
|
66.2
|
|
|
|
92.3
|
|
|
|
62.0
|
|
|
|
26.6
|
|
|
|
16.2
|
|
|
|
62.0
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,772.1
|
|
|
|
1,854.6
|
|
|
|
2,147.2
|
|
|
|
558.9
|
|
|
|
624.9
|
|
|
|
2,147.2
|
|
|
|
624.9
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(608.3
|
)
|
|
|
(687.3
|
)
|
|
|
(741.9
|
)
|
|
|
(157.9
|
)
|
|
|
(183.8
|
)
|
|
|
(741.9
|
)
|
|
|
(183.8
|
)
|
Other, net
|
|
|
12.3
|
|
|
|
(1.7
|
)
|
|
|
4.5
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
4.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(596.0
|
)
|
|
|
(689.0
|
)
|
|
|
(737.4
|
)
|
|
|
(157.8
|
)
|
|
|
(183.3
|
)
|
|
|
(737.4
|
)
|
|
|
(183.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
1,176.1
|
|
|
|
1,165.6
|
|
|
|
1,409.8
|
|
|
|
401.1
|
|
|
|
441.6
|
|
|
|
1,409.8
|
|
|
|
441.6
|
|
Provision for income taxes
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(26.1
|
)
|
|
|
(8.7
|
)
|
|
|
(7.1
|
)
|
|
|
(26.1
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,145.1
|
|
|
|
1,140.3
|
|
|
|
1,383.7
|
|
|
|
392.4
|
|
|
|
434.5
|
|
|
|
1,383.7
|
|
|
|
434.5
|
|
Net income attributable to noncontrolling interests
|
|
|
(981.1
|
)
|
|
|
(936.2
|
)
|
|
|
(1,062.9
|
)
|
|
|
(322.5
|
)
|
|
|
(13.8
|
)
|
|
|
(25.5
|
)
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to partners
|
|
$
|
164.0
|
|
|
$
|
204.1
|
|
|
$
|
320.8
|
|
|
$
|
69.9
|
|
|
$
|
420.7
|
|
|
$
|
1,358.2
|
|
|
$
|
428.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit
|
|
$
|
0.89
|
|
|
$
|
0.99
|
|
|
$
|
1.17
|
|
|
$
|
0.33
|
|
|
$
|
0.52
|
|
|
$
|
1.67
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit
|
|
$
|
0.89
|
|
|
$
|
0.99
|
|
|
$
|
1.15
|
|
|
$
|
0.33
|
|
|
$
|
0.49
|
|
|
$
|
1.59
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit (1)
|
|
$
|
2.0750
|
|
|
$
|
2.1950
|
|
|
$
|
2.3150
|
|
|
$
|
0.5675
|
|
|
$
|
0.5975
|
|
|
$
|
2.3150
|
|
|
$
|
0.5975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,780.4
|
|
|
$
|
27,686.3
|
|
|
$
|
31,360.8
|
|
|
$
|
28,025.1
|
|
|
$
|
31,821.2
|
|
|
|
n/a
|
|
|
$
|
31,807.1
|
|
Total long-term and current maturities of debt
|
|
|
12,714.9
|
|
|
|
12,427.9
|
|
|
|
13,563.5
|
|
|
|
12,183.9
|
|
|
|
14,055.9
|
|
|
|
n/a
|
|
|
|
14,055.9
|
|
Total equity
|
|
|
9,759.4
|
|
|
|
10,473.1
|
|
|
|
11,900.8
|
|
|
|
10,822.1
|
|
|
|
11,800.0
|
|
|
|
n/a
|
|
|
|
11,785.9
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,566.4
|
|
|
$
|
2,410.3
|
|
|
$
|
2,300.0
|
|
|
$
|
696.4
|
|
|
$
|
802.7
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Cash used in investing activities
|
|
|
3,246.9
|
|
|
|
1,547.7
|
|
|
|
3,251.6
|
|
|
|
370.5
|
|
|
|
726.4
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Cash provided by (used in) financing activities
|
|
|
1,695.9
|
|
|
|
(863.9
|
)
|
|
|
961.1
|
|
|
|
(246.4
|
)
|
|
|
8.6
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Distributions received from unconsolidated affiliates
|
|
|
157.2
|
|
|
|
169.3
|
|
|
|
191.9
|
|
|
|
51.4
|
|
|
|
42.5
|
|
|
$
|
191.9
|
|
|
|
42.5
|
|
Total segment gross operating margin(2)
|
|
|
2,640.3
|
|
|
|
2,880.9
|
|
|
|
3,253.0
|
|
|
|
806.0
|
|
|
|
875.4
|
|
|
|
3,253.0
|
|
|
|
875.4
|
|
Adjusted EBITDA (unaudited)(2)
|
|
|
2,615.3
|
|
|
|
2,759.9
|
|
|
|
3,256.1
|
|
|
|
802.5
|
|
|
|
890.4
|
|
|
|
3,256.1
|
|
|
|
890.4
|
|
|
|
|
(1) |
|
Represents cash distributions per unit declared with respect to
period by Enterprise. |
|
(2) |
|
Please read Non-GAAP Financial
Measures below beginning on page 25 for a
reconciliation of non-GAAP total gross operating margin and
Adjusted EBITDA to their most closely related GAAP financial
measures. |
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Consolidated Historical(1)
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
Selected volumetric operating data by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL transportation volumes (MBPD)
|
|
|
2,021
|
|
|
|
2,196
|
|
|
|
2,322
|
|
|
|
2,240
|
|
|
|
2,366
|
|
NGL fractionation volumes (MBPD)
|
|
|
441
|
|
|
|
461
|
|
|
|
485
|
|
|
|
473
|
|
|
|
549
|
|
Equity NGL production (MBPD)
|
|
|
108
|
|
|
|
117
|
|
|
|
121
|
|
|
|
122
|
|
|
|
119
|
|
Fee-based natural gas processing
(MMcf/d)
|
|
|
2,524
|
|
|
|
2,650
|
|
|
|
2,932
|
|
|
|
2,679
|
|
|
|
3,698
|
|
Onshore Natural Gas Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
9,612
|
|
|
|
10,435
|
|
|
|
11,482
|
|
|
|
10,706
|
|
|
|
11,678
|
|
Onshore Crude Oil Pipelines & Services, net:
Crude oil transportation volumes (MBPD)
|
|
|
696
|
|
|
|
680
|
|
|
|
670
|
|
|
|
672
|
|
|
|
666
|
|
Offshore Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
1,408
|
|
|
|
1,420
|
|
|
|
1,242
|
|
|
|
1,406
|
|
|
|
1,155
|
|
Crude oil transportation volumes (MBPD)
|
|
|
169
|
|
|
|
308
|
|
|
|
320
|
|
|
|
354
|
|
|
|
299
|
|
Platform natural gas processing
(MMcf/d)
|
|
|
632
|
|
|
|
700
|
|
|
|
513
|
|
|
|
632
|
|
|
|
445
|
|
Platform crude oil processing (MBPD)
|
|
|
15
|
|
|
|
12
|
|
|
|
17
|
|
|
|
18
|
|
|
|
16
|
|
Petrochemical & Refined Products Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butane isomerization volumes (MBPD)
|
|
|
86
|
|
|
|
97
|
|
|
|
89
|
|
|
|
73
|
|
|
|
88
|
|
Propylene fractionation volumes (MBPD)
|
|
|
58
|
|
|
|
68
|
|
|
|
77
|
|
|
|
80
|
|
|
|
73
|
|
Octane enhancement production volumes (MBPD)
|
|
|
9
|
|
|
|
10
|
|
|
|
16
|
|
|
|
11
|
|
|
|
12
|
|
Transportation volumes, primarily refined products and
petrochemicals (MBPD)
|
|
|
818
|
|
|
|
806
|
|
|
|
869
|
|
|
|
804
|
|
|
|
743
|
|
/d = per day
BBtus = billion British thermal units
MBPD = thousand barrels per day
MMcf = million cubic feet
|
|
|
(1) |
|
Enterprise consolidated historical operating data includes
Duncan assets and operations. For Duncan consolidated historical
operating data, please read the Duncan reports filed with the
SEC and incorporated by reference into this proxy
statement/prospectus. |
24
Summary
Historical Financial Information of Duncan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Consolidated Historical
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,598.1
|
|
|
$
|
979.3
|
|
|
$
|
1,115.1
|
|
|
$
|
290.6
|
|
|
$
|
283.2
|
|
Costs and expenses
|
|
|
1,531.1
|
|
|
|
919.5
|
|
|
|
1,050.4
|
|
|
|
272.1
|
|
|
|
261.6
|
|
Equity in income of Evangeline
|
|
|
0.9
|
|
|
|
1.1
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
67.9
|
|
|
|
60.9
|
|
|
|
65.5
|
|
|
|
18.7
|
|
|
|
21.9
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(12.0
|
)
|
|
|
(14.0
|
)
|
|
|
(12.1
|
)
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
Other, net
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(11.5
|
)
|
|
|
(13.8
|
)
|
|
|
(12.1
|
)
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before benefit from (provision for) income taxes
|
|
|
56.4
|
|
|
|
47.1
|
|
|
|
53.4
|
|
|
|
15.6
|
|
|
|
18.8
|
|
Benefit from (provision for) income taxes
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
55.3
|
|
|
|
45.8
|
|
|
|
53.4
|
|
|
|
15.7
|
|
|
|
18.3
|
|
Net loss (income) attributable to noncontrolling interests
|
|
|
(7.4
|
)
|
|
|
45.3
|
|
|
|
36.7
|
|
|
|
5.5
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Duncan
|
|
$
|
47.9
|
|
|
$
|
91.1
|
|
|
$
|
90.1
|
|
|
$
|
21.2
|
|
|
$
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per unit
|
|
$
|
1.22
|
|
|
$
|
1.57
|
|
|
$
|
1.55
|
|
|
$
|
0.37
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per unit (declared with respect to period)
|
|
$
|
1.6775
|
|
|
$
|
1.7500
|
|
|
$
|
1.8050
|
|
|
$
|
0.4475
|
|
|
$
|
0.4575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,594.7
|
|
|
$
|
4,770.8
|
|
|
$
|
5,571.9
|
|
|
$
|
4,804.3
|
|
|
$
|
5,877.4
|
|
Total long-term debt, including current maturities
|
|
|
484.3
|
|
|
|
457.3
|
|
|
|
788.3
|
|
|
|
457.3
|
|
|
|
897.8
|
|
Equity
|
|
|
3,844.2
|
|
|
|
4,136.9
|
|
|
|
4,519.6
|
|
|
|
4,182.7
|
|
|
|
4,692.5
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
220.1
|
|
|
$
|
201.6
|
|
|
$
|
310.4
|
|
|
$
|
61.5
|
|
|
$
|
55.9
|
|
Cash used in investing activities
|
|
|
748.8
|
|
|
|
428.8
|
|
|
|
927.3
|
|
|
|
69.7
|
|
|
|
326.3
|
|
Cash provided by financing activities
|
|
|
539.5
|
|
|
|
218.1
|
|
|
|
645.4
|
|
|
|
26.0
|
|
|
|
260.6
|
|
Total segment gross operating margin(1)
|
|
|
253.0
|
|
|
|
262.1
|
|
|
|
299.6
|
|
|
|
71.8
|
|
|
|
77.2
|
|
|
|
|
(1) |
|
Please read Non-GAAP Financial
Measures below for a reconciliation of non-GAAP total
gross operating margin to its most closely related GAAP
financial measure. |
Non-GAAP Financial
Measures
This section provides reconciliations of Enterprises and
Duncans non-GAAP financial measures included in this proxy
statement/prospectus to their most directly comparable financial
measures calculated and presented in accordance with GAAP.
Enterprise and Duncan both present the non-GAAP financial
measure of gross operating margin and Enterprise presents the
non-GAAP financial measure of Adjusted EBITDA. These non-GAAP
financial measures should not be considered as an alternative to
GAAP measures such as net income, operating income, net cash
flows provided by operating activities or any other measure of
liquidity or financial performance calculated and presented in
accordance with GAAP. These non-GAAP financial
25
measures may not be comparable to similarly titled measures of
other companies because they may not calculate such measures in
the same manner as Enterprise or Duncan do.
Gross
Operating Margin
Enterprise and Duncan evaluate segment performance based on the
non-GAAP financial measure of gross operating margin. Total
segment gross operating margin is an important performance
measure of the core profitability of both Enterprises and
Duncans operations. This measure forms the basis of
Enterprises and Duncans internal financial reporting
and is used by management in deciding how to allocate capital
resources among business segments. Enterprise and Duncan believe
that investors benefit from having access to the same financial
measures that management uses in evaluating segment results. The
GAAP measure most directly comparable to total segment gross
operating margin is operating income. The non-GAAP financial
measure of total segment gross operating margin should not be
considered an alternative to GAAP operating income.
Enterprise and Duncan define total segment gross operating
margin as operating income before: (i) depreciation,
amortization and accretion expenses; (ii) non-cash asset
impairment charges; (iii) operating lease expenses for
which Enterprise does not have the payment obligation;
(iv) gains and losses from asset sales and related
transactions; and (v) general and administrative costs.
Gross operating margin is presented on a 100% basis before the
allocation of earnings to noncontrolling interests.
The following table presents a reconciliation of
Enterprises non-GAAP financial measure of total gross
operating margin to its GAAP financial measure of operating
income, on a historical and pro forma basis, as applicable for
each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Consolidated Historical
|
|
|
Enterprise Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(In Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Total segment gross operating margin
|
|
$
|
2,640.3
|
|
|
$
|
2,880.9
|
|
|
$
|
3,253.0
|
|
|
$
|
806.0
|
|
|
$
|
875.4
|
|
|
$
|
3,253.0
|
|
|
$
|
875.4
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(725.4
|
)
|
|
|
(809.3
|
)
|
|
|
(936.3
|
)
|
|
|
(212.4
|
)
|
|
|
(230.8
|
)
|
|
|
(936.3
|
)
|
|
|
(230.8
|
)
|
Non-cash asset impairment charges
|
|
|
|
|
|
|
(33.5
|
)
|
|
|
(8.4
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(8.4
|
)
|
|
|
|
|
Operating lease expenses paid by EPCO
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
Gain from asset sales and related transactions in operating
costs and expenses
|
|
|
4.0
|
|
|
|
|
|
|
|
44.4
|
|
|
|
7.3
|
|
|
|
18.4
|
|
|
|
44.4
|
|
|
|
18.4
|
|
General and administrative costs
|
|
|
(144.8
|
)
|
|
|
(182.8
|
)
|
|
|
(204.8
|
)
|
|
|
(40.3
|
)
|
|
|
(37.9
|
)
|
|
|
(204.8
|
)
|
|
|
(37.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,772.1
|
|
|
|
1,854.6
|
|
|
|
2,147.2
|
|
|
|
558.9
|
|
|
|
624.9
|
|
|
|
2,147.2
|
|
|
|
624.9
|
|
Other expense, net
|
|
|
(596.0
|
)
|
|
|
(689.0
|
)
|
|
|
(737.4
|
)
|
|
|
(157.8
|
)
|
|
|
(183.3
|
)
|
|
|
(737.4
|
)
|
|
|
(183.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
1,176.1
|
|
|
$
|
1,165.6
|
|
|
$
|
1,409.8
|
|
|
$
|
401.1
|
|
|
$
|
441.6
|
|
|
$
|
1,409.8
|
|
|
$
|
441.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The following table presents a reconciliation of Duncans
non-GAAP financial measure of total gross operating margin to
its GAAP financial measure of operating income, on a historical
basis, for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Consolidated Historical
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Total segment gross operating margin
|
|
$
|
253.0
|
|
|
$
|
262.1
|
|
|
$
|
299.6
|
|
|
$
|
71.8
|
|
|
$
|
77.2
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(167.3
|
)
|
|
|
(186.3
|
)
|
|
|
(201.0
|
)
|
|
|
(47.6
|
)
|
|
|
(50.9
|
)
|
Non-cash asset impairment charges
|
|
|
|
|
|
|
(4.2
|
)
|
|
|
(5.2
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
Gain (loss) from asset sales and related transactions in
operating costs and expenses
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
(7.9
|
)
|
|
|
0.9
|
|
|
|
0.2
|
|
General and administrative costs
|
|
|
(18.3
|
)
|
|
|
(11.2
|
)
|
|
|
(20.0
|
)
|
|
|
(4.9
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
67.9
|
|
|
|
60.9
|
|
|
|
65.5
|
|
|
|
18.7
|
|
|
|
21.9
|
|
Other expense, net
|
|
|
(11.5
|
)
|
|
|
(13.8
|
)
|
|
|
(12.1
|
)
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
56.4
|
|
|
$
|
47.1
|
|
|
$
|
53.4
|
|
|
$
|
15.6
|
|
|
$
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA of Enterprise
Enterprise defines Adjusted EBITDA as consolidated net income
less equity in income from unconsolidated affiliates; plus
distributions received from unconsolidated affiliates, interest
expense, provision for income taxes and depreciation,
amortization and accretion expenses. The GAAP measure most
directly comparable to Adjusted EBITDA is net cash flows
provided by operating activities. Adjusted EBITDA is commonly
used as a supplemental financial measure by management and by
external users of Enterprises financial statements, such
as investors, commercial banks, research analysts and rating
agencies, to assess:
|
|
|
|
|
the financial performance of Enterprises assets without
regard to financing methods, capital structures or historical
cost basis;
|
|
|
|
the ability of Enterprises assets to generate cash
sufficient to pay interest cost and support its
indebtedness; and
|
|
|
|
the viability of projects and the overall rates of return on
alternative investment opportunities.
|
Since Enterprises Adjusted EBITDA is based on its
consolidated net income, it includes amounts attributable to
Duncan.
27
The following table presents Enterprises calculation of
Adjusted EBITDA (unaudited) on a historical and pro forma basis
and a reconciliation of Enterprises non-GAAP financial
measure of Adjusted EBITDA to its GAAP financial measure of net
cash flows provided by operating activities on a historical
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Consolidated Historical
|
|
|
Enterprise Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Months
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Net income
|
|
$
|
1,145.1
|
|
|
$
|
1,140.3
|
|
|
$
|
1,383.7
|
|
|
$
|
392.4
|
|
|
$
|
434.5
|
|
|
$
|
1,383.7
|
|
|
$
|
434.5
|
|
Adjustments to GAAP net income to derive
non-GAAP Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
(66.2
|
)
|
|
|
(92.3
|
)
|
|
|
(62.0
|
)
|
|
|
(26.6
|
)
|
|
|
(16.2
|
)
|
|
|
(62.0
|
)
|
|
|
(16.2
|
)
|
Distributions received from unconsolidated affiliates
|
|
|
157.2
|
|
|
|
169.3
|
|
|
|
191.9
|
|
|
|
51.4
|
|
|
|
42.5
|
|
|
|
191.9
|
|
|
|
42.5
|
|
Interest expense (including related amortization)
|
|
|
608.3
|
|
|
|
687.3
|
|
|
|
741.9
|
|
|
|
157.9
|
|
|
|
183.8
|
|
|
|
741.9
|
|
|
|
183.8
|
|
Provision for income taxes
|
|
|
31.0
|
|
|
|
25.3
|
|
|
|
26.1
|
|
|
|
8.7
|
|
|
|
7.1
|
|
|
|
26.1
|
|
|
|
7.1
|
|
Depreciation, amortization and accretion in costs and expenses
|
|
|
739.9
|
|
|
|
830.0
|
|
|
|
974.5
|
|
|
|
218.7
|
|
|
|
238.7
|
|
|
|
974.5
|
|
|
|
238.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
2,615.3
|
|
|
$
|
2,759.9
|
|
|
$
|
3,256.1
|
|
|
$
|
802.5
|
|
|
$
|
890.4
|
|
|
$
|
3,256.1
|
|
|
$
|
890.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to non-GAAP Adjusted EBITDA to derive GAAP
net cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(608.3
|
)
|
|
|
(687.3
|
)
|
|
|
(741.9
|
)
|
|
|
(157.9
|
)
|
|
|
(183.8
|
)
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(26.1
|
)
|
|
|
(8.7
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
Operating lease expenses paid by EPCO
|
|
|
2.0
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Gain from asset sales and related transactions
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(46.7
|
)
|
|
|
(7.5
|
)
|
|
|
(18.4
|
)
|
|
|
|
|
|
|
|
|
Loss on forfeiture of Texas Offshore Port System
|
|
|
|
|
|
|
68.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous non-cash and other amounts to reconcile Adjusted
EBITDA and net cash flows provided by operating activities
|
|
|
7.0
|
|
|
|
43.8
|
|
|
|
48.3
|
|
|
|
(5.6
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
Net effect of changes in operating accounts
|
|
|
(414.6
|
)
|
|
|
250.1
|
|
|
|
(190.4
|
)
|
|
|
73.4
|
|
|
|
120.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,566.4
|
|
|
$
|
2,410.3
|
|
|
$
|
2,300.0
|
|
|
$
|
696.4
|
|
|
$
|
802.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
COMPARATIVE
PER UNIT INFORMATION
The following table sets forth (i) historical per unit
information of Enterprise, (ii) the unaudited pro forma per
unit information of Enterprise after giving pro forma effect to
the proposed merger and the transactions contemplated thereby,
including Enterprises issuance of 1.01 Enterprise common
units for each outstanding Duncan common unit (other than Duncan
common units owned by GTM), and (iii) the historical and
equivalent pro forma per unit information for Duncan.
You should read this information in conjunction with
(i) the summary historical financial information included
elsewhere in this proxy statement/prospectus, (ii) the
historical consolidated financial statements of Duncan and
Enterprise and related notes that are incorporated by reference
in this proxy statement/prospectus and (iii) the
Unaudited Pro Forma Condensed Consolidated Financial
Statements and related notes included elsewhere in this
proxy statement/prospectus. The unaudited pro forma per unit
information does not purport to represent what the actual
results of operations of Duncan and Enterprise would have been
had the proposed merger been completed in another period or to
project Duncans and Enterprises results of
operations that may be achieved if the proposed merger is
completed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
Enterprise
|
|
|
Duncan
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
Equivalent
|
|
|
|
Historical
|
|
|
Pro Forma(1)
|
|
|
Historical
|
|
|
Pro Forma(2)
|
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.17
|
|
|
$
|
1.67
|
|
|
$
|
1.55
|
|
|
$
|
1.68
|
|
Diluted
|
|
$
|
1.15
|
|
|
$
|
1.59
|
|
|
$
|
1.55
|
|
|
$
|
1.61
|
|
Cash distributions declared per unit(3)
|
|
$
|
2.3150
|
|
|
$
|
2.3150
|
|
|
$
|
1.8050
|
|
|
$
|
2.3382
|
|
Book value per common unit
|
|
$
|
13.41
|
|
|
$
|
N/A
|
|
|
$
|
13.18
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
Enterprise
|
|
|
Duncan
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
Equivalent
|
|
|
|
Historical
|
|
|
Pro Forma(1)
|
|
|
Historical
|
|
|
Pro Forma(2)
|
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.52
|
|
|
$
|
0.51
|
|
|
$
|
0.33
|
|
|
$
|
0.52
|
|
Diluted
|
|
$
|
0.49
|
|
|
$
|
0.49
|
|
|
$
|
0.33
|
|
|
$
|
0.49
|
|
Cash distributions declared per unit(3)
|
|
$
|
0.5975
|
|
|
$
|
0.5975
|
|
|
$
|
0.4575
|
|
|
$
|
0.6035
|
|
Book value per common unit
|
|
$
|
13.27
|
|
|
$
|
13.48
|
|
|
$
|
13.07
|
|
|
$
|
13.62
|
|
|
|
|
(1) |
|
Enterprises pro forma information includes the effect of
the merger on the basis described in the notes to the
Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this proxy
statement/prospectus. |
|
(2) |
|
Duncans equivalent pro forma earnings, book value and cash
distribution amounts have been calculated by multiplying
Enterprises pro forma per unit amounts by the 1.01x
exchange ratio. |
|
(3) |
|
With respect to Enterprise, represents cash distributions per
common unit declared and paid with respect to the period by
Enterprise. |
29
MARKET
PRICES AND DISTRIBUTION INFORMATION
Enterprise common units are traded on the NYSE under the ticker
symbol EPD, and the Duncan common units are traded
on the NYSE under the ticker symbol DEP. The
following table sets forth, for the periods indicated, the range
of high and low sales prices per unit for Enterprise common
units and Duncan common units, on the NYSE composite tape, as
well as information concerning quarterly cash distributions
declared and paid on those units. The sales prices are as
reported in published financial sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Common Units
|
|
|
Duncan Common Units
|
|
|
|
High
|
|
|
Low
|
|
|
Distributions(1)
|
|
|
High
|
|
|
Low
|
|
|
Distributions(1)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
32.63
|
|
|
$
|
26.75
|
|
|
$
|
0.5075
|
|
|
$
|
23.65
|
|
|
$
|
18.29
|
|
|
$
|
0.4100
|
|
Second Quarter
|
|
$
|
32.64
|
|
|
$
|
29.04
|
|
|
$
|
0.5150
|
|
|
$
|
21.29
|
|
|
$
|
18.04
|
|
|
$
|
0.4200
|
|
Third Quarter
|
|
$
|
30.07
|
|
|
$
|
22.58
|
|
|
$
|
0.5225
|
|
|
$
|
18.96
|
|
|
$
|
14.91
|
|
|
$
|
0.4200
|
|
Fourth Quarter
|
|
$
|
26.30
|
|
|
$
|
16.00
|
|
|
$
|
0.5300
|
|
|
$
|
16.99
|
|
|
$
|
9.68
|
|
|
$
|
0.4275
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.20
|
|
|
$
|
17.71
|
|
|
$
|
0.5375
|
|
|
$
|
18.07
|
|
|
$
|
13.55
|
|
|
$
|
0.4300
|
|
Second Quarter
|
|
$
|
26.55
|
|
|
$
|
21.10
|
|
|
$
|
0.5450
|
|
|
$
|
20.15
|
|
|
$
|
14.75
|
|
|
$
|
0.4350
|
|
Third Quarter
|
|
$
|
29.45
|
|
|
$
|
24.50
|
|
|
$
|
0.5525
|
|
|
$
|
20.00
|
|
|
$
|
15.91
|
|
|
$
|
0.4400
|
|
Fourth Quarter
|
|
$
|
32.24
|
|
|
$
|
27.25
|
|
|
$
|
0.5600
|
|
|
$
|
24.19
|
|
|
$
|
19.19
|
|
|
$
|
0.4450
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
34.69
|
|
|
$
|
29.44
|
|
|
$
|
0.5675
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|
|
$
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27.25
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|
|
$
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22.08
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|
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$
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0.4475
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|
Second Quarter
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$
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36.73
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|
$
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29.05
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|
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$
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0.5750
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$
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28.56
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$
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22.27
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$
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0.4500
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Third Quarter
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$
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39.69
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$
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34.21
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$
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0.5825
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$
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31.20
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$
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26.04
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$
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0.4525
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Fourth Quarter
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$
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44.32
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$
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39.26
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$
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0.5900
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$
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33.39
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$
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30.50
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$
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0.4550
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2011
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First Quarter
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$
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44.35
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$
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36.00
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$
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0.5975
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$
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41.00
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$
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30.94
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$
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0.4575
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Second Quarter (through May 17, 2011)
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$
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43.95
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$
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38.67
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$
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(2)
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$
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43.41
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$
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38.77
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$
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(2)
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(1) |
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Represents cash distributions per Enterprise common unit or
Duncan common unit declared with respect to the quarter
presented and paid in the following quarter. |
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(2) |
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Cash distributions with respect to the second quarter of 2011
have not been declared or paid. |
The last reported sale price of Duncan common units on the NYSE
on February 22, 2011, the last trading day before
Enterprise announced its initial proposal to acquire all of the
Duncan common units owned by the public, was $32.56. The last
reported sale price of Enterprise common units on the NYSE on
February 22, 2011, the last trading day before Enterprise
announced its initial proposal to acquire all of the Duncan
common units owned by the public, was $43.70. The last reported
sale price of Duncan common units on the NYSE on May 17,
2011, the last trading day before the filing of the registration
statement of which this proxy statement/prospectus is a part,
was $39.55. The last reported sale price of Enterprise common
units on the NYSE on May 17, 2011, the last trading day
before the filing of the registration statement of which this
proxy statement/prospectus is a part, was $39.60.
30
As
of ,
2011, Enterprise
had
common units and 4,520,431 Class B units outstanding held
by
approximately
holders of record. Class B units generally have the same
rights and privileges as Enterprise common units, except that
they are not entitled to receive quarterly cash distributions
until the fourth quarter of 2013. Enterprises partnership
agreement requires it to distribute all of its available
cash, as defined in its partnership agreement, within
45 days after the end of each quarter. The payment of
quarterly cash distributions by Enterprise in the future,
therefore, will depend on the amount of its available
cash at the end of each quarter.
As of the record date for the special meeting, Duncan
had
outstanding common units held by
approximately
holders of record. Duncans partnership agreement requires
it to distribute all of its available cash, as
defined in its partnership agreement, within 45 days after
the end of each quarter. The payment of quarterly cash
distributions by Duncan in the future will depend on the amount
of its available cash at the end of each quarter.
31
RISK
FACTORS
You should consider carefully the following risk factors,
together with all of the other information included in, or
incorporated by reference into, this proxy statement/prospectus
before deciding how to vote. In particular, please read
Part I, Item 1A, Risk Factors, in the
Annual Reports on
Form 10-K
for the year ended December 31, 2010 for each of Enterprise
and Duncan incorporated by reference herein. This document also
contains forward-looking statements that involve risks and
uncertainties. Please read Information Regarding
Forward-Looking Statements.
Risks
Related to the Merger
Duncans
partnership agreement limits the fiduciary duties of Duncan GP
to common unitholders and restricts the remedies available to
common unitholders for actions taken by Duncan GP that might
otherwise constitute breaches of fiduciary duty.
The Duncan partnership agreement contains provisions that modify
and limit Duncan GPs fiduciary duties to Duncan
unitholders. The Duncan partnership agreement also restricts the
remedies available to Duncan unitholders for actions taken that,
without those limitations, might constitute breaches of
fiduciary duty.
Neither Duncan GP nor its affiliates (including directors of
Duncan GP) will be in breach of their obligations under the
Duncan partnership agreement or its duties to Duncan or the
Duncan unitholders if the resolution of the conflict is or is
deemed to be fair and reasonable to Duncan. Any resolution will
be deemed fair and reasonable if it is:
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approved by a majority of the members of the Duncan ACG
Committee; or
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on terms no less favorable to Duncan than those generally being
provided to or available from unrelated third parties.
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In light of conflicts of interest in connection with the merger
between Enterprise, Duncan GP and its controlling affiliates, on
the one hand, and Duncan and the Duncan unaffiliated
unitholders, on the other hand, the Duncan Board delegated
authority to the Duncan ACG Committee to consider, analyze,
review, evaluate and determine whether to pursue the merger and
related matters and if a determination to pursue a merger and
related matters were made, to negotiate the terms and conditions
of a merger and related matters. Approval by a majority of the
members of the Duncan ACG Committee is referred to as
Special Approval in Duncans partnership
agreement. Under the Duncan partnership agreement:
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any conflict of interest and any resolution thereof is permitted
and deemed approved by all parties and will not constitute a
breach of the partnership agreement of Duncan, or of any duty
expressed or implied by law or equity, if approved by
Special Approval; and
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the actions taken by the Duncan ACG Committee in granting
Special Approval, in the absence of bad faith by the
Duncan ACG Committee, are conclusive and binding on all persons
(including all partners) and do not constitute a breach of the
partnership agreement or any standard of care or duty imposed by
law.
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The
directors and executive officers of Duncan GP may have interests
relating to the merger that differ in certain respects from the
interests of the Duncan unaffiliated unitholders.
In considering the recommendations of the Duncan ACG Committee
and the Duncan Board to approve the merger agreement and the
merger, you should consider that some of the directors and
executive officers of Duncan GP may have interests that differ
from, or are in addition to, interests of Duncan unitholders
generally, including:
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All of the directors and executive officers of Duncan GP will
receive continued indemnification for their actions as directors
and executive officers.
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All of the directors of Duncan GP directly or beneficially own
Enterprise common units.
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Some of Duncan GPs directors and all of Duncan GPs
executive officers also serve as directors or executive officers
of Enterprise GP and may have certain duties to the limited
partners of Enterprise.
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32
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Pursuant to the voting agreement, Enterprise has agreed, and it
has caused its indirect wholly owned subsidiary GTM to agree, to
vote any Duncan common units owned by them or their subsidiaries
in favor of adoption of the merger agreement and the merger,
including the 33,783,587 Duncan common units currently directly
owned by GTM (representing approximately 58.5% of the
outstanding Duncan common units), at any meeting of Duncan
unitholders.
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Members of senior management who prepared projections with
respect to Enterprises and Duncans future financial
and operating performance on a stand-alone basis and on a
combined basis (i) are officers of each of Duncan GP and
Enterprise GP, (ii) may hold the same or similar positions
in each entity and (iii) own both Duncan common units and
Enterprise common units.
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The
exchange ratio is fixed and the market value of the merger
consideration to Duncan unitholders on the closing date will be
equal to 1.01 times the price of Enterprise common units at the
closing of the merger, which market value will decrease if the
market value of Enterprises common units
decreases.
The market value of the consideration that Duncan unitholders
will receive in the merger will depend on the trading price of
Enterprises common units at the closing of the merger. The
1.01x exchange ratio that determines the number of Enterprise
common units that Duncan unitholders will receive in the merger
is fixed. This means that there is no price
protection mechanism contained in the merger agreement
that would adjust the number of Enterprise common units that
Duncan unitholders will receive based on any decreases in the
trading price of Enterprise common units. If Enterprises
common unit price at the closing of the merger is less than
Enterprises common unit price on the date that the merger
agreement was signed, then the market value of the consideration
received by Duncan unitholders will be less than contemplated at
the time the merger agreement was signed.
Enterprise common unit price changes may result from a variety
of factors, including general market and economic conditions,
changes in Enterprises business, operations and prospects,
and regulatory considerations. Many of these factors are beyond
Enterprises and Duncans control. For historical and
current market prices of Enterprise common units and Duncan
common units, please read the Market Prices and
Distribution Information section of this proxy
statement/prospectus.
The
transactions contemplated by the merger agreement may not be
consummated even if Duncan unitholders approve the merger
agreement and the merger.
The merger agreement contains conditions that, if not satisfied
or waived, would result in the merger not occurring, even though
Duncan unitholders may have voted in favor of the merger
agreement. In addition, Duncan and Enterprise can agree not to
consummate the merger even if Duncan unitholders approve the
merger agreement and the merger and the conditions to the
closing of the merger are otherwise satisfied.
Financial
projections by Enterprise and Duncan may not prove
accurate.
In performing its financial analyses and rendering its opinion
regarding the fairness from a financial point of view of the
exchange ratio, the financial advisor to the Duncan ACG
Committee reviewed and relied on, among other things, internal
financial analyses and forecasts for Duncan and Enterprise
prepared by their respective managements. These financial
projections include assumptions regarding future operating cash
flows, expenditures, growth and distributable income of
Enterprise and Duncan. These financial projections were not
provided with a view to public disclosure, are subject to
significant economic, competitive, industry and other
uncertainties and may not be achieved in full, at all or within
projected timeframes. In addition, the failure of
Enterprises or Duncans businesses to achieve
projected results, including projected cash flows or
distributable cash flows, could have a material adverse effect
on Enterprises common unit price, financial position and
ability to maintain or increase its distributions following the
merger.
While
the merger agreement is in effect, both Duncan and Enterprise
may lose opportunities to enter into different business
combination transactions with other parties on more favorable
terms, and may be limited in their ability to pursue other
attractive business opportunities.
While the merger agreement is in effect, Duncan is prohibited
from initiating, soliciting, knowingly encouraging or
facilitating any inquiries or the making or submission of any
proposal that constitutes or may
33
reasonably be expected to lead to a proposal to acquire Duncan,
or offering to enter into certain transactions such as a merger,
sale of assets or other business combination, with any other
person, subject to limited exceptions. As a result of these
provisions in the merger agreement, Duncan may lose
opportunities to enter into more favorable transactions. While
the merger agreement is in effect, Enterprise is prohibited from
merging, consolidating or entering into any other business
combination with any other entity or making any acquisition or
disposition that would likely have a material adverse effect, as
defined in the merger agreement.
Both Enterprise and Duncan have also agreed to refrain from
taking certain actions with respect to their businesses and
financial affairs pending completion of the merger or
termination of the merger agreement. These restrictions and the
non-solicitation provisions (described in more detail below in
The Merger Agreement) could be in effect for an
extended period of time if completion of the merger is delayed
and the parties agree to extend the October 31, 2011
outside termination date.
In addition to the economic costs associated with pursuing a
merger, each of Enterprise GPs and Duncan GPs
management is devoting substantial time and other resources to
the proposed transaction and related matters, which could limit
Enterprises and Duncans ability to pursue other
attractive business opportunities, including potential joint
ventures, stand-alone projects and other transactions. If either
Enterprise or Duncan is unable to pursue such other attractive
business opportunities, its growth prospects and the long-term
strategic position of its business and the combined business
could be adversely affected.
Risks
Related to Enterprises Business After the Merger
Enterprises
cash distributions may vary based on its operating performance
and level of cash reserves.
Distributions will be dependent on the amount of cash Enterprise
generates and may fluctuate based on its performance. Neither
Enterprise nor Duncan can guarantee that after giving effect to
the merger Enterprise will continue to be able to pay
distributions at the current level each quarter or make any
increase in the amount of distributions in the future. The
actual amount of cash that is available to be distributed each
quarter will depend upon numerous factors, some of which will be
beyond Enterprises control and the control of its general
partner. These factors include but are not limited to the
following:
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the volume of products that Enterprise handles and the prices it
receives for its products and services;
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the level of Enterprises operating costs;
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the level of competition from third parties;
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prevailing economic conditions, including the price of and
demand for NGLs, crude oil, natural gas and other products
Enterprise will process, transport, store and market;
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the level of capital expenditures Enterprise will make and the
availability of, and timing of completion of, organic growth
projects;
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the restrictions contained in Enterprises debt agreements
and debt service requirements;
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fluctuations in Enterprises working capital needs;
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the weather in Enterprises operating areas;
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the availability and cost of acquisitions, if any;
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regulatory changes; and
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the amount, if any, of cash reserves established by Enterprise
GP in its discretion.
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In addition, Enterprises ability to pay the minimum
quarterly distribution each quarter will depend primarily on its
cash flow, including cash flow from financial reserves and
working capital borrowings, and not solely on profitability,
which is affected by non-cash items. As a result, Enterprise may
make cash distributions during periods when it records losses,
and Enterprise may not make distributions during periods when it
records net income.
34
Risks
Related to Enterprises Common Units and Risks Resulting
from its Partnership Structure
The
general partner of Enterprise and its affiliates have limited
fiduciary responsibilities to, and have conflicts of interest
with respect to, Enterprise, which may permit the general
partner of Enterprise to favor its own interests to your
detriment.
The directors and officers of the general partner of Enterprise
and its affiliates have duties to manage the general partner of
Enterprise in a manner that is beneficial to its member. At the
same time, the general partner of Enterprise has duties to
manage Enterprise in a manner that is beneficial to Enterprise.
Therefore, the duties of the general partner to Enterprise may
conflict with the duties of its officers and directors to its
member. Such conflicts may include, among others, the following:
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neither Enterprises partnership agreement nor any other
agreement requires the general partner of Enterprise or EPCO to
pursue a business strategy that favors Enterprise;
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decisions of the general partner of Enterprise regarding the
amount and timing of asset purchases and sales, cash
expenditures, borrowings, issuances of additional units and
reserves in any quarter may affect the level of cash available
to pay quarterly distributions to unitholders and the general
partner of Enterprise;
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under Enterprises partnership agreement, the general
partner of Enterprise determines which costs incurred by it and
its affiliates are reimbursable by Enterprise;
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the general partner of Enterprise is allowed to resolve any
conflicts of interest involving Enterprise and the general
partner of Enterprise and its affiliates;
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the general partner of Enterprise is allowed to take into
account the interests of parties other than Enterprise, such as
EPCO, in resolving conflicts of interest, which has the effect
of limiting its fiduciary duty to Enterprises unitholders;
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any resolution of a conflict of interest by the general partner
of Enterprise not made in bad faith and that is fair and
reasonable to Enterprise is binding on the partners and will not
be a breach of Enterprises partnership agreement;
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affiliates of the general partner of Enterprise may compete with
Enterprise in certain circumstances;
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the general partner of Enterprise has limited its liability and
reduced its fiduciary duties and has also restricted the
remedies available to Enterprises unitholders for actions
that might, without the limitations, constitute breaches of
fiduciary duty. As a result of acquiring Enterprise common
units, you are deemed to consent to some actions and conflicts
of interest that might otherwise constitute a breach of
fiduciary or other duties under applicable law;
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Enterprise does not have any employees and relies solely on
employees of EPCO and its affiliates;
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In some instances, the general partner of Enterprise may cause
Enterprise to borrow funds in order to permit the payment of
distributions;
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Enterprises partnership agreement does not restrict the
general partner of Enterprise from causing Enterprise to pay it
or its affiliates for any services rendered to Enterprise or
entering into additional contractual arrangements with any of
these entities on Enterprises behalf;
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the general partner of Enterprise intends to limit its liability
regarding Enterprises contractual and other obligations
and, in some circumstances, may be entitled to be indemnified by
Enterprise;
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the general partner of Enterprise controls the enforcement of
obligations it owes to Enterprise and other affiliates of EPCO;
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the general partner of Enterprise decides whether to retain
separate counsel, accountants or others to perform services for
Enterprise; and
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Enterprise has significant business relationships with entities
controlled by the DDLLC voting trustees and the EPCO voting
trustees, including EPCO. For detailed information on these
relationships and related transactions with these entities,
please see Item 13 (Certain Relationships and Related
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35
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Transactions, and Director Independence) of
Enterprises Annual Report on
Form 10-K
for the year ended December 31, 2010 and Note 12
(Related Party Transactions) to the Unaudited
Condensed Consolidated Financial Statements included in
Item 1 of Enterprises Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2011.
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The
general partner of Enterprise has a limited call right that may
require common unitholders to sell their common units at an
undesirable time or price.
If at any time the general partner of Enterprise and its
affiliates own 85% or more of Enterprise common units then
outstanding, the general partner of Enterprise will have the
right, but not the obligation, which it may assign to any of its
affiliates or to Enterprise, to acquire all, but not less than
all, of the remaining Enterprise common units held by
unaffiliated persons at a price not less than then current
market price. As a result, common unitholders may be required to
sell their Enterprise common units at an undesirable time or
price and may therefore not receive any return on their
investment. They may also incur a tax liability upon a sale of
their units.
Tax Risks
Related to the Merger
In addition to reading the following risk factors, you are urged
to read Material U.S. Federal Income Tax Consequences
of the Merger beginning on page 124 and
U.S. Federal Income Taxation of Ownership of
Enterprise Common Units beginning on page 128 for a
more complete discussion of the expected material
U.S. federal income tax consequences of the merger and
owning and disposing of Enterprise common units received in the
merger.
No
ruling has been obtained with respect to the U.S. federal income
tax consequences of the merger.
No ruling has been or will be requested from the IRS with
respect to the U.S. federal income tax consequences of the
merger. Instead, Enterprise and Duncan are relying on the
opinions of their respective counsel as to the U.S. federal
income tax consequences of the merger, and counsels
conclusions may not be sustained if challenged by the IRS.
The
intended U.S. federal income tax consequences of the merger are
dependent upon Enterprise being treated as a partnership for
U.S. federal income tax purposes.
The treatment of the merger as nontaxable to Duncan unitholders
is dependent upon Enterprise being treated as a partnership for
U.S. federal income tax purposes. If Enterprise were
treated as a corporation for U.S. federal income tax
purposes, the consequences of the merger would be materially
different and the merger would likely be a fully taxable
transaction to a Duncan unitholder.
Duncan
unitholders could recognize taxable income or gain for U.S.
federal income tax purposes as a result of the
merger.
As a result of the merger, Duncan unitholders who receive
Enterprise common units will become limited partners of
Enterprise and will be allocated a share of Enterprises
nonrecourse liabilities. Each Duncan unitholder will be treated
as receiving a deemed cash distribution equal to the excess, if
any, of such common unitholders share of nonrecourse
liabilities of Duncan immediately before the merger over such
common unitholders share of nonrecourse liabilities of
Enterprise immediately following the merger. If the amount of
any deemed cash distribution received by a Duncan unitholder
exceeds the common unitholders basis in his common units,
such common unitholder will recognize gain in an amount equal to
such excess. Enterprise and Duncan do not expect any Duncan
unitholders to recognize gain in this manner.
To the extent Duncan unitholders receive cash in lieu of
fractional Enterprise common units in the merger, such
unitholders will recognize gain or loss equal to the difference
between the cash received and the common unitholders
adjusted tax basis allocated to such fractional Enterprise
common units.
36
THE
SPECIAL UNITHOLDER MEETING
Time, Place and Date. The special meeting of
Duncan unitholders will be held
on ,
2011 at a.m., local time at 1100 Louisiana
Street, 10th Floor, Houston, Texas 77002. The meeting may
be adjourned or postponed by Duncan GP to another date or place
for proper purposes, including for the purpose of soliciting
additional proxies.
Purposes. The purposes of the special meeting
are:
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to consider and vote on the approval of the merger agreement and
the merger; and
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to transact such other business as may properly be presented at
the meeting or any adjournment or postponement of the meeting.
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At this time, Duncan knows of no other matter that will be
presented for consideration at the meeting.
Quorum. A quorum requires the presence, in
person or by proxy, of holders of a majority of the outstanding
Duncan common units. Duncan common units will be counted as
present at the special meeting if the holder is present in
person at the meeting or has submitted a properly executed proxy
card or properly submits a proxy by telephone or Internet.
Proxies received but marked as abstentions will be counted as
units that are present and entitled to vote for purposes of
determining the presence of a quorum. If an executed proxy is
returned by a broker or other nominee holding units in
street name indicating that the broker does not have
discretionary authority as to certain units to vote on the
proposals, such units will be considered present at the meeting
for purposes of determining the presence of a quorum but will
not be considered entitled to vote.
Record Date. The Duncan unitholder record date
for the special meeting is the close of business
on ,
2011.
Units Entitled to Vote. Duncan unitholders may
vote at the special meeting if they owned Duncan common units at
the close of business on the record date. Duncan unitholders may
cast one vote for each Duncan common unit owned on the record
date.
Votes Required. Under the merger agreement,
the number of votes actually cast in favor of the proposal by
the Duncan unaffiliated unitholders must exceed the number of
votes actually cast against the proposal by the Duncan
unaffiliated unitholders in order for the proposal to be
approved. To our knowledge, as of the record date, affiliates of
Enterprise including GTM collectively
owned
or approximately 59.9% of the outstanding Duncan common units
and Duncan unaffiliated unitholders owned approximately 40.1% of
the outstanding Duncan common units.
In addition, pursuant to the Duncan partnership agreement, the
merger agreement and the merger must be approved by the
affirmative vote of the Duncan unitholders holding a majority of
the outstanding Duncan common units. Enterprise and GTM have
agreed to vote any Duncan common units owned by them or their
subsidiaries in favor of adoption of the merger agreement and
the merger, including the 33,783,587 Duncan common units
currently directly owned by GTM (representing approximately
58.5% of the outstanding Duncan common units), at any meeting of
Duncan unitholders, which is sufficient to approve the merger
agreement and the merger under the Duncan partnership agreement.
Common Units Outstanding. As of the record
date, there were
Duncan common units outstanding.
Voting
Procedures
Voting by Duncan Unitholders. Duncan
unitholders who hold units in their own name may vote using any
of the following methods:
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call the toll-free telephone number listed on your proxy card
and follow the recorded instructions;
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go to the internet website listed on your proxy card and follow
the instructions provided;
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37
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complete, sign and mail your proxy card in the postage-paid
envelope; or
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attend the meeting and vote in person.
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If you have timely and properly submitted your proxy, clearly
indicated your vote and have not revoked your proxy, your units
will be voted as indicated. If you have timely and properly
submitted your proxy but have not clearly indicated your vote,
your units will be voted FOR approval of the merger agreement
and the merger.
If any other matters are properly presented for consideration at
the meeting or any adjournment or postponement thereof, the
persons named in your proxy will have the discretion to vote on
these matters. Duncans partnership agreement provides that
Duncan GP may adjourn the meeting for proper purposes and that,
in the absence of a quorum, any meeting of Duncan limited
partners may be adjourned from time to time by the affirmative
vote of a majority of the outstanding Duncan common units
represented either in person or by proxy.
Revocation. If you hold your Duncan common
units in your own name, you may revoke your proxy at any time
prior to its exercise by:
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giving written notice of revocation to the Secretary of Duncan
GP at or before the special meeting;
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appearing and voting in person at the special meeting; or
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properly completing and executing a later dated proxy and
delivering it to the Secretary of Duncan GP at or before the
special meeting.
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Your presence without voting at the meeting will not
automatically revoke your proxy, and any revocation during the
meeting will not affect votes previously taken.
Validity. The inspectors of election will
determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of proxies. Their
determination will be final and binding. The Duncan Board has
the right to waive any irregularities or conditions as to the
manner of voting. Duncan may accept your proxy by any form of
communication permitted by Delaware law so long as Duncan is
reasonably assured that the communication is authorized by you.
Solicitation of Proxies. The accompanying
proxy is being solicited by Duncan GP on behalf of the Duncan
Board. The expenses of preparing, printing and mailing the proxy
and materials used in the solicitation will be borne by Duncan.
Georgeson Inc. has been retained by Duncan to aid in the
solicitation of proxies for an initial fee of
$
and the reimbursement of
out-of-pocket
expenses. In addition to the mailing of this proxy
statement/prospectus, proxies may also be solicited from Duncan
unitholders by personal interview, telephone, fax or other
electronic means by directors and officers of Duncan GP and
employees of EPCO and its affiliates who provide services to
Duncan, who will not receive additional compensation for
performing that service. Arrangements also will be made with
brokerage houses and other custodians, nominees and fiduciaries
for the forwarding of proxy materials to the beneficial owners
of Duncan common units held by those persons, and Duncan will
reimburse them for any reasonable expenses that they incur.
Units Held in Street Name. If you hold Duncan
common units in the name of a bank, broker or other nominee, you
should follow the instructions provided by your bank, broker or
nominee when voting your Duncan common units or when granting or
revoking a proxy.
Absent specific instructions from you, your broker is not
empowered to vote your units with respect to the approval of the
merger agreement and the merger. If you do not provide voting
instructions, your units will not be voted on any proposal on
which your broker, bank or other nominee does not have
discretionary authority. This is often called a broker
non-vote.
The only proposal for consideration at the special meeting,
however, is a non-discretionary matter for which brokers, banks
and other nominees do not have discretionary authority to vote.
Failures to vote, abstentions and broker non-votes will result
in the absence of a vote for or against the merger for purposes
of the vote by the Duncan unaffiliated unitholders required
under the merger agreement. Failures to vote, abstentions and
broker non-votes will have the same effect as a vote against
approval of the merger proposal for purposes of the vote
required under the Duncan partnership agreement.
38
THE
MERGER
Background
of the Merger
Duncan was formed in 2006 to acquire, own and operate a
portfolio of midstream assets (The DEP I Midstream
Business) contributed by Enterprise and to support the
growth objectives of Enterprise. In connection with its initial
public offering in 2007, Duncan noted to investors that it
believed its relationship with Enterprise would provide Duncan
with access to an experienced management team and commercial
relationships, and may provide Duncan access to attractive
acquisition opportunities from Enterprise, while also cautioning
that Enterprise would not be restricted from competing with
Duncan and may generally acquire, construct or dispose of
midstream or other assets in the future without any obligation
to offer to Duncan the opportunity to purchase or construct
those assets or participate in such activities. At the time of
Duncans initial public offering, Duncan had a lower
long-term equity cost of capital due to Enterprises
capital structure, including incentive distributions
(IDRs) paid to its general partner while
Duncans did not. Enterprises IDRs entitled the
general partner of Enterprise to increasing percentages of cash
distributed by Enterprise in excess of certain distribution
levels per Enterprise common unit.
In December 2008, Enterprise contributed to Duncan controlling
equity interests in other entities owning additional midstream
assets (the DEP II Midstream Businesses), while also
retaining equity interests representing a minority voting or
limited partner interest in each of these entities and a
substantial portion of rights to distributions by the entities
above a stated priority return to Duncan. The DEP II Midstream
Businesses significantly increased both the asset base and cash
flows of Duncan. In Duncans June 2009 public equity
offering, Duncan noted that one of its principal advantages was
its relationship with Enterprise, and that it believed its
relationship with Enterprise provided Duncan with a benefit in
the identification and execution of potential future
acquisitions that were not otherwise taken by Enterprise or its
affiliates in accordance with their business opportunity
arrangements.
In connection with the November 2010 closing of the Holdings
Merger, the IDRs of Enterprise were eliminated. The elimination
of the Enterprise IDRs substantially reduced Enterprises
long-term equity cost of capital and resulted in
Enterprises long-term equity cost of capital becoming the
same as or lower than the long-term equity cost of capital for
Duncan. This change eliminated one of the principal reasons
discussed above as to why drop down transactions and third party
acquisitions were expected to be made available to Duncan.
Based on these changes in circumstances, as well as the other
reasons described below in The Merger
Enterprises Reasons for the Merger, Enterprise
management decided to analyze the potential effects of a
combination of Enterprise and Duncan.
On January 17, 2011, Michael A. Creel, the CEO of
Enterprise GP, discussed with Stephanie C. Hildebrandt, in her
capacity as the general counsel of Enterprise GP, and certain
other officers of Enterprise GP
and/or EPCO,
without discussing any timeline or terms, the process if
Enterprise were to consider and evaluate a transaction with
Duncan. Later that day, Mr. Creel requested that Christian
M. Nelly, acting in his capacity as the Director
Finance of Enterprise GP, prepare financial analyses regarding a
potential combination of Enterprise and Duncan.
On January 31, 2011, Mr. Creel held a brief call with
Charles E. McMahen, the Chairman of the Audit and Conflicts
Committee (formerly the Audit, Conflicts and Governance
Committee) of Enterprise GP (the Enterprise Audit
Committee), during which Mr. Creel indicated that
Enterprise management was looking at the economics of a
potential combination of Enterprise and Duncan.
On February 8, 2011, Mr. Creel contacted Barclays
Capital Inc. (Barclays Capital) and requested that
Barclays Capital commence an initial financial analysis of a
potential combination of Enterprise and Duncan.
On February 15, 2011, after a regularly scheduled meeting
of the Enterprise Audit Committee, Mr. Creel discussed the
possibility of a potential transaction with the full Enterprise
Audit Committee, consisting of Messrs. McMahen, E. William
Barnett and Rex C. Ross.
39
On February 18, 2011, Messrs. Creel and Nelly met with
representatives of Barclays Capital to review the initial
financial analysis prepared by Barclays Capital, including a
discussion of potential premiums and terms.
On February 20, 2011, Ms. Hildebrandt contacted
Andrews Kurth regarding a potential combination of Enterprise
and Duncan, the preparation of a draft proposal letter and
related preliminary discussion materials prepared by Barclays
Capital.
On February 21, 2011, Mr. Creel, Ms. Hildebrandt
and Mr. Nelly, along with a representative of Andrews Kurth
and representatives of Barclays Capital, held conference calls
and exchanged correspondence regarding a draft proposal letter
from Enterprise to Duncan. Ms. Hildebrandt and counsel at
Andrews Kurth also held a conference call with representatives
of Morris, Nichols, Arsht & Tunnell, Delaware counsel
to Enterprise.
On February 22, 2011, Mr. Creel met with Randa Duncan
Williams, Richard H. Bachmann and Dr. Ralph S. Cunningham,
who are directors of Enterprise GP and also the three voting
trustees of the EPCO Voting Trust, to briefly review the
proposed transaction. Later on February 22, 2011, after a
regularly scheduled meeting of the Enterprise Board,
Mr. Creel met at Enterprises offices with
Ms. Hildebrandt, Mr. Nelly, a representative of
Andrews Kurth, and representatives of Barclays Capital, and the
other directors of Enterprise GP (Messrs. McMahen, Barnett
and Ross, Charles Rampacek and A. James Teague, but excluding
Edwin E. Smith, who was informed of the potential transaction
after the meeting, and Ms. Williams, Mr. Bachmann and
Dr. Cunningham, who had been previously informed) to review
the Barclays draft presentation and a proposal letter to Duncan,
including the proposed premium and terms in the letter. After
that meeting, Enterprise management and counsel finalized the
proposal letter, which set forth a proposal to acquire all of
the outstanding Duncan common units held by unitholders other
than GTM in exchange for 0.9545 Enterprise common units for each
Duncan common unit (the proposal letter). The
proposal letter also stated that Enterprise would not entertain
an offer by third parties to acquire Duncan. Following the
completion of a regularly scheduled meeting of the Duncan Board
later on February 22, 2011, Mr. Creel,
Ms. Hildebrandt and a representative of Andrews Kurth met
briefly with the Duncan Board, including William A.
Bruckmann, III, Larry J. Casey and Richard S. Snell, the
three members of the Duncan ACG Committee, W. Randall Fowler,
who is also the President and CEO of Duncan GP, and Bryan F.
Bulawa, who is also the Senior Vice President, Treasurer and
Chief Financial Officer of Duncan GP, and presented the proposal
letter to Mr. Bruckmann as the Duncan ACG Committees
chairman.
After the delivery of the proposal letter on February 22,
2011, Enterprise and Duncan, along with representatives from
Andrews Kurth, prepared a joint press release and related SEC
filings regarding the proposal letter.
On February 23, 2011, prior to the opening of trading on
the NYSE, Enterprise and Duncan issued a joint press release
regarding the proposal letter from Enterprise. Also on
February 23, 2011, the Duncan ACG Committee engaged
Baker & Hostetler LLP (Baker Hostetler) as
its independent legal counsel.
On March 1, 2011, the Duncan ACG Committee and Baker
Hostetler met to discuss the terms and structure of the proposed
transaction, pertinent business and legal considerations, and
candidates to serve as the committees independent
financial advisor and the committees Delaware counsel.
On March 2, 2011, the Duncan ACG Committee and Baker
Hostetler met with three candidates for service as the
committees financial advisor and two candidates for
service as the committees Delaware counsel. The committee
discussed with each financial advisory firm potential conflicts
of interest, its familiarity with Duncans and
Enterprises businesses and current circumstances, its
industry expertise and experience in transactions similar to the
proposed transaction, and the analytical approach it would use
if it were engaged. The Duncan ACG Committee and representatives
of Baker Hostetler met again on March 3, 2011 for the
committees interview of a third candidate for service as
the committees Delaware counsel. The committee discussed
with each Delaware counsel candidate its advisory and litigation
background generally, its experience with Delaware master
limited partnership (MLP) special committee matters,
and certain legal issues that Baker Hostetler had advised might
arise in the course of the committees consideration of the
40
proposed transaction and of Duncans other alternatives.
Following deliberations by the committee, the committee
determined to engage Potter Anderson & Corroon, LLP
(Potter Anderson) as its Delaware counsel.
On March 3, 2011, the Duncan ACG Committee, Baker
Hostetler, Vinson & Elkins as counsel to Duncan, and
Messrs. Fowler and Bulawa in their capacities as executive
officers of Duncan, met to discuss matters pertaining to the
meeting participants respective roles, the availability of
information regarding Duncan and Enterprise, and timing
considerations, all with respect to the committees
analysis of the proposal and related activities.
On March 7, 2011, the Duncan ACG Committee and Baker
Hostetler met to discuss the committees financial advisory
candidates. Following a review of each candidates
strengths and weaknesses, the committee determined to engage
Morgan Stanley & Co. Incorporated (Morgan
Stanley) as the committees financial advisor in
connection with the committees assessment of the proposed
transaction and Duncans other alternatives. The meeting
participants also discussed due diligence and procedural
considerations, including the need for the committee and its
advisors to take the time necessary to understand fully the
financial and other implications of the proposed transaction,
and determined to schedule an organizational meeting for
March 9, 2011.
On March 9, 2011, the Duncan Board delegated formally to
the Duncan ACG Committee, consistent with the Duncan
Boards discussions on February 22, 2011, the power
and authority: to consider, analyze, review, evaluate, and
determine whether to pursue any proposed transaction, on behalf
of the Duncan unaffiliated unitholders and Duncan, and if a
determination to pursue any proposed transaction were made, to
negotiate, in consultation and with the assistance of the Duncan
ACG Committees advisors, the terms and conditions of any
proposed transaction and any related arrangements with
Enterprise; to determine whether any proposed transaction is
fair and reasonable to Duncan and the Duncan unaffiliated
unitholders; to determine whether or not to approve any proposed
transaction; to make a recommendation to the Duncan Board as to
what action, if any, should be taken by the Duncan Board with
respect to any proposed transaction; and to take any further
steps or actions that the Duncan ACG Committee considered
necessary or appropriate in connection with the approval,
consummation or rejection of any proposed transaction.
On March 9, 2011, the Duncan ACG Committee met with Morgan
Stanley, Baker Hostetler and Potter Anderson. The meeting
participants discussed, among other things, Enterprises
proposal, including Enterprise managements observation
that the proposals timing was attributable to the
reduction of Enterprises long-term equity cost of capital
in connection with the recent elimination of the IDRs held by
Enterprises former parent company, the rationale for the
proposal, the issues that the committee and its advisors would
need to consider in evaluating the proposal and Duncans
other alternatives, the financial information currently
available to the committee and its advisors, the availability of
Messrs. Fowler and Bulawa, in their capacities as Duncan
executive officers, as resources to the committee, the expected
increase in Duncans cash flow with the anticipated
September 2011 commencement of Haynesville Extension pipeline
operations, and Duncans long-term plans in the absence of
the proposed transaction. Morgan Stanley described briefly its
plan to perform financial diligence regarding Duncan, Enterprise
and the proposed transaction, and Potter Anderson and Baker
Hostetler briefed the committee on legal matters, including the
recent unitholder putative class actions filed in Delaware and
Texas with respect to the proposed transaction.
During the weeks of March 14 and March 21, 2011, the Duncan
ACG Committees advisors conducted substantial financial
and other due diligence with respect to Duncan and Enterprise,
focusing on, among other things, assets and business operations
owned jointly by Duncan and Enterprise and those owned
separately by Enterprise, and with respect to the proposed
transaction.
On the morning of March 28, 2011, in advance of management
due diligence presentations, the Duncan ACG Committee and Morgan
Stanley and Baker Hostetler had discussed areas of focus for the
presentations. In addition, Morgan Stanley described certain
valuation approaches that it then anticipated using to evaluate
the proposed transaction, and provided an overview of current
market conditions and the relative unit trading price spreads
between Duncan and Enterprise and among other MLPs. The
committee and its advisors also discussed expectations regarding
Duncans cash flow from the Haynesville Extension, the
assets and
41
distribution structures associated with the Duncan drop down
transaction of the DEP I Midstream Businesses in connection
with the 2007 initial public offering and the drop down
transaction of the DEP II Midstream Businesses in 2008, and
the markets understanding and valuation of each of Duncan
and Enterprise.
Later on March 28, 2011, meetings were held at which Duncan
management and Enterprise management gave business diligence
presentations at EPCOs offices. In addition to Enterprise
and Duncan management, attendees included
Messrs. Bruckmann, Snell and Casey as members of the Duncan
ACG Committee; representatives of financial and legal advisors
to the Duncan ACG Committee from Morgan Stanley and Baker
Hostetler; representatives from Vinson & Elkins as
legal advisors to Duncan; Messrs. Andress, Ross, Rampacek
and Smith as Enterprise GP directors; and representatives of
financial and legal advisors to Enterprise from Barclays Capital
and Andrews Kurth, respectively. Messrs. Fowler and Bulawa,
along with other operating officers, on behalf of Duncan
management, presented in a morning session, reviewing, among
other things, a history of asset drop downs, contributions of
those assets to cash flows, current operations, recent events
(including the fire that occurred at Duncans
majority-owned Mont Belvieu facilities on February 8,
2011), capital projects (including the status of construction
and contracts on the Haynesville Extension) and the 2011 capital
budget. A representative of Barclays Capital provided a brief
summary of the offer, including the strategic rationale with
regard to Duncan, a financial overview of the offer and market
reactions to the proposal by research analysts and investors in
Enterprise and Duncan. Mr. Creel, along with
Mr. Teague and other operating officers, on behalf of
Enterprise management, presented during the afternoon. These
presentations covered, among other things, commercial overviews
of Enterprises business segments as well as financial and
capital budgeting matters.
At the conclusion of the March 28, 2011 due diligence
presentations, the Duncan ACG Committee and its advisors
reconvened separately to review the presentations and discussed
additional information that would be necessary for the committee
and its advisors in their continuing analyses. During the course
of the week of March 28, 2011, Morgan Stanley requested,
received and reviewed supplemental financial due diligence
information from Enterprise and its financial advisor.
On April 4, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley, Baker Hostetler and Potter
Anderson to discuss Morgan Stanleys initial evaluation of
the proposal letter, including Enterprises proposed
exchange ratio of 0.9545 Enterprise common units for each
outstanding Duncan common unit. The Morgan Stanley
representatives observed that they had been given ready access
to information they had requested regarding Duncan and
Enterprise. The meeting participants reviewed Enterprises
proposal letter, discussed the analyses that would be used to
evaluate the proposed transaction, analyses pertaining to assets
owned jointly by Duncan and Enterprise, the relationship between
Duncans and Enterprises unit trading prices since
Duncans initial public offering, preliminary valuation
perspectives regarding Duncan and Enterprise based on management
projections and investment banking research analysts
projections, and Duncans possible alternatives to a
transaction with Enterprise. In discussing Duncans
alternatives, the participants also discussed Enterprises
statement that it would not support a sale of Duncan or its
assets to a third party. Morgan Stanley noted that Duncans
common units were trading near a
12-month
high price when Enterprises initial offer was made, and
responded to the committees inquiries regarding, among
other things, multiples paid in comparable transactions, the
terminal growth rates used for Duncan and for Enterprise in
various analyses, and the growth prospects of each entity on
near-term and long-term bases.
The meeting participants also discussed ranges of exchange
ratios implied by various analyses, including unit trading price
ratios, research analysts price targets, comparable
partnership trading price analyses based on yield, discounted
equity value, discounted cash flow, and precedent MLP merger and
minority buy-in transactions, and discussed underlying
assumptions regarding, among other things, Duncans and
Enterprises growth prospects, distributable cash flows and
distributable cash flow coverage ratios. The committee requested
that Morgan Stanley provide supplemental information regarding
other MLPs distributable cash flow coverage, and the
effect of variations in Duncans distributable cash flow
coverage ratio, debt profile and other financial measures. The
committee and representatives of Baker Hostetler and Potter
Anderson also discussed considerations regarding whether the
Duncan ACG Committee should propose that the vote of a majority
of the Duncan common unitholders not affiliated with Enterprise
(i.e., a majority of the minority) be a condition to
consummation of any transaction with Enterprise.
42
On April 6, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley and Baker Hostetler to discuss
analyses prepared by Morgan Stanley in response to the
committees request at its April 4, 2011 meeting. The
meeting participants reviewed, among other things, distributable
cash flow coverage ratios and yields for midstream MLPs,
exchange ratios in precedent transactions, the effect on future
value of variations in Duncans debt levels, and EBITDA and
distribution growth projections for Duncan and Enterprise and
their effect on discounted cash flow analyses. Following this
review, the committee determined that its chairman,
Mr. Bruckmann, should convey to Mr. Creel, on behalf
of Enterprise, concerns that the committee had regarding the
0.9545x exchange ratio proposed by Enterprise.
On April 11, 2011, Mr. Creel met with
Mr. Bruckmann. At this meeting, Mr. Bruckmann
discussed the status and certain elements of the analysis by the
Duncan ACG Committee and Morgan Stanley, and proposed that
Mr. Creel and Enterprise management, along with
Enterprises financial advisor, Barclays Capital, meet with
Morgan Stanley to discuss in more detail the committees
and its advisors analyses and questions regarding certain
assumptions about Enterprise. Mr. Bruckmann also expressed
the committees desire for a majority of the minority vote
condition, but no other transaction terms were discussed.
Later on April 11, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley and Baker Hostetler to discuss
Mr. Bruckmanns meeting with Mr. Creel.
Mr. Bruckmann reported that he had expressed the
committees views about certain Enterprise analyses,
particularly those that were premised on market reaction to
Enterprises initial proposal, in light of Duncans
projected distributable cash flows by research analysts being
lower than those projected by Duncan management, and the
committees views arising from the valuation implications
of the committees focus on projected EBITDA, distributable
cash flows, Duncans and Enterprises distributable
cash flow coverage ratios, distribution policies and leverage,
and the dilution to Duncans unitholders in distributable
cash flow coverage based on Enterprises initial offer.
Mr. Bruckmann also reported that Mr. Creel was
receptive to the committees offer to have Morgan Stanley
meet with Enterprise management and Enterprises financial
advisor to review the committees views in more detail, and
that Mr. Bruckmann had conveyed the committees desire
to make a majority of the minority vote a condition to
consummation of any transaction.
The Duncan ACG Committee met with representatives of Morgan
Stanley and Baker Hostetler on April 12, 2011, to review
the information and analyses to be presented by Morgan Stanley
to Enterprise management in accordance with
Mr. Bruckmanns April 11, 2011 conversation with
Mr. Creel.
On April 13, 2011, Morgan Stanley met with Mr. Creel,
Ms. Hildebrandt and Mr. Nelly in their capacities as
representatives of Enterprise, along with representatives of
Barclays Capital, to discuss Morgan Stanleys financial
analysis of the proposed transaction. At this meeting, Morgan
Stanley presented certain analyses regarding potential future
distribution scenarios for Duncan, estimated future yields for
Duncan and the estimated resulting impact on Duncans
future unit price. Following the meeting, Mr. Creel
contacted Mr. Bruckmann to schedule a meeting with the
Duncan ACG Committee.
Later on April 13, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley, Baker Hostetler and Potter
Anderson. Following the Morgan Stanley representatives
report on their meeting earlier in the day with the Enterprise
representatives, the meeting participants reviewed the
implications of various financial metrics in assessing proposed
exchange ratios, and of the majority of the minority voting
condition, followed by the committee members requesting further
analysis by Morgan Stanley. The committee members determined to
meet the following day to formulate a counterproposal for
delivery to Enterprise.
On April 14, 2011, the Duncan ACG Committee met with
representatives of Morgan Stanley, Baker Hostetler and Potter
Anderson to review financial analyses supporting various
exchange ratios, Duncans alternatives and future business
expansion prospects if it chose not to proceed with a
transaction with Enterprise, and issues pertaining to a majority
of the minority voting condition. At the conclusion of the
meeting, the committee determined to propose to Enterprise a
1.165x exchange ratio and to reiterate the committees
desire for a majority of the minority voting condition.
On April 15, 2011, Messrs. Bruckmann, Casey and Snell,
as members of the Duncan ACG Committee, met with
Messrs. Creel and Nelly and Ms. Hildebrandt as
representatives of Enterprise, and Mr. Christopher S.
43
Wade as internal counsel representing Duncan also in attendance,
at Enterprises offices to respond to Enterprises
initial offer of an exchange ratio of 0.9545x.
Mr. Bruckmann indicated that based on the financial
analyses and other factors considered by the Duncan ACG
Committee, including the committees analyses of the ranges
of Duncan managements and research analysts
distributable cash flow and EBITDA projections, and
Duncans projected distributable cash flow coverage ratios,
the Duncan ACG Committee was willing to make a counteroffer of
an exchange ratio of 1.165x. In addition, Mr. Bruckmann
requested that the merger terms include a requirement for a
majority of the minority vote to approve the merger and the
merger agreement. Mr. Creel did not respond to the
proposals at this time, informed Mr. Bruckmann that
Enterprise would respond to the counterproposal at some point
the following week, and suggested a possible meeting date of
April 20, 2011.
On April 18, 2011, a meeting was held among the Enterprise
Board, Enterprises management, representatives of Barclays
Capital and representatives of Andrews Kurth, at
Enterprises offices in Houston, Texas. At this meeting,
Barclays Capital and Enterprise management reviewed for the
Enterprise Board the counterproposal made by the Duncan ACG
Committee, as well as updated financial analyses giving effect
to the Duncan counterproposal and developments since the initial
Enterprise proposal, including the potential impact of the Mont
Belvieu fire on Duncans majority-owned assets and
operations. The Enterprise Board and its advisors also discussed
the feasibility of a majority of the minority vote condition in
light of the difficulty in getting public retail unitholders to
affirmatively cast a vote either for or against a merger
proposal, and the express contractual standards for
Special Approval provided for this type of
transaction under the Duncan partnership agreement. After
numerous questions and deliberation, including expressions of
concern by members of the Enterprise Audit Committee about
unaffiliated Enterprise unitholder reactions to a significantly
higher premium if offered by Enterprise, the Enterprise Board
authorized Enterprise management to continue negotiations with
Duncan without any majority of the minority vote condition and
subject to the Enterprise Boards final approval.
On April 19, 2011, the Duncan ACG Committee and its
financial and legal advisors met to prepare for the
April 20, 2011 meeting to be held with Enterprise and its
advisors.
On April 20, 2011, a meeting was held among the Duncan ACG
Committee, representatives of Morgan Stanley, representatives of
Baker Hostetler, Potter Anderson and Vinson & Elkins,
Messrs. Fowler and Bulawa on behalf of Duncan management,
Messrs. Creel and Nelly and Ms. Hildebrandt on behalf
of Enterprise management, representatives of Barclays Capital,
and representatives of Andrews Kurth, at Andrews Kurths
offices in Houston, Texas. At this meeting, Barclays Capital and
Enterprise management reviewed developments since the date of
Enterprises initial proposal, including the potential
impact of the Mont Belvieu fire on Duncans majority-owned
assets and operations and Duncans expected first quarter
2011 performance compared to Enterprises expected
performance for the same period. Barclays Capital reviewed
commentary by research analysts for both Duncan and Enterprise
following the announcement of the initial proposal of a 0.9545x
exchange ratio, as well as the market reaction as reflected by
changes in price for the common units of Duncan and Enterprise.
Barclays Capital noted that this reviewed commentary generally
indicated a positive response with respect to the effect on
Duncan unitholders. Mr. Creel also noted some Enterprise
unitholder feedback was that the initial offer appeared fully
valued, and that Enterprise would have to respond to the same
unitholders with respect to any definitive transaction. Based on
these items, as well as other financial analysis, Enterprise
management declined the Duncan offer of a 1.165x exchange ratio
and made a counteroffer of a 0.9545x exchange ratio, the same as
Enterprises original offer. Mr. Creel and the legal
advisors for Enterprise also expressed the view that a majority
of the minority vote condition would be impracticable due to
Duncans large base of retail investors, and noted that
this condition would not be acceptable to Enterprise for this
transaction. Following a meeting recess during which the Duncan
ACG Committee and its financial and legal advisors discussed
Enterprises counteroffer and supporting analysis, at the
committees direction, Morgan Stanley communicated to
Barclays Capital that the committee believed that in order for
further discussions to be productive, Enterprise would need to
give greater attention to the committees views regarding
Duncans distribution growth potential and appropriate
assumptions for projected distributable cash flow coverage and
debt coverage ratios.
44
The Duncan ACG Committee and its advisors then met with
Messrs. Fowler and Bulawa to discuss Duncans first
quarter 2011 performance in light of Enterprises
commentary earlier in the meeting, following which the committee
and Morgan Stanley confirmed their views that the information
presented would not require revisions of Morgan Stanleys
and the committees financial assessments of the proposed
transaction. Mr. Bruckmann then left the committees
meeting to reiterate to Mr. Creel the committees
concerns regarding Enterprises counteroffer, and returned
to the meeting to report that Mr. Creel had suggested that
the parties meet to address those concerns the following day.
On April 21, 2011, a meeting was held among the Duncan ACG
Committee, representatives of Morgan Stanley, representatives of
Baker Hostetler, Potter Anderson and Vinson & Elkins,
Messrs. Fowler and Bulawa on behalf of Duncan management,
Messrs. Creel and Nelly and Ms. Hildebrandt on behalf
of Enterprise management, representatives of Barclays Capital
and representatives of Andrews Kurth, at the offices of
Vinson & Elkins in Houston, Texas. At this meeting,
based on the request of the Duncan ACG Committee,
representatives of Barclays Capital reviewed specific items in
follow-up
discussion materials in response to earlier analyses prepared by
Morgan Stanley, including various assumptions regarding
distribution coverage and distribution yields. In addition,
representatives from Barclays Capital noted that the rationale
for additional Enterprise drop downs of assets would no longer
exist, Duncan would be limited under existing agreements in
pursuing other competitive acquisitions, and expectations for
further development opportunities after 2013 were significantly
reduced. Representatives of Barclays Capital noted that it had
not addressed every assumption used by Morgan Stanley, and that
other assumptions being used by Morgan Stanley could also be
subject to debate. Mr. Creel then presented the Duncan ACG
Committee with an improved offered exchange ratio of 0.985x,
representing an approximate 31% premium in price (to
Duncans common unit closing price immediately before the
announcement of Enterprises initial offer) and a 29%
increase in distributions for Duncan unitholders based on the
announced first quarter 2011 distribution levels. Mr. Creel
reemphasized other expected benefits to Duncan unitholders of
receiving Enterprise common units, including the greater
liquidity for Enterprise common units, Enterprises growth
potential (both near- and long-term), the broader diversity of
Enterprises asset base and its more significant value
chain, as well as market reactions to the initial proposal and
potential market reactions to a revised offer or no transaction.
The Duncan ACG Committee and Morgan Stanley stated that they
would consider the revised information in the course of their
further analyses and would respond to Enterprise.
The Duncan ACG Committee, Morgan Stanley, Baker Hostetler and
Potter Anderson met on April 23, 2011 to review the
analyses presented by Barclays Capital on April 21, 2011
and additional analyses prepared subsequently by Morgan Stanley.
Morgan Stanley noted exceptions to certain of the Barclays
Capital yield and growth assumptions, and noted the significant
effect on the exchange ratio analysis that arises from varying
assumed distributable cash flow coverage ratios and varying
assumed growth prospects for Duncan and Enterprise. The meeting
participants also noted that Enterprises reduced cost of
capital and first right to consider expansion opportunities, as
referred to in earlier discussions among the parties, would
likely limit Duncans growth trajectory following
completion of the Haynesville Extension, and that the
committees counterproposals to date had been premised on
the high end of the range of Duncans growth possibilities.
Following further discussion of these considerations, the
committee agreed to present a proposal comprising a 1.0835x
exchange ratio and a majority of the minority vote condition.
On April 26, 2011, a meeting was held among the Duncan ACG
Committee, representatives of Morgan Stanley, representatives of
Baker Hostetler, Potter Anderson and Vinson & Elkins,
Mr. Bulawa on behalf of Duncan management,
Messrs. Creel and Nelly and Ms. Hildebrandt on behalf
of Enterprise management, representatives of Barclays Capital,
and representatives of Andrews Kurth, at the offices of Baker
Hostetler in Houston, Texas. At this meeting, Mr. Bruckmann
noted that the Duncan ACG Committee and Morgan Stanley had
evaluated further the information that was presented at the
parties April 21, 2011 meeting. A representative of
Morgan Stanley reviewed a Duncan total return analysis based on
an assumed yield, along with other analyses. Based on these
analyses, the Morgan Stanley representative stated that these
suggested a higher implied exchange ratio. The Morgan Stanley
representative also stated that based on the anticipated stable
nature of the Haynesville Extension cash flows due to long-term
contracts, Duncan could argue for a tighter distributable cash
flow coverage ratio than Enterprises ratio. Based on these
facts and Morgan
45
Stanleys analyses, the Duncan ACG Committee proposed an
exchange ratio of 1.0835x, again together with a majority of the
minority vote condition. Enterprise management and its advisors
then left to discuss this counteroffer.
After deliberation, Mr. Creel reconvened the meeting with
the Duncan ACG Committee and reviewed again Enterprises
reasons for, and certain of its financial perspectives on, the
proposed merger, including changes since the initial proposal.
Mr. Creel and Enterprise counsel reemphasized the risk of
not getting sufficient voter turnout by unaffiliated holders in
connection with a majority of the minority vote, and the express
contractual provisions under the Duncan partnership agreement
covering Special Approval. Based on these facts, Mr. Creel
made a counteroffer of an exchange ratio of 1.00x.
Mr. Creel further discussed that while a majority of the
minority vote condition would not be acceptable, Enterprise
would consider accommodating the Duncan ACG Committee with a
more practical heightened vote condition outside the vote
required under the Duncan partnership agreement, in the form of
a condition that the votes actually cast by Duncan unitholders
not affiliated with Enterprise for the merger proposal exceed
such votes cast against the merger proposal (a majority of
unaffiliated votes cast condition).
The Duncan ACG Committee and its advisors then met separately.
The Duncan ACG Committee and its advisors discussed the growth
prospects of Duncan and of Enterprise and the effect of a spread
between growth rates on the exchange ratio analysis, the effects
of Duncans very limited control over its growth
opportunities, the diversity of the asset bases of Duncan and
Enterprise, the value and distribution premiums implied by
Enterprises counterproposal, the range of acceptable
exchange ratios implied by Morgan Stanleys analyses, and
the majority of unaffiliated votes cast condition proposed by
Enterprise. The committee directed Mr. Bruckmann to advise
Mr. Creel that the committee was seeking an increased
offer. Following a brief recess in the committees
discussions, Mr. Bruckmann reported that he had so advised
Mr. Creel, with a focus in his discussion on Duncans
expected increased distributable cash flows in 2011, 2012 and
2013 and on the committees desire to minimize anticipated
distributable cash flow dilution to Duncans unitholders
arising from the proposed transaction.
The Duncan ACG Committee and Enterprise representatives and
their respective advisors then reconvened. Mr. Creel
expressed his concern with an increased exchange ratio from an
Enterprise perspective. Mr. Creel reemphasized the number
of pending Enterprise growth projects, and thus potential upside
for Enterprise common units, compared to the more limited growth
projects for Duncan. Mr. Creel then made a best and
final offer of an exchange ratio of 1.01x, together with a
majority of unaffiliated votes cast condition, subject to review
and consideration of other definitive terms of a merger
agreement and related documents and Enterprise Board approval.
The Duncan ACG Committee then met separately to discuss this
offer. After the committees further discussion with its
advisors of the matters discussed in the earlier meeting recess
and further deliberation, the Duncan and Enterprise groups
reconvened. Mr. Bruckmann expressed the Duncan ACG
Committees view that, on the basis of a 1.01x exchange
ratio and majority of unaffiliated votes cast condition, and
subject to confirmation that Morgan Stanley would be in a
position to render a fairness opinion with respect to that
exchange ratio, the committee was prepared to move forward with
negotiation of definitive transaction terms and documentation.
Between April 26 and April 28, 2011, counsel to Enterprise
and the Duncan ACG Committee and Duncan exchanged drafts and
revisions of and comments on a merger agreement and related
documents for the transaction. On April 27, 2011,
representatives of Andrews Kurth, Baker Hostetler, Potter
Anderson and Vinson & Elkins, together with internal
counsel on behalf of Enterprise and Duncan, also held a
conference call to negotiate open points in the merger
agreement, including representations and warranties, interim
covenants and closing conditions, and a voting agreement,
including termination provisions.
On April 28, 2011, the Enterprise Board met to consider the
form of merger agreement, with representatives of Barclays
Capital and Andrews Kurth in attendance. At that meeting,
representatives of Barclays Capital reviewed with the Enterprise
Board their financial analyses with respect to the proposed
merger and responded to numerous questions from the Enterprise
Board and Andrews Kurth. The Enterprise Board also discussed
legal and procedural matters in connection with its approval of
the proposed transactions.
46
After these discussions and deliberation, the Enterprise Board
unanimously approved the merger agreement and related documents
and the issuance of Enterprise common units in connection with
the proposed merger.
On April 28, 2011, the Duncan ACG Committee, Morgan
Stanley, Baker Hostetler and Potter Anderson met for the
committees consideration of the proposed transaction at an
exchange ratio of 1.01x, with a majority of unaffiliated votes
cast condition and other terms set forth in a form of merger
agreement. Prior to the meeting, the committee members had
received a financial analysis and draft of a fairness opinion
from Morgan Stanley, a meeting agenda, and current draft
versions and summaries of a merger agreement and related
documents for the proposed transaction. Morgan Stanley reviewed
its financial analyses with the committee and responded to the
committees questions. Morgan Stanley also reviewed with
the committee the draft of Morgan Stanleys fairness
opinion, following which it rendered its oral opinion to the
committee (which was confirmed in writing by delivery of Morgan
Stanleys written opinion dated April 28,
2011) to the effect that, as of April 28, 2011, and
based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
opinion, the exchange ratio pursuant to the merger agreement was
fair, from a financial point of view, to the Duncan unaffiliated
unitholders. Baker Hostetler then led the committee through a
discussion of the merger agreement and related documents and a
review of due diligence items relating to the first quarter of
2011. Potter Anderson reviewed with the committee the standards
for approval of the proposed transaction under Duncans
limited partnership agreement, and the majority of unaffiliated
votes cast condition, following which Baker Hostetler led the
committee through a discussion of the resolutions to be adopted
by the committee. The committee discussed whether it was
prepared to recommend that the Duncan Board approve the proposed
merger and the merger agreement, including in its discussion a
review of the factors and considerations set forth under the
heading Recommendation of the Duncan ACG Committee and the
Duncan Board and Reasons for the Merger. At the conclusion
of this discussion, the Duncan ACG Committee determined
unanimously that the merger was fair and reasonable, advisable
to and in the best interests of Duncan and its unaffiliated and
other unitholders, granted Special Approval under
the Duncan partnership agreement and voted unanimously to adopt
resolutions approving the merger and the merger agreement and
related documents and recommending that the Duncan Board approve
the merger and the merger agreement and related documents and
present the merger and the merger agreement to the Duncan
unitholders for their approval and adoption.
Immediately following the conclusion of the Duncan ACG
Committees meeting, the Duncan Board, with
Vinson & Elkins, Morgan Stanley, Baker Hostetler and
Potter Anderson in attendance, met to consider the proposed
transaction. Morgan Stanley reviewed with the Duncan Board its
financial analyses and the fairness opinion rendered to the
Duncan ACG Committee, and Vinson & Elkins reviewed the
terms of the merger and merger agreement and related documents
and procedural matters in connection with the Duncan
Boards approval of the transaction. Following this review
and discussion, the Duncan Board determined that the merger was
fair and reasonable, advisable to and in the best interests of
Duncan and its unitholders, and voted unanimously, with
Messrs. Fowler and Bulawa abstaining because of their
positions as executive officers of Enterprise GP, to adopt
resolutions approving the merger and the merger agreement and
related documents and recommending that the Duncan unitholders
approve and adopt the merger and the merger agreement.
On April 28, 2011, following the Enterprise Board, Duncan
ACG Committee and Duncan Board meetings, Enterprise and Duncan
management executed the definitive documents.
On April 29, 2011, Enterprise and Duncan issued a joint
press release announcing the merger agreement and the proposed
merger.
Recommendation
of the Duncan ACG Committee and the Duncan Board and Reasons for
the Merger
On April 28, 2011, the Duncan ACG Committee determined
unanimously that the merger agreement and the merger were fair
and reasonable, advisable to and in the best interests of Duncan
and the Duncan unaffiliated unitholders. Accordingly, the Duncan
ACG Committee recommended that the Duncan Board approve the
merger agreement and related documents and the merger. Based on
the Duncan ACG Committees determination and
recommendation, on April 28, 2011, the Duncan Board
approved and declared the advisability of the merger agreement
and related documents and the merger. Both the Duncan ACG
47
Committee and the Duncan Board recommend that the Duncan
unitholders vote in favor of the merger proposal.
The Duncan ACG Committee considered many factors in making its
determination and recommendation. The committee consulted with
its financial and legal advisors and viewed the following
factors as being generally positive or favorable in coming to
its determination and related recommendations:
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The exchange ratio of 1.01 Enterprise common units for each
Duncan common unit in the merger, which represented a
premium of:
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approximately 34% above the $32.56 closing price of Duncan
common units on February 22, 2011, based on the $43.32
closing price of Enterprise common units on April 27, 2011
(the day before the merger agreement was approved and
executed); and
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approximately 36% above the ratio of closing prices of Duncan
common units to Enterprise common units of 0.7451 on
February 22, 2011.
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The pro forma increase of approximately 32% and 36% in quarterly
cash distributions expected to be received by Duncan unitholders
in 2011 and 2012, respectively, based upon the 1.01x exchange
ratio and quarterly cash distribution rates paid by Duncan and
Enterprise in May 2011.
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In the merger, Duncan unitholders will receive common units
representing limited partner interests in Enterprise, which have
substantially more liquidity than Duncan common units because of
the Enterprise common units significantly larger average
daily trading volume, as well as Enterprise having a broader
investor base and a larger public float.
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The current and prospective environment and growth prospects for
Duncan if it continues as a stand-alone entity, as compared to
the asset base, financial condition and growth prospects of the
combined entity, including the likelihood that future asset drop
downs to Duncan from Enterprise would diminish because of the
reduction in Enterprises cost of equity capital in
connection with Enterprises November 2010 acquisition of
Holdings.
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Enterprises stronger balance sheet and credit profile
relative to Duncans.
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That the merger provides Duncan unitholders with an opportunity
to benefit from unit price appreciation and increased
distributions through ownership of Enterprise common units,
which should benefit from Enterprises much larger and more
diversified asset and cash flow base and lower dependence on
individual capital projects, and Enterprises greater
ability to compete for future acquisitions and finance organic
growth projects.
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The Duncan unaffiliated unitholders have an opportunity to
determine whether the merger will be approved, because the
merger agreement provides that the unitholder voting conditions
(including the majority of votes cast by Duncan unaffiliated
unitholders condition) may not be waived.
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The opinion of Morgan Stanley rendered to the Duncan ACG
Committee on April 28, 2011 to the effect that, as of that
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in its
written opinion, the exchange ratio pursuant to the merger
agreement was fair, from a financial point of view, to the
Duncan unaffiliated unitholders.
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The committees belief that the merger and the exchange
ratio present the best opportunity to maximize value for
Duncans unitholders and achieve the highest value
obtainable for Duncans unitholders.
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The terms of the merger agreement permit the Duncan ACG
Committee to change its recommendation of the merger if the
committee has concluded in good faith, after consultation with
its outside legal and financial advisors, that the failure to
make such a change in recommendation would be inconsistent with
its duties under the Duncan partnership agreement and applicable
law, and no termination fee is payable by Duncan upon any such
change of recommendation.
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The ability of Duncan to enter into discussions with another
party, without payment of a termination fee or other penalty, in
response to an unsolicited written offer if the Duncan ACG
Committee, after
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48
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consultation with its outside legal and financial advisors,
determines in good faith (a) that the unsolicited written
offer constitutes or is likely to result in a superior proposal
and (b) that the failure to take that action would be
inconsistent with its duties under the Duncan partnership
agreement and applicable law; notwithstanding that Enterprise
informed the Duncan ACG Committee that Enterprise would not
entertain an acquisition proposal relating to Duncan from a
third party, the committee considered it possible that a
subsequent offer could affect the viewpoint of Enterprise
regarding the merger or a third party transaction.
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The Duncan ACG Committees understanding of and
managements and the committees advisors review
of overall market conditions, and the committees
determination that, in light of these factors, the timing of the
potential transaction is favorable to Duncan.
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The review by the Duncan ACG Committee with its financial and
legal advisors of the financial and other terms of the merger
agreement and related documents, including the conditions to
their respective obligations and the termination provisions.
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The Duncan ACG Committees familiarity with, and
understanding of, the businesses, assets, liabilities, results
of operations, financial conditions and competitive positions
and prospects of Duncan and Enterprise.
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That the merger will eliminate potential conflicts of interest
between the unaffiliated unitholders of Duncan and Enterprise,
and for persons holding executive positions with both Duncan and
Enterprise.
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The Duncan ACG Committee considered the following factors to be
generally negative or unfavorable in making its determination
and recommendations:
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That the exchange ratio is fixed and there is a possibility that
the Enterprise common unit price could decline relative to the
Duncan common unit price prior to closing, reducing the premium
available to Duncan unitholders.
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The risk that potential benefits sought in the merger might not
be fully realized.
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That pro forma, the merger is expected to be dilutive to Duncan
unitholders distributable cash flow on a per unit basis.
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The risk that the merger might not be completed in a timely
manner, or that the merger might not be consummated as a result
of a failure to satisfy the conditions contained in the merger
agreement, and that a failure to complete the merger could
negatively affect the trading price of the Duncan common units.
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The limitations on Duncan considering unsolicited offers from
third parties not affiliated with Duncan GP.
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That certain members of management of Duncan GP and the Duncan
Board may have interests that are different from those of the
Duncan unaffiliated unitholders.
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The foregoing discussion of the information and factors
considered by the Duncan ACG Committee is not intended to be
exhaustive, but includes the material factors the committee
considered. In view of the variety of factors considered in
connection with its evaluation of the merger, the committee did
not find it practicable to, and did not, quantify or otherwise
assign specific weights to the factors considered in reaching
its determination and recommendation. In addition, each of the
members of the committee may have given differing weights to
different factors. Overall, the committee believed that the
advantages of the merger outweighed the negative factors it
considered.
The Duncan ACG Committee also reviewed procedural factors
relating to the merger, including, without limitation, the
following:
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The terms and conditions of the merger were determined through
arms-length negotiations between Enterprise and the Duncan
ACG Committee and their respective representatives and advisors;
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49
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The Duncan ACG Committee retained independent financial and
legal advisors with knowledge and experience with respect to
public company merger and acquisition transactions,
Enterprises and Duncans industry generally, and
Enterprise and Duncan particularly, as well as substantial
experience advising publicly traded limited partnerships and
other companies with respect to transactions similar to the
proposed transaction; and
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The Duncan ACG Committee received the written opinion of Morgan
Stanley on April 28, 2011 to the effect that, as of that
date and based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio pursuant to the merger
agreement was fair, from a financial point of view, to the
Duncan unaffiliated unitholders.
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Enterprises
Reasons for the Merger
The Enterprise Board consulted with management and
Enterprises legal and financial advisors and considered
many factors in approving the merger, including the following:
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the merger is expected to be immediately accretive to
distributable cash flow per Enterprise common unit (after giving
effect to retained distributable cash flow attributable to the
public unitholders of Duncan);
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the merger will simplify Enterprises commercial and
organizational structure, resulting from Enterprises
ownership of 100 percent of the equity interests in certain
affiliates that are now jointly owned with Duncan;
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the merger will streamline Enterprises partnership
structure, which reduces complexity, enhances transparency for
debt and equity investors and reduces the overall cost of
financing;
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the merger will maintain Enterprises financial flexibility
as the
unit-for-unit
exchange will finance approximately 77 percent of the
$3.3 billion purchase (including Duncans indebtedness
which is already consolidated on Enterprises balance
sheet); and
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the merger will reduce general and administrative costs by an
estimated $2 million per year, primarily from eliminating
public company expenses associated with Duncan.
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Unaudited
Financial Projections of Enterprise and Duncan
Neither Enterprise nor Duncan routinely publishes projections as
to long-term future performance or earnings. However, in
connection with the proposed merger, management of Enterprise GP
prepared projections that included future financial performance
of Enterprise (including performance of Duncan and its
majority-owned subsidiaries in which Enterprise has a direct
economic interest) with respect to 2011, 2012 and 2013, and
management of Duncan GP prepared projections that included
future financial performance of Duncan with respect to 2011,
2012 and 2013. These projections were based on projections used
for regular internal planning purposes.
The non-public projections for each of Enterprise and Duncan
were provided to Morgan Stanley for use and consideration in its
financial analysis and in preparation of its opinion to the
Duncan ACG Committee. The projections were also presented to the
Duncan Board and the Enterprise Board. A summary of these
projections is included below to give Duncan unitholders access
to certain non-public unaudited projections that were made
available to Morgan Stanley, the Duncan ACG Committee, and the
Duncan Board and the Enterprise Board in connection with the
proposed merger.
Enterprise and Duncan each caution you (and any other
person who reads this document) that uncertainties are inherent
in projections of any kind. None of Enterprise, Duncan or any of
their affiliates, advisors, officers, directors or
representatives has made or makes any representation or can give
any assurance to any Duncan unitholder or any other person
regarding the ultimate performance of Enterprise or Duncan
compared to the summarized information set forth below or that
any projected results will be achieved.
50
The summary projections set forth below summarize the most
recent projections provided to Morgan Stanley, the Duncan ACG
Committee and members of the Duncan Board and the Enterprise
Board prior to the execution of the merger agreement. The
inclusion of the following summary projections in this proxy
statement/prospectus should not be regarded as an indication
that Enterprise, Duncan or their representatives considered or
consider the projections to be a reliable or accurate prediction
of future performance or events, and the summary projections set
forth below should not be relied upon as such.
The accompanying projections were not prepared with a view
toward public disclosure or toward compliance with GAAP, the
published guidelines of the SEC, or the guidelines established
by the American Institute of Certified Public Accountants, but,
in the view of the management of Enterprise GP and Duncan GP,
were prepared on a reasonable basis, reflect the best currently
available estimates and judgments, and present, to the best of
Enterprise GP managements and Duncan GP managements
knowledge and belief, the expected course of action and the
expected future financial performance of Enterprise and Duncan.
Neither Deloitte & Touche LLP nor any other
independent registered public accounting firm has compiled,
examined or performed any procedures with respect to the
projections, nor has it expressed any opinion or any other form
of assurance on such information or its achievability, and
assumes no responsibility for, and disclaims any association
with, the projections. The Deloitte & Touche LLP
reports incorporated by reference into this proxy
statement/prospectus relate to historical financial information
of Enterprise and Duncan. Such reports do not extend to the
projections included below and should not be read to do so.
In developing the projections, managements of each of Enterprise
GP and Duncan GP made numerous material assumptions with respect
to Enterprise and Duncan, as applicable, for the period 2011 to
2013, including:
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With respect to Enterprises projections: Current expected
capital spending in 2011 of an estimated $3.4 billion for
growth capital and $262 million of sustaining capital; and
annualized distribution increases by Enterprise consistent with
historical increases.
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With respect to Duncans projections: Duncans
estimated $536 million share of Haynesville Extension
capital expenditures in 2011; three additional growth projects
to be funded jointly by Duncan and Enterprise ($11 million
net to Duncan in 2011); $57 million of sustaining capital
by Duncan in 2011; no issuances of equity required by Duncan; an
assumed refinancing of Duncans term loan due in December
2011; annualized distribution increases by Duncan to a $1.86
equivalent by year-end 2011; and commodity price assumptions
consistent with Enterprises 2011 profit plan.
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Additional assumptions were made with respect to the size,
availability, timing and anticipated results of, and cash flows
from, growth capital investments. All of these assumptions
involve variables making them difficult to predict, and most are
beyond the control of Enterprise and Duncan. Although management
of Enterprise GP and Duncan GP believe that there was a
reasonable basis for their projections and underlying
assumptions, any assumptions for near-term projected cases
remain uncertain, and the risk of inaccuracy increases with the
length of the forecasted period.
Enterprise
The following table sets forth projected financial information
for Enterprise for 2011, 2012 and 2013.
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2011E
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2012E
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2013E
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(Dollars in millions, other than per unit data)
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Adjusted EBITDA(1)
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$
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3,469
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$
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3,884
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$
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4,230
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Distributable cash flow(2)
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$
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2,441
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$
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2,704
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$
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2,984
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51
Duncan
The following table sets forth projected financial information
for Duncan for 2011, 2012 and 2013.
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2011E
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2012E
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2013E
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(Dollars in millions, other than per unit data)
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Adjusted EBITDA(3)
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$
|
227
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$
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309
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$
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330
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Distributable cash flow(4)
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$
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180
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$
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228
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$
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251
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(1) |
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Projected Adjusted EBITDA of Enterprise represents net income
less equity earnings from unconsolidated affiliates, plus
distributions received from unconsolidated affiliates, and less
interest expense, provision for income taxes and depreciation,
amortization and accretion expense. |
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(2) |
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Distributable cash flow to Enterprise is defined as net income
or loss attributable to Enterprise adjusted for: (i) the
addition of depreciation, amortization and accretion expense;
(ii) the addition of operating lease expenses for which
Enterprise does not have the payment obligation; (iii) the
addition of cash distributions received from unconsolidated
affiliates less equity earnings from unconsolidated affiliates;
(iv) the subtraction of sustaining capital expenditures and
cash payments to settle asset retirement obligations;
(v) the addition of losses or subtraction of gains from
asset sales and related transactions; (vi) the addition of
cash proceeds from asset sales or related transactions;
(vii) the return of an investment in an unconsolidated
affiliate (if any); (viii) the addition of losses or
subtraction of gains on the monetization of financial
instruments recorded in accumulated other comprehensive income
(loss), if any, less related amortization of such amounts to
earnings; (ix) the addition of net income attributable to
the noncontrolling interest associated with the public
unitholders of Duncan, less related cash distributions to be
paid to such unitholders with respect to the period of
calculation; and (x) the addition or subtraction of other
miscellaneous non-cash amounts (as applicable) that affect net
income or loss for the period. |
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(3) |
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Projected Adjusted EBITDA of Duncan represents net income less
equity earnings from unconsolidated affiliates, plus
distributions received from unconsolidated affiliates, and less
interest expense, provision for income taxes and depreciation,
amortization and accretion expense. The subtotal of the
preceding adjustments to net income is further adjusted to
subtract EPOs share of the Adjusted EBITDA of the
DEP I Midstream Businesses and its share of the Adjusted
EBITDA of the DEP II Midstream Businesses. |
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Adjusted EBITDA for the DEP I Midstream Businesses represents
the sum of (i) 34% of the net income of such businesses
(exclusive of operational measurement gains or losses allocated
to Enterprise) less related shares of equity earnings from
unconsolidated affiliates plus distributions received from
unconsolidated affiliates, and less interest expense, provision
for income taxes and depreciation, amortization and accretion
expense and (ii) 100% of the operational measurement gains
or losses allocated to Enterprise through Duncans
majority-owned Mont Belvieu, Texas storage operations. |
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Adjusted EBITDA for the DEP II Midstream Businesses is
determined by subtracting Enterprises pro rata share of
the sustaining capital expenditures of each DEP II Midstream
Business (based on legal ownership percentages) from the
aggregate cash distribution paid by the DEP II Midstream
Businesses to Enterprise with respect to each period. |
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(4) |
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Distributable cash flow to Duncan is defined as the sum of its
share of the distributable cash flow of the DEP I and DEP II
Midstream Businesses, less any standalone expenses of Duncan
such as interest expense and general and administrative costs
(net of non-cash items). In general, Duncan defines the
distributable cash flow of its operating subsidiaries as their
net income or loss adjusted for (i) the addition of
depreciation, amortization and accretion expense; (ii) the
addition of cash distributions received from Evangeline Gas
Pipeline Company, L.P. and Evangeline Gas Corp. (collectively,
Evangeline), if any, less equity earnings;
(iii) the subtraction of sustaining capital expenditures
and cash payments to settle asset retirement obligations;
(iv) the addition of losses or subtraction of gains
relating to asset sales and related transactions; (v) the
addition of cash proceeds from asset sales and related
transactions; (vi) the addition of losses or subtraction of
gains from the monetization of derivative instruments recorded
in accumulated other comprehensive income (loss), if any, less
related amortization |
52
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of such amounts to earnings; and (vii) the addition or
subtraction of other miscellaneous non-cash amounts (as
applicable) that affect net income or loss for the period. |
Adjusted EBITDA is not a financial measure prepared in
accordance with GAAP and should not be considered a substitute
for net income (loss) or cash flow data prepared in accordance
with GAAP.
Distributable cash flow is not a financial measure prepared in
accordance with GAAP and should not be considered a substitute
for net income (loss) or cash flow data prepared in accordance
with GAAP.
NEITHER ENTERPRISE NOR DUNCAN INTENDS TO UPDATE OR OTHERWISE
REVISE THE ABOVE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING
AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE
EVENTS, EVEN IF ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH
PROJECTIONS ARE NO LONGER APPROPRIATE.
Opinion
of the Duncan ACG Committees Financial Advisor
The Duncan ACG Committee retained Morgan Stanley to act as its
financial advisor in connection with the transaction in early
March 2011 (with a formal engagement letter executed on
March 25, 2011). The Duncan ACG Committee selected Morgan
Stanley to act as its financial advisor based on Morgan
Stanleys qualifications, expertise and reputation and its
knowledge of the business and affairs of Duncan. At the meeting
of the Duncan ACG Committee on April 28, 2011, Morgan
Stanley rendered to the Duncan ACG Committee its oral opinion,
subsequently confirmed in writing, that, as of such date and
based upon and subject to the various assumptions,
considerations, qualifications and limitations set forth in the
written opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the Duncan
unaffiliated unitholders.
The full text of the written opinion of Morgan Stanley, dated
April 28, 2011, is attached as Annex B to this proxy
statement/prospectus and is incorporated by reference in its
entirety into this proxy statement/prospectus. The opinion sets
forth, among other things, the assumptions made, specified work
performed, procedures followed, matters considered and
qualifications and limitations on the scope of the review
undertaken by Morgan Stanley in rendering its opinion. You
should read the opinion carefully and in its entirety. Morgan
Stanleys opinion is directed to the Duncan ACG Committee
and addresses only the fairness from a financial point of view
of the exchange ratio pursuant to the merger agreement to the
Duncan unaffiliated unitholders as of the date of the opinion.
It does not address any other aspect of the merger or related
transactions and does not constitute a recommendation to any
unitholder of Duncan as to how to vote or act on any matter with
respect to the merger or related transactions. In addition, the
opinion does not in any manner address the prices at which the
Duncan common units or the Enterprise common units will trade at
any time. The summary of the opinion of Morgan Stanley set forth
in this proxy statement/prospectus is qualified in its entirety
by reference to the full text of the opinion.
In arriving at its opinion, Morgan Stanley, among other things:
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reviewed certain publicly available financial statements and
other business and financial information of Duncan and
Enterprise, respectively;
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reviewed certain internal financial statements and other
financial and operating data concerning Duncan and Enterprise,
respectively;
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reviewed certain financial projections prepared by the
management of Enterprise with respect to the future performance
of Enterprise;
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reviewed certain financial projections prepared by the
management of Duncan with respect to the future performance of
Duncan;
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discussed the past and current operations and financial
condition and the prospects of Enterprise with senior executives
of Enterprise;
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53
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discussed the past and current operations and financial
condition and the prospects of Duncan with senior executives of
Duncan;
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reviewed the pro forma impact of the merger on Enterprises
cash flow, consolidated capitalization and financial ratios;
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reviewed the reported prices and trading activity for the Duncan
common units and the Enterprise common units;
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compared the financial performance of Duncan and Enterprise and
the prices and trading activity of the Duncan common units and
the Enterprise common units with that of certain other
publicly-traded master limited partnerships comparable to Duncan
and Enterprise, respectively, and their securities;
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reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
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participated in certain discussions and negotiations among
representatives of Duncan, Enterprise and certain of their
respective affiliates and their financial and legal advisors;
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reviewed the merger agreement and certain related
documents; and
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performed such other analyses, reviewed such other information
and considered such other factors as Morgan Stanley deemed
appropriate.
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In arriving at its opinion, Morgan Stanley assumed and relied
upon, without independent verification, the accuracy and
completeness of the information that was publicly available or
supplied or otherwise made available to it by Duncan and
Enterprise, and which formed a substantial basis for its
opinion. With respect to the financial projections, including
information relating to certain strategic, financial and
operational benefits anticipated from the merger, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the
management of Enterprise and of Duncan of the future financial
performance of Enterprise and Duncan, respectively. In addition,
Morgan Stanley assumed that the merger will be consummated in
accordance with the terms set forth in the merger agreement
without any material waiver, amendment or delay of any terms or
conditions thereof. Morgan Stanley assumed that in connection
with the receipt of all necessary governmental, regulatory or
other approvals and consents required for the proposed merger,
no delays, limitations, conditions or restrictions will be
imposed that would have a material adverse effect on the
contemplated benefits expected to be derived from the proposed
merger.
In its opinion, Morgan Stanley noted that it is not a legal, tax
or regulatory advisor, that it is a financial advisor only and
that it relied upon, without independent verification, the
assessments of Enterprise and Duncan and their legal, tax or
regulatory advisors with respect to legal, tax or regulatory
matters. Morgan Stanley expressed no opinion with respect to the
fairness of the amount or nature of the compensation to any of
Duncans officers, directors or employees, or any class of
such persons, relative to the consideration to be received by
the holders of the Duncan common units in the transaction.
Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of Duncan or Enterprise,
nor was it furnished with any such appraisals. Morgan
Stanleys opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the
information made available to it as of, the date of the opinion.
Events occurring after the date of the opinion may affect Morgan
Stanleys opinion and the assumptions used in preparing it,
and Morgan Stanley did not assume any obligation to update,
revise or reaffirm its opinion.
In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with
respect to the acquisition, business combination or other
extraordinary transaction, involving Duncan, nor did it
negotiate with any party other than Enterprise regarding the
possible acquisition of Duncan or certain of its constituent
businesses. Morgan Stanleys opinion did not address the
relative merits of the merger as compared to any other
alternative business transaction, or other alternatives, whether
or not such alternatives could be achieved or are available, nor
did it address the underlying business decision by Enterprise
and the Duncan ACG Committee to enter into the merger. Morgan
Stanley understood that Enterprise specifically notified the
Duncan ACG Committee that it would not support any alternative
transaction at this time.
54
The following is a brief summary of the material analyses
performed by Morgan Stanley in connection with its oral opinion
and the preparation of its written opinion dated April 28,
2011. In connection with arriving at its opinion, Morgan Stanley
considered all of its analyses as a whole and did not attribute
any particular weight to any analysis described below.
Considering any portion of such analyses and factors considered,
without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying Morgan
Stanleys opinion. This summary of financial analyses
includes information presented in tabular format. In order to
fully understand the financial analyses used by Morgan Stanley,
the tables must be read together with the accompanying text. The
tables alone do not constitute a complete description of the
financial analyses.
Historical
Trading Performance and Exchange Ratio Analyses
Morgan Stanley reviewed the unit price performance of each of
Duncan and Enterprise during the last twelve-month period ending
on February 22, 2011 for Duncan (the last trading date
prior to Enterprises initial offer) and ending on
April 27, 2011 for Enterprise.
Morgan Stanley noted that the range of low and high closing
prices of the Duncan common units during the twelve-month period
ending on February 22, 2011 was $22.27 to $33.39 per Duncan
common unit. Morgan Stanley then noted that the range of low and
high closing prices of Enterprise common units during the
twelve-month period ending on April 27, 2011 was $27.85 to
$44.35 per Enterprise common unit.
Morgan Stanley calculated the historical exchange ratios implied
by dividing the low and high closing prices of Duncan common
units by those of Enterprise common units for the last
twelve-month period. The following table indicates the implied
exchange ratio for this period, compared to an exchange ratio of
1.01x for the merger:
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Implied
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Exchange
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Time Period
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Ratio Range
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Last Twelve Months
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0.7529x - 0.7996x
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Equity
Research Analyst Price Targets Analysis
Morgan Stanley reviewed and analyzed the public market trading
price targets for Duncan common units prepared and most recently
published by equity research analysts during the period prior to
Enterprises initial offer (October 27, 2010 through
February 18, 2011). These targets reflect each
analysts estimate of the future public trading price
of the Duncan common units as of their respective dates. Morgan
Stanley noted that such analyst price targets for Duncan common
units ranged from $31.00 to $38.00 per Duncan common unit. Also,
Morgan Stanley discounted these price targets back twelve months
at a 10.0% cost of equity, creating a discounted price target
valuation range of $28.18 to $34.55 per Duncan common unit.
Morgan Stanley also reviewed and analyzed the public market
trading price targets for Enterprise common units prepared and
most recently published by equity research analysts during the
period prior to Enterprises initial offer (July 19,
2010 through February 22, 2011). These targets reflect each
analysts estimate of the future public trading price of
Enterprise common units as of their respective dates.
Morgan Stanley noted that such analyst price targets for
Enterprise common units ranged from $41.00 to $49.00 per
Enterprise common unit. Also, Morgan Stanley discounted these
price targets back twelve months at a 10.0% cost of equity,
creating a discounted price target valuation range of $40.91 to
$44.55 per Enterprise common unit.
Morgan Stanley calculated the exchange ratios implied by the
analyst price targets for Duncan and Enterprise (only with
respect to such analysts that published price targets for both
Duncan and Enterprise) by dividing the Duncan price target by
Enterprise price target provided by the same analyst. This
analysis implied a range of exchange ratios of 0.6458x to
0.7917x based on price targets published during the period from
October 27, 2010 through February 22, 2011. The
implied exchange ratio based on the discounted price targets
ranged from 0.6458x to 0.7917x. These ranges compared to an
exchange ratio of 1.01x for the merger.
55
The public market trading price targets published by equity
research analysts do not necessarily reflect current market
trading prices for Duncan common units or Enterprise common
units and these estimates are subject to uncertainties,
including the future financial performance of Duncan and
Enterprise and future financial market conditions.
Comparable
Partnership Trading Analysis
Morgan Stanley performed a comparable partnership trading
analysis, which is designed to provide an implied value of a
partnership by comparing it to similar partnerships. In
performing this analysis, Morgan Stanley reviewed and compared
certain financial information of Duncan and Enterprise,
respectively, with publicly available information for selected
master limited partnerships (MLPs) with publicly
traded equity securities.
The selected companies were chosen because they are MLPs with
publicly traded equity securities and were deemed to be similar
to Duncan and Enterprise, respectively, in one or more respects
including the nature of their business, size, diversification,
financial performance and geographic concentration. No specific
numeric or other similar criteria were used to choose the
selected companies and all criteria were evaluated in their
entirety without application of definitive qualifications or
limitations to individual criteria. As a result, a significantly
larger or smaller partnership with substantially similar lines
of businesses and business focus may have been included while a
similarly sized partnership with less similar lines of business
and greater diversification may have been excluded. Morgan
Stanley identified and included a sufficient number of
partnerships for the purposes of its analysis but may not have
included all partnerships that might be deemed comparable to
Duncan and Enterprise, respectively.
The selected MLPs with publicly traded equity securities for the
comparable partnership trading analysis for Duncan and
Enterprise were:
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Enbridge Energy Partners, L.P.
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Energy Transfer Partners, L.P.
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Kinder Morgan Energy Partners, L.P.
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ONEOK Partners, L.P.
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Regency Energy Partners LP
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Williams Partners L.P.
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The financial data for comparable partnerships were obtained
from FactSet, partnership filings, and available Wall Street
research.
The financial data reviewed included:
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Yield (calculated as most recent annualized distribution divided
by unit price); and
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Ratio of price to distributable cash flow estimates from
management estimates as well as from available Wall Street
research estimates for calendar years 2011 and 2012.
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The comparable partnership analysis indicated the following
high, low and mean multiples for the selected MLPs and for
Enterprise as of April 27, 2011, and for Duncan as of
February 22, 2011:
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Yield and
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Yield and
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Multiples for
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Multiples for
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Duncan Based
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Enterprise Based
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on Closing Price
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on Closing Price
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Multiple Description
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High
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Low
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Mean
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on 2/22/2011
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on 4/27/2011
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Yield
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6.6
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%
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5.2
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%
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5.9
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%
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5.6
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%
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5.5
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%
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Price/Distributable Cash Flow for CY 2011
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17.6
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x
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13.9
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x
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15.2
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x
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11.7
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x
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15.3
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x
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Price/Distributable Cash Flow for CY 2012
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16.6
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x
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12.6
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x
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14.4
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x
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10.2
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x
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14.0
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x
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56
Morgan Stanley applied multiple ranges based on the comparable
partnership analysis to corresponding financial data for Duncan
and Enterprise, based on management forecasts of Duncan and
Enterprise, respectively, as well as based on the median of
available Wall Street research estimates of 2011 and 2012
distributable cash flow for Duncan and Enterprise, respectively,
to calculate an implied exchange ratio reference range. The
comparable partnership analysis indicated an implied exchange
ratio of 0.7615x based on yield analysis. In addition, the
comparable partnership analysis indicated an implied exchange
ratio range of 0.8528x to 0.8747x for 2011 distributable cash
flow and 0.9925x to 1.0217x for 2012 distributable cash flow
based on management projections, as compared to an exchange
ratio of 1.01x for the merger. Also, the analysis indicated an
implied exchange ratio range of 0.7953x to 0.8157x for 2011
distributable cash flow and 0.8232x to 0.8474x for 2012
distributable cash flow based on the median of available Wall
Street estimates for Duncan and Enterprise distributable cash
flow in 2011 and 2012, as compared to an exchange ratio of 1.01x
for the merger.
No company utilized in the comparable partnership analysis is
identical to either Duncan or Enterprise. In evaluating the
comparable partnerships, Morgan Stanley made judgments and
assumptions with regard to industry performance, general
business, economic, market and financial conditions and other
matters, which are beyond the control of Duncan and Enterprise,
such as the impact of competition on the businesses of Duncan,
Enterprise or the industry generally, industry growth and the
absence of any adverse material change in the financial
condition of Duncan, Enterprise or the industry or in the
financial markets in general, which could affect the public
trading value of the partnerships. Mathematical analysis (such
as determining the mean, median, high or low) is not in itself a
meaningful method of using comparable partnership data.
Discounted
Equity Value Analysis
Morgan Stanley calculated a range of equity values per unit for
each of Duncan and Enterprise based on a discounted equity value
analysis, which is designed to provide insight into the future
price of a partnerships common equity as a function of its
current distribution yield and the partnerships future
distributions per unit. Morgan Stanleys future equity
price estimates were based on management estimates of Duncan and
Enterprise distributions for calendar years 2011 through 2013.
Morgan Stanley also projected common equity prices per unit for
calendar years 2014 and 2015 derived from estimates of future
distributions per unit in those years for Duncan and Enterprise
which resulted from applying long-term per unit distribution
growth rates consistent with 2013 estimated growth rates
indicated by Duncan and Enterprise management (the
distribution growth estimates). Additionally, Morgan
Stanley calculated a range of equity values per unit for each of
Duncan and Enterprise based on IBES Consensus distribution
estimates for calendar years 2011 through 2013 (the final year
for which detailed equity research analyst estimates were
available at the date of the relevant analyses).
In arriving at the estimated equity values per Duncan common
unit, Morgan Stanley applied a 5.6% to 6.0% yield range to 2011
through 2015 distributions per common unit (such yield range was
applied to calendar years 2011 through 2013 for Duncan
management and IBES Consensus estimates, and a 6% yield was
applied to Duncan distribution growth estimates for 2014 and
2015) and discounted those equity values and the future
distributions paid each year using a range of cost of equity
from 9.0% to 11.0%. Based on management estimates of Duncan
distributions per unit, this analysis implied price ranges for
Duncan common units of $33.51 to $33.66 and $29.99 to $31.16 per
unit for 2011 and 2013, respectively. Based on distribution
growth estimates of Duncan distributions per unit, this analysis
implied a range of $28.77 to $30.80 per Duncan common unit for
2015. Based on IBES Consensus estimates, this analysis implied a
price range for Duncan common units of $33.96 to $34.11 and
$31.68 to $32.92 per Duncan common unit for 2011 and 2013,
respectively. Additionally, Morgan Stanley made theoretical
adjustments to Duncan management estimates and Duncan
distribution growth estimates, assuming Duncan distribution
coverage of 1.23x consistent with the average of midstream MLP
coverage ratios, in contrast to the Duncan management forecasted
coverage of 1.68x to 2.24x. This analysis implied ranges for
Duncan common units of $45.44 to $45.65, $51.87 to $53.92 and
$49.29 to $52.80 per Duncan common unit for 2011, 2013 and 2015,
respectively.
In arriving at the estimated equity values per Enterprise common
unit, Morgan Stanley applied a 5.5% yield to 2011 through 2015
distributions per common unit (such yield range was applied to
calendar years 2011 through 2013 for Enterprise management and
IBES Consensus estimates, and to Enterprise distribution
57
growth estimates for 2014 and 2015), and discounted those values
and the future distributions paid each year using a range of
cost of equity from 9.0% to 11.0%. Based on management estimates
of Enterprise distributions per unit, this analysis implied
price ranges of $44.79 to $45.00 and $44.61 to $46.37 per
Enterprise common unit for 2011 and 2013, respectively. Based on
distribution growth estimates of Enterprise distributions per
unit, this analysis implied a price range of $44.49 to $47.68
per Enterprise common unit for 2015. Based on IBES Consensus
estimates, this analysis implied a price range of $44.87 to
$45.07 and $45.32 to $47.10 per Enterprise common unit for 2011
and 2013, respectively.
Morgan Stanley noted that the discounted equity value analysis
of each of Duncan and Enterprise indicated the following ranges
of implied exchange ratios, compared to an exchange ratio of
1.01x for the merger:
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Implied
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Exchange
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Discounted Equity Value Method
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Ratio Range
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2011 Duncan and Enterprise Management Estimates
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0.7480x
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2013 Duncan and Enterprise Management Estimates
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0.6721x - 0.6723x
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|
2015 Distribution Growth Estimates(1)
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0.6460x - 0.6467x
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2011 IBES Consensus Estimates
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0.7568x
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2013 IBES Consensus Estimates
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0.6989x - 0.6990x
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2011 Adjusted Duncan and Enterprise Management Estimates
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1.0145x
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2013 Adjusted Duncan and Enterprise Management Estimates
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1.1628x - 1.1629x
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2015 Adjusted Distribution Growth Estimates(1)
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1.1075x - 1.1080x
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(1) |
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Based on distribution growth estimates of 2015 performance
derived from applying long-term per unit distribution growth
rates consistent with 2013 estimated growth rates indicated by
Duncan and Enterprise management. |
Discounted
Cash Flow Analysis
Morgan Stanley performed a discounted cash flow analysis, which
is designed to provide the implied value of a partnership by
calculating the present value of the estimated future cash flows
and terminal value of the partnership. Morgan Stanley calculated
ranges of implied equity values per unit for each of Duncan and
Enterprise, based on 2011 through 2013 distribution forecasts
contained in Enterprise management estimates and implied by
theoretical adjustments made to Duncan management estimates,
assuming Duncan distribution coverage of 1.23x consistent with
the average of midstream MLP coverage ratios, in contrast to
Duncan management forecasted coverage of 1.68x to 2.24x. Morgan
Stanleys estimates of the terminal value included all
distributions after 2013.
In arriving at the estimated equity values per Duncan common
unit, Morgan Stanley noted the estimated distributions for each
projected calendar year and then calculated the terminal value
by applying a perpetuity growth formula to the 2013 estimated
distribution per unit assuming growth rates of 1.0% to 5.0%
annually beyond 2013. The distributions and the terminal value
were then discounted to present values using a range of cost of
equity from 9.0% to 11.0%. Based on the calculations described
above, this analysis implied a range for Duncan common units of
$34.19 to $42.51 per Duncan common unit calculated at 1.0%
terminal growth rate, $41.59 to $55.13 per Duncan common unit
calculated at 3.0% terminal growth rate and $53.93 to $80.38 per
Duncan common unit calculated at 5.0% terminal growth rate.
In arriving at the estimated equity values per Enterprise common
unit, Morgan Stanley noted the estimated distributions for each
projected calendar year and then calculated the terminal value
by applying a perpetuity growth formula to the 2013 estimated
distribution per unit assuming growth rates of 2.0% to 5.0%
annually beyond 2013. The distributions and the terminal value
were then discounted to present values using a range of cost of
equity from 9.0% to 11.0%. Based on the calculations set forth
above, this analysis implied a range for Enterprise common units
of $30.20 to $38.51 per Enterprise common unit calculated at
2.0%
58
terminal growth rate and a range for Enterprise common units of
$43.29 to $64.33 per Enterprise common unit calculated at 5.0%
terminal growth rate.
Morgan Stanley noted that the discounted cash flow analysis of
each of Duncan and Enterprise indicated a range of implied
exchange ratios of 1.0545x to 1.1197x, 0.9166x to 1.0214x and
0.8132x to 0.9073x when the Duncan terminal growth rate is 1.0%,
2.0% and 3.0% lower than Enterprises (assuming terminal
growth range of 2.0% to 5.0% for Enterprise and non-negative
terminal growth for Duncan), respectively, compared to an
exchange ratio of 1.01x for the merger.
Precedent
Transactions Analysis
Morgan Stanley calculated various multiples of transaction value
to certain financial data based on the purchase prices paid in
selected publicly announced merger transactions that it deemed
relevant.
The selected merger transactions were chosen because the mergers
were deemed to be similar to the merger of Duncan and Enterprise
in one or more respects including the nature of their business,
size, diversification, financial performance and geographic
concentration. No specific numeric or other similar criteria
were used to choose the selected transactions and all criteria
were evaluated in their entirety without application of
definitive qualifications or limitations to individual criteria.
As a result, a transaction involving the acquisition of a
significantly larger or smaller company with substantially
similar lines of businesses and business focus may have been
included while a transaction involving the acquisition of a
similarly sized company with less similar lines of business and
greater diversification may have been excluded. Morgan Stanley
identified a sufficient number of transactions for purposes of
its analysis, but may not have included all transactions that
might be deemed comparable to the proposed transaction. The
selected merger transactions were:
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GulfTerra Energy Partners, L.P./Enterprise Products Partners L.P.
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Kaneb Pipe Line Partners L.P./Valero L.P.
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Pacific Energy Partners, L.P./Plains All American Pipeline, L.P.
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TEPPCO Partners, L.P./Enterprise Products Partners L.P.
|
Morgan Stanley calculated the premium to historical trading
relationship in the selected transactions and for the proposed
merger based on the offered exchange ratio relative to the
unaffected trading exchange ratio for each respective
transaction
one-day
prior to the announcement of the transaction and on
February 22, 2011 with respect to the proposed merger. In
addition, for the selected transactions and the proposed merger,
Morgan Stanley calculated multiples of aggregate value (as of
one day prior to announcement for the selected transactions,
February 22, 2011 for Duncan and April 27, 2011 for
Enterprise) to EBITDA as earned during two defined time periods
relative to the transaction announcement (February 22, 2011
for the proposed merger): last twelve-month (LTM)
EBITDA was calculated as EBITDA for the four most recently
reported fiscal quarters prior to transaction announcement, and
forward-year (FY1) EBITDA was calculated as
projected EBITDA for next annual calendar period following the
transaction announcement. These analyses indicated the following:
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Premium for
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Duncan
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Based on
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|
Merger
|
|
Premium to Relative Trading
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|
High
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Low
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Mean
|
|
|
Consideration
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|
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One Day Prior
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|
13.3
|
%
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|
2.2
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%
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|
|
8.8
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%
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|
35.6
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%
|
59
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Implied
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Multiples for
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Duncan
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Based on
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Merger
|
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Multiple Description
|
|
High
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Low
|
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Mean
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Consideration
|
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|
Aggregate Value to EBITDA for LTM
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|
16.5x
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|
9.9x
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|
13.4x
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|
17.0x
|
|
Aggregate Value to EBITDA for FY1
|
|
|
15.0x
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9.5x
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12.8x
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12.6x
|
|
Morgan Stanley applied premia and multiple reference ranges
based on the selected transactions analysis to corresponding
financial data from Duncan management forecasts to calculate
implied price ranges per Duncan unit. This range was $32.56 to
$37.44 based on premia to one day relative trading, $20.48 to
$37.22 based on aggregate value to LTM EBITDA multiples and
$29.69 to $52.16 based on aggregate value to FY1 EBITDA
multiples. Morgan Stanley then used Enterprises unit price
as of February 22, 2011 to calculate an implied exchange
ratio range. The selected transactions analyses indicated an
implied exchange ratio range of 0.7451x to 0.8568x based on
premia to one day relative trading and indicated implied
exchange ratio ranges of 0.4686x to 0.8516x and 0.6794x to
1.1935x for the aggregate value multiples of LTM EBITDA and FY1
EBITDA, respectively, compared to an exchange ratio of 1.01x for
the merger.
Morgan Stanley also reviewed and analyzed selected minority
buy-in transactions involving companies acquiring remaining
minority stakes in targets in which they already held a majority
interest (transaction values over one billion dollars since
January 2005). The selected minority buy-in transactions were
chosen because the selected transactions were deemed to be
similar to the buy-in of Enterprise in Duncan. The selected
transactions were:
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Odyssey Re Holdings Corp./Fairfax Financial Holdings Limited
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UnionBanCal Corp./Mitsubishi UFJ Financial Group, Inc.
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Genetech, Inc./Roche Holding AG
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Nationwide Financial Services Inc./Nationwide Mutual Insurance
Company
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TD Banknorth Inc./Toronto-Dominion Bank
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Lafarge NA/Lafarge SA
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7-Eleven, Inc./IYG Holding Company
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UnitedGlobalCom Inc./Liberty Media International, Inc.
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Fox Entertainment Group Inc./News Corp.
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Morgan Stanley calculated the premia to the historical trading
relationship in the selected minority buy-in transactions and
for the proposed merger based on the final offered exchange
ratio for each transaction relative to the unaffected exchange
ratio one day prior to announcement for each selected minority
buy-in transaction and relative to the exchange ratio on
February 22, 2011 with respect to the proposed merger. The
selected minority buy-in transactions analysis indicated the
following:
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Premium for
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Duncan
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Based on
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Merger
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Final Offer Premium
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High
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Low
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Mean
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Consideration
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One Day Prior
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37.8
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(2.0
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21.7
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%
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34.4
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%
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Morgan Stanley applied premia reference ranges based on the
selected minority buy-in transactions to corresponding financial
data from Duncan management forecasts to calculate implied price
ranges per Duncan unit. This range was $37.44 to $43.96 based on
premia to one day relative trading. Morgan Stanley then used
Enterprises unit price as of February 22, 2011 to
calculate an implied exchange ratio range. The selected minority
buy-in transactions analysis indicated an implied exchange ratio
range of 0.8568x to 1.0059x for the one day prior premium
compared to an exchange ratio of 1.01x for the merger.
60
No company or transaction utilized in the precedent transactions
analysis is identical to Duncan, Enterprise, or the merger. In
evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to general business,
market and financial conditions and other matters, which are
beyond the control of Duncan and Enterprise, such as the impact
of competition on the business of Duncan, Enterprise or the
industry generally, industry growth and the absence of any
adverse material change in the financial condition of Duncan,
Enterprise or the industry or in the financial markets in
general, which could affect the public trading value of the
companies and the aggregate value of the transactions to which
they are being compared.
Pro
Forma Accretion/Dilution Analysis
Using financial projections provided by the management of Duncan
and Enterprise for 2011 through 2013, and using distribution
growth estimates for 2014 and 2015, Morgan Stanley calculated
the accretion/dilution of the estimated distributable cash flow
and distributions to the existing unitholders of Duncan and
Enterprise, respectively, on a per unit basis. For each of the
years ended December 31, 2011 through December 31,
2015, Morgan Stanley compared the distributable cash flow and
distributions per unit of the pro forma entity (after accounting
for the 1.01x exchange ratio offered to Duncan unitholders) to
the distributable cash flow and distributions per unit of Duncan
and Enterprise, respectively, as stand-alone entities. The
analysis indicated that the merger would be dilutive to
Duncans distributable cash flow per unit and accretive to
distributions per unit in each year for calendar years 2011
through 2015. In addition, the analysis indicated that the
merger would be dilutive to Enterprises distributable cash
flow and distributions per unit in each year for calendar years
2011 through 2015.
Also, using financial projections of standalone distributable
cash flow and distributions per unit from available Wall Street
research for 2011 through 2013, Morgan Stanley calculated the
accretion/dilution of the implied pro forma distributable cash
flow and distributions to the existing unitholders of Duncan and
Enterprise, respectively, on a per unit basis. The analysis
indicated that the merger would be accretive to Duncans
distributable cash flow per unit in calendar years 2011 and 2013
and dilutive in calendar year 2012, and accretive to
distributions per unit in each year for calendar years 2011
through 2013. In addition, the analysis indicated that the
merger would be dilutive to Enterprises distributable cash
flow and distributions per unit in each year for calendar years
2011 through 2013.
General
In connection with the review of the merger by the Duncan ACG
Committee, Morgan Stanley performed a variety of financial and
comparative analyses and reviewed such underlying data as Morgan
Stanley deemed relevant for purposes of rendering its opinion.
The preparation of a financial opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor it
considered. Furthermore, Morgan Stanley believes that the
summary provided and the analyses described above must be
considered as a whole and that selecting any portion of the
analyses, without considering all of the analyses as a whole,
would create an incomplete view of the process underlying Morgan
Stanleys analyses and opinion. In addition, Morgan Stanley
may have given various analyses and factors more or less weight
than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions. As a
result, the ranges of valuations resulting from any particular
analysis or combination of analyses described above should not
be taken to be the view of Morgan Stanley with respect to the
actual value of Duncan or Enterprise. In performing its
analyses, Morgan Stanley made numerous assumptions with respect
to industry performance, general business, regulatory, economic,
market and financial conditions and other matters. Many of these
assumptions are beyond the control of Duncan and Enterprise. Any
estimates contained in Morgan Stanleys analyses are not
necessarily indicative of future results or actual values, which
may be significantly more or less favorable than those suggested
by such estimates.
Morgan Stanley conducted the analyses described above solely as
part of its analysis of the fairness of the exchange ratio
pursuant to the merger agreement from a financial point of view
to the Duncan unaffiliated
61
unitholders and in connection with the delivery of its opinion
to the Duncan ACG Committee. These analyses do not purport to be
appraisals or to reflect the prices at which the Duncan common
units or Enterprise common units might actually trade.
Morgan Stanleys opinion and its presentation to the Duncan
ACG Committee was one of many factors taken into consideration
by the Duncan ACG Committee in deciding to approve and recommend
that the Duncan Board authorize the execution of the merger
agreement and the related documents and the transactions
contemplated thereby. Consequently, the analyses as described
above should not be viewed as determinative of the opinion of
the Duncan ACG Committee with respect to the exchange ratio or
of whether the Duncan ACG Committee would have been willing to
agree to a different exchange ratio. The exchange ratio was
determined through arms-length negotiations between the
Duncan ACG Committee and Enterprise. Morgan Stanley provided
advice to the Duncan ACG Committee during these negotiations.
Morgan Stanley did not, however, recommend any specific exchange
ratio to the Duncan ACG Committee or that any specific exchange
ratio constituted the only appropriate exchange ratio for the
merger.
Morgan Stanleys opinion was approved by a committee of
Morgan Stanley investment banking and other professionals in
accordance with its customary practice.
Morgan Stanley is a global financial services firm engaged in
the securities, investment management and individual wealth
management businesses. Its securities business is engaged in
securities underwriting, trading and brokerage activities,
foreign exchange, commodities and derivatives trading, prime
brokerage, as well as providing investment banking, financing
and financial advisory services. Morgan Stanley, its affiliates,
directors and officers may at any time invest on a principal
basis or manage funds that invest, hold long or short positions,
finance positions, and may trade or otherwise structure and
effect transactions, for their own account or the accounts of
its customers, in debt or equity securities or loans of
Enterprise, Duncan, or any other company, or any currency or
commodity, that may be involved in this transaction, or any
related derivative instrument. In the two years prior to the
date of Morgan Stanleys opinion, Morgan Stanley provided
financing services for Enterprise and Duncan and received fees
in connection with such services. Morgan Stanley may also seek
to provide such services to Enterprise and Duncan in the future
and expects to receive fees for the rendering of these services.
Under the terms of its engagement letter with the Duncan ACG
Committee, Morgan Stanley provided the Duncan ACG Committee with
financial advisory services in connection with the merger for
which the Duncan ACG Committee has agreed to pay Morgan Stanley
a transaction fee of $5 million, which is contingent upon,
and will become payable upon, closing of the merger. The Duncan
ACG Committee has also agreed to reimburse Morgan Stanley for
its expenses incurred in performing its services. In addition,
the Duncan ACG Committee has agreed to indemnify Morgan Stanley
and its affiliates, their respective directors, officers, agents
and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal
securities laws, related to or arising out of Morgan
Stanleys engagement.
No
Appraisal Rights
Duncan unitholders do not have appraisal rights under
Duncans partnership agreement, the merger agreement or
applicable Delaware law.
Antitrust
and Regulatory Matters
Due to rules applicable to partnerships and the common control
of Duncan and Enterprise, no filing is required under the HSR
Act and the rules promulgated thereunder by the FTC. However, at
any time before or after completion of the merger, the DOJ, the
FTC, or any state could take such action under the antitrust
laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the completion of the merger, to
rescind the merger or to seek divestiture of particular assets
of Enterprise or Duncan. Private parties also may seek to take
legal action under the antitrust laws under certain
circumstances. In addition,
non-U.S. governmental
and regulatory authorities may seek to take action under
applicable antitrust laws. A
62
challenge to the merger on antitrust grounds may be made and, if
such a challenge is made, it is possible that Enterprise and
Duncan will not prevail.
Listing
of Common Units to be Issued in the Merger
Enterprise expects to obtain approval to list on the NYSE the
Enterprise common units to be issued pursuant to the merger
agreement, which approval is a condition to closing the merger.
Accounting
Treatment
The merger will be accounted for in accordance with Financial
Accounting Standards Board Accounting Standards Codification
810, Consolidations Overall Changes
in Parents Ownership Interest in a Subsidiary, which
is referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger for financial reporting purposes.
Pending
Litigation
Litigation
Related to the Merger
On March 8, 2011, Michael Crowley, a purported unitholder
of Duncan, filed a complaint in the Court of Chancery of the
State of Delaware, as a putative class action on behalf of the
public unitholders of Duncan, captioned Michael
Crowley v. Duncan Energy Partners L.P., DEP Holdings, LLC,
W. Randall Fowler, Bryan F. Bulawa, William A.
Bruckmann, III, Larry J. Casey, Richard S. Snell,
Enterprise Products Partners L.P., Enterprise Products Holdings
LLC, and Enterprise Products Operating LLC, Civil Action
No. 6252-VCN.
The Crowley Complaint alleges, among other things, that the
named directors of Duncan GP have breached fiduciary duties in
connection with Enterprises initial proposal to acquire
Duncans outstanding publicly held common units, that
Duncan and Duncan GP aided and abetted in these alleged breaches
of fiduciary duties and that Enterprise, as the majority and
controlling unitholder, along with EPO, has breached fiduciary
duties by not acting in the minority unitholders best
interest to ensure the transaction resulting from
Enterprises proposal is entirely fair.
On March 11, 2011, Sanjay Israni, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Sanjay Israni v. Duncan
Energy Partners, L.P., DEP Holdings, LLC, Enterprise Products
Partners L.P., Enterprise Product Holdings LLC, Enterprise
Production Operating LLC, W. Randall Fowler, Bryan F. Bulawa,
William A. Bruckmann, III, Larry J. Casey, and Richard S.
Snell, Civil Action
No. 6270-VCN.
The Israni Complaint alleges, among other things, that the named
directors of Duncan GP have breached fiduciary duties in
connection with Enterprises initial proposal to acquire
Duncans outstanding publicly held common units and that
Duncan along with all of the other named defendants aided and
abetted in these alleged breaches of fiduciary duties.
On March 28, 2011, Michael Rubin, a purported unitholder of
Duncan, filed a complaint in the Court of Chancery of the State
of Delaware, as a putative class action on behalf of the public
unitholders of Duncan, captioned Michael Rubin v. Duncan
Energy Partners L.P., DEP Holdings, LLC, W. Randall Fowler,
Bryan F. Bulawa, William A. Bruckmann, III, Larry J. Casey,
Richard S. Snell, Enterprise Products Partners L.P., Enterprise
Products Holdings LLC, and Enterprise Products Operating
LLC, Civil Action
No. 6320-VCS.
The Rubin Complaint alleges, among other things, that the named
directors of Duncan GP have breached fiduciary duties in
connection with Enterprises initial proposal to acquire
Duncans outstanding publicly held common units, that
Duncan and Duncan GP aided and abetted in these alleged breaches
of fiduciary duties and that Enterprise, as the majority and
controlling unitholder, along with EPO, has breached fiduciary
duties by not acting in the best interests of the minority
unitholders to ensure the transaction resulting from
Enterprises proposal is entirely fair.
On April 5, 2011, the plaintiffs in the Crowley Complaint,
the Israni Complaint and the Rubin Complaint filed a Proposed
Order of Consolidation and Appointment of Lead Counsel in the
Court of Chancery of the
63
State of Delaware. The Court granted that Order on the same day
consolidating the three actions into a single consolidated
action captioned In re Duncan Energy Partners L.P.
Unitholders Litigation, Consolidated Civil Action
No. 6252-VCN.
On March 7, 2011, Merle Davis, a purported unitholder of
Duncan, filed a petition in the 269th District Court of
Harris County, Texas, as a putative class action on behalf of
the unitholders of Duncan, captioned Merle Davis, on Behalf
of Himself and All Others Similarly Situated v. Duncan
Energy Partners L.P., W. Randall Fowler, Bryan F. Bulawa,
William A. Bruckmann, III, Larry J. Casey, Richard S.
Snell, DEP Holdings, LLC, and Enterprise Products Partners L.P.
The Davis Petition alleges, among other things, that
Enterprise and the named directors of Duncan GP have breached
fiduciary duties in connection with Enterprises initial
proposal to acquire Duncans outstanding publicly held
common units and that Duncan and Enterprise aided and abetted in
these alleged breaches of fiduciary duties.
On March 9, 2011, Donald Weilersbacher, a purported
unitholder of Duncan, filed a petition in the
334th District Court of Harris County, Texas, as a putative
class action on behalf of the unitholders of Duncan, captioned
Donald Weilersbacher, on Behalf of Himself and All Others
Similarly Situated v. Duncan Energy Partners L.P.,
Enterprise Products Partners L.P., DEP Holdings, LLC, W. Randall
Fowler, Bryan F. Bulawa, William A. Bruckmann, III, Larry
J. Casey, and Richard S. Snell. The Weilersbacher Petition
alleges, among other things, that the named directors of Duncan
GP have breached fiduciary duties in connection with
Enterprises initial proposal to acquire Duncans
outstanding publicly held common units and that Enterprise aided
and abetted in these alleged breaches of fiduciary duties.
On March 17, 2011, the plaintiffs in the Davis Petition and
the Weilersbacher Petition filed a motion and proposed Order for
Consolidation of Related Actions, Appointment of Interim Co-Lead
Counsel, and Order Compelling Limited Expedited Discovery.
Plaintiffs and defendants subsequently agreed to postpone
discovery until after the plaintiffs file a consolidated
petition. On March 28, 2011, the plaintiffs filed an
amended motion and proposed Order for Consolidation of Related
Actions and Appointment of Interim Co-Lead Counsel. On
May 4, 2011, the court entered an order consolidating the
cases and appointing interim lead counsel. On May 11, 2011,
plaintiffs filed their consolidated petition.
Enterprise and Duncan cannot predict the outcome of these or any
other lawsuits that might be filed subsequent to the date of the
filing of this proxy statement/prospectus, nor can Enterprise
and Duncan predict the amount of time and expense that will be
required to resolve these lawsuits. Enterprise, Duncan and the
other defendants named in the lawsuits intend to defend
vigorously against these and any other actions.
Other
Transactions Related to the Merger
Voting
Agreement
In connection with the merger agreement, Duncan, Enterprise and
GTM entered into the voting agreement, pursuant to which
Enterprise and GTM have agreed to vote any Duncan common units
owned by them or their subsidiaries in favor of adoption of the
merger agreement and the merger, including the 33,783,587 Duncan
common units currently directly owned by GTM (representing
approximately 58.5% of the outstanding Duncan common units), at
any meeting of Duncan unitholders. The voting agreement will
terminate upon the termination of the merger agreement.
64
THE
MERGER AGREEMENT
The following is a summary of the material terms of the merger
agreement and the related transactions. The provisions of the
merger agreement are extensive and not easily summarized. This
summary is qualified in its entirety by reference to the merger
agreement, a copy of which is attached to this proxy
statement/prospectus as Annex A and is incorporated into
this proxy statement/prospectus by reference. You should read
the merger agreement because it, and not this proxy
statement/prospectus, is the legal document that governs the
terms of the merger.
The merger agreement contains representations and warranties by
each of the parties to the merger agreement. The assertions
embodied in those representations and warranties are qualified
by information in confidential disclosure schedules that the
parties have exchanged in connection with signing the merger
agreement. The disclosure schedules contain information that
modifies, qualifies and creates exceptions to the
representations and warranties set forth in the attached merger
agreement. Accordingly, you should keep in mind that the
representations and warranties are modified in important part by
the underlying disclosure schedules. The disclosure schedules
contain information that has been included in Duncans and
Enterprises general prior public disclosures, as well as
additional information, some of which is non-public. Moreover,
information concerning the subject matter of the representations
and warranties may have changed since the date of the merger
agreement, and this information may or may not be fully
reflected in the companies public disclosures.
In the following summary of the material terms of the merger
agreement, all references to the subsidiaries of Enterprise or
Enterprise GP do not include Duncan GP or its subsidiaries
(including Duncan), unless explicitly stated.
Structure
of the Merger and Related Transactions
Pursuant to the merger agreement, MergerCo will merge with and
into Duncan, with Duncan surviving the merger as a wholly owned
subsidiary of Enterprise, and all common units representing
limited partner interests in Duncan outstanding at the effective
time of the merger will be cancelled and converted into the
right to receive Enterprise common units based on an exchange
ratio of 1.01 Enterprise common units per Duncan common unit. No
fractional Enterprise common units will be issued in the merger,
and Duncan unitholders will, instead, receive cash in lieu of
fractional Enterprise common units, if any.
Immediately following the effective time of the merger, the
consideration that GTM is entitled to receive in the merger will
be exchanged pursuant to the merger agreement and the Exchange
and Contribution Agreement for the assignment by Enterprise of a
limited partner interest in Duncan equal to the limited partner
interest represented by the Duncan common units owned by GTM
immediately prior to the effective time of the merger.
Accordingly, no Enterprise common units will be issued as
consideration to GTM for its 33,783,587 Duncan common units,
which represent approximately 58.5% of the outstanding Duncan
common units.
The limited liability company agreement of Duncan GP will be
amended and restated in substantially the form attached as
Annex A to the merger agreement effective upon the
consummation of the merger. In addition, the limited partnership
agreement of Duncan will be amended and restated (i) in
substantially the form attached as
Annex B-1
(the Duncan Second Amended and Restated Partnership
Agreement) to the merger agreement whereby, effective upon
the consummation of the merger, Enterprise is admitted as the
sole limited partner of Duncan and (ii) in substantially
the form attached as
Annex B-2
(the Duncan Third Amended and Restated Partnership
Agreement) to the merger agreement whereby, effective
immediately following the consummation of the merger and upon
the consummation of the Exchange and Contribution Agreement, GTM
and another subsidiary of Enterprise, OLPGP, are substituted as
the only limited partners of Duncan. The Exchange and
Contribution Agreement will be executed upon the closing of the
merger in substantially the form attached as Annex C to the
merger agreement.
65
When the
Merger Becomes Effective
The closing of the merger will take place on either (i) the
business day after the date on which the last of the conditions
set forth in the merger agreement (other than those conditions
that by their nature cannot be satisfied until the closing date)
have been satisfied or waived in accordance with the terms of
the merger agreement, or (ii) such other date to which the
parties may agree in writing. Please read
Conditions to the Merger beginning on
page 73 for a more complete description of the conditions
that must be satisfied or waived prior to closing. The date on
which the closing occurs is referred to as the closing
date.
The merger will become effective at the effective time, which
will occur upon Duncan filing a certificate of merger with the
Secretary of State of the State of Delaware or at such later
date and time as may be set forth in the certificate of merger.
The Duncan certificate of limited partnership will be the
certificate of limited partnership of the surviving entity,
until duly amended in accordance with its terms and applicable
law.
Effect of
Merger on Outstanding Duncan Common Units and Other
Interests
At the effective time, by virtue of the merger and without any
further action on the part of any holder of Duncan common units,
the following will occur:
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All of the limited liability company interests in MergerCo
outstanding immediately prior to the effective time shall be
cancelled.
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The general partner interest in Duncan issued and outstanding
immediately prior to the effective time shall remain outstanding
in the surviving entity, and Duncan GP, as the holder of such
general partner interests, shall continue as the sole general
partner of the surviving entity as set forth in the Duncan
Second Amended and Restated Partnership Agreement.
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Each Duncan common unit issued and outstanding immediately prior
to the effective time (other than Duncan common units held by
Duncan or its subsidiaries) will be converted into the right to
receive 1.01 Enterprise common units.
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Notwithstanding anything to the contrary in the merger
agreement, all Duncan common units owned by Duncan or its
subsidiaries (if any) will automatically be cancelled and no
consideration will be received with respect to such units.
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Pursuant to the Exchange and Contribution Agreement, GTM will
agree to exchange its rights to merger consideration for a
retained limited partner interest in Duncan immediately
following the effective time of the merger. Accordingly, no
Enterprise common units will be issued as consideration to GTM
for its 33,783,587 Duncan common units.
All Duncan common units (other than those held by Duncan or its
subsidiaries, which shall be cancelled as of the effective time
in accordance with the merger agreement), when converted in
connection with receiving the merger consideration, will cease
to be outstanding and will automatically be cancelled and cease
to exist. At the effective time, each holder of a certificate
representing common units and each holder of non-certificated
Duncan common units represented by book-entry will cease to be a
unitholder of Duncan and cease to have any rights as a
unitholder of Duncan, except the right to receive (i) 1.01
Enterprise common units for each outstanding Duncan common unit,
and the right to be admitted as an additional limited partner of
Enterprise, (ii) any cash to be paid in lieu of any
fractional new Enterprise common unit in accordance with the
merger agreement and (iii) any distributions in accordance
with the merger agreement, in each case, to be issued or paid,
without interest, in accordance with the merger agreement. In
addition, to the extent applicable, holders of Duncan common
units as of the effective time will have continued rights to any
distribution, without interest, with respect to such Duncan
common units with a record date occurring prior to the effective
time that may have been declared or made by Duncan with respect
to such Duncan common units in accordance with the terms of the
merger agreement and which remains unpaid as of the effective
time. The unit transfer books of Duncan will be closed at the
effective time and there will be no further registration of
transfers on the unit transfer books of Duncan with respect to
Duncan common units.
66
For a description of the Enterprise common units, please read
Description of Enterprise Common Units, and for a
description of the comparative rights of the holders of
Enterprise common units and Duncan common units, please read
Comparison of the Rights of Enterprise and Duncan
Unitholders.
Exchange
of Certificates; Fractional Units
Exchange
Agent
In connection with the merger, Enterprise has appointed Wells
Fargo Shareowner Services to act as exchange agent
for the issuance of Enterprise common units and for cash
payments for fractional units. Promptly after the effective
time, Enterprise will deposit or will cause to be deposited with
the exchange agent for the benefit of the holders of Duncan
common units, for exchange through the exchange agent, new
Enterprise common units and cash as required by the merger
agreement. Enterprise has agreed to make available to the
exchange agent, from time to time as needed, cash sufficient to
pay any distributions pursuant to the merger agreement and to
make payments in lieu of any fractional new Enterprise common
units pursuant to the merger agreement, in each case without
interest. Any cash and new Enterprise common units deposited
with the exchange agent (including as payment for any fractional
new Enterprise common units and any distributions with respect
to such fractional new Enterprise common units) are referred to
as the exchange fund. The exchange agent will
deliver the merger consideration contemplated to be paid for
Duncan common units pursuant to the merger agreement out of the
exchange fund. Except as contemplated by the merger agreement,
the exchange fund will not be used for any other purpose.
Exchange
of Units
Promptly after the effective time of the merger, Enterprise will
instruct the exchange agent to mail to each applicable holder of
a Duncan common unit a letter of transmittal and instructions
explaining how to surrender Duncan common units to the exchange
agent. This letter will contain instructions on how to surrender
certificates or book-entry units formerly representing Duncan
common units in exchange for the merger consideration the holder
is entitled to receive under the merger agreement.
Duncan common unit certificates should NOT be returned with
the enclosed proxy card. Duncan unitholders who
deliver a properly completed and signed letter of transmittal
and any other documents required by the instructions to the
transmittal letter, together with their Duncan common unit
certificates, if any, will be entitled to receive:
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new Enterprise common units representing, in the aggregate, the
whole number of new Enterprise common units that the holder has
the right to receive pursuant to the terms of the merger
agreement and as described above under Effect
of Merger on Outstanding Duncan Common Units and Other
Interests, and
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a check in an amount equal to the aggregate amount of cash that
the holder has the right to receive pursuant to the merger
agreement, including cash payable in lieu of any fractional new
Enterprise common units and distributions pursuant to the terms
of the merger agreement. No interest will be paid or accrued on
any merger consideration, any cash payment in lieu of fractional
new Enterprise common units, or on any unpaid distributions
payable to holders of certificated or book-entry Duncan common
units.
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In the event of a transfer of ownership of Duncan common units
that is not registered in the transfer records of Duncan, the
merger consideration payable in respect of those Duncan common
units may be paid to a transferee, if the certificate
representing those Duncan common units or evidence of ownership
of the book-entry Duncan common units is presented to the
exchange agent, and in the case of both certificated and
book-entry Duncan common units, accompanied by all documents
required to evidence and effect the transfer and the person
requesting the exchange will pay to the exchange agent in
advance any transfer or other taxes required by reason of the
delivery of the merger consideration in any name other than that
of the record holder of those Duncan common units, or will
establish to the satisfaction of the exchange agent that any
transfer or other taxes have been paid or are not payable. Until
the required documentation has been delivered and
67
certificates, if any, have been surrendered, as contemplated by
the merger agreement, each certificate or book-entry Duncan
common unit will be deemed at any time after the effective time
to represent only the right to receive, upon the delivery and
surrender of the Duncan common units, the merger consideration
payable in respect of Duncan common units and any cash or
distributions to which the holder is entitled pursuant to the
terms of the merger agreement.
All new Enterprise common units to be issued in the merger will
be issued in book-entry form, without physical certificates.
Upon the issuance of new Enterprise common units to the holders
of Duncan common units in accordance with the merger agreement
and the compliance by such holders with the requirements of
Section 10.4 of Enterprises partnership agreement,
which requirements may be satisfied by each holder of Duncan
common units by the execution and delivery by such holder of a
completed and executed letter of transmittal, the general
partner will be deemed to have automatically consented to the
admission of such holders as limited partners of Enterprise and
will reflect such admission on the books and records of
Enterprise.
The exchange agent will deliver to Enterprise any Enterprise
common units to be issued in the merger, cash in lieu of
fractional units to be paid in connection with the merger and
any distributions paid on Enterprise common units, in each case
without interest, to be issued in the merger that are not
claimed by former Duncan unitholders within 180 days after
the effective time of the merger. Thereafter, Enterprise will
act as the exchange agent and former Duncan unitholders may look
only to Enterprise for their new Enterprise common units, cash
in lieu of fractional units and unpaid distributions, in each
case without interest. The merger consideration issued upon
conversion of a Duncan common unit in accordance with the terms
of the merger agreement is deemed issued in full satisfaction of
all rights pertaining to such unit.
Distributions
No distributions declared or made with respect to Enterprise
common units with a record date after the effective time will be
paid to the holder of any Duncan common units with respect to
new Enterprise common units that such holder would be entitled
to receive in accordance with the merger agreement and no cash
payment in lieu of fractional new Enterprise common units will
be paid to any Duncan unitholder until the holder has delivered
the required documentation and surrendered any certificates or
book-entry units as contemplated by the merger agreement.
Subject to applicable law, following compliance with the
requirements of the merger agreement, the following will be paid
to a holder of new Enterprise common units, without interest,
(i) promptly after the time of compliance with the merger
agreements procedures, the amount of any cash payable in
lieu of fractional new Enterprise common units to which the
holder is entitled pursuant to the merger agreement and the
amount of distributions with a record date after the effective
time that had already been paid with respect to new Enterprise
common units and payable with respect to such new Enterprise
common units, and (ii) at the appropriate payment date, the
amount of distributions with a record date after the effective
time but prior to such delivery and surrender and a payment date
subsequent to such compliance payable with respect to such new
Enterprise common units.
Fractional
Units
No fractional Enterprise common units will be issued upon the
surrender of Duncan common units outstanding immediately prior
to the effective time. In lieu of any fractional Enterprise
common unit, each Duncan unitholder who would otherwise be
entitled to a fraction of a new Enterprise common unit will be
paid in cash (without interest rounded up to the nearest whole
cent) an amount equal to the product of (i) the average
closing price of Enterprise common units for the ten consecutive
NYSE full trading days ending at the close of trading on the
last NYSE full trading day immediately preceding the closing
date and (ii) the fraction of a new Enterprise common unit
that the holder would otherwise be entitled to receive pursuant
to the merger agreement. Any fractional Enterprise common unit
interest will not entitle its owner to vote or to have any
rights as an Enterprise unitholder with regard to such interest.
To the extent applicable, each holder of Duncan common units is
deemed to have consented pursuant to the merger agreement for
U.S. federal income tax purposes to report the cash
received for fractional Enterprise common units in the merger as
a sale of a portion of that holders Duncan common units to
Enterprise.
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No
Liability
To the fullest extent permitted by law, none of Duncan GP,
Enterprise, Duncan or the surviving entity will be liable to any
holder of Duncan common units for any Enterprise common units
(or distributions with respect thereto) or cash from the
exchange fund delivered to a public official pursuant to any
abandoned property, escheat or similar law.
Lost,
Stolen or Destroyed Certificates
If any certificate representing Duncan common units has been
lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such certificate to be lost,
stolen or destroyed and, if required by Enterprise, the posting
by such person of a bond, in a reasonable amount that Enterprise
may require, as indemnity against any claim that may be made
against it with respect to such certificate, the exchange agent
will pay in exchange for the lost, stolen or destroyed
certificate the merger consideration payable in respect of
Duncan common units represented by the certificate and any
distributions to which the holders thereof are entitled pursuant
to the terms of the merger agreement.
Withholding
Rights
Each of Enterprise, the surviving entity and the exchange agent
will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the merger agreement to any holder
of Duncan common units any amount that Enterprise, the surviving
entity or the exchange agent is required to deduct and withhold
under any provision of federal, state, local, or foreign tax law
with respect to the making of such payment. Enterprise, the
surviving entity or the exchange agent, as the case may be, will
provide reasonable notice to the applicable holders of Duncan
common units prior to withholding any amounts pursuant to the
merger agreement. To the extent that amounts are deducted and
withheld by Enterprise, the surviving entity or the exchange
agent as described in this paragraph, the deducted and withheld
amounts will be treated for all purposes of the merger agreement
as having been paid to the holder of Duncan common units in
respect of whom such deduction and withholding was made by
Enterprise, the surviving entity or the exchange agent, as the
case may be.
Investment
of the Exchange Fund
Enterprise will cause the exchange agent to invest any cash
included in the exchange fund as directed by Enterprise on a
daily basis. The investment of the exchange fund will be limited
to direct short-term obligations of, or short-term obligations
fully guaranteed as to principal and interest by, the
U.S. government and no investment or loss thereon will
affect the amounts payable or the timing of the amounts payable
to Duncan unitholders pursuant to the merger agreement. Any
interest and other income resulting from the investments
described in this paragraph will be paid to Enterprise.
Anti-dilution
Provisions
In the event of any subdivision, reclassification,
recapitalization, split, unit distribution, combination or
exchange of units with respect to, or rights in respect of,
Duncan common units or Enterprise common units (in each case, as
permitted pursuant to the merger agreement), the number of new
Enterprise common units to be issued in the merger and the
average closing price of Enterprise common units will be
correspondingly adjusted to provide to the holders of Duncan
common units the same economic effect as contemplated by the
merger agreement prior to such event.
Treatment
of Duncan Equity-Based Awards; Duncan Unit Purchase
Plan
As of the date of the merger agreement, there were no
outstanding unvested restricted Duncan common units, and there
were no outstanding unit appreciation rights or options or other
awards issued under the 2010 Duncan Long-Term Incentive Plan.
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With respect to the DEP Unit Purchase Plan, the amount of money
credited to the account of each participant under such plan,
after reduction for any required withholding, and held
(immediately prior to the effective time) for the purchase of
Duncan common units (including, but not limited to, each
participants accumulated payroll deductions for the period
in which payroll deductions are accumulated under the DEP Unit
Purchase Plan pending the purchase of Duncan common units, as
established pursuant to the provisions of such plan (the
DUPP Purchase Period), during which the effective
time occurs plus the applicable Employee Discount Amount, as
defined in and determined under the DEP Unit Purchase Plan, with
respect thereto) shall be used to purchase Duncan common units
immediately prior to the effective time in accordance with the
terms of the DEP Unit Purchase Plan. At the effective time,
automatically and without any action on the part of any
participant in the DEP Unit Purchase Plan, each whole Duncan
common unit then credited to the account of each participant,
whether purchased under the DEP Unit Purchase Plan for a DUPP
Purchase Period ended prior to the effective time or purchased
in accordance with the merger agreement or otherwise, will be
cancelled and converted into the right to receive the merger
consideration pursuant to the merger agreement. Any fractional
Duncan common unit credited to the account of a participant and
not converted to the right to receive merger consideration in
accordance with the foregoing will be converted into the right
to receive cash in accordance with the applicable provisions of
the Duncan Unit Purchase Plan and the merger agreement. The
conversion of the Duncan common units pursuant to the merger
agreement will be in full satisfaction of the obligations of
Duncan under the Duncan Unit Purchase Plan with respect to the
DUPP Purchase Period in which the effective time falls and with
respect to all prior DUPP Purchase Periods. Duncan will cause
the DEP Unit Purchase Plan to be suspended as of the effective
time, and no further purchase rights will be granted or
exercised under the DEP Unit Purchase Plan unless and until such
suspension is lifted in accordance with the terms of such plan
and the merger agreement.
As soon as practicable following the suspension of the DEP Unit
Purchase Plan in accordance with the merger agreement, if
permitted under the NYSE corporate governance rules with respect
to shareholder approval of equity compensation plans and
amendments thereto and any other applicable law without seeking
approval of the holders of the Enterprise common units or the
Duncan common units or the imposition of any other condition
(other than compliance with applicable Securities Act
requirements), (i) the Duncan Unit Purchase Plan shall be
continued by EPCO and all Duncan obligations assumed by
Enterprise and such plan shall continue in effect, subject to
amendment, termination
and/or
suspension in accordance with its terms, notwithstanding the
occurrence of the merger, (ii) from and after the effective
time all references to Duncan common units in the Duncan Unit
Purchase Plan shall be substituted with references to Enterprise
common units, (iii) the number of Enterprise common units
that will be available for delivery under the Duncan Unit
Purchase Plan from and after the effective time shall equal the
number of Duncan common units that were available for delivery
under the Duncan Unit Purchase Plan immediately prior to the
effective time (but after effecting the purchases described in
the merger agreement multiplied by the Exchange Ratio (rounded
down to the nearest whole number of Enterprise common units) and
(iv) no participant in the Duncan Unit Purchase Plan shall
have any right to acquire Duncan common units under such plan
from and after the effective time.
If the continuation of the DEP Unit Purchase Plan in accordance
with the provisions of the merger agreement is not permitted,
Duncan shall cause the DEP Unit Purchase Plan to terminate as of
the effective time, and no further purchase rights shall be
granted or exercised under the DEP Unit Purchase Plan at or
after the effective time.
Actions
Pending the Merger
Each of (i) Enterprise and Enterprise GP have agreed that,
without the prior written consent of the Duncan ACG Committee
and the Duncan Board, and (ii) Duncan and Duncan GP have
agreed that, without the prior written consent of the Enterprise
Board, which consents, in either case, will not be unreasonably
withheld, delayed or conditioned, it will not, and will cause
its subsidiaries not to, during the period from the date of the
merger agreement until the effective time of the merger or the
date, if any, on which the merger agreement is terminated,
except as expressly contemplated or permitted by the merger
agreement:
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conduct its business and the business of its subsidiaries other
than in the ordinary and usual course;
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fail to use commercially reasonable best efforts to preserve
intact its business organizations, goodwill and assets and
maintain its rights, franchises and existing relations with
customers, suppliers, employees or business associates;
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take any action that would have a material adverse effect
(please read Representations and
Warranties for a summary of the definition of
material adverse effect in the merger agreement);
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in the case of Duncan and its subsidiaries (i) issue, sell
or otherwise permit to become outstanding, or authorize the
creation of, any additional equity or any additional rights or
enter into any agreement to do such things or (ii) permit
any additional equity interests to become subject to new grants
of employee unit options, unit appreciation rights or similar
equity-based employee rights in each case other than issuances
and sales of Duncan common units after the date of the merger
agreement under the Duncan Unit Purchase Plan in accordance with
the merger agreement or under the Duncan Energy Partners L.P.
Dividend Reinvestment Plan; and in the case of Enterprise and
its subsidiaries, take any action described in (i) and
(ii) above, which would materially adversely affect
Enterprises ability to consummate the transactions
contemplated by the merger agreement;
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split, combine or reclassify any of its equity interests or
issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for its
equity interests, or in the case of Duncan and its subsidiaries,
repurchase, redeem or otherwise acquire, or permit any of its
subsidiaries to purchase, redeem or otherwise acquire any
partnership or other equity interests or rights, except for net
unit settlements made in connection with the vesting of
restricted units or as required by the terms of its securities
outstanding on the date of the merger agreement or as
contemplated by any existing compensation and benefit plan on
the date of the merger agreement;
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in the case of Duncan and its subsidiaries, (i) sell,
lease, dispose of or discontinue all or any portion of its
assets, business or properties other than in the ordinary course
of business, including distributions permitted under the merger
agreement, (ii) acquire, by merger or otherwise, or lease
any assets or all or any portion of the business or property of
any other entity other than in the ordinary course of business
consistent with past practice, (iii) merge, consolidate or
enter into any other business combination transaction with any
person, or (iv) convert from a limited partnership or
limited liability company, as the case may be, to any other
business entity; and in the case of Enterprise, merge,
consolidate or enter into any other business combination
transaction with any person or make any acquisition or
disposition that would be likely to have a material adverse
effect;
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make or declare dividends or distributions to the holders of
Duncan common units or Enterprise common units, as applicable,
that are special or extraordinary distributions or that are in a
cash amount in excess of the most recently declared
distribution, other than regular quarterly cash distributions or
increases made pursuant to applicable Duncan Board or Enterprise
Board approvals in accordance with past practices.
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amend its partnership agreement other than in accordance with
the merger agreement;
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in the case of Duncan and its subsidiaries, enter into any
material contract or modify, amend, terminate or assign, or
waive or assign any rights under any material contract in any
material respect in a manner which is adverse to Enterprise and
its subsidiaries, taken as a whole, or which could prevent or
materially delay the consummation of the merger or the other
transactions contemplated by the merger agreement past the
October 31, 2011 termination date, or any extension of the
termination date, and in the case of Enterprise and its
subsidiaries, enter into any material contract, or modify,
amend, terminate or assign, or waive or assign any rights under
any material contract, in a manner that would reasonably be
expected to result in a material adverse effect on Enterprise or
on Duncan;
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in the case of Duncan and its subsidiaries, waive, release,
assign, settle or compromise any claim, action or proceeding,
including any state or federal regulatory proceeding seeking
damages or injunction or other equitable relief, that is
material to it; and in the case of Enterprise and its
subsidiaries, waive, release, assign, settle or compromise any
claim, action or proceeding, including any
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state or federal regulatory proceeding seeking damages or
injunction or other equitable relief, that would reasonably be
expected to result in a material adverse effect on Enterprise or
on Duncan;
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implement or adopt any material change in its accounting
principles, practices or methods, other than as may be required
by law or U.S. GAAP;
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fail to use commercially reasonable best efforts to maintain
with financially responsible insurance companies, insurance in
such amounts and against such risks and losses as has been
customarily maintained by it in the past;
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change in any material respect any of its express or deemed
elections relating to taxes, including elections for any and all
joint ventures, partnerships, limited liability companies or
other investments where it has the capacity to make such binding
election;
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settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes;
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change in any material respect any of its methods of reporting
income or deductions for U.S. federal income tax purposes
from those employed in the preparation of its U.S. federal
income tax return for the most recent taxable year for which a
return has been filed, except as may be required by applicable
law;
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in the case of Duncan and its subsidiaries, (i) adopt,
enter into, amend or otherwise increase, or accelerate the
payment or vesting of the amounts, benefits or rights payable or
accrued or to become payable or accrued under, any compensation
and benefit plan, (ii) grant any severance or termination
pay to any officer or director of Duncan or any of its
subsidiaries or (iii) establish, adopt, enter into or amend
any plan, policy, program or arrangement for the benefit of any
current or former directors or officers of Duncan or any of its
subsidiaries or any of their beneficiaries;
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in the case of Duncan and its subsidiaries other than in the
ordinary course of business consistent with past practices,
(i) incur, assume, guarantee or otherwise become liable for
any indebtedness (directly, contingently or otherwise), other
than borrowings under existing revolving credit facilities,
(ii) enter into any material lease (whether operating or
capital), (iii) create any lien on its property or the
property of its subsidiaries in connection with any pre-existing
indebtedness, new indebtedness or lease, or (iv) make or
commit to make any material capital expenditures unrelated to
Duncans joint investments with Enterprise other than such
capital expenditures as are (A) contemplated in the 2011
capital budget as disclosed in the Duncans SEC documents
or (B) required on an emergency basis or for the safety of
persons or the environment; and in the case of Enterprise, take
any action described in clauses (i), (ii), (iii) or
(iv) above which would materially adversely affect
Enterprises ability to consummate the transactions
contemplated by the merger agreement;
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authorize, recommend, propose or announce an intention to adopt
a plan of complete or partial dissolution or liquidation;
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except as permitted by the merger agreement, knowingly take any
action that is intended or is reasonably likely to result in
(i) any of its representations and warranties in the merger
agreement being or becoming untrue in any material respect at
the closing date, (ii) any of the conditions to closing not
being satisfied, (iii) any material delay or prevention of
the consummation of the merger or (iv) a material violation
of any provision of the merger agreement except, in each case,
as may be required by applicable law; or
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agree or commit to do any of the prohibited actions described
above.
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Conditions
to the Merger
Conditions
of Each Party
The respective obligations of the parties to effect the merger
are subject to the satisfaction or, if applicable, waiver, on or
prior to the closing date of the merger, of each of the
following conditions:
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the merger agreement and the merger will have been approved by
the affirmative vote or consent of holders (as of the record
date for the Duncan meeting) of (i) a majority of the
outstanding Duncan common units and (ii) a majority of the
outstanding Duncan common units held by the Duncan unaffiliated
unitholders that actually vote for or against the proposal to
approve the merger and the merger agreement (i.e., the votes
cast by Duncan unaffiliated unitholders in favor of the proposal
must exceed the votes cast by Duncan unaffiliated unitholders
against the proposal);
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all filings required to be made prior to the effective time
with, and all other consents, approvals, permits and
authorizations required to be obtained prior to the effective
time from, any governmental authority in connection with the
execution and delivery of the merger agreement and the
consummation of the transactions contemplated thereby by the
parties to the merger agreement or their affiliates will have
been made or obtained, except where the failure to obtain such
consents, approvals, permits and authorizations would not be
reasonably likely to result in a material adverse effect on
Enterprise or Duncan;
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no order, decree or injunction of any court or agency of
competent jurisdiction will be in effect, and no law will have
been enacted or adopted, that enjoins, prohibits or makes
illegal the consummation of any of the transactions contemplated
by the merger agreement, and no action, proceeding or
investigation by any governmental authority with respect to the
merger or the other transactions contemplated by the merger
agreement will be pending that seeks to restrain, enjoin,
prohibit or delay the consummation of the merger or such other
transaction or to impose any material restrictions or
requirements thereon or on Enterprise or Duncan with respect to
the merger or the other transactions contemplated by the merger
agreement; provided, however, that prior to invoking this
condition, the invoking party must have used its commercially
reasonable best efforts in good faith to consummate the merger
as required under the merger agreement;
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the registration statement of which this proxy
statement/prospectus is a part will have become effective under
the Securities Act and no stop order suspending the
effectiveness of the registration statement will have been
issued and no proceedings for that purpose will have been
initiated or threatened by the SEC;
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the new Enterprise common units to be issued in the merger will
have been approved for listing on the NYSE, subject to official
notice of issuance;
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The merger agreement provides that the unitholder voting
conditions (including the majority of votes cast by Duncan
unaffiliated unitholders condition) may not be waived. Each of
Enterprise and Duncan (with the consent of the Duncan ACG
Committee and the Duncan Board) may choose to complete the
merger even though any condition to its obligation has not been
satisfied if the necessary unitholder approval under the Duncan
partnership agreement has been obtained and the law allows it to
do so.
Additional
Conditions to the Obligations of Duncan
The obligations of Duncan to effect the merger are further
subject to the satisfaction or waiver by Duncan, on or prior to
the closing date of the merger, of each of the following
conditions:
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each of the representations and warranties contained in the
merger agreement of Enterprise and Enterprise GP are true and
correct in all material respects as of the date of the merger
agreement and on the closing date, except for any
representations and warranties made as of a specified date,
which are true and correct as of that date in all material
respects;
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each and all of the agreements and covenants of Enterprise,
Enterprise GP and MergerCo to be performed and complied with
pursuant to the merger agreement on or prior to the closing date
must have been duly performed and complied with in all material
respects;
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Duncan will have received a certificate signed by the chief
executive officer of Enterprise GP, dated the closing date, to
the effect that the conditions set forth in the first two bullet
points immediately above have been satisfied;
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Duncan will have received an opinion from Vinson &
Elkins, counsel to Duncan, to the effect that:
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no gain or loss should be recognized for U.S. Federal
income tax purposes by Duncan unitholders to the extent that
Enterprise common units are received in exchange therefor as a
result of the merger (other than gain resulting from either
(i) any decrease in partnership liabilities pursuant to
Section 752 of the Internal Revenue Code or (ii) any
cash received in lieu of any fractional Enterprise common
units); and
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this registration statement accurately sets forth the material
U.S. federal income tax consequences to the Duncan
unitholders of the merger and the transactions contemplated by
the merger agreement; and
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there has not occurred a material adverse effect with respect to
Enterprise between the date of the merger agreement and the
closing date.
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Additional
Conditions to the Obligations of Enterprise
The obligations of Enterprise to effect the merger are further
subject to the satisfaction or waiver by Enterprise, on or prior
to the closing date of the merger, of each of the following
conditions:
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each of the representations and warranties contained in the
merger agreement of Duncan and Duncan GP are true and correct in
all material respects as of the date of the merger agreement and
on the closing date, except for any representations and
warranties made as of a specified date, which are true and
correct as of such date in all material respects;
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each and all of the agreements and covenants of Duncan and
Duncan GP to be performed and complied with pursuant to the
merger agreement on or prior to the closing date must have been
duly performed and complied with in all material respects;
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Enterprise will have received a certificate signed by the chief
executive officer of Duncan GP, dated the closing date, to the
effect that the conditions set forth in the first two bullet
points immediately above have been satisfied;
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Enterprise will have received an opinion from Andrews Kurth,
counsel to Enterprise, to the effect that:
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the merger and the transactions contemplated by the merger
agreement will not result in the loss of limited liability of
any limited partner of Enterprise;
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the merger and the transactions contemplated by the merger
agreement will not cause Enterprise or any Operating Partnership
(as defined in the Enterprise partnership agreement) to be
treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes;
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at least 90% of the current gross income of Enterprise
constitutes qualifying income within the meaning of
Section 7704(d) of the Internal Revenue Code;
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this registration statement accurately sets forth the material
U.S. federal income tax consequences to Enterprise
unaffiliated unitholders of the merger and the transactions
contemplated by the merger agreement; and
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no gain or loss should be recognized for U.S. Federal
income tax purposes by existing Enterprise unaffiliated
unitholders as a result of the merger (other than gain resulting
from any decrease in partnership liabilities pursuant to
Section 752 of the Internal Revenue Code); and
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there has not occurred a material adverse effect with respect to
Duncan between the date of the merger agreement and the closing
date.
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Representations
and Warranties
The merger agreement contains representations and warranties of
the parties to the merger agreement, many of which provide that
the representations and warranties do not extend to matters
where the failure of the representation and warranty to be
accurate would not result in a material adverse effect on the
party making the representation and warranty. These
representations and warranties concern, among other things:
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legal organization, existence, general authority and good
standing;
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capitalization;
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the absence of Duncans ownership of any equity interests
other than in its subsidiaries;
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power and authorization to enter into and carry out the
obligations of the merger agreement, and enforceability of the
merger agreement;
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required board and committee consents and approvals;
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the absence of required governmental consents and approvals,
other than those noted therein;
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the accuracy of financial statements and reports filed with the
SEC;
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the absence of certain undisclosed liabilities;
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compliance with laws;
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the absence of undisclosed material contracts and the validity
of existing material contracts;
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the absence of defaults, breaches and other conflicts caused by
entering into the merger agreement and completing the merger;
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the absence of brokers other than those noted therein;
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tax matters;
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the absence of undisclosed compensation and employee benefit
plans;
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title to properties and rights of way;
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operations of MergerCo;
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fairness opinions; and
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the absence of any material adverse effects.
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For purposes of the merger agreement, material adverse
effect, when used with respect to Duncan or Enterprise,
means any effect that:
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is or could reasonably be expected to be material and adverse to
the financial position, results of operations, business, assets
or prospects of such party and its subsidiaries taken as a
whole, respectively; or
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materially impairs or delays, or could reasonably be expected to
materially impair or delay, the ability of such party to perform
its obligations under the merger agreement or otherwise
materially threaten or materially impede the consummation of the
merger and the other transactions contemplated by the merger
agreement.
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A material adverse effect does not include any of the following
or the impact thereof (so long as, in the case of the first
through fourth bullet points immediately below, the impact on
Duncan or Enterprise is not disproportionately adverse as
compared to others in the petroleum product transportation,
terminalling, storage and distribution industry generally):
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circumstances affecting the petroleum product transportation,
terminalling, storage and distribution industry generally
(including the price of petroleum products and the costs
associated with the transportation, terminalling, storage and
distribution thereof), or in any region in which Enterprise or
Duncan operates;
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any general market, economic, financial or political conditions,
or outbreak or hostilities or war, in the United States of
America or elsewhere;
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changes in law;
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earthquakes, hurricanes, floods, or other natural disasters;
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any failure of Enterprise or Duncan to meet any internal or
external projections, forecasts or estimates of revenue or
earnings for any period;
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changes in the market price or trading volume of Duncan common
units or Enterprise common units (but not any effect underlying
any decrease that would otherwise constitute a material adverse
effect); or
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the announcement or pendency of the merger agreement or the
matters contemplated by the merger agreement or the compliance
by either party with the provisions of the merger agreement.
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Covenants
Duncan and Enterprise made the covenants described below:
Best
Efforts
Subject to the terms and conditions of the merger agreement,
each of Duncan and Enterprise will use its commercially
reasonable best efforts in good faith to take, or cause to be
taken, all actions, and to do, or cause to be done, all things
necessary, proper, desirable or advisable under applicable laws,
in order to permit consummation of the merger promptly and
otherwise enable consummation of the transactions contemplated
by the merger agreement, including obtaining (and cooperating
with the other parties to obtain) any third-party approval that
is required to be obtained by Enterprise or Duncan or any of
their respective subsidiaries in connection with the merger and
the other transactions contemplated by the merger agreement,
using commercially reasonable best efforts to lift or rescind
any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the
transactions contemplated by the merger agreement, and using
commercially reasonable best efforts to defend any litigation
seeking to enjoin, prevent or delay the consummation of the
transactions contemplated by the merger agreement or seeking
material damages, and it will cooperate fully with the other
parties to the merger agreement to that end, and will furnish to
the other party copies of all correspondence, filings and
communications between it and its affiliates and any
governmental authority with respect to the transactions
contemplated under the merger agreement.
Duncan
Unitholder Approval
Subject to the terms and conditions of the merger agreement,
Duncan will take, in accordance with applicable law, applicable
stock exchange rules and the Duncan partnership agreement, all
action necessary to call, hold and convene the Duncan special
meeting to consider and vote upon the approval of the merger
agreement and the merger, and any other matters required to be
approved by Duncan unitholders for consummation of the merger
and other transactions contemplated by the merger agreement,
promptly after the date of the merger agreement. Subject to the
provisions of the merger agreement permitting a change in
recommendation, the Duncan ACG Committee and the Duncan Board
will recommend approval of the merger agreement and the merger
to the Duncan unitholders, and Duncan will take all reasonable
lawful action to
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solicit such approval by the Duncan unitholders. In any event,
however, if there occurs a Duncan change in recommendation (as
described under Acquisition Proposals; Change
in Recommendation) in accordance with the merger
agreement, Duncan will not be required to call, hold or convene
the Duncan special meeting.
Registration
Statement
Each of Enterprise and Duncan agrees to cooperate in the
preparation of the registration statement (including this proxy
statement/prospectus) to be filed by Enterprise with the SEC in
connection with the issuance of new Enterprise common units in
the merger as contemplated by the merger agreement. Each of
Duncan and Enterprise agrees to use all commercially reasonable
best efforts to cause the registration statement to be declared
effective under the Securities Act as promptly as practicable
after filing of the registration statement. Enterprise also
agrees to use commercially reasonable best efforts to obtain all
necessary state securities law or Blue Sky permits
and approvals required to carry out the transactions
contemplated by the merger agreement. Each of Enterprise and
Duncan agrees to furnish to the other party all information
concerning Enterprise, Enterprise GP and its subsidiaries or
Duncan, Duncan GP and its subsidiaries, as applicable, and the
officers, directors and unitholders of Enterprise and Duncan and
any applicable affiliates, as applicable, and to take such other
action as may be reasonably requested in connection with the
foregoing.
Each of Duncan and Enterprise agrees, as to itself and its
subsidiaries, that (i) none of the information supplied or
to be supplied by it for inclusion or incorporation by reference
in this registration statement will, at the time this
registration statement and each amendment or supplement to this
registration statement, if any, becomes effective under the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated in this
registration statement or any amendment or supplement or
necessary to make the statements in this registration statement
or any amendment or supplement, in light of the circumstances
under which they were made, not misleading, and (ii) the
proxy statement/prospectus and any amendment or supplement to
this proxy statement/prospectus will, at the date of mailing to
the holders of Duncan common units and at the time of the Duncan
special meeting, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated in
this proxy statement/prospectus or any amendment or supplement
or necessary to make the statements in this proxy
statement/prospectus or any amendment or supplement, in light of
the circumstances under which they were made, not misleading.
Each of Duncan and Enterprise further agrees that if it becomes
aware prior to the closing date of any information that would
cause any of the statements in this registration statement or
any amendment or supplement to be false or misleading with
respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not false or
misleading, it will promptly inform the other party of such
information and take the necessary steps to correct such
information in an amendment or supplement to this registration
statement.
Enterprise will advise Duncan, promptly after Enterprise
receives notice of any of the following, of (i) the time
when this registration statement has become effective or any
supplement or amendment has been filed, (ii) the issuance
of any stop order or the suspension of the qualification of new
Enterprise common units for offering or sale in any
jurisdiction, (iii) the initiation or threat of any
proceeding for any such purpose, or (iv) any request by the
SEC for the amendment or supplement of this registration
statement or for additional information.
Duncan will use its commercially reasonable best efforts to
cause this proxy statement/prospectus to be mailed to its
unitholders as soon as practicable after the effective date of
this registration statement.
Press
Releases
Prior to any Duncan change in recommendation, if any, each of
Duncan and Enterprise will not, without the prior approval of
the Duncan Board in the case of Enterprise and the Enterprise
Board in the case of Duncan, issue any press release or written
statement for general circulation relating to the transactions
contemplated by the merger agreement, except as otherwise
required by applicable law or the rules of the
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NYSE, in which case it will consult with the other party before
issuing any such press release or written statement.
Access;
Information
Upon reasonable notice and subject to applicable laws relating
to the exchange of information, each party will, and will cause
its subsidiaries to, afford the other parties and their
representatives, access, during normal business hours throughout
the period prior to the effective time, to all of its
properties, books, contracts, commitments and records, and to
its representatives, and, during such period, it and its
subsidiaries will furnish promptly to such person and its
representatives (i) a copy of each material report,
schedule and other document filed by it pursuant to the
requirements of federal or state securities law (other than
reports or documents that Enterprise or Duncan or their
respective subsidiaries, as the case may be, are not permitted
to disclose under applicable law) and (ii) all other
information concerning its business, properties and personnel as
the other parties may reasonably request. Neither Duncan nor
Enterprise nor any of their respective subsidiaries will be
required to provide access to or to disclose information where
such access or disclosure would jeopardize the attorney-client
privilege of the institution in possession or control of such
information or contravene any law, fiduciary duty or binding
agreement entered into prior to the date of the merger
agreement. The parties to the merger agreement will make
appropriate substitute disclosure arrangements under the
circumstances in which the restrictions described in the
immediately preceding sentence apply.
Enterprise and Duncan, respectively, will not use any
information obtained pursuant to the merger agreement (to which
it was not entitled under law or any agreement other than the
merger agreement) for any purpose unrelated to (i) the
consummation of the transactions contemplated by the merger
agreement or (ii) the matters contemplated by the
provisions of the merger agreement concerning acquisition
proposals and a Duncan change in recommendation in accordance
with the terms of the merger agreement, and will hold all
information and documents obtained pursuant to the merger
agreement in confidence. No investigation by either party of the
business and affairs of the other will affect or be deemed to
modify or waive any representation, warranty, covenant or
agreement in the merger agreement, or the conditions to either
partys obligation to consummate the transactions
contemplated by the merger agreement.
Acquisition
Proposals; Change in Recommendation
Neither Duncan GP nor Duncan will, and they will use their
commercially reasonable best efforts to cause their
representatives not to, directly or indirectly,
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initiate, solicit, knowingly encourage or facilitate any
inquiries or the making or submission of any proposal that
constitutes, or may reasonably be expected to lead to, an
acquisition proposal; or
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participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect
to, any acquisition proposal.
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As defined in the merger agreement, acquisition
proposal means any proposal or offer from or by any person
other than Enterprise, Enterprise GP, and MergerCo relating to:
(i) any direct or indirect acquisition of (a) more
than 20% of the assets of Duncan and its subsidiaries, taken as
a whole, (b) more than 20% of the outstanding equity
securities of Duncan or (c) a business or businesses that
constitute more than 20% of the cash flow, net revenues, net
income or assets of Duncan and its subsidiaries, taken as a
whole; (ii) any tender offer or exchange offer, as defined
under the Exchange Act, that, if consummated, would result in
any person beneficially owning more than 20% of the outstanding
equity securities of Duncan; or (iii) any merger,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving
Duncan, other than the merger. As defined in the merger
agreement, superior proposal means any bona fide
acquisition proposal (except that references to 20% within the
definition of acquisition proposal will be replaced
by 50%) made by a third party on terms that the
Duncan ACG Committee determines, in its good faith judgment and
after consulting with its or Duncans financial advisors
and outside legal counsel, and taking into account the
financial, legal, regulatory and other aspects of the
acquisition proposal (including any conditions to and the
expected timing of consummation and any risks of
non-consummation), to be more favorable to Duncan unitholders,
from a financial point of view than the merger (taking into
account the
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transactions contemplated by the merger agreement and any
revised proposal by the Enterprise Audit Committee to amend the
terms of the merger agreement).
Notwithstanding the prohibitions described above, nothing
contained in the merger agreement will prohibit Duncan or any of
its representatives from furnishing any information or data
pertaining to Duncan, or entering into or participating in
discussions or negotiations with, any person that makes an
unsolicited written acquisition proposal that did not result
from a knowing and intentional breach of the provisions of the
merger agreement summarized under this section
Acquisition Proposals; Change in
Recommendation (a Receiving Party), if
(i) the Duncan ACG Committee after consultation with its
outside legal counsel and financial advisors, determines in good
faith (a) that such acquisition proposal constitutes or is
likely to result in a superior proposal, and (b) that
failure to take such action would be inconsistent with its
duties under the existing Duncan partnership agreement and
applicable law and (ii) prior to furnishing any non-public
information to such Receiving Party (including any information
pertaining to a Duncan subsidiary in which Enterprise has an
equity interest or to which Enterprise is a party), Duncan
receives from such Receiving Party an executed confidentiality
agreement.
Except as otherwise provided in the merger agreement, neither
the Duncan ACG Committee nor the Duncan Board will:
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(i) withdraw, modify or qualify in any manner adverse to
Enterprise its recommendation of the merger agreement and the
merger or (ii) publicly approve or recommend, or publicly
propose to approve or recommend, any acquisition proposal (any
action described in this clause being referred to as a
Duncan change in recommendation); or
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approve, adopt or recommend, or publicly propose to approve,
adopt or recommend, or allow Duncan or any of its subsidiaries
to execute or enter into, any letter of intent, memorandum of
understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement, joint venture
agreement, partnership agreement, or other similar contract or
any tender or exchange offer providing for, with respect to, or
in connection with, any acquisition proposal.
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Notwithstanding the limitations described in the immediately
preceding paragraph, at any time prior to obtaining the Duncan
unitholder approval, the Duncan ACG Committee may make a Duncan
change in recommendation if it has concluded in good faith,
after consultation with its outside legal counsel and financial
advisors, that failure to make a Duncan change in recommendation
would be inconsistent with its duties under the Duncan
partnership agreement and applicable law; provided, however,
that (i) the Duncan ACG Committee will not be entitled to
exercise its right to make a Duncan change in recommendation
pursuant to this sentence unless Duncan and Duncan GP have:
(a) complied in all material respects with the provisions
of the merger agreement summarized under this section
Acquisition Proposals; Change in
Recommendation, (b) provided to Enterprise and the
Enterprise Audit Committee three business days prior written
notice advising Enterprise that the Duncan ACG Committee intends
to make a Duncan change in recommendation and specifying the
reasons for the change in reasonable detail, including, if
applicable, the terms and conditions of any superior proposal
that is the basis of the proposed action and the identity of the
person making the proposal (it being understood and agreed that
any amendment to the terms of any such superior proposal will
require a new notice of the proposed recommendation change and
an additional three business day period), and (c) if
applicable, provided to Enterprise all materials and information
delivered or made available to the person or group of persons
making any superior proposal in connection with such superior
proposal (to the extent not previously provided), and
(ii) the Duncan ACG Committee will not be entitled to make
a Duncan change in recommendation in response to an acquisition
proposal unless such acquisition proposal constitutes a superior
proposal. Any Duncan change in recommendation will not
invalidate the approval of the merger agreement or any other
approval of the Duncan ACG Committee, including in any respect
that would have the effect of causing any state (including
Delaware) corporate takeover statute or other similar statute to
be applicable to the transactions contemplated by the merger
agreement or any such law, including the merger. Notwithstanding
any provision in the merger agreement to the contrary,
Enterprise and Enterprise GP will maintain, and cause their
representatives to maintain, the confidentiality of all
information received from Duncan pursuant to the provisions of
the merger agreement
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summarized under this section Acquisition
Proposals; Change in Recommendation, subject to the
exceptions contained in the confidentiality agreement.
In addition to the obligations of Duncan set forth in the
provisions of the merger agreement summarized under this section
Acquisition Proposals; Change in
Recommendation, Duncan will as promptly as practicable
(and in any event within 24 hours after receipt) advise
Enterprise orally and in writing of any acquisition proposal or
any matter giving rise to a Duncan change in recommendation and
the material terms and conditions of any such acquisition
proposal or any matter giving rise to a Duncan change in
recommendation (including any changes thereto) and the identity
of the person making such acquisition proposal. Duncan will keep
Enterprise informed on a reasonably current basis of material
developments with respect to any such acquisition proposal or
any matter giving rise to a Duncan change in recommendation.
Nothing contained in the merger agreement will prevent Duncan or
the Duncan ACG Committee from taking and disclosing to the
holders of Duncan common units a position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act (or any similar communication
to limited partners of Duncan) or from making any legally
required disclosure to holders of Duncan common units. Any
stop-look-and-listen communication by Duncan or the
Duncan Board to the limited partners of Duncan pursuant to
Rule 14d-9(f)
promulgated under the Exchange Act (or any similar communication
to the limited partners of Duncan) will not be considered a
failure to make, or a withdrawal, modification or change in any
manner adverse to Enterprise of, all or a portion of the
recommendation of the merger agreement and the merger by the
Duncan ACG Committee and the Duncan Board.
Affiliate
Arrangements
Not later than the 15th day after the mailing of this proxy
statement/prospectus, Duncan will deliver to Enterprise a
schedule listing each person that, to the best of its knowledge,
is or is reasonably likely to be, as of the date of the Duncan
special meeting, deemed to be an affiliate of Duncan
as that term is used in Rule 145 under the Securities Act.
Duncan will use its commercially reasonable best efforts to
cause such affiliates not to sell any securities received
pursuant to the merger in violation of the registration
requirements of the Securities Act, including Rule 145
thereunder.
Takeover
Laws
Neither Duncan nor Enterprise will take any action that would
cause the transactions contemplated by the merger agreement to
be subject to requirements imposed by any takeover laws, and
each of them will take all necessary steps within its control to
exempt (or ensure the continued exemption of) the transactions
contemplated by the merger agreement from, or if necessary
challenge the validity or applicability of, any rights plan
adopted by such party or any applicable takeover law, as in
effect on the date of the merger agreement or thereafter,
including takeover laws of any state that purport to apply to
the merger agreement or the transactions contemplated by the
merger agreement.
No
Rights Triggered
Each of Duncan and Enterprise will take all steps necessary to
ensure that the entering into of the merger agreement and the
consummation of the transactions contemplated by the merger
agreement and any other action or combination of actions, or any
other transactions contemplated by the merger agreement, do not
and will not result in the grant of any rights to any person
(i) in the case of Duncan, under the existing Duncan
partnership agreement, and, in the case of Enterprise, under
Enterprises partnership agreement or (ii) under any
material agreement to which it or any of its subsidiaries is a
party.
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New
Common Units Listed
Enterprise will use its commercially reasonable best efforts to
list, prior to the closing, on the NYSE, upon official notice of
issuance, the new Enterprise common units to be issued as merger
consideration in connection with the merger.
Third
Party Approvals
Enterprise and Duncan and their respective subsidiaries will
cooperate and use their respective commercially reasonable best
efforts to prepare all documentation, to effect all filings, to
obtain all permits, consents, approvals and authorizations of
all governmental authorities and third parties necessary to
consummate the transactions contemplated by the merger agreement
and to comply with the terms and conditions of such permits,
consents, approvals and authorizations and to cause the merger
to be consummated as expeditiously as practicable. Each of
Enterprise and Duncan will have the right to review in advance,
and to the extent practicable each will consult with the other,
in each case subject to applicable laws relating to the exchange
of information, with respect to, all material written
information submitted to any third party or any governmental
authorities in connection with the transactions contemplated by
the merger agreement. In exercising the foregoing right, each of
the parties to the merger agreement agrees to act reasonably and
promptly. Each party to the merger agreement agrees that it will
consult with the other parties with respect to the obtaining of
all material permits, consents, approvals and authorizations of
all third parties and governmental authorities necessary or
advisable to consummate the transactions contemplated by the
merger agreement, and each party will keep the other parties
apprised of the status of material matters relating to
completion of the transactions contemplated by the merger
agreement.
Each of Enterprise and Duncan agrees, upon request, to furnish
the other party with all information concerning itself, its
subsidiaries, directors, officers and unitholders and such other
matters as may be reasonably necessary or advisable in
connection with the registration statement, this proxy
statement/prospectus or any filing, notice or application made
by or on behalf of such other party or any of such other
partys subsidiaries to any governmental authority in
connection with the transactions contemplated by the merger
agreement.
Indemnification;
Directors and Officers Insurance
Without limiting any additional rights that any director,
officer, trustee, employee, agent, or fiduciary may have under
any employment or indemnification agreement or under the
existing Duncan partnership agreement, the existing limited
liability company agreement of Duncan GP or the merger agreement
or, if applicable, similar organizational documents or
agreements of any of Duncans subsidiaries, from and after
the effective time, Enterprise GP, Enterprise and the surviving
entity, jointly and severally, will: (i) indemnify and hold
harmless each person who is at the date of the merger agreement
or during the period from the date of the merger agreement
through the date of the effective time serving as a director or
officer of Duncan GP or Enterprise GP or of any of their
respective subsidiaries or as a trustee of (or in a similar
capacity with) any compensation and benefit plan of any thereof
(collectively, the Indemnified Parties) to the
fullest extent authorized or permitted by applicable law, as in
effect at or after the time of the merger agreement, in
connection with any claim arising from his or her service in
such capacity and any losses, claims, damages, liabilities,
costs, indemnification expenses, judgments, fines, penalties and
amounts paid in settlement (including all interest, assessments
and other charges paid or payable in connection with or in
respect of any thereof) resulting therefrom; and
(ii) promptly pay on behalf of or, within 10 days
after any request for advancement, advance to each of the
Indemnified Parties, any indemnification expenses incurred in
defending, serving as a witness with respect to or otherwise
participating with respect to any such claim in advance of the
final disposition of such claim, including payment on behalf of
or advancement to the Indemnified Party of any indemnification
expenses incurred by such Indemnified Party in connection with
enforcing any rights with respect to such indemnification
and/or
advancement, in each case without the requirement of any bond or
other security. The indemnification and advancement obligations
of Enterprise GP, Enterprise and the surviving entity pursuant
to the merger agreement will extend to acts or omissions
occurring at or before the effective time and any claim relating
thereto (including with respect to any acts or omissions
occurring in
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connection with the approval of the merger agreement and the
consummation of the merger and the transactions contemplated by
the merger agreement, including the consideration and approval
thereof and the process undertaken in connection therewith and
any claim relating thereto), and all rights to indemnification
and advancement conferred under the merger agreement will
continue as to any Indemnified Party who has ceased to be a
director or officer of Duncan GP or Enterprise GP after the date
of the merger agreement and will inure to the benefit of such
persons heirs, executors and personal and legal
representatives. Neither Enterprise GP nor Enterprise or
MergerCo will settle, compromise or consent to the entry of any
judgment in any actual or threatened action in respect of which
indemnification has been or could be sought by such Indemnified
Party under the merger agreement unless the settlement,
compromise or judgment includes an unconditional release of that
Indemnified Party from all liability arising out of that action
without admission or finding of wrongdoing, or that Indemnified
Party otherwise consents to such settlement, compromise or
judgment.
Without limiting the foregoing, Enterprise and MergerCo agree
that all rights to indemnification, advancement of expenses and
exculpation from liabilities for acts or omissions occurring at
or prior to the effective time existing as of the time of the
merger agreement in favor of the indemnitees as provided in the
Duncan partnership agreement (or, as applicable, the charter,
bylaws, partnership agreement, limited liability company
agreement, or other organizational documents of any of
Duncans subsidiaries) and indemnification agreements of
Duncan or any of its subsidiaries will be assumed by the
surviving entity, Enterprise and Enterprise GP, without further
action, at the effective time and will survive the merger and
will continue in full force and effect in accordance with their
terms.
For a period of six years from the effective time, Duncans
partnership agreement will contain provisions no less favorable
with respect to indemnification, advancement of expenses and
limitations on liability of directors and officers than are set
forth in the existing Duncan partnership agreement, which
provisions will not be amended, repealed or otherwise modified
for a period of six years from the effective time in any manner
that would affect adversely the rights under Enterprises
partnership agreement of individuals who, at or prior to the
effective time, were Indemnified Parties, unless such
modification is required by law and then only to the minimum
extent required by law.
For a period of six years from the effective time, Enterprise
will, or will cause EPCO to, maintain in effect the current
directors and officers liability insurance policies
covering the Indemnified Parties maintained by EPCO (but may
substitute therefor other policies of at least the same coverage
and amounts containing terms and conditions that are no less
advantageous to the Indemnified Parties so long as that
substitution does not result in gaps or lapses in coverage) with
respect to matters occurring on or before the effective time,
but neither Enterprise nor EPCO will be required to pay annual
premiums in excess of 300% of the last annual premiums paid for
the insurance policies prior to the date of the merger agreement
and will purchase as much coverage as is reasonably practicable
for that amount if the coverage described in the merger
agreement would cost in excess of that amount.
If Enterprise, Enterprise GP, the surviving entity or any of
their respective successors or assigns (i) consolidates
with or merges with or into any other person and will not be the
continuing or surviving corporation, partnership or other entity
of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will
be made so that the successors and assigns of Enterprise,
Enterprise GP following the merger or the surviving entity
assume the obligations set forth in the provisions of the merger
agreement summarized under this section
Indemnification; Directors and
Officers Insurance. Enterprise and Enterprise GP
following the merger will cause the surviving entity to perform
all of the obligations of the surviving entity under these
provisions of the merger agreement. These provisions will
survive the consummation of the merger and are intended to be
for the benefit of, and will be enforceable by, the Indemnified
Parties and the indemnitees and their respective heirs and
personal representatives, and will be binding on Enterprise,
Enterprise GP following the merger, the surviving entity and
their respective successors and assigns.
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Notification
of Certain Matters
Each of Duncan and Enterprise will give prompt notice to the
other of (i) any fact, event or circumstance known to it
that (a) is reasonably likely, individually or taken
together with all other facts, events and circumstances known to
it, to result in any material adverse effect with respect to it
or (b) would cause or constitute a material breach of any
of its representations, warranties, covenants or agreements
contained in the merger agreement, and (ii) (a) any change
in its condition (financial or otherwise) or business or
(b) any litigation or governmental complaint, investigation
or hearing, in each case to the extent such change, litigation,
complaint, investigation or hearing results in, or would
reasonably be expected to result in, a material adverse effect.
Rule 16b-3
Prior to the effective time, each of Enterprise and Duncan will
take any steps that are reasonably requested by any party to the
merger agreement to cause dispositions of Duncan or Enterprise
equity securities (including derivative securities), as
applicable, pursuant to the transactions contemplated by the
merger agreement by each individual who is a director or officer
of Duncan or Enterprise, as applicable, to be exempt under
Rule 16b-3
promulgated under the Exchange Act in accordance with the
No-Action Letter dated January 12, 1999 issued by the SEC
regarding such matters.
Duncan
Second Amended and Restated Partnership Agreement; Exchange and
Contribution Agreement; Duncan Third Amended and Restated
Partnership Agreement
Effective as of the effective time, Duncan GP and Enterprise
will execute and make effective the Duncan Second Amended and
Restated Partnership Agreement in substantially the form
attached as
Annex B-1
to the merger agreement. Effective immediately after the
effective time, Duncan, Duncan GP and Enterprise agree
(i) to make and cause to be made the exchange of merger
consideration by GTM pursuant to and in accordance with the
Exchange and Contribution Agreement and (ii) to enter into
the Duncan Third Amended and Restated Partnership Agreement in
substantially the form attached as
Annex B-2
to the merger agreement. Please also read
Structure of the Merger and Related
Transactions for additional information.
Duncan
Board Membership
The members of the Duncan Board immediately prior to the
effective time will continue to serve as members of the Duncan
Board following the effective time unless otherwise determined
or removed effective at such time or thereafter by the sole
member of Duncan GP in accordance with the limited liability
company agreement of Duncan GP.
Distributions
Each of Duncan GP and Enterprise GP will consult with the other
regarding the declaration and payment of distributions in
respect of the Duncan common units and the Enterprise common
units and the record and payment dates relating to any such
distributions, so that no Duncan unitholder will receive two
distributions, or fail to receive one distribution, for any
single calendar quarter with respect to its applicable Duncan
common units or any Enterprise common units any such Duncan
unitholder receives in exchange for his Duncan common units
pursuant to the merger.
Duncan
GP Amended and Restated Limited Liability Company
Agreement
As of the effective time, the existing limited liability company
agreement of Duncan GP will be amended and restated in
substantially the form attached as Annex A to the merger
agreement.
Duncan
Unit Purchase Plan
The Duncan common units credited to the accounts of participants
under the Duncan Unit Purchase Plan as of the effective time
will be converted pursuant to the merger agreement into the
right to receive merger
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consideration. As soon as administratively feasible after the
effective time, Enterprise will use its commercially reasonable
efforts to cause such merger consideration resulting from such
conversion to be transferred to the custodian of the Duncan Unit
Purchase Plan for crediting in the appropriate amount to the
account of each participant in the Duncan Unit Purchase Plan
entitled to merger consideration pursuant to the merger
agreement. If the Duncan Unit Purchase Plan is continued
pursuant to the merger agreement, it will remain suspended
unless and until such time as such suspension is lifted by EPCO
in accordance with the provisions of such plan. If the Duncan
Unit Purchase Plan is terminated in accordance with the merger
agreement, no further purchase rights will be granted or may be
exercised under the Duncan Unit Purchase Plan at or after the
effective time, and the procedures described in
Section 8(b) of the Duncan Unit Purchase Plan, or such
other procedures as are established in accordance with the
provisions of the Duncan Unit Purchase Plan, will be utilized in
connection with the distribution of any cash and Enterprise
common units in participants accounts in the Duncan Unit
Purchase Plan to the participants in connection with the
termination of such plan.
To the extent notice is required, Duncan will cause notice of
the suspension of the Duncan Unit Purchase Plan in accordance
with the merger agreement, the continuation of the Duncan Unit
Purchase Plan, as adjusted to apply to Enterprise common units,
in accordance with the merger agreement, or the termination of
the Duncan Unit Purchase Plan in accordance with the merger
agreement to be given in accordance with the terms of such plan.
Termination
The merger agreement may be terminated at any time prior to the
effective time of the merger in any of the following ways:
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by mutual written consent of Duncan and Enterprise;
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by either Duncan or Enterprise upon written notice to the
other if:
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the merger is not completed on or before October 31, 2011;
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any governmental authority has issued a final and nonappealable
statute, rule, order, decree or regulation or taken any other
action that permanently restrains, enjoins or prohibits the
consummation of the merger, or makes the merger illegal, so long
as the terminating party is not then in breach of its obligation
to use commercially reasonable best efforts to complete the
merger promptly;
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Duncan (i) determines not to, or otherwise fails to, hold
the Duncan special meeting in accordance with the provisions
summarized under Covenants Duncan
Unitholder Approval or (ii) does not obtain the
Duncan unitholder approval at the Duncan special meeting.
Duncans right to terminate the merger agreement as
described in this bullet point will not, however, be available
to Duncan if the failure to obtain the Duncan unitholder
approval was caused by the action or failure to act of Duncan
and such action or failure to act constitutes a material breach
by Duncan of the merger agreement;
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there has been a material breach of or any material inaccuracy
in any of the representations or warranties set forth in the
merger agreement on the part of any of the other parties
(treating Enterprise, Enterprise GP and MergerCo as one party,
and Duncan and Duncan GP as one party, for the purposes of the
provision summarized in this bullet point), which breach is not
cured within 30 days following receipt by the breaching
party of written notice of its breach from the terminating
party, or which breach, by its nature, cannot be cured prior to
October 31, 2011 (provided in any such case that the
terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained
in the merger agreement). No party will have the right, however,
to terminate the merger agreement pursuant to the provision
summarized in this bullet point unless the breach of a
representation or warranty, together with all other such
breaches, would entitle the party receiving such representation
not to consummate the transactions contemplated by the merger
agreement because the closing conditions described in the first
bullet point under Conditions to the
Merger Additional Conditions to the Obligations of
Duncan or
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84
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Conditions to the Merger
Additional Conditions to the Obligations of Enterprise, as
applicable, have not been met; or
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there has been a material breach of any of the covenants or
agreements set forth in the merger agreement on the part of any
of the other parties to the merger agreement, and the breach has
not been cured within 30 days following receipt by the
breaching party of written notice of such breach from the
terminating party, or which breach, by its nature, cannot be
cured prior to the termination date (so long as the terminating
party itself is not then in material breach of any
representation, warranty, covenant or other agreement contained
in the merger agreement). In no event, however, will any party
have the right to terminate the merger agreement pursuant to the
provision summarized in this bullet point unless the breach of
covenants or agreements, together with all other such breaches,
would entitle the party receiving the benefit of such covenants
or agreements not to consummate the transactions contemplated by
the merger agreement because the closing conditions described in
the first bullet point under Conditions to the
Merger Additional Conditions to the Obligations of
Duncan or Conditions to the
Merger Additional Conditions to the Obligations of
Enterprise, as applicable, have not been met.
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By Enterprise, upon written notice to Duncan, in the event that
a Duncan change in recommendation has occurred; and
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By Duncan, upon written notice to Enterprise, in the event that,
at any time after the date of the merger agreement and prior to
obtaining the Duncan unitholder approval, Duncan receives an
acquisition proposal and the Duncan ACG Committee has concluded
in good faith that such acquisition proposal constitutes a
superior proposal, the Duncan ACG Committee has made a Duncan
change in recommendation pursuant to the merger agreement with
respect to such superior proposal, Duncan has not knowingly and
intentionally breached the provisions of the merger agreement
summarized above under Covenants
Acquisition Proposals; Change in Recommendation, and the
Duncan ACG Committee concurrently approves, and Duncan
concurrently enters into, a definitive agreement with respect to
such superior proposal.
|
Effect
of Termination
In the event of the termination of the merger agreement, written
notice of the termination will be given by the terminating party
to the other parties specifying the provision of the merger
agreement pursuant to which the termination is made, and except
as provided in the provision summarized in this paragraph (other
than certain provisions with regard to payment of fees and
expenses, governing law, jurisdiction, remedies and other
matters), the merger agreement will become null and void after
the expiration of any applicable period following such notice.
In the event of such termination, there will be no liability on
the part of any party to the merger agreement, except with
respect to (i) fees and expenses summarized below under
Fees and Expenses and (ii) the
requirement to comply with the confidentiality agreement.
Nothing in the merger agreement, however, will relieve any party
from any liability or obligation with respect to any fraud or
intentional breach of the merger agreement.
Fees and
Expenses
Whether or not the merger is consummated, all costs and expenses
incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid
by the party incurring such costs and expenses.
Waiver
and Amendment
Subject to compliance with applicable law, prior to the closing,
any provision of the merger agreement except the requirement of
Duncan unaffiliated unitholder approval (see
Conditions of the Merger Conditions of Each Party)
may be waived in writing by the party benefited by the
provision, or amended or modified at any time, whether before or
after the Duncan unitholder approval, by an agreement in writing
between the parties to the merger agreement, as long as
(i) after the Duncan unitholder approval, no
85
amendment will be made to the nature or amount of the merger
consideration or that results in a material adverse effect on
the Duncan unaffiliated unitholders without the required Duncan
unitholder approval (Duncan GP being authorized to approve any
other amendment on behalf of Duncan without any other approval
of the Duncan unitholders); and (ii) in addition to any
other approvals required by the parties constituent
documents or under the merger agreement, any of the waivers,
amendments or modifications as described above are approved by
the Enterprise Audit Committee in the case of Enterprise and by
the Duncan Board and the Duncan ACG Committee in the case of
Duncan.
Unless otherwise expressly set forth in the merger agreement,
whenever Duncan or Duncan GP approval or consent is required
pursuant to the merger agreement, such approval or consent shall
require the approval or consent of each of the Duncan Board and
the Duncan ACG Committee, and shall not require any approval of
the Duncan unitholders.
Governing
Law
The merger agreement is governed by and interpreted under
Delaware law.
86
SELECTED
FINANCIAL DATA AND PRO FORMA INFORMATION
OF ENTERPRISE AND DUNCAN
The following tables set forth, for the periods and at the dates
indicated, selected historical and pro forma financial
information for Enterprise and selected historical financial
information for Duncan. The selected historical financial data
for Enterprise and Duncan as of and for each of the years ended
December 31, 2006, 2007, 2008, 2009 and 2010 are derived
from and should be read in conjunction with the audited
financial statements and accompanying footnotes for such
periods. The selected historical financial data as of and for
the three-month periods ended March 31, 2010 and 2011 are
derived from and should be read in conjunction with the
unaudited financial statements and accompanying footnotes for
such periods. Enterprises and Duncans consolidated
balance sheets as of December 31, 2009 and 2010 and as of
March 31, 2011, and the related statements of consolidated
operations, comprehensive income, cash flows and equity for each
of the three years in the period ended December 31, 2010
and the three months ended March 31, 2010 and 2011 are
incorporated by reference into this proxy statement/prospectus
from Enterprises and Duncans respective annual
reports on
Form 10-K
for the year ended December 31, 2010, and quarterly reports
on
Form 10-Q
for the three months ended March 31, 2011.
The selected unaudited pro forma condensed consolidated
financial statements of Enterprise show the pro forma effect of
Enterprises proposed merger with Duncan. In addition to
the proposed merger, the historical condensed consolidated
statement of operations for the year ended December 31,
2010 has been adjusted to give effect to the Holdings Merger.
For a complete discussion of the pro forma adjustments
underlying the amounts in the table below, please read
Unaudited Pro Forma Condensed Consolidated Financial
Statements beginning on
page F-2
of this document.
Duncan is a consolidated subsidiary of Enterprise for financial
accounting and reporting purposes. The proposed merger will be
accounted for in accordance with Financial Accounting Standards
Board Accounting Standards Codification 810,
Consolidations Overall Changes in
Parents Ownership Interest in a Subsidiary, which is
referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger.
The unaudited pro forma condensed consolidated financial
statements have been prepared to assist in the analysis of
financial effects of the proposed merger between Enterprise and
Duncan. The unaudited pro forma condensed statements of
consolidated operations for the year ended December 31,
2010 and the three months ended March 31, 2011 assume the
proposed merger-related transactions occurred on January 1,
2010. The unaudited pro forma condensed consolidated balance
sheet assumes the proposed merger-related transactions occurred
on March 31, 2011. The unaudited pro forma condensed
consolidated financial statements are based upon assumptions
that Enterprise and Duncan believe are reasonable under the
circumstances, and are intended for informational purposes only.
They are not necessarily indicative of the financial results
that would have occurred if the transactions described herein
had taken place on the dates indicated, nor are they indicative
of the future consolidated results of the combined entity.
For information regarding the effect of the merger on pro forma
distributions to Duncan unitholders, please read
Comparative Per Unit Information.
87
Selected
Historical and Pro Forma Financial Information of
Enterprise
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Enterprise Pro Forma
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Enterprise Consolidated Historical
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For The Year
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For the Three
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For the Three Months
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Ended
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Months
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For The Year Ended December 31,
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Ended March 31,
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December 31,
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Ended March 31,
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2006
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2007
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2008
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2009
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2010
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2010
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2011
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2010
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2011
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(Dollars in millions, except per unit amounts)
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(Unaudited)
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(Unaudited)
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Income statement data:
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Revenues
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$
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23,612.2
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$
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26,713.8
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$
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35,469.6
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$
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25,510.9
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$
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33,739.3
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$
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8,544.5
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$
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10,183.7
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$
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33,739.3
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$
|
10,183.7
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Net income
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772.4
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|
762.0
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1,145.1
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1,140.3
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1,383.7
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392.4
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|
434.5
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1,383.7
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434.5
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Net income attributable to noncontrolling interest
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(638.4
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)
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(653.0
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)
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(981.1
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)
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(936.2
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)
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(1,062.9
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)
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(322.5
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)
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(13.8
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)
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(25.5
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)
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(5.9
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)
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Net income attributable to the partners
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$
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134.0
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$
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109.0
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$
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164.0
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$
|
204.1
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|
$
|
320.8
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|
$
|
69.9
|
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|
$
|
420.7
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$
|
1,358.2
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|
$
|
428.6
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Earnings per unit from continuing operations:
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Basic earnings per unit
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$
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0.87
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$
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0.65
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$
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0.89
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$
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0.99
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$
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1.17
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$
|
0.33
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$
|
0.52
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$
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1.67
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$
|
0.51
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Diluted earnings per unit
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$
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0.87
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$
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0.65
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$
|
0.89
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$
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0.99
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$
|
1.15
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$
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0.33
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$
|
0.49
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$
|
1.59
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$
|
0.49
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Distributions to limited partners:
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Per common unit(1)
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$
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1.8250
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$
|
1.9475
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$
|
2.0750
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$
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2.1950
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$
|
2.3150
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$
|
0.5675
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$
|
0.5975
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$
|
2.3150
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$
|
0.5975
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Balance sheet data (at period end):
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Total assets
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$
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19,120.1
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$
|
24,084.4
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$
|
25,780.4
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$
|
27,686.3
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|
$
|
31,360.8
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|
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$
|
28,025.1
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|
|
$
|
31,821.2
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|
n/a
|
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|
$
|
31,807.1
|
|
Total long-term and current maturities of debt
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|
|
7,053.9
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|
|
|
9,861.2
|
|
|
|
12,714.9
|
|
|
|
12,427.9
|
|
|
|
13,563.5
|
|
|
|
12,183.9
|
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|
14,055.9
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|
|
|
n/a
|
|
|
|
14,055.9
|
|
Total equity
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|
|
8,968.7
|
|
|
|
9,530.0
|
|
|
|
9,759.4
|
|
|
|
10,473.1
|
|
|
|
11,900.8
|
|
|
|
10,822.1
|
|
|
|
11,800.0
|
|
|
|
n/a
|
|
|
|
11,785.9
|
|
|
|
|
(1) |
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Represents cash distributions per unit declared with respect to
period by Enterprise. |
Selected
Historical Financial Information of Duncan
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|
Duncan Consolidated Historical
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For the Three Months
|
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For The Year Ended December 31,
|
|
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Ended March 31,
|
|
|
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|
|
|
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|
2006(1)
|
|
|
2007(1)
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Income statement data:
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
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|
|
Revenues
|
|
$
|
1,263.0
|
|
|
$
|
1,220.3
|
|
|
$
|
1,598.1
|
|
|
$
|
979.3
|
|
|
$
|
1,115.1
|
|
|
$
|
290.6
|
|
|
$
|
283.2
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
51.7
|
|
|
|
23.6
|
|
|
|
55.3
|
|
|
|
45.8
|
|
|
|
53.4
|
|
|
|
15.7
|
|
|
|
18.3
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interest
|
|
|
|
|
|
|
(20.0
|
)
|
|
|
(7.4
|
)
|
|
|
45.3
|
|
|
|
36.7
|
|
|
|
5.5
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Duncan
|
|
$
|
51.7
|
|
|
$
|
3.6
|
|
|
$
|
47.9
|
|
|
$
|
91.1
|
|
|
$
|
90.1
|
|
|
$
|
21.2
|
|
|
$
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per unit
|
|
|
n/a
|
|
|
$
|
0.93
|
|
|
$
|
1.22
|
|
|
$
|
1.57
|
|
|
$
|
1.55
|
|
|
$
|
0.37
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per unit (declared with respect to period)
|
|
|
n/a
|
|
|
$
|
1.4640
|
|
|
$
|
1.6775
|
|
|
$
|
1.7500
|
|
|
$
|
1.8050
|
|
|
$
|
0.4475
|
|
|
$
|
0.4575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,798.4
|
|
|
$
|
3,983.3
|
|
|
$
|
4,594.7
|
|
|
$
|
4,770.8
|
|
|
$
|
5,571.9
|
|
|
$
|
4,804.3
|
|
|
$
|
5,877.4
|
|
|
|
|
|
|
|
|
|
Total debt obligations
|
|
|
n/a
|
|
|
|
200.0
|
|
|
|
484.3
|
|
|
|
457.3
|
|
|
|
788.3
|
|
|
|
457.3
|
|
|
|
897.8
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
n/a
|
|
|
|
669.9
|
|
|
|
3,844.2
|
|
|
|
4,136.9
|
|
|
|
4,519.6
|
|
|
|
4,182.7
|
|
|
|
4,692.5
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Financial information pertaining to periods prior to
Duncans initial public offering in February 2007
reflects the assets, liabilities and operations contributed to
Duncan by EPO effective February 1, 2007. |
88
THE
MERGER PARTIES BUSINESSES
Duncans
Business
This section summarizes information from Duncans Annual
Report on
Form 10-K
for the year ended December 31, 2010, Duncans
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011 and the other filings
incorporated into this proxy statement/prospectus by reference.
For a more detailed discussion of Duncans business, please
read the Business and Properties section contained
in Duncans 2010 Annual Report on
Form 10-K
and the other filings incorporated into this document by
reference.
General
Duncan is a publicly traded Delaware limited partnership, the
common units of which are listed on the NYSE under the ticker
symbol DEP. Duncans business purpose is to
acquire, own and operate a diversified portfolio of midstream
energy assets and to support the growth objectives of EPO and
other affiliates of EPCO that are under common control. Duncan
is engaged in the business of: (i) NGL transportation,
fractionation and marketing; (ii) storage of NGL,
petrochemical and refined products; (iii) transportation of
petrochemical products; and (iv) the gathering,
transportation, marketing and storage of natural gas.
Duncans assets, located primarily in Texas and Louisiana,
include approximately: 11,200 miles of natural gas, NGL and
petrochemical pipelines; two NGL fractionation facilities;
17.3 MMBbls of leased NGL storage capacity; 8.1 Bcf of
leased natural gas storage capacity; and 34 underground salt
dome caverns with approximately 100 MMBbls of NGL and
related product storage capacity. Duncans assets are
integral to EPOs midstream energy operations and are
located near significant natural gas production basins such as
the Eagle Ford Shale, Barnett Shale and Haynesville Shale.
At March 31, 2011, Duncan was owned 99.3% by its limited
partners and 0.7% by its general partner, Duncan GP. Enterprise
indirectly beneficially owned approximately 58.5% of the limited
partner interests in Duncan and 100% of Duncan GP. Duncan GP is
responsible for managing Duncans business and operations.
Duncans principal executive offices are located at 1100
Louisiana Street, 10th Floor, Houston, Texas 77002, and its
telephone number is
(713) 381-6500.
Duncans
Business Segments
Duncan has three reportable business
segments: (i) Natural Gas
Pipelines & Services; (ii) NGL
Pipelines & Services; and (iii) Petrochemical
Services. Duncan provides the services in these segments
directly and through its subsidiaries and unconsolidated
affiliates.
Duncans
Strategy
Duncans business strategies are to:
|
|
|
|
|
optimize the benefits of its economies of scale, strategic
location and pipeline connections serving natural gas, NGL,
petrochemical and refining customers;
|
|
|
|
manage its portfolio of midstream energy assets to minimize
volatility in its cash flows;
|
|
|
|
invest in organic growth capital projects to capitalize on
market opportunities that expand its asset base and generate
additional cash flow; and
|
|
|
|
pursue acquisitions of assets and businesses from related
parties or, in accordance with its business opportunity
agreements, from third parties.
|
Enterprises
Business
This section summarizes information from Enterprises
Annual Report on
Form 10-K
for the year ended December 31, 2010, Enterprises
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011 and the other filings
incorporated into this proxy statement/prospectus by reference.
For a more detailed discussion
89
of Enterprises business, please read the Business
and Properties section contained in its 2010 Annual Report
on
Form 10-K
and the other filings incorporated into this proxy
statement/prospectus by reference.
General
Enterprise is a publicly traded Delaware limited partnership,
the common units of which are listed on the NYSE under the
ticker symbol EPD. Enterprise was formed in April
1998 to own and operate certain NGLs related businesses of EPCO.
Enterprise is a leading North American provider of midstream
energy services to producers and consumers of natural gas, NGLs,
crude oil, refined products and certain petrochemicals.
Enterprises midstream energy asset network links producers
of natural gas, NGLs and crude oil from some of the largest
supply basins in the United States, Canada and the Gulf of
Mexico with domestic consumers and international markets.
Enterprises assets include approximately:
50,200 miles of onshore and offshore pipelines;
192 MMBbls of storage capacity for NGLs, refined products
and crude oil; and 27 Bcf of natural gas storage capacity.
Enterprises midstream energy operations include: natural
gas gathering, treating, processing, transportation and storage;
NGL transportation, fractionation, storage, and import and
export terminaling; crude oil and refined products
transportation, storage and terminaling; offshore production
platforms; petrochemical transportation and services; and a
marine transportation business that operates primarily on the
United States inland and Intracoastal Waterway systems and in
the Gulf of Mexico.
Enterprise is owned 100% by its limited partners from an
economic perspective. Enterprise is managed and controlled by
Enterprise GP, which has a non-economic general partner interest
in Enterprise. Enterprise GP is a wholly owned subsidiary of
DDLLC. Enterprise conducts substantially all of its business
through EPO.
Enterprises principal executive offices are located at
1100 Louisiana Street, 10th Floor, Houston, Texas 77002,
and its telephone number is
(713) 381-6500.
Enterprises
Business Segments
Enterprise has six reportable business
segments: (i) NGL Pipelines &
Services; (ii) Onshore Natural Gas Pipelines &
Services; (iii) Onshore Crude Oil Pipelines &
Services; (iv) Offshore Pipelines & Services;
(v) Petrochemical & Refined Products Services;
and (vi) Other Investments. Enterprise provides the
services in these segments directly and through its subsidiaries
and unconsolidated affiliates.
Enterprises
Strategy
Enterprises business strategies are to:
|
|
|
|
|
capitalize on expected development in natural gas, NGL and crude
oil production resulting from development activities in the
Rocky Mountains, Northeast and U.S. Gulf Coast regions,
including the Barnett Shale, Haynesville Shale, Eagle Ford Shale
and Marcellus Shale producing regions;
|
|
|
|
capitalize on expected demand growth for natural gas, NGLs,
crude oil and refined and petrochemical products;
|
|
|
|
maintain a diversified portfolio of midstream energy assets and
expand this asset base through growth capital projects and
accretive acquisitions of complementary midstream energy assets;
|
|
|
|
share capital costs and risks through joint ventures or
alliances with strategic partners, including those that will
provide the raw materials for these growth capital projects or
purchase the projects end products; and
|
|
|
|
enhance the stability of Enterprises cash flows by
investing in pipelines and other fee-based businesses.
|
90
CERTAIN
RELATIONSHIPS; INTERESTS OF CERTAIN PERSONS IN THE
MERGER
Relationship
of Enterprise and Duncan
General
Enterprise and Duncan are closely related. Enterprise indirectly
beneficially owns 100% of Duncan GP and 58.5% of Duncan common
units outstanding, through GTMs direct ownership of
33,783,587 Duncan common units. In addition, approximately 59.9%
of Duncans common units are owned by Enterprise and its
affiliates, including GTM, the directors and officers of
Enterprise GP and Duncan GP, EPCO and certain of EPCOs
privately held affiliates. One of Duncans primary business
purposes is to support the growth objectives of Enterprise and
other affiliates of EPCO that are under common control.
Duncans assets are integral to Enterprises midstream
energy operations, and Enterprise has provided Duncan with a
benefit in the identification and execution of potential future
acquisitions that are not otherwise taken by Enterprise.
In addition, all of the executive officers of Duncan GP are also
executive officers of Enterprise GP, including W. Randall
Fowler, A. James Teague, William Ordemann, Bryan F. Bulawa,
Stephanie C. Hildebrandt and Michael J. Knesek, as more fully
described below under Interests of Directors
and Executive Officers in the Merger.
Relationship
of Duncan and EPO
Enterprises operating subsidiary, EPO, was the sponsor of
the drop down transactions of the DEP I Midstream Businesses and
the DEP II Midstream Businesses and owns noncontrolling economic
interests in those businesses. EPO may contribute or sell other
equity interests or assets to Duncan; however, EPO has no
obligation or commitment to make such contributions or sales to
Duncan, nor does Duncan have any obligation or commitment to
accept such contributions or make such acquisitions.
EPO has continuing involvement with Duncans subsidiaries,
including the following: (i) EPO utilizes Duncans
storage services to support its operations at Mont Belvieu,
Texas; (ii) EPO buys from, and sells to, Duncan natural gas
in connection with its normal business activities; and
(iii) EPO is currently the sole shipper on an NGL pipeline
system located in South Texas that Duncan owns.
Master Intercompany Loan Agreement. On
December 31, 2009, Duncan and EPO entered into a master
intercompany loan agreement with the DEP I Midstream Businesses
and DEP II Midstream Businesses. This agreement was used from
time to time to facilitate cash management efforts in connection
with the DEP I Midstream Businesses and DEP II Midstream
Businesses. On December 31, 2009, Duncan and EPO borrowed
$1.3 million and $45.6 million, respectively, under
the agreement at a market rate of interest. These amounts were
repaid on January 4, 2010.
Omnibus Agreement. On December 8, 2008,
Duncan entered into an amended and restated Omnibus Agreement
(the Omnibus Agreement) with EPO that addressed
various matters. Certain key provisions of this agreement at
March 31, 2011 are summarized as follows:
|
|
|
|
|
EPO agreed to fund 100% of the post-February 5, 2007
capital expenditures incurred by South Texas NGL Pipelines, LLC
and Mont Belvieu Caverns, LLC (Mont Belvieu Caverns)
with respect to certain expansion projects under construction at
the time of Duncans initial public offering;
|
|
|
|
EPO agreed to fund 100% of post-December 8, 2008
capital expenditures to complete the Sherman Extension natural
gas pipeline (a component of Duncans Texas Intrastate
System);
|
|
|
|
EPO was granted a right of first refusal in Duncans
current and future subsidiaries and a right of first refusal on
the material assets of such subsidiaries, other than sales of
inventory and other assets in the ordinary course of business;
|
|
|
|
EPO was granted a preemptive right with respect to any equity
securities issued by certain of Duncans subsidiaries,
other than those that may be issued as consideration in an
acquisition or in connection with a loan or debt financing;
|
91
|
|
|
|
|
Neither EPO nor any of its affiliates are restricted under the
Omnibus Agreement from competing against Duncan;
|
|
|
|
Duncan and EPO agreed to negotiate in good faith any necessary
amendments to the limited partnership or limited liability
company agreements of the DEP II Midstream Businesses when
either party believes that business circumstances have
changed; and
|
|
|
|
The Duncan ACG Committee must approve amendments to the Omnibus
Agreement when such amendments would adversely affect
Duncans unitholders.
|
Mont Belvieu Caverns LLC Agreement. The
limited liability company agreement for Mont Belvieu Caverns
(the Caverns LLC Agreement) states that if Duncan
elects to not participate in the expansion projects of Mont
Belvieu Caverns, then EPO is responsible for funding 100% of
such projects. To the extent such non-participated projects
generate identifiable incremental cash flows for Mont Belvieu
Caverns in the future, the earnings and cash flows of Mont
Belvieu Caverns will be adjusted to allocate such incremental
amounts to EPO, by special allocation or otherwise. Under the
terms of the Caverns LLC Agreement, Duncan may elect to acquire
a 66% share of these expansion projects from EPO within
90 days of such projects being placed in service. Effective
November 2008, the Caverns LLC Agreement provides for EPO to
prospectively receive a special allocation of 100% of the
depreciation expense related to expansion projects that it has
fully funded.
The Caverns LLC Agreement also requires the allocation to EPO of
operational measurement gains and losses. Operational
measurement gains and losses are created when product is moved
between storage wells and are attributable to pipeline and well
connection measurement variances.
For information regarding capital expenditures funded 100% by
EPO under the Caverns LLC Agreement as well as operational
measurement gains and losses allocated to EPO, see
Noncontrolling Interest DEP I Midstream
Businesses Parent in Note 13 to the notes
to financial statements included in Duncans Annual Report
on
Form 10-K
for the year ended December 31, 2010.
Limited Liability Company and Limited Partnership
Agreements DEP II Midstream
Businesses. On December 8, 2008, the DEP II
Midstream Businesses amended and restated their governing
documents in connection with the DEP II drop down transaction.
Collectively, these amended and restated agreements provided for
(i) the acquisition by Duncan of a 66% general partner
interest in Enterprise GC, a 51% general partner interest in
Enterprise Intrastate and a 51% member interest in Enterprise
Texas Pipeline LLC (Enterprise Texas); (ii) the
payment of cash distributions by the DEP II Midstream Businesses
to Duncan and EPO in accordance with a waterfall approach;
(iii) the funding of operating cash flow deficits of the
DEP II Midstream Businesses in accordance with each owners
respective partner or member interest; and (iv) the
election by either owner to participate in the funding of
expansion capital projects of the DEP II Midstream Businesses.
See Note 13 to the notes to financial statements included
in Duncans Annual Report on
Form 10-K
for the year ended December 31, 2010 for information
regarding EPOs noncontrolling interest and related matters
involving the DEP II Midstream Businesses.
Amended Acadian LLC Agreement. On June 1,
2010, Duncan entered into a second amended and restated limited
liability company agreement (the Amended Acadian LLC
Agreement) for Acadian Gas, LLC (Acadian Gas)
with EPO. This document includes the agreement between Duncan
and EPO regarding funding arrangements for the Haynesville
Extension project. As part of this agreement, Duncan and EPO
agreed to fund the construction of the Haynesville Extension in
accordance with their respective sharing ratios in Acadian Gas
(i.e., 66% for Duncan and 34% for EPO). The total expected cost
of the Haynesville Extension is approximately $1.50 billion
(including capitalized interest); therefore, Duncan estimates
that its share of such costs will approximate $990 million.
In order to address Duncans funding requirements under the
Haynesville Extension project, Duncan entered into new long-term
senior unsecured credit facilities in October 2010 having an
aggregate borrowing capacity of $1.25 billion.
As part of the agreement, Duncan reimbursed EPO for 66% of
certain construction expenses paid by EPO related to the
Haynesville Extension project from the inception of the project
through the date of the agreement (plus interest).
92
The Amended Acadian LLC Agreement also includes provisions
related to future expansion projects of Acadian Gas other than
the Haynesville Extension. When such projects are presented for
funding, Acadian Gas will request additional capital
contributions from Duncan and EPO based on the parties
respective sharing ratios. Acadian Gas will provide Duncan and
EPO with written notice of the due date for their initial
contributions and Duncan and EPO will have five days to give a
written reply as to whether the parties elect to participate in
the expansion project. Duncan or EPO may propose to contribute
an amount less than that requested by Acadian Gas, at which time
Duncan and EPO will decide whether to proceed with the expansion
project.
Relationship
of Duncan and Enterprise with Evangeline
Acadian Gas, one of Duncans controlled subsidiaries that
is part of the DEP I Midstream Businesses, owns a 49.51% equity
method investment in Evangeline. Duncan owns a 66% interest and
EPO owns a 34% interest in Acadian Gas. Acadian Gas sold
$30.7 million and $37.8 million of natural gas to
Evangeline, under its natural gas purchase contract with
Evangeline, during the three months ended March 31, 2011
and 2010, respectively. The amount of natural gas purchased by
Evangeline pursuant to this contract averaged approximately 75.8
BBtus/d and 72.1 BBtus/d during the three months ended
March 31, 2011 and 2010, respectively.
Relationship
of Duncan and Enterprise with Energy Transfer
Equity
Enterprise has a noncontrolling ownership interest in Energy
Transfer Equity L.P., a publicly traded Delaware limited
partnership that is accounted for using the equity method. Since
Duncan is under common control with Enterprise, Energy Transfer
Equity and its consolidated subsidiaries, which include Energy
Transfer Partners, L.P. (ETP), are considered
related parties to Duncan for accounting purposes. Duncans
revenues from Energy Transfer Equity and its affiliates are
attributable to natural gas transportation services and NGL and
petrochemical storage services. Duncans related party
expenses with Energy Transfer Equity and its affiliates
primarily include natural gas purchases for pipeline imbalances,
reimbursements of operating costs for shared facilities and the
lease of a pipeline in East Texas.
Relationship
of Enterprise and Duncan with EPCO and Affiliates
General
Enterprise and Duncan and their general partners have extensive
and ongoing relationships with EPCO and its affiliates,
including DDLLC.
Enterprise GP is a wholly owned subsidiary of DDLLC. The
membership interests of DDLLC are owned of record by a voting
trust formed on April 26, 2006, pursuant to the DDLLC
Voting Trust Agreement dated April 26, 2006, between
DDLLC and Dan L. Duncan (as the record owner of all of the
membership interests of DDLLC immediately prior to entering into
the DDLLC Voting Trust Agreement and as the sole voting
trustee).
Immediately upon Mr. Duncans death on March 29,
2010, voting and dispositive control of all the membership
interests of DDLLC was transferred pursuant to the DDLLC Voting
Trust Agreement to three voting trustees. The current DDLLC
voting trustees are: (i) Randa Duncan Williams,
Mr. Duncans eldest daughter; (ii) Dr. Ralph
S. Cunningham; and (iii) Richard H. Bachmann.
Ms. Williams, Dr. Cunningham and Mr. Bachmann are
also currently directors of Enterprise GP.
EPCO is owned of record by a voting trust formed on
April 26, 2006, pursuant to the EPCO Voting
Trust Agreement between EPCO and Mr. Duncan (as the
record owner of a majority of the outstanding voting capital
stock of EPCO immediately prior to the entering into of the EPCO
Voting Trust Agreement and as the initial sole voting
trustee). Immediately upon Mr. Duncans death, voting
and dispositive control of such majority of the outstanding
voting capital stock of EPCO was transferred pursuant to the
EPCO Voting Trust Agreement to three voting trustees. The
current EPCO voting trustees are Ms. Williams,
93
Dr. Cunningham and Mr. Bachmann, who are also the
DDLLC voting trustees and are each independent co-executors of
the Estate.
As of May 11, 2011, the DDLLC voting trustees and the EPCO
voting trustees, in their capacities as such trustees, as
independent co-executors of the Estate and individually,
collectively owned or controlled 338,282,914 Enterprise common
units, representing approximately 39.8% of Enterprises
outstanding common units, including 4,520,431 Class B
units. Enterprise, in turn, through its ownership of GTM, both
of which have agreed to vote in favor of the merger and the
merger agreement, beneficially owns approximately 58.5% of
Duncans outstanding units. As of May 11, 2011, the
directors, executive officers and other affiliates of Enterprise
collectively owned or controlled an additional 1.4% of
Duncans outstanding units.
The officers of Duncan GP are employees of EPCO. A number of
EPCO employees who provide services to Duncan also provide
services to Enterprise, often serving in the same positions.
Enterprise GP also has indirect power to cause the appointment
or removal of the directors of Duncan GP, an indirect wholly
owned subsidiary of Enterprise. Duncan has an extensive and
ongoing relationship with Enterprise, EPCO and other entities
controlled by the DDLLC voting trustees and the EPCO voting
trustees.
Enterprise (through its ownership of Duncan GP and GTM) received
aggregate cash distributions of $61.4 million and
$15.6 million from Duncan during the year ended
December 31, 2010 and three months ended March 31,
2011, respectively.
EPCO and its privately held affiliates depend on the cash
distributions they receive from Enterprise and other investments
to fund their other operations and to meet their debt
obligations. EPCO and its privately held affiliates received
$581.5 million and $172.1 million in cash
distributions from Enterprise during the year ended
December 31, 2010 and three months ended March 31,
2011, respectively. Also, Enterprise issued $200.0 million
of its common units to EPCO and its affiliates under
Enterprises distribution reinvestment program during the
year ended December 31, 2010.
An affiliate of EPCO provides trucking services to Enterprise
for the transportation of NGLs and other products. Enterprise
leases office space in various buildings from affiliates of
EPCO. The charges for trucking services and rental rates in
these lease agreements approximate market rates.
EPCO
Administrative Services Agreement
Enterprise and Duncan have no employees. All of their operating
functions and general and administrative support services are
provided by employees of EPCO pursuant to an ASA or by other
service providers. EPCO, Enterprise, Duncan and their respective
general partners and certain affiliates are parties to the ASA.
The significant terms of the ASA are as follows:
|
|
|
|
|
EPCO will provide selling, general and administrative services,
and management and operating services, as may be necessary to
manage and operate the businesses of Enterprise and Duncan, and
their respective properties and assets (all in accordance with
prudent industry practices). EPCO will employ or otherwise
retain the services of such personnel as may be necessary to
provide such services.
|
|
|
|
Enterprise and Duncan are required to reimburse EPCO for its
services in an amount equal to the sum of all costs and expenses
incurred by EPCO which are directly or indirectly related to
Enterprises and Duncans business or activities
(including expenses reasonably allocated to Enterprise and
Duncan by EPCO). In addition, Enterprise and Duncan have agreed
to pay all sales, use, excise, value added or similar taxes, if
any, that may be applicable from time to time in respect of the
services provided to Enterprise and Duncan by EPCO.
|
|
|
|
EPCO will allow Enterprise and Duncan to participate as named
insureds in its overall insurance program, with the associated
premiums and other costs being allocated to Enterprise and
Duncan.
|
Under the ASA, EPCO subleases to Enterprise (for $1 per year)
certain equipment which it holds pursuant to operating leases
and has assigned to Enterprise its purchase option under such
leases (the retained leases). EPCO remains liable
for the actual cash lease payments associated with these
agreements. Enterprise
94
records the full value of these payments made by EPCO on its
behalf as a non-cash related party operating lease expense, with
the offset to equity accounted for as a general contribution to
Enterprise.
Enterprises and Duncans operating costs and expenses
for the year ended December 31, 2010 include reimbursement
payments to EPCO for the direct and indirect costs incurred to
operate their facilities, including compensation of employees.
Likewise, Enterprises and Duncans general and
administrative costs for the year ended December 31, 2010
include amounts Enterprise and Duncan reimburse to EPCO for
administrative services, including compensation of employees. In
general, Enterprises and Duncans reimbursement to
EPCO for administrative services is either (i) on an actual
basis for direct expenses EPCO may incur on their behalf (e.g.,
the purchase of office supplies) or (ii) based on an
allocation of such charges among the various parties to the ASA
based on the estimated use of such services by the applicable
party (e.g., the allocation of general legal or accounting
salaries based on estimates of time spent on such entitys
business and affairs).
Since the vast majority of such expenses are charged to
Enterprise and Duncan on an actual basis (i.e. no
mark-up or
subsidy is charged or received by EPCO), Enterprise and Duncan
believe that such expenses are representative of what the
amounts would have been on a stand-alone basis. With respect to
allocated costs, Enterprise and Duncan believe that the
proportional direct allocation method employed by EPCO is
reasonable and reflective of the estimated level of costs
Enterprise and Duncan would have incurred on a stand-alone basis.
The ASA also addresses potential conflicts that may arise among
Enterprise (including Enterprise GP), Duncan (including Duncan
GP) and the EPCO Group. The EPCO Group includes EPCO and its
other affiliates, but excludes Enterprise, Duncan and their
respective general partners. With respect to potential
conflicts, the ASA provides, among other things, that if any
business opportunity is presented to the EPCO Group, Enterprise
(including Enterprise GP) or Duncan (including Duncan GP),
Enterprise will have the first right to pursue such opportunity
either for itself or, if desired by Enterprise in its sole
discretion, for the benefit of Duncan. It will be presumed that
Enterprise will pursue the business opportunity until such time
as its general partner advises the EPCO Group and Duncan GP that
it has abandoned the pursuit of such business opportunity.
If the purchase price or cost associated with the business
opportunity is reasonably likely to equal or exceed
$100 million, any decision to decline the business
opportunity will be made by the CEO of Enterprise GP after
consultation with and subject to the approval of the Enterprise
Audit Committee. If the purchase price or cost is reasonably
likely to be less than $100 million, the CEO of Enterprise
GP may make the determination to decline the business
opportunity without consulting the Enterprise Audit Committee.
In its sole discretion, Enterprise may affirmatively direct any
such acquisition opportunity to Duncan. If this occurs, Duncan
may pursue such acquisition.
If Enterprise abandons the business opportunity for itself and
Duncan and so notifies the EPCO Group and Duncan GP, the EPCO
Group may either pursue the business opportunity or offer the
business opportunity to its controlled affiliates without any
further obligation to any other party, or offer such opportunity
to other affiliates.
The ASA was amended on January 30, 2009 to provide for cash
reimbursement by Enterprise and Duncan to EPCO for distributions
of cash or securities, if any, made to certain employee partners
of an employee unit partnership that has been dissolved. The ASA
amendment also extended the term under which EPCO provides
services to the partnership entities party to the ASA from
December 2010 to December 2013 and made other updating and
conforming changes.
Enterprise Texas, a DEP II Midstream Business, is party to a
lease of certain capacity rights from an ETP subsidiary with
respect to a
240-mile,
24-inch
diameter natural gas pipeline located in East Texas (the
Leased Pipeline). Enterprise Texas currently
utilizes a portion of this pipeline for existing services. Lease
payments to ETP were approximately $1.5 million for the
year ended December 31, 2010 and $0.4 million in the
three months ended March 31, 2011.
95
In April 2011, Enterprise and ETP announced an intent to form a
joint venture to design and construct a
584-mile
crude oil pipeline from Cushing, Oklahoma to Houston, Texas that
would transport crude oil south, with the Leased Pipeline
constituting approximately 40% of the new pipeline. Terms
defining the use of the Leased Pipeline, including the terms of
any agreement with respect to Enterprise Texas lease of
such pipeline, have neither been negotiated nor agreed upon at
this time.
For additional information regarding certain relationships and
related party transactions of Duncan, please also read
Note 15 to Duncans Annual Report on
Form 10-K
for the year ended December 31, 2010 and Note 13 to
the financial statements for Duncans Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011.
Interests
of Directors and Executive Officers in the Merger
General
In considering the recommendations of the Duncan ACG Committee
and the Duncan Board with respect to the merger, Duncan
unitholders should be aware that certain of the executive
officers and directors of Duncan GP have interests in the
transaction that differ from, or are in addition to, the
interests of Duncan unitholders generally, including:
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All of the directors and executive officers of Duncan GP will
receive continued indemnification for their actions as directors
and executive officers.
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All of the directors of Duncan GP own common units of both
Enterprise and Duncan.
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Some of Duncan GPs directors and executive officers (but
none of the members of the Duncan ACG Committee) also serve as
directors or executive officers of Enterprise GP, have certain
duties to the limited partners of Enterprise and are
compensated, in part, based on the performance of Enterprise.
|
Each of the executive officers and directors of Enterprise GP is
currently expected to remain an executive officer and director
of Enterprise GP following the merger. The persons who will be
elected as additional executive officers or directors of
Enterprise GP following the merger have not yet been determined.
The members of the Duncan ACG Committee and the Duncan Board
were aware of these interests and the relationships described
below and considered them in making their determinations and
recommendations with respect to the merger agreement and the
merger. These interests and relationships, to the extent
material, are further described below. For more information,
please read The Merger Background of the
Merger, and The Merger Recommendation of
the Duncan ACG Committee and the Duncan Board and Reasons for
the Merger.
Employment
by EPCO
The officers of Duncan GP are employees of EPCO, which is
controlled by the EPCO voting trustees. EPCO also employs the
executive officers, who may also be directors, of Enterprise GP
and Duncan GP. For additional information regarding employment
by EPCO, please read Relationship of
Enterprise and Duncan with EPCO and Affiliates.
Relationships
of Duncan Board Members
Mr. Fowler and Mr. Bulawa, who are directors of Duncan
GP, are each employed by EPCO and also serve as executive
officers of Enterprise GP as described under
Relationships of Duncan GP Management. The other members
of the Duncan Board are not employed by EPCO but own Enterprise
common units in addition to Duncan common units. Please read
Equity Interests of Enterprise GPs and
Duncan GPs Directors and Executive Officers in Duncan and
Enterprise below.
96
Relationships
of Duncan GP Management
All of Duncan GPs executive officers are employees of
EPCO. In addition, as EPCO employees, some of Duncan GPs
executive officers serve as officers of, or provide services to,
other affiliates of EPCO or Enterprise controlled by the DDLLC
voting trustees or the EPCO voting trustees, including:
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W. Randall Fowler, Duncan GPs President and Chief
Executive Officer, is also Executive Vice President and Chief
Financial Officer of Enterprise GP and Vice Chairman and Chief
Financial Officer of EPCO.
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A. James Teague, Duncan GPs Executive Vice President and
Chief Operating Officer, also serves as a director and Executive
Vice President and Chief Operating Officer of Enterprise GP;
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William Ordemann, Duncan GPs Executive Vice President, is
also Executive Vice President of Enterprise GP.
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Bryan F. Bulawa, Duncan GPs Senior Vice President, Chief
Financial Officer and Treasurer, is also the Senior Vice
President and Treasurer of Enterprise GP and the Senior Vice
President and Treasurer of EPCO.
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Stephanie C. Hildebrandt, Duncan GPs Senior Vice
President, Chief Legal Officer and Secretary, is also Senior
Vice President, General Counsel and Secretary for Enterprise GP.
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Michael J. Knesek, Duncan GPs Senior Vice President,
Controller and Principal Accounting Officer, is also the Senior
Vice President, Controller and Principal Accounting Officer of
Enterprise GP and Senior Vice President and Controller of EPCO.
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In 2010, Mr. Creel (the CEO of Enterprise GP) was given
ultimate decision making authority with respect to 2010
compensation to be paid to each of Duncan GPs executive
officers for their services to Duncan, which authority we would
expect Mr. Creel to maintain if the merger is not completed.
In addition, most of the executive officers own equity interests
in both Enterprise and Duncan. For additional information
regarding executive officer ownership of such interests, please
read Equity Interests of Enterprise GPs
and Duncan GPs Directors and Executive Officers in Duncan
and Enterprise below.
Treatment
of Equity Awards
As of the date of the merger agreement, there were no
outstanding unvested restricted Duncan common units, and there
were no outstanding unit appreciation rights or options or other
awards issued under the 2010 Duncan Long-Term Incentive Plan.
With respect to the Duncan Unit Purchase Plan, the amount of
money credited to the account of each participant under such
plan, after reduction for any required withholding, and held
(immediately prior to the effective time) for the purchase of
Duncan common units (including, but not limited to, each
participants accumulated payroll deductions for the DUPP
Purchase Period that are accumulated under the Duncan Unit
Purchase Plan pending the purchase of Duncan common units, as
established pursuant to the provisions of such plan, during
which the effective time occurs plus the applicable Employee
Discount Amount, as defined in and determined under the Duncan
Unit Purchase Plan, with respect thereto) will be used to
purchase Duncan common units immediately prior to the effective
time in accordance with the terms of the Duncan Unit Purchase
Plan. At the effective time, automatically and without any
action on the part of any participant in the Duncan Unit
Purchase Plan, each whole Duncan common unit then credited to
the account of each participant, whether purchased under the
Duncan Unit Purchase Plan for a DUPP Purchase Period ended prior
to the effective time or purchased in accordance with the merger
agreement or otherwise, will be cancelled at the effective time
and converted into the right to receive the merger consideration
pursuant to the merger agreement. Any fractional Duncan common
unit credited to the account of a participant and not converted
to the right to receive merger consideration in accordance with
the foregoing will be converted into the right to receive cash
in accordance with the applicable provisions of the Duncan Unit
Purchase Plan and the merger agreement. The conversion of the
Duncan common units pursuant to the merger agreement will be in
full
97
satisfaction of the obligations of Duncan under the Duncan Unit
Purchase Plan with respect to the DUPP Purchase Period in which
the effective time falls and with respect to all prior DUPP
Purchase Periods. Duncan will cause the Duncan Unit Purchase
Plan to be suspended as of the effective time, and no further
purchase rights will be granted or exercised under the Duncan
Unit Purchase Plan unless and until such suspension is lifted in
accordance with the terms of such plan and the merger agreement.
As soon as practicable following the suspension of the Duncan
Unit Purchase Plan in accordance with the merger agreement, if
permitted under the NYSE corporate governance rules with respect
to shareholder approval of equity compensation plans and
amendments thereto and any other applicable law without seeking
approval of the holders of the Enterprise common units or the
Duncan common units or the imposition of any other condition
(other than compliance with applicable Securities Act
requirements), (i) the Duncan Unit Purchase Plan will be
continued by EPCO and all Duncan obligations assumed by
Enterprise and such plan will continue in effect, subject to
amendment, termination
and/or
suspension in accordance with its terms, notwithstanding the
occurrence of the merger, (ii) from and after the effective
time all references to Duncan common units in the Duncan Unit
Purchase Plan will be substituted with references to Enterprise
common units, (iii) the number of Enterprise common units
that will be available for delivery under the Duncan Unit
Purchase Plan from and after the effective time will equal the
number of Duncan common units that were available for delivery
under the Duncan Unit Purchase Plan immediately prior to the
effective time (but after effecting the purchases described in
the merger agreement multiplied by the Exchange Ratio (rounded
down to the nearest whole number of Enterprise common units),
and (iv) no participant in the Duncan Unit Purchase Plan
will have any right to acquire Duncan common units under such
plan from and after the effective time.
If the continuation of the Duncan Unit Purchase Plan in
accordance with the provisions of the merger agreement is not
permitted, Duncan will cause the Duncan Unit Purchase Plan to
terminate as of the effective time, and no further purchase
rights will be granted or exercised under the Duncan Unit
Purchase Plan at or after the effective time.
98
Equity
Interests of Enterprise GPs and Duncan GPs Directors
and Executive Officers in Duncan and Enterprise
The following table sets forth the beneficial ownership of the
directors and executive officers of Enterprise GP and Duncan GP
in the equity of (i) Duncan, (ii) Enterprise prior to
the merger and (iii) Enterprise after giving effect to the
merger, each as
of ,
2011:
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Enterprise
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Enterprise Common
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Common Units
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Duncan
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Units Prior
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After
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Common Units
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to the Merger(9)
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the Merger(9)
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Directors of Enterprise GP
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Michael A. Creel(1)
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7,500
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739,761
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747,336
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A. James Teague(1)(2)
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6,000
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777,392
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783,452
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Randa Duncan Williams(3)
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34,425,140
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338,282,913
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338,930,881
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(4)
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Dr. Ralph S. Cunningham
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3,000
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479,124
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482,154
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Richard H. Bachmann
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19,486
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740,918
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760,598
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Thurmon M. Andress(5)
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24,700
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24,700
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Charles E. McMahen
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20,000
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18,451
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38,651
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Edwin E. Smith
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34,000
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152,604
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186,944
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E. William Barnett
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19,679
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19,679
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Charles M. Rampacek
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13,640
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13,640
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Rex C. Ross(6)
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63,072
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63,072
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Directors of Duncan GP
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W. Randall Fowler(1)
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2,000
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558,029
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560,049
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Bryan F. Bulawa(1)
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2,200
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56,001
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58,223
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William A. Bruckmann, III
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10,986
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5,782
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16,877
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Larry J. Casey
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15,272
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6,600
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22,024
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Richard S. Snell
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3,907
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4,077
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8,023
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Executive Officers(1)
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William Ordemann, Executive Vice President of each of Enterprise
GP and Duncan GP
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3,810
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382,655
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386,503
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Lynn L. Bourdon, III, Senior Vice President of Enterprise
GP(7)
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13,000
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231,307
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244,437
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G. R. Cardillo, Senior Vice President of Enterprise GP
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716
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73,772
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74,495
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James M. Collingsworth, Senior Vice President of Enterprise GP
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271,822
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271,822
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Stephanie C. Hildebrandt, Senior Vice President, General Counsel
and Secretary of Enterprise GP and Senior Vice President, Chief
Legal Officer and Secretary of Duncan GP
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200
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91,344
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91,546
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Mark Hurley, Senior Vice President of Enterprise GP
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36,346
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36,346
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Michael J. Knesek, Senior Vice President, Controller and
Principal Accounting Officer of each of Enterprise GP and Duncan
GP(8)
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2,340
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229,095
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231,458
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Christopher Skoog, Senior Vice President of Enterprise GP
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3,276
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104,514
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107,822
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Thomas M. Zulim, Senior Vice President of Enterprise GP
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15,850
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281,393
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297,401
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99
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(1) |
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Includes individuals who are executive officers and also
directors of either Enterprise GP or Duncan GP. Mr. Creel
is President and Chief Executive Officer of Enterprise GP.
Mr. Teague is the Executive Vice President and Chief
Operating Officer of each of Enterprise GP and Duncan GP.
Mr. Fowler is the President and Chief Executive Officer of
Duncan GP and the Executive Vice President and Chief Financial
Officer of Enterprise GP. Mr. Bulawa is the Senior Vice
President, Chief Financial Officer and Treasurer of Duncan GP
and the Senior Vice President and Treasurer of Enterprise GP. |
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(2) |
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The Enterprise common units presented for Mr. Teague
include 26,500 Enterprise common units owned of record by a
trust and 187,059 Enterprise common units owned of record by
Mr. Teagues spouse. |
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(3) |
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The Enterprise common units presented for Ms. Williams are
held of record by Enterprise GP, DFI GP Holdings L.P., EPCO,
Duncan Family Interests, Inc., EPCO Investments, LLC, EPCO
Holdings, Inc., the Estate, DD Securities LLC, certain family
trusts for which Ms. Williams serves as trustee and Alkek
and Williams, Ltd., an affiliate of Ms. Williams. The
Enterprise common units presented for Ms. Williams include
4,520,431 Class B units held of record by an affiliate of
EPCO. The Duncan common units presented for Ms. Williams
are held of record by GTM, EPCO Holdings, Inc., the Estate, DD
Securities LLC, Alkek and Williams, Ltd., her spouse and jointly
with her spouse. Ms. Williams disclaims beneficial
ownership of the Duncan common units and the Enterprise common
units held indirectly other than to the extent of her pecuniary
interest for Section 16 purposes. |
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(4) |
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The amount presented for Ms. Williams in this column gives
effect to the exchange of Enterprise common units by GTM
immediately following the merger pursuant to the Exchange and
Contribution Agreement. Immediately following the merger, the
consideration that GTM is entitled to receive in the merger will
be exchanged (pursuant to the merger agreement and the Exchange
and Contribution Agreement) for the assignment by Enterprise of
a limited partner interest in Duncan equal to the limited
partner interest represented by the Duncan common units owned by
GTM immediately prior to the effective time of the merger.
Accordingly, no Enterprise common units will be issued as
consideration to GTM for its 33,783,587 Duncan common units
representing approximately 58.5% of the outstanding Duncan
common units. |
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(5) |
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The Enterprise common units presented for Mr. Andress
include 9,300 Enterprise common units owned of record by a
limited liability partnership of which Mr. Andress owns 55%. |
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(6) |
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The Enterprise common units presented for Mr. Ross include
7,000 Enterprise common units owned of record by a trust of
which Mr. Ross spouse is the trustee and a
beneficiary. |
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(7) |
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The Enterprise common units presented for Mr. Bourdon
include 600 Enterprise common units owned of record by his
children. |
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(8) |
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The Enterprise common units presented for Mr. Knesek
include 3,248 Enterprise common units owned of record by
Mr. Kneseks spouse. |
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(9) |
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The Enterprise common units noted above do not include any
options to acquire Enterprise common units owned by the
directors and executive officers, as none of the options are
exercisable within 60 days after the date of this proxy
statement/prospectus. The following executive officers hold
options exercisable into the following numbers of Enterprise
common units: Mr. Creel 405,000;
Mr. Teague 300,000; Mr. Fowler
277,500; Mr. Ordemann 255,000;
Mr. Bourdon 150,000;
Mr. Bulawa 20,000;
Mr. Collingsworth 150,000;
Ms. Hildebrandt 52,500;
Mr. Hurley 30,000; Mr. Knesek
150,000; Mr. Skoog 180,000; and
Mr. Zulim 150,000. As the former CEO of
Holdings, Mr. Cunningham holds 300,000 options exercisable
into Enterprise common units. In addition, as the former CEO of
Duncan, Mr. Bachmann holds 300,000 options exercisable into
Enterprise common units. For additional information regarding
options owned by the named executive officers, please see the
annual reports on
Form 10-K
filed by Duncan and Enterprise for the year ended
December 31, 2010 and other reports incorporated by
reference into this proxy statement/prospectus. |
Director
and Officer Insurance; Indemnification
The merger agreement requires Enterprise to maintain, or to
cause EPCO to maintain, for six years after the effective time
of the merger, officers and directors liability insurance
for the benefit of persons who are or
100
were at any time before the effective time of the mergers
covered by the existing directors and officers
liability insurance policies applicable to Duncan, Duncan GP or
any of their subsidiaries, as described more fully under
The Merger Agreement Covenants
Indemnification; Directors and Officers
Insurance.
The merger agreement also provides for indemnification and
advancement of expenses by Enterprise GP after the merger,
Enterprise and MergerCo, jointly and severally, of directors and
officers of Duncan GP and Enterprise GP to the fullest extent
authorized or permitted by applicable law, in addition to
existing rights, as described more fully under The Merger
Agreement Covenants Indemnification;
Directors and Officers Insurance.
Voting
Agreement
Pursuant to the voting agreement, Enterprise has agreed, and it
has caused its indirect wholly owned subsidiary GTM to agree, to
vote any Duncan common units owned by them or their subsidiaries
in favor of adoption of the merger agreement and the merger,
including the 33,783,587 Duncan common units currently directly
owned by GTM (representing approximately 58.5% of the
outstanding Duncan common units), at any meeting of Duncan
unitholders.
For additional information about the voting agreement, please
read The Merger Other Transactions Related to
the Merger Voting Agreement.
Projections
Senior management of Enterprise GP and Duncan GP prepared
projections with respect to Enterprises and Duncans
future financial and operating performance on a stand-alone
basis and on a combined basis. These projections were provided
to Morgan Stanley for use in connection with the preparation of
its opinion to the Duncan ACG Committee and related financial
advisory services. The projections were also provided to the
Enterprise Board, the Duncan Board, the Enterprise Audit
Committee, the Duncan ACG Committee and their respective
financial advisors.
For additional information about the projections, please read
The Merger Unaudited Financial Projections of
Enterprise and Duncan.
101
DIRECTORS
AND OFFICERS OF ENTERPRISE GP AND DUNCAN GP
DDLLC, the sole member of Enterprise GP, has the power to
appoint and remove all of the directors of Enterprise GP.
Enterprise GP has indirect power to cause the appointment or
removal of the directors of Duncan GP, an indirect wholly owned
subsidiary of Enterprise. DDLLC is controlled by the DDLLC
voting trustees under the DDLLC Voting Trust Agreement.
Each of the executive officers of Enterprise GP is currently
expected to remain an executive officer of Enterprise GP
following the merger. The DDLLC voting trustees have not yet
determined whether any directors of Duncan GP will serve as
directors of Enterprise GP following the merger. In the absence
of any changes, the current directors of Enterprise GP will
continue as directors following the merger.
The following persons currently serve as directors and executive
officers of Duncan GP and Enterprise GP.
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Name
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Age
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Position with Enterprise GP
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Positions with Duncan GP
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Randa Duncan Williams
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49
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Director
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Dr. Ralph S. Cunningham
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70
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Director and Chairman of the Board
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Richard H. Bachmann
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58
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Director
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Thurmon M. Andress
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77
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Director
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Charles E. McMahen(1,2)
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72
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Director
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Edwin E. Smith
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79
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Director
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E. William Barnett(1)
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78
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Director
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Charles M. Rampacek
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68
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Director
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Rex C. Ross(1)
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|
|
67
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|
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Director
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Michael A. Creel
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57
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|
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Director, President and CEO
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A. James Teague
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66
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Director, Executive Vice President and Chief Operating Officer
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Executive Vice President and Chief Operating Officer
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William A. Bruckmann, III(1,2)
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59
|
|
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|
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Director
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Larry J. Casey(1)
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|
|
78
|
|
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|
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Director
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Richard S. Snell(1)
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|
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68
|
|
|
|
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Director
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W. Randall Fowler
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|
|
54
|
|
|
Executive Vice President and CFO
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|
Director, President and CEO
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William Ordemann
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52
|
|
|
Executive Vice President
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|
Executive Vice President
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Lynn L. Bourdon, III
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|
|
49
|
|
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Senior Vice President
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|
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Bryan F. Bulawa
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|
|
41
|
|
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Senior Vice President and Treasurer
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|
Director, Senior Vice President, Treasurer and CFO
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G. R. Cardillo
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|
|
53
|
|
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Senior Vice President
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|
|
James M. Collingsworth
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|
|
56
|
|
|
Senior Vice President
|
|
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Stephanie C. Hildebrandt
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|
|
46
|
|
|
Senior Vice President, General Counsel and Secretary
|
|
Senior Vice President, Chief Legal Officer and Secretary
|
Mark A. Hurley
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|
|
52
|
|
|
Senior Vice President
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|
|
Michael J. Knesek
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|
|
56
|
|
|
Senior Vice President, Controller and Principal Accounting
Officer
|
|
Senior Vice President, Controller and Principal Accounting
Officer
|
Christopher Skoog
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|
|
47
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|
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Senior Vice President
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|
|
Thomas M. Zulim
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|
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53
|
|
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Senior Vice President
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Member of applicable ACG or Audit Committee |
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Chairman of applicable ACG or Audit Committee |
102
Enterprise GP is the successor general partner to Enterprise and
the prior general partner of Holdings prior to its merger with a
subsidiary of Enterprise. References to directorships below
refer to Enterprise GP and the predecessor general partner of
Enterprise.
Randa Duncan Williams. Ms. Williams was
elected a Director of Enterprise GP in May 2007. She was elected
Chairman of EPCO in May 2010, having previously served as Group
Co-Chairman since 1994. Ms. Williams has served as a
Director of EPCO since February 1991. Prior to joining EPCO in
1994, Ms. Williams practiced law with the firms
Butler & Binion and Brown, Sims, Wise &
White. She currently serves on the boards of directors of Encore
Bancshares and Encore Bank and also serves on the board of
trustees for numerous charitable organizations.
Dr. Ralph S.
Cunningham. Dr. Cunningham was elected a
Director of Enterprise GP in August 2007 and as Chairman of the
Board in November 2010. Dr. Cunningham served as the
President and CEO of Enterprise GP from August 2007 until
November 2010. He served as a director of Enterprise Products
GP, LLC (EPGP), the general partner of Enterprise
prior to its merger with Holdings in November 2010, from
February 2006 to May 2010, having previously served as a
director of EPGP from April 1998 until March 2005. In addition
to these duties, Dr. Cunningham served as Group Executive
Vice President and Chief Operating Officer of EPGP from December
2005 to August 2007 and Interim President and Interim CEO from
June 2007 to August 2007. Dr. Cunningham served as a
director of Duncan GP from August 2007 to May 2010. He served as
Chairman and a Director of Texas Eastern Products Pipeline
Company LLC (TEPPCO GP), the general partner of
TEPPCO Partners, L.P. (TEPPCO), from March 2005
until November 2005.
Dr. Cunningham was elected Vice Chairman of EPCO in May
2010 and a director in March 2006, having previously served as
Group Vice Chairman of EPCO from December 2007 to May 2010 and
as a Director of EPCO from 1987 to 1997. He serves as a director
of Tetra Technologies, Inc. and Agrium, Inc. In addition,
Dr. Cunningham serves as a Director and the Chairman of the
Safety, Health and Responsibility Committee of Cenovus Energy
Inc. Dr. Cunningham retired in 1997 from CITGO Petroleum
Corporation, where he served as President and CEO since 1995.
Dr. Cunningham also served as a Director of LE GP, LLC (the
general partner of Energy Transfer Equity, L.P.) from December
2009 to November 2010.
Richard H. Bachmann. Mr. Bachmann served
as an Executive Vice President and the Chief Legal Officer of
EPGP from February 1999 until November 2010 and served as
Secretary of EPGP from November 1999 until November 2010. He
previously served as a director of EPGP from June 2000 to
January 2004 and from February 2006 to May 2010.
Mr. Bachmann served as Executive Vice President of
Enterprise GP from April 2005 until November 2010, and has
served as a director of Enterprise GP since February 2006. He
previously served as Chief Legal Officer and Secretary of
Enterprise GP from April 2005 to May 2010.
Mr. Bachmann was elected President and CEO of EPCO in May
2010 and has served as a Director since January 1999. He
previously served as Secretary of EPCO from May 1999 to May 2010
and as a Group Vice Chairman of EPCO from December 2007 to May
2010. Mr. Bachmann served as a Director of Duncan GP from
October 2006 to May 2010 and as President and CEO of Duncan GP
from October 2006 to April 2010. In November 2006,
Mr. Bachmann was appointed as an independent manager of
Constellation Energy Partners LLC. Mr. Bachmann also serves
as a member of the Audit, Compensation and Nominating and
Governance Committees of Constellation Energy Partners LLC and
as the Chairman of its Conflicts Committee.
Thurmon M. Andress. Mr. Andress was
elected a Director of Enterprise GP in November 2006 and serves
as a member of Enterprise GPs Governance Committee.
Mr. Andress serves as the Managing Director
Houston for Breitburn Energy Company L.P. and is a former member
of its Board of Directors. In 1990, he founded Andress
Oil & Gas Company, serving as its President and CEO
until it merged with Breitburn Energy Company L.P. in 1998. In
1982, he founded Bayou Resources, Inc. a publicly traded energy
company that was sold in 1987. From 2002 through December 2009,
Mr. Andress served as a member of the Board of Directors of
Edge Petroleum Corp. (including its Governance and Compensation
Committees). In October 2009, Edge Petroleum Corp. filed a
voluntary petition under Chapter 11 of the
U.S. Bankruptcy Code and, on December 31, 2009,
completed the sale of substantially all of its assets to Mariner
Energy, Inc. Mr. Andress is currently a member of the
National Petroleum Council (including its Board) and serves on
the Board of Governors of Houston for the Independent Petroleum
Association of America. In 1993, Mr. Andress
103
was inducted into All American Wildcatters, a 100-member
organization dedicated to American oil and gas explorationists
and producers.
Charles E. McMahen. Mr. McMahen was
elected a Director of Enterprise GP in August 2005 and serves as
Chairman of the Enterprise Audit Committee. Mr. McMahen
served as Vice Chairman of Compass Bank from March 1999 until
December 2003 and served as Vice Chairman of Compass Bancshares
from April 2001 until his retirement in December 2003.
Mr. McMahen also served as Chairman and CEO of Compass
Banks of Texas from March 1990 until March 1999.
Mr. McMahen has served as a director of Compass Bancshares,
and its successor, BBVA Compass Bank, since 2001. He also served
as chairman of the Board of Regents of the University of Houston
from September 1998 to August 2000.
Edwin E. Smith. Mr. Smith was elected a
Director of Enterprise GP in August 2005 and serves as a member
of Enterprise GPs Governance Committee. Mr. Smith has
been a private investor since he retired from Allied Bank of
Texas in 1989 after a
31-year
career in banking. Mr. Smith serves as a director of Encore
Bank and previously served as a director of EPCO from 1987 until
1997.
E. William Barnett. Mr. Barnett was
elected a Director of Enterprise GP in November 2010 and is a
member of the Enterprise Audit Committee. He served as a
Director of EPGP from March 2005 to November 2010, and he served
as Chairman of its Audit, Conflicts and Governance Committee.
Mr. Barnett practiced law with Baker Botts L.L.P. from 1958
until his retirement in 2004. In 1984, he became Managing
Partner of Baker Botts L.L.P. and continued in that role for
14 years until 1998. He was Senior Counsel to the firm from
1998 until June 2004, when he retired from the firm.
Mr. Barnett served as Chairman of the Board of Trustees of
Rice University from 1996 to July 2005.
Mr. Barnett is a Life Trustee of The University of Texas
Law School Foundation; a director of St. Lukes Episcopal
Hospital; and a director Emeritus and former Chairman of the
Houston Zoo, Inc. (the operating arm of the Houston Zoo). He is
a director of GenOn Energy, Inc. (a publicly traded wholesale
electricity generating company) and Westlake Chemical
Corporation (a publicly traded chemical company).
Mr. Barnett is Chairman of the Advisory Board of the Baker
Institute for Public Policy at Rice University and a director
Emeritus and former Chairman of the Greater Houston Partnership.
Mr. Barnett served as a Trustee Emeritus of the Baylor
College of Medicine from 1993 until 2004.
Charles M. Rampacek. Mr. Rampacek was
elected a Director of Enterprise GP in November 2010 and serves
as Chairman of its Governance Committee. He served as a Director
of EPGP from October 2006 to November 2010 and was a member of
its Audit, Conflicts and Governance Committee. Mr. Rampacek
is currently a business and management consultant in the energy
industry. Mr. Rampacek served as Chairman, CEO and
President of Probex Corporation (Probex), an energy
technology company that developed a proprietary used oil
recovery process, from 2000 until his retirement in 2003. Prior
to joining Probex, Mr. Rampacek was President and CEO of
Lyondell-Citgo Refining L.P., a manufacturer of petroleum
products, from 1996 through 2000. From 1982 to 1995, he held
various executive positions with Tenneco Inc. and its
energy-related subsidiaries, including President of Tenneco Gas
Transportation Company, Executive Vice President of Tenneco Gas
Operations and Senior Vice President of Refining and Supply.
Mr. Rampacek also spent 16 years with Exxon Company
USA, where he held various supervisory and management positions.
Mr. Rampacek has been a director of Flowserve Corporation
since 1998 and is a member of its Audit Committee and its
Organization and Compensation Committee. Mr. Rampacek also
serves as a director of Cenovus Energy Inc. (a Canadian publicly
traded oil company) and is a member of its Nominating and
Governance Committee, Reserves Committee, and Safety,
Environment and Responsibility Committee.
In 2005, two complaints requesting recovery of certain costs
were filed against former officers and directors of Probex as a
result of the bankruptcy of Probex in 2003. These complaints
were defended under Probexs director and officer insurance
with American International Group, Inc. (AIG) and
settlement was reached and paid by AIG with bankruptcy court
approval in the first half of 2006. An additional complaint was
filed in 2005 against noteholders of certain Probex debt of
which Mr. Rampacek was one. A settlement of $2,000 was
reached and approved by the bankruptcy court in the first half
of 2006.
104
Rex C. Ross. Mr. Ross was elected a
Director of Enterprise GP in November 2010 and is a member of
the Enterprise Audit Committee. He served as a Director of EPGP
from October 2006 to November 2010 and was a member of its
Audit, Conflicts and Governance Committee. Until July 2009,
Mr. Ross served as a Director of Schlumberger Technology
Corporation, the holding company for all Schlumberger Limited
assets and entities in the United States. Prior to his executive
retirement from Schlumberger Limited in May 2004, Mr. Ross
held a number of executive management positions during his
11-year
career with the company, including President of Schlumberger
Oilfield Services North America; President, Schlumberger
GeoQuest; and President of SchlumbergerSema North &
South America. Mr. Ross also serves on the Board of
Directors of Gulfmark Offshore, Inc. (a publicly traded offshore
marine services company) and is a member of its
Governance & Nominating Committee and Compensation
Committee.
Michael A Creel. Mr. Creel was elected
President and CEO and a Director of Enterprise GP in November
2010. He served as a Director of EPGP from February 2006 to
November 2010 and President and CEO of EPGP from August 2007 to
November 2010. Mr. Creel served as CFO of EPGP from June
2000 to August 2007, and as an Executive Vice President of EPGP
from January 2001 to August 2007. Mr. Creel, a Certified
Public Accountant, also served as a Senior Vice President of
EPGP from November 1999 to January 2001.
In May 2010, Mr. Creel was elected Vice Chairman of EPCO,
having previously served as Group Vice Chairman and CFO of EPCO
since December 2007. Prior to these elections, Mr. Creel
served as EPCOs Chief Operating Officer from April 2005 to
December 2007 and as its CFO from June 2000 to April 2005. He
has served as a Director of EPCO since December 2007.
Mr. Creel previously served as a director of Enterprise GP
from October 2009 to May 2010 and as a director of Duncan GP
from October 2006 to May 2010. He previously served as
President, CEO and a Director of Enterprise GP from August 2005
through August 2007. From October 2006 to August 2007, he served
as Executive Vice President and CFO of Duncan GP. From October
2005 through December 2009, Mr. Creel served as a director
of Edge Petroleum Corporation, a publicly traded oil and natural
gas exploration and production company, which filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code
in October 2009 and, on December 31, 2009, completed the
sale of substantially all of its assets to Mariner Energy, Inc.
A. James Teague. Mr. Teague was elected
an Executive Vice President and the Chief Operating Officer and
a Director of Enterprise GP in November 2010. He served as
Executive Vice President of EPGP from November 1999 to November
2010 and additionally as a Director from July 2008 to November
2010 and as Chief Operating Officer from September 2010 to
November 2010. In addition, he served as EPGPs Chief
Commercial Officer from July 2008 until September 2010. He has
served as Executive Vice President and Chief Commercial Officer
of Duncan GP since July 2008. He previously served as a Director
of Duncan GP from July 2008 to May 2010 and as a Director of
Enterprise GP from October 2009 to May 2010. Mr. Teague
joined Enterprise in connection with its purchase of certain
midstream energy assets from affiliates of Shell Oil Company in
1999. From 1998 to 1999, Mr. Teague served as President of
Tejas Natural Gas Liquids, LLC, then an affiliate of Shell. From
1997 to 1998, he was President of Marketing and Trading for
Mapco Inc.
William A.
Bruckmann, III. Mr. Bruckmann was
elected a Director of Duncan GP in October 2006.
Mr. Bruckmann has been self-employed as a consultant and
private investor since April 2004. From September 2002 to April
2004, Mr. Bruckmann served as a financial advisor with UBS
Securities, Inc. He is a former Managing Director at Chase
Securities, Inc. and has more than 25 years of banking
experience, starting with Manufacturers Hanover
Trust Company, where he became a senior officer in 1985.
Mr. Bruckmann later served as Managing Director, sector
head of Manufacturers Hanovers gas pipeline and midstream
energy practices through the acquisition of Manufacturers
Hanover by Chemical Bank and the acquisition of Chemical Bank by
Chase Bank. Mr. Bruckmann also served as a Director of
Williams Energy Partners L.P. from May 2001 to June 2003.
Mr. Bruckmann serves on the Duncan ACG Committee as its
Chairman.
Larry J. Casey. Mr. Casey was elected a
Director of Duncan GP in October 2006. Mr. Casey has been a
private investor managing real estate and personal investments
since he retired in 1982 from a career in the energy industry.
In 1974, Mr. Casey founded Xcel Products Company, an NGL
and petrochemical trading
105
company. Also in 1974, he founded Xral Underground Storage, the
first privately owned underground merchant storage facility for
NGLs and specialty chemicals at Mont Belvieu, Texas.
Mr. Casey sold these companies in 1982. Mr. Casey
serves on the Duncan ACG Committee.
Richard S. Snell. Mr. Snell, a Certified
Public Accountant, was elected a Director of Duncan GP in
January 2010. Mr. Snell most recently served as a director
of TEPPCO GP from January 2006 until TEPPCOs merger with a
subsidiary of Enterprise in October 2009. From June 2000 until
February 2006, he served as a director of EPGP. He has been a
partner with the law firm of Thompson & Knight LLP
since May 2000. Prior to his position with Thompson &
Knight LLP, he worked as an attorney for the Snell &
Smith, P.C. law firm from its founding in 1993 until May
2000. Mr. Snell serves on the Duncan ACG Committee.
W. Randall Fowler. Mr. Fowler was
elected an Executive Vice President and the CFO of Enterprise GP
in August 2007 and previously served as Executive Vice President
and CFO of EPGP from August 2007 to November 2010. He was also
elected President and CEO of Duncan GP in April 2010, having
previously served as Executive Vice President and CFO of Duncan
GP since August 2007. He has served as a Director of Duncan GP
since September 2006. Mr. Fowler served as Senior Vice
President and Treasurer of EPGP from February 2005 to August
2007 and of Duncan GP from October 2006 to August 2007.
Mr. Fowler also previously served as a Director of EPGP and
of Enterprise GP from February 2006 to May 2010. Mr. Fowler
also served as Senior Vice President and CFO of Enterprise GP
from August 2005 to August 2007.
Mr. Fowler was elected Vice Chairman and CFO of EPCO in May
2010 and has served as a Director since December 2007. He
previously served as President and CEO of EPCO from December
2007 to May 2010 and as CFO from April 2005 to December 2007.
Mr. Fowler, a Certified Public Accountant (inactive),
joined Enterprise as Director of Investor Relations in January
1999. Mr. Fowler also serves as Chairman of the Board of
the National Association of Publicly Traded Partnerships. He
also serves on the Advisory Board for the College of Business at
Louisiana Tech University.
William Ordemann. Mr. Ordemann was
elected an Executive Vice President of Enterprise GP in August
2007. He also served as EPGPs Chief Operating Officer from
August 2007 until September 2010 and as its Executive Vice
President from August 2007 to November 2010. He was also elected
an Executive Vice President of Duncan GP in August 2007. He
previously served as a Senior Vice President of EPGP from
September 2001 to August 2007 and was a Vice President of EPGP
from October 1999 to September 2001. Mr. Ordemann joined
Enterprise in connection with its purchase of certain midstream
energy assets from affiliates of Shell Oil Company in 1999.
Prior to joining Enterprise, he was a Vice President of Shell
Midstream Enterprises, LLC from January 1997 to February 1998,
and Vice President of Tejas Natural Gas Liquids, LLC from
February 1998 to September 1999.
Lynn L. Bourdon, III. Mr. Bourdon
was elected a Senior Vice President (Supply &
Marketing) of Enterprise GP in November 2010. He served as
Senior Vice President, Supply & Marketing of EPGP from
2004 to November 2010 after serving as Senior Vice President and
Chief Commercial Officer with Orion Refining Corporation from
2001 to 2003 and as a Partner in En*Vantage, Inc. from 1999 to
2001. In May 2003, Orion Refining Corporation filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code.
Mr. Bourdon served as Senior Vice President of Commercial
Operations for PG&E Gas Transmission from 1997 to 1999 and
Vice President, NGL Marketing & Development at the
predecessor company, Valero, from 1996 to 1997. Earlier in his
career, Mr. Bourdon served 12 years with Dow Chemical
Company in the engineering, business and commercial areas.
Bryan F. Bulawa. Mr. Bulawa was elected
Senior Vice President and Treasurer of Enterprise GP in October
2009 and Senior Vice President, Chief Financial Officer and
Treasurer of Duncan GP in April 2010. Mr. Bulawa was
elected a Director of Duncan GP in February 2011. He previously
served as Senior Vice President and Treasurer of EPGP from
October 2009 to November 2010, as Senior Vice President and
Treasurer of Duncan GP from October 2009 to April 2010, and as
Vice President and Treasurer of EPGP from July 2007 to October
2009. He has also served as Senior Vice President and Treasurer
of EPCO since May 2010. Prior to joining Enterprise,
Mr. Bulawa spent 13 years at Scotia Capital, where he
last served as director of the firms U.S. Energy
Corporate Finance and Distribution group.
106
G. R. Cardillo. Mr. Cardillo was
elected a Senior Vice President (Propylene and Marine) of
Enterprise GP in February 2011. Mr. Cardillo joined
Enterprise in connection with its purchase of certain
petrochemical storage and propylene fractionation assets from
affiliates of Ultramar Diamond Shamrock Corp. and Koch
Industries Inc. (Diamond Koch) in 2002. From 2000 to
2002, Mr. Cardillo served as a Vice President in charge of
propylene commercial activities for Diamond Koch.
Mr. Cardillo served as a Vice President of EPGP from
November 2004 to November 2010 and of Enterprise GP from
November 2010 to February 2011. Mr. Cardillo has been an
integral part of Enterprises Petrochemicals management
team since joining Enterprise in 2002 and assumed leadership of
this commercial function in June 2008. He assumed leadership of
Enterprises marine services operations in July 2010.
James M. Collingsworth. Mr. Collingsworth
was elected a Senior Vice President (Regulated
Pipelines & Gas Storage) of Enterprise GP in November
2010. He served as Vice President of EPGP from November 2001 to
November 2002 and Senior Vice President from November 2002 until
November 2010. Previously, he served as a board member of Texaco
Canada Petroleum Inc. from July 1998 to October 2001 and was
employed by Texaco from 1991 to 2001 in various management
positions, including Senior Vice President of NGL Assets and
Business Services from July 1998 to October 2001. Prior to
joining Texaco, Mr. Collingsworth was director of
feedstocks for Rexene Petrochemical Company from 1988 to 1991
and served in the MAPCO, Inc. organization from 1973 to 1988 in
various capacities including customer service and business
development manager of the
Mid-America
and Seminole pipelines.
Stephanie C. Hildebrandt. Ms. Hildebrandt
was elected a Senior Vice President and the General Counsel of
Enterprise GP in May 2010 and served as Senior Vice President
and General Counsel of EPGP from May 2010 to November 2010.
Ms. Hildebrandt has also served as Senior Vice President,
Chief Legal Officer and Secretary of Duncan GP since April 2010,
having previously served as Vice President and General Counsel
of EPGP since October 2009, as Vice President and Deputy General
Counsel of EPGP from 2006 to 2009, as Deputy General Counsel of
EPGP from 2004 to 2006 and as Vice President and Chief Legal
Officer of Duncan GP from 2007 to 2010. Prior to joining
Enterprise, Ms. Hildebrandt practiced law for three years
at El Paso Corporation and for 12 years at Texaco Inc.
Mark A. Hurley. Mr. Hurley was elected a
Senior Vice President (Crude Oil & Offshore) of
Enterprise GP in November 2010. He previously served as Senior
Vice President, Crude Oil & Offshore, for EPGP from
March 2010 to November 2010. Prior to joining Enterprise,
Mr. Hurley was a Shell employee and recently served as
President of Shell Pipeline Company, a crude oil, refined
products and natural gas energy storage and transportation
company. Mr. Hurley began his career with Shell in process
engineering positions at refineries in Louisiana and California.
During his tenure with Shell, he held key leadership roles in
refinery and lubricant plant operations, marketing, sales,
product supply planning and trading, with both U.S. and
global responsibilities. As President of Shell Pipeline Company
for five years, Mr. Hurley had ultimate responsibility for
profitability, operations, strategy, business development and
capital project development.
Michael J. Knesek. Mr. Knesek, a
Certified Public Accountant, was elected a Senior Vice President
of Enterprise GP in August 2005. From February 2005 to November
2010, Mr. Knesek served as Senior Vice President of EPGP,
having previously served as a Vice President of EPGP since
August 2000. Mr. Knesek has been the Principal Accounting
Officer and Controller of Enterprise GP since August 2005 and of
Duncan GP since September 2006. He served as the Principal
Accounting Officer and Controller of EPGP from August 2000 to
November 2010. He has served as Senior Vice President of Duncan
GP since September 2006. Mr. Knesek has been the Controller
of EPCO since 1990 and currently serves as one of its Senior
Vice Presidents.
Christopher R. Skoog. Mr. Skoog was
elected Senior Vice President (Natural Gas Services &
Marketing) of Enterprise GP in November 2010. He joined
Enterprise in July 2007 as Senior Vice President of EPGP to
develop and lead the Partnerships Natural Gas Services and
Marketing group. In July 2008, he also assumed responsibility
for Enterprises non-regulated and intrastate natural gas
pipeline and storage businesses. From 1995 to July 2007, he
served in various executive positions at ONEOK, Inc. and ONEOK
Partners L.P. He led ONEOK Energy Services from 1995 to 2005,
and held senior executive positions at ONEOK from 2005 to 2007.
107
Thomas M. Zulim. Since July 2008,
Mr. Zulim has served as a Senior Vice President of EPCO,
and was elected Senior Vice President (Unregulated NGL Business)
of Enterprise GP in November 2010, with responsibility for
Enterprises unregulated NGL business. Mr. Zulim
previously served as a Senior Vice President of EPGP from July
2008 to November 2010. From March 2006 to July 2008,
Mr. Zulim served as Senior Vice President, Human Resources,
for both EPGP and EPCO, and served as Vice President, Human
Resources, for both EPGP and EPCO from December 2004 to March
2006. He joined EPCO in 1999 as Director of Business Management
for the NGL Fractionation business. Mr. Zulim came to EPCO
from Shell Oil Company where, as an attorney, he practiced labor
and employment law nationally for several years before joining
Shell Midstream Enterprises in 1996 as Director of Business
Development for its natural gas processing and NGL fractionation
businesses. Mr. Zulim resumed practicing law with
EPCOs legal group in January 2002 until December 2004.
108
COMPARISON
OF THE RIGHTS OF ENTERPRISE AND DUNCAN UNITHOLDERS
The following describes the material differences between the
rights of the Enterprise unitholders, after giving effect to the
transactions contemplated by the merger, and the current rights
of Duncan unitholders. It is not a complete summary of the
provisions affecting, and the differences between, the rights of
the Enterprise common unitholders and Duncan unitholders. The
rights of the Enterprise common unitholders will be governed by
the Sixth Amended and Restated Agreement of Limited Partnership
of Enterprise, as amended. The rights of Duncan unitholders are
governed by the First Amended and Restated Agreement of Limited
Partnership of Duncan, as amended, and you should refer to each
document for a complete description of the rights of the
Enterprise and Duncan unitholders, respectively. If the merger
is consummated, Duncan unitholders will become Enterprise common
unitholders, and their rights as Enterprise common unitholders
will be governed by Delaware law and Enterprises
partnership agreement. For Enterprises partnership
agreement and the amendments thereto, please refer to
Enterprises Current Report on
Form 8-K
filed with the Commission on November 23, 2010. For
Duncans partnership agreement and the amendments thereto,
please refer to Duncans Current Reports on
Form 8-K
filed with the Commission on May 10, 2007 and
January 3, 2008 and Duncans Quarterly Reports on
Form 10-Q
filed with the Commission on November 4, 2005 and
November 6, 2008. This summary is qualified in its entirety
by reference to the Delaware Revised Uniform Limited Partnership
Act, as amended from time to time, and any successor to such act
(the Delaware Act), the Enterprise partnership
agreement, as amended, and the Duncan partnership agreement, as
amended.
Purpose
and Term of Existence
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Enterprise
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Duncan
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Enterprises stated purposes under its partnership
agreement are to serve as a security holder in its operating
company and subsidiary partnerships and to engage in any
business activities that may be engaged in by its operating
company or that are approved by its general partner and which
lawfully may be conducted by a limited partnership under
Delaware law.
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Duncans stated purposes under its partnership agreement
are to engage, directly or indirectly, in any business activity
that is approved by the General Partner and that lawfully may be
conducted by a limited partnership organized under Delaware law
and to do anything necessary or appropriate to the foregoing.
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Enterprises existence will continue until December 31,
2088, unless sooner dissolved pursuant to the terms of
Enterprises partnership agreement.
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Duncans partnership existence will continue until
dissolved pursuant to the terms of Duncans partnership
agreement.
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Distributions
of Available Cash
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Enterprise
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Duncan
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Within 45 days after the end of each quarter, Enterprise
will distribute all of its available cash to common
unitholders.
Available cash is defined in Enterprises partnership
agreement and generally means, with respect to any calendar
quarter, all cash on hand at the end of such quarter:
less the amount of cash reserves that is necessary
or appropriate in the reasonable discretion of the general
partner to:
provide for the proper conduct of Enterprises
business (including reserves for future capital expenditures and
for Enterprises future credit needs); and
comply with applicable law or any loan agreement,
security agreement, mortgage, debt
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Within 45 days after the end of each quarter, Duncan will
distribute 100% of its available cash to unitholders.
Available cash is defined in Duncans partnership agreement
and generally means all cash and cash equivalents on hand at the
end of each quarter:
less the amount of cash reserves established by
the general partner to:
provide for the proper conduct of Duncans
business (including reserves for future capital expenditures and
for Duncans future credit needs);
comply with applicable law or any loan agreement,
security agreement, mortgage, debt instrument or other
agreement; and
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Enterprise
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Duncan
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instrument or other agreement; plus
all cash on hand on the date of determination of
available cash for the quarter resulting from working capital
borrowings made after the end of the quarter or certain interim
capital transactions after the end of such quarter designated by
Enterprise GP as operating surplus.
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provide funds for regular quarterly distributions
to the partners in accordance with the Duncan partnership
agreement in respect of any one or more of the next four
quarters.
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The Class B units issued in connection with the TEPPCO merger
are not entitled to regular quarterly cash distributions for the
first sixteen quarters following the closing of the TEPPCO
merger, which closed on October 26, 2009. The Class B units will
convert automatically into the same number of Enterprise common
units on the date immediately following the payment date of the
sixteenth quarterly distribution following the closing of the
TEPPCO merger and holders of such converted units will
thereafter be entitled to receive distributions of available
cash.
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In connection with Enterprises merger with Holdings, which
closed in November 2010, certain Enterprise common units owned
by a subsidiary of EPCO were designated pursuant to a
distribution waiver agreement, pursuant to which a subsidiary of
EPCO waived its rights to regular quarterly distributions with
respect to designated units for a five-year period after the
merger closing date.
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Distributions
of Cash Upon Liquidation
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Enterprise
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Duncan
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If Enterprise dissolves in accordance with its partnership
agreement, it will sell or otherwise dispose of its assets in a
process called a liquidation. Enterprise will first apply the
proceeds of liquidation to the payment of its creditors in the
order of priority provided in Enterprises partnership
agreement and by law and, thereafter, it will distribute any
remaining proceeds to its common unitholders in accordance with
their respective capital account balances. The general rules for
determining the capital account balances of the unitholders are
set forth in Enterprises partnership agreement.
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If Duncan dissolves in accordance with its partnership
agreement, it will sell or otherwise dispose of its assets in a
process called a liquidation. Duncan will first apply the
proceeds of liquidation to the payment of its creditors in the
order of priority provided in the partnership agreement and by
law and, thereafter, it will distribute any remaining proceeds
to its unitholders and its general partner in accordance with
their respective capital account balances. The general rules for
determining the capital account balances of the unitholders and
the general partner are set forth in Duncans partnership
agreement.
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Merger
and Consolidation
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Enterprise
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Duncan
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Merger or consolidation of Enterprise requires, in most
instances, the prior approval of the general partner and
approval of a majority of the members of the Audit and Conflicts
Committee. The general partner must also approve the merger
agreement which must include certain information as set forth in
Enterprises partnership agreement. Once approved by the
general partner, the merger agreement must be
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Merger or consolidation of Duncan requires, in most instances,
the prior consent of Duncan GP and approval of a majority of the
members of the Duncan ACG Committee, each of whom must meet
certain independence requirements set forth in the Duncan
partnership agreement. The Duncan GP must also approve the
merger agreement which must include certain information as set
forth in Duncans
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Enterprise
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Duncan
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submitted to a vote of Enterprises limited partners, and
the merger agreement will be approved upon receipt of the
affirmative vote of the holders of a majority of
Enterprises outstanding common units (including the Class
B units issued in the TEPPCO merger, with respect to matters
arising after their issuance) (unless the affirmative vote of
the holders of a greater percentage of common units is required
under Delaware law).
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partnership agreement. Once approved by the general partner,
the merger agreement must be submitted to a vote of
Duncans limited partners, and the merger agreement will be
approved upon receipt of the affirmative vote of the holders of
a majority of Duncans limited partner units.
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Disposal
of Assets
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Enterprise
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Duncan
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The general partner generally may not sell, exchange or
otherwise dispose of all or substantially all of the assets of
Enterprise and its subsidiaries in a single transaction or a
series of related transactions or approve on behalf of
Enterprise, the sale, exchange or other disposition of all or
substantially all the assets of Enterprise and its subsidiaries
(including by way of merger, consolidation, or other
combination) without the approval of the holders of a majority
of Enterprises outstanding common units (including the
Class B units issued in the TEPPCO merger) and approval from the
majority of the members of the Audit and Conflicts Committee.
However, Enterprise GP may mortgage, pledge, hypothecate or
grant a security interest in all or substantially all of the
assets of Enterprise and its subsidiaries. In addition, the
general partner may sell any or all of the assets of Enterprise
and its subsidiaries in a forced sale pursuant to the
foreclosure or other realization of any encumbrance without the
approval of Enterprises common or Class B unitholders and
approval by the Audit and Conflicts Committee.
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The general partner generally may not sell, exchange or
otherwise dispose of all or substantially all of the assets of
Duncan and its subsidiaries in a single transaction or a series
of related transactions (including by way of merger,
consolidation, or other combination or sale of ownership
interest) or approve on behalf of Duncan, the sale, exchange or
other disposition of all or substantially all the assets of
Duncan without the approval of the holders of a majority of
Duncans limited partner units and approval from a majority
of the members of the Duncan ACG Committee. However, the general
partner may mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of the assets of Duncan and
its subsidiaries. In addition, the general partner may sell any
or all of the assets of Duncan and its subsidiaries in a forced
sale pursuant to the foreclosure or other realization of any
encumbrance without the approval of Duncan unitholders and
approval by the Duncan ACG Committee.
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Transfer
of General Partner Interest
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Enterprise
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Duncan
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The general partner may transfer all or any of its general
partner interest without unitholder approval. However, no
transfer by the general partner of all or any part of its
interest will be permitted unless (i) the transferee agrees to
assume the rights and duties of the general partner and be bound
by the provisions of Enterprises partnership agreement,
(ii) Enterprise receives an opinion of counsel as to limited
liability and tax matters, (iii) such transferee agrees to
purchase all of the partnership interest of the general partner
or managing member of each of Enterprise, its operating
partnership and any of their subsidiaries and (iv) for so long
as any affiliate of EPCO controls the general partner, the
organizational documents of the owner of the general partner
interest provide for the establishment of an Audit and
Conflicts Committee, with independent (as defined
therein)
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The general partner may generally not transfer all or any
portion of its general partner interest to a single transferee
before December 31, 2016 unless such transfer has been approved
by the prior written consent or vote of the holders of a
majority of Duncans outstanding units (excluding units
held by the general partner and its affiliates). Duncans
partnership agreement does allow, however, the general partner
to transfer its general partner interest prior to December 31,
2016 without approval of the limited partners either (i) to an
affiliate or (ii) to a third party in conjunction with a merger
of the general partner into, or sale of all or substantially all
of the assets of the general partner to, a third party. After
December 31, 2016, the general partner may transfer all or any
portion of its general partner interest without unitholder
approval.
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Enterprise
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Duncan
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members to approve specified matters.
The general partner may also transfer, in whole or in part, the
common units it owns.
In addition, Enterprises partnership agreement does not
prohibit or require unitholder approval for any transfer, in
whole or in part, of the ownership of the general partner.
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In
the case of all transfers, however, no transfer of the general
partner interest will be permitted unless (i) the transferee
agrees to assume the rights and duties of the general partner
and be bound by the provisions of Duncans partnership
agreement, (ii) Duncan receives an opinion of counsel as to
limited liability and tax matters, (iii) such transferee or
successor also agrees to purchase all (or the appropriate
portion thereof, if applicable) of the partnership interest or
membership interest of the General Partner as the general
partner or managing member of certain other affiliates and (iv)
for so long as any affiliate of Duncan controls the general
partner, the organizational documents of the owner of the
general partner interest provide for the establishment of an
Audit and Conflicts Committee with independent (as
defined therein) members to approve specified matters.
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The
general partner may also transfer, in whole or in part, the
limited partner units it owns.
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In
addition, Duncans partnership agreement does not prohibit
or require unitholder approval for any transfer, in whole or in
part, of the ownership of the general partner.
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Withdrawal
of General Partner
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Enterprise
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Duncan
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The general partner may voluntarily withdraw as
Enterprises general partner at any time by receiving
approval from a majority of members of the Audit and Conflicts
Committee and by giving 90 days notice to the holders
of common units (including the Class B units). Enterprises
partnership agreement provides for other events of withdrawal,
including specified bankruptcy events, and withdrawal by the
general partner upon the occurrence of such events will not
constitute a violation of the partnership agreement.
Upon
the voluntary withdrawal of the general partner, the holders of
a majority of Enterprises outstanding common units
(including the Class B units) may elect a successor to the
withdrawing general partner. If a successor is not elected, or
is elected but an opinion of counsel regarding limited liability
and tax matters cannot be obtained, Enterprise will be
dissolved, unless within 90 days after such withdrawal, the
holders of a majority of Enterprises outstanding units,
excluding the common units held by the withdrawing general
partner and its affiliates, agree to continue Enterprises
business and to appoint a successor general partner.
If
the general partner withdraws under circumstances that do not
violate Enterprises partnership agreement,
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The general partner may voluntarily withdraw as Duncans
general partner at any time by (i) receiving approval from
a majority of members of the Duncan ACG Committee,
(ii) receiving the approval of the holders of a majority of
Duncans limited partner units (excluding units held by
Duncan) and (iii) giving notice of its intention to
withdraw. After December 31, 2016, the general partner will no
longer be required to receive the approval of the limited
partners or the Duncan ACG Committee to withdraw. Duncans
partnership agreement provides for other events of withdrawal,
including specified bankruptcy events, and withdrawal by the
general partner upon the occurrence of such events will not
constitute a violation of Duncans partnership
agreement.
Upon
the voluntary withdrawal of the general partner, the holders of
a majority of Duncans outstanding units may elect a
successor to the withdrawing general partner. If a successor is
not elected, or is elected but an opinion of counsel regarding
limited liability and tax matters cannot be obtained, Duncan
will be dissolved, unless within 90 days after such
withdrawal, the holders of a majority of Duncans
outstanding units, excluding the units held by the withdrawing
general partner and its affiliates, agree to
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Enterprise
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Duncan
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the general partner will have the right to convert its general
partner interest into limited partner units or to receive cash
in exchange for such interests. If the general partner withdraws
under circumstances where such withdrawal violates
Enterprises partnership agreement, its successor will have
the option to purchase the general partners interest.
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continue Duncans business and to appoint a successor
general partner.
If
the general partner withdraws under circumstances that do not
violate the Duncan partnership agreement, the general partner
will have the right to convert its general partner interest into
limited partner units or to receive cash in exchange for such
interests. If the general partner withdraws under circumstances
where such withdrawal violates Duncans partnership
agreement or the organizational agreements of its operating
companies, its successor will have the option to purchase the
general partners interest.
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Removal
of General Partner
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Enterprise
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Duncan
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The general partner may not be removed unless that removal is
approved by the vote of the holders of not less than 60% of
Enterprises outstanding units, including units held by the
general partner and its affiliates, and Enterprise receives an
opinion of counsel regarding limited liability and tax matters.
Action for removal must also provide for the election of a
successor general partner by a vote of a majority of the
outstanding common units.
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The general partner may be removed if such removal is approved
by a vote of at least
662/3%
of the outstanding units voting as a single class, including
units held by the general partner and its affiliates, and Duncan
receives an opinion of counsel regarding limited liability and
tax matters. Action for removal must also provide for the
election of a successor general partner by a vote of a majority
of the outstanding units.
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In addition, if the general partner is removed as the general
partner under circumstances where cause does not
exist, the general partner will have the right to convert its
general partner interest into common units or to receive cash in
exchange for such interests. Cause is defined to
mean that a court of competent jurisdiction has entered a final,
non- appealable judgment finding the general partner liable for
actual fraud, gross negligence or willful or wanton misconduct
in its capacity as the general partner. If the general partner
is removed by the limited partners under circumstances where
cause exists, its successor will have the option to purchase the
general partners interest.
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In addition, if the general partner is removed as the general
partner under circumstances where cause does not
exist and units held by the general partner and its affiliates
are not voted in favor of such removal, the general partner will
have the right to convert its general partner interest into
limited partner units or to receive cash in exchange for such
interests. Cause is defined to mean that a court of
competent jurisdiction has entered a final, non- appealable
judgment finding the general partner liable for actual fraud, or
willful misconduct in its capacity as the general partner. If
the general partner is removed by the limited partners under
circumstances where cause exists, its successor will have the
option to purchase the general partners interest.
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Limited
Call Rights
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Enterprise
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Duncan
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If at any time the general partner and its affiliates own 85% or
more of the issued and outstanding limited partner interests of
any class, the general partner will have the right, assignable
to Enterprise or any of the general partners affiliates,
to purchase all, but not less than all, of the outstanding units
of that class that are held by non-affiliated persons. The
record date for determining ownership of the limited partner
interests will be selected by the general partner on at least
10, but not more than 60, days notice. The purchase price
in the event of a purchase
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If at any time the general partner and its affiliates own 80% or
more of the issued and outstanding limited partner interests of
any class, the general partner will have the right, assignable
to Duncan or any of the general partners affiliates, to
purchase all, but not less than all, of the outstanding units of
that class that are held by non-affiliated persons. The record
date for determining ownership of the limited partner interests
will be selected by the general partner on at least 10, but not
more than 60, days notice. The purchase price in the event
of a purchase
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Enterprise
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Duncan
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under these provisions would be the greater of (i) the current
market price (as defined in Enterprises partnership
agreement) of the limited partner interests and (ii) the highest
price paid by the general partner or any of its affiliates for
any limited partner interest of the class purchased within the
90 days preceding the date the general partner mails notice
of its election to purchase the units.
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under these provisions would be the greater of (i) the highest
price paid by the general partner or any of its affiliates for
any limited partner interest of the class purchased within the
90 days preceding the date the general partner mails notice
of its election to purchase the units and (ii) the current
market price (as defined in Duncans partnership agreement)
of limited partner interests of the class as of the date three
days prior to the date that notice is mailed.
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Limited
Preemptive Rights
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Enterprise
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Duncan
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The general partner has the right, which it may from time to
time assign in whole or in part to any of its affiliates, to
purchase common units or other equity securities whenever, and
on the same terms that, Enterprise issues those securities to
persons other than its general partner and its affiliates, to
the extent necessary to maintain their percentage interests in
Enterprise that existed immediately prior to the issuance. The
holders of common units (including the Class B units) have no
preemptive rights to acquire additional units or other
partnership interests in Enterprise.
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The general partner has the right, which it may from time to
time assign in whole or in part to any of its affiliates, to
purchase common units or other equity securities whenever, and
on the same terms that, Duncan issues those securities to
persons other than its general partner and its affiliates, to
the extent necessary to maintain their percentage interests in
Duncan that existed immediately prior to the issuance. The
holders of common units have no preemptive rights to acquire
additional units or other partnership interests in Duncan.
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General
Partners Authority to Take Action Not Contemplated by the
Agreement
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Enterprise
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Duncan
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The general partner may not, without written approval of all
outstanding common unitholders, take any action in contravention
of Enterprises partnership agreement including (i)
committing any act that would make it impossible to carry on the
ordinary business of Enterprise, (ii) possessing Enterprise
property, or assigning any rights in specific Enterprise
property, for other than a partnership purpose and (iii) other
actions listed in Enterprises partnership agreement.
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The general partner may not, without the approval of holders of
a majority of the Duncan common units and approval of a majority
of the members of the Duncan ACG Committee, sell, exchange or
otherwise dispose of all or substantially all of the assets of
Duncan and its subsidiaries, taken as a whole in a single
transaction or series of transactions, except as contemplated by
Duncans partnership agreement.
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Amendment
of Partnership Agreement
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Enterprise
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Duncan
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Amendments to Enterprises partnership agreement may be
proposed only by its general partner. Except in certain
circumstances where Enterprises partnership agreement is
amended in connection with a merger, 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 requires the approval of at least a
majority of the class of limited partner interests so affected.
However, in some circumstances, more particularly described in
Enterprises partnership agreement, the general partner may
make amendments to the partnership agreement without the
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Amendments to Duncans partnership agreement may be
proposed only by its general partner. Except in certain
circumstances where Duncans partnership agreement is
amended in connection with a merger, any amendment that would
have a material adverse effect on the rights or preferences of
any class of limited partner interests requires the approval of
a majority of the outstanding units of such class. However, in
some circumstances more particularly described in Duncans
partnership agreement, Duncan GP may make amendments to
Duncans partnership agreement without the approval of
Duncans limited partners to reflect:
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Enterprise
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Duncan
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approval of Enterprises limited partners to reflect:
a change in Enterprises name, the location
of its principal place of business, its registered agent or its
registered office;
the admission, substitution, withdrawal or removal
of partners;
a change that, in the sole discretion of the general
partner, is necessary or advisable to qualify or continue
Enterprises qualification as a limited partnership or a
partnership in which its limited partners have limited liability
under the laws of any state or to ensure that neither
Enterprise, its operating partnership, nor any of its
subsidiaries will be treated as an association taxable as a
corporation or otherwise taxed as an entity for U.S. federal
income tax purposes;
a change that, in the discretion of the general
partner, does not adversely affect Enterprises limited
partners in any material respect;
a change that, in the discretion of the general
partner, is necessary or advisable (i) to satisfy any
requirements, conditions or guidelines contained in any opinion,
directive, order, ruling or regulation of any federal or state
agency or judicial authority or contained in any federal or
state statute, (ii) to facilitate the trading of
Enterprises limited partner interests or to comply with
any rule, regulation, guideline or requirement of any national
securities exchange on which its limited partner interests are
or will be listed for trading or (iii) in connection with a
distribution, subdivision or combination of securities of
Enterprise in accordance with Enterprises partnership
agreement;
a change that, in the discretion of the general
partner is required to effect the intent of Enterprises
partnership agreement or contemplated by the partnership
agreement;
a change in Enterprises fiscal year or taxable
year and any changes that are necessary or advisable as a result
of a change in Enterprises fiscal year or taxable year;
an amendment that is necessary in the opinion of
counsel to prevent Enterprise, or its general partner or its
directors, officers, trustees or agents from 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;
an amendment that is necessary or advisable in
connection with the authorization or issuance of any class or
series of Enterprises securities;
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a change in Duncans name, the location of
its principal place of business, its registered agent or its
registered office;
the admission, substitution, withdrawal or removal
of partners;
a change that the general partner determines to be
necessary or appropriate to qualify or continue Duncans
qualification as a limited partnership or a partnership in which
its limited partners have limited liability under the laws of
any state or to ensure that none of Duncan, its general partner
or any of its subsidiaries will be treated as an association
taxable as a corporation or otherwise taxed as an entity for
U.S. federal income tax purposes;
a change that the general partner determines does
not adversely affect Duncans limited partners in any
material respect;
a change that the general partner determines to be
necessary or appropriate (i) to satisfy any requirements,
conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute
or (ii) to facilitate the trading of Duncans limited
partner interests or to comply with any rule, regulation,
guideline or requirement of any national securities exchange on
which its limited partner interests are or will be listed or
admitted for trading;
any change the general partner determines to be
necessary or advisable in connection with distributions,
subdivisions or combinations of Partnership securities permitted
under the Duncan partnership agreement;
a change that the general partner determines is
required to effect the intent of the Duncan partnership
agreement or contemplated by the Duncan partnership
agreement;
a change in Duncans fiscal year or taxable
year and any changes that the general partner determines are
necessary or appropriate as a result of a change in
Duncans fiscal year or taxable year;
an amendment that is necessary in the opinion of
counsel to prevent Duncan, or its general partner or its
directors, officers, trustees or agents from 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;
an amendment that the general partner determines
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Enterprise
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Duncan
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any amendment expressly permitted in
Enterprises partnership agreement to be made by its
general partner acting alone;
an amendment effected, necessitated or contemplated
by a merger agreement approved in accordance with
Enterprises partnership agreement;
an amendment that, in the discretion of the general
partner, is necessary or advisable to reflect, account for and
deal with appropriately the formation of, or investment in, any
corporation, partnership, joint venture, limited liability
company or other entity other than Enterprises operating
partnership, in connection with its conduct of activities
permitted by Enterprises partnership agreement;
a merger or conveyance to effect a change in
Enterprises legal form; or
any other amendments substantially similar to the
foregoing.
Proposed amendments (other than those described above) must be
approved by holders of a majority of the outstanding common
units, except as otherwise provided in Enterprises
partnership agreement or under Delaware law. No provision of
Enterprises partnership agreement that establishes a
percentage of outstanding units required to take any action may
be amended, altered, changed, repealed, or rescinded to reduce
such voting requirement without the approval of the holders of
those outstanding units whose aggregate outstanding units
constitute not less than the voting requirement sought to be
reduced. In addition, Enterprises partnership agreement
requires approval of a majority of the Audit and Conflicts
Committee with respect to amendments to provisions relating to
it or requiring its approval.
No amendments to Enterprises partnership agreement (other
than those that may be made by the general partner without the
approval of Enterprises limited partners or in certain
circumstances in connection with the amendment of
Enterprises partnership agreement in connection with a
merger) will become effective without the approval of at least
90% of the outstanding common units unless Enterprise obtains an
opinion of counsel to the effect that such amendment will not
affect the limited liability of any limited partner under
applicable law.
Enterprises partnership agreement contains other
restrictions on amendments, including a prohibition on
amendments enlarging the obligations of any limited partner
(subject to specified exceptions), to the term of the
partnership and certain provisions relating to dissolution.
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is necessary or appropriate in connection with the
authorization or issuance of any class or series of
Duncans securities in accordance with the Duncan
partnership agreement;
any amendment expressly permitted in Duncans
partnership agreement to be made by its general partner acting
alone;
an amendment effected, necessitated or contemplated
by a merger agreement approved in accordance with Duncans
partnership agreement;
an amendment that the general partner determines is
necessary or appropriate to reflect, account for the formation
of, or investment in, any corporation, partnership, joint
venture, limited liability company or other entity, in
connection with its conduct of activities permitted by
Duncans partnership agreement;
an amendment necessary to require limited partners
to provide a statement, certification of other proof to Duncan
regarding whether such limited partner is subject to US federal
income taxation on the income generated by Duncan;
a merger or conveyance to effect a change in
Duncans legal form; or
any other amendments substantially similar to the
foregoing.
Proposed amendments (other than those described above) must be
approved by holders of a majority of the outstanding units,
except as otherwise provided in Duncans partnership
agreement or under Delaware law. No provision of Duncans
partnership agreement that establishes a percentage of
outstanding units required to take any action may be amended,
altered, changed, repealed, or rescinded to reduce such voting
requirement without the approval of the holders of those
outstanding units whose aggregate outstanding units constitute
not less than the voting requirement sought to be reduced. In
addition, the Duncan partnership agreement requires approval of
a majority of the Duncan ACG Committee with respect to
amendments to provisions relating to it or requiring its
approval.
No
amendments to Duncans partnership agreement (other than
those that may be made by the general partner without the
approval of Duncans limited partners or in certain
circumstances in connection with the amendment of Duncans
partnership agreement in connection with a merger) will become
effective without the approval of at least 90% of the limited
partner interests, voting as a single class, unless Duncan
obtains an opinion of counsel to the effect that such amendment
will not affect the limited
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Enterprise
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Duncan
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liability of any limited partner under applicable law.
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The
Duncan partnership agreement contains other restrictions on
amendments, including a prohibition on amendments enlarging the
obligations of any limited partner, to the term of the
partnership and certain provisions relating to dissolution.
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Dissolution
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Enterprise
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Duncan
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Enterprise will be dissolved, and its affairs wound up, upon the
occurrence of any of the following:
the expiration of its term as provided in
Enterprises partnership agreement;
withdrawal of the general partner pursuant to
Enterprises partnership agreement, unless a successor is
elected and admitted and an opinion of counsel is received
regarding limited liability on tax matters related to the
withdrawal;
The general partners election to dissolve
Enterprise, if approved by a majority of the members of the
Audit and Conflicts Committee and the holders of a majority of
Enterprises outstanding common units;
the entry of a decree of judicial dissolution of
Enterprise pursuant to the provisions of the Delaware Act; or
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Duncan will be dissolved, and its affairs wound up, upon the
occurrence of any of the following:
withdrawal or removal of the general partner
pursuant to Duncans partnership agreement, unless a
successor is elected and admitted and an opinion of counsel
regarding limited liability and tax matters related to the
withdrawal is received;
the general partners election to dissolve
Duncan, if approved by a majority of the members of the Duncan
ACG Committee and the holders of a majority of Duncans
outstanding units;
the entry of a decree of judicial dissolution of
Duncan pursuant to the provisions of the Delaware Act; or
at any time there are no limited partners, unless
Duncan is continued without dissolution in accordance with
Delaware law.
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the sale of all or substantially all of the assets
and properties of Enterprise and its subsidiaries.
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Liquidation
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Enterprise
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Duncan
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Upon Enterprises dissolution, unless it is reconstituted
and continued as a new limited partnership, the person selected
by the general partner to wind up Enterprises affairs (the
liquidator) will, acting with all the powers of the general
partner that the liquidator deems necessary or desirable in its
good faith judgment, liquidate Enterprises assets. The
proceeds of the liquidation will be applied as follows:
first, towards the payment of all of
Enterprises creditors and the creation of a reserve for
contingent liabilities; and
then, to all partners in accordance with the
positive balance in their respective capital accounts. Under
some circumstances and subject to some limitations, the
liquidator may defer liquidation or distribution of
Enterprises assets for a reasonable period of time. If the
liquidator determines that a sale would be impractical or would
cause undue loss to Enterprises partners, the general
partner
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Upon Duncans dissolution, unless it is continued as a new
limited partnership, the person selected by the general partner
to wind up Duncans affairs (the liquidator) will, acting
with all the powers of the general partner that the liquidator
deems necessary or appropriate, liquidate Duncans assets.
The proceeds of the liquidation will be applied as follows:
first, towards the payment of Duncans
creditors, including the liquidator as compensation for serving
in such capacity, in order of priority provided by law, and the
creation of a reserve for contingent liabilities; and
then, to all partners in accordance with the
positive balances in their respective capital accounts. Under
some circumstances and subject to some limitations, the
liquidator may defer liquidation or distribution of
Duncans assets for a reasonable period of time. If the
liquidator determines that a sale would be impractical or would
cause undue
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Enterprise
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Duncan
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may distribute assets in kind to Enterprises partners.
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loss to Duncans partners, the liquidator may distribute
assets in kind to Duncans partners.
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Management
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Enterprise
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Duncan
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The general partner conducts, directs and manages all of
Enterprises activities. Except as specifically granted in
Enterprises partnership agreement, all management powers
over the business and affairs of Enterprise are exclusively
vested in the general partner, and no limited partner or
assignee has any management power over the business and affairs
of Enterprise. Subject to certain restrictions contained in
Enterprises partnership agreement, the general partner has
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 Enterprise.
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The general partner conducts, directs and manages all of
Duncans activities. Except as specifically granted in
Duncans partnership agreement, all management powers over
the business and affairs of Duncan are exclusively vested in the
general partner, and no limited partner or assignee has any
management power over the business and affairs of Duncan.
Subject to certain restrictions contained in the Duncans
partnership agreement, the general partner has full power and
authority to do all things and on such terms as it may deem
necessary or appropriate to conduct the business of Duncan.
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Indemnification
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Enterprise
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Duncan
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Enterprises partnership agreement provides for
indemnification, to the fullest extent permitted by law, by
Enterprise of its general partner, any departing partner and any
person who is or was an affiliate of the general partner or any
departing partner and individuals serving as a member, director,
officer, employee, agent or trustee of the general partner or
any departing partner or any affiliate of the general partner or
any departing partner, but only if the indemnitee acted in good
faith and in a manner that such indemnitee reasonably believed
to be in or not opposed to the best interests of Enterprise and,
with respect to any criminal proceeding, had no reasonable cause
to believe its conduct was unlawful.
Any
indemnification under these provisions will be only out of the
assets of Enterprise, and the general partner will not be
personally liable for, or have any obligation to contribute or
loan funds or assets to Enterprise to enable it to effectuate
any indemnification.
Enterprise is authorized to purchase (or to reimburse its
general partner or its affiliates for the cost of) insurance
against liabilities asserted against and expenses incurred by
such persons in connection with Enterprises activities,
regardless of whether Enterprise would have the power to
indemnify such person against such liabilities.
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The Duncan partnership agreement provides for indemnification,
to the fullest extent permitted by law, by Duncan of its general
partner, any departing general partner and any person who is or
was an affiliate of the general partner or any departing general
partner, individuals serving as a member, officer, director,
partner, fiduciary or trustee of Duncan and designees of the
general partner, unless there has been a final and
non-appealable judgment entered by a court of competent
jurisdiction determining that the indemnitee acted in bad faith
or engaged in fraud, willful misconduct or, in the case of a
criminal matter, acted with knowledge that the indemnitees
conduct was unlawful.
Any
indemnification under these provisions will be only out of the
assets of Duncan, and the general partner will not be personally
liable for, or have any obligation to contribute or lend funds
or assets to Duncan to enable it to effectuate
indemnification.
Duncan is authorized to purchase (or to reimburse its general
partner or its affiliates for the cost of) insurance against
liabilities asserted against and expenses incurred by such
persons in connection with Duncans activities, regardless
of whether Duncan would have the power to indemnify such person
against such liabilities.
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Meetings;
Voting
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Enterprise
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Duncan
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Enterprises common unitholders are entitled to vote on the
following matters:
merger or consolidation involving Enterprise upon
the approval of the general partner and the Audit and Conflicts
Committee;
the sale, exchange or other disposition of all or
substantially all of Enterprises assets;
the election of a successor general partner upon the
current general partners withdrawal;
the removal of the general partner;
an election by the general partner (approved by the
Audit and Conflicts Committee) to dissolve Enterprise;
Enterprises continuation upon specified events
of dissolution;
approval of specified actions of the general partner
(not including the transfer by the general partner of its
general partner interest); and
certain amendments to Enterprises partnership
agreement.
Special meetings of Enterprise common unitholders may be called
by the general partner or by unitholders owning 20% or more of
Enterprises outstanding units in accordance with the
procedures set forth in Enterprises partnership agreement.
Subject to certain exceptions, such as the acquisition of units
in a transaction with affiliates of the general partner or a
transaction approved by the general partners board, if any
person or group acquires 20% or more of the outstanding
Enterprise common units, all of the units owned by such person
will not be considered outstanding for purposes of voting at or
calling a special meeting. Additionally, upon authorization from
the general partner, any action that may be taken at a meeting
of common unitholders may be taken without a meeting by
obtaining approval in writing of the necessary percentage of
common unitholders that would be required to authorize or take
the action at a meeting of common unitholders. The general
partner will provide notice of any meetings (or of a vote to
approve an action without a meeting) to all unitholders of
record as of a record date which may not be less than 10 or more
than 60 days prior to the date of the meeting (or, where
approvals are sought without a meeting, the date by which common
unitholders must submit approvals).
Only
record holders of Enterprise common units on the record date are
entitled to notice of, and to vote
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Duncan unitholders are entitled to vote on the following
matters:
merger or consolidation involving Duncan, upon
approval of the general partner and the Duncan ACG Committee;
the sale, exchange or other disposition of all or
substantially all of Duncans assets;
the election of a successor general partner upon the
current general partners withdrawal;
the removal of the general partner;
an election by the general partner (approved by the
Duncan ACG Committee) to dissolve Duncan;
Duncans continuation upon specified events of
dissolution;
approval of specified actions of the general partner
(including transfer by the general partner of its general
partner interest under certain circumstances); and
certain amendments to Duncans partnership
agreement.
Special meetings of Duncan unitholders may be called by the
general partner or by unitholders owning 20% or more of
Duncans outstanding units in accordance with the
procedures set forth in Duncans partnership agreement.
Subject to certain exceptions, such as the acquisition of units
in a transaction with affiliates of the general partner or a
transaction approved by the general partners board, if any
person or group (other than Duncan GP or its affiliates)
acquires 20% or more of the outstanding units of Duncan, all of
the units owned by such person will not be considered
outstanding for purposes of voting at or calling a special
meeting. Additionally, upon authorization from the general
partner, any action that may be taken at a meeting of
unitholders may be taken without a meeting by obtaining approval
in writing of the necessary percentage of unitholders that would
be required to authorize or take the action at a meeting of
unitholders. The general partner will provide notice of any
meetings (or of a vote to approve an action without a meeting)
to all unitholders of record as of a record date which may not
be less than 10 or more than 60 days prior to the date of
the meeting (or, where approvals are sought without a meeting,
the date by which unitholders must submit approvals).
Only
record holders of Duncans limited partner units on the
record date are entitled to notice of, and to vote at, a meeting
of Duncan unitholders (or of a
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Enterprise
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Duncan
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at, a meeting of Enterprise common unitholders (or of a
unitholder vote to be taken without a meeting). Each holder of
Enterprise common units is entitled to one vote for each common
unit on all matters submitted to a vote of the unitholders.
Subject to applicable law, limited partner interests held for a
persons account by a broker or other nominee party will be
voted by the broker (or other nominee) pursuant to the
instruction of the beneficial owner unless the arrangement
between the beneficial owner and his nominee provides otherwise.
Representation in person or by proxy of a majority of the
outstanding limited partner interests of the class for which a
meeting has been called will constitute a quorum at a meeting of
limited partners of such class or classes (unless a particular
action by the limited partners requires approval by a greater
percentage of limited partner interests, in which case the
quorum shall be such greater percentage). Except for a proposal
where approval by a different percentage of the holders of
Enterprise limited partner interests is required under
Enterprises partnership agreement (in which case the act
of the limited partners representing such different percentage
shall be required), any action taken by the holders of
Enterprise limited partner interests representing a majority of
Enterprises outstanding units present and entitled to vote
at a meeting of Enterprise limited partners where a quorum is
present will be considered to be the act of all Enterprise
limited partners.
Enterprise common unitholders have no right to elect the general
partner or any of its directors on an annual or other continuing
basis.
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unitholder vote to be taken without a meeting). Each holder of
Duncan limited partner units is entitled to one vote for each
unit on all matters submitted to a vote of the unitholders.
Subject to applicable law, limited partner interests held for a
persons account by a broker or other nominee party will be
voted by the broker (or other nominee) pursuant to the
instruction of the beneficial owner unless the arrangement
between the beneficial owner and his nominee provides otherwise.
Representation in person or by proxy of a majority of the
outstanding limited partner interests of the class for which a
meeting has been called will constitute a quorum at a meeting of
limited partners of such class or classes (unless a particular
action by the limited partners requires approval by a greater
percentage of limited partner interests, in which case the
quorum shall be such greater percentage). Except for a proposal
where approval by a different percentage of the holders of
Duncans limited partner interests is required under the
Duncan partnership agreement (in which case the act of the
limited partners representing such different percentage shall be
required), any action taken by the holders of Duncan limited
partner interests representing a majority of Duncans
outstanding units present and entitled to vote at a meeting of
Duncan limited partners where a quorum is present will be
considered to be the act of all Duncan limited partners.
Duncan unitholders have no right to elect the general partner or
any of its directors on an annual or other continuing basis.
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Prior to the payment date of the sixteenth quarterly
distribution following the closing of the TEPPCO merger, the
Class B units will be entitled to vote with the Enterprise
common unitholders as a single class on all partnership matters
described above. Holders of the Class B units shall be entitled
to vote as a separate class on any matter that adversely affects
the rights or preference of such class in relation to other
classes of partnership interests. The approval of a majority of
the Class B units will be required to approve any matter for
which the Class B unitholders are entitled to vote as a separate
class.
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Transfer
of Units; Status as a Limited Partner or Assignee
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Enterprise
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Duncan
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Each purchaser of Enterprise common units must execute a
transfer application whereby the purchaser requests admission as
a substituted limited partner and makes representations and
agrees to provisions stated in the transfer application.
Purchasers may hold common units in nominee accounts.
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Each transfer of Duncan limited partner interests will not be
recognized by the partnership unless certificate(s) representing
those limited partnership interests (or other evidence of the
issuance of uncertificated units) are surrendered.
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120
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Enterprise
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Duncan
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Each transfer of Enterprise limited partner interests will not
be recognized by the partnership unless certificate(s)
representing those limited partnership interests (or other
evidence of the issuance of uncertificated units) are
surrendered and such interests are accompanied by a duly
executed transfer application. Once such transferee has executed
and delivered a transfer application in accordance with
Enterprises partnership agreement, the transferee of
common units is an assignee. Such assignee makes representations
and agrees to be bound by the terms and conditions of
Enterprises partnership agreement and gives the consents
and approvals and makes the waivers contained in the partnership
agreement. An assignee will become a limited partner in respect
of the transferred common units upon the consent of the general
partner and the recordation of the name of the assignee on
Enterprises books and records. Such consent may be
withheld in the sole discretion of the general partner.
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An assignee, pending its admission as a substituted limited
partner, is entitled to an interest in Enterprise equivalent to
that of a limited partner with respect to the right to share in
allocations and distributions, including liquidating
distributions. The general partner will vote and exercise other
powers attributable to common units owned by an assignee who has
not become a substituted limited partner at the written
direction of the assignee. If no such direction is received,
such units will not be voted. Transferees who do not execute and
deliver transfer applications will be treated neither as
assignees nor as record holders of common units and will not
receive distributions, U.S. federal income tax allocations or
reports furnished to record holders of common units. The only
right the transferees will have is the right to admission as a
substituted limited partner in respect of the transferred common
units upon execution of a transfer application in respect of the
common units. A nominee or broker who has executed a transfer
application with respect to common units held in street name or
nominee accounts will receive distributions and reports
pertaining to such common units.
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A unitholder holding a Class B unit that has converted into
an Enterprise common unit will not be permitted to transfer such
common unit until the general partner determines, based on
advice of counsel, that the converted unit should have economic
and U.S. federal income tax characteristics of an Enterprise
common unit. The general partner is obligated to take steps to
provide for such uniformity, except as would have a material
adverse effect on holders of common units.
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121
DESCRIPTION
OF ENTERPRISE COMMON UNITS
Generally, the Enterprise common units represent limited partner
interests that entitle the holders to participate in its cash
distributions and to exercise the rights and privileges
available to limited partners under its partnership agreement.
Enterprises outstanding common units are listed on the
NYSE under the ticker symbol EPD. Any additional
Enterprise common units Enterprise issues will also be listed on
the NYSE. The transfer agent and registrar for the Enterprise
common units is Wells Fargo Shareowner Services.
Enterprise also has issued and outstanding Class B units,
which are entitled to the rights and privileges as noted below.
The Class B units are held by a privately held affiliate of
EPCO. The Class B units generally have the same rights and
privileges as the Enterprise common units, except that they are
not entitled to regular quarterly cash distributions for the
first sixteen quarters following October 26, 2009, which
was the closing date of Enterprises merger with TEPPCO.
The Class B units will automatically convert into the same
number of Enterprise common units on the date immediately
following the payment date for the sixteenth quarterly
distribution following the closing of the TEPPCO merger.
Meetings;
Voting
Each holder of Enterprise common units and Class B units is
entitled to one vote for each unit on all matters submitted to a
vote of the Enterprise common unitholders. Holders of the
Class B units are entitled to vote as a separate class on
any matter that adversely affects the rights or preference of
such class in relation to other classes of partnership
interests. The approval of a majority of the Class B units
is required to approve any matter for which the Class B
unitholders are entitled to vote as a separate class.
Status as
Limited Partner or Assignee
Except as described below under Limited
Liability, the Enterprise common units will be fully paid,
and Enterprise common unitholders will not be required to make
additional capital contributions to Enterprise.
Each purchaser of Enterprise common units must execute a
transfer application whereby the purchaser requests admission as
a substituted limited partner and makes representations and
agrees to provisions stated in the transfer application. If this
action is not taken, a purchaser will not be registered as a
record holder of Enterprise common units on the books of
Enterprises transfer agent or issued an Enterprise common
unit certificate or other evidence of the issuance of
uncertificated units. Purchasers may hold Enterprise common
units in nominee accounts.
An assignee, pending its admission as a substituted limited
partner, is entitled to an interest in Enterprise equivalent to
that of a limited partner with respect to the right to share in
allocations and distributions, including liquidating
distributions. Enterprise GP will vote and exercise other powers
attributable to Enterprise common units owned by an assignee who
has not become a substituted limited partner at the written
direction of the assignee. Transferees who do not execute and
deliver transfer applications will be treated neither as
assignees nor as record holders of Enterprise common units and
will not receive distributions, U.S. federal income tax
allocations or reports furnished to record holders of Enterprise
common units. The only right the transferees will have is the
right to admission as a substituted limited partner in respect
of the transferred Enterprise common units upon execution of a
transfer application in respect of the Enterprise common units.
A nominee or broker who has executed a transfer application with
respect to Enterprise common units held in street name or
nominee accounts will receive distributions and reports
pertaining to its Enterprise common units.
Limited
Liability
Assuming that a limited partner does not participate in the
control of Enterprises business within the meaning of the
Delaware Act and that he otherwise acts in conformity with the
provisions of Enterprises partnership agreement, his
liability under the Delaware Act will be limited, subject to
some possible exceptions, generally to the amount of capital he
has contributed to Enterprise in respect of his units in
Enterprise plus his share of any undistributed profits and
assets.
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Under the Delaware Act, a limited partnership may not make a
distribution to a partner to the extent that at the time of the
distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to
partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, exceed the fair value of
the assets of the limited partnership.
For the purposes of determining the fair value of the assets of
a limited partnership, the Delaware Act provides that the fair
value of the property subject to liability of which recourse of
creditors is limited shall be included in the assets of the
limited partnership only to the extent that the fair value of
that property exceeds the nonrecourse liability. The Delaware
Act provides that a limited partner who receives a distribution
and knew at the time of the distribution that the distribution
was in violation of the Delaware Act is liable to the limited
partnership for the amount of the distribution for three years
from the date of the distribution.
Reports
and Records
As soon as practicable, but in no event later than 120 days
after the close of each fiscal year, Enterprise GP will mail or
furnish to each Enterprise unitholder of record (as of a record
date selected by Enterprise GP) an annual report containing
Enterprises audited financial statements for the past
fiscal year. These financial statements will be prepared in
accordance with U.S. GAAP. In addition, no later than
90 days after the close of each quarter (except the fourth
quarter), Enterprise GP will mail or furnish to each Enterprise
unitholder of record (as of a record date selected by Enterprise
GP) a report containing Enterprises unaudited financial
statements and any other information required by law.
Enterprise GP will use all reasonable efforts to furnish each
Enterprise unitholder of record information reasonably required
for tax reporting purposes within 90 days after the close
of each fiscal year. The general partners ability to
furnish this summary tax information will depend on the
cooperation of Enterprise common unitholders in supplying
information to Enterprise GP. Each Enterprise unitholder will
receive information to assist him in determining his
U.S. federal and state tax liability and filing his
U.S. federal and state and income tax returns.
An Enterprise limited partner can, for a purpose reasonably
related to such limited partners interest as an Enterprise
limited partner, upon reasonable demand and at his own expense,
have furnished to him:
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a current list of the name and last known address of each
partner;
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a copy of Enterprises tax returns;
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information as to the amount of cash and a description and
statement of the agreed value of any other property or services
contributed or to be contributed by each Enterprise partner and
the date on which each became an Enterprise partner;
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copies of Enterprises partnership agreement, certificate
of limited partnership, amendments to either of them and powers
of attorney which have been executed under Enterprises
partnership agreement;
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information regarding the status of Enterprises business
and financial condition; and
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any other information regarding Enterprises affairs as is
just and reasonable.
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Enterprise GP may, and intends to, keep confidential from the
limited partners trade secrets and other information the
disclosure of which Enterprise GP believes in good faith is not
in Enterprises best interest or which Enterprise is
required by law or by agreements with third parties to keep
confidential.
Please read Comparison of the Rights of the Enterprise and
Duncan Unitholders for a further discussion of
Enterprises partnership agreement and a comparison of the
agreement to Duncans partnership agreement.
123
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material U.S. federal
income tax consequences of the merger that may be relevant to
Duncan common unitholders and Enterprise common unitholders.
Unless otherwise noted, the description of the law and the legal
conclusions set forth in the discussion relating to the
consequences of the merger to Duncan and its unitholders are the
opinion of Vinson & Elkins, counsel to Duncan, as to
the material U.S. federal income tax consequences relating
to those matters. Unless otherwise noted below, the description
of the law and the legal conclusions set forth in the discussion
relating to the consequences of the merger to Enterprise and its
unitholders are the opinion of Andrews Kurth, counsel to
Enterprise, as to the material U.S. federal income tax
consequences relating to those matters. This discussion is based
upon current provisions of the Internal Revenue Code, existing
and proposed regulations and current administrative rulings and
court decisions, all of which are subject to change, possibly
with retroactive effect. Changes in these authorities may cause
the tax consequences to vary substantially from the consequences
described below. Neither Enterprise nor Duncan has sought a
ruling from the IRS with respect to any of the tax consequences
discussed below, and the IRS would not be precluded from taking
positions contrary to those described herein. As a result, no
assurance can be given that the IRS will agree with all of the
tax characterizations and the tax consequences described below.
This discussion does not purport to be a complete discussion of
all U.S. federal income tax consequences of the merger.
Moreover, the discussion focuses on Duncan common unitholders
and Enterprise common unitholders who are individual citizens or
residents of the United States (for U.S. federal income tax
purposes) and has only limited application to corporations,
estates, trusts, nonresident aliens, other unitholders subject
to specialized tax treatment, such as tax-exempt institutions,
foreign persons, individual retirement accounts, or IRAs, real
estate investment trusts, or REITs, or mutual funds, traders in
securities that elect to
mark-to-market,
affiliates of Enterprises general partner, or persons who
hold Duncan common units or Enterprise common units as part of a
hedge, straddle or conversion transaction. Also, the discussion
assumes that the Duncan common units and Enterprise common units
are held as capital assets at the time of the merger.
Accordingly, Duncan and Enterprise strongly urge each Duncan
common unitholder and Enterprise common unitholder to consult
with, and depend upon, his own tax advisor in analyzing the
U.S. federal, state, local and foreign tax consequences
particular to him of the merger.
Tax
Opinions Required As a Condition to Closing
No ruling has been or will be requested from the IRS with
respect to the tax consequences of the merger. Instead,
Enterprise and Duncan will rely on the opinions of their
respective counsel regarding the tax consequences of the merger.
It is a condition of Enterprises obligation to complete
the merger that Enterprise receive an opinion of its counsel,
Andrews Kurth, to the effect that for U.S. federal income
tax purposes:
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the merger and the transactions contemplated by the merger
agreement will not cause Enterprise or any of Enterprises
operating partnerships to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity for
U.S. federal income tax purposes;
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at least 90% of the current gross income of Enterprise
constitutes qualifying income within the meaning of
Section 7704(d) of the Internal Revenue Code;
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the registration statement accurately sets forth the material
U.S. federal income tax consequences to Enterprise
unaffiliated unitholders of the merger and the transactions
contemplated by the merger agreement; and
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no gain or loss should be recognized by existing Enterprise
unaffiliated unitholders as a result of the merger (other than
gain resulting from any decrease in partnership liabilities
pursuant to Section 752 of the Internal Revenue Code).
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It is a condition of Duncans obligation to complete the
merger that Duncan receive an opinion of its counsel,
Vinson & Elkins, to the effect that for
U.S. federal income tax purposes:
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no gain or loss should be recognized by Duncan common
unitholders to the extent Enterprise common units are received
in exchange for Duncan common units as a result of the merger
(other than gain resulting from either (i) any decrease in
partnership liabilities pursuant to Section 752 of the
Internal Revenue Code or (ii) any cash received in lieu of
any fractional Enterprise common units); and
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the registration statement accurately sets forth the material
U.S. federal income tax consequences to Duncan common
unitholders of the merger and the transactions contemplated by
the merger agreement.
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The opinions of counsel will assume that the merger will be
consummated in the manner contemplated by, and in accordance
with, the terms set forth in the merger agreement and described
in this proxy statement/prospectus.
In addition, the tax opinions delivered to Enterprise and Duncan
at closing will be based on certain factual representations made
by Enterprise, Duncan and their respective general partners. If
either Enterprise or Duncan waives the receipt of the requisite
tax opinion as a condition to closing and the changes to the tax
consequences would be material, then this proxy
statement/prospectus will be amended and recirculated and
unitholder approval will be resolicited.
Unlike a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, no assurance can be given that the
above-described opinions and the opinions and statements made
hereafter in this proxy statement/prospectus will be sustained
by a court if contested by the IRS.
Tax
Consequences of the Merger to Duncan and Its
Unitholders
Except as discussed below, no gain or loss should be recognized
by the holders of Duncan common units solely as a result of the
merger, other than gain resulting from (i) any decrease in
partnership liabilities pursuant to Section 752 of the
Internal Revenue Code and (ii) any cash received in lieu of
any fractional Enterprise common units. To the extent that a
holder of Duncan common units receives cash in lieu of
fractional Enterprise common units pursuant to the merger
agreement, such cash generally will, for U.S. federal
income tax purposes, be treated as consideration for the sale of
a portion of such holders Duncan common units to
Enterprise, in which case, such a holder of Duncan common units
that receives cash in lieu of the distribution of fractional
Enterprise common units will recognize gain or loss equal to the
difference between the cash received and the unitholders
adjusted tax basis allocable to such fractional Enterprise
common units.
Classification
of Enterprise and Duncan for U.S. Federal Income Tax
Purposes
If Enterprise were treated as a corporation for
U.S. federal income tax purposes at the time of the merger,
the merger would be a fully taxable transaction to a Duncan
common unitholder. The discussion below assumes that Enterprise
will be classified as a partnership for U.S. federal income
tax purposes at the time of the merger. Please read the
discussion of the opinion of Andrews Kurth that Enterprise is
classified as a partnership for U.S. federal income tax
purposes under U.S. Federal Income Taxation of
Ownership of Enterprise Common Units Partnership
Status below.
The discussion below also assumes that Duncan will be classified
as a partnership for U.S. federal income tax purposes at
the time of the merger. Following the merger, a Duncan common
unitholder that receives Enterprise common units will be treated
as a partner in Enterprise regardless of the U.S. federal
income tax classification of Duncan.
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Possible
Taxable Gain to Certain Duncan Common Unitholders from
Reallocation of Nonrecourse Liabilities
As a partner in Duncan, a Duncan common unitholder is entitled
to include the nonrecourse liabilities of Duncan attributable to
his Duncan common units in the tax basis of his Duncan common
units. As a partner in Enterprise after the merger, a former
Duncan common unitholder will be entitled to include the
nonrecourse liabilities of Enterprise attributable to the
Enterprise common units received in the merger in the tax basis
of such units received. For this purpose, all liabilities of
Duncan and Enterprise are considered nonrecourse liabilities.
The nonrecourse liabilities of Enterprise will include the
nonrecourse liabilities of Duncan after the merger. The amount
of nonrecourse liabilities attributable to a Duncan unit or a
Enterprise common unit is determined under complex regulations
under Section 752 of the Internal Revenue Code.
If the nonrecourse liabilities attributable to the Enterprise
common units received by a Duncan common unitholder in the
merger exceed the nonrecourse liabilities attributable to the
Duncan common units surrendered by the unitholder in the merger,
the former Duncan common unitholders tax basis in the
Enterprise common units received will be correspondingly higher
than the unitholders tax basis in the Duncan common units
surrendered. If the nonrecourse liabilities attributable to the
Enterprise common units received by a Duncan common unitholder
in the merger are less than the nonrecourse liabilities
attributable to the Duncan common units surrendered by the
Duncan common unitholder in the merger, the former Duncan common
unitholders tax basis in the Enterprise common units
received will be correspondingly lower than the
unitholders tax basis in the Duncan common units
surrendered. Please read Tax Basis and Holding
Period of the Enterprise Common Units Received below.
If any resulting reduction in a Duncan common unitholders
share of nonrecourse liabilities exceeds such unitholders
tax basis in the Duncan common units surrendered, such
unitholder will recognize taxable gain in an amount equal to
such excess. Enterprise and Duncan do not expect any Duncan
common unitholders to recognize gain in this manner.
Tax
Basis and Holding Period of the Enterprise Common Units
Received
A Duncan common unitholders initial tax basis in his
Duncan common units consisted of the amount the unitholder paid
for the Duncan common units plus the unitholders share of
Duncans nonrecourse liabilities. That basis has been and
will be increased by the unitholders share of income and
by any increases in the unitholders share of nonrecourse
liabilities. That basis has been and will be decreased, but not
below zero, by distributions, by the unitholders share of
losses, by any decreases in the unitholders share of
nonrecourse liabilities and by the unitholders share of
expenditures that are not deductible in computing taxable income
and are not required to be capitalized.
A Duncan common unitholders initial aggregate tax basis in
Enterprise common units the unitholder will receive in the
merger will be equal to the unitholders adjusted tax basis
in the Duncan common units exchanged therefor, decreased by
(i) any basis attributable to the unitholders share
of Duncans nonrecourse liabilities and (ii) any basis
allocable to fractional Enterprise common units if such holder
receives cash in lieu of the distribution of fractional
Enterprise common units in the merger, and increased by the
unitholders share of Enterprises nonrecourse
liabilities immediately after the merger. In addition, a Duncan
common unitholders tax basis in the Enterprise common
units received will be increased by the amount of any income or
gain recognized by the unitholder pursuant to the transactions
contemplated by the merger (other than gain recognized with
respect to cash received by such unitholder in lieu of
fractional Enterprise common units).
The holding period in the Enterprise common units received in
the merger will include the holding period for the Duncan common
units exchanged therefor.
Effect
of Termination of Duncans Tax Year at Closing of
Merger
Duncan uses the year ending December 31 as its taxable year and
the accrual method of accounting for U.S. federal income
tax purposes. As a result of the merger, Duncans taxable
year will end as of the date of the merger and Duncan will be
required to file a final U.S. federal income tax return for
the taxable year
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ending upon the date the merger is effected. Each Duncan common
unitholder will be required to include in income his share of
income, gain, loss and deduction for this period. In addition, a
Duncan common unitholder who has a taxable year ending on a date
other than December 31 and after the date the merger is effected
must include his share of income, gain, loss and deduction in
income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of income, gain, loss and deduction from
Duncan.
Partner
Status
Following the merger, a Duncan unitholder who receives
Enterprise common units will be treated as a partner in
Enterprise. For a discussion of the material U.S. federal
income tax consequences of owning and disposing of Enterprise
common units received in the merger, please read
U.S. Federal Income Taxation of Ownership of
Enterprise Common Units.
Tax
Consequences of the Merger to Enterprise and Its
Unitholders
Neither Enterprise nor its unitholders should recognize any
income or gain for U.S. federal income tax purposes as a
result of the merger other than any gain recognized as a result
of decreases in partnership liabilities pursuant to
Section 752 of the Internal Revenue Code. Each Enterprise
unitholders share of Enterprises nonrecourse
liabilities will be recalculated following the merger. Any
resulting increase or decrease in a Enterprise unitholders
nonrecourse liabilities will result in a corresponding increase
or decrease in such unitholders adjusted tax basis in his
Enterprise common units. A reduction in a unitholders
share of nonrecourse liabilities may, under certain
circumstances, result in the recognition of taxable gain by a
Enterprise unitholder. Enterprise and Duncan do not expect any
Enterprise common unitholders to recognize gain in this manner.
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U.S.
FEDERAL INCOME TAXATION OF
OWNERSHIP OF ENTERPRISE COMMON UNITS
This section is a summary of the material U.S. federal,
state and local tax consequences that may be relevant to owning
Enterprise common units received in the merger and, unless
otherwise noted in the following discussion, is the opinion of
Andrews Kurth insofar as it describes legal conclusions with
respect to matters of U.S. federal income tax law. Such
statements are based on the accuracy of the representations made
by Enterprise and Enterprise GP to Andrews Kurth, and statements
of fact do not represent opinions of Andrews Kurth. To the
extent this section discusses U.S. federal income taxes,
that discussion is based upon current provisions of the Internal
Revenue Code, Treasury Regulations, and current administrative
rulings and court decisions, all of which are subject to change.
Changes in these authorities may cause the tax consequences to
vary substantially from the consequences described below.
This section does not address all U.S. federal, state and
local tax matters that affect Enterprise or its unitholders. To
the extent that this section relates to taxation by a state,
local or other jurisdiction within the United States, such
discussion is intended to provide only general information.
Neither Enterprise nor Duncan has sought the opinion of legal
counsel regarding U.S. state, local or other taxation and,
thus, any portion of the following discussion relating to such
taxes does not represent the opinion of Andrews Kurth or any
other legal counsel. Furthermore, this section focuses on
holders of Enterprise common units who are individual citizens
or residents of the United States, whose functional currency is
the U.S. dollar and who hold units as capital assets
(generally, property that is held as an investment). This
section has no application to corporations, partnerships (and
entities treated as partnerships for U.S. federal income
tax purposes), estates, trusts, non-resident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions,
non-U.S. persons,
individual retirement accounts, employee benefit plans, real
estate investment trusts or mutual funds. Accordingly,
Enterprise encourages each unitholder to consult, and depend on,
such unitholders own tax advisor in analyzing the
U.S. federal, state, local and
non-U.S. tax
consequences particular to that unitholder resulting from their
ownership or disposition of its Enterprise common units.
No ruling has been or will be requested from the IRS regarding
any matter affecting Enterprise following the merger or the
consequences of owning Enterprise common units received in the
merger. Instead, Enterprise will rely on opinions and advice of
Andrews Kurth with respect to such matters. Unlike a ruling, an
opinion of counsel represents only that counsels best
legal judgment and does not bind the IRS or the courts.
Accordingly, the opinions and statements made below may not be
sustained by a court if contested by the IRS. Any contest of
this sort with the IRS may materially and adversely impact the
market for Enterprise common units and the prices at which
Enterprise common units trade. In addition, the costs of any
contest with the IRS, principally legal, accounting and related
fees, will result in a reduction in cash available for
distribution to Enterprises unitholders and thus will be
borne indirectly by the unitholders. Furthermore, the tax
treatment of Enterprise or of an investment in Enterprise may be
significantly modified by future legislative or administrative
changes or court decisions. Any modifications may or may not be
retroactively applied.
For the reasons described below, Andrews Kurth has not rendered
an opinion with respect to the following specific
U.S. federal income tax issues:
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the treatment of a unitholder whose Enterprise common units are
loaned to a short seller to cover a short sale of Enterprise
common units (please read Tax Consequences of
Enterprise Common Unit Ownership Treatment of Short
Sales);
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whether Enterprises monthly convention for allocating
taxable income and losses is permitted by existing Treasury
Regulations (please read Disposition of
Enterprise Common Units Allocations Between
Transferors and Transferees);
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whether Enterprises method for depreciating
Section 743 adjustments is sustainable in certain cases
(please read Tax Consequences of Enterprise
Common Unit Ownership Section 754
Election and Uniformity of Enterprise
Common Units); and
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whether a Duncan common unitholder will be able to utilize
suspended passive losses related to his Duncan common units to
offset income from Enterprise common units.
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Partnership
Status
A partnership is not a taxable entity and incurs no
U.S. federal income tax liability. Instead, each partner of
a partnership is required to take into account his share of
items of income, gain, loss and deduction of the partnership in
computing his U.S. federal income tax liability, regardless
of whether cash distributions are made to him by the
partnership. Distributions by a partnership to a partner are
generally not taxable to the partner unless the amount of cash
distributed to him is in excess of the partners adjusted
basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception, exists with respect to
publicly traded partnerships of which 90% or more of the gross
income for every taxable year consists of qualifying
income. Qualifying income includes income and gains
derived from the exploration, development, mining or production,
processing, refining, transportation, storage and marketing of
any mineral or natural resource, including Enterprises
allocable share of such income from Energy Transfer Equity,
L.P., a Delaware limited partnership (the MLP
Entity). Other types of qualifying income include interest
(other than from a financial business), dividends, gains from
the sale of real property and gains from the sale or other
disposition of capital assets held for the production of income
that otherwise constitutes qualifying income. Enterprise
estimates that less than 5% of its current gross income is not
qualifying income; however, this estimate could change from time
to time. Based on and subject to this estimate, the factual
representations made by Enterprise and Enterprise GP and a
review of the applicable legal authorities, Andrews Kurth is of
the opinion that at least 90% of Enterprises current gross
income constitutes qualifying income. The portion of its income
that is qualifying income may change from time to time.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to the status of Enterprise or EPO
as partnerships for U.S. federal income tax purposes.
Instead, Enterprise will rely on the opinion of Andrews Kurth on
such matters. It is the opinion of Andrews Kurth that, based
upon the Internal Revenue Code, its regulations, published
revenue rulings and court decisions and the representations
described below, Enterprise and EPO will be classified as
partnerships for U.S. federal income tax purposes.
In rendering its opinion, Andrews Kurth has relied on factual
representations made by Enterprise and Enterprise GP. The
representations made by Enterprise and the general partner of
Enterprise upon which Andrews Kurth has relied include:
(a) None of Enterprise, the MLP Entity or EPO has elected
or will elect to be treated as a corporation; and
(b) For each taxable year, more than 90% of
Enterprises gross income has been and will be income that
Andrews Kurth has opined or will opine is qualifying
income within the meaning of Section 7704(d) of the
Internal Revenue Code.
If Enterprise fails to meet the Qualifying Income Exception,
other than a failure that is determined by the IRS to be
inadvertent and that is cured within a reasonable time after
discovery (in which case the IRS may also require Enterprise to
make adjustments with respect to Enterprises unitholders
or pay other amounts), Enterprise will be treated as if
Enterprise had transferred all of its assets, subject to
liabilities, to a newly formed corporation, on the first day of
the year in which Enterprise fails to meet the Qualifying Income
Exception, in return for stock in that corporation, and then
distributed that stock to the unitholders in liquidation of
their interests in it. This deemed contribution and liquidation
should be tax-free to unitholders and Enterprise except to the
extent that Enterprises liabilities exceed the tax basis
of its assets at that time. Thereafter, Enterprise would be
treated as a corporation for U.S. federal income tax
purposes.
If Enterprise were taxable as a corporation in any taxable year,
either as a result of a failure to meet the Qualifying Income
Exception or otherwise, its items of income, gain, loss and
deduction would be reflected only on its tax return rather than
being passed through to the unitholders, and its net income
would be taxed to
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Enterprise at corporate rates. Moreover, if the MLP Entity were
taxable as a corporation in any taxable year, Enterprises
share of such entitys items of income, gain, loss and
deduction would not be passed through to it and such entity
would pay tax on its income at corporate rates. If Enterprise or
the MLP Entity were taxable as a corporation, losses recognized
by the MLP Entity would not flow through to Enterprise or losses
recognized by Enterprise would not flow through to its
unitholders, as the case may be. In addition, any distribution
made by Enterprise to a unitholder (or by the MLP Entity to
Enterprise) would be treated as (i) taxable dividend
income, to the extent of current or accumulated earnings and
profits, then (ii) a nontaxable return of capital, to the
extent of the unitholders tax basis in his common units
(or Enterprises tax basis in its interest in the MLP
Entity), and thereafter (iii) taxable capital gain from the
sale of such units (or from the sale of Enterprises
interest in the MLP Entity). Accordingly, taxation of Enterprise
or the MLP Entity as a corporation would result in a material
reduction in a unitholders cash flow and after-tax return
and thus would likely result in a substantial reduction of the
value of the units.
The discussion below is based on Andrews Kurths opinion
that Enterprise will be classified as a partnership for
U.S. federal income tax purposes.
Limited
Partner Status
Unitholders who have become limited partners of Enterprise as a
result of the merger will be treated as partners of Enterprise
for U.S. federal income tax purposes. Also, assignees who
have executed and delivered transfer applications, and are
awaiting admission as limited partners, and unitholders whose
common units are held in street name or by a nominee and who
have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common
units, will be treated as partners of Enterprise for
U.S. federal income tax purposes. As there is no direct
authority addressing assignees of common units who are entitled
to execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who
fail to execute and deliver transfer applications, Andrews
Kurths opinion does not extend to these persons.
Furthermore, a purchaser or other transferee of common units who
does not execute and deliver a transfer application may not
receive some U.S. federal income tax information or reports
furnished to record holders of common units unless the common
units are held in a nominee or street name account and the
nominee or broker has executed and delivered a transfer
application for those common units.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for U.S. federal income tax purposes. Please read
Tax Consequences of Enterprise Common Unit
Ownership Treatment of Short Sales.
Items of Enterprises income, gain, loss and deduction
would not appear to be reportable by a unitholder who is not a
partner for U.S. federal income tax purposes, and any cash
distributions received by a unitholder who is not a partner for
U.S. federal income tax purposes would therefore appear to
be fully taxable as ordinary income. These unitholders are urged
to consult their own tax advisors with respect to their tax
consequences of holding units in Enterprise. The references to
unitholders in the discussion that follows are to
persons who are treated as partners in Enterprise for
U.S. federal income tax purposes.
Tax
Consequences of Enterprise Common Unit Ownership
Flow-through of Taxable Income. Enterprise
does not pay any U.S. federal income tax. Instead, each
unitholder is required to report on his income tax return his
share of its income, gains, losses and deductions without regard
to whether corresponding cash distributions are received by him.
Consequently, Enterprise may allocate income to a unitholder
even if he has not received a cash distribution. Each unitholder
will be required to include in income his allocable share of
Enterprises income, gains, losses and deductions for its
taxable year or years ending with or within his taxable year.
Enterprises taxable year ends on December 31.
Treatment of Distributions. Distributions by
Enterprise to a unitholder generally will not be taxable to the
unitholder for U.S. federal income tax purposes, except to
the extent the amount of any such cash distribution exceeds his
tax basis in his common units immediately before the
distribution. Enterprises cash distributions in excess of
a unitholders tax basis in his common units generally will
be considered to be gain
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from the sale or exchange of the common units, taxable in
accordance with the rules described under
Disposition of Enterprise Common Units
below. Any reduction in a unitholders share of
Enterprises liabilities for which no partner bears the
economic risk of loss, known as nonrecourse
liabilities, will be treated as a distribution of cash to
that unitholder. To the extent Enterprises distributions
cause a unitholders at risk amount to be less
than zero at the end of any taxable year, the unitholder must
recapture any losses deducted in previous years. Please read
Limitations on Deductibility of Losses.
A decrease in a unitholders percentage interest in
Enterprise because of its issuance of additional common units
will decrease his share of its nonrecourse liabilities, and thus
will result in a corresponding deemed distribution of cash which
may constitute a non-pro rata distribution. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of Enterprises unrealized receivables,
including depreciation recapture,
and/or
substantially appreciated inventory items, both as
defined in Section 751 of the Internal Revenue Code, and
collectively, Section 751 Assets. To that
extent, he will be treated as having been distributed his
proportionate share of the Section 751 Assets and having
then exchanged those assets with Enterprise in return for the
non-pro rata portion of the actual distribution made to him.
This latter deemed exchange will generally result in the
unitholders realization of ordinary income, which will
equal the excess of the non-pro rata portion of that
distribution over the unitholders tax basis for the share
of Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units. Please read
Material U.S. Federal Income Tax Consequences of the
Merger Tax Consequences of the Merger to Duncan and
its Unitholders Tax Basis and Holding Period of
Enterprise Common Units Received for a discussion of how
to determine the initial tax basis of Enterprise common units
received in the merger. A unitholders initial tax basis in
his Enterprise common units generally will be increased by his
share of Enterprises income and gains and by any increases
in his share of its nonrecourse liabilities. That basis
generally will be decreased, but not below zero, by
distributions from Enterprise, by the unitholders share of
its losses and deductions, by any decreases in his share of its
nonrecourse liabilities and by his share of its expenditures
that are not deductible in computing taxable income and are not
required to be capitalized. A unitholder will have a share of
Enterprise nonrecourse liabilities generally based on Book-Tax
Disparity (as described in Allocation of
Income, Gain, Loss and Deduction) attributable to such
unitholder, to the extent of such amount, and thereafter, such
unitholders share of Enterprises profits. Please
read Disposition of Enterprise Common
Units Recognition of Gain or Loss.
Limitations on Deductibility of Losses. The
deduction by a unitholder of his share of Enterprises
losses will be limited to the tax basis in his units and, in the
case of an individual unitholder or a corporate unitholder, if
more than 50% of the value of the corporate unitholders
stock is owned directly or indirectly by or for five or fewer
individuals or some tax-exempt organizations, to the amount for
which the unitholder is considered to be at risk
with respect to Enterprises activities, if that amount is
less than his tax basis. A unitholder subject to these
limitations must recapture losses deducted in previous years to
the extent that distributions cause his at risk amount to be
less than zero at the end of any taxable year. Losses disallowed
to a unitholder or recaptured as a result of these limitations
will carry forward and will be allowable as a deduction in a
later year to the extent that his tax basis or at risk amount,
whichever is the limiting factor, is subsequently increased
provided that such losses are otherwise allowable. Upon the
taxable disposition of a unit, any gain recognized by a
unitholder can be offset by losses that were previously
suspended by the at risk limitation but may not be offset by
losses suspended by the basis limitation. Any excess loss above
that gain previously suspended by the at risk or basis
limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of Enterprises nonrecourse
liabilities, reduced by (i) any portion of that basis
representing amounts other than those protected against loss
because of a guarantee, stop-loss agreement or other similar
arrangement and (ii) any amount of money he borrows to
acquire or hold his units, if the lender of those borrowed funds
owns an interest in Enterprise, is related to another unitholder
who has an interest in Enterprise, or can look only to the units
for repayment. A unitholders at risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
Enterprises nonrecourse liabilities.
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In addition to the basis and at-risk limitations on the
deductibility of losses, the passive loss limitations generally
provide that individuals, estates, trusts and some closely-held
corporations and personal service corporations are permitted to
deduct losses from passive activities, which are generally trade
or business activities in which the taxpayer does not materially
participate, only to the extent of the taxpayers income
from those passive activities. The passive loss limitations are
applied separately with respect to each publicly traded
partnership. However, the application of the passive loss
limitations to tiered publicly traded partnerships is uncertain.
Enterprise will take the position that any passive losses it
generates that are reasonably allocable to its investment in the
MLP Entity will only be available to offset its passive income
generated in the future that is reasonably allocable to its
investment in such entity, and will not be available to offset
income from other passive activities or investments, including
other investments in private businesses or investments
Enterprise may make in other publicly traded partnerships.
Moreover, because the passive loss limitations are applied
separately with respect to each publicly traded partnership, any
passive losses Enterprise generates will only be available to
offset Enterprises passive income generated in the future
and will not be available to offset income from other passive
activities or investments, including its investments or
investments in other publicly traded partnerships, or a
unitholders salary or active business income. Further, a
unitholders share of Enterprises net income may be
offset by any suspended passive losses from his investment in
it, but may not be offset by his current or carryover losses
from other passive activities, including those attributable to
other publicly traded partnerships. Passive losses that are not
deductible because they exceed a unitholders share of
income Enterprise generates may be deducted in full when the
unitholder disposes of his entire investment in it in a fully
taxable transaction with an unrelated party. The passive
activity loss limitations are applied after other applicable
limitations on deductions, including the at risk rules and the
basis limitation.
The IRS could take the position that for purposes of applying
the passive loss limitation rules to tiered publicly traded
partnerships, such as the MLP Entity and Enterprise, the related
entities are treated as one publicly traded partnership. In that
case, any passive losses Enterprise generates would be available
to offset income from a unitholders investment in the MLP
Entity. However, passive losses that are not deductible because
they exceed a unitholders share of income Enterprise
generates would not be deductible in full until a unitholder
disposes of his entire investment in Enterprise and the MLP
Entity in a fully taxable transaction with an unrelated party.
A unitholders share of Enterprises net income may be
offset by any of its suspended passive losses, but it may not be
offset by any other current or carryover losses from other
passive activities, including those attributable to other
publicly traded partnerships.
There is no guidance as to whether suspended passive activity
losses of Duncan common units will be available to offset
passive activity income that is allocated to a former Duncan
common unitholder from Enterprise after the merger. The IRS may
contend that since Enterprise is not the same partnership as
Duncan, the passive loss limitation rules would not allow use of
such losses until such time as all of such unitholders
Enterprise common units are sold. A Enterprise unitholder may
take the position, however, that Enterprise should be deemed a
continuation of Duncan for this purpose such that any suspended
Duncan losses would be available to offset Enterprise taxable
income allocated to such unitholder. Because of the lack of
guidance with respect to this issue and the application of the
passive loss limitation rules to tiered publicly traded
partnerships, Andrews Kurth is unable to opine as to whether
suspended passive activity losses arising from Duncan activities
will be available to offset Enterprise taxable income allocated
to a former Duncan common unitholder following the merger. If a
unitholder has losses with respect to Duncan common units, it is
urged to consult its own tax advisor.
Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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Enterprises interest expense attributed to portfolio
income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that net passive income earned by a publicly traded
partnership will be treated as investment income to its
unitholders for purposes of the investment interest deduction
limitation. In addition, the unitholders share of
Enterprises portfolio income will be treated as investment
income.
Entity-Level Collections. If Enterprise
is required or elects under applicable law to pay any federal,
state, local or foreign income tax on behalf of any unitholder
or any former unitholder, it is authorized to pay those taxes
from Enterprises funds. That payment, if made, will be
treated as a distribution of cash to the unitholder on whose
behalf the payment was made. If the payment is made on behalf of
a person whose identity cannot be determined, Enterprise is
authorized to treat the payment as a distribution to all current
unitholders. Enterprise is authorized to amend its partnership
agreement in the manner necessary to maintain uniformity of
intrinsic tax characteristics of units and to adjust later
distributions, so that after giving effect to these
distributions, the priority and characterization of
distributions otherwise applicable under its partnership
agreement is maintained as nearly as is practicable. Payments by
Enterprise as described above could give rise to an overpayment
of tax on behalf of an individual unitholder in which event the
unitholder would be required to file a claim in order to obtain
a credit or refund.
Allocation of Income, Gain, Loss and
Deduction. In general, if Enterprise has a net
profit, its items of income, gain, loss and deduction will be
allocated among the unitholders in accordance with their
percentage interests in Enterprise. If Enterprise has a net loss
for the entire year, that loss will be allocated to the
unitholders in accordance with their percentage interests in
Enterprise. An allocation of items of Enterprises income,
gain, loss or deduction (other than an allocation required by
Section 704(c) to eliminate the difference between a
partners book capital account, credited with
the fair market value of Contributed Property, and the
tax capital account, credited with the tax basis of
Contributed Property, referred to as Book-Tax
Disparity and further discussed below) will generally be
given effect for U.S. federal income tax purposes in
determining a partners share of an item of income, gain,
loss or deduction only if the allocation has substantial
economic effect. In any other case, a partners share of an
item will be determined on the basis of his interest in
Enterprise, which will be determined by taking into account all
the facts and circumstances, including:
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his relative contributions to Enterprise;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow and other
nonliquidating distributions; and
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the rights of all the partners to distributions of capital upon
liquidation.
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Andrews Kurth is of the opinion that, with the exception of the
issues described in Tax Consequences of
Enterprise Common Unit Ownership Section 754
Election, Uniformity of Enterprise
Common Units and Disposition of
Enterprise Common Units Allocations Between
Transferors and Transferees, allocations under
Enterprises partnership agreement will be given effect for
U.S. federal income tax purposes in determining a
partners share of an item of income, gain, loss or
deduction.
Allocations With Respect to Contributed
Property. Specified items of Enterprises
income, gain, loss and deduction will be allocated under
Section 704(c) of the Internal Revenue Code to account for
(i) any difference between the tax basis and fair market
value of Enterprises assets at the time of an offering, or
(ii) any difference between the tax basis and fair market
value of any property contributed to Enterprise at the time of
such contribution, together referred to in this discussion as
Contributed Property. These allocations are required
to eliminate the Book-Tax Disparity with respect to the
Contributed Property. Holders of
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Enterprise common units received by the Duncan common
unitholders will receive the Section 704(c) allocations
that otherwise would have been allocated to Duncan pursuant to
Section 704(c). Under these rules for example, following
the merger in the event that Enterprise divests itself of
certain assets formerly owned by Duncan (including through a
distribution of such assets), all or a portion of any gain
recognized as a result of a divestiture of such assets may be
required to be allocated to the pre-merger Duncan common
unitholders. In addition, former Duncan common unitholders may
also be required to recognize their share of Duncans
remaining built-in gain upon certain distributions
by Enterprise to that unitholder of other Enterprise property
(other than money) within seven years following the merger. No
special distributions will be made to the former Duncan common
unitholders with respect to any tax liability from such
allocations.
In the event Enterprise issues additional common units or
engages in certain other transactions in the future,
reverse Section 704(c) allocations, similar to
the Section 704(c) allocations described above, will be
made to all partners to account for the difference, at the time
of the future transaction, between the book basis
for purposes of maintaining capital accounts and the fair market
value of all property held by Enterprise at the time of the
future transaction. In addition, items of recapture income will
be allocated to the extent possible to the unitholder who was
allocated the deduction giving rise to the treatment of that
gain as recapture income in order to minimize the recognition of
ordinary income by other unitholders. Finally, although
Enterprise does not expect that its operations will result in
the creation of negative capital accounts, if negative capital
accounts nevertheless result, items of its income and gain will
be allocated in an amount and manner sufficient to eliminate the
negative balance as quickly as possible.
Treatment of Short Sales. A unitholder whose
units are loaned to a short seller to cover a short
sale of units may be considered as having disposed of those
units. If so, he would no longer be treated for tax purposes as
a partner with respect to those units during the period of the
loan and may recognize gain or loss from the disposition. As a
result, during this period:
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any of Enterprises income, gain, loss or deduction with
respect to those units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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Andrews Kurth has not rendered an opinion regarding the tax
treatment of a unitholder where common units are loaned to a
short seller to cover a short sale of common units. Therefore,
unitholders desiring to assure their status as partners and
avoid the risk of gain recognition from a loan to a short seller
are urged to modify any applicable brokerage account agreements
to prohibit their brokers from borrowing and loaning their
units. The IRS has previously announced that it is studying
issues relating to the tax treatment of short sales of
partnership interests. Please also read
Disposition of Enterprise Common
Units Recognition of Gain or Loss.
Alternative Minimum Tax. Each unitholder will
be required to take into account his distributive share of any
items of Enterprises income, gain, loss or deduction for
purposes of the alternative minimum tax. The current minimum tax
rate for noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. Prospective unitholders are urged to consult with their
tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates. Under current law, the highest
marginal U.S. federal income tax rate applicable to
ordinary income of individuals is 35% and the maximum
U.S. federal income tax rate for net capital gains of an
individual is 15% if the asset disposed of was a capital asset
held for more than 12 months at the time of disposition.
However, absent new legislation extending the current rates,
beginning January 1, 2013, the highest marginal
U.S. federal income tax rate applicable to ordinary income
and long-term capital gains of individuals will increase to
39.6% and 20%, respectively. Moreover, these rates are subject
to change by new legislation at any time.
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Recently enacted legislation will impose a 3.8% Medicare tax on
certain investment income earned by individuals, estates and
trusts for taxable years beginning after December 31, 2012.
For these purposes, net investment income generally includes a
unitholders allocable share of Enterprises income
and gain realized by a unitholder from a sale of common units.
In the case of an individual, the tax will be imposed on the
lesser of (i) the unitholders net investment income
or (ii) the amount by which the unitholders modified
adjusted gross income exceeds $250,000 (if the unitholder is
married and filing jointly or a surviving spouse), $125,000 (if
the unitholder is married and filing separately) or $200,000 (in
any other case).
Section 754 Election. Enterprise has made
the election permitted by Section 754 of the Internal
Revenue Code. That election is irrevocable without the consent
of the IRS. The election generally permits Enterprise to adjust
a common unit purchasers tax basis in Enterprises
assets (inside basis) under Section 743(b) of
the Internal Revenue Code to reflect his purchase price. This
election applies to a person who purchases units from a selling
unitholder but does not apply to a person who purchases common
units directly from Enterprise or receives Enterprise common
units pursuant to the merger. The Section 743(b) adjustment
belongs to the purchaser and not to other unitholders. For
purposes of this discussion, a unitholders inside basis in
Enterprises assets will be considered to have two
components: (i) his share of its tax basis in its assets
(common basis) and (ii) his Section 743(b)
adjustment to that basis.
Treasury Regulations under Section 743 of the Internal
Revenue Code require, if the remedial allocation method is
adopted (which Enterprise has adopted), a portion of the
Section 743(b) adjustment that is attributable to recovery
property subject to depreciation under Section 168 of the
Internal Revenue Code to be depreciated over the remaining cost
recovery period for the propertys unamortized Book-Tax
Disparity. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. Under Enterprises partnership agreement, the
general partner of Enterprise is authorized to take a position
to preserve the uniformity of units even if that position is not
consistent with these and any other Treasury Regulations. Please
read Uniformity of Enterprise Common
Units.
Although Andrews Kurth is unable to opine as to the validity of
this approach because there is no controlling authority on this
issue, Enterprise intends to depreciate the portion of a
Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the unamortized
Book-Tax Disparity of the property, or treat that portion as
non-amortizable
to the extent attributable to property which is not amortizable.
This method is consistent with methods employed by other
publicly traded partnerships but is arguably inconsistent with
Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
Enterprises assets. To the extent this Section 743(b)
adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, Enterprise will apply the
rules described in the Treasury Regulations and legislative
history. If Enterprise determines that this position cannot
reasonably be taken, it may take a depreciation or amortization
position under which all purchasers acquiring units in the same
month would receive depreciation or amortization, whether
attributable to common basis or a Section 743(b)
adjustment, based upon the same applicable rate as if they had
purchased a direct interest in Enterprises assets. This
kind of aggregate approach may result in lower annual
depreciation or amortization deductions than would otherwise be
allowable to some unitholders. Please read
Uniformity of Enterprise Common Units. A
unitholders tax basis for his common units is reduced by
his share of Enterprises deductions (whether or not such
deductions were claimed on an individuals income tax
return) so that any position Enterprise takes that understates
deductions will overstate the common unitholders basis in
his common units, which may cause the unitholder to understate
gain or overstate loss on any sale of such units. Please read
Disposition of Enterprise Common
Units Recognition of Gain or Loss. The IRS may
challenge Enterprises position with respect to
depreciating or amortizing the Section 743(b) adjustment
Enterprise takes to preserve the uniformity of the units. If
such a challenge were sustained, the gain from the sale of units
might be increased without the benefit of additional deductions.
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A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of
Enterprises assets immediately prior to the transfer. In
that case, as a result of the election, the transferee would
have, among other items, a greater amount of depreciation
deductions and his share of any gain or loss on a sale of
Enterprises assets would be less. Conversely, a
Section 754 election is disadvantageous if the
transferees tax basis in his units is lower than those
units share of the aggregate tax basis of
Enterprises assets immediately prior to the transfer.
Thus, the fair market value of the units may be affected either
favorably or unfavorably by the election. A basis adjustment is
required regardless of whether a Section 754 election is
made in the case of a transfer of an interest in Enterprise if
Enterprise has a substantial built-in loss immediately after the
transfer, or if Enterprise distributes property and has a
substantial basis reduction. Generally a basis reduction or a
built-in loss is substantial if it exceeds $250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of Enterprises assets and other matters. For
example, the allocation of the Section 743(b) adjustment
among its assets must be made in accordance with the Internal
Revenue Code. The IRS could seek to reallocate some or all of
any Section 743(b) adjustment Enterprise allocated to its
tangible assets or the tangible assets owned by the MLP Entity
to goodwill instead. Goodwill, as an intangible asset, is
generally either
non-amortizable
or amortizable over a longer period of time or under a less
accelerated method than Enterprises tangible assets.
Enterprise cannot assure you that the determinations it makes
will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in Enterprises opinion, the
expense of compliance exceed the benefit of the election,
Enterprise may seek permission from the IRS to revoke
Enterprises Section 754 election. If permission is
granted, a subsequent purchaser of units may be allocated more
income than he would have been allocated had the election not
been revoked.
Tax
Treatment of Operations
Accounting Method and Taxable Year. Enterprise
uses the year ending December 31 as its taxable year and the
accrual method of accounting for U.S. federal income tax
purposes. Each unitholder will be required to include in income
his share of Enterprises income, gain, loss and deduction
for its taxable year or years ending within or with his taxable
year. In addition, a unitholder who has a taxable year different
than Enterprises taxable year and who disposes of all of
his units following the close of its taxable year but before the
close of his taxable year must include his share of its income,
gain, loss and deduction in income for his taxable year, with
the result that he will be required to include in income for his
taxable year his share of more than one year of its income,
gain, loss and deduction. Please read
Disposition of Enterprise Common
Units Allocations Between Transferors and
Transferees.
Tax Basis, Depreciation and
Amortization. Enterprise uses the tax basis of
its and the MLP Entitys assets for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain
or loss on the disposition of these assets. The
U.S. federal income tax burden associated with the
difference between the fair market value of Enterprises
assets and their tax basis (a) at the time of the merger
will be borne by Enterprise common unitholders immediately
before the merger and as of such period, and (b) at the
time of any other offering will be borne by the Enterprise
common unitholders as of that time. Please read
Tax Consequences of Enterprise Common Unit
Ownership Allocations With Respect to Contributed
Property.
To the extent allowable, Enterprise may elect to use the
depreciation and cost recovery methods that will result in the
largest deductions being taken in the early years after assets
subject to these allowances are placed in service. Property
Enterprise subsequently acquires or constructs may be
depreciated using accelerated methods permitted by the Internal
Revenue Code.
If Enterprise or the MLP Entity disposes of depreciable property
by sale, foreclosure, or otherwise, all or a portion of any
gain, determined by reference to the amount of depreciation
previously deducted and the nature of the property, may be
subject to the recapture rules and taxed as ordinary income
rather than capital gain. Similarly, a common unitholder who has
taken cost recovery or depreciation deductions with respect to
property Enterprise or the MLP Entity owns will likely be
required to recapture some, or all, of those
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deductions as ordinary income upon a sale of his interest in it.
Please read Tax Consequences of Enterprise
Common Unit Ownership Allocation of Income, Gain,
Loss and Deduction, Tax Consequences of
Enterprise Common Unit Ownership Allocations With
Respect to Contributed Property and
Disposition of Enterprise Common
Units Recognition of Gain or Loss.
The costs incurred in selling Enterprises units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon its termination. There
are uncertainties regarding the classification of costs as
organization expenses, which Enterprise may amortize, and as
syndication expenses, which Enterprise may not be able to
amortize. The underwriting discounts and commissions Enterprise
incurs will be treated as syndication expenses.
Valuation and Tax Basis of Enterprises
Properties. The U.S. federal income tax
consequences of the ownership and disposition of units will
depend in part on Enterprises estimates of the relative
fair market values, and the tax bases, of Enterprises
assets and the MLP Entitys assets. Although Enterprise may
from time to time consult with professional appraisers regarding
valuation matters, it will make many of the relative fair market
value estimates itself. These estimates and determinations of
basis are subject to challenge and will not be binding on the
IRS or the courts. If the estimates of fair market value or
basis are later found to be incorrect, the character and amount
of items of income, gain, loss or deductions previously reported
by unitholders might change, and unitholders might be required
to adjust their tax liability for prior years and incur interest
and penalties with respect to those adjustments.
Disposition
of Enterprise Common Units
Recognition of Gain or Loss. Gain or loss will
be recognized on a sale of units equal to the difference between
the unitholders amount realized and the unitholders
tax basis for the units sold. A unitholders amount
realized will be measured by the sum of the cash or the fair
market value of other property received by him plus his share of
Enterprises nonrecourse liabilities attributable to the
common units sold. Because the amount realized includes a
unitholders share of Enterprises nonrecourse
liabilities, the gain recognized on the sale of units could
result in a tax liability in excess of any cash received from
the sale.
Prior distributions from Enterprise in excess of cumulative net
taxable income for a common unit that decreased a
unitholders tax basis in that common unit will, in effect,
become taxable income if the common unit is sold at a price
greater than the unitholders tax basis in that common
unit, even if the price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit will generally be taxable as capital gain or
loss. Capital gain recognized by an individual on the sale of
units held more than 12 months will generally be taxed at a
maximum U.S. federal income tax rate of 15% through
December 31, 2012 and 20% thereafter (absent legislation
extending or adjusting the current rate). However, a portion,
which will likely be substantial, of this gain or loss will be
separately computed and taxed as ordinary income or loss under
Section 751 of the Internal Revenue Code to the extent
attributable to assets giving rise to depreciation recapture or
other unrealized receivables or to inventory
items Enterprise or the MLP Entity owns. The term
unrealized receivables includes potential recapture
items, including depreciation recapture. Ordinary income
attributable to unrealized receivables, inventory items and
depreciation recapture may exceed net taxable gain realized on
the sale of a unit and may be recognized even if there is a net
taxable loss realized on the sale of a unit. Thus, a unitholder
may recognize both ordinary income and a capital loss upon a
sale of units. Net capital losses may offset capital gains and
no more than $3,000 of ordinary income each year in the case of
individuals and may only be used to offset capital gains in the
case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership.
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Treasury Regulations under Section 1223 of the Internal
Revenue Code allow a selling unitholder who can identify common
units transferred with an ascertainable holding period to elect
to use the actual holding period of the common units
transferred. Thus, according to the ruling discussed above, a
common unitholder will be unable to select high or low basis
common units to sell as would be the case with corporate stock,
but, according to the Treasury Regulations, may designate
specific common units sold for purposes of determining the
holding period of units transferred. A unitholder electing to
use the actual holding period of common units transferred must
consistently use that identification method for all subsequent
sales or exchanges of common units. A unitholder considering the
purchase of additional units or a sale of common units purchased
in separate transactions is urged to consult his tax advisor as
to the possible consequences of this ruling and application of
the Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and
Transferees. In general, Enterprises
taxable income or loss will be determined annually, will be
prorated on a monthly basis and will be subsequently apportioned
among the unitholders in proportion to the number of units owned
by each of them as of the opening of the applicable exchange on
the first business day of the month, which Enterprise refers to
in this prospectus as the Allocation Date. However,
gain or loss realized on a sale or other disposition of
Enterprises assets other than in the ordinary course of
business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be
allocated income, gain, loss and deduction realized after the
date of transfer.
Although simplifying conventions are contemplated by the
Internal Revenue Code and most publicly traded partnerships use
similar simplifying conventions, the use of this method may not
be permitted under existing Treasury Regulations. Recently, the
Department of the Treasury and the IRS issued proposed Treasury
Regulations that provide a safe harbor pursuant to which a
publicly traded partnership may use a similar monthly
simplifying convention to allocate tax items among transferor
and transferee unitholders, although such tax items must be
prorated on a daily basis. Existing publicly traded partnerships
are entitled to rely on these proposed Treasury Regulations;
however, they are not binding on the IRS and are subject to
change until final Treasury Regulations are issued. Accordingly,
Andrews Kurth is unable to opine on the validity of this method
of allocating income and deductions between transferor and
transferee unitholders. If this method is not allowed under the
Treasury Regulations, or only applies to transfers of less than
all of the unitholders interest, Enterprises taxable
income or losses might be reallocated among the unitholders.
Enterprise is authorized to revise its method of allocation
between transferor and transferee unitholders, as well as
unitholders whose interests vary during a taxable year, to
conform to a method permitted under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of
Enterprises income, gain, loss and deductions attributable
to that quarter but will not be entitled to receive that cash
distribution.
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Notification Requirements. A unitholder who
sells any of his units, other than through a broker, generally
is required to notify Enterprise in writing of that sale within
30 days after the sale (or, if earlier, January 15 of the
year following the sale). A purchaser of units who purchases
units from another unitholder is also generally required to
notify Enterprise in writing of that purchase within
30 days after the purchase. Upon receiving such
notification, Enterprise is required to notify the IRS of that
transaction and to furnish specified information to the
transferor and transferee. Failure to notify Enterprise of a
transfer of units may, in some cases, lead to the imposition of
penalties. However, these reporting requirements do not apply to
a sale by an individual who is a citizen of the U.S. and
who effects the sale or exchange through a broker who will
satisfy such requirements.
Constructive Termination. Enterprise will be
considered to have been terminated for tax purposes if there are
sales or exchanges of interests in Enterprise which, in the
aggregate, constitute 50% or more of the total interests in
Enterprises capital and profits within a
12-month
period. A constructive termination results in the closing of
Enterprises taxable year for all unitholders. In the case
of a unitholder reporting on a taxable year different from its
taxable year, the closing of its taxable year may result in more
than 12 months of its taxable income or loss being
includable in his taxable income for the year of termination. A
constructive termination occurring on a date other than December
31 will result in Enterprise filing two tax returns (and
unitholders could receive two Schedules K-1) for one fiscal year
and the cost of the preparation of these returns will be borne
by all common unitholders. Enterprise would be required to make
new tax elections after a termination, including a new election
under Section 754 of the Internal Revenue Code, and a
termination would result in a deferral of Enterprises
deductions for depreciation. A termination could also result in
penalties if Enterprise was unable to determine that the
termination had occurred.
Moreover, a termination might either accelerate the application
of, or subject Enterprise to, any tax legislation enacted before
the termination. The IRS has recently announced a relief
procedure whereby if a publicly traded partnership that has
technically terminated requests and is granted relief from the
IRS, among other things, the partnership will only have to
provide one
Schedule K-1
to unitholders for the fiscal year notwithstanding that two
partnership tax years result from the termination.
Uniformity
of Enterprise Common Units
Because Enterprise cannot match transferors and transferees of
units, it must maintain uniformity of the economic and tax
characteristics of the units to a purchaser of these units. In
the absence of uniformity, Enterprise may be unable to
completely comply with a number of U.S. federal income tax
requirements, both statutory and regulatory. A lack of
uniformity can result from a literal application of Treasury
Regulation Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the units. Please read Tax Consequences of
Enterprise Common Unit Ownership Section 754
Election.
Enterprise intends to depreciate the portion of a
Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the unamortized
Book-Tax Disparity of that property, or treat that portion as
nonamortizable, to the extent attributable to property which is
not amortizable, consistent with the Treasury Regulations under
Section 743 of the Internal Revenue Code, even though that
position may be inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6).
Please read Tax Consequences of Enterprise
Common Unit Ownership Section 754
Election. To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, Enterprise will apply the
rules described in the Treasury Regulations and legislative
history. If Enterprise determines that this position cannot
reasonably be taken, it may adopt a depreciation and
amortization position under which all purchasers acquiring units
in the same month would receive depreciation and amortization
deductions, whether attributable to a common basis or
Section 743(b) adjustment, based upon the same applicable
methods and lives as if they had purchased a direct interest in
Enterprises property. If this position is adopted, it may
result in lower annual depreciation and amortization deductions
than would otherwise be allowable to some unitholders and risk
the loss of depreciation and amortization deductions not taken
in the year that these deductions are otherwise allowable. This
position will not be adopted if Enterprise determines that the
loss of
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depreciation and amortization deductions will have a material
adverse effect on the unitholders. If Enterprise chooses not to
utilize this aggregate method, it may use any other reasonable
depreciation and amortization method to preserve the uniformity
of the intrinsic tax characteristics of any units that would not
have a material adverse effect on the unitholders.
Enterprises counsel, Andrews Kurth, is unable to opine on
the validity of any of these positions. The IRS may challenge
any method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained,
the uniformity of units might be affected, and the gain from the
sale of units might be increased without the benefit of
additional deductions. Enterprise does not believe these
allocations will affect any material items of income, gain, loss
or deduction. Please read Disposition of
Enterprise Common Units Recognition of Gain or
Loss.
Tax-Exempt
Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, regulated investment companies, non-resident
aliens, foreign corporations, and other foreign persons raises
issues unique to those investors and, as described below, may
have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from
U.S. federal income tax, including individual retirement
accounts and other retirement plans, are subject to
U.S. federal income tax on unrelated business taxable
income. Virtually all of Enterprises income allocated to a
unitholder that is a tax-exempt organization will be unrelated
business taxable income and will be taxable to them.
A regulated investment company or mutual fund is
required to derive 90% or more of its gross income from certain
permitted sources. The American Jobs Creation Act of 2004
generally treats net income from the ownership of publicly
traded partnerships as derived from such a permitted source.
Enterprise anticipates that all of its net income will be
treated as derived from such a permitted source.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence they will be required to file federal tax returns to
report their share of Enterprises income, gain, loss or
deduction and pay U.S. federal income tax at regular rates
on their share of Enterprises net income or gain.
Moreover, under rules applicable to publicly traded
partnerships, Enterprise will withhold tax at the highest
applicable effective tax rate from cash distributions made
quarterly to foreign unitholders. Each foreign unitholder must
obtain a taxpayer identification number from the IRS and submit
that number to Enterprises transfer agent on a
Form W-8
BEN or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
Enterprise to change these procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular U.S. federal
income tax, on its share of its income and gain, as adjusted for
changes in the foreign corporations U.S. net
equity, that is effectively connected with the conduct of
a United States trade or business. That tax may be reduced or
eliminated by an income tax treaty between the United States and
the country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling published by the IRS, a foreign unitholder who
sells or otherwise disposes of a unit will be subject to
U.S. federal income tax on gain realized on the sale or
disposition of that unit to the extent that this gain is
effectively connected with a United States trade or business of
the foreign unitholder. Because a foreign unitholder is
considered to be engaged in a trade or business in the United
States by virtue of the ownership of units, under this ruling, a
foreign unitholder who sells or otherwise disposes of a unit
generally will be subject to U.S. federal income tax on
gain realized on the sale or other disposition of units. Apart
from the ruling, a foreign unitholder will not be taxed or
subject to withholding upon the sale or disposition of a unit if
he has owned less than 5% in value of the units during the
five-year period ending on the date of the disposition and if
the units are regularly traded on an established securities
market at the time of the sale or disposition.
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Administrative
Matters
Information Returns and Audit
Procedures. Enterprise intends to furnish to each
unitholder, within 90 days after the close of each taxable
year, specific tax information, including a
Schedule K-1,
which describes each unitholders share of
Enterprises income, gain, loss and deduction for
Enterprises preceding taxable year. In preparing this
information, which will not be reviewed by counsel, Enterprise
will take various accounting and reporting positions, some of
which have been mentioned earlier, to determine each
unitholders share of income, gain, loss and deduction.
Enterprise cannot assure you that those positions will in all
cases yield a result that conforms to the requirements of the
Internal Revenue Code, Treasury Regulations or administrative
interpretations of the IRS.
Neither Enterprise nor Andrews Kurth can assure prospective
unitholders that the IRS will not successfully contend in court
that those positions are impermissible. Any challenge by the IRS
could negatively affect the value of the units.
The IRS may audit Enterprises U.S. federal income tax
information returns. Adjustments resulting from an IRS audit may
require each unitholder to adjust a prior years tax
liability, and possibly may result in an audit of his own
return. Any audit of a unitholders return could result in
adjustments not related to Enterprises returns as well as
those related to its returns.
Partnerships generally are treated as separate entities for
purposes of U.S. federal income tax audits, judicial review
of administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. Enterprises partnership agreement names the
general partner of Enterprise as Enterprises Tax Matters
Partner.
The Tax Matters Partner has made and will make some elections on
Enterprises behalf and on behalf of unitholders. In
addition, the Tax Matters Partner can extend the statute of
limitations for assessment of tax deficiencies against
unitholders for items in Enterprises returns. The Tax
Matters Partner may bind a unitholder with less than a 1%
profits interest in Enterprise to a settlement with the IRS
unless that unitholder elects, by filing a statement with the
IRS, not to give that authority to the Tax Matters Partner. The
Tax Matters Partner may seek judicial review, by which all the
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate in that action.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his U.S. federal income tax return
that is not consistent with the treatment of the item on
Enterprises return. Intentional or negligent disregard of
this consistency requirement may subject a unitholder to
substantial penalties.
Nominee Reporting. Persons who hold an
interest in Enterprise as a nominee for another person are
required to furnish the following information to it:
(a) the name, address and taxpayer identification number of
the beneficial owner and the nominee;
(b) a statement regarding whether the beneficial owner is
(1) a person that is not a United States person,
(2) a foreign government, an international organization or
any wholly-owned agency or instrumentality of either of the
foregoing, or
(3) a tax-exempt entity;
(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and
(d) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales.
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Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $100 per failure,
up to a maximum of $1,500,000 per calendar year, is imposed by
the Internal Revenue Code for failure to report that information
to Enterprise. The nominee is required to supply the beneficial
owner of the units with the information furnished to Enterprise.
Accuracy-Related Penalties. An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for the underpayment of that portion and that the taxpayer acted
in good faith regarding the underpayment of that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000. The amount of any
understatement subject to penalty generally is reduced if any
portion is attributable to a position adopted on the return:
(1) for which there is, or was, substantial
authority, or
(2) as to which there is a reasonable basis if the
pertinent facts of that position are adequately disclosed on the
return.
If any item of income, gain, loss or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, Enterprise must
disclose the pertinent facts on Enterprises return. In
addition, Enterprise will make a reasonable effort to furnish
sufficient information for unitholders to make adequate
disclosure on their returns and to take other actions as may be
appropriate to permit unitholders to avoid liability for this
penalty. More stringent rules apply to tax shelters,
which Enterprise does not believe includes it.
A substantial valuation misstatement exists if (i) the
value of any property, or the adjusted basis of any property,
claimed on a tax return is 150% or more of the amount determined
to be the correct amount of the valuation or adjusted basis,
(ii) the price for any property or services (or for the use
of property) claimed on any such return with respect to any
transaction between persons described in Internal Revenue Code
Section 482 is 200% or more (or 50% or less) of the amount
determined under Section 482 to be the correct amount of
such price, or (iii) the net Internal Revenue Code
Section 482 transfer price adjustment for the taxable year
exceeds the lesser of $5 million or 10% of the
taxpayers gross receipts.
No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds
$5,000 ($10,000 for most corporations). If the valuation claimed
on a return is 200% or more than the correct valuation, the
penalty imposed increases to 40%. Enterprise does not anticipate
making any valuation misstatements.
Reportable Transactions. If Enterprise was to
engage in a reportable transaction, it (and possibly
you and others) would be required to make a detailed disclosure
of the transaction to the IRS. A transaction may be a reportable
transaction based upon any of several factors, including the
fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or a
transaction of interest or that it produces certain
kinds of losses in excess of $2 million in any single year,
or $4 million in any combination of six successive taxable
years. Enterprises participation in a reportable
transaction could increase the likelihood that its
U.S. federal income tax information return (and possibly
your tax return) would be audited by the IRS. Please read
Information Returns and Audit Procedures
above.
Moreover, if Enterprise were to participate in a reportable
transaction with a significant purpose to avoid or evade tax, or
in any listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related
Penalties,
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability, and
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in the case of a listed transaction, an extended statute of
limitations.
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Enterprise does not expect to engage in any reportable
transactions.
Registration as a Tax Shelter. Enterprise
registered as a tax shelter under the law in effect
at the time of Enterprises initial public offering and was
assigned a tax shelter registration number. Issuance of a tax
shelter registration number to Enterprise does not indicate that
investment in it or the claimed tax benefits have been reviewed,
examined or approved by the IRS. The American Jobs Creation Act
of 2004 repealed the tax shelter registration rules and replaced
them with the reporting regime described above at
Reportable Transactions. The term
tax shelter has a different meaning for this purpose
than under the penalty rules described above at
Accuracy-Related Penalties.
State,
Local, Foreign and Other Tax Considerations
In addition to U.S. federal income taxes, a unitholder
likely will be subject to other taxes, such as state, local and
foreign income taxes, unincorporated business taxes, and estate,
inheritance or intangible taxes that may be imposed by the
various jurisdictions in which, Enterprise does business or owns
property or in which a unitholder is a resident. Although an
analysis of those various taxes is not presented here, each
prospective unitholder should consider their potential impact on
his investment in Enterprise. Enterprise currently owns property
or does business in a substantial number of states, virtually
all of which impose a personal income tax and many impose an
income tax on corporations and other entities. Enterprise may
also own property or do business in other states in the future.
Although a unitholder may not be required to file a return and
pay taxes in some states because its income from that state
falls below the filing and payment requirement, a unitholder
will be required to file income tax returns and to pay income
taxes in some or all of the jurisdictions in which Enterprise
does business or owns property and may be subject to penalties
for failure to comply with those requirements. In some
jurisdictions, tax losses may not produce a tax benefit in the
year incurred and also may not be available to offset income in
subsequent taxable years. Some of the jurisdictions may require
Enterprise, or Enterprise may elect, to withhold a percentage of
income from amounts to be distributed to a unitholder who is not
a resident of the jurisdiction. Withholding, the amount of which
may be greater or less than a particular unitholders
income tax liability to the jurisdiction, generally does not
relieve a nonresident unitholder from the obligation to file an
income tax return. Amounts withheld will be treated as if
distributed to unitholders for purposes of determining the
amounts distributed by Enterprise. Please read
Tax Consequences of Enterprise Common Unit
Ownership Entity-Level Collections. Based
on current law and Enterprises estimate of future
operations, any amounts required to be withheld are not
contemplated to be material.
It is the responsibility of each unitholder to investigate
the legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in Enterprise. Accordingly,
each prospective unitholder is urged to consult, and depend on,
his own tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each unitholder to
file all state, local, and foreign as well as United States
federal tax returns, that may be required of him. Andrews Kurth
has not rendered an opinion on the state, local or foreign tax
consequences of an investment in Enterprise.
143
UNITHOLDER
PROPOSALS
Under applicable Delaware law and Duncans partnership
agreement, Duncan is not required to hold an annual meeting of
its unitholders (limited partners). Ownership of Duncan common
units does not entitle Duncan unitholders to make proposals at
the special meeting. Under Duncans partnership agreement,
only its general partner can make a proposal at the meeting.
Duncans partnership agreement establishes a procedure for
calling meetings whereby limited partners owning 20% or more of
the outstanding units of the class for which a meeting is
proposed may call a meeting. In any case, limited partners are
not allowed to 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 Enterprise. Doing so
would jeopardize the limited partners limited liability
under the Delaware Act or the law of any other state in which
Duncan is qualified to do business.
LEGAL
MATTERS
The validity of Enterprise common units to be issued in the
merger, certain tax matters relating to those common units and
certain tax matters relating to the merger will be passed upon
for Enterprise by Andrews Kurth LLP, Houston, Texas. Andrews
Kurth LLP has provided legal services to Duncan in the past
regarding matters unrelated to the merger. Certain tax matters
relating to the merger will be passed upon for Duncan by
Vinson & Elkins L.L.P., Houston, Texas.
Vinson & Elkins L.L.P. has also provided legal
services to Enterprise in the past regarding matters unrelated
to the merger.
EXPERTS
The consolidated financial statements of Enterprise Products
Partners L.P. and subsidiaries incorporated in this proxy
statement/prospectus by reference to Enterprise Products
Partners L.P.s Annual Report on
Form 10-K
for the year ended December 31, 2010, and the effectiveness
of Enterprise Products Partners L.P. and subsidiaries
internal control over financial reporting have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports, which are
incorporated herein by reference, (which reports
(i) express an unqualified opinion on the financial
statements, refer to the report of the other auditors as it
relates to an equity method investment in Energy Transfer
Equity, L.P. for the years ended December 31, 2009 and
2008, and include an explanatory paragraph concerning the effect
of the merger with Enterprise GP Holdings L.P. on
November 22, 2010, and (ii) express an unqualified
opinion on the effectiveness of internal control over financial
reporting). The consolidated financial statements of Energy
Transfer Equity, L.P. have been audited by Grant Thornton LLP,
an independent registered public accounting firm, as stated in
their report on the consolidated financial statements as of
December 31, 2009 and for the years ended December 31,
2009 and 2008, which report is incorporated herein by reference
from Enterprise Products Partners L.P.s Annual Report on
Form 10-K
for the year ended December 31, 2010. Such consolidated
financial statements are incorporated herein by reference, and
have been so incorporated in reliance upon the report of
Deloitte & Touche LLP, and as it relates to Enterprise
Products Partners L.P.s investment in Energy Transfer
Equity, L.P., the report of Grant Thornton LLP, in each case,
given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Duncan Energy Partners
L.P. and subsidiaries incorporated in this proxy
statement/prospectus by reference from Duncan Energy Partners
L.P.s Annual Report on
Form 10-K
for the year ended December 31, 2010, and the effectiveness
of Duncan Energy Partners L.P. and subsidiaries internal
control over financial reporting have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports, which are
incorporated herein by reference (which reports (i) express
an unqualified opinion on the financial statements and include
an explanatory paragraph concerning the fact that the financial
statements have been prepared from the separate records
maintained by Enterprise Products Partners L.P. or affiliates
and may not necessarily be indicative of the conditions that
would have existed or the results of operations if the Company
had been operated as an unaffiliated entity, and
(ii) express an unqualified opinion on the effectiveness of
internal control over financial reporting). Such consolidated
financial statements have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in
accounting and auditing.
144
WHERE YOU
CAN FIND MORE INFORMATION
Enterprise and Duncan file annual, quarterly and current
reports, and other information with the Commission under the
Exchange Act of 1934. You may read and copy any document filed
with the Commission at its public reference room at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the Commission at
1-800-732-0330
for further information regarding the public reference room. The
filings are also available to the public at the
Commissions website at
http://www.sec.gov.
In addition, documents filed by Enterprise and Duncan can be
inspected at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005.
The Commission allows Enterprise and Duncan to incorporate by
reference information into this proxy statement/prospectus,
which means that Enterprise and Duncan can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part
of this proxy statement/prospectus, except for any information
that is superseded by information that is included directly in
this proxy statement/prospectus. Any later information filed
with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act up until the date of the special
meeting will be deemed to be incorporated by reference into this
proxy statement/prospectus and will automatically update and
supersede this information. Therefore, before you vote to
approve the merger agreement and the merger, you should always
check for reports Enterprise and Duncan may have filed with the
Commission after the date of this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the
documents listed below that Enterprise and Duncan have
previously filed with the Commission, excluding any information
in a
Form 8-K
furnished pursuant to Item 2.02 or 7.01 (unless otherwise
indicated), which is not deemed filed under the Exchange Act.
Enterprises
Filings (Commission File
No. 1-14323)
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Annual Report on
Form 10-K
for the year ended December 31, 2010;
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Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011;
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Current Reports on
Form 8-K
filed with the Commission on January 6, 2011,
January 13, 2011, February 23, 2011, March 15,
2011 and April 29, 2011; and
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The description of Enterprises common units in the
registration statement on Form 8A/A filed on May 15,
2007, and including any other amendments or reports filed for
the purpose of updating such description.
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You may request a copy of these filings at no cost by making
written or telephone requests for copies to: Enterprise Products
Partners L.P., 1100 Louisiana Street, 10th Floor, Houston,
Texas 77002; Telephone:
(713) 381-6500.
Enterprise also makes available free of charge on its internet
website at
http://www.epplp.com
its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and any amendments to those reports, as soon as reasonably
practicable after it electronically files such material with, or
furnishes it to, the Commission. Information contained on
Enterprises website is not part of this proxy
statement/prospectus.
Duncans
Filings (Commission File
No. 1-33266)
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Annual Report on
Form 10-K
for the year ended December 31, 2010;
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Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011; and
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Current Reports on
Form 8-K
filed with the Commission on February 11, 2011,
February 23, 2011, March 15, 2011 and April 29,
2011.
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145
You may request a copy of these filings at no cost by making
written or telephone requests for copies to: Duncan Energy
Partners L.P., 1100 Louisiana Street, 10th Floor 1000,
Houston, Texas 77002; Telephone:
(713) 381-6500.
Duncan also makes available free of charge on its Internet
website at
http://www.deplp.com
its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and any amendments to those reports, as soon as reasonably
practicable after it electronically files such material with, or
furnishes it to, the Commission. Information contained on
Duncans website is not part of this proxy
statement/prospectus.
INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS
This proxy/prospectus and some of the documents Enterprise and
Duncan have incorporated herein by reference contain various
forward-looking statements and information that are based on the
beliefs of Enterprise and Duncan and their respective general
partners, as well as assumptions made by and information
currently available to each of them. These forward-looking
statements are identified as any statement that does not relate
strictly to historical or current facts. When used in this
proxy/prospectus or the documents incorporated herein by
reference, words such as anticipate,
project, expect, plan,
seek, goal, estimate,
forecast, intend, could,
should, will, believe,
may, potential, and similar expressions
and statements regarding Enterprises or Duncans
plans and objectives for future operations, are intended to
identify forward-looking statements. Although Enterprise and
Duncan and their respective general partners believe that such
expectations reflected in such forward-looking statements are
reasonable, neither Enterprise, Duncan, nor either of their
general partners can give assurances that such expectations will
prove to be correct. Such statements are subject to a variety of
risks, uncertainties and assumptions. If one or more of these
risks or uncertainties materialize, or if underlying assumptions
prove incorrect, Enterprises and Duncans actual
results may vary materially from those anticipated, estimated,
projected or expected. Among the key risk factors that may have
a direct bearing on Enterprises or Duncans results
of operations and financial condition are:
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cash flow growth and accretion;
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future distribution increases and growth;
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internal growth projects;
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future issuances of debt and equity securities; and
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other objectives, expectations and intentions and other
statements that are not historical facts.
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These statements are based on the current expectations and
estimates of the management of Enterprise GP and Duncan GP;
actual results may differ materially due to certain risks and
uncertainties. Although Enterprise, Duncan and their respective
general partners believe that the expectations reflected in such
forward-looking statements are reasonable, they cannot give
assurances that such expectations will prove to be correct. For
instance, although Enterprise and Duncan have signed a merger
agreement, there is no assurance that they will complete the
proposed merger. The merger agreement will terminate if Duncan
does not receive the necessary approval of its unitholders, and
also may be terminated if any conditions to closing are not
satisfied or if the merger is not completed by October 31,
2011. Other risks and uncertainties that may affect actual
results include:
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the failure to realize a lower long-term cost of capital,
anticipated cost savings and other benefits of the proposed
merger;
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declines in volumes transported on Enterprises pipelines
or barges;
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reduction in demand for natural gas, various grades of crude
oil, refined products, NGLs and petrochemicals and resulting
changes in pricing conditions or pipeline throughput
requirements;
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fluctuations in refinery capacity;
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the success of risk management activities;
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environmental liabilities or events that are not covered by an
indemnity, insurance or existing reserves;
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the availability of, and Enterprises ability to
consummate, acquisition or combination opportunities;
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the level of capital expenditures Enterprise will make and
availability of, and the timing of completion of, organic growth
projects;
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Enterprises access to capital to fund additional
acquisitions and Enterprises ability to obtain debt or
equity financing on satisfactory terms;
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maintenance of Enterprises credit rating and ability to
receive open credit from its suppliers and trade counterparties;
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unanticipated changes in crude oil market structure and
volatility (or lack thereof);
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the impact of current and future laws, rulings and governmental
regulations;
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the effects of competition;
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continued creditworthiness of, and performance by, the combined
companys counterparties;
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interruptions in service and fluctuations in rates of third
party pipelines that affect the combined companys assets;
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increased costs or lack of availability of insurance;
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fluctuations in crude oil, natural gas, NGL and related
hydrocarbon prices and production due to weather and other
natural and economic forces;
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shortages or cost increases of power supplies, materials or
labor;
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weather interference with business operations or project
construction;
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terrorist attacks aimed at Enterprises facilities;
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general economic, market or business conditions; and
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other factors and uncertainties discussed in this proxy
statement/prospectus and Enterprises and Duncans
respective filings with the SEC, including their Annual Reports
on
Form 10-K
for the year ended December 31, 2010 and Quarterly Reports
on Form 10-Q
for the quarter ended March 31, 2011.
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You should not put undue reliance on any forward-looking
statements. When considering forward-looking statements, please
review carefully the risk factors described under Risk
Factors in this proxy statement/prospectus and
incorporated by reference into this document.
147
ENTERPRISE
PRODUCTS PARTNERS L.P.
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Introduction
Enterprise Products Partners L.P. (Enterprise),
Duncan Energy Partners L.P. (Duncan), and their
respective general partners and certain affiliates entered into
an Agreement and Plan of Merger dated as of April 28, 2011
(the Duncan Merger Agreement). At the effective time
of the proposed merger, a wholly owned subsidiary of Enterprise
would merge with and into Duncan, pursuant to the Duncan Merger
Agreement, with Duncan surviving the proposed merger as a wholly
owned subsidiary of Enterprise (the Duncan Merger),
and all of the outstanding Duncan common units at the effective
time of the merger will be cancelled and converted into the
right to receive common units representing limited partner
interests in Enterprise based on an exchange ratio of 1.01
Enterprise common units for each Duncan common unit. However, in
lieu of receiving Enterprise common units, Enterprise GTM
Holdings L.P. (GTM), an indirect wholly owned
subsidiary of Enterprise, would exchange its right to merger
consideration with respect to 33,783,587 Duncan common units
currently directly owned by it (representing approximately 58.5%
of our outstanding common units) for retaining an equivalent
limited partner interest in Duncan. As a result, the remaining
Duncan common units, or 24,008,683 units at May 11,
2011, will be converted into 24,248,770 common units
representing limited partner interests of Enterprise. No
fractional Enterprise common units would be issued in the
proposed Duncan Merger, and our unitholders would receive cash
in lieu of fractional Enterprise common units, if any.
Duncan is a consolidated subsidiary of Enterprise for financial
accounting and reporting purposes. The proposed merger will be
accounted for in accordance with Financial Accounting Standards
Board Accounting Standards Codification 810,
Consolidations Overall Changes in
Parents Ownership Interest in a Subsidiary, which is
referred to as ASC 810. The changes in Enterprises
ownership interest in Duncan will be accounted for as an equity
transaction and no gain or loss will be recognized as a result
of the merger.
The unaudited pro forma condensed consolidated financial
statements are intended for informational purposes only and do
not reflect any cost savings or other synergies that may be
achieved as a result of the proposed merger and are based on
assumptions that Enterprise and Duncan believe are reasonable
under the circumstances. As such, these statements do not
necessarily reflect the results of operations or financial
position of Enterprise that would have resulted had the proposed
merger been consummated as of the dates indicated, and are not
necessarily indicative of the future results of operations or
the future financial position of Enterprise following completion
of the proposed merger.
These unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical
audited annual and unaudited quarterly consolidated financial
information and accompanying notes of Duncan and Enterprise.
The unaudited pro forma condensed consolidated balance sheet
gives effect to the proposed merger as if it had occurred on
March 31, 2011. The unaudited pro forma condensed
consolidated statements of operations for the three months ended
March 31, 2011 and the year ended December 31, 2010
give effect to the proposed merger as if it had occurred on
January 1, 2010. The historical consolidated financial
information has been adjusted to give effect to pro forma events
that are directly attributable to the proposed merger and are
factually supportable.
In addition to the proposed merger, the historical condensed
consolidated statement of operations for the year ended
December 31, 2010 has been adjusted to give effect to the
merger of Enterprise GP Holdings L.P. (Holdings)
with a wholly owned subsidiary in November 2010 (the
Holdings Merger) as if it had occurred on
January 1, 2010. At the effective time of the Holdings
Merger, Enterprise GP (which was the general partner of Holdings
prior to consummation of the Holdings Merger) succeeded as
Enterprises general partner, and each issued and
outstanding unit representing limited partner interests in
Holdings was cancelled and converted into the right to receive
Enterprise common units based on an exchange ratio of 1.5
Enterprise common units for each Holdings unit. Enterprise
issued an aggregate 208,813,454 of its common units as
F-2
consideration in the Holdings Merger and, immediately after the
merger, cancelled 21,563,177 of its common units previously
owned by Holdings.
Prior to the Holdings Merger, Enterprise was a consolidated
subsidiary of Holdings, which was Enterprises parent. Upon
completion of the Holdings Merger, Holdings merged with and into
a wholly owned subsidiary of Enterprise. The Holdings Merger was
accounted for as an equity transaction, and no gain or loss was
recognized, in accordance with ASC 810. The Holdings Merger
results in Holdings being considered the surviving consolidated
entity for accounting purposes, while Enterprise is the
surviving consolidated entity for legal and reporting purposes.
For accounting purposes, Holdings is deemed the acquirer of the
noncontrolling interests in Enterprise that were previously
recognized in Holdings consolidated financial statements
(i.e., the acquisition of Enterprises limited partner
interests that were owned by parties other than Holdings).
As a result of the Holdings Merger, Enterprises
consolidated financial and operating results prior to
November 22, 2010 have been presented as if it were
Holdings from an accounting perspective (i.e., the financial
statements of Holdings become the historical financial
statements of Enterprise). For periods prior to
November 22, 2010, net assets, earnings and other amounts
attributable to Enterprises limited partner interests that
were owned by third parties and related parties other than
Holdings are presented as a component of noncontrolling
interest. In addition, the number of limited partner units used
to determine earnings per unit in the historical consolidated
financial statements for each period is based on the
weighted-average number of Holdings units outstanding during
each period adjusted for the 1.5 to one
unit-for-unit
exchange ratio in the Holdings Merger.
F-3
ENTERPRISE
PRODUCTS PARTNERS L.P.
March 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Merger
|
|
|
Enterprise
|
|
|
|
Enterprise
|
|
|
Pro Forma
|
|
|
Pro Forma for
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Duncan Merger
|
|
|
|
(In millions)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
150.4
|
|
|
$
|
(14.1
|
)(a)
|
|
$
|
136.3
|
|
Restricted cash
|
|
|
191.6
|
|
|
|
|
|
|
|
191.6
|
|
Accounts and notes receivable, net
|
|
|
3,912.3
|
|
|
|
|
|
|
|
3,912.3
|
|
Inventories
|
|
|
800.8
|
|
|
|
|
|
|
|
800.8
|
|
Other current assets
|
|
|
391.7
|
|
|
|
|
|
|
|
391.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,446.8
|
|
|
|
(14.1
|
)
|
|
|
5,432.7
|
|
Property, plant and equipment, net
|
|
|
19,892.9
|
|
|
|
|
|
|
|
19,892.9
|
|
Investments in unconsolidated affiliates
|
|
|
2,269.9
|
|
|
|
|
|
|
|
2,269.9
|
|
Intangible assets, net
|
|
|
1,794.0
|
|
|
|
|
|
|
|
1,794.0
|
|
Goodwill
|
|
|
2,107.7
|
|
|
|
|
|
|
|
2,107.7
|
|
Other assets
|
|
|
309.9
|
|
|
|
|
|
|
|
309.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
31,821.2
|
|
|
$
|
(14.1
|
)
|
|
$
|
31,807.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of debt
|
|
$
|
782.3
|
|
|
|
|
|
|
$
|
782.3
|
|
Accounts payable
|
|
|
746.6
|
|
|
|
|
|
|
|
746.6
|
|
Accrued product payables
|
|
|
4,078.7
|
|
|
|
|
|
|
|
4,078.7
|
|
Other current liabilities
|
|
|
850.5
|
|
|
|
|
|
|
|
850.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,458.1
|
|
|
|
|
|
|
|
6,458.1
|
|
Long-term debt
|
|
|
13,273.6
|
|
|
|
|
|
|
|
13,273.6
|
|
Other long-term liabilities
|
|
|
289.5
|
|
|
|
|
|
|
|
289.5
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
11,276.9
|
|
|
$
|
(14.1
|
)(a)
|
|
|
11,671.5
|
|
|
|
|
|
|
|
|
408.7
|
(b)
|
|
|
|
|
Noncontrolling interest
|
|
|
523.1
|
|
|
|
(408.7
|
)(b)
|
|
|
114.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
11,800.0
|
|
|
|
(14.1
|
)
|
|
|
11,785.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity
|
|
$
|
31,821.2
|
|
|
$
|
(14.1
|
)
|
|
$
|
31,807.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma
condensed consolidated financial statements.
F-4
ENTERPRISE
PRODUCTS PARTNERS L.P.
For the
Three Months Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan Merger
|
|
|
Enterprise
|
|
|
|
Enterprise
|
|
|
Pro Forma
|
|
|
Pro Forma for
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Duncan Merger
|
|
|
|
(In millions, except per unit amounts)
|
|
|
Revenues
|
|
$
|
10,183.7
|
|
|
$
|
|
|
|
$
|
10,183.7
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
9,537.1
|
|
|
|
|
|
|
|
9,537.1
|
|
General and administrative costs
|
|
|
37.9
|
|
|
|
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
9,575.0
|
|
|
|
|
|
|
|
9,575.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
16.2
|
|
|
|
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
624.9
|
|
|
|
|
|
|
|
624.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(183.8
|
)
|
|
|
|
|
|
|
(183.8
|
)
|
Other, net
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(183.3
|
)
|
|
|
|
|
|
|
(183.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
441.6
|
|
|
|
|
|
|
|
441.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
434.5
|
|
|
$
|
|
|
|
$
|
434.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$
|
420.7
|
|
|
$
|
7.9
|
(c)
|
|
$
|
428.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
$
|
13.8
|
|
|
$
|
(7.9
|
)(c)
|
|
$
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note e)
|
|
|
813.9
|
|
|
|
|
|
|
|
838.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
0.52
|
|
|
|
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note f)
|
|
|
850.3
|
|
|
|
|
|
|
|
874.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
0.49
|
|
|
|
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma
condensed consolidated financial statements.
F-5
ENTERPRISE
PRODUCTS PARTNERS L.P.
For the
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
|
Holdings Merger
|
|
|
Pro Forma
|
|
|
Duncan Merger
|
|
|
Pro Forma
|
|
|
|
Enterprise
|
|
|
Pro Forma
|
|
|
for Holdings
|
|
|
Pro Forma
|
|
|
for Duncan
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Merger
|
|
|
Adjustments
|
|
|
Merger
|
|
|
|
(In millions, except per unit amounts)
|
|
|
Revenues
|
|
$
|
33,739.3
|
|
|
$
|
|
|
|
$
|
33,739.3
|
|
|
$
|
|
|
|
$
|
33,739.3
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
31,449.3
|
|
|
|
|
|
|
|
31,449.3
|
|
|
|
|
|
|
|
31,449.3
|
|
General and administrative costs
|
|
|
204.8
|
|
|
|
|
|
|
|
204.8
|
|
|
|
|
|
|
|
204.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
31,654.1
|
|
|
|
|
|
|
|
31,654.1
|
|
|
|
|
|
|
|
31,654.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
62.0
|
|
|
|
|
|
|
|
62.0
|
|
|
|
|
|
|
|
62.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,147.2
|
|
|
|
|
|
|
|
2,147.2
|
|
|
|
|
|
|
|
2,147.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(741.9
|
)
|
|
|
|
|
|
|
(741.9
|
)
|
|
|
|
|
|
|
(741.9
|
)
|
Other, net
|
|
|
4.5
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(737.4
|
)
|
|
|
|
|
|
|
(737.4
|
)
|
|
|
|
|
|
|
(737.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
1,409.8
|
|
|
|
|
|
|
|
1,409.8
|
|
|
|
|
|
|
|
1,409.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(26.1
|
)
|
|
|
|
|
|
|
(26.1
|
)
|
|
|
|
|
|
|
(26.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1,383.7
|
|
|
$
|
|
|
|
$
|
1,383.7
|
|
|
$
|
|
|
|
$
|
1,383.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$
|
320.8
|
|
|
$
|
1,000.3
|
(d)
|
|
$
|
1,321.1
|
|
|
$
|
37.1
|
(c)
|
|
$
|
1,358.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
$
|
1,062.9
|
|
|
$
|
(1,000.3
|
)(d)
|
|
$
|
62.6
|
|
|
$
|
(37.1
|
)(c)
|
|
$
|
25.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note e)
|
|
|
274.5
|
|
|
|
|
|
|
|
790.5
|
|
|
|
|
|
|
|
814.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
1.17
|
|
|
|
|
|
|
$
|
1.67
|
|
|
|
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note f)
|
|
|
278.5
|
|
|
|
|
|
|
|
829.7
|
|
|
|
|
|
|
|
853.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
1.15
|
|
|
|
|
|
|
$
|
1.59
|
|
|
|
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma
condensed consolidated financial statements.
F-6
ENTERPRISE
PRODUCTS PARTNERS L.P.
CONSOLIDATED
FINANCIAL STATEMENTS
These unaudited pro forma condensed consolidated financial
statements and underlying pro forma adjustments are based upon
currently available information and certain estimates and
assumptions made by the respective management teams of the
general partners of Enterprise and Duncan; therefore, actual
results could materially differ from the pro forma information.
However, Enterprise and Duncan believe that the assumptions
provide a reasonable basis for presenting the significant
effects of the transactions noted herein. We believe that the
pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the pro forma
information.
Pro Forma
Adjustments
The following pro forma adjustments have been made to the
historical consolidated financial statements of Enterprise:
(a) To reflect the payment of $14.1 million of
estimated incremental transaction costs associated with
completing the proposed merger, including the payment of
financial advisory fees, legal and accounting fees and other
professional fees and expenses using cash on hand.
(b) To reclassify to partners capital the
noncontrolling owners interest attributable to the public
owners of Duncan.
(c) To reclassify to limited partners interest the
net income attributable to the public owners of Duncan currently
in noncontrolling interest.
(d) To reclassify to limited partners interest the
net income attributable to the public owners of Enterprise prior
to the Holdings Merger currently in noncontrolling interest.
(e) Enterprises pro forma weighted-average basic
number of units outstanding was calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Weighted-average basic number of Enterprise units
outstanding as reported
|
|
|
813.9
|
|
|
|
274.5
|
|
Weighted-average Enterprise units attributable to noncontrolling
interests acquired in connection with Holdings Merger
|
|
|
|
|
|
|
516.0
|
|
|
|
|
|
|
|
|
|
|
Subtotal for Enterprise pro forma for Holdings Merger
|
|
|
|
|
|
|
790.5
|
|
Enterprise units to be issued in exchange for Duncan common units
|
|
|
24.2
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic number of Enterprise units
outstanding pro forma
|
|
|
838.1
|
|
|
|
814.7
|
|
|
|
|
|
|
|
|
|
|
F-7
ENTERPRISE
PRODUCTS PARTNERS L.P.
NOTES TO
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(f) Enterprises pro forma weighted-average diluted
number of units outstanding was calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In millions)
|
|
|
Weighted-average diluted number of Enterprise units
outstanding as reported
|
|
|
850.3
|
|
|
|
278.5
|
|
Weighted-average Enterprise units attributable to noncontrolling
interests acquired in connection with Holdings Merger
|
|
|
|
|
|
|
551.2
|
|
|
|
|
|
|
|
|
|
|
Subtotal for Enterprise pro forma for Holdings Merger
|
|
|
|
|
|
|
829.7
|
|
Enterprise units to be issued in exchange for Duncan common units
|
|
|
24.2
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted number of Enterprise units
outstanding pro forma
|
|
|
874.5
|
|
|
|
853.9
|
|
|
|
|
|
|
|
|
|
|
F-8
AGREEMENT
AND PLAN OF MERGER
by and among
ENTERPRISE
PRODUCTS PARTNERS L.P.,
ENTERPRISE PRODUCTS HOLDINGS LLC,
EPD MERGERCO LLC
and
DUNCAN ENERGY PARTNERS L.P.
and
DEP HOLDINGS, LLC
Dated as of April 28, 2011
TABLE OF
CONTENTS
|
|
|
|
|
|
|
ARTICLE I
|
|
CERTAIN DEFINITIONS
|
|
|
A-1
|
|
Section 1.1
|
|
Certain Definitions
|
|
|
A-1
|
|
Section 1.2
|
|
Interpretation
|
|
|
A-7
|
|
ARTICLE II
|
|
THE MERGER; EFFECTS OF THE MERGER
|
|
|
A-8
|
|
Section 2.1
|
|
The Merger
|
|
|
A-8
|
|
Section 2.2
|
|
Closing
|
|
|
A-8
|
|
|
|
|
|
|
|
|
ARTICLE III
|
|
MERGER CONSIDERATION; EXCHANGE PROCEDURES
|
|
|
A-8
|
|
Section 3.1
|
|
Merger Consideration
|
|
|
A-8
|
|
Section 3.2
|
|
Exchange of Merger Consideration by Enterprise GTM
|
|
|
A-9
|
|
Section 3.3
|
|
Rights As Unitholders; Unit Transfers
|
|
|
A-9
|
|
Section 3.4
|
|
Exchange of Certificates
|
|
|
A-9
|
|
Section 3.5
|
|
Anti-Dilution Provisions
|
|
|
A-12
|
|
Section 3.6
|
|
Treatment of Duncan Equity-Based Awards; Duncan Unit Purchase
Plan
|
|
|
A-12
|
|
|
|
|
|
|
|
|
ARTICLE IV
|
|
ACTIONS PENDING MERGER
|
|
|
A-13
|
|
Section 4.1
|
|
Ordinary Course
|
|
|
A-13
|
|
Section 4.2
|
|
Equity
|
|
|
A-13
|
|
Section 4.3
|
|
Equity Changes
|
|
|
A-13
|
|
Section 4.4
|
|
Acquisitions and Dispositions
|
|
|
A-14
|
|
Section 4.5
|
|
Distributions
|
|
|
A-14
|
|
Section 4.6
|
|
Amendments
|
|
|
A-14
|
|
Section 4.7
|
|
Material Contracts
|
|
|
A-14
|
|
Section 4.8
|
|
Litigation
|
|
|
A-14
|
|
Section 4.9
|
|
Accounting Methods
|
|
|
A-14
|
|
Section 4.10
|
|
Insurance
|
|
|
A-14
|
|
Section 4.11
|
|
Taxes
|
|
|
A-14
|
|
Section 4.12
|
|
Employee Benefit Plans
|
|
|
A-14
|
|
Section 4.13
|
|
Debt, Capital Expenditures and the Like
|
|
|
A-15
|
|
Section 4.14
|
|
No Dissolution
|
|
|
A-15
|
|
Section 4.15
|
|
Adverse Actions
|
|
|
A-15
|
|
Section 4.16
|
|
Agreements
|
|
|
A-15
|
|
|
|
|
|
|
|
|
ARTICLE V
|
|
REPRESENTATIONS AND WARRANTIES
|
|
|
A-15
|
|
Section 5.1
|
|
Disclosure Schedule
|
|
|
A-15
|
|
Section 5.2
|
|
Representations and Warranties
|
|
|
A-15
|
|
|
|
|
|
|
|
|
ARTICLE VI
|
|
COVENANTS
|
|
|
A-21
|
|
Section 6.1
|
|
Best Efforts
|
|
|
A-21
|
|
Section 6.2
|
|
Duncan Unitholder Approval
|
|
|
A-21
|
|
Section 6.3
|
|
Registration Statement
|
|
|
A-21
|
|
Section 6.4
|
|
Press Releases
|
|
|
A-22
|
|
Section 6.5
|
|
Access; Information
|
|
|
A-22
|
|
Section 6.6
|
|
Acquisition Proposals; Change in Recommendation
|
|
|
A-23
|
|
Section 6.7
|
|
Affiliate Arrangements
|
|
|
A-24
|
|
Section 6.8
|
|
Takeover Laws
|
|
|
A-24
|
|
A-i
|
|
|
|
|
|
|
Section 6.9
|
|
No Rights Triggered
|
|
|
A-24
|
|
Section 6.10
|
|
New Common Units Listed
|
|
|
A-24
|
|
Section 6.11
|
|
Third-Party Approvals
|
|
|
A-25
|
|
Section 6.12
|
|
Indemnification; Directors and Officers Insurance
|
|
|
A-25
|
|
Section 6.13
|
|
Notification of Certain Matters
|
|
|
A-27
|
|
Section 6.14
|
|
Rule 16b-3
|
|
|
A-27
|
|
Section 6.15
|
|
Duncan Amended and Restated Partnership Agreement; Exchange and
Contribution Agreement; Duncan Second Amended and Restated
Partnership Agreement
|
|
|
A-27
|
|
Section 6.16
|
|
Duncan GP Board Membership
|
|
|
A-27
|
|
Section 6.17
|
|
Distributions
|
|
|
A-27
|
|
Section 6.18
|
|
Duncan GP Amended and Restated Limited Liability Company
Agreement
|
|
|
A-27
|
|
Section 6.19
|
|
Duncan Unit Purchase Plan
|
|
|
A-27
|
|
|
|
|
|
|
|
|
ARTICLE VII
|
|
CONDITIONS TO CONSUMMATION OF THE MERGER
|
|
|
A-28
|
|
Section 7.1
|
|
Unitholder Vote
|
|
|
A-28
|
|
Section 7.2
|
|
Governmental Approvals
|
|
|
A-28
|
|
Section 7.3
|
|
No Injunction
|
|
|
A-28
|
|
Section 7.4
|
|
Representations, Warranties and Covenants of the Partners Parties
|
|
|
A-28
|
|
Section 7.5
|
|
Representations, Warranties and Covenants of the Duncan Parties
|
|
|
A-29
|
|
Section 7.6
|
|
Effective Registration Statement
|
|
|
A-29
|
|
Section 7.7
|
|
Opinion of Andrews Kurth LLP
|
|
|
A-29
|
|
Section 7.8
|
|
Opinion of Vinson & Elkins LLP
|
|
|
A-29
|
|
Section 7.9
|
|
NYSE Listing
|
|
|
A-30
|
|
Section 7.10
|
|
No Material Adverse Effect
|
|
|
A-30
|
|
|
|
|
|
|
|
|
ARTICLE VIII
|
|
TERMINATION
|
|
|
A-30
|
|
Section 8.1
|
|
Termination
|
|
|
A-30
|
|
Section 8.2
|
|
Effect of Termination
|
|
|
A-31
|
|
|
|
|
|
|
|
|
ARTICLE IX
|
|
MISCELLANEOUS
|
|
|
A-31
|
|
Section 9.1
|
|
Fees and Expenses
|
|
|
A-31
|
|
Section 9.2
|
|
Waiver; Amendment
|
|
|
A-31
|
|
Section 9.3
|
|
Counterparts
|
|
|
A-32
|
|
Section 9.4
|
|
Governing Law
|
|
|
A-32
|
|
Section 9.5
|
|
Confidentiality
|
|
|
A-32
|
|
Section 9.6
|
|
Notices
|
|
|
A-32
|
|
Section 9.7
|
|
Entire Understanding; No Third-Party Beneficiaries
|
|
|
A-33
|
|
Section 9.8
|
|
Severability
|
|
|
A-33
|
|
Section 9.9
|
|
Headings
|
|
|
A-33
|
|
Section 9.10
|
|
Jurisdiction
|
|
|
A-33
|
|
Section 9.11
|
|
Waiver of Jury Trial
|
|
|
A-33
|
|
Section 9.12
|
|
Specific Performance
|
|
|
A-33
|
|
Section 9.13
|
|
Survival
|
|
|
A-33
|
|
A-ii
|
|
|
|
|
|
|
ANNEXES
|
Annex A
|
|
Form of Third Amended and Restated Limited Liability Company
Agreement of Duncan GP
|
|
|
A-35
|
|
Annex B-1
|
|
Form of Second Amended and Restated Agreement of Limited
Partnership of Duncan
|
|
|
A-42
|
|
Annex B-2
|
|
Form of Third Amended and Restated Agreement of Limited
Partnership of Duncan
|
|
|
A-49
|
|
Annex C
|
|
Form of Exchange and Contribution Agreement
|
|
|
A-59
|
|
A-iii
AGREEMENT
AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of April 28,
2011 (this Agreement), is entered into by and among
Enterprise Products Partners L.P., a Delaware limited
partnership (Partners), Enterprise Products Holdings
LLC, a Delaware limited liability company and the general
partner of Partners (Partners GP), EPD MergerCo LLC,
a Delaware limited liability company and a wholly owned
subsidiary of Partners (MergerCo), Duncan Energy
Partners L.P., a Delaware limited partnership
(Duncan), and DEP Holdings, LLC, a Delaware limited
liability company and the general partner of Duncan
(Duncan GP).
WITNESSETH:
WHEREAS, the Duncan Audit Committee (as defined herein) and the
Duncan GP Board (as defined herein) has determined that the
business combination provided for herein pursuant to which
Duncan will, subject to the terms and conditions set forth
herein, merge with MergerCo, with Duncan as the surviving entity
(the Merger), such that following the Merger, Duncan
GP will remain the sole general partner of Duncan, and Partners
will become (and thereafter Partners and its Subsidiaries will
continue as) the limited partners of Duncan, is fair and
reasonable to and in the best interests of Duncan and the Duncan
Unaffiliated Unitholders; and
WHEREAS, the Partners GP Board of Directors has determined that
the Merger is fair and reasonable to and in the best interests
of Partners; and
WHEREAS, as a condition and inducement to Duncan and Duncan GP
entering into this Agreement, concurrently with the execution
and delivery of this Agreement, Partners and Enterprise GTM
Holdings L.P. (Enterprise GTM), a subsidiary of
Partners which owns of record and beneficially approximately
58.5% of the outstanding Duncan Common Units (as defined
herein), and Duncan are entering into the Voting Agreement (as
defined herein), pursuant to which, among other things, each of
Enterprise GTM and Partners have agreed, subject to the terms
and conditions set forth therein, to vote all of its Duncan
Common Units in favor of the Merger and this Agreement; and
WHEREAS, the parties hereto desire to make certain
representations, warranties and agreements in connection with
the Merger and also to prescribe various conditions to the
Merger;
NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, agreements
and conditions contained herein, the parties hereto agree as
follows:
ARTICLE I
CERTAIN
DEFINITIONS
Section 1.1 Certain
Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
Acquisition Proposal means any proposal or offer
from or by any Person other than Partners, Partners GP, and
MergerCo relating to: (a) any direct or indirect
acquisition of (i) more than 20% of the assets of Duncan
and its Subsidiaries, taken as a whole, (ii) more than 20%
of the outstanding equity securities of Duncan or (iii) a
business or businesses that constitute more than 20% of the cash
flow, net revenues, net income or assets of Duncan and its
Subsidiaries, taken as a whole; (b) any tender offer or
exchange offer, as defined under the Exchange Act, that, if
consummated, would result in any Person beneficially owning more
than 20% of the outstanding equity securities of Duncan; or
(c) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving Duncan, other than the Merger.
Action shall have the meaning set forth in
Section 6.12(a).
Additional Limited Partner has the meaning given
such term in the Partners Partnership Agreement.
A-1
Affiliate has the meaning set forth in Rule 405
of the Securities Act, unless otherwise expressly stated herein.
Agreement shall have the meaning set forth in the
introductory paragraph to this Agreement.
Average Closing Price means, as of any date, the
average of the closing sale price of a Partners Common Unit as
reported on the NYSE Composite Transactions Reporting System for
the 10 consecutive NYSE full trading days (in which such
Partners Common Units are traded on the NYSE) ending at the
close of trading on the NYSE full trading day immediately
preceding such date.
Book-Entry Units shall have the meaning set forth in
Section 3.3.
Business Day shall mean any day which is not a
Saturday, Sunday or other day on which banks are authorized or
required to be closed in the City of New York, New York.
Certificate shall have the meaning set forth in
Section 3.3.
Certificate of Merger shall have the meaning set
forth in Section 2.1(b).
Claim shall have the meaning set forth in
Section 6.12(a).
Class B Units shall mean the units representing
limited partner interests in Partners having the rights and
obligations specified with respect to Class B
Units in the Partners Partnership Agreement.
Closing shall have the meaning set forth in
Section 2.2.
Closing Date shall have the meaning set forth in
Section 2.2.
Code shall mean the Internal Revenue Code of 1986,
as amended.
Compensation and Benefit Plan shall mean all
material bonus, vacation, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee unit
ownership, unit bonus, unit purchase, restricted unit and unit
option plans, all employment or severance contracts, all
medical, dental, disability, health and life insurance plans,
all other employee benefit and fringe benefit plans, contracts
or arrangements and any applicable change of control
or similar provisions in any plan, contract or arrangement
maintained or contributed to for the benefit of officers, former
officers, employees, former employees, directors, former
directors, or the beneficiaries of any of the foregoing,
including all employee benefit plans as defined in
ERISA Section 3(3).
Confidentiality Agreement shall mean a
confidentiality agreement of the nature generally used in
circumstances similar to those contemplated in Section 6.6
hereof, as determined by Duncan in its reasonable business
judgment; provided, however, that such
Confidentiality Agreement shall (a) have a term of not less
than one year, (b) provide that all non-public information
pertaining to Duncan
and/or
Partners be protected as confidential information thereunder,
subject to customary exceptions, and (c) provide that
Partners is a third-party beneficiary with respect to any breach
thereof relating to information relating to Partners;
provided further, that Duncan may amend or waive the
terms of such Confidentiality Agreement in its discretion,
except that Partners shall have the right to approve or consent
to any amendment or waiver (i) of the one-year term of the
Confidentiality Agreement, (ii) that would have the effect
of causing any non-public information pertaining to Duncan or
Partners that is protected as confidential information under the
Confidentiality Agreement not to be protected as confidential
information under the Confidentiality Agreement, or
(iii) Partners ability to enforce its rights as a
third-party beneficiary to such Confidentiality Agreement.
Disclosure Schedule shall have the meaning set forth
in Section 5.1.
DLLCA shall mean the Delaware Limited Liability
Company Act, 6 Del.C. §18-101 et seq.
DRULPA shall mean the Delaware Revised Uniform
Limited Partnership Act, 6 Del.C. §17-101 et
seq.
Duncan shall have the meaning set forth in the
introductory paragraph to this Agreement.
Duncan Amended and Restated Partnership Agreement
shall mean the Second Amended and Restated Agreement of Limited
Partnership of Duncan, substantially in the form attached hereto
as
Annex B-1.
A-2
Duncan Third Amended and Restated Partnership
Agreement shall mean the Third Amended and Restated
Agreement of Limited Partnership of Duncan, substantially in the
form attached hereto as
Annex B-2.
Duncan Audit Committee shall mean the Audit,
Conflicts and Governance Committee of the Duncan GP Board.
Duncan Certificate of Limited Partnership means the
certificate of limited partnership of Duncan as filed with the
Secretary of State of the State of Delaware on
September 28, 2006.
Duncan Change in Recommendation shall have the
meaning set forth in Section 6.6(b).
Duncan Common Units shall mean the common units
representing limited partner interests of Duncan having the
rights and obligations specified with respect to Common
Units as set forth in the Duncan Existing Partnership
Agreement.
Duncan Disclosure Schedule shall mean the Disclosure
Schedule delivered by Duncan pursuant to Section 5.1.
Duncan Dividend Reinvestment Plan shall mean the
Duncan Energy Partners L.P. Dividend Reinvestment Plan, as in
effect on the date hereof.
Duncan Existing Partnership Agreement shall mean the
Amended and Restated Agreement of Limited Partnership of Duncan,
dated as of February 5, 2007, as amended by Amendment
No. 1 dated December 27, 2007, Amendment No. 2
dated November 6, 2008, the Third Amendment dated
December 8, 2008 and the Fourth Amendment dated
June 15, 2009, and as may be further amended from time to
time.
Duncan GP has the meaning set forth in the
introductory paragraph to this Agreement.
Duncan GP Amended and Restated LLC Agreement shall
mean the Third Amended and Restated Limited Liability Company
Agreement of Duncan GP, substantially in the form attached
hereto as Annex A.
Duncan GP Board means the Board of Directors of
Duncan GP.
Duncan GP Certificate of Formation means the
certificate of formation of Duncan GP as filed with the
Secretary of State of the State of Delaware on
September 28, 2006.
Duncan GP Existing LLC Agreement means the Second
Amended and Restated Limited Liability Company Agreement of
Duncan GP, dated as of May 3, 2007, as amended from time to
time.
Duncan Material Contracts shall have the meaning set
forth in Section 5.2(j)(i).
Duncan Meeting shall have the meaning set forth in
Section 5.2(d)(iii).
Duncan Merger Transactions has the meaning set forth
in Section 5.2(d)(iii).
Duncan Parties means Duncan GP and Duncan.
Duncan Recommendation shall have the meaning set
forth in Section 6.2.
Duncan Unaffiliated Unitholders shall mean the
unitholders of Duncan excluding Partners and its Affiliates
(including Enterprise GTM as an Affiliate of Partners).
Duncan Unit Plan means the 2010 Duncan Long-Term
Incentive Plan, as amended and restated as of February 23,
2010 and as may be further amended from time to time.
Duncan Unit Purchase Plan means the DEP Unit
Purchase Plan, as may be amended from time to time.
Duncan Unitholder Approval shall have the meaning
set forth in Section 7.1.
Duncan Unitholders means the holders of outstanding
Duncan Common Units.
A-3
DUPP Purchase Period shall mean the period in which
payroll deductions are accumulated under the Duncan Unit
Purchase Plan pending the purchase of Duncan Common Units, as
established pursuant to the provisions of such plan.
Effective Time shall have the meaning set forth in
Section 2.1(b).
Enterprise GTM shall have the meaning set forth in
the recitals to this Agreement.
EPCO shall mean Enterprise Products Company, a
Delaware corporation.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, as amended.
Exchange Act shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder.
Exchange Agent shall mean BNY Mellon Shareowners
Services or any other entity as may be selected by Partners
subject to the reasonable approval of Duncan.
Exchange and Contribution Agreement means the
Exchange and Contribution Agreement by and among Partners,
Enterprise GTM and the other subsidiaries of Partners named
therein, substantially in the form attached hereto as
Annex C.
Exchange Fund shall have the meaning set forth in
Section 3.4(a).
Exchange Ratio shall have the meaning set forth in
Section 3.1(c).
Governmental Authority means any national, state,
local, county, parish or municipal government, domestic or
foreign, any agency, board, bureau, commission, court, tribunal,
subdivision, department or other governmental or regulatory
authority or instrumentality, or any arbitrator in any case that
has jurisdiction over Partners or Duncan, as the case may be, or
any of their respective Subsidiaries or any of their or their
respective Subsidiaries properties or assets.
Indebtedness of any Person means
(a) indebtedness created, issued or incurred by such Person
for borrowed money (whether by loan or the issuance and sale of
debt securities or the sale of property of such Person to
another Person subject to an understanding or agreement,
contingent or otherwise, to repurchase such property of such
Person), (b) obligations of such Person to pay the deferred
purchase or acquisition price for any property of such Person,
(c) any indebtedness of others secured by a Lien on any
property of such Person, whether or not the respective
indebtedness so secured has been assumed by it,
(d) obligations of such Person in respect of letters of
credit or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person,
(e) obligations of such Person in respect of surety bonds
or similar instruments, (f) the obligations of such Person
to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) any property of such
Person to the extent such obligations are required to be
classified and accounted for as a capital lease on a balance
sheet of such Person under U.S. generally accepted
accounting principles, and (g) indebtedness of others as
described in clauses (a) through (f) above in any
manner guaranteed by such Person or for which it is or may
become contingently liable; provided, that Indebtedness
shall not include accounts payable to trade creditors, or
accrued expenses arising in the ordinary course of business
consistent with past practice, in each case, that are not yet
due and payable, or are being disputed in good faith, and the
endorsement of negotiable instruments for collection in the
ordinary course of business.
Indemnification Expenses shall have the meaning set
forth in Section 6.12(a).
Indemnified Parties shall have the meaning set forth
in Section 6.12(a).
Indemnitees shall have the meaning set forth in the
Duncan Existing Partnership Agreement.
Knowledge shall mean, with respect to any party, the
actual knowledge of the directors or officers of such party.
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Law shall mean any law, rule, regulation, directive,
ordinance, code, governmental determination, guideline,
judgment, order, treaty, convention, governmental certification
requirement or other legally enforceable requirement,
U.S. or
non-U.S., of
any Governmental Authority.
Lien shall mean any mortgage, lien, charge,
restriction (including restrictions on transfer), pledge,
security interest, option, right of first offer or refusal,
preemptive right, put or call option, lease or sublease, claim,
right of any third party, covenant, right of way, easement,
encroachment or encumbrance.
Material Adverse Effect shall mean, with respect to
either Partners or Duncan, any effect that (x) is or could
reasonably be expected to be material and adverse to the
financial position, results of operations, business, assets or
prospects of Duncan and its Subsidiaries taken as a whole, or
Partners and its Subsidiaries taken as a whole, respectively, or
(y) materially impairs or delays, or could reasonably be
expected to materially impair or delay, the ability of Partners
or Duncan, respectively, to perform its obligations under this
Agreement or otherwise materially threaten or materially impede
the consummation of the Merger and the other transactions
contemplated by this Agreement; provided, however,
that Material Adverse Effect shall not be deemed to include any
of the following or the impact thereof: (a) circumstances
affecting the petroleum product transportation, terminalling,
storage and distribution industry generally (including the price
of petroleum products and the costs associated with the
transportation, terminalling, storage and distribution thereof),
or in any region in which Partners or Duncan, respectively,
operates, (b) any general market, economic, financial or
political conditions, or outbreak or hostilities or war, in the
United States of America or elsewhere, (c) changes in Law,
(d) earthquakes, hurricanes, floods, or other natural
disasters, (e) any failure of Partners or Duncan,
respectively, to meet any internal or external projections,
forecasts or estimates of revenue or earnings for any period,
(f) changes in the market price or trading volume of Duncan
Common Units or Partners Common Units, respectively (but not any
effect underlying any decrease that would otherwise constitute a
Material Adverse Effect), or (g) the announcement or
pendency of this Agreement or the matters contemplated thereby
or the compliance by either party with the provisions of this
Agreement; provided, that, in the case of clause (a),
(b), (c) or (d), the impact on Partners or Duncan,
respectively, is not disproportionately adverse as compared to
others in the industry referred to in clause (a) of this
definition generally.
Merger shall have the meaning set forth in the
recitals to this Agreement.
Merger Consideration shall have the meaning set
forth in Section 3.1(c).
MergerCo shall have the meaning set forth in the
introductory paragraph to this Agreement.
New Common Unit Issuance shall mean the issuance of
Partners Common Units as part of the Merger Consideration
pursuant to this Agreement.
New Common Units shall have the meaning set forth in
Section 3.1(c).
Notice of Proposed Recommendation Change shall have
the meaning set forth in Section 6.6(b).
NYSE shall mean the New York Stock Exchange.
Other Parties means, with respect to the Duncan
Parties, the Partners Parties, and with respect to the Partners
Parties, the Duncan Parties.
Partners shall have the meaning set forth in the
introductory paragraph to this Agreement.
Partners Audit Committee shall mean the Audit,
Conflicts and Governance Committee of the Partners GP Board.
Partners Certificate of Limited Partnership means
the certificate of limited partnership of Partners as filed with
the Secretary of State of the State of Delaware on April 9,
1998.
Partners Common Units shall mean the common units
representing limited partner interests in Partners having the
rights and obligations specified with respect to Common
Units in the Partners Partnership Agreement.
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Partners Disclosure Schedule shall mean the
Disclosure Schedule delivered by Partners pursuant to
Section 5.1.
Partners General Partner Interest shall mean the
General Partner Interest as defined in the Partners
Partnership Agreement.
Partners GP shall have the meaning set forth in the
introductory paragraph to this Agreement.
Partners GP Board shall mean the Board of Directors
of Partners GP.
Partners GP Certificate of Formation means the
certificate of formation of Partners GP as filed with the
Secretary of State of the State of Delaware on April 9,
1998.
Partners GP LLC Agreement means the Fourth Amended
and Restated Limited Liability Company Agreement of Partners GP,
dated as of November 22, 2010, as amended by the First
Amendment dated November 23, 2010, and as may be further
amended from time to time.
Partners Merger Transactions shall have the meaning
set forth in Section 5.2(d)(ii).
Partners Parties means Partners GP, Partners and
MergerCo.
Partners Partnership Agreement means the Sixth
Amended and Restated Agreement of Limited Partnership of
Partners, dated as of November 22, 2010, and as may be
further amended from time to time.
Partners Unaffiliated Unitholders means the holders
of Partners Common Units other than Partners GP and its
Affiliates, officers and directors.
Person or person shall mean any
individual, corporation, limited liability company, limited or
general partnership, joint venture, association, joint stock
company, trust, unincorporated organization, government or any
agency or political subdivision thereof or any other entity, or
any group comprised of two or more of the foregoing.
Proxy Statement/Prospectus shall have the meaning
set forth in Section 5.2(f).
Receiving Party shall have the meaning set forth in
Section 6.6(a).
Registration Statement shall have the meaning set
forth in Section 5.2(f).
Representatives shall mean with respect to a Person,
its directors, officers, employees, agents and representatives,
including any investment banker, financial advisor, attorney,
accountant or other advisor, agent or representative.
Rights shall mean, with respect to any person,
(a) options, warrants, preemptive rights, subscriptions,
calls or other rights, convertible securities, exchangeable
securities, agreements or commitments of any character
obligating such person (or the general partner of such person)
to issue, transfer or sell any partnership or other equity
interest of such person or any of its Subsidiaries or any
securities convertible into or exchangeable for such partnership
interests or equity interests or (b) contractual
obligations of such person (or the general partner of such
person) to repurchase, redeem or otherwise acquire any
partnership interest or other equity interest in such person or
any of its Subsidiaries or any such securities or agreements
listed in clause (a) of this sentence.
Rights of Way shall have the meaning set forth in
Section 5.2(n).
Rule 145 Affiliate shall have the meaning set
forth in Section 6.7(a).
SEC shall mean the Securities and Exchange
Commission.
SEC Documents shall have the meaning set forth in
Section 5.2(g).
Securities Act shall mean the Securities Act of
1933, as amended, and the rules and regulations thereunder.
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Subsidiary shall have the meaning ascribed to such
term in
Rule 1-02
of
Regulation S-X
under the Securities Act, except, in the case of Partners and
Partners GP, Duncan GP and its Subsidiaries (including, for the
sake of clarity, Duncan) shall not be deemed to be Subsidiaries
of Partners or Partners GP (unless otherwise specifically
provided in this Agreement).
Superior Proposal means any bona fide Acquisition
Proposal (except that references to 20% within the definition of
Acquisition Proposal shall be replaced by
50%) made by a third party on terms that the Duncan
Audit Committee determines, in its good faith judgment and after
consulting with its or Duncans financial advisors and
outside legal counsel, and taking into account the financial,
legal, regulatory and other aspects of the Acquisition Proposal
(including any conditions to and the expected timing of
consummation and any risks of non-consummation), to be more
favorable to the holders of Duncan Common Units, from a
financial point of view than the Merger (taking into account the
transactions contemplated by this Agreement and any revised
proposal by the Partners Audit Committee on behalf of Partners
to amend the terms of this Agreement).
Surviving Entity shall have the meaning set forth in
Section 2.1(a).
Takeover Law means any fair price,
moratorium, control share acquisition,
business combination or any other anti-takeover
statute or similar statute enacted under state or federal law.
Tax Returns shall have the meaning set forth in
Section 5.2(l)(i).
Taxes shall mean all taxes, charges, fees, levies or
other assessments, including all net income, gross income, gross
receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, estimated, severance,
stamp, occupation, property or other taxes, custom duties, fees,
assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority, whether disputed or not.
Tax Law means any Law relating to Taxes.
Termination Date shall have the meaning set forth in
Section 8.1(b).
Voting Agreement means the Voting Agreement dated as
of the date hereof by and among Duncan, Partners and Enterprise
GTM.
Section 1.2 Interpretation. A
reference to an Article, Section, Exhibit or Schedule means an
Article of, a Section in, or Exhibit or Schedule to, this
Agreement unless otherwise expressly stated. Unless the context
requires otherwise, the words this Agreement,
hereof, hereunder, herein,
hereby or words of similar import refer to this
Agreement as a whole and not to a particular Article, Section,
subsection, clause or other subdivision hereof. The words
include, includes and
including when used herein shall be deemed in each
case to be followed by the words without limitation.
Whenever the context requires, the words used herein include the
masculine, feminine and neuter gender, and the singular and the
plural. A reference to any legislation or to any provision of
any legislation shall include any amendment thereof, any
modification or re-enactment thereof, any legislative provision
substituted therefor and all regulations and statutory
instruments issued thereunder or pursuant thereto. References to
this Agreement or any other agreement or document
shall be construed as a reference to such agreement or document,
including any exhibits, appendices and schedules thereto, as
amended, amended and restated, modified or supplemented and in
effect from time to time and shall include a reference to any
document which amends, modifies or supplements it. References to
a Person or person shall be construed as a reference to such
Person and its successors and permitted assigns.
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ARTICLE II
THE MERGER;
EFFECTS OF THE MERGER
Section 2.1 The
Merger.
(a) The Surviving Entity. Subject to the
terms and conditions of this Agreement, at the Effective Time,
MergerCo shall merge with and into Duncan, the separate
existence of MergerCo shall cease and Duncan shall survive and
continue to exist as a Delaware limited partnership (Duncan, as
the surviving entity in the Merger, sometimes being referred to
herein as the Surviving Entity), such that
immediately following the Merger, Duncan GP will continue to be
the sole general partner of Duncan and Partners or its
Subsidiaries will be the sole limited partners of Duncan.
(b) Effectiveness and Effects of the
Merger. Subject to the satisfaction or waiver of
the conditions set forth in Article VII in accordance with
this Agreement, the Merger shall become effective upon the later
to occur of the filing in the office of the Secretary of State
of the State of Delaware of a properly executed certificate of
merger (the Certificate of Merger) or such later
date and time as may be set forth in the Certificate of Merger
(the Effective Time), in accordance with the DRULPA
and the DLLCA. The Merger shall have the effects set forth in
this Agreement and the applicable provisions of the DRULPA and
the DLLCA.
(c) Duncan Certificate of Limited Partnership and Duncan
Agreement of Limited Partnership. At the
Effective Time, the Duncan Certificate of Limited Partnership
shall remain unchanged and shall be the certificate of limited
partnership of the Surviving Entity, until duly amended in
accordance with applicable Law. Pursuant to Section 14.6 of
the Duncan Existing Partnership Agreement, at the Effective
Time, the Duncan Existing Partnership Agreement shall be amended
and restated as set forth in
Annex B-1,
which Duncan Amended and Restated Partnership Agreement shall be
the agreement of limited partnership of the Surviving Entity
until duly amended in accordance with Section 6.15 or
otherwise in accordance with the terms thereof and applicable
Law.
Section 2.2 Closing. Subject
to (i) the satisfaction or waiver of the conditions set
forth in Article VII and (ii) this Agreement not
having theretofore terminated pursuant to its terms, the Merger
and the other transactions contemplated hereby (the
Closing) shall occur on (a) the Business Day
after the day on which the last of the conditions set forth in
Article VII (excluding conditions that, by their nature,
cannot be satisfied until the Closing Date) shall have been
satisfied or waived in accordance with the terms of this
Agreement or (b) such other date to which the parties may
agree in writing. The date on which the Closing occurs is
referred to as the Closing Date. The Closing of the
transactions contemplated by this Agreement shall take place at
the offices of Andrews Kurth LLP, 600 Travis, Suite 4200,
Houston, Texas 77002 at 10:00 a.m. Houston time on the
Closing Date.
ARTICLE III
MERGER
CONSIDERATION; EXCHANGE PROCEDURES
Section 3.1 Merger
Consideration. Subject to the provisions of this
Agreement, at the Effective Time (except as noted below in
clause (b)), by virtue of the Merger and without any action on
the part of Partners, Duncan or any holder of Duncan Common
Units:
(a) All of the limited liability company interests in
MergerCo outstanding immediately prior to the Effective Time
shall be cancelled and no consideration received therefor.
(b) The general partner interest in Duncan issued and
outstanding immediately prior to the Effective Time shall remain
outstanding in the Surviving Entity in the form as set forth in
the Duncan Amended and Restated Partnership Agreement, and
Duncan GP, as the holder of such general partner interest, shall
continue as the sole general partner of the Surviving Entity as
set forth in the Duncan Amended and Restated Partnership
Agreement. Partners agrees that at the Effective Time, Partners
shall be automatically bound by the Duncan Amended and Restated
Partnership Agreement, and Partners shall be (and DEP GP hereby
agrees
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that Partners is automatically) admitted to Duncan as the sole
limited partner of Duncan with a limited partner interest which
constitutes the percentage interest set forth in the Duncan
Amended and Restated Partnership Agreement. At the Effective
Time, the books and records of Duncan shall be revised to
reflect the admission of Partners as the sole limited partner of
Duncan and all other limited partners of Duncan simultaneously
ceasing to be limited partners of Duncan pursuant to the terms
of this Agreement, and Duncan shall continue without dissolution.
(c) Each Duncan Common Unit issued and outstanding
immediately prior to the Effective Time (other than any Duncan
Common Units held by Duncan or its Subsidiaries, which shall be
cancelled as of the Effective Time) shall be converted into the
right to receive 1.010 Partners Common Units (such ratio, the
Exchange Ratio, and such amount of Partners Common
Units, the Merger Consideration) which Partners
Common Units shall be duly authorized and validly issued in
accordance with applicable Laws and the Partners Partnership
Agreement, as applicable, fully paid (to the extent required
under the Partners Partnership Agreement) and non-assessable
(except to the extent such non-assessability may be affected by
Sections 17-303,
17-607 and
17-804 of
the DRULPA) (such Partners Common Units described in this
clause (c) shall be referred to herein as the New
Common Units).
(d) Notwithstanding anything to the contrary in this
Agreement, at the Effective Time, all Duncan Common Units owned
by Duncan or its Subsidiaries (if any) shall automatically be
cancelled and no consideration received therefor.
Section 3.2 Exchange
of Merger Consideration by Enterprise
GTM. Effective immediately after the Effective
Time, Duncan, Duncan GP and Partners agree the Merger
Consideration which Enterprise GTM is entitled to receive shall
be exchanged pursuant to and in accordance with the Exchange and
Contribution Agreement.
Section 3.3 Rights
As Unitholders; Unit Transfers. All Duncan Common
Units (other than those held by Duncan or its Subsidiaries,
which shall be cancelled as of the Effective Time in accordance
with Section 3.1(d)), when converted as a result of and
pursuant to the Merger, shall cease to be outstanding and shall
automatically be canceled and cease to exist. At the Effective
Time, each holder of a certificate representing Duncan Common
Units (a Certificate) and each holder of
non-certificated Duncan Common Units represented by book-entry
(Book-Entry Units) shall cease to be a unitholder of
Duncan and cease to have any rights with respect thereto, except
the right (other than for Enterprise GTM after giving effect to
the exchange of rights to Merger Consideration as set forth in
Section 3.2) to receive (a) the Merger Consideration,
and the right to be admitted as an Additional Limited Partner in
connection therewith, (b) any cash to be paid in lieu of
any fractional New Common Unit in accordance with
Section 3.4(e) and (c) any distributions in accordance
with Section 3.4(c), in each case, to be issued or paid,
without interest, in consideration therefor in accordance with
Section 3.4. In addition, to the extent applicable, holders
of Duncan Common Units immediately prior to the Effective Time
shall have continued rights to any distribution, without
interest, with respect to such Duncan Common Units with a record
date occurring prior to the Effective Time that may have been
declared or made by Duncan with respect to such Duncan Common
Units in accordance with the terms of this Agreement and which
remains unpaid as of the Effective Time. At the Effective Time,
the unit transfer books of Duncan shall be closed immediately
and there shall be no further registration of transfers on the
unit transfer books of Duncan with respect to Duncan Common
Units.
Section 3.4 Exchange
of Certificates.
(a) Exchange Agent. Promptly after the
Effective Time, Partners shall deposit or shall cause to be
deposited with the Exchange Agent for the benefit of the holders
of Duncan Common Units, for exchange in accordance with this
Article III, through the Exchange Agent, New Common Units
and cash as required by this Article III. Partners agrees
to make available to the Exchange Agent, from time to time as
needed, cash sufficient to pay any distributions pursuant to
Section 3.2 and Section 3.4(c) and to make payments in
lieu of any fractional New Common Units pursuant to
Section 3.4(e), in each case without interest. Any cash and
New Common Units deposited with the Exchange Agent (including as
payment for any fractional New Common Units in accordance with
Section 3.4(e) and any distributions with respect to such
fractional New Common Units in accordance with
Section 3.4(c)) shall hereinafter be referred to as the
Exchange Fund.
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The Exchange Agent shall, pursuant to irrevocable instructions,
deliver the Merger Consideration contemplated to be paid for
Duncan Common Units pursuant to this Agreement out of the
Exchange Fund. Except as contemplated by Sections 3.4(c)
and 3.4(e), the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. Promptly after
the Effective Time, Partners shall instruct the Exchange Agent
to mail to each record holder of Duncan Common Units as of the
Effective Time (i) a letter of transmittal (which shall
specify that in respect of certificated Duncan Common Units,
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent, and which shall be in
customary form and agreed to by Partners and Duncan prior to the
Effective Time) and (ii) instructions for use in effecting
the surrender of the Certificates or Book-Entry Units in
exchange for the Merger Consideration payable in respect of
Duncan Common Units represented by such Certificates or
Book-Entry Units, as applicable. Promptly after the Effective
Time, upon surrender of Certificates, if any, for cancellation
to the Exchange Agent together with such letters of transmittal,
properly completed and duly executed, and such other documents
(including in respect of Book-Entry Units) as may be required
pursuant to such instructions, each holder who held Duncan
Common Units immediately prior to the Effective Time shall be
entitled to receive upon surrender of the Certificates or
Book-Entry Units therefor (A) New Common Units
representing, in the aggregate, the whole number of New Common
Units that such holder has the right to receive pursuant to this
Article III (after taking into account all Duncan Common
Units then held by such holder) and (B) a check in an
amount equal to the aggregate amount of cash that such holder
has the right to receive pursuant to this Article III,
including cash payable in lieu of any fractional New Common
Units pursuant to Section 3.4(e) and distributions pursuant
to Section 3.4(c). No interest shall be paid or accrued on
any Merger Consideration, any cash payment in lieu of fractional
New Common Units, or on any unpaid distributions payable to
holders of Certificates or Book-Entry Units. In the event of a
transfer of ownership of Duncan Common Units that is not
registered in the transfer records of Duncan, the Merger
Consideration payable in respect of such Duncan Common Units may
be paid to a transferee, if the Certificate representing such
Duncan Common Units or evidence of ownership of the Book-Entry
Units is presented to the Exchange Agent, and in the case of
both certificated and book-entry Duncan Common Units,
accompanied by all documents required to evidence and effect
such transfer and the Person requesting such exchange shall pay
to the Exchange Agent in advance any transfer or other Taxes
required by reason of the delivery of the Merger Consideration
in any name other than that of the record holder of such Duncan
Common Units, or shall establish to the satisfaction of the
Exchange Agent that such Taxes have been paid or are not
payable. Until the required documentation has been delivered and
Certificates, if any, have been surrendered, as contemplated by
this Section 3.4, each Certificate or Book-Entry Unit shall
be deemed at any time after the Effective Time to represent only
the right to receive upon such delivery and surrender the Merger
Consideration payable in respect of Duncan Common Units and any
cash or distributions to which such holder is entitled pursuant
to Section 3.2.
(c) Distributions with Respect to Unexchanged Duncan
Common Units. No distributions declared or made
with respect to Partners Common Units with a record date after
the Effective Time shall be paid to the holder of any Duncan
Common Units with respect to New Common Units that such holder
would be entitled to receive in accordance herewith and no cash
payment in lieu of fractional New Common Units shall be paid to
any such holder until such holder shall have delivered the
required documentation and surrendered any Certificates or
Book-Entry Units as contemplated by this Section 3.4.
Subject to applicable Law, following compliance with the
requirements of Section 3.4(b), there shall be paid to such
holder of New Common Units issuable in exchange therefor,
without interest, (i) promptly after the time of such
compliance, the amount of any cash payable in lieu of fractional
New Common Units to which such holder is entitled pursuant to
Section 3.4(e) and the amount of distributions with a
record date after the Effective Time theretofore paid with
respect to New Common Units and payable with respect to such New
Common Units, and (ii)at the appropriate payment date, the
amount of distributions with a record date after the Effective
Time but prior to such delivery and surrender and a payment date
subsequent to such compliance payable with respect to such New
Common Units.
(d) Further Rights in Duncan Common
Units. The Merger Consideration issued upon
conversion of a Duncan Common Unit in accordance with the terms
hereof (including any cash paid pursuant to Section 3.2,
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Section 3.4(c) or Section 3.4(e)) shall be deemed to
have been issued in full satisfaction of all rights pertaining
to such Duncan Common Unit.
(e) Fractional New Common Units. No
certificates or scrip of New Common Units representing
fractional New Common Units or book entry credit of the same
shall be issued upon the surrender of Duncan Common Units
outstanding immediately prior to the Effective Time in
accordance with Section 3.4(b), and such fractional
interests will not entitle the owner thereof to vote or to have
any rights as a holder of any New Common Units. Notwithstanding
any other provision of this Agreement, each holder of Duncan
Common Units converted in the Merger who would otherwise have
been entitled to receive a fraction of a New Common Unit (after
taking into account all Duncan Common Units exchanged by such
holder) shall receive, in lieu thereof, cash (without interest
rounded up to the nearest whole cent) in an amount equal to the
product of (i) the Average Closing Price as of the Closing
Date and (ii) the fraction of a New Common Unit that such
holder would otherwise be entitled to receive pursuant to this
Article III. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to
holders of fractional interests, the Exchange Agent shall so
notify Partners, and Partners shall, or shall cause the
Surviving Entity to, deposit such amount with the Exchange Agent
and shall cause the Exchange Agent to forward payments to such
holders of fractional interests subject to and in accordance
with the terms hereof. To the extent applicable, each holder of
Duncan Common Units shall be deemed to have consented for
U.S. federal income tax purposes (and to the extent
applicable, state or local income tax purposes) to report the
cash received for fractional New Common Units in the Merger as a
sale of a portion of the holders Duncan Common Units to
Partners consistent with Treasury
Regulation Section 1.708-1(c)(4).
(f) Termination of Exchange Fund. Any
portion of the Exchange Fund constituting New Common Units or
cash that remains undistributed to the holders of Duncan Common
Units after 180 days following the Effective Time shall be
delivered to Partners upon demand by Partners and, from and
after such delivery, any former holders of Duncan Common Units
who have not theretofore complied with this Article III
shall thereafter look only to Partners for the Merger
Consideration payable in respect of such Duncan Common Units,
any cash in lieu of fractional New Common Units to which they
are entitled pursuant to Section 3.4(e) and any
distributions with respect to New Common Units to which they are
entitled pursuant to Section 3.4(c), in each case, without
any interest thereon. Any amounts remaining unclaimed by holders
of Duncan Common Units immediately prior to such time as such
amounts would otherwise escheat to or become the property of any
governmental entity shall, to the extent permitted by applicable
Law, become the property of Partners, free and clear of any
Liens, claims or interest of any Person previously entitled
thereto.
(g) No Liability. To the fullest extent
permitted by Law, none of Duncan GP, Partners, Duncan, or the
Surviving Entity shall be liable to any holder of Duncan Common
Units for any Partners Common Units (or distributions with
respect thereto) or cash from the Exchange Fund delivered to a
public official pursuant to any abandoned property, escheat or
similar Law.
(h) Lost Certificates. If any Certificate
shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and, if required by Partners,
the posting by such Person of a bond, in such reasonable amount
as Partners may direct, as indemnity against any claim that may
be made against it with respect to such Certificate, the
Exchange Agent shall pay in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration payable in
respect of Duncan Common Units represented by such Certificate
and any distributions to which the holders thereof are entitled
pursuant to Section 3.3.
(i) Withholding. Each of Partners, the
Surviving Entity and the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Duncan Common Units
such amounts as Partners, the Surviving Entity or the Exchange
Agent is required to deduct and withhold under the Code or any
provision of state, local, or foreign Tax Law, with respect to
the making of such payment; provided, however, that
Partners, the Surviving Entity or the Exchange Agent, as the
case may be, shall provide reasonable notice to the applicable
holders of Duncan Common Units prior to withholding any amounts
pursuant to this Section 3.4(i). To the extent that amounts
are so deducted and withheld by Partners, the Surviving Entity
or the Exchange Agent, such amounts shall be treated for all
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purposes of this Agreement as having been paid to the holder of
Duncan Common Units in respect of whom such deduction and
withholding was made by Partners, the Surviving Entity or the
Exchange Agent, as the case may be.
(j) Book Entry and Admission of Holders of New Common
Units as Additional Limited Partners of
Partners. All New Common Units to be issued in
the Merger shall be issued in book-entry form, without physical
certificates. Upon the issuance of New Common Units to the
holders of Duncan Common Units in accordance with this
Section 3.4 and the compliance by such holders with the
requirements of Section 10.4 of the Partners Partnership
Agreement, which requirements may be satisfied by each holder of
Duncan Common Units by the execution and delivery by such holder
of a completed and executed letter of transmittal, Partners GP
shall be deemed to have automatically consented to the admission
of such holder as a limited partner of Partners in respect of
its New Common Units and shall reflect such admission on the
books and records of Partners.
(k) Investment of the Exchange
Fund. Partners shall cause the Exchange Agent to
invest any cash included in the Exchange Fund as directed by
Partners on a daily basis; provided that any investment
of such Exchange Fund shall be limited to direct short-term
obligations of, or short-term obligations fully guaranteed as to
principal and interest by, the U.S. government and that no
such investment or loss thereon shall affect the amounts payable
or the timing of the amounts payable to Duncan Unitholders
pursuant to the other provisions of this Section 3.4. Any
interest and other income resulting from such investments shall
be paid promptly to Partners.
Section 3.5 Anti-Dilution
Provisions. In the event of any subdivisions,
reclassifications, recapitalizations, splits, unit
distributions, combinations or exchange of units with respect
to, or Rights in respect of, Duncan Common Units or Partners
Common Units (in each case, as permitted pursuant to
Section 4.3), the number of New Common Units to be issued
in the Merger and the Average Closing Price of Partners Common
Units will be correspondingly adjusted to provide to the holders
of Duncan Common Units the same economic effect as contemplated
by this Agreement prior to such event.
Section 3.6 Treatment
of Duncan Equity-Based Awards; Duncan Unit Purchase Plan.
(a) As of the date of this Agreement, there are no
outstanding unvested restricted Duncan Common Units, and there
are no outstanding unit appreciation rights or options or other
awards issued under the Duncan Unit Plan.
(b) With respect to the Duncan Unit Purchase Plan, the
amount of money credited to the account of each participant
under such plan, after reduction for any required withholding,
and held (immediately prior to the Effective Time) for the
purchase of Duncan Common Units (including, but not limited to,
each participants accumulated payroll deductions for the
DUPP Purchase Period during which the Effective Time occurs plus
the applicable Employee Discount Amount, as defined in and
determined under the Duncan Unit Purchase Plan, with respect
thereto) shall be used to purchase Duncan Common Units
immediately prior to the Effective Time in accordance with the
terms of the Duncan Unit Purchase Plan. At the Effective Time,
automatically and without any action on the part of any
participant in the Duncan Unit Purchase Plan, each whole Duncan
Common Unit then credited to the account of each participant,
whether purchased under the Duncan Unit Purchase Plan for a DUPP
Purchase Period ended prior to the Effective Time or purchased
in accordance with this Section 3.6(b) or otherwise, shall
be canceled at the Effective Time and converted into the right
to receive the Merger Consideration pursuant to
Section 3.1(c). Any fractional Duncan Common Unit credited
to the account of a participant and not converted to the right
to receive Merger Consideration in accordance with the foregoing
shall be converted into the right to receive cash in accordance
with the applicable provisions of the Duncan Unit Purchase Plan
and Section 3.4(b). The conversion of the Duncan Common
Units pursuant to this Section 3.6(b) shall be in full
satisfaction of the obligations of Duncan under the Duncan Unit
Purchase Plan with respect to the DUPP Purchase Period in which
the Effective Time falls and with respect to all prior DUPP
Purchase Periods. Duncan shall cause the Duncan Unit Purchase
Plan to be suspended as of the Effective Time, and no further
purchase rights shall be granted or exercised under the Duncan
Unit Purchase Plan unless and until such suspension is lifted in
accordance with the terms of such Plan and Section 3.6(c).
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(c) As soon as practicable following the suspension of the
Duncan Unit Purchase Plan in accordance with
Section 3.6(b), if permitted under the NYSE corporate
governance rules with respect to shareholder approval of equity
compensation plans and amendments thereto and any other
applicable Law without seeking approval of the holders of the
Partners Common Units or the Duncan Common Units or the
imposition of any other condition (other than compliance with
applicable Securities Act requirements), (i) the Duncan
Unit Purchase Plan shall be continued by EPCO and all Duncan
obligations assumed by Partners and such plan shall continue in
effect, subject to amendment, termination
and/or
suspension in accordance with its terms, notwithstanding the
occurrence of the Merger, (ii) from and after the Effective
Time all references to Duncan Common Units in the Duncan Unit
Purchase Plan shall be substituted with references to Partners
Common Units, (iii) the number of Partners Common Units
that will be available for delivery under the Duncan Unit
Purchase Plan from and after the Effective Time shall equal the
number of Duncan Common Units that were available for delivery
under the Duncan Unit Purchase Plan immediately prior to the
Effective Time (but after effecting the purchases described in
Section 3.6(b) multiplied by the Exchange Ratio (rounded
down to the nearest whole number of Partners Common Units), and
(iv) no participant in the Duncan Unit Purchase Plan shall
have any right to acquire Duncan Common Units under such plan
from and after the Effective Time.
(d) If the continuation of the Duncan Unit Purchase Plan in
accordance with the provisions of Section 3.6(c) is not
permitted, Duncan shall cause the Duncan Unit Purchase Plan to
terminate as of the Effective Time, and no further purchase
rights shall be granted or exercised under the Duncan Unit
Purchase Plan at or after the Effective Time.
ARTICLE IV
ACTIONS
PENDING MERGER
From the date hereof until the Effective Time, except as
expressly contemplated by this Agreement, (a) without the
prior written consent of the Partners GP Board (which consent
shall not be unreasonably withheld, delayed or conditioned),
Duncan and Duncan GP will not, and will cause each of its
Subsidiaries not to, and (b) without the prior written
consent of the Duncan GP Board and the Duncan Audit Committee
(which consent shall not be unreasonably withheld, delayed or
conditioned), Partners and Partners GP will not, and will cause
each of its Subsidiaries not to:
Section 4.1 Ordinary
Course. Conduct the business of it and its
Subsidiaries other than in the ordinary and usual course or, to
the extent consistent therewith, fail to use commercially
reasonable best efforts to preserve intact its business
organizations, goodwill and assets and maintain its rights,
franchises and existing relations with customers, suppliers,
employees and business associates, or take any action that would
have a Material Adverse Effect.
Section 4.2 Equity. (a) In
the case of Duncan and its Subsidiaries, (i) issue, sell or
otherwise permit to become outstanding, or authorize the
creation of, any additional equity or any additional Rights,
(ii) enter into any agreement with respect to the foregoing
or (iii) permit any additional equity interests to become
subject to new grants of employee unit options, unit
appreciation rights or similar equity-based employee Rights, in
each case other than issuances and sales of Duncan Common Units
after the date of this Agreement under the Duncan Unit Purchase
Plan in accordance with Section 3.6(b) or under the Duncan
Dividend Reinvestment Plan; and (b) in the case of
Partners, take any action described in clause (i), (ii) or
(iii) above, which would materially adversely affect its
ability to consummate the transactions contemplated by this
Agreement.
Section 4.3 Equity
Changes. Split, combine or reclassify any of its
equity interests or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in
substitution for its equity interests; or in the case of Duncan
and its Subsidiaries, repurchase, redeem or otherwise acquire,
or permit any of its Subsidiaries to purchase, redeem or
otherwise acquire any partnership or other equity interests or
Rights, except for net unit settlements made in connection with
the vesting of restricted units or as required by the terms of
its securities outstanding on the date hereof or as contemplated
by any existing Compensation and Benefit Plan.
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Section 4.4 Acquisitions
and Dispositions. (a) In the case of Duncan
and its Subsidiaries, (i) sell, lease, dispose of or
discontinue all or any portion of its assets, business or
properties other than in the ordinary course of business,
including distributions permitted under Section 4.5,
(ii) acquire, by merger or otherwise, or lease any assets
or all or any portion of the business or property of any other
entity other than in the ordinary course of business consistent
with past practice, (iii) merge, consolidate or enter into
any other business combination transaction with any Person, or
(iv) convert from a limited partnership or limited
liability company, as the case may be, to any other business
entity; and (b) in the case of Partners, merge, consolidate
or enter into any other business combination transaction with
any Person or make any acquisition or disposition that would be
likely to have a Material Adverse Effect.
Section 4.5 Distributions. Make
or declare dividends or distributions to the holders of Duncan
Common Units or Partners Common Units, as applicable, that are
special or extraordinary distributions or that are in a cash
amount in excess of the most recently declared distributions,
other than regular quarterly cash distributions or increases
made pursuant to applicable Duncan GP Board or Partners GP Board
approvals in accordance with past practices.
Section 4.6 Amendments. (a) In
the case of Duncan GP and Duncan, amend the Duncan Existing
Partnership Agreement other than in accordance with this
Agreement; and (b) in the case of Partners, amend the
Partners Partnership Agreement other than in accordance with
this Agreement.
Section 4.7 Material
Contracts. (a) In the case of Duncan and its
Subsidiaries, enter into any Duncan Material Contract or modify,
amend, terminate or assign, or waive or assign any rights under
any Duncan Material Contract in any material respect in a manner
which is adverse to Partners and its Subsidiaries, taken as a
whole, or which could prevent or materially delay the
consummation of the Merger or the other transactions
contemplated by this Agreement past the Termination Date (or any
extension thereof); and (b) in the case of Partners and its
Subsidiaries, enter into any Partners Material Contract, or
modify, amend, terminate or assign, or waive or assign any
rights under any Partners Material Contract, in a manner that
would reasonably be expected to result in a Material Adverse
Effect on Partners or on Duncan.
Section 4.8 Litigation. (a) In
the case of Duncan and its Subsidiaries, waive, release, assign,
settle or compromise any claim, action or proceeding, including
any state or federal regulatory proceeding seeking damages or
injunction or other equitable relief, that is material to it;
(b) in the case of Partners and its Subsidiaries, waive,
release, assign, settle or compromise any claim, action or
proceeding, including any state or federal regulatory proceeding
seeking damages or injunction or other equitable relief, that
would reasonably be expected to result in a Material Adverse
Effect on Partners or on Duncan.
Section 4.9 Accounting
Methods. Implement or adopt any material change
in its accounting principles, practices or methods, other than
as may be required by Law or U.S. generally accepted
accounting principles.
Section 4.10 Insurance. Fail
to use commercially reasonable best efforts to maintain with
financially responsible insurance companies, insurance in such
amounts and against such risks and losses as has been
customarily maintained by it in the past.
Section 4.11 Taxes.
(a) Change in any material respect any of its express or
deemed elections relating to Taxes, including elections for any
and all joint ventures, partnerships, limited liability
companies or other investments where it has the capacity to make
such binding election;
(b) Settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes; or
(c) Change in any material respect any of its methods of
reporting income or deductions for federal income tax purposes
from those employed in the preparation of its federal income tax
return for the most recent taxable year for which a return has
been filed, except as may be required by applicable Law.
Section 4.12 Employee
Benefit Plans. In the case of Duncan and its
Subsidiaries, (a) adopt, enter into, amend or otherwise
increase, or accelerate the payment or vesting of the amounts,
benefits or rights payable
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or accrued or to become payable or accrued under, any
Compensation and Benefit Plan, (b) grant any severance or
termination pay to any officer or director of Duncan or any of
its Subsidiaries or (c) establish, adopt, enter into or
amend any plan, policy, program or arrangement for the benefit
of any current or former directors or officers of Duncan or any
of its Subsidiaries or any of their beneficiaries.
Section 4.13 Debt,
Capital Expenditures and the Like. (a) In
the case of Duncan and its Subsidiaries, other than in the
ordinary course of business consistent with past practice,
(i) incur, assume, guarantee or otherwise become liable for
any Indebtedness (directly, contingently or otherwise), other
than borrowings under existing revolving credit facilities,
(ii) enter into any material lease (whether operating or
capital), (iii) create any Lien on its property or the
property of its Subsidiaries in connection with any pre-existing
Indebtedness, new Indebtedness or lease, or (iv) make or
commit to make any material capital expenditures unrelated to
Duncans joint investments with Partners other than such
capital expenditures as are (A) contemplated in the 2011
capital budget as disclosed in the Duncan SEC Documents or
(B) required on an emergency basis or for the safety of
persons or the environment; and (b) in the case of
Partners, take any action described in clauses (i), (ii),
(iii) or (iv) above which would materially adversely
affect its ability to consummate the transactions contemplated
by this Agreement.
Section 4.14 No
Dissolution. Authorize, recommend, propose or
announce an intention to adopt a plan of complete or partial
dissolution or liquidation.
Section 4.15 Adverse
Actions. Except as permitted by Sections 6.2
and 6.6, knowingly take any action that is intended or is
reasonably likely to result in (a) any of its
representations and warranties set forth in this Agreement being
or becoming untrue in any material respect at the Closing Date,
(b) any of the conditions set forth in Article VII not
being satisfied, (c) any material delay or prevention of
the consummation of the Merger or (d) a material violation
of any provision of this Agreement except, in each case, as may
be required by applicable Law.
Section 4.16 Agreements. Agree
or commit to do anything prohibited by Sections 4.1 through
4.15.
ARTICLE V
REPRESENTATIONS
AND WARRANTIES
Section 5.1 Disclosure
Schedule. On or prior to the date hereof,
Partners has delivered to Duncan and Duncan has delivered to
Partners a schedule (respectively, its Disclosure
Schedule) setting forth, among other things, items the
disclosure of which is necessary or appropriate in relation to
any or all of its representations and warranties;
provided, however, that (a) no such item is
required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence is not
reasonably likely to result in the related representation or
warranty being deemed untrue or incorrect in any material
respect, and (b) the mere inclusion of an item in a
Disclosure Schedule shall not be deemed an admission by a party
that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result in
a Material Adverse Effect.
Section 5.2 Representations
and Warranties. Subject to Section 5.1 and
except as set forth in its Disclosure Schedule or (other than
with respect to Sections 5.2(a) and (b)) as set forth in
its SEC Documents filed and publicly available prior to the date
hereof (excluding any disclosures included therein to the extent
they are cautionary, predictive or forward-looking in nature,
including those in any risk factor section of such documents),
Duncan hereby represents and warrants with respect to Duncan and
Duncan GP (and to the extent necessary with respect to any
representations by Duncan herein, Duncan GP also represents and
warrants to Partners), and Partners and MergerCo hereby
represent and warrant with respect to themselves and Partners GP
(and to the extent necessary with respect to any representations
by Partners and MergerCo herein, Partners GP also represents and
warrants to Duncan), to the extent applicable, in each case with
respect to itself and its Subsidiaries, as follows:
(a) Organization, General Authority and
Standing. Such party is a limited partnership or
limited liability company, duly formed, validly existing and in
good standing under the Laws of the State of
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Delaware. Such party (i) has the requisite limited
partnership or limited liability company power and authority to
own and lease all of its properties and assets and to carry on
its business as it is now being conducted, (ii) is duly
qualified to do business and is in good standing in the states
of the United States of America where its ownership or leasing
of property or the conduct of its business requires it to be so
qualified and (iii) has in effect all federal, state,
local, and foreign governmental authorizations and permits
necessary for it to own or lease its properties and assets and
to carry on its business as it is now conducted, except where
the failure to have such power and authority, to be so qualified
or to have such authorizations and permits in effect would not
have a Material Adverse Effect on either Partners or Duncan.
(b) Capitalization.
(i) In the case of Duncan, as of the date hereof, there are
57,770,528 Duncan Common Units issued and outstanding, and all
such Duncan Common Units and the limited partner interests
represented thereby were duly authorized and are validly issued
in accordance with the Duncan Existing Partnership Agreement and
are fully paid (to the extent required under the Duncan Existing
Partnership Agreement) and nonassessable (except as such
nonassessability may be affected by
Sections 17-303,
17-607 and
17-804 of
the DRULPA), and are not subject to any preemptive or similar
rights (and were not issued in violation of any preemptive or
similar rights). As of the date hereof, Duncan GP is the sole
general partner of Duncan owning a 0.7% general partner interest
in Duncan, and such general partner interest was duly authorized
and validly issued in accordance with the Duncan Existing
Partnership Agreement.
(ii) In the case of Partners, as of the date hereof, there
are 845,386,852 Partners Common Units and 4,520,431 Class B
Units issued and outstanding, and all of such Partners Common
Units and Class B Units and the limited partner interests
represented thereby were duly authorized and validly issued in
accordance with the Partners Partnership Agreement and are fully
paid (to the extent required under the Partners Partnership
Agreement) and nonassessable (except as such nonassessability
may be affected by
Sections 17-303,
17-607 and
17-804 of
the DRULPA). As of the date hereof, Partners GP is the sole
general partner of Partners owning a non-economic Partners
General Partner Interest, and such Partners General Partner
Interest was duly authorized and validly issued in accordance
with the Partners Partnership Agreement. The New Common Units to
be issued in accordance with this Agreement will be duly
authorized and validly issued in accordance with the Partners
Partnership Agreement and will be fully paid (to the extent
required under the Partners Partnership Agreement) and
nonassessable (except as such nonassessability may be affected
by
Sections 17-303,
17-607 and
17-804 of
the DRULPA).
(iii) As of the date hereof, except as set forth above in
this Section 5.2(b) and in Schedule 5.2(b) of a
partys Disclosure Schedule, (A) there are no
partnership interests or other equity securities of such party
or any of its Subsidiaries issued or authorized and reserved for
issuance, (B) there are no outstanding options, warrants,
preemptive rights, subscriptions, calls or other rights,
convertible securities, exchangeable securities, agreements or
commitments of any character obligating such person (or the
general partner of such person) or any of its Subsidiaries to
issue, transfer or sell any partnership or other equity interest
of such person or any of its Subsidiaries or any securities
convertible into or exchangeable for such partnership interests
or equity interests, or any commitment to authorize, issue or
sell the same or any such equity securities, except pursuant to
this Agreement, and (C) there are no contractual
obligations of such person (or the general partner of such
person) or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any partnership interest or other equity
interest in such person or any of its Subsidiaries or any such
securities or agreements listed in clause (B) of this
sentence.
(iv) The number of Partners Common Units that are issuable
by Partners upon exercise of any employee or director options or
other rights of any employee, director or other Person to
purchase Partners Common Units as of the date hereof are set
forth in Schedule 5.2(b) of Partners Disclosure Schedule.
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(c) Equity Interests in other Entities.
(i) In the case of the representations and warranties of
Duncan, other than ownership of its Subsidiaries, Duncan does
not own beneficially, directly or indirectly, any equity
securities or similar interests of any person, or any interest
in a partnership or joint venture of any kind. Except as set
forth in its SEC Documents, Duncan owns such interests in its
Subsidiaries free and clear of all Liens, except those existing
or arising pursuant to the applicable governing documents of
such entities.
(d) Power, Authority and Approvals of Transactions;
Duncan GP Special Approval and Board Recommendations.
(i) Such party has the requisite limited partnership or
limited liability company power and authority to execute,
deliver and perform its obligations under this Agreement and,
subject to Duncan Unitholder Approval in the case of Duncan, to
consummate the transactions contemplated hereby. Subject to
Duncan Unitholder Approval in the case of Duncan, this Agreement
and the transactions contemplated hereby have been authorized by
all necessary (limited partnership or limited liability company,
as applicable) action by such party. This Agreement has been
duly executed and delivered by such party and constitutes a
valid and binding agreement of such party (assuming the due
execution and delivery of this Agreement by, or with respect to,
the Other Parties), enforceable against it in accordance with
its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar Laws of general applicability
relating to or affecting creditors rights or by general
equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law)).
(ii) The Partners GP Board of Directors has determined that
this Agreement and the transactions contemplated hereby,
including the Merger and the New Common Unit Issuance
(collectively, the Partners Merger Transactions) are
fair and reasonable to, and in the best interests of, Partners,
and has approved this Agreement and the Partners Merger
Transactions.
(iii) The Duncan GP Board has delegated to the Duncan Audit
Committee the power and authority to consider, analyze, review,
evaluate, negotiate, accept or reject the terms and conditions
of this Agreement and the transactions contemplated hereby
including the Duncan Merger Transactions (as defined below). The
Duncan Audit Committee has determined that this Agreement and
the transactions contemplated hereby, including the Merger (the
Duncan Merger Transactions), are fair and reasonable
to, advisable to and in the best interests of Duncan and the
Duncan Unaffiliated Unitholders, and such action by the Duncan
Audit Committee constituted Special Approval (as defined in the
Duncan Existing Partnership Agreement) of this Agreement and the
Duncan Merger Transactions. Based upon such recommendation and
approval of the Duncan Audit Committee, the Duncan GP Board has
approved and declared the advisability of entering into this
Agreement and the Duncan Merger Transactions, has directed that
this Agreement be submitted to the Duncan Unitholders for
approval at a meeting of such holders for the purpose of
approving this Agreement and the Merger (including any
adjournment or postponement thereof, the Duncan
Meeting) and the Duncan GP Board has recommended that the
holders of Duncan Common Units approve this Agreement and the
Merger.
(iv) The Duncan GP Board and the Board of Directors of EPCO
have authorized the suspension, continuation and the alternative
continuation of the Duncan Unit Purchase Plan in accordance with
Sections 3.6(b), 3.6(c) and 3.6(d), as applicable, subject
to the authority of the Committee (as defined in the Duncan Unit
Purchase Plan) appointed to administer such plan to effectuate
such termination or continuation, as applicable.
(e) No Violations or Defaults. Subject to
the declaration of effectiveness of the Registration Statement,
required filings under federal and state securities laws and
with the NYSE, assuming the other consents and approvals
contemplated by Section 5.2(f) and Article VII are
duly obtained and assuming
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the consents, waivers and approvals specified in
Section 6.11(a) are obtained, the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby by such party do not and will
not (i)constitute a breach or violation of, or result in a
default (or an event that, with notice or lapse of time or both,
would become a default) under, or result in the termination or
in a right of termination or cancellation of, or accelerate the
performance required by, any note, bond, mortgage, indenture,
deed of trust, license, franchise, lease, contract, agreement,
joint venture or other instrument or obligation to which it or
any of its Subsidiaries is a party or by which it or any of its
Subsidiaries or properties is subject or bound except for such
breaches, violations, defaults, terminations, cancellations or
accelerators which, either individually or in the aggregate
would not reasonably be expected to have a Material Adverse
Effect on such party, (ii) constitute a breach or violation
of, or a default under, in the case of Duncan, the Duncan
Existing Partnership Agreement, the Duncan Certificate of
Limited Partnership, the Duncan GP Existing LLC Agreement or the
Duncan GP Certificate of Formation, and in the case of Partners,
the Partners Partnership Agreement, the Partners Certificate of
Limited Partnership, the Partners GP LLC Agreement or the
Partners GP Certificate of Formation, (iii) materially
contravene or conflict with or constitute a material violation
of any provision of any Law binding upon or applicable to it or
any of its Subsidiaries, (iv) result in the creation of any
material Lien on any of its assets or its Subsidiaries
assets, or (v) cause the transactions contemplated by this
Agreement to be subject to Takeover Laws.
(f) Consents and Approvals. No consents
or approvals of, or filings or registrations with, any
Governmental Authority are necessary in connection with
(i) the execution and delivery by such party of this
Agreement and (ii) the consummation by such party of the
transactions contemplated by this Agreement, except for
(A) the filing of any required applications or notices with
any state or foreign agencies of competent jurisdiction and
approval of such applications or notices, (B) the filing
with the SEC of a proxy statement relating to the matters to be
submitted to the Duncan Unitholders at the Duncan Meeting and a
registration statement on
Form S-4
with respect to the issuance of the New Common Units in the
Merger (such registration statement on
Form S-4,
and any amendments or supplements thereto, the
Registration Statement, and the proxy
statement/prospectus included in the Registration Statement, and
any amendments or supplements thereto, the Proxy
Statement/Prospectus), (C) the filing of the
Certificate of Merger with the Secretary of State of the State
of Delaware, (D) any consents, authorizations, approvals,
filings or exemptions in connection with compliance with the
rules of the NYSE, (E) such filings and approvals as may be
required to be made or obtained under the securities or
Blue Sky laws of various states in connection with
the issuance of Partners Common Units pursuant to this Agreement
and (F) such other consents, authorizations, approvals,
filings or registrations the absence or unavailability of which
would not, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on such party.
(g) Financial Reports and SEC
Documents. With respect to the Duncan Parties,
Duncans, and with respect to the Partners Parties,
Partners, Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, and all other
reports, registration statements, definitive proxy statements or
information statements filed or to be filed by it or any of its
Subsidiaries subsequent to December 31, 2010 under the
Securities Act, or under Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act, in the form filed, or to be filed
(collectively, SEC Documents), with the SEC as of
their respective dates (i)complied or will comply in all
material respects as to form with the applicable requirements
under the Securities Act or the Exchange Act, as the case may
be, and (ii) did not and will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under
which they were made, not misleading. The historical financial
statements of Duncan and its consolidated subsidiaries, with
respect to the Duncan Parties, and of Partners and its
consolidated subsidiaries, with respect to the Partners Parties,
contained in or incorporated by reference into any such SEC
Document (including the related notes and schedules thereto)
(A) comply in all material respects with the applicable
requirements under the Securities Act and the Exchange Act, and
(B) fairly present the financial position, results of
operations, partners equity and cash flows, as the case
may be, of the entity or entities to which they relate as of the
dates or for the periods to which such financial statements
relate, in each case in
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accordance with U.S. generally accepted accounting
principles consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal
year-end audit adjustments in the case of unaudited statements.
(h) Absence of Undisclosed
Liabilities. Except as disclosed in the audited
financial statements (or notes thereto), included in such
partys Annual Report on
Form 10-K
for the year ended December 31, 2010, or in the financial
statements (or notes thereto) included in subsequent SEC
Documents filed by such party prior to the date hereof, neither
such party nor any of its consolidated subsidiaries had at
December 31, 2010 or has incurred since that date, any
liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except
(i) liabilities, obligations or contingencies that
(A) are accrued or reserved against in the financial
statements of such party included in the SEC Documents filed
prior to the date hereof, or reflected in the notes thereto, or
(B) were incurred since December 31, 2010 in the
ordinary course of business and consistent with past practices
or (ii) liabilities, obligations or contingencies that
(A) would not reasonably be expected, either individually
or in the aggregate, to have a Material Adverse Effect on such
party and its consolidated subsidiaries taken as a whole or
(B) that have been discharged or paid in full prior to the
date hereof. Notwithstanding anything to the contrary herein,
Partners makes no representation or warranty with respect to any
liability or obligation of Duncan or any of its Subsidiaries.
(i) Compliance with Law. Such party and
each of its Subsidiaries is in compliance with and is not in
default under or in violation of any applicable Law, except
where such non-compliance, default or violation would not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on such party. Since
December 31, 2010, neither such party nor any of its
Subsidiaries has received any written notice or, to such
partys Knowledge, other communication from any
Governmental Authority regarding any actual or possible
violation of, or failure to comply with, any Law, except as
would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on such party.
(j) Material Contracts.
(i) Except for this Agreement, as of the date hereof,
neither such party nor any of its Subsidiaries is a party to or
bound by any material contract (as such term is
defined in Item 601(b)(10) of
Regulation S-K
of the SEC). All contracts of the type referred to in the
previous sentence are referred to herein as Duncan
Material Contracts or Partners Material
Contracts, as applicable.
(ii) (A) In the case of Duncan, (1) each Duncan
Material Contract is valid and binding and in full force and
effect, (2) Duncan and each of its Subsidiaries has
performed all obligations required to be performed by it to date
under each Duncan Material Contract, (3) no event or
condition exists which constitutes or, after notice or lapse of
time or both, would constitute, a default on the part of Duncan
or any of its Subsidiaries under any such Duncan Material
Contract and (4) to the Knowledge of Duncan, no other party
to such Duncan Material Contract is in default in any respect
thereunder; and (B) in the case of Partners, (1) each
Partners Material Contract is valid and binding and in full
force and effect, (2) Partners and each of its Subsidiaries
has performed all obligations required to be performed by it to
date under each Partners Material Contract, (3) no event or
condition exists which constitutes or, after notice or lapse of
time or both, would constitute, a default on the part of
Partners or any of its Subsidiaries under any such Partners
Material Contract and (4) to the Knowledge of Partners, no
other party to such Partners Material Contract is in default in
any respect thereunder.
(k) No Brokers. No action has been taken
by such party that would give rise to any valid claim against
any party hereto for a brokerage commission, finders fee
or other like payment with respect to the transactions
contemplated by this Agreement, excluding, in the case of
Duncan, fees to be paid to Morgan Stanley & Co.
Incorporated, and, in the case of Partners, fees to be paid to
Barclays Capital Inc., in each case pursuant to letter
agreements, the existence of which have been heretofore
disclosed to the other party and which fees have been disclosed
to the other party.
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(l) Tax Matters.
(i) All material returns, declarations, reports, estimates,
information returns and statements required to be filed under
federal, state, local or any foreign Tax Laws (Tax
Returns) with respect to such party or any of its
Subsidiaries, have been timely filed, or requests for extensions
have been timely filed and have not expired;
(ii) all Tax Returns filed by such party are complete and
accurate in all material respects;
(iii) all Taxes shown to be due on such Tax Returns and all
other Taxes, if any, required to be paid by such party or its
Subsidiaries for all periods ending through the date hereof have
been paid or adequate reserves have been established, in
accordance with generally accepted accounting principles, for
the payment of such Taxes;
(iv) no material (A)audit or examination or (B)refund
litigation with respect to any Tax Return of such party is
pending. As of the date hereof, neither such party nor any of
its Subsidiaries (x) has granted any requests, agreements,
consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes with
respect to any Tax Returns nor (y) is a party to any Tax
sharing or Tax indemnity agreement;
(v) such party and each of its Subsidiaries that is
classified as a partnership for U.S. federal income tax
purposes has in effect a valid election under Section 754
of the Code; and
(vi) such party is properly classified as a partnership for
U.S. federal income tax purposes, and not as an association
or a publicly traded partnership taxable as a corporation under
Section 7704 of the Code and has been properly treated as
such since its formation.
(m) Employee Benefits Matters. Duncan has
no Compensation and Benefit Plans, other than the Duncan Unit
Plan, the Duncan Unit Purchase Plan and the Duncan Distribution
Reinvestment Plan.
(n) Title to Properties; Rights of Way.
(i) Such party and its Subsidiaries have good and
indefeasible title to all real and personal property which are
material to the business of such party and its Subsidiaries, in
each case free and clear of all liens, encumbrances, claims and
defects and imperfections of title except such as (A) do
not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made
of such property by the such party, and (B) could not
reasonably be expected to have a Material Adverse Effect on such
party and its Subsidiaries, taken as a whole.
(ii) Such party and its Subsidiaries have such consents,
easements,
rights-of-way
or licenses from any person
(Rights-of-Way)
as are necessary to conduct its business in the manner described
in the partys SEC Documents, except for such
Rights-of-Way
the failure of which to have obtained would not have,
individually or in the aggregate, a Material Adverse Effect on
such party and its Subsidiaries taken as a whole; such party and
its Subsidiaries have fulfilled and performed all of their
material obligations with respect to such
Rights-of-Way
and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or would
result in any impairment of the rights of the holder of any such
Rights-of-Way,
except for such revocations, terminations and impairments that
will not have a Material Adverse Effect on such party and its
Subsidiaries taken as a whole; and none of such
Rights-of-Way
contains any restriction that is materially burdensome to the
such party and its Subsidiaries, taken as a whole.
(o) Operations of MergerCo. In the case
of Partners, MergerCo was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and
has engaged in no business other than in connection with
entering into this Agreement and engaging in the transactions
contemplated hereby.
(p) Duncan Fairness Opinion. Morgan
Stanley & Co. Incorporated has delivered to the Duncan
Audit Committee its written opinion to the effect that, as of
the date of such opinion and subject to
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certain assumptions, qualifications, limitations and other
matters stated therein, the Exchange Ratio is fair, from a
financial point of view, to the Duncan Unaffiliated Unitholders.
(q) Partners Fairness Opinion. Barclays
Capital Inc. has delivered to the Partners GP Board its opinion
dated as of the date of the meeting at which the Partners GP
Board approved this Agreement to the effect that, as of such
date, and based upon and subject to the assumptions,
qualifications and limitations and other matters set forth
therein, the Merger Consideration to be paid by Partners in the
Merger is fair, from a financial point of view, to Partners.
(r) No Material Adverse Effect. In the
case of Partners, since December 31, 2010, there has not
been any event, change, effect, development, condition or
occurrence that, individually or in the aggregate, has had or
would reasonably be expected to have, a Material Adverse Effect
on Partners. In the case of Duncan, since December 31,
2010, there has not been any event, change, effect, development,
condition or occurrence that, individually or in the aggregate,
has had or would reasonably be expected to have, a Material
Adverse Effect on Duncan.
ARTICLE VI
COVENANTS
Duncan hereby covenants to and agrees with Partners, and
Partners hereby covenants to and agrees with Duncan, that:
Section 6.1 Best
Efforts. Subject to the terms and conditions of
this Agreement, it shall use its commercially reasonable best
efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary,
proper, desirable or advisable under applicable Laws, so as to
permit consummation of the Merger promptly and otherwise to
enable consummation of the transactions contemplated hereby,
including obtaining (and cooperating with the Other Parties to
obtain) any third-party approval that is required to be obtained
by Partners or Duncan or any of their respective Subsidiaries in
connection with the Merger and the other transactions
contemplated by this Agreement, using commercially reasonable
best efforts to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby, and
using commercially reasonable best efforts to defend any
litigation seeking to enjoin, prevent or delay the consummation
of the transactions contemplated hereby or seeking material
damages, and each shall cooperate fully with the other parties
hereto to that end, and shall furnish to the other party copies
of all correspondence, filings and communications between it and
its Affiliates and any Governmental Authority with respect to
the transactions contemplated hereby.
Section 6.2 Duncan
Unitholder Approval. Subject to the terms and
conditions of this Agreement, Duncan shall take, in accordance
with applicable Law, applicable stock exchange rules and the
Duncan Existing Partnership Agreement, all action necessary to
call, hold and convene the Duncan Meeting to consider and vote
upon the approval of this Agreement and the Merger, and any
other matters required to be approved by Duncan Unitholders for
consummation of the Duncan Merger Transactions, promptly after
the date hereof. Subject to Section 6.6(b), the Duncan
Audit Committee and the Duncan GP Board shall recommend approval
of the Agreement and the Merger to the holders of Duncan Common
Units (the Duncan Recommendation), and Duncan shall
take all reasonable lawful action to solicit such approval by
the holders of Duncan Common Units. Notwithstanding anything to
the contrary in this Agreement, if there occurs a Duncan Change
in Recommendation in accordance with this Agreement, Duncan
shall not be required to call, hold or convene the Duncan
Meeting.
Section 6.3 Registration
Statement.
(a) Each of Partners and Duncan agrees to cooperate in the
preparation of the Registration Statement (including the Proxy
Statement/ Prospectus constituting a part thereof and all
related documents) to be filed by Partners with the SEC in
connection with the issuance of the New Common Units in the
Merger as contemplated by this Agreement. Provided Duncan has
cooperated as required above, Partners agrees to file
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the Registration Statement with the SEC as promptly as
practicable. Each of Duncan and Partners agrees to use all
commercially reasonable best efforts to cause the Registration
Statement to be declared effective under the Securities Act as
promptly as practicable after filing thereof. Partners also
agrees to use commercially reasonable best efforts to obtain all
necessary state securities law or Blue Sky permits
and approvals required to carry out the transactions
contemplated by this Agreement. Each of Partners and Duncan
agrees to furnish to the other party all information concerning
Partners, Partners GP and its Subsidiaries or Duncan, Duncan GP
and its Subsidiaries, as applicable, and the officers, directors
and unitholders of Partners and Duncan and any applicable
Affiliates, as applicable, and to take such other action as may
be reasonably requested in connection with the foregoing.
(b) Each of Duncan and Partners agrees, as to itself and
its Subsidiaries, that (i) none of the information supplied
or to be supplied by it for inclusion or incorporation by
reference in the Registration Statement will, at the time the
Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) the Proxy
Statement/Prospectus and any amendment or supplement thereto
will, at the date of mailing to the holders of Duncan Common
Units and at the time of the Duncan Meeting, not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under
which they were made, not misleading. Each of Duncan and
Partners further agrees that if it shall become aware prior to
the Closing Date of any information that would cause any of the
statements in the Registration Statement to be false or
misleading with respect to any material fact, or omit to state
any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not false
or misleading, it will promptly inform the other party thereof
and take the necessary steps to correct such information in an
amendment or supplement to the Registration Statement.
(c) Partners will advise Duncan, promptly after Partners
receives notice thereof, of (i) the time when the
Registration Statement has become effective or any supplement or
amendment has been filed, (ii) the issuance of any stop
order or the suspension of the qualification of the New Common
Units for offering or sale in any jurisdiction, (iii) the
initiation or threat of any proceeding for any such purpose, or
(iv) any request by the SEC for the amendment or supplement
of the Registration Statement or for additional information.
(d) Duncan will use its commercially reasonable best
efforts to cause the Proxy Statement/Prospectus to be mailed to
its unitholders as soon as practicable after the effective date
of the Registration Statement.
Section 6.4 Press
Releases. Prior to a Duncan Change in
Recommendation, if any, each of Duncan and Partners will not,
without the prior approval of the Duncan GP Board in the case of
Partners and the Partners GP Board in the case of Duncan, issue
any press release or written statement for general circulation
relating to the transactions contemplated hereby, except as
otherwise required by applicable Law or the rules of the NYSE,
in which case it will consult with the other party before
issuing any such press release or written statement.
Section 6.5 Access;
Information.
(a) Upon reasonable notice and subject to applicable Laws
relating to the exchange of information, each party shall, and
shall cause its Subsidiaries to, afford the Other Parties and
their Representatives, access, during normal business hours
throughout the period prior to the Effective Time, to all of its
properties, books, contracts, commitments and records, and to
its Representatives, and, during such period, it shall, and
shall cause its Subsidiaries to, furnish promptly to such Person
and its Representatives (i) a copy of each material report,
schedule and other document filed by it pursuant to the
requirements of federal or state securities law (other than
reports or documents that Partners or Duncan or their respective
Subsidiaries, as the case may be, are not permitted to disclose
under applicable Law) and (ii) all other information
concerning its business, properties and personnel as the Other
Parties may reasonably request. Neither Duncan nor Partners nor
any of their respective Subsidiaries shall be required to
provide access to or to disclose information where such access
or disclosure would jeopardize the attorney-client privilege of
the institution in possession or control of such information or
contravene any Law, fiduciary duty or binding agreement entered
into prior to the date of
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this Agreement. The parties hereto will make appropriate
substitute disclosure arrangements under the circumstances in
which the restrictions of the immediately preceding sentence
apply.
(b) Partners and Duncan, respectively, will not use any
information obtained pursuant to this Section 6.5 (to which
it was not entitled under Law or any agreement other than this
Agreement) for any purpose unrelated to (i) the
consummation of the transactions contemplated by this Agreement
or (ii) the matters contemplated by Section 6.6 in
accordance with the terms thereof, and will hold all information
and documents obtained pursuant to this Section 6.5 in
confidence. No investigation by either party of the business and
affairs of the other shall affect or be deemed to modify or
waive any representation, warranty, covenant or agreement in
this Agreement, or the conditions to either partys
obligation to consummate the transactions contemplated by this
Agreement.
Section 6.6 Acquisition
Proposals; Change in Recommendation.
(a) Neither Duncan GP nor Duncan shall, and they shall use
their commercially reasonable best efforts to cause their
Representatives not to, directly or indirectly,
(i) initiate, solicit, knowingly encourage or facilitate
any inquiries or the making or submission of any proposal that
constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal, or (ii) participate in any
discussions or negotiations regarding, or furnish to any person
any non-public information with respect to, any Acquisition
Proposal. Notwithstanding the foregoing, nothing contained in
this Agreement shall prohibit Duncan or any of its
Representatives from furnishing any information or data
pertaining to Duncan, or entering into or participating in
discussions or negotiations with, any person that makes an
unsolicited written Acquisition Proposal that did not result
from a knowing and intentional breach of this Section 6.6
(a Receiving Party), if (i) the Duncan Audit
Committee after consultation with its outside legal counsel and
financial advisors, determines in good faith (A) that such
Acquisition Proposal constitutes or is likely to result in a
Superior Proposal, and (B) that failure to take such action
would be inconsistent with its duties under the Duncan Existing
Partnership Agreement and applicable Law and (ii) prior to
furnishing any such non-public information to such Receiving
Party (including any information pertaining to Duncan
Subsidiaries in which Partners has an equity interest or
transactions to which Partners is a party), Duncan receives from
such Receiving Party an executed Confidentiality Agreement.
(b) Except as otherwise provided in this
Section 6.6(b), neither the Duncan Audit Committee nor the
Duncan GP Board shall: (i) (A) withdraw, modify or qualify
in any manner adverse to Partners the Duncan Recommendation or
(B) publicly approve or recommend, or publicly propose to
approve or recommend, any Acquisition Proposal (any action
described in this clause (i) being referred to as a
Duncan Change in Recommendation); or
(ii) approve, adopt or recommend, or publicly propose to
approve, adopt or recommend, or allow Duncan or any of its
Subsidiaries to execute or enter into, any letter of intent,
memorandum of understanding, agreement in principle, merger
agreement, acquisition agreement, option agreement, joint
venture agreement, partnership agreement, or other similar
contract or any tender or exchange offer providing for, with
respect to, or in connection with, any Acquisition Proposal.
Notwithstanding the foregoing, at any time prior to obtaining
the Duncan Unitholder Approval, the Duncan Audit Committee may
make a Duncan Change in Recommendation if it has concluded in
good faith, after consultation with its outside legal counsel
and financial advisors, that failure to make a Duncan Change in
Recommendation would be inconsistent with its duties under the
Duncan Existing Partnership Agreement and applicable Law;
provided, however, that (1) the Duncan Audit
Committee shall not be entitled to exercise its right to make a
Duncan Change in Recommendation pursuant to this sentence unless
Duncan and Duncan GP have: (w) complied in all material
respects with this Section 6.6, (x) provided to
Partners and the Partners Audit Committee three Business Days
prior written notice (such notice, a Notice of Proposed
Recommendation Change) advising Partners that the Duncan
GP Audit Committee intends to take such action and specifying
the reasons therefor in reasonable detail, including, if
applicable, the terms and conditions of any Superior Proposal
that is the basis of the proposed action and the identity of the
Person making the proposal (it being understood and agreed that
any amendment to the terms of any such Superior Proposal shall
require a new Notice of Proposed Recommendation Change and an
additional three Business Day period) and (y) if
applicable, provided to Partners all materials and information
delivered or made available to the Person or group of persons
making any Superior Proposal in connection with such Superior
Proposal (to the extent not previously provided) and
(2) the Duncan Audit Committee shall not be entitled to
make a Duncan Change in
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Recommendation in response to an Acquisition Proposal unless
such Acquisition Proposal constitutes a Superior Proposal. Any
Duncan Change in Recommendation shall not invalidate the
approval of this Agreement or any other approval of the Duncan
Audit Committee, including in any respect that would have the
effect of causing any state (including Delaware) corporate
takeover statute or other similar statute to be applicable to
the transactions contemplated hereby or thereby, including the
Merger. Notwithstanding any provision in this Agreement to the
contrary, Partners and Partners GP shall maintain, and cause
their Representatives to maintain, the confidentiality of all
information received from Duncan pursuant to this
Section 6.6, subject to the exceptions contained in the
Confidentiality Agreement.
(c) In addition to the obligations of Duncan set forth in
this Section 6.6, Duncan shall as promptly as practicable
(and in any event within 24 hours after receipt) advise
Partners orally and in writing of any Acquisition Proposal or
any matter giving rise to a Duncan Change in Recommendation and
the material terms and conditions of any such Acquisition
Proposal or any matter giving rise to a Duncan Change in
Recommendation (including any changes thereto) and the identity
of the Person making any such Acquisition Proposal. Duncan shall
keep Partners informed on a reasonably current basis of material
developments with respect to any such Acquisition Proposal or
any matter giving rise to a Duncan Change in Recommendation.
(d) Nothing contained in this Agreement shall prevent
Duncan or the Duncan Audit Committee from taking and disclosing
to the holders of Duncan Common Units a position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act (or any similar communication
to limited partners of Duncan) or from making any legally
required disclosure to holders of Duncan Common Units. Any
stop-look-and-listen communication by Duncan or the
Duncan GP Board to the limited partners of Duncan pursuant to
Rule 14d-9(f)
promulgated under the Exchange Act (or any similar communication
to the limited partners of Duncan) shall not be considered a
failure to make, or a withdrawal, modification or change in any
manner adverse to Partners of, all or a portion of the Duncan
Recommendation.
Section 6.7 Affiliate
Arrangements.
(a) Not later than the 15th day after the mailing of
the Proxy Statement/Prospectus, Duncan shall deliver to Partners
a schedule listing each person that, to the best of its
Knowledge, is or is reasonably likely to be, as of the date of
the Duncan Meeting, deemed to be an affiliate of
Duncan (a Rule 145 Affiliate) as that term is
used in Rule 145 under the Securities Act.
(b) Duncan shall use its commercially reasonable best
efforts to cause its Rule 145 Affiliates not to sell any
securities received under the Merger in violation of the
registration requirements of the Securities Act, including
Rule 145 thereunder.
Section 6.8 Takeover
Laws. Neither Duncan nor Partners shall take any
action that would cause the transactions contemplated by this
Agreement to be subject to requirements imposed by any Takeover
Laws, and each of them shall take all necessary steps within its
control to exempt (or ensure the continued exemption of) the
transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any rights
plan adopted by such party or any applicable Takeover Law, as
now or hereafter in effect, including Takeover Laws of any state
that purport to apply to this Agreement or the transactions
contemplated hereby.
Section 6.9 No
Rights Triggered. Each of Duncan and Partners
shall take all steps necessary to ensure that the entering into
of this Agreement and the consummation of the transactions
contemplated hereby and any other action or combination of
actions, or any other transactions contemplated hereby, do not
and will not result in the grant of any Rights to any person
(a) in the case of Duncan, under the Duncan Existing
Partnership Agreement, and, in the case of Partners, under the
Partners Partnership Agreement or (b) under any material
agreement to which it or any of its Subsidiaries is a party.
Section 6.10 New
Common Units Listed. Partners shall use its
commercially reasonable best efforts to list, prior to the
Closing, on the NYSE, upon official notice of issuance, the New
Common Units.
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Section 6.11 Third-Party
Approvals.
(a) Partners and Duncan and their respective Subsidiaries
shall cooperate and use their respective commercially reasonable
best efforts to prepare all documentation, to effect all
filings, to obtain all permits, consents, approvals and
authorizations of all Governmental Authorities and third parties
necessary to consummate the transactions contemplated by this
Agreement and to comply with the terms and conditions of such
permits, consents, approvals and authorizations and to cause the
Merger to be consummated as expeditiously as practicable. Each
of Partners and Duncan shall have the right to review in
advance, and to the extent practicable each will consult with
the other, in each case subject to applicable Laws relating to
the exchange of information, with respect to, all material
written information submitted to any third party or any
Governmental Authorities in connection with the transactions
contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and
promptly. Each party hereto agrees that it will consult with the
Other Parties with respect to the obtaining of all material
permits, consents, approvals and authorizations of all third
parties and Governmental Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement, and
each party will keep the Other Parties apprised of the status of
material matters relating to completion of the transactions
contemplated hereby.
(b) Each of Partners and Duncan agrees, upon request, to
furnish the other party with all information concerning itself,
its Subsidiaries, directors, officers and unitholders and such
other matters as may be reasonably necessary or advisable in
connection with the Registration Statement, the Proxy
Statement/Prospectus or any filing, notice or application made
by or on behalf of such other party or any of such other
partys Subsidiaries to any Governmental Authority in
connection with the transactions contemplated hereby.
Section 6.12 Indemnification;
Directors and Officers Insurance.
(a) Without limiting any additional rights that any
director, officer, trustee, employee, agent, or fiduciary may
have under any employment or indemnification agreement or under
the Duncan Existing Partnership Agreement, the Duncan GP
Existing LLC Agreement, or this Agreement or, if applicable,
similar organizational documents or agreements of any of
Duncans Subsidiaries, from and after the Effective Time,
Partners GP, Partners and the Surviving Entity, jointly and
severally, shall: (i) indemnify and hold harmless each
person who is at the date hereof or during the period from the
date hereof through the date of the Effective Time serving as a
director or officer of Duncan GP or of any of its Subsidiaries
or as a trustee of (or in a similar capacity with) any
Compensation and Benefit Plan of any thereof (collectively, the
Indemnified Parties) to the fullest extent
authorized or permitted by applicable Law, as now or hereafter
in effect, in connection with any Claim and any losses, claims,
damages, liabilities, costs, Indemnification Expenses,
judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or
payable in connection with or in respect of any thereof)
resulting therefrom; and (ii) promptly pay on behalf of or,
within 10 days after any request for advancement, advance
to each of the Indemnified Parties, any Indemnification Expenses
incurred in defending, serving as a witness with respect to or
otherwise participating with respect to any Claim in advance of
the final disposition of such Claim, including payment on behalf
of or advancement to the Indemnified Party of any
Indemnification Expenses incurred by such Indemnified Party in
connection with enforcing any rights with respect to such
indemnification
and/or
advancement, in each case without the requirement of any bond or
other security. The indemnification and advancement obligations
of Partners and the Surviving Entity pursuant to this
Section 6.12(a) shall extend to acts or omissions occurring
at or before the Effective Time and any Claim relating thereto
(including with respect to any acts or omissions occurring in
connection with the approval of this Agreement and the
consummation of the Merger and the transactions contemplated by
this Agreement, including the consideration and approval thereof
and the process undertaken in connection therewith and any Claim
relating thereto), and all rights to indemnification and
advancement conferred hereunder shall continue as to any
Indemnified Party who has ceased to be a director or officer of
Duncan GP after the date hereof and shall inure to the benefit
of such persons heirs, executors and personal and legal
representatives. As used in this Section 6.12(a):
(x) the term Claim means any threatened,
asserted, pending or completed action, whether instituted by any
party hereto, any Governmental Authority or any other person,
that any Indemnified Party in good faith believes might lead to
the institution of any action or proceeding, whether civil,
criminal, administrative, investigative or other, including any
arbitration or other alternative dispute resolution mechanism
(Action), arising out of
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or pertaining to matters that relate to such Indemnified
Partys duties or service as a director or officer of
Duncan GP or of any of its Subsidiaries or as a trustee of (or
in a similar capacity with) any Compensation and Benefit Plan of
any thereof; and (y) the term Indemnification
Expenses means reasonable attorneys fees and all
other reasonable costs, expenses and obligations (including
experts fees, travel expenses, court costs, retainers,
transcript fees, duplicating, printing and binding costs, as
well as telecommunications, postage and courier charges) paid or
incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or
preparing to investigate, defend, be a witness in or participate
in, any Claim for which indemnification is authorized pursuant
to this Section 6.12(a), including any Action relating to a
claim for indemnification or advancement brought by an
Indemnified Party. Neither Partners, Duncan GP nor the Surviving
Entity shall settle, compromise or consent to the entry of any
judgment in any actual or threatened Action in respect of which
indemnification has been or could be sought by such Indemnified
Party hereunder unless such settlement, compromise or judgment
includes an unconditional release of such Indemnified Party from
all liability arising out of such Action without admission or
finding of wrongdoing, or such Indemnified Party otherwise
consents thereto.
(b) Without limiting the foregoing, Partners and MergerCo
agree that all rights to indemnification, advancement of
expenses and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time now existing in
favor of the Indemnitees as provided in the Duncan Existing
Partnership Agreement (or, as applicable, the charter, bylaws,
partnership agreement, limited liability company agreement, or
other organizational documents of any of Duncans
Subsidiaries) and indemnification agreements of Duncan or any of
its Subsidiaries shall be assumed by the Surviving Entity and
Partners in the Merger, without further action, at the Effective
Time and shall survive the Merger and shall continue in full
force and effect in accordance with their terms.
(c) For a period of six years from the Effective Time, the
Duncan agreement of limited partnership shall contain provisions
no less favorable with respect to indemnification, advancement
of expenses and limitations on liability of directors and
officers than are set forth in the Duncan Existing Partnership
Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective
Time in any manner that would affect adversely the rights
thereunder of individuals who, at or prior to the Effective
Time, were Indemnified Parties, unless such modification shall
be required by Law and then only to the minimum extent required
by Law.
(d) For a period of six years from the Effective Time,
Partners shall, or shall cause EPCO to, maintain in effect the
current directors and officers liability insurance
policies covering the Indemnified Parties maintained by EPCO
(but may substitute therefor other policies of at least the same
coverage and amounts containing terms and conditions that are no
less advantageous to the Indemnified Parties so long as that
substitution does not result in gaps or lapses in coverage) with
respect to matters occurring on or before the Effective Time,
but neither Partners nor EPCO will be required to pay annual
premiums in excess of 300% of the last annual premiums paid
therefor prior to the date hereof and shall purchase as much
coverage as is reasonably practicable for that amount if the
coverage described in this Section 6.12(d) would cost in
excess of that amount.
(e) If Partners, Duncan GP, the Surviving Entity or any of
their respective successors or assigns (i) consolidates
with or merges with or into any other person and shall not be
the continuing or surviving corporation, partnership or other
entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision shall
be made so that the successors and assigns of Partners, Duncan
GP or the Surviving Entity assume the obligations set forth in
this Section 6.12.
(f) Partners and Duncan GP shall cause the Surviving Entity
to perform all of the obligations of the Surviving Entity under
this Section 6.12.
(g) This Section 6.12 shall survive the consummation
of the Merger and is intended to be for the benefit of, and
shall be enforceable by, the Indemnified Parties and the
Indemnitees and their respective heirs and personal
representatives, and shall be binding on Partners, Duncan GP,
the Surviving Entity and their respective successors and assigns.
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Section 6.13 Notification
of Certain Matters. Each of Duncan and Partners
shall give prompt notice to the other of (a) any fact,
event or circumstance known to it that (i) is reasonably
likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) would cause or
constitute a material breach of any of its representations,
warranties, covenants or agreements contained herein, and (b)
(i) any change in its condition (financial or otherwise) or
business or (ii) any litigation or governmental complaints,
investigations or hearings, in each case to the extent such
change, litigation, complaints, investigations, or hearings
results in, or would reasonably be expected to result in, a
Material Adverse Effect.
Section 6.14 Rule 16b-3. Prior
to the Effective Time, (i) Duncan shall take such steps as
may be reasonably requested by any party hereto to cause
dispositions of Duncan equity securities (including derivative
securities) pursuant to the transactions contemplated by this
Agreement by each individual who is a director or officer of
Duncan to be exempt under
Rule 16b-3
promulgated under the Exchange Act in accordance with that
certain No-Action Letter dated January 12, 1999 issued by
the SEC regarding such matters and (ii) Partners shall take
such steps as may be reasonably requested by any party hereto to
cause dispositions of Partners equity securities (including
derivative securities) pursuant to the transactions contemplated
by this Agreement by each individual who is a director or
officer of Partners to be exempt under
Rule 16b-3
promulgated under the Exchange Act in accordance with that
certain No-Action Letter dated January 12, 1999 issued by
the SEC regarding such matters.
Section 6.15 Duncan
Amended and Restated Partnership Agreement; Exchange and
Contribution Agreement; Duncan Third Amended and Restated
Partnership Agreement. Effective as of the
Effective Time, Duncan GP and Partners shall execute and make
effective the Duncan Amended and Restated Partnership Agreement
in substantially the form attached hereto as
Annex B-1. Effective
immediately after the Effective Time, Duncan, Duncan GP and
Partners agree (i) to make and cause to be made the
exchange of Merger Consideration by Enterprise GTM pursuant to
and in accordance with the Exchange and Contribution Agreement
and (ii) to enter into the Duncan Third Amended and
Restated Partnership Agreement in substantially the form
attached hereto as
Annex B-2.
Section 6.16 Duncan
GP Board Membership. The members of the Duncan GP
Board immediately prior to the Effective Time shall continue to
serve as members of the Duncan GP Board following the Effective
Time unless otherwise determined or removed effective at or
after such time by the sole member of Duncan GP in accordance
with the Duncan GP Amended and Restated LLC Agreement.
Section 6.17 Distributions. Each
of Duncan GP and Partners GP shall consult with the Other Party
regarding the declaration and payment of distributions in
respect of the Duncan Common Units and the Partners Common Units
and the record and payment dates relating thereto, so that no
Duncan Unitholder shall receive two distributions, or fail to
receive one distribution, for any single calendar quarter with
respect to its applicable Duncan Common Units or any Partners
Common Units any such Duncan Unitholder receives in exchange
therefor pursuant to the Merger.
Section 6.18 Duncan
GP Amended and Restated Limited Liability Company
Agreement. As of the Effective Time, the Duncan
GP Existing LLC Agreement shall be amended and restated in
substantially the form of the Duncan GP Amended and Restated LLC
Agreement attached hereto as Annex A.
Section 6.19 Duncan
Unit Purchase Plan.
(a) The Duncan Common Units credited to the accounts of
participants under the Duncan Unit Purchase Plan as of the
Effective Time shall be converted pursuant to
Section 3.6(b) into the right to receive Merger
Consideration. As soon as administratively feasible after the
Effective Time, Partners shall use its commercially reasonable
efforts to cause such Merger Consideration resulting from such
conversion to be transferred to the custodian of the Duncan Unit
Purchase Plan for crediting in the appropriate amount to the
account of each participant in the Duncan Unit Purchase Plan
entitled to Merger Consideration pursuant to
Section 3.6(b). If the Duncan Unit Purchase Plan is
continued pursuant to Section 3.6(c), it shall remain
suspended unless and until such time as such suspension is
lifted by EPCO in accordance with the provisions of such plan.
If the Duncan Unit Purchase Plan is terminated in accordance
with Section 3.6(d), no further
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purchase rights shall be granted or exercised under the Duncan
Unit Purchase Plan at or after the Effective Time, and the
procedures described in Section 8(b) of the Duncan Unit
Purchase Plan, or such other procedures as shall be established
in accordance with the provisions of the Duncan Unit Purchase
Plan, shall be utilized in connection with the distribution of
any cash and Partners Common Units in participants
accounts in the Duncan Unit Purchase Plan to the participants in
connection with the termination of such plan.
(b) To the extent notice is required, Duncan shall cause
notice of the suspension of the Duncan Unit Purchase Plan in
accordance with Section 3.6(b), the continuation of the
Duncan Unit Purchase Plan, as adjusted to apply to Partners
Common Units, in accordance with Section 3.6(c),
and/or the
termination of the Duncan Unit Purchase Plan in accordance with
Section 3.6(d)to be given in accordance with the terms of
such plan.
ARTICLE VII
CONDITIONS
TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate the Merger
are conditioned upon the satisfaction at or prior to the Closing
of each of the following:
Section 7.1 Unitholder
Vote. This Agreement and the Merger shall have
been approved by (a) the affirmative vote or consent of
holders (as of the record date for the Duncan Meeting) of a
majority of the outstanding Duncan Common Units and (b) the
affirmative vote or consent of holders (as of the record date
for the Duncan Meeting) of a majority of the outstanding Duncan
Common Units held by Duncan Unaffiliated Unitholders that
actually voted for or against the proposal to approve the Merger
and this Agreement (i.e., the votes cast by Duncan Unaffiliated
Unitholders in favor of the proposal exceed the votes cast by
Duncan Unaffiliated Unitholders against the proposal)
(collectively, Duncan Unitholder Approval).
Section 7.2 Governmental
Approvals. All filings required to be made prior
to the Effective Time with, and all other consents, approvals,
permits and authorizations required to be obtained prior to the
Effective Time from, any Governmental Authority in connection
with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by the
parties hereto or their Affiliates shall have been made or
obtained, except where the failure to obtain such consents,
approvals, permits and authorizations would not be reasonably
likely to result in a Material Adverse Effect on Partners or
Duncan.
Section 7.3 No
Injunction. No order, decree or injunction of any
court or agency of competent jurisdiction shall be in effect,
and no Law shall have been enacted or adopted, that enjoins,
prohibits or makes illegal consummation of any of the
transactions contemplated hereby, and no action, proceeding or
investigation by any Governmental Authority with respect to the
Merger or the other transactions contemplated hereby shall be
pending that seeks to restrain, enjoin, prohibit or delay
consummation of the Merger or such other transaction or to
impose any material restrictions or requirements thereon or on
Partners or Duncan with respect thereto; provided,
however, that prior to invoking this condition, the
invoking party shall have complied fully with its obligations
under Section 6.1.
Section 7.4 Representations,
Warranties and Covenants of the Partners
Parties. In the case of Duncans obligation
to consummate the Merger:
(a) each of the representations and warranties contained
herein of Partners and Partners GP shall be true and correct in
all material respects as of the date of this Agreement and upon
the Closing Date with the same effect as though all such
representations and warranties had been made on the Closing
Date, except for any such representations and warranties made as
of a specified date, which shall be true and correct as of such
date in all material respects.
(b) each and all of the agreements and covenants of
Partners, Partners GP and MergerCo to be performed and complied
with pursuant to this Agreement on or prior to the Closing Date
shall have been duly performed and complied with in all material
respects; and
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(c) Duncan shall have received a certificate signed by the
Chief Executive Officer of Partners GP, dated the Closing Date,
to the effect set forth in Section 7.4(a) and
Section 7.4(b).
Section 7.5 Representations,
Warranties and Covenants of the Duncan
Parties. In the case of Partners obligation
to consummate the Merger:
(a) each of the representations and warranties contained
herein of Duncan and Duncan GP shall be true and correct in all
material respects as of the date of this Agreement and upon the
Closing Date with the same effect as though all such
representations and warranties had been made on the Closing
Date, except for any such representations and warranties made as
of a specified date, which shall be true and correct as of such
date in all material respects.
(b) each and all of the agreements and covenants of Duncan
and Duncan GP to be performed and complied with pursuant to this
Agreement on or prior to the Closing Date shall have been duly
performed and complied with in all material respects; and
(c) Partners shall have received a certificate signed by
the Chief Executive Officer of Duncan GP, dated the Closing
Date, to the effect set forth in Section 7.5(a) and
Section 7.5(b).
Section 7.6 Effective
Registration Statement. The Registration
Statement shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the
SEC.
Section 7.7 Opinion
of Andrews Kurth LLP. In the case of
Partners obligation to consummate the Merger, Partners
shall have received an opinion from Andrews Kurth LLP, counsel
to Partners, to the effect that:
(a) the Merger and the transactions contemplated by this
Agreement will not result in the loss of limited liability of
any limited partner of Partners;
(b) the Merger and the transactions contemplated by this
Agreement will not cause Partners or any Operating Partnership
(as defined in the Partners Partnership Agreement) to be treated
as an association taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes;
(c) at least 90% of the current gross income of Partners
constitutes qualifying income within the meaning of
Section 7704(d) of the Code;
(d) the Registration Statement accurately sets forth the
material federal income tax consequences to the Partners
Unaffiliated Unitholders of the Merger and the transactions
contemplated by this Agreement; and
(e) no gain or loss should be recognized for
U.S. federal income tax purposes by existing Partners
Unaffiliated Unitholders as a result of the Merger (other than
gain resulting from any decrease in partnership liabilities
pursuant to Section 752 of the Code).
In rendering such opinions, Andrews Kurth LLP may require and
rely upon representations and covenants including those
contained in certificates of officers of Partners GP and others
and opinions of Delaware counsel reasonably satisfactory in form
and substance to Andrews Kurth LLP.
Section 7.8 Opinion
of Vinson & Elkins LLP. In the case of
Duncans obligation to consummate the Merger, Duncan shall
have received an opinion from Vinson & Elkins LLP,
counsel to Duncan, to the effect that:
(a) no gain or loss should be recognized for
U.S. federal income tax purposes by the holders of Duncan
Common Units to the extent Partners Common Units are received in
exchange therefor as a result of the Merger (other than gain
resulting from either (i) any decrease in partnership
liabilities pursuant to Section 752 of the Code or
(ii) a sale of the New Common Units pursuant to
Section 3.4(e)); and
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(b) the Registration Statement accurately sets forth the
material federal income tax consequences to the holders of
Duncan Common Units of the Merger and the transactions
contemplated by this Agreement.
In rendering such opinion, Vinson & Elkins LLP may
require and rely upon representations and covenants including
those contained in certificates of officers of Duncan GP and
others and opinions of Delaware counsel reasonably satisfactory
in form and substance to Vinson & Elkins LLP.
Section 7.9 NYSE
Listing. The New Common Units shall have been
approved for listing on the NYSE, subject to official notice of
issuance.
Section 7.10 No
Material Adverse Effect. In the case of
Duncans obligation to consummate the Merger, there shall
not have occurred a Material Adverse Effect with respect to
Partners between the date of this Agreement and the Closing
Date. In the case of Partners obligation to consummate the
Merger, there shall not have occurred a Material Adverse Effect
with respect to Duncan between the date of this Agreement and
the Closing Date.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. Notwithstanding
anything herein to the contrary, this Agreement may be
terminated and the Merger may be abandoned at any time prior to
the Effective Time whether before or after Duncan Unitholder
Approval:
(a) By the mutual consent of Partners and Duncan in a
written instrument.
(b) By either Partners or Duncan upon written notice to the
other, if:
(i) the Merger has not been consummated on or before
October 31, 2011 (the Termination Date);
(ii) any Governmental Authority has issued a statute, rule,
order, decree or regulation or taken any other action, in each
case permanently restraining, enjoining or otherwise prohibiting
the consummation of the Merger or making the Merger illegal and
such statute, rule, order, decree, regulation or other action
shall have become final and nonappealable (provided that
the terminating party is not then in breach of Section 6.1);
(iii) Duncan (A) determines not to, or otherwise fails
to, hold the Duncan Meeting in accordance with Section 6.2
or (B) does not obtain the Duncan Unitholder Approval at
the Duncan Meeting; provided, however, that the right to
terminate this Agreement under this Section 8.1(b)(iii)
shall not be available to Duncan where the failure to obtain the
Duncan Unitholder Approval shall have been caused by the action
or failure to act of Duncan and such action or failure to act
constitutes a material breach by Duncan of this Agreement;
(iv) there has been a material breach of or any material
inaccuracy in any of the representations or warranties set forth
in this Agreement on the part of any of the Other Parties
(treating Partners and Partners GP as one party for the purposes
of this Section 8.1 and treating Duncan and Duncan GP as
one party for the purposes of this Section 8.1), which
breach is not cured within 30 days following receipt by the
breaching party of written notice of such breach from the
terminating party, or which breach, by its nature, cannot be
cured prior to the Termination Date (provided in any such
case that the terminating party is not then in material breach
of any representation, warranty, covenant or other agreement
contained herein); provided, however, that no
party shall have the right to terminate this Agreement pursuant
to this Section 8.1(c)(iii) unless the breach of a
representation or warranty, together with all other such
breaches, would entitle the party receiving such representation
not to consummate the transactions contemplated by this
Agreement under Section 7.4 (in the case of a breach of
representation or warranty by Partners or Partners GP) or
Section 7.5 (in the case of a breach of representation or
warranty by Duncan or Duncan GP); or
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(v) if there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part
of any of the Other Parties, which breach has not been cured
within 30 days following receipt by the breaching party of
written notice of such breach from the terminating party, or
which breach, by its nature, cannot be cured prior to the
Termination Date (provided in any such case that the terminating
party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein);
provided, however, that no party shall have the
right to terminate this Agreement pursuant to this
Section 8.1(b)(v) unless the breach of covenants or
agreements, together with all other such breaches, would entitle
the party receiving the benefit of such covenants or agreements
not to consummate the transactions contemplated by this
Agreement under Section 7.4 (in the case of a breach of
covenants or agreements by Partners or Partners GP) or
Section 7.5 (in the case of a breach of covenants or
agreements by Duncan or Duncan GP).
(c) By Partners, upon written notice to Duncan, in the
event that a Duncan Change in Recommendation has occurred.
(d) By Duncan, upon written notice to Partners, in the
event that, at any time after the date of this Agreement and
prior to obtaining the Duncan Unitholder Approval, Duncan
receives an Acquisition Proposal and the Duncan Audit Committee
shall have concluded in good faith that such Acquisition
Proposal constitutes a Superior Proposal, the Duncan Audit
Committee shall have made a Duncan Change in Recommendation
pursuant to Section 6.6(b) with respect to such Superior
Proposal, Duncan has not knowingly and intentionally breached
Section 6.6 of this Agreement, and the Duncan Audit
Committee concurrently approves, and Duncan concurrently enters
into, a definitive agreement with respect to such Superior
Proposal.
Section 8.2 Effect
of Termination. In the event of the termination
of this Agreement as provided in Section 8.1, written
notice thereof shall forthwith be given by the terminating party
to the other parties specifying the provision of this Agreement
pursuant to which such termination is made, and except as
provided in this Section 8.2, this Agreement (other than
Article IX) shall forthwith become null and void after
the expiration of any applicable period following such notice.
In the event of such termination, there shall be no liability on
the part of any party hereto, except as set forth in
Section 9.1 of this Agreement and except with respect to
the requirement to comply with the Confidentiality Agreement;
provided that nothing herein shall relieve any party from
any liability or obligation with respect to any fraud or
intentional breach of this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees
and Expenses.
(a) Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such costs or expenses.
(b) This Section 9.1 shall survive any termination of
this Agreement.
Section 9.2 Waiver;
Amendment; Duncan Approvals and Consents.
(a) Subject to compliance with applicable Law, prior to the
Closing, any provision of this Agreement, except
Section 7.1, may be (i) waived in writing by the party
benefited by the provision, or (ii) amended or modified at
any time, whether before or after the Duncan Unitholder
Approval, by an agreement in writing between the parties hereto,
provided, that after the Duncan Unitholder Approval, no
amendment shall be made to the nature or amount of the Merger
Consideration or that results in a material adverse effect on
the Duncan Unaffiliated Unitholders without Duncan Unitholder
Approval (the Duncan GP being hereby authorized to approve any
other amendment on behalf of Duncan without any other approval
of the Duncan Unitholders); and provided, further, in
addition to any other approvals required by the parties
constituent documents or under this Agreement, the foregoing
waivers, amendments or modifications in clauses (i) and
(ii) are approved
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by the Partners Audit Committee in the case of Partners, and by
the Duncan GP Board and the Duncan Audit Committee in the case
of Duncan.
(b) Unless otherwise expressly set forth in this Agreement,
whenever Duncan or Duncan GP approval or consent is required
pursuant to this Agreement, such approval or consent shall
require the approval or consent of each of the Duncan GP Board
and the Duncan Audit Committee, and shall not require any
approval of the Duncan Unitholders.
Section 9.3 Counterparts. This
Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original.
Section 9.4 Governing
Law. This Agreement shall be governed by, and
interpreted in accordance with, the Laws of the State of
Delaware (except to the extent that mandatory provisions of
federal law govern), without regard to the conflict of law
principles thereof.
Section 9.5 Confidentiality. Each
of the parties hereto and their respective agents, attorneys and
accountants will maintain the confidentiality of all information
provided in connection herewith to the extent required by, and
subject to the limitations of, Section 6.5(b).
Section 9.6 Notices. All
notices, requests and other communications hereunder to a party
shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation of receipt) or mailed
by registered or certified mail (return receipt requested) to
such party at its address set forth below or such other address
as such party may specify by notice to the parties hereto.
If to Partners, to:
Enterprise Products Partners L.P.
1100 Louisiana, 10th Floor
Houston, TX 77002
Attention: Chief Executive Officer
Fax:
(713) 803-2662
With copies to:
Andrews Kurth LLP
Attn: David C. Buck, Esq.
600 Travis, Suite 4200
Houston, Texas 77002
Fax:
(713) 238-7126
If to Duncan, to:
Duncan Energy Partners L.P.
1100 Louisiana, 10th Floor
Houston, TX 77002
Fax:
(713) 381-6950
Attn: Chairman of the Audit, Conflicts and Governance Committee
With copies to:
Baker & Hostetler LLP
Attn: Donald W. Brodsky, Esq.
1000 Louisiana, Suite 2000
Houston, Texas 77002
Fax:
(713) 646-1335
and
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Vinson & Elkins L.L.P.
Attn: Douglas E. McWilliams, Esq.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
Fax:
(713) 615-5725
Section 9.7 Entire
Understanding; No Third-Party Beneficiaries. This
Agreement (including the documents referred to or listed herein)
represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes
any and all other oral or written agreements heretofore made.
Except as contemplated by Section 6.12, nothing in this
Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 9.8 Severability. Any
provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering
that or any other provision of this Agreement invalid, illegal
or unenforceable in any other jurisdiction.
Section 9.9 Headings. The
headings contained in this Agreement are for reference purposes
only and are not part of this Agreement.
Section 9.10 Jurisdiction. The
parties hereto agree that to the fullest extent permitted by
law, any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated
hereby shall be brought in any federal court located in the
State of Delaware or the Delaware Court of Chancery, and each of
the parties hereby irrevocably consents to the jurisdiction of
such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by Law, any objection that it
may now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such
suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that to
the fullest extent permitted by law, service of process on such
party as provided in Section 9.6 shall be deemed effective
service of process on such party.
Section 9.11 Waiver
of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.12 Specific
Performance. The parties agree that irreparable
damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and, accordingly,
that the parties shall, to the fullest extent permitted by law,
be entitled to an injunction or injunctions to prevent breaches
of this Agreement or to enforce specifically the performance of
the terms and provisions hereof in any federal court located in
the State of Delaware or in the Delaware Court of Chancery, in
addition to any other remedy to which they are entitled at law
or in equity.
Section 9.13 Survival. All
representations, warranties, agreements and covenants contained
in this Agreement shall not survive the Closing or the
termination of this Agreement if this Agreement is terminated
prior to the Closing; provided, however, that if the
Closing occurs, the agreements of the parties in
Sections 3.4, 3.6, 6.12 and Article IX shall survive
the Closing, and if this Agreement is terminated prior to the
Closing, the agreements of the parties in Section 6.5(b),
8.2, and Article IX shall survive such termination.
[Remainder of this page is intentionally left
blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly
authorized officers, all as of the day and year first above
written.
ENTERPRISE PRODUCTS PARTNERS L.P.
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By:
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Enterprise Products Holdings LLC, its general partner
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By:
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/s/ Michael
A. Creel
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Name: Michael A. Creel
Title: President and Chief Executive Officer
ENTERPRISE PRODUCTS HOLDINGS LLC
Name: Michael A. Creel
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Title:
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President and Chief Executive Officer
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EPD MERGERCO LLC
Name: Michael A. Creel
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Title:
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President and Chief Executive Officer
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DUNCAN ENERGY PARTNERS L.P.
By: DEP Holdings, LLC, its general partner
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By:
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/s/ W.
Randall Fowler
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Name: W. Randall Fowler
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Title:
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President and Chief Executive Officer
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DEP HOLDINGS, LLC
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By:
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/s/ W.
Randall Fowler
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Name: W. Randall Fowler
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Title:
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President and Chief Executive Officer
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Signature Page to Merger Agreement
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Annex A
THIRD
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
DEP HOLDINGS, LLC
A
Delaware Limited Liability Company
This Third Amended and Restated Limited Liability Company
Agreement (this Agreement) of DEP
Holdings, LLC, a Delaware limited liability company (the
Company), dated
effective ,
2011, is entered into by Enterprise Products Operating LLC, a
Delaware limited liability company, as the sole member (the
Member) of the Company.
RECITALS
A. The Company owns all of the general partner interest in,
and is the sole general partner of, Duncan Energy Partners L.P.,
a Delaware limited partnership (Duncan).
B. The Second Amended and Restated Limited Liability
Company Agreement of DEP Holdings, LLC was executed effective
May 3, 2007 by its sole member, Enterprise Products
Operating L.P. and amended by the First Amendment to the Second
Amended and Restated Limited Liability Company Agreement of DEP
Holdings, LLC on November 6, 2008 (the Existing
Agreement).
C. The Member deems it advisable to amend and restate the
Existing Agreement in its entirety as set forth herein.
1. Name. The name of the Company is:
DEP
Holdings, LLC
2. Formation. The Company was organized
as a Delaware limited liability company by the filing of a
Certificate of Formation (the Certificate of
Formation) on September 28, 2006 with the
Secretary of State of the State of Delaware under and pursuant
to the Delaware Limited Liability Company Act (the
Act) .
3. Purposes. The purposes of the Company
are the transaction of any or all lawful business for which
limited liability companies may be organized under the Act.
4. Powers. In furtherance of its
purposes, but subject to all of the provisions of this
Agreement, the Company shall have the power and is hereby
authorized to:
(a) Acquire by purchase, lease, contribution of property or
otherwise, own, hold, sell, convey, transfer or dispose of any
real or personal property that may be necessary, convenient, or
incidental to the accomplishment of the purposes of the Company;
(b) Act as a trustee, executor, nominee, bailee, director,
officer, agent or in some other fiduciary capacity for any
Person (as defined below) and to exercise all of the powers,
duties, rights and responsibilities associated therewith;
(c) Take any and all actions necessary, convenient or
appropriate as trustee, executor, nominee, bailee, director,
officer, agent or fiduciary, including the granting or approval
of waivers, consents or amendments of rights or powers relating
thereto and the execution of appropriate documents to evidence
such waivers, consents or amendments;
(d) Operate, purchase, maintain, finance, improve, own,
sell, convey, assign, mortgage, lease or demolish or otherwise
dispose of any real or personal property that may be necessary,
convenient or incidental to the accomplishment of the purposes
of the Company;
(e) Invest any funds of the Company pending distribution or
payment of the same pursuant to the provisions of this Agreement;
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(f) Enter into, perform and carry out contracts of any
kind, including without limitation, contracts with any Person
affiliated with the Member, deemed by the Member to be necessary
to, in connection with, convenient to, or incidental to the
accomplishment of the purposes of the Company;
(g) Employ or otherwise engage employees, managers,
contractors, advisors, attorneys and consultants and pay
reasonable compensation for such services;
(h) Enter into partnerships, limited liability companies,
trusts, associations, corporations or other ventures with other
Persons in furtherance of the purposes of the Company; and
(i) Do such other things and engage in such other
activities related to the foregoing as may be necessary,
convenient or incidental to the conduct of the business of the
Company, and have and exercise all of the powers and rights
conferred upon limited liability companies formed pursuant to
the Act.
As used in this Agreement, Person means a
natural person, partnership (whether general or limited),
limited liability company, governmental entity, trust, estate,
association, corporation, venture, custodian, nominee or any
other individual or entity in its own or any representative
capacity.
5. Principal Business Office. The
principal business office of the Company shall be located at
such location as may hereafter be determined by the Member.
6. Registered Agent and Registered
Office. The address of the initial registered
office and name of the initial registered agent of the Company
in the State of Delaware, upon whom process against the Company
may be served, is as contained in the Certificate of Formation
filed with the Secretary of State of the State of Delaware. At
any time, the Member may designate another registered agent
and/or
registered office.
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7.
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Member. The name and the address of the Member
are as follows:
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Name
Enterprise Products Operating LLC,
a Delaware limited liability company
Address
1100 Louisiana Street
Suite 1000
Houston, Texas 77002
8. Limited Liability. Except as otherwise
provided by the Act, the debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the
Company, and the Member shall not be obligated personally for
any such debt, obligation or liability of the Company solely by
reason of being a member of the Company.
9. Capital Contributions. The Member may
make capital contributions to the Company, in cash, property or
other assets as the Member in its sole discretion shall
determine from time to time, but shall have no obligation to do
so.
10. Allocation of Profits and Losses. The
Companys profits and losses shall be allocated solely to
the Member.
11. Distributions. Distributions shall be
made to the Member at the times and in the aggregate amounts
determined by the Member. Notwithstanding any provision to the
contrary contained in this Agreement, the Company shall not make
a distribution to the Member on account of its interest in the
Company if such distribution would violate
Section 18-607
of the Act or other applicable Law. Law means
any applicable constitutional provision, statute, act, code,
law, regulation, rule, ordinance, order, decree, ruling,
proclamation, resolution, judgment, decision, declaration or
interpretative or advisory opinion or letter of a governmental
authority.
12. Management. The management of the
Company shall be exclusively vested in a Board of Directors (the
Board or Board of
Directors) and, subject to the direction of the Board,
the officers (the Officers), who shall
collectively (Board and Officers) constitute
managers of the Company within the meaning of the
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Act. The authority and functions of the Board on the one hand
and of the Officers on the other shall be identical to the
activity and functions of the board of directors and officers,
respectively, of a corporation organized under the Delaware
General Corporation Law. Thus, the business and affairs of the
Company shall be managed by the Board, and the
day-to-day
activities of the Company shall be conducted on the
Companys behalf by the Officers, who shall be agents of
the Company.
13. Board of Directors. The Board shall
consist of one or more individuals (the
Directors) appointed by the Member, such
number of Directors to be determined from time to time by the
Member. Vacancies on the Board for whatever cause shall be
filled by the Member. The Directors shall hold office until
their respective successors are chosen and qualify or until
their earlier death, resignation or until removed by the Member,
in the Members discretion. The Board may act (a) by
majority vote of Directors present at a meeting at which a
quorum (consisting of a majority of Directors) is present or
(b) by written consent of a majority of the Directors.
14. Officers. The Board may, from time to
time as it deems advisable, select natural persons, who shall be
agents of the Company, and designate them as Officers of the
Company and assign titles (including, without limitation,
Chairman, President, Vice President, Secretary, Treasurer,
Assistant Secretary and Assistant Treasurer) to any such person.
Unless the Board decides otherwise, if the title is one commonly
used for officers of a business corporation formed under the
Delaware General Corporation Law, the assignment of such title
shall constitute the delegation to such person of the
authorities and duties that are normally associated with that
office. Any delegation pursuant to this Section 14 may be
revoked at any time by the Board. An Officer may be removed with
or without cause by the Board.
15. Other Business. The Member may engage
in or possess an interest in other business ventures of every
kind and description, independently or with others. The Company
shall not have any rights in or to such independent ventures or
the income or profits therefrom by virtue of this Agreement.
16. Indemnification.
(a) To the fullest extent permitted by Law but subject to
the limitations expressly provided in this Agreement, each
Indemnitee (as defined below) shall be indemnified and held
harmless by the Company from and against any and all losses,
claims, damages, liabilities (joint or several), expenses
(including reasonable legal fees and expenses), judgments,
fines, penalties, interest, settlements and other amounts
arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or
investigative, in which any such person may be involved, or is
threatened to be involved, as a party or otherwise, by reason of
such persons status as (i) a present or former member
of the Board of Directors or any committee thereof, (ii) a
present or former Member, (iii) a present or former
Officer, or (iv) a Person serving at the request of the
Company in another entity in a similar capacity as that referred
to in the immediately preceding clauses (i) or (iii),
provided, that the Person described in the immediately
preceding clauses (i), (ii), (iii) or (iv)
(Indemnitee) shall not be indemnified and
held harmless if there has been a final and non-appealable
judgment entered by a court of competent jurisdiction
determining that, in respect of the matter for which the
Indemnitee is seeking indemnification pursuant to this
Section 16, the Indemnitee acted in bad faith or engaged in
fraud, willful misconduct or, in the case of a criminal matter,
acted with knowledge that the Indemnitees conduct was
unlawful. Any indemnification pursuant to this Section 16
shall be made only out of the assets of the Company.
(b) To the fullest extent permitted by Law, expenses
(including reasonable legal fees and expenses) incurred by an
Indemnitee who is indemnified pursuant to Section 16(a) in
defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an 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 16.
(c) The indemnification provided by this Section 16
shall be in addition to any other rights to which an Indemnitee
may be entitled under any agreement, as a matter of Law or
otherwise, both as to actions in the
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Indemnitees capacity as an Indemnitee and as to actions in
any other capacity, and shall continue as to an Indemnitee who
has ceased to serve in such capacity.
(d) The Company may purchase and maintain insurance, on
behalf of the members of the Board of Directors, the Officers
and such other persons as the Board of Directors shall
determine, against any liability that may be asserted against or
expense that may be incurred by such person in connection with
the Companys activities or such persons activities
on behalf of the Company, regardless of whether the Company
would have the power to indemnify such person against such
liability under the provisions of this Agreement.
(e) For purposes of this Section 16, the Company shall
be deemed to have requested an Indemnitee to serve as fiduciary
of an employee benefit plan whenever the performance by the
Indemnitee of such Indemnitees duties to the Company also
imposes duties on, or otherwise involves services by, the
Indemnitee 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 16; and action taken or omitted by the Indemnitee
with respect to an employee benefit plan in the performance of
such Indemnitees duties for a purpose reasonably believed
by such Indemnitee 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
Company.
(f) In no event may an Indemnitee subject any Members of
the Company to personal liability by reason of the
indemnification provisions of this Agreement.
(g) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 16 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 16 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 16 or any provision hereof shall in any manner
terminate, reduce or impair either the right of any past,
present or future Indemnitee to be indemnified by the Company or
the obligation of the Company to indemnify any such Indemnitee
under and in accordance with the provisions of this Section 16
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, and provided such Person became an Indemnitee
hereunder prior to such amendment, modification or repeal.
(j) THE PROVISIONS OF THE INDEMNIFICATION PROVIDED IN
THIS SECTION 16 ARE INTENDED BY THE PARTIES TO APPLY EVEN
IF SUCH PROVISIONS HAVE THE EFFECT OF EXCULPATING THE INDEMNITEE
FROM LEGAL RESPONSIBILITY FOR THE CONSEQUENCES OF SUCH
PERSONS NEGLIGENCE, FAULT OR OTHER CONDUCT.
17. Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in
this Agreement, no Indemnitee shall be liable for monetary
damages to the Company, the Members or any other Person for
losses sustained or liabilities incurred as a result of any act
or omission of an Indemnitee unless there has been a final and
non-appealable judgment entered in a court of competent
jurisdiction determining that, in respect of the matter in
question, the Indemnitee acted in bad faith or engaged in fraud,
willful misconduct or, in the case of a criminal matter, acted
with knowledge that the Indemnitees conduct was criminal.
(b) Subject to its obligations and duties as set forth in
Sections 12 and 13, the Board of Directors and any
committee thereof 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 the Companys
Officers or agents, and neither the Board of Directors nor any
committee thereof shall be responsible for any misconduct or
negligence on the part of any such Officer or agent appointed by
the Board of Directors or any committee thereof in good faith.
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(c) Any amendment, modification or repeal of this
Section 17 or any provision hereof shall be prospective
only and shall not in any way affect the limitations on
liability under this Section 17 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 be asserted.
18. Assignments. The Member may at any
time assign in whole or in part its limited liability company
interest in the Company. If the Member transfers all of its
interest in the Company pursuant to this Section 18, the
transferee shall be admitted to the Company upon its execution
of an instrument signifying its agreement to be bound by the
terms and conditions of this Agreement. Such admission shall be
deemed effective immediately prior to the transfer, and,
immediately following such admission, the transferor Member
shall cease to be a member of the Company.
19. Resignation. The Member may at any
time resign from the Company. If the Member resigns pursuant to
this Section 19, an additional member shall be admitted to
the Company, subject to Section 20 hereof, upon its
execution of an instrument signifying its agreement to be bound
by the terms and conditions of this Agreement. Such admission
shall be deemed effective immediately prior to the resignation,
and, immediately following such admission, the resigning Member
shall cease to be a member of the Company.
20. Admission of Additional Members. One
or more additional members of the Company may be admitted to the
Company with the written consent of the Member.
21. Dissolution.
(a) The Company shall dissolve and its affairs shall be
wound up upon the first to occur of the following: (i) the
written consent of the Member; (ii) at any time there are
no members of the Company unless, within 90 days of the
occurrence of the event that terminated the continued membership
of the last remaining member of the Company (the
Termination Event), the personal
representative of the last remaining member agrees in writing to
continue the Company and to the admission to the Company of such
personal representative or its nominee or designee as a Member,
effective as of the occurrence of the Termination Event, and
such successor or its nominee or designee shall be admitted upon
its execution of an instrument signifying its agreement to be
bound by the terms and conditions of this Agreement; or
(iii) the entry of a decree of judicial dissolution under
Section 18-802
of the Act.
(b) The bankruptcy of the Member shall not cause the Member
to cease to be a member of the Company and upon the occurrence
of such an event, the business of the Company shall continue
without dissolution.
(c) In the event of dissolution, the Company shall conduct
only such activities as are necessary to wind up its affairs
(including the sale of the assets of the Company in an orderly
manner), and the assets of the Company shall be applied in the
manner, and in the order of priority, set forth in
Section 18-804
of the Act.
22. Severability of Provisions. Each
provision of this Agreement shall be considered severable, and
if for any reason any provision or provisions herein are
determined to be invalid, unenforceable or illegal under any
existing or future Law, such invalidity, unenforceability or
illegality shall not impair the operation of or affect those
portions of this Agreement that are valid, enforceable and legal.
23. Entire Agreement; Interpretation Under the
Act. This Agreement constitutes the entire
agreement of the Member with respect to the subject matter
hereof. In the event of a direct conflict between the provisions
of this Agreement and (a) any provision of the Certificate
of Formation, or (b) any mandatory, non-waivable provision
of the Act, such provision of the Certificate of Formation or
the Act shall control. If any provision of the Act provides that
it may be varied or superseded in the limited liability company
agreement (or otherwise by agreement of the members or managers
of a limited liability company), such provision shall be deemed
superseded and waived in its entirety if this Agreement contains
a provision addressing the same issue or subject matter.
24. Governing Law. THIS AGREEMENT IS
GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF
THE STATE OF DELAWARE, EXCLUDING ANY
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CONFLICT-OF-LAWS
RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE
CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER
JURISDICTION.
25. Amendments. This Agreement may not be
modified, altered, supplemented or amended except pursuant to a
written agreement executed and delivered by the Member.
26. Sole Benefit of Member. The
provisions of this Agreement (including Section 8) are
intended solely to benefit the Member and, to the fullest extent
permitted by applicable Law, shall not be construed as
conferring any benefit upon any creditor of the Company (and no
such creditor shall be a third-party beneficiary of this
Agreement), and no Member shall have any duty or obligation to
any creditor of the Company to make any contributions or
payments to the Company.
Signature
Page Follows.
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IN WITNESS WHEREOF, the undersigned, intending to be legally
bound hereby, has duly executed this Agreement as of the date
set forth above.
ENTERPRISE PRODUCTS OPERATING LLC
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By:
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Enterprise Products OLPGP, Inc.,
its sole manager
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By:
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Michael A. Creel
President and Chief Executive Officer
Third Amended and Restated Duncan GP LLC Agreement
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Annex
B-1
SECOND
AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF
DUNCAN ENERGY PARTNERS L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP (this Agreement) of Duncan
Energy Partners L.P. (the
Partnership), dated as
of ,
2011 and effective as of the Effective Time (as defined in the
Merger Agreement) is entered into and executed by DEP Holdings,
LLC, a Delaware limited liability company, as
General Partner, and Enterprise
Products Partners L.P., a Delaware limited partnership, as
Limited Partner.
RECITALS
WHEREAS, the Limited Partner, Enterprise Products Holdings LLC,
EPD MergerCo LLC, a Delaware limited liability company and a
wholly owned subsidiary of the Limited Partner
(MergerCo), the Partnership and the
General Partner entered into an Agreement and Plan of Merger,
dated as of April 28, 2011 (the Merger
Agreement), effecting, at the Effective Time, the
merger of MergerCo with and into the Partnership, with the
Partnership surviving the merger as a wholly owned subsidiary of
the Limited Partner (the Merger) and
the cancellation and conversion of each common unit representing
limited partner interests in the Partnership into the right to
receive 1.010 common units representing limited partner
interests in the Limited Partner; and
WHEREAS, this Agreement, effective as of the Effective Time,
amends and restates the Existing Partnership Agreement (as
defined herein) in its entirety, to reflect, among other things,
the admission of the Limited Partner as the sole limited partner
of the Partnership;
NOW, THEREFORE, BE IT RESOLVED, in consideration of the
covenants, conditions and agreements contained herein, the
General Partner and the Limited Partner agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall for all purposes, unless
otherwise clearly indicated to the contrary, apply to the terms
used in this Agreement.
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
polices of a Person, whether through ownership of voting
securities.
Agreement has the meaning set forth for such
term in the first paragraph of this Agreement.
Certificate of Limited Partnership means the
Certificate of Limited Partnership filed with the Secretary of
State of the State of Delaware as described in the first
sentence of Section 2.5 as amended or restated from time to
time.
Delaware Act means the Delaware Revised
Uniform Limited Partnership Act, as amended from time to time,
and any successor to such act.
Existing Partnership Agreement means the
Amended and Restated Agreement of Limited Partnership of the
Partnership dated February 5, 2007, as amended by Amendment
No. 1 thereto dated December 27, 2007, Amendment
No. 2 thereto dated November 6, 2008, the Third
Amendment thereto dated December 8, 2008 and the Fourth
Amendment thereto dated June 15, 2009.
General Partner has the meaning set forth for
such term in the first paragraph of this Agreement.
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Indemnitee means (a) the General
Partner, (b) any Person who is an Affiliate of the General
Partner, (c) any Person who is serving at the request of
the General Partner or any Affiliate of the General Partner as a
member, partner, director, officer, fiduciary or trustee of the
General Partner or any subsidiary or other Affiliate controlled
by the Partnership, and (d) any Person the General Partner
designates as an Indemnitee for purposes of this
Agreement.
Law means any applicable constitutional
provision, statute, act, code, law, regulation, rule ordinance,
order, decree, ruling, proclamation, resolution, judgment,
decision, declaration or interpretive or advisory opinion or
letter of a governmental authority.
Limited Partner has the meaning set forth for
such term in the first paragraph of this Agreement.
Partner means the General Partner or the
Limited Partner.
Partnership has the meaning set forth for
such term in the first paragraph of this Agreement.
Person means an individual or a corporation,
firm, limited liability company, partnership, joint venture,
unincorporated organization, association, government agency or
political subdivision thereof or other entity.
Percentage Interest means, with respect to
any Partner, the percentage interest of such Partner in the
Partnership as set forth in Section 2.7 of this Agreement.
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 Formation. The General Partner and the Limited
Partner hereby continue the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act. The General
Partner and the Limited Partner hereby enter into this Agreement
to set forth the rights and obligations of the Partnership and
certain matters related thereto. Except as expressly provided
herein to the contrary, the rights and obligations of the
Partners and the administration, dissolution and termination of
the Partnership shall be governed by the Delaware Act.
2.2 Name. The name of the Partnership shall be, and
the business of the Partnership shall be conducted under the
name of, Duncan Energy Partners L.P.
2.3 Principal Office; Registered Office.
(a) The principal office of the Partnership shall be at
1100 Louisiana Street, 10th Floor, Houston, Texas 77002 or
such other place as the General Partner may from time to time
designate.
(b) Unless and until changed by the General Partner, the
address of the Partnerships registered office in the State
of Delaware shall be the Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801, and the name of the
Partnerships registered agent for service of process at
such address shall be The Corporation Trust Company.
2.4 Term. The Partnership shall continue in
existence until an election to dissolve the Partnership is made
by the General Partner.
2.5 Organizational Certificate. The Partnership
commenced upon the filing of the Certificate of Limited
Partnership in accordance with the Delaware Act.
2.6 Partnership Interests. Effective as of the
Effective Time, DEP Holdings, LLC continues as the sole general
partner of the Partnership, Enterprise Products Partners L.P. is
automatically admitted to the
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Partnership as the sole limited partner of the Partnership and
the Partners shall have Percentage Interests as set forth below:
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General Partner
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Percentage Interest
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DEP Holdings, LLC
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[0.7]% general partner interest
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Limited Partner
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Percentage Interest
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Enterprise Products Partners L.P.
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[99.3]% limited partner interest
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ARTICLE III
PURPOSE
The purpose and business of the Partnership shall be to engage
in any lawful activity for which limited partnerships may be
organized under the Delaware Act.
ARTICLE IV
CAPITAL ACCOUNT ALLOCATIONS
4.1 Capital Accounts. The Partnership
shall maintain a capital account for each of the Partners in
accordance with the regulations issued pursuant to
Section 704 of the Internal Revenue Code of 1986, as
amended (the Code), and as determined
by the General Partner as consistent therewith.
4.2 Allocations. For federal income tax
purposes, each item of income, gain, loss, deduction and credit
of the Partnership shall be allocated among the Partners in
accordance with their Percentage Interests, except that the
General Partner shall have the authority to make such other
allocations as are necessary and appropriate to comply with
Section 704 of the Code and the regulations pursuant
thereto.
4.3 Distributions. From time to time, but
not less often than quarterly, the General Partner shall review
the Partnerships accounts to determine whether
distributions are appropriate. The General Partner may make such
cash distribution as it, in its sole discretion, may determine
without being limited to current or accumulated income or gains
from any Partnership funds, including, without limitation,
Partnership revenues, capital contributions or borrowed funds;
provided, however, that no such distribution shall be made if,
after giving effect thereto, the liabilities of the Partnership
exceed the fair market value of the assets of the Partnership.
In its sole discretion, the General Partner may, subject to the
foregoing proviso, also distribute to the Partners other
Partnership property, or other securities of the Partnership or
other entities. All distributions by the General Partner shall
be made in accordance with the Percentage Interests of the
Partners.
ARTICLE V
MANAGEMENT AND OPERATIONS OF BUSINESS
Except as otherwise expressly provided in this Agreement, all
powers to control and manage the business and affairs of the
Partnership shall be vested exclusively in the General Partner;
the Limited Partner shall not have any power to control or
manage the Partnership.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS; TRANSFERS
The Limited Partner shall have no liability under this Agreement
except as provided for herein or in the Delaware Act. The
Limited Partner may transfer (including, without limitation, by
assignment or contribution) in whole or in part its limited
partner interest in the Partnership. The transferee of any
limited partner interest in the Partnership shall automatically
be deemed admitted to the Partnership as a limited partner of
the Partnership in respect of such transferred limited partner
interest in the Partnership. Any such admission shall
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be deemed effective immediately prior to the transfer and,
immediately following such admission, the Limited Partner shall
cease to be a limited partner of the Partnership in respect of
such transferred limited partner interest.
ARTICLE VII
DISSOLUTION AND LIQUIDATION
The Partnership shall be dissolved, and its affairs shall be
wound up as provided in Section 2.4.
ARTICLE VIII
AMENDMENT OF PARTNERSHIP AGREEMENT
The General Partner may amend any provision of this Agreement
without the consent of the Limited Partner and may execute,
swear to, acknowledge, deliver, file and record whatever
documents may be required in connection therewith.
ARTICLE IX
INDEMNIFICATION
9.1 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, as a result of actions taken by such Indemnitee in
its capacity as a Person of the type described in clauses
(a)-(d) of
the definition of the term 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. 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 9.1 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 9.1(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 9.1.
(c) The indemnification provided by this Section 9.1
shall be in addition to any other rights to which an Indemnitee
may be entitled under any agreement, as a matter of Law or
otherwise, both as to actions in the Indemnitees capacity
as a Person of the type described in clauses (a)-(d) of the
definition of the term Indemnitee, and as to actions
in any other capacity, 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.
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(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
Partnerships activities or such Persons 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 9.1, 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, the Indemnitee 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 9.1(a); and action taken or
omitted by the Indemnitee with respect to any employee benefit
plan in the performance of such Indemnitees duties for a
purpose reasonably believed by such Indemnitee 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
Partner 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 9.1 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 9.1 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 9.1 or any provision hereof shall in any manner
terminate, reduce or impair the right of any past, present or
future Indemnitee to receive indemnification (including expense
advancement as provided by Section 9.1(b)) from the
Partnership, nor the obligations of the Partnership to
indemnify, or advance the expenses of, any such Indemnitee under
and in accordance with the provisions of this Section 9.1
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, and provided such Person became an Indemnitee
hereunder prior to such amendment, modification or repeal.
(j) THE PROVISIONS OF THE INDEMNIFICATION PROVIDED IN
THIS SECTION 9.1 ARE INTENDED BY THE PARTIES TO APPLY EVEN
IF SUCH PROVISIONS HAVE THE EFFECT OF EXCULPATING THE INDEMNITEE
FROM LEGAL RESPONSIBILITY FOR THE CONSEQUENCES OF SUCH
PERSONS NEGLIGENCE, FAULT OR OTHER CONDUCT.
9.2 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 Partner or any other
Person for losses sustained or liabilities incurred as a result
of any act or omission of an Indemnitee unless there has been a
final and non-appealable judgment entered in a court of
competent jurisdiction determining that, in respect of the
matter in question, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was criminal.
(b) Subject to its obligations and duties as General
Partner set forth in Article V, 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
Partnerships business or affairs shall not be liable to
the Partnership or to any
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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 9.2 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 Partner, the General
Partner, and the Partnerships and General Partners
directors, officers and employees under this Section 9.2 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.
ARTICLE X
GENERAL PROVISIONS
10.1 Addresses and Notices. Any notice to
the Partnership, the General Partner or the Limited Partner
shall be deemed given if received by it in writing at the
principal office of the Partnership designated pursuant to
Section 2.3(a).
10.2 Binding Effect. This Agreement shall
be binding upon and inure to the benefit of the parties hereto
and their successors and assigns.
10.3 Integration. This Agreement
constitutes the entire agreement among the parties pertaining to
the subject matter hereof and supersedes all prior agreements
and understandings pertaining thereto.
10.4 Severability. 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 hereof, or of such provision in other
respects, shall not be affected thereby.
10.5 Applicable Law. This Agreement shall
be governed by and construed and enforced in accordance with the
laws of the State of Delaware.
10.6 Counterparts. This Agreement may be
executed (by original or telecopied signature) in counterparts
and by the different parties hereto in separate counterparts,
each of which shall be deemed an original, but all of which
taken together shall constitute but one and the same instrument.
10.7 Existing Partnership Agreement. To
the extent Section 13.3 of the Existing Partnership
Agreement would limit the amendment of any provisions of the
Existing Partnership Agreement, such provisions are incorporated
by reference into this Agreement and shall remain in effect.
[Signature page follows]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
General Partner and the Limited Partner as of the date set forth
above.
GENERAL PARTNER:
DEP HOLDINGS, LLC
Name: W. Randall Fowler
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Title:
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President and Chief Executive Officer
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LIMITED PARTNER:
ENTERPRISE PRODUCTS PARTNERS L.P.
By: Enterprise Products Holdings LLC, its general partner
Name: Michael A. Creel
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Title:
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President and Chief Executive Officer
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Second Amended and Restated Duncan Partnership Agreement
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Annex B-2
THIRD
AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF
DUNCAN ENERGY PARTNERS L.P.
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
(this Agreement) of Duncan Energy Partners
L.P. (the Partnership), dated as
of ,
2011 and effective immediately following the Effective Time (as
defined in the Merger Agreement (as defined herein)) and
concurrently with the Closing (as defined in the Exchange and
Contribution Agreement (as defined herein)) (the
Restatement Time) is entered into and
executed by DEP Holdings, LLC, a Delaware limited liability
company, as General Partner, and Enterprise
GTM Holdings L.P., a Delaware limited partnership
(GTM), and Enterprise Products OLPGP, Inc., a
Delaware corporation (OLPGP) as the
Limited Partners and each a Limited
Partner.
RECITALS
WHEREAS, Enterprise Products Partners L.P., a Delaware limited
partnership (Enterprise), Enterprise Products
Holdings LLC, EPD MergerCo LLC, a Delaware limited liability
company and a wholly owned subsidiary of Enterprise
(MergerCo), the Partnership and the General
Partner entered into an Agreement and Plan of Merger, dated as
of April
[l],
2011 (the Merger Agreement), effecting, at
the Effective Time (as defined in the Merger Agreement), the
merger of MergerCo with and into the Partnership, with the
Partnership surviving the merger as a wholly owned subsidiary of
Enterprise (the Merger) and the cancellation
and conversion of each common unit representing limited partner
interests in the Partnership into the right to receive 1.010
common units representing limited partner interests in
Enterprise (the Enterprise Common
Units);
WHEREAS, Enterprise, OLPGP, Enterprise Products Operating LLC,
Enterprise Products GTM, LLC, Enterprise GTMGP LLC and GTM
entered into an Exchange and Contribution Agreement, dated the
date hereof (the Exchange and Contribution
Agreement), reflecting, among other things, effective
at the Restatement Time, (i) the exchange by GTM of all of
the Enterprise Common Units it is entitled to receive as a
result of the Merger for a limited partner interest in the
Partnership equal to the same limited partner interest in the
Partnership owned by GTM immediately prior to the Effective
Time, and (ii) the contribution in accordance with the
Exchange and Contribution Agreement by Enterprise to the Limited
Partners of the limited partner interest in the Partnership
acquired by Enterprise in the Merger from the limited partners
of the Partnership other than GTM, with the result that OLPGP
and GTM become the sole limited partners of the
Partnership; and
WHEREAS, this Agreement, effective at the Restatement Time,
amends and restates the Existing Partnership Agreement (as
defined herein) in its entirety, to reflect, among other things,
the admission of the Limited Partners as the sole limited
partners of the Partnership;
NOW, THEREFORE, BE IT RESOLVED, in consideration of the
covenants, conditions and agreements contained herein, the
General Partner and the Limited Partners agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall for all purposes, unless
otherwise clearly indicated to the contrary, apply to the terms
used in this Agreement.
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
polices of a Person, whether through ownership of voting
securities.
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Agreement has the meaning set forth for such
term in the first paragraph of this Agreement.
Allocation Regulations means Treas. Reg.
§§ 1.704-1(b), 1.704-2 and 1.703-3 (including any
temporary regulations) as such regulations may be amended and in
effect from time to time and any corresponding provision of
succeeding regulations.
Carrying Value means (a) with respect to
property contributed to the Partnership, the fair market value
of such property at the time of contribution reduced (but not
below zero) by all depreciation, depletion (computed as a
separate item of deduction), amortization and cost recovery
deductions charged to the Partners capital accounts,
(b) with respect to any property whose value is adjusted
pursuant to the Allocation Regulations, the adjusted value of
such property reduced (but not below zero) by all depreciation
and cost recovery deductions charged to the Partners
capital accounts and (c) 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.
Certificate of Limited Partnership means the
Certificate of Limited Partnership filed with the Secretary of
State of the State of Delaware as described in the first
sentence of Section 2.5 as amended or restated from time to
time.
Delaware Act means the Delaware Revised
Uniform Limited Partnership Act, as amended from time to time,
and any successor to such act.
Existing Partnership Agreement means the
Second Amended and Restated Agreement of Limited Partnership of
Duncan Energy Partners L.P.
dated ,
2011.
General Partner has the meaning set forth for
such term in the first paragraph of this Agreement.
GTM has the meaning set forth for such term
in the first paragraph of this Agreement.
Indemnitee means (a) the General
Partner, (b) any Person who is an Affiliate of the General
Partner, (c) any Person who is serving at the request of
the General Partner or any Affiliate of the General Partner as a
member, partner, director, officer, fiduciary or trustee of the
General Partner or any subsidiary or other Affiliate controlled
by the Partnership, and (d) any Person the General Partner
designates as an Indemnitee for purposes of this
Agreement.
Law means any applicable constitutional
provision, statute, act, code, law, regulation, rule ordinance,
order, decree, ruling, proclamation, resolution, judgment,
decision, declaration or interpretive or advisory opinion or
letter of a governmental authority.
Limited Partner or Limited
Partners has the meaning set forth for such term in
the first paragraph of this Agreement.
OLPGP has the meaning set forth for such term
in the first paragraph of this Agreement.
Partner means the General Partner or the
Limited Partners.
Partnership has the meaning set forth for
such term in the first paragraph of this Agreement.
Person means an individual or a corporation,
firm, limited liability company, partnership, joint venture,
unincorporated organization, association, government agency or
political subdivision thereof or other entity.
Percentage Interest means, with respect to
any Partner, the percentage interest of such Partner in the
Partnership as set forth in Section 2.6 of this Agreement.
Required Interest means one or more Limited
Partners having among them more than 50% of the Percentage
Interests of all Limited Partners in their capacities as such.
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ARTICLE II
ORGANIZATIONAL
MATTERS
2.1 Formation. The General Partner
and the Limited Partners hereby continue the Partnership as a
limited partnership pursuant to the provisions of the Delaware
Act. The General Partner and the Limited Partners hereby enter
into this Agreement to set forth the rights and obligations of
the Partnership and certain matters related thereto. Except as
expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration, dissolution
and termination of the Partnership shall be governed by the
Delaware Act.
2.2 Name. The name of the
Partnership shall be, and the business of the Partnership shall
be conducted under the name of, Duncan Energy Partners
L.P.
2.3 Principal Office; Registered Office.
(a) The principal office of the Partnership shall be at
1100 Louisiana Street, 10th Floor, Houston, Texas 77002 or
such other place as the General Partner may from time to time
designate.
(b) Unless and until changed by the General Partner, the
address of the Partnerships registered office in the State
of Delaware shall be the Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801, and the name of the
Partnerships registered agent for service of process at
such address shall be The Corporation Trust Company.
2.4 Term. The Partnership shall
continue in existence until an election to dissolve the
Partnership is made by the General Partner.
2.5 Organizational Certificate. The
Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act.
2.6 Partnership
Interests. Effective as of the Restatement Time,
DEP Holdings, LLC continues as the sole general partner of the
Partnership, GTM and OLPGP each continue as a limited partner of
the Partnership and the Partners shall have Percentage Interests
as set forth below:
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General Partner
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Percentage Interest
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DEP Holdings, LLC
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[0.7]% general partner interest
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Limited Partner
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Percentage Interest
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Enterprise Products OLPGP, Inc.
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[0.001]% limited partner interest
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Enterprise GTM Holdings L.P.
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[99.299]% limited partner interest
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ARTICLE III
PURPOSE
The purpose and business of the Partnership shall be to engage
in any lawful activity for which limited partnerships may be
organized under the Delaware Act.
ARTICLE IV
CAPITAL
ACCOUNT ALLOCATIONS
4.1 Capital Accounts. The
Partnership shall maintain a capital account for each of the
Partners in accordance with the regulations issued pursuant to
Section 704 of the Internal Revenue Code of 1986, as
amended (the Code), and as determined by the
General Partner as consistent therewith.
4.2 Allocations.
(a) General. After giving effect to the
special allocations set forth in Section 4.2(b), for
purposes of maintaining the capital accounts and in determining
the rights of the Partners among themselves, all
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items of income, gain, loss and deduction of the Partnership
shall be allocated and charged to the Partners capital
accounts in accordance with their respective Percentage
Interests.
(b) Special Allocations. Notwithstanding
any other provisions of this Section 4.2, the following
special allocations shall be made prior to making any
allocations provided for in 4.2(a) above:
(i) Minimum Gain
Chargeback. Notwithstanding any other provision
hereof to the contrary, if there is a net decrease in Minimum
Gain (as generally defined under Treas. Reg. § 1.704-1
or § 1.704-2) for a taxable year (or if there was a
net decrease in Minimum Gain for a prior taxable year and the
Partnership did not have sufficient amounts of income and gain
during prior years to allocate among the Partners under this
subsection 4.2(b)(i), then items of income and gain shall be
allocated to each Partner in an amount equal to such
Partners share of the net decrease in such Minimum Gain
(as determined pursuant to Treas. Reg.
§ 1.704-2(g)(2)). It is the intent of the Partners
that any allocation pursuant to this subsection 4.2(b)(i) shall
constitute a minimum gain chargeback under Treas.
Reg. § 1.704-2(f) and shall be interpreted
consistently therewith.
(ii) Partner Nonrecourse Debt Minimum Gain
Chargeback. Notwithstanding any other provision
of this Article 4, except subsection 4.2(b)(i), if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain (as
generally defined under Treas. Reg. § 1.704-1 or
§ 1.704-2), during any taxable year, any Partner who
has a share of the Partner Nonrecourse Debt Minimum Gain shall
be allocated such amount of income and gain for such year (and
subsequent years, if necessary) determined in the manner
required by Treas. Reg. § 1.704-2(i)(4) as is
necessary to meet the requirements for a chargeback of Partner
Nonrecourse Debt Minimum Gain.
(iii) Priority Allocations. Items of
Partnership gross income or gain for the taxable period shall be
allocated to the Partners until the cumulative amount of such
items allocated to each Partner pursuant to this
Section 4.2(b)(iii) for the current and all previous
taxable years equals the cumulative amount of distributions made
to such Partner pursuant to Section 5.02(a) for the current
and all previous taxable years.
(iv) Qualified Income Offset. Except as
provided in subsection 4.2(b)(i) and (ii) hereof, in the
event any Partner unexpectedly receives any adjustments,
allocations or distributions described in Treas. Reg.
Sections 1.704-1(b)(2)(i)(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 specifically allocated to
such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Allocation Regulations, the deficit
balance, if any, in its adjusted capital account created by such
adjustments, allocations or distributions as quickly as possible.
(v) Gross Income Allocations. In the
event any Partner has a deficit balance in its adjusted capital
account at the end of any Partnership taxable period, 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
subsection 4.2(b)(v) shall be made only if and to the extent
that such Partner would have a deficit balance in its adjusted
capital account after all other allocations provided in this
Section 4.2 have been tentatively made as if subsection
4.2(b)(v) were not in the Agreement.
(vi) Partnership Nonrecourse
Deductions. Partnership Nonrecourse Deductions
(as determined under Treas. Reg.
Section 1.704-2(c))
for any fiscal year shall be allocated among the Partners in
proportion to their Partnership Interests.
(vii) Partner Nonrecourse Deductions. Any
Partner Nonrecourse Deductions (as defined under Treas. Reg.
Section 1.704-2(i)(2))
shall be allocated pursuant to Treas. Reg.
Section 1.704-2(i)
to the Partner who bears the economic risk of loss with respect
to the partner nonrecourse debt to which it is attributable.
(viii) Code Section 754
Adjustment. 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 the
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Allocation Regulations, 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 the Allocation Regulations.
(ix) Curative Allocation. The special
allocations set forth in subsections 4.2(b)(i), (ii) and
(iv)-(vii) (the Regulatory Allocations) are
intended to comply with the Allocation Regulations.
Notwithstanding any other provisions of this Section 4.2,
the Regulatory Allocations shall be taken into account in
allocating items of income, gain, loss and deduction among the
Partners such that, to the extent possible, the net amount of
allocations of such items and the Regulatory Allocations to each
Partner shall be equal to the net amount that would have been
allocated to each Partner if the Regulatory Allocations had not
occurred.
(c) Tax Allocations. For federal income
tax purposes, except as otherwise required by the Code, the
Allocation Regulations or the following sentence, each item of
Partnership income, gain, loss, deduction and credit shall be
allocated among the Partners in the same manner as corresponding
items are allocated in Sections 4.2(a) and (b).
Notwithstanding any provisions contained herein to the contrary,
solely for federal income tax purposes, items of income, gain,
depreciation, gain or loss with respect to property contributed
or deemed contributed to the Partnership by a Partner shall be
allocated so as to take into account the variation between the
Partnerships tax basis in such contributed property and
its Carrying Value in the manner provided under
Section 704(c) of the Code and Treas. Reg.
§ 1.704-3(d) (i.e. the remedial method).
4.3 Distributions. From time to
time, but not less often than quarterly, the General Partner
shall review the Partnerships accounts to determine
whether distributions are appropriate. The General Partner may
make such cash distribution as it, in its sole discretion, may
determine without being limited to current or accumulated income
or gains from any Partnership funds, including, without
limitation, Partnership revenues, capital contributions or
borrowed funds; provided, however, that no such distribution
shall be made if, after giving effect thereto, the liabilities
of the Partnership exceed the fair market value of the assets of
the Partnership. In its sole discretion, the General Partner
may, subject to the foregoing proviso, also distribute to the
Partners other Partnership property, or other securities of the
Partnership or other entities. All distributions by the General
Partner shall be made in accordance with the Percentage
Interests of the Partners.
ARTICLE V
MANAGEMENT
AND OPERATIONS OF BUSINESS
Except as otherwise expressly provided in this Agreement, all
powers to control and manage the business and affairs of the
Partnership shall be vested exclusively in the General Partner;
the Limited Partners shall not have any power to control or
manage the Partnership.
ARTICLE VI
RIGHTS AND
OBLIGATIONS OF LIMITED PARTNERS
The Limited Partners shall have no liability under this
Agreement except as provided for herein or in the Delaware Act.
ARTICLE VII
DISSOLUTION
AND LIQUIDATION
7.1 Dissolution. The Partnership
shall be dissolved, and its affairs shall be wound up as
provided in Section 2.4.
7.2 Liquidation and Termination. On
dissolution of the Partnership the General Partner shall act as
liquidator or may appoint one or more other Persons as
liquidator; provided, however, that if the Partnership
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dissolves on account of an event of the type described in
Section 17-402(a)(4)-(12)
of the Delaware Act with respect to the General Partner, the
liquidator shall be one or more Persons selected in writing by a
Required Interest. The liquidator shall proceed diligently to
wind up the affairs of the Partnership and make final
distributions as provided in this Agreement. The costs of
liquidation shall be borne as a Partnership expense. Until final
distribution, the liquidator shall continue to operate the
Partnership properties with all of the power and authority of
the General Partner. The steps to be accomplished by the
liquidator are as follows:
(a) as promptly as practicable after dissolution and again
after final liquidation, the liquidator shall cause a proper
accounting to be made by a recognized firm of certified public
accountants of the Partnerships assets, liabilities, and
operations through the last day of the calendar month in which
the dissolution occurs or the final liquidation is completed, as
applicable;
(b) the liquidator shall pay from Partnership funds all of
the debts and liabilities of the Partnership or otherwise make
adequate provision for them (including, without limitation, the
establishment of a cash escrow fund for contingent liabilities
in such amount and for such term as the liquidator may
reasonably determine); and
(c) all remaining assets of the Partnership shall be
distributed to the Partners as follows:
(i) the liquidator may sell any or all Partnership
property, including to Partners, and any resulting gain or loss
from each sale shall be computed and allocated to the capital
accounts of the Partners;
(ii) with respect to all Partnership property that has not
been sold, the fair market value of that property shall be
determined and the capital accounts of the Partners shall be
adjusted to reflect the manner in which the unrealized income,
gain, loss, and deduction inherent in property that has not been
reflected in the capital accounts previously would be allocated
among the Partners if there were a taxable disposition of that
property for the fair market value of that property on the date
of distribution; and
(iii) Partnership property shall be distributed among the
Partners in accordance with the positive capital account
balances of the Partners, as determined after taking into
account all capital account adjustments for the taxable year of
the Partnership during which the liquidation of the Partnership
occurs (other than those made by reason of this clause (iii));
and those distributions shall be made by the end of the taxable
year of the Partnership during which the liquidation of the
Partnership occurs (or, if later, 90 days after the date of
the liquidation).
All distributions in kind to the Partners shall be made subject
to the liability of each distributee for its allocable share of
costs, expenses, and liabilities previously incurred or for
which the Partnership has committed prior to the date of
termination and those costs, expenses, and liabilities shall be
allocated to the distributee under this Section 7.2. The
distribution of cash
and/or
property to a Partner in accordance with the provisions of this
Section 7.2 constitutes a complete return to the Partner of
its Capital Contributions and a complete distribution to the
Partner of its Partnership Interest and all the
Partnerships property and constitutes a compromise to
which all Partners have consented within the meaning of
Section 17-502(b)(1)
of the Delaware Act. To the extent that a Partner returns funds
to the Partnership, it has no claim against any other Partner
for those funds.
7.3 Termination. On completion of
the distribution of Partnership assets as provided in this
Agreement, the Partnership is terminated, and the General
Partner (or such other Person or Persons as the Delaware Act may
require or permit) shall cause the cancellation of the
Certificate and any filings made as provided in Section 2.5
and shall take such other actions as may be necessary to
terminate the Partnership.
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ARTICLE VIII
AMENDMENT OF
PARTNERSHIP AGREEMENT
The General Partner may amend any provision of this Agreement
without the consent of the Limited Partners and may execute,
swear to, acknowledge, deliver, file and record whatever
documents may be required in connection therewith.
ARTICLE IX
INDEMNIFICATION
9.1 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, as a result of actions taken by such Indemnitee in
its capacity as a Person of the type described in clauses
(a)-(d) of the definition of the term 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. 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 9.1 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 9.1(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 9.1.
(c) The indemnification provided by this Section 9.1
shall be in addition to any other rights to which an Indemnitee
may be entitled under any agreement, as a matter of Law or
otherwise, both as to actions in the Indemnitees capacity
as a Person of the type described in clauses (a)-(d) of the
definition of the term Indemnitee, and as to actions
in any other capacity, 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
Partnerships activities or such Persons 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 9.1, 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, the Indemnitee 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 9.1(a); and action taken or
7
A-55
omitted by the Indemnitee with respect to any employee benefit
plan in the performance of such Indemnitees duties for a
purpose reasonably believed by such Indemnitee 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 9.1 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 9.1 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 9.1 or any provision hereof shall in any manner
terminate, reduce or impair the right of any past, present or
future Indemnitee to receive indemnification (including expense
advancement as provided by Section 9.1(b)) from the
Partnership, nor the obligations of the Partnership to
indemnify, or advance the expenses of, any such Indemnitee under
and in accordance with the provisions of this Section 9.1
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, and provided such Person became an Indemnitee
hereunder prior to such amendment, modification or repeal.
(j) THE PROVISIONS OF THE INDEMNIFICATION PROVIDED
IN THIS SECTION 9.1 ARE INTENDED BY THE PARTIES TO APPLY
EVEN IF SUCH PROVISIONS HAVE THE EFFECT OF EXCULPATING THE
INDEMNITEE FROM LEGAL RESPONSIBILITY FOR THE CONSEQUENCES OF
SUCH PERSONS NEGLIGENCE, FAULT OR OTHER CONDUCT.
9.2 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 or any other
Person for losses sustained or liabilities incurred as a result
of any act or omission of an Indemnitee unless there has been a
final and non-appealable judgment entered in a court of
competent jurisdiction determining that, in respect of the
matter in question, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was criminal.
(b) Subject to its obligations and duties as General
Partner set forth in Article V, 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
Partnerships 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 9.2 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 Partnerships and General Partners
directors, officers and employees under this Section 9.2 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.
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ARTICLE X
TAX MATTERS
10.1 Tax Returns. The General
Partner shall cause to be prepared and filed all necessary
federal and state income tax returns for the Partnership,
including making the elections described in Section 10.2.
Each Limited Partner shall furnish to the General Partner all
pertinent information in its possession relating to Partnership
operations that is necessary to enable the Partnerships
income tax returns to be prepared and filed.
10.2 Tax Elections. The Partnership
shall make the following elections on the appropriate tax
returns:
(a) to adopt a fiscal year ending on December 31 of each
year;
(b) to adopt the accrual method of accounting and to keep
the Partnerships books and records on the income-tax
method;
(c) pursuant to section 754 of the Code, to adjust the
basis of Partnership properties; and
(d) any other election the General Partner may deem
appropriate and in the best interests of the Partners.
Neither the Partnership nor any Partner may make an election for
the Partnership to be excluded from the application of the
provisions of subchapter K of chapter 1 of subtitle A of
the Code or any similar provisions of applicable state law.
10.3 Tax Matters Partner. The
General Partner shall be the tax matters partner of
the Partnership pursuant to section 6231(a)(7) of the Code.
The General Partner shall take such action as may be necessary
to cause each Limited Partner to become a notice
partner within the meaning of section 6223 of the
Code. The General Partner shall inform each Limited Partner of
all significant matters that may come to its attention in its
capacity as tax matters partner by giving notice on or before
the fifth Business Day after becoming aware of the matter and,
within that time, shall forward to each Limited Partner copies
of all significant written communications it may receive in that
capacity.
ARTICLE XI
GENERAL
PROVISIONS
11.1 Addresses and Notices. Any
notice to the Partnership, the General Partner or the Limited
Partners shall be deemed given if received by it in writing at
the principal office of the Partnership designated pursuant to
Section 2.3(a).
11.2 Binding Effect. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns.
11.3 Integration. This Agreement
constitutes the entire agreement among the parties pertaining to
the subject matter hereof and supersedes all prior agreements
and understandings pertaining thereto.
11.4 Severability. 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 hereof, or of such
provision in other respects, shall not be affected thereby.
11.5 Applicable Law. This Agreement
shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware.
11.6 Counterparts. This Agreement
may be executed (by original or telecopied signature) in
counterparts and by the different parties hereto in separate
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute but one and the same
instrument.
[Signature
page follows]
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IN WITNESS WHEREOF, this Agreement has been duly executed
by the General Partner and the Limited Partners as of the date
set forth above.
GENERAL PARTNER:
DEP HOLDINGS, LLC
Name: W. Randall Fowler
Title: President and Chief Executive Officer
LIMITED PARTNERS:
ENTERPRISE PRODUCTS OLPGP, INC.
Name: Michael A. Creel
Title: President and Chief Executive Officer
ENTERPRISE GTM HOLDINGS L.P.
By: Enterprise GTMGP, LLC, its general partner
Name: Michael A. Creel
Title: President and Chief Executive Officer
Acknowledged by:
ENTERPRISE PRODUCTS PARTNERS L.P.
By: Enterprise Products Holdings LLC, its general partner
Name: Michael A. Creel
Title: President and Chief Executive Officer
Third Amended and Restated Agreement of Limited Partnership
of Duncan Energy Partners L.P.
10
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Annex
C
EXCHANGE
AND CONTRIBUTION AGREEMENT
BY AND
AMONG
ENTERPRISE
PRODUCTS PARTNERS L.P.,
ENTERPRISE
PRODUCTS OLPGP, INC.
ENTERPRISE
PRODUCTS OPERATING LLC
ENTERPRISE
PRODUCTS GTM, LLC
ENTERPRISE
GTMGP LLC
AND
ENTERPRISE
GTM HOLDINGS L.P.
DATED AS
OF ,
2011
A-59
TABLE OF
CONTENTS
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ARTICLE I DEFINITIONS; RECORDATION
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1.1
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Definitions
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2
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ARTICLE II THE EXCHANGE AND CONTRIBUTIONS
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3
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2.1
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Exchange by EPD and GTM of the Exchanged Duncan LP Interest and
GTMs Right to Receive Merger Consideration
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3
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2.2
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Conveyance and Contribution by EPD (including on behalf of
OLPGP, EPO, Enterprise GTM and GTMGP as noted below) to GTM of
the Contributed Duncan LP Interest
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3
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2.3
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Third Amended and Restated Partnership Agreement of Duncan
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3
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ARTICLE III FURTHER ASSURANCES
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3
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3.1
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Further Assurances
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3
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3.2
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Other Assurances
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4
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ARTICLE IV MISCELLANEOUS
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4
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4.1
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Order of Completion of Transactions
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4
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4.2
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Headings; References; Interpretation
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4
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4.3
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Successors and Assigns
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4
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4.4
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No Third Party Rights
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4
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4.5
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Counterparts
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4
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4.6
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Governing Law
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4
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4.7
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Assignment of Agreement
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4
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4.8
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Amendment or Modification
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4
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4.9
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Director and Officer Liability
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4
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4.10
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Severability
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5
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4.11
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Integration
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5
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EXHIBITS
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Exhibit A -
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Third Amended and Restated Agreement of Limited Partnership of
Duncan Energy Partners L.P.
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EXCHANGE
AND CONTRIBUTION AGREEMENT
THIS EXCHANGE AND CONTRIBUTION AGREEMENT (this
Agreement) dated as
of ,
2011, is made and entered into by and among Enterprise Products
Partners L.P., a Delaware limited partnership
(EPD), Enterprise Products Operating
LLC, a Texas limited liability company
(EPO), Enterprise Products OLPGP,
Inc., a Delaware corporation (OLPGP),
Enterprise Products GTM, LLC, a Delaware limited liability
company (Enterprise GTM), Enterprise
GTMGP, LLC, a Delaware limited liability company
(GTMGP), and Enterprise GTM Holdings
L.P., a Delaware limited partnership
(GTM). The above-named entities are
sometimes referred to in this Agreement each as a
Party and collectively as the
Parties. Certain capitalized terms
used are defined in Article I hereof.
RECITALS
WHEREAS, GTM owns 33,783,587 common units (Common
Units) representing limited partner interests of
Duncan Energy Partners L.P., a Delaware limited partnership
(Duncan), which 33,783,587 Common
Units will be converted into the right to receive common units
representing limited partner interests in EPD (EPD
Common Units) as merger consideration (the
Merger Consideration) pursuant to an
Agreement and Plan of Merger, dated as of
April , 2011, by and among EPD, Enterprise
Products Holdings LLC, EPD MergerCo LLC, Duncan and DEP
Holdings, LLC (the Merger Agreement).
WHEREAS, pursuant to the Merger Agreement, in connection with
the merger contemplated thereby at the effective time of such
merger (the Merger), EPD will
initially acquire all of the limited partner interests of Duncan.
WHEREAS, (i) EPD owns all of the outstanding stock of OLPGP
and a 99.999% membership interest in EPO, (ii) OLPGP owns a
0.001% membership interest in EPO, (iii) EPO owns all of
the membership interest in Enterprise GTM and a 99.0% limited
partner interest in GTM, (iv) Enterprise GTM owns all of
the membership interests in GTMGP, and (v) GTMGP owns a
1.0% general partner interest in GTM.
WHEREAS, EPD and GTM desire (i) to exchange all of
GTMs right to receive the Merger Consideration under the
Merger Agreement for the assignment by EPD of a limited partner
interest in Duncan immediately following the Merger equal to the
number of Common Units owned by GTM immediately prior to the
Effective Time (as defined in the Merger Agreement) of the
Merger divided by a denominator equal to the Exchange Ratio (as
defined in the Merger Agreement) multiplied by the number of
Common Units outstanding immediately prior to the effective time
of the merger pursuant to the Merger Agreement (the
Exchanged Duncan LP Interest); and
(ii) for EPD to contribute or cause to be contributed to
OLPGP and/or
GTM a limited partner interest in Duncan equivalent to the
interest previously held by holders of Common Units other than
GTM that EPD owns immediately following the Merger (the
Contributed Duncan LP Interest), with
such Exchanged Duncan LP Interest and Contributed Duncan LP
Interest owned by EPD and resulting contributed interests to be
as set forth in the amended and restated agreement of limited
partnership of Duncan described below and attached as an Exhibit
to this Agreement.
WHEREAS, concurrently with the consummation of the transactions
contemplated hereby (the
Closing), each of the following
matters shall occur:
1. GTM will exchange all of its right to receive the Merger
Consideration under the Merger Agreement for the assignment to
GTM by EPD of the Exchanged Duncan LP Interest.
2. EPD will contribute or cause to be contributed all of
the Contributed Duncan LP Interest as follows: (a) a
contribution of a 0.001% Duncan LP Interest to OLPGP,
(b) an initial contribution of the remaining Contributed
Duncan LP Interest to EPO (a portion of such interests in
conveyed by EPD on behalf of OLPGP for a continuation of
OLPGPs 0.001% general partner interest in EPO)and
(c) a subsequent contribution by EPO of all of that
remaining Contributed Duncan LP Interest to GTM (a portion of
such interests is conveyed by EPO on behalf of Enterprise GTM
and GTMGP for a continuation of GTMGPs 1.0% general
partner interest in GTM).
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3. The Duncan partnership agreement will be amended and
restated to the extent necessary to reflect the applicable
matters set forth above and as contained in the Merger Agreement
and this Agreement.
NOW, THEREFORE, in consideration of their mutual undertakings
and agreements hereunder, the Parties undertake and agree as
follows:
ARTICLE I
DEFINITIONS;
RECORDATION
1.1 Definitions. Capitalized terms used
herein and not defined elsewhere in this Agreement shall have
the meanings given such terms as is set forth below.
affiliate means, with respect to
a specified person, any other person controlling, controlled by
or under common control with that first person. As used in this
definition, the term control includes (i) with
respect to any person having voting securities or the equivalent
and elected directors, managers or persons performing similar
functions, the ownership of or power to vote, directly or
indirectly, voting securities or the equivalent representing 50%
or more of the power to vote in the election of directors,
managers or persons performing similar functions,
(ii) ownership of 50% or more of the equity or equivalent
interest in any person and (iii) the ability to direct the
business and affairs of any person by acting as a general
partner, manager or otherwise.
Agreement has the meaning
assigned to such term in the first paragraph of this Agreement.
Amended and Restated Agreement
means the Third Amended and Restated Agreement of Limited
Partnership of Duncan as executed on the date hereof in
substantially the same form as attached hereto as
Exhibit A.
Closing has the meaning assigned
to such term in the recitals.
Common Units has the meaning
assigned to such term in the recitals.
Contributed Duncan LP Interest
has the meaning assigned to such term in the recitals.
Duncan LP Interests mean the
Contributed Duncan LP Interest and the Exchanged Duncan LP
Interest, collectively, representing all of the limited partner
interests of Duncan after giving effect to the Merger.
Effective Date
means ,
2011.
Enterprise GTM has the meaning
assigned to such term in the first paragraph of this Agreement
EPD has the meaning assigned to
such term in the first paragraph of this Agreement.
EPD Common Units has the meaning
assigned to such term in the recitals.
EPO has the meaning assigned to
such term in the first paragraph of this Agreement.
Exchanged Duncan LP Interest has
the meaning assigned to such term in the recitals.
GTM has the meaning assigned to
such term in the first paragraph of this Agreement.
GTMGP has the meaning assigned
to such term in the first paragraph of this Agreement.
Laws means any and all laws,
statutes, ordinances, rules or regulations promulgated by a
governmental authority, orders of a governmental authority,
judicial decisions, decisions of arbitrators or determinations
of any governmental authority or court.
Merger has the meaning assigned
to such term in the recitals.
Merger Agreement has the meaning
assigned to such term in the recitals.
Merger Consideration has the
meaning assigned to such term in the recitals.
OLPGP has the meaning assigned
to such term in the first paragraph of this Agreement.
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Party and Parties
have the meanings assigned to such terms in the first paragraph
of this Agreement.
ARTICLE II
THE EXCHANGE
AND CONTRIBUTIONS
2.1 Exchange by EPD and GTM of the Exchanged Duncan LP
Interest and GTMs Right to Receive Merger
Consideration. GTM hereby agrees to exchange all
of the EPD Common Units it is entitled to receive as Merger
Consideration under the Merger Agreement as consideration for
the conveyance by EPD of the Exchanged Duncan LP Interest as set
forth below effective immediately following the Merger.
In exchange for GTMs exchange of all the EPD Common Units
it is entitled to receive as Merger Consideration under the
Merger Agreement, effective immediately following the Merger EPD
hereby transfers, assigns and conveys to GTM, its successors and
assigns, for its own use forever, all of its rights, title and
interest in and to the Exchanged Duncan LP Interest, and GTM
hereby accepts the Exchanged Duncan LP Interest and assumes the
obligations as a limited partner of Duncan under the Amended and
Restated Agreement.
TO HAVE AND TO HOLD the Exchanged Duncan LP Interest unto GTM,
its successors and assigns, together with all and singular the
rights and appurtenances thereto in anywise belonging, subject,
however, to the terms and conditions stated in this Agreement,
forever.
2.2 Conveyance and Contribution by EPD (including on
behalf of OLPGP, EPO, Enterprise GTM and GTMGP as noted below)
to GTM of the Contributed Duncan LP Interest. EPD
hereby (including on behalf of OLPGP, EPO, Enterprise GTM and
GTMGP as noted below, each of which also hereby, to the extent
applicable) grants, contributes, transfers, assigns and conveys
as follows: (a) a contribution to OLPGP of a 0.001% Duncan
LP Interest, (b) an initial contribution of the remaining
Contributed Duncan LP Interest (a
[ ]%
Duncan LP Interest) to EPO (a portion of such interests is
conveyed by EPD on behalf of OLPGP for a continuation of
OLPGPs 0.001% general partner interest in EPO) and
(c) a subsequent contribution by EPO as assignee of all of
the remaining Contributed Duncan LP Interests to GTM (a portion
of such interests is conveyed by EPO on behalf of Enterprise GTM
and GTMGP for a continuation of GTMGPs 1.0% general
partner interest in GTM), its successors and assigns, for its
and their own use forever, all of its and their rights, title
and interest in and to the Contributed Duncan LP Interest, and
each of OLPGP and GTM hereby accepts the Contributed Duncan LP
Interest, as a capital contribution and assumes the obligations
as a limited partner of Duncan under the Amended and Restated
Agreement.
TO HAVE AND TO HOLD the Contributed Duncan LP Interest unto
OLPGP and GTM, its and their successors and assigns, together
with all and singular the rights and appurtenances thereto in
anywise belonging, subject, however, to the terms and conditions
stated in this Agreement, forever.
2.3 Third Amended and Restated Partnership Agreement of
Duncan. OLPGP and GTM shall enter into the
Amended and Restated Agreement in the form set forth as
Exhibit A hereto to, among other matters, reflect
the exchanges and contributions required by this Agreement.
ARTICLE III
FURTHER
ASSURANCES
3.1 Further Assurances. From time to time
after the date hereof, and without any further consideration,
the Parties agree to execute, acknowledge and deliver all such
additional deeds, assignments, bills of sale, conveyances,
instruments, notices, releases, acquittances and other
documents, and will do all such other acts and things, all in
accordance with applicable Law, as may be necessary or
appropriate (a) more fully to assure that the applicable
Parties own all of the properties, rights, titles, interests,
estates, remedies, powers and privileges granted by this
Agreement, or which are intended to be so granted, (b) more
fully and effectively to vest in the applicable Parties and
their respective successors and assigns beneficial and record
title to the
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A-63
interests contributed and assigned by this Agreement or intended
so to be and (c) to more fully and effectively carry out
the purposes and intent of this Agreement.
3.2 Other Assurances. From time to time
after the date hereof, and without any further consideration,
each of the Parties shall execute, acknowledge and deliver all
such additional instruments, notices and other documents, and
will do all such other acts and things, all in accordance with
applicable Law, as may be necessary or appropriate to more fully
and effectively carry out the purposes and intent of this
Agreement. It is the express intent of the Parties that OLPGP
and GTM own all of the Duncan LP Interests that are identified
in this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Order of Completion of
Transactions. The transactions provided for in
Article II of this Agreement shall be completed on the
Effective Date in the order set forth therein.
4.2 Headings; References;
Interpretation. All Article and Section headings
in this Agreement are for convenience only and shall not be
deemed to control or affect the meaning or construction of any
of the provisions hereof. The words hereof,
herein and hereunder and words of
similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement. All references herein to Articles and Sections shall,
unless the context requires a different construction, be deemed
to be references to the Articles and Sections of this Agreement,
respectively. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall
include all other genders, and the singular shall include the
plural and vice versa. The use herein of the word
including following any general statement, term or
matter shall not be construed to limit such statement, term or
matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or
not non-limiting language (such as without
limitation, but not limited to, or words of
similar import) is used with reference thereto, but rather shall
be deemed to refer to all other items or matters that could
reasonably fall within the broadest possible scope of such
general statement, term or matter.
4.3 Successors and Assigns. The Agreement
shall be binding upon and inure to the benefit of the Parties
signatory hereto and their respective successors and assigns.
4.4 No Third Party Rights. Except as
provided herein, nothing in this Agreement is intended to or
shall confer upon any person other than the Parties, and their
respective successors and permitted assigns, any rights,
benefits, or remedies of any nature whatsoever under or by
reason of this Agreement and no person is or is intended to be a
third party beneficiary of any of the provisions of this
Agreement.
4.5 Counterparts. This Agreement may be
executed in any number of counterparts, all of which together
shall constitute one agreement binding on the parties hereto.
4.6 Governing Law. This Agreement shall
be governed by, and construed in accordance with, the Laws of
the State of Texas applicable to contracts made and to be
performed wholly within such state without giving effect to
conflict of law principles thereof, except to the extent that it
is mandatory that the Law of some other jurisdiction, wherein
the interests are located, shall apply.
4.7 Assignment of Agreement. Neither this
Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by any Party without the prior written
consent of each of the Parties.
4.8 Amendment or Modification. This
Agreement may be amended or modified from time to time only by
the written agreement of all the Parties hereto and affected
thereby.
4.9 Director and Officer
Liability. Except to the extent that they are a
party hereto, the directors, managers, officers, partners and
securityholders of the Parties and their respective affiliates
shall not have any personal liability or obligation arising
under this Agreement (including any claims that another party
may assert).
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4.10 Severability. If any term or other
provision of this Agreement is invalid, illegal, or incapable of
being enforced under applicable Law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated herein are not
affected in any manner adverse to any Party. Upon such
determination that any term or other provision of this Agreement
is invalid, illegal, or incapable of being enforced, the Parties
shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the Parties as closely as possible
in a mutually acceptable manner in order that the transactions
contemplated herein are consummated as originally contemplated
to the fullest extent possible.
4.11 Integration. This Agreement and the
instruments referenced herein supersede any and all previous
understandings or agreements among the Parties, whether oral or
written, with respect to their subject matter. This Agreement
and such instruments contain the entire understanding of the
Parties with respect to the subject matter hereof and thereof.
No understanding, representation, promise or agreement, whether
oral or written, is intended to be or shall be included in or
form part of this Agreement or any such instrument unless it is
contained in a written amendment hereto or thereto and executed
by the Parties hereto or thereto after the date of this
Agreement or such instrument.
[The
Remainder of this Page is Intentionally Blank]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
ENTERPRISE PRODUCTS PARTNERS L.P.
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By:
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Enterprise Products Holdings LLC, its general partner
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Michael A. Creel
President and Chief Executive Officer
ENTERPRISE PRODUCTS OLPGP, INC.
Michael A. Creel
President and Chief Executive Officer
ENTERPRISE PRODUCTS OPERATING LLC
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By:
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Enterprise Products OLPGP, Inc., its sole manager
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Michael A. Creel
President and Chief Executive Officer
ENTERPRISE PRODUCTS GTM, LLC
Michael A. Creel
President and Chief Executive Officer
ENTERPRISE GTMGP LLC
Michael A. Creel
President and Chief Executive Officer
Signature Page to Exchange and Contribution Agreement
6
A-66
ENTERPRISE GTM HOLDINGS LP
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By:
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Enterprise GTMGP LLC, its general partner
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Michael A. Creel
President and Chief Executive Officer
Signature Page to Exchange and Contribution Agreement
7
A-67
EXHIBIT A
THIRD
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF DUNCAN
ENERGY PARTNERS L.P.
A-68
Annex B
Morgan
Stanley
April 28,
2011
ACG Committee of the Board of Directors of
DEP Holdings LLC, general partner
Duncan Energy Partners L.P.
1100 Louisiana Street, 10th Floor
Houston, TX 77002
Members of the ACG Committee of the Board:
We understand that Enterprise Products Partners L.P.
(Partners), Enterprise Products Holdings LLC, the
general partner of Partners (Partners GP), EPD
Mergerco LLC, a wholly owned subsidiary of Partners
(MergerCo), Duncan Energy Partners L.P.
(Duncan), and DEP Holdings, LLC, the general partner
of Duncan (Duncan GP), propose to enter into an
Agreement and Plan of Merger, substantially in the form of the
draft dated April 28 2011 (the Merger Agreement),
which provides, among other things, for the merger (the
Merger) of MergerCo with and into Duncan, with
Duncan as the surviving entity, such that following the Merger,
Duncan GP will remain the sole general partner of Duncan, and
each of Duncan GP and Duncan will be wholly-owned indirect
subsidiaries of Partners. Pursuant to the Merger, each
outstanding common unit representing limited partner interests
(the Duncan Common Units) of Duncan prior to the
Merger, other than any units held by Duncan or any of its
subsidiaries, will be converted into the right to receive 1.010
common units (the Exchange Ratio) representing
limited partner interests of Partners (the Partners Common
Units). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement. We further understand
that approximately 58.5% of the outstanding Duncan Common Units
are owned by Enterprise GTM Holdings L.P. (the Supporting
Unitholder), a wholly-owned indirect subsidiary of
Partners, and in connection with the Merger, Duncan, Partners
and the Supporting Unitholder have agreed to enter into a Voting
Agreement pursuant to which, among other things, the Supporting
Unitholder will vote all of its Duncan Common Units in favor of
the Merger.
You have asked for our opinion as to whether the Exchange Ratio
pursuant to the Merger Agreement is fair from a financial point
of view to the Duncan Unaffiliated Unitholders (as defined in
the Merger Agreement).
For purposes of the opinion set forth herein, we have:
1) Reviewed certain publicly available financial statements
and other business and financial information of Duncan and
Partners, respectively;
2) Reviewed certain internal financial statements and other
financial and operating data concerning Duncan and Partners,
respectively;
3) Reviewed certain financial projections prepared by the
management of Partners with respect to the future performance of
Partners;
4) Reviewed certain financial projections prepared by the
management of Duncan with respect to the future performance of
Duncan;
5) Discussed the past and current operations and financial
condition and the prospects of Partners with senior executives
of Partners;
6) Discussed the past and current operations and financial
condition and the prospects of Duncan with senior executives of
Duncan;
7) Reviewed the pro forma impact of the Merger on
Partners cash flow, consolidated capitalization and
financial ratios;
B-1
8) Reviewed the reported prices and trading activity for
the Duncan Common Units and the Partners Common Units;
9) Compared the financial performance of Duncan and
Partners and the prices and trading activity of the Duncan
Common Units and the Partners Common Units with that of certain
other publicly-traded master limited partnerships comparable
with Duncan and Partners, respectively, and their securities;
10) Reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
11) Participated in certain discussions and negotiations
among representatives of Duncan, Partners and certain of their
respective affiliates and their financial and legal advisors;
12) Reviewed the Merger Agreement and certain related
documents; and
13) Performed such other analyses, reviewed such other
information and considered such other factors as we have deemed
appropriate.
We have assumed and relied upon, without independent
verification, the accuracy and completeness of the information
that was publicly available or supplied or otherwise made
available to us by Duncan and Partners, and formed a substantial
basis for this opinion. With respect to the financial
projections, including information relating to certain
strategic, financial and operational benefits anticipated from
the Merger, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available
estimates and judgments of the management of Partners and of
Duncan of the future financial performance of Partners and
Duncan, respectively. In addition, we have assumed that the
Merger will be consummated in accordance with the terms set
forth in the Merger Agreement without any material waiver,
amendment or delay of any terms or conditions thereof. Morgan
Stanley has assumed that in connection with the receipt of all
the necessary governmental, regulatory or other approvals and
consents required for the proposed Merger, no delays,
limitations, conditions or restrictions will be imposed that
would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed Merger. We are
not legal, tax or regulatory advisors. We are financial advisors
only and have relied upon, without independent verification, the
assessment of Partners and Duncan and their legal, tax or
regulatory advisors with respect to legal, tax or regulatory
matters. We express no opinion with respect to the fairness of
the amount or nature of the compensation to any of Duncans
officers, directors or employees, or any class of such persons,
relative to the consideration to be received by the holders of
the Duncan Common Units in the transaction. We have not made any
independent valuation or appraisal of the assets or liabilities
of Duncan or Partners, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof. Events
occurring after the date hereof may affect this opinion and the
assumptions used in preparing it, and we do not assume any
obligation to update, revise or reaffirm this opinion.
In arriving at our opinion, we were not authorized to solicit,
and did not solicit, interest from any party with respect to the
acquisition, business combination or other extraordinary
transaction, involving Duncan, nor did we negotiate with any
party other than Partners regarding the possible acquisition of
Duncan or certain of its constituent businesses. Our opinion
does not address the relative merits of the Merger as compared
to any other alternative business transaction, or other
alternatives, whether or not such alternatives could be achieved
or are available or the underlying business decision by Partners
and you to enter into the Merger. We understand that Partners
specifically notified the ACG Committee that it would not
support any alternative transaction at this time.
We have acted as financial advisor to the ACG Committee of the
Board of Directors of Duncan GP in connection with this
transaction and will receive a fee for our services, which is
contingent upon the closing of the Merger. In the two years
prior to the date hereof, we have provided financing services
for Partners and Duncan and have received fees in connection
with such services. Morgan Stanley may also seek to provide such
services to Partners and Duncan in the future and expects to
receive fees for the rendering of these services.
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Please note that Morgan Stanley is a global financial services
firm engaged in the securities, investment management and
individual wealth management businesses. Our securities business
is engaged in securities underwriting, trading and brokerage
activities, foreign exchange, commodities and derivatives
trading, prime brokerage, as well as providing investment
banking, financing and financial advisory services. Morgan
Stanley, its affiliates, directors and officers may at any time
invest on a principal basis or manage funds that invest, hold
long or short positions, finance positions, and may trade or
otherwise structure and effect transactions, for their own
account or the accounts of its customers, in debt or equity
securities or loans of Partners, Duncan, or any other company,
or any currency or commodity, that may be involved in this
transaction, or any related derivative instrument.
This opinion has been approved by a committee of Morgan Stanley
investment banking and other professionals in accordance with
our customary practice. This opinion is for the information of
the ACG Committee of the Board of Directors of Duncan GP and may
not be used for any other purpose without our prior written
consent, except that a copy of this opinion may be included in
its entirety in any filing Duncan is required to make (which, if
necessary, can also be a joint filing by Partners) with the
Securities and Exchange Commission in connection with this
transaction if such inclusion is required by applicable law. In
addition, this opinion does not in any manner address the prices
at which the Duncan Common Units or the Partners Common Units
will trade at any time, and Morgan Stanley expresses no opinion
or recommendation as to how the unitholders of Duncan should
vote at the Duncan unitholders meeting to be held in
connection with the Merger.
Based on and subject to the foregoing, we are of the opinion on
the date hereof that the Exchange Ratio pursuant to the Merger
Agreement is fair from a financial point of view to the Duncan
Unaffiliated Unitholders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
Brian McCabe
Managing Director
B-3
PART II.
INFORMATION
NOT REQUIRED IN PROSPECTUS
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Item 20.
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Indemnification
of Directors and Officers
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Section 17-108
of the Delaware Revised Uniform Limited Partnership Act empowers
a Delaware limited partnership to indemnify and hold harmless
any partner or other person from and against all claims and
demands whatsoever. Enterprise Products Partners L.P.s
partnership agreement provides that Enterprise Products Partners
L.P. will indemnify (i) Enterprise Products Holdings LLC,
(ii) any departing general partner, (iii) any person
who is or was an affiliate of Enterprise Products Holdings LLC
or any departing general partner, (iv) any person who is or
was a member, partner, officer director, employee, agent or
trustee of Enterprise Products Holdings LLC or any departing
general partner or any affiliate of Enterprise Products Holdings
LLC or any departing general partner or (v) any person who
is or was serving at the request of Enterprise Products Holdings
LLC or any departing general partner or any affiliate of any
such person, any affiliate of Enterprise Products Holdings LLC
or any fiduciary or trustee of another person (each, an
Enterprise Indemnitee), to the fullest extent
permitted by law, from and against any and all losses, claims,
damages, liabilities (joint or several), expenses (including,
without limitation, legal fees and expenses), judgments, fines,
penalties, interest, settlements and other amounts arising from
any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in
which any Enterprise Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of
its status as an Enterprise Indemnitee; provided that in each
case the Enterprise Indemnitee acted in good faith and in a
manner that such Enterprise Indemnitee reasonably believed to be
in or not opposed to the best interests of Enterprise Products
Partners L.P. and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful. The
termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent,
shall not create an assumption that the Enterprise Indemnitee
acted in a manner contrary to that specified above. Any
indemnification under these provisions will be only out of the
assets of Enterprise Products Partners L.P., and Enterprise
Products Holdings LLC shall not be personally liable for, or
have any obligation to contribute or lend funds or assets to
Enterprise Products Partners L.P. to enable it to effectuate,
such indemnification. Enterprise Products Partners L.P. is
authorized to purchase (or to reimburse Enterprise Products
Holdings LLC or its affiliates for the cost of) insurance
against liabilities asserted against and expenses incurred by
such persons in connection with Enterprise Products Partners
L.P.s activities, regardless of whether Enterprise
Products Partners L.P. would have the power to indemnify such
person against such liabilities under the provisions described
above.
Section 101.402 of the Texas Business Organizations Code
provides that a Texas limited liability company may indemnify
any person, including a member, manager or officer of, or an
assignee of a membership interest in, a Texas limited liability
company. Enterprise Products Operating LLCs company
agreement provides that Enterprise Products Operating LLC will
indemnify (i) Enterprise Products OLPGP, Inc. and any
person who is or was an affiliate of Enterprise Products OLPGP,
Inc., (ii) any person who is or was a member, director,
officer, employee, agent or trustee of Enterprise Products
Partners L.P. or any member of Enterprise Products Operating LLC
and the subsidiaries of Enterprise Products Operating LLC,
(iii) any person who is or was an officer, member, partner,
director, employee, agent or trustee of Enterprise Products
OLPGP, Inc. or any affiliate of Enterprise Products OLPGP, Inc.,
or any affiliate of any such person and (iv) any person who
is or was serving at the request of Enterprise Products OLPGP,
Inc. or any such affiliate as a director, officer, employee,
member, partner, agent, fiduciary or trustee of another person
(each, an Indemnitee), to the fullest extent
permitted by law, from and against any and all losses, claims,
damages, liabilities (joint or several), expenses (including,
without limitation, legal fees and expenses), judgments, fines,
penalties, interest, settlements and 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 a
person of the type described in clauses (i)-(iv) above; 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 Enterprise Products OLPGP, Inc.)
not opposed to, the best interests of Enterprise Products
Operating LLC and, with
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respect to any criminal proceeding, had no reasonable cause to
believe its conduct was unlawful; provided, further, no
indemnification pursuant to these provisions shall be available
to Enterprise Products OLPGP, Inc. with respect to its
obligations incurred pursuant to the Underwriting Agreement
dated July 27, 1998, among the underwriters, Enterprise
Products OLPGP, Inc. and certain other parties (other than
obligations incurred by Enterprise Products OLPGP, Inc. on
behalf of Enterprise Products Operating LLC or Enterprise
Products Partners L.P.). 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 under these provisions
will be only out of the assets of Enterprise Products Operating
LLC, it being agreed that Enterprise Products OLPGP, Inc. shall
not be personally liable for such indemnification and shall have
no obligation to contribute or loan any monies or property to
Enterprise Products Operating LLC to enable it to effectuate
such indemnification. Enterprise Products Operating LLC is
authorized to purchase (or to reimburse Enterprise Products
OLPGP, Inc. or its affiliates for the cost of) insurance against
liabilities asserted against and expenses incurred by such
persons in connection with Enterprise Products Operating
LLCs activities, regardless of whether Enterprise Products
Operating LLC would have the power to indemnify such person
against such liabilities under the provisions described above.
Section 18-108
of the Delaware Limited Liability Company Act provides that,
subject to such standards and restrictions, if any, as are set
forth in its limited liability company agreement, a Delaware
limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands
whatsoever. The limited liability company agreement of
Enterprise Products Holdings LLC provides for the
indemnification of (i) present or former members of the
Board of Directors of Enterprise Products Holdings LLC or any
committee thereof, (ii) present or former officers,
employees, partners, agents or trustees of Enterprise Products
Holdings LLC or (iii) persons serving at the request of
Enterprise Products Holdings LLC in another entity in a similar
capacity as that referred to in the immediately preceding
clauses (i) or (ii) (each, a General Partner
Indemnitee) to the fullest extent permitted by law, from
and against any and all losses, claims, damages, liabilities,
joint or several, expenses (including reasonable legal fees and
expenses), judgments, fines, penalties, interest, settlements
and other amounts arising from any and all claims, demands,
actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any such person may be
involved, or is threatened to be involved, as a party or
otherwise, by reason of such persons status as a General
Partner Indemnitee; provided, that in each case the General
Partner Indemnitee acted in good faith and in a manner which
such General Partner Indemnitee believed to be in, or not
opposed to, the best interests of Enterprise Products Holdings
LLC and, with respect to any criminal proceeding, had no
reasonable cause to believe such General Partner
Indemnitees conduct was unlawful. 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 General Partner
Indemnitee acted in a manner contrary to that specified above.
Any indemnification pursuant to these provisions shall be made
only out of the assets of Enterprise Products Holdings LLC.
Enterprise Products Holdings LLC is authorized to purchase and
maintain insurance, on behalf of the members of its Board of
Directors, its officers and such other persons as the Board of
Directors may determine, against any liability that may be
asserted against or expense that may be incurred by such person
in connection with the activities of Enterprise Products
Holdings LLC, regardless of whether Enterprise Products Holdings
LLC would have the power to indemnify such person against such
liability under the provisions of its limited liability company
agreement.
Under Section 145 of the Delaware General Corporation Law,
a corporation has the power to indemnify directors and officers
under certain prescribed circumstances and subject to certain
limitations against certain costs and expenses, including
attorneys fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which any of them
is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer
acted in accordance with the applicable standard of conduct set
forth in such statutory provision. Article VI of Enterprise
Products OLPGP, Inc.s bylaws provides that any person who
was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact
that he or she or a person of whom he or she is the legal
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representative, is or was or has agreed to become a director or
officer of Enterprise Products OLPGP, Inc. or is or was serving
or has agreed to serve at the request of Enterprise Products
OLPGP, Inc. as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in
an official capacity as a director or officer or in any other
capacity while serving or having agreed to serve as a director
or officer, shall be indemnified and held harmless by Enterprise
Products OLPGP, Inc. to the fullest extent authorized by the
Delaware General Corporation Law. Article VI further
permits Enterprise Products OLPGP, Inc. to maintain insurance on
behalf of any person who is or was a director, officer, employee
or agent of Enterprise Products OLPGP, Inc., or is or was
serving at the request of the registrant as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any expense,
liability or loss, whether or not Enterprise Products OLPGP,
Inc. would have the power to indemnify such person against such
expense, liability or loss under the Delaware General
Corporation Law.
Enterprise Products Holdings LLC and its affiliates maintain
liability insurance covering the officers and directors of
Enterprise Products Holdings LLC and Enterprise Products OLPGP,
Inc. against some liabilities, including certain liabilities
under the Securities Act, that may be incurred by them.
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Item 21.
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Exhibits
and Financial Statement Schedules
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(a) Exhibits.
Reference is made to the Index to Exhibits following the
signature pages hereto, which Index to Exhibits is hereby
incorporated into this item.
(b) Financial Statement Schedule.
Not applicable.
(c) Opinions.
The opinion of Morgan Stanley, financial advisor to the Duncan
ACG Committee, is attached as Annex B to the proxy
statement/prospectus contained herein.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities
II-3
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser: if the registrant
is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to
an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in
the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
(c) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the Registrants
annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plans
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in
this registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(d) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(e) That every prospectus (i) that is filed pursuant
to paragraph (2) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of
the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(f) To respond to requests for information that is
incorporated by reference into this prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business
day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means.
This includes information contained in documents filed
subsequent to the effective date of this registration statement
through the date of responding to the request.
(g) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or
II-4
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on
May 18, 2011.
ENTERPRISE PRODUCTS PARTNERS L.P.
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By:
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Enterprise Products Holdings, LLC, its general partner
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By:
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/s/ Michael
A. Creel
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Name: Michael A. Creel
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Title:
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President and Chief Executive Officer
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POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below and constitutes and appoints Michael A.
Creel and Stephanie C. Hildebrandt and each of them his true and
lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and to
file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
and about the premises as full to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming all said attorneys-in-fact and agents, and each of
them, or the substitute or substitutes of any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated below.
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Signature
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Title
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Date
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/s/ Michael
A. Creel
Michael
A. Creel
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Director, President and Chief
Executive Officer
(Principal Executive Officer)
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May 18, 2011
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/s/ W.
Randall Fowler
W.
Randall Fowler
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Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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May 18, 2011
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/s/ A.
James Teague
A.
James Teague
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Director, Executive Vice President and Chief Operating Officer
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May 18, 2011
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/s/ E.
William Barnett
E.
William Barnett
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Director
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May 18, 2011
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/s/ Charles
M. Rampacek
Charles
M. Rampacek
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Director
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May 18, 2011
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Signature
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Title
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Date
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/s/ Rex
C. Ross
Rex
C. Ross
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Director
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May 18, 2011
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/s/ Ralph
S. Cunningham
Ralph
S. Cunningham
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Director and Chairman
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May 18, 2011
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/s/ Richard
H. Bachmann
Richard
H. Bachmann
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Director
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May 18, 2011
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|
|
|
|
|
/s/ Randa
Duncan Williams
Randa
Duncan Williams
|
|
Director
|
|
May 18, 2011
|
|
|
|
|
|
/s/ Charles
E. McMahen
Charles
E. McMahen
|
|
Director
|
|
May 18, 2011
|
|
|
|
|
|
/s/ Edwin
E. Smith
Edwin
E. Smith
|
|
Director
|
|
May 18, 2011
|
|
|
|
|
|
/s/ Thurmon
M. Andress
Thurmon
M. Andress
|
|
Director
|
|
May 18, 2011
|
|
|
|
|
|
/s/ Michael
J. Knesek
Michael
J. Knesek
|
|
Senior Vice President, Principal
Accounting Officer
and Controller
|
|
May 18, 2011
|
II-7
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit*
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of April 28, 2011,
by and among Enterprise Products Partners L.P., Enterprise
Products Holdings LLC, EPD MergerCo LLC, Duncan Energy Partners
L.P. and DEP Holdings, LLC (incorporated by reference to
Exhibit 2.1 to
Form 8-K
filed April 29, 2011).
|
|
5
|
.1##
|
|
Opinion of Andrews Kurth LLP as to the legality of the
securities being registered.
|
|
8
|
.1##
|
|
Opinion of Andrews Kurth LLP as to certain tax matters.
|
|
8
|
.2##
|
|
Opinion of Vinson & Elkins L.L.P. as to certain tax
matters.
|
|
10
|
.1
|
|
Voting Agreement, dated as of April 28, 2011, by and among
Duncan Energy Partners L.P., Enterprise Products Partners L.P.
and Enterprise GTM Holdings L.P. (incorporated by reference to
Exhibit 10.1 to
Form 8-K
filed April 29, 2011).
|
|
23
|
.1#
|
|
Consent of Deloitte & Touche LLP.
|
|
23
|
.2#
|
|
Consent of Deloitte & Touche LLP.
|
|
23
|
.3#
|
|
Consent of Grant Thornton LLP.
|
|
23
|
.4##
|
|
Consent of Andrews Kurth LLP (contained in Exhibit 5.1
hereto).
|
|
23
|
.5##
|
|
Consent of Andrews Kurth LLP (contained in Exhibit 8.1
hereto).
|
|
23
|
.6##
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 8.2 hereto).
|
|
24
|
.1#
|
|
Power of Attorney (included in the signature pages hereto).
|
|
99
|
.1#
|
|
Consent of Morgan Stanley & Co. Incorporated.
|
|
99
|
.2#
|
|
Form of Proxy Card for Duncan Energy Partners L.P. Special
Meeting.
|
|
|
|
# |
|
Filed with this report. |
|
## |
|
To be filed by amendment. |