5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Unless the context requires otherwise, references to “we,” “us,” “our,” “Partnership,” or “Enterprise Products Partners” within the context of this Current Report on Form8-K refer to Enterprise Products Partners L.P.
(e) Enterprise Products Company, an affiliate of our general partner (“EPCO”), has formed EPD 2018 Unit IV L.P. (“EPD IV”) and EPCO Unit II L.P. (“EPCO II” and together with EPD IV, the “Employee Partnerships”), each to serve as an incentive arrangement for certain employees of EPCO through a “profits interest” in the Employee Partnerships. On December 3, 2018, EPCO Holdings Inc., a wholly owned subsidiary of EPCO (“EPCO Holdings”), contributed (i) 6,400,000 common units representing limited partner interests in Enterprise Products Partners (“Common Units”) to EPD IV and (ii) 1,600,000 Common Units to EPCO II (collectively, the “Contributions”), all such Common Units having a then current fair market value of $27.02 per unit, as measured by the closing sales price per Common Unit on The New York Stock Exchange on that date. In exchange for the Contributions, EPCO Holdings was admitted as the Class A limited partner of each Employee Partnership. Certain EPCO employees, including (in the case of EPD IV) certain of our named executive officers, were issued Class B limited partner interests and admitted as Class B limited partners of each Employee Partnership without any capital contribution. As with the awards granted pursuant to EPCO’s existing long-term incentive programs, these awards are designed to provide additional long-term incentive arrangements for certain EPCO employees, including (in the case of EPD IV) our named executive officers. The profits interest awards (or Class B limited partner interests) in each Employee Partnership entitle the holder to participate in the appreciation in value of our Common Units and increases in quarterly cash distributions paid on our Common Units in excess of $0.4325 per unit, and are subject to forfeiture. The Class B limited partner interests in EPD IV held by our named executive officers are as follows as of December 3, 2018: Graham W. Bacon, 6.0% and Brent B. Secrest, 4.0%. As of December 3, 2018, none of our named executive officers hold any Class B limited partner interests in EPCO II.
Unless otherwise agreed to by EPCO and a majority in interest of the limited partners of each Employee Partnership, such Employee Partnership will terminate at the earliest to occur of (i) thirty days following its vesting date, (ii) a change of control or (iii) a dissolution of the Employee Partnership. Class B limited partner interests in each Employee Partnership vest five years from December 3, 2018. Each Employee Partnership and the partners thereunder have agreed that they will not cause the applicable Employee Partnership to offer, sell, pledge or otherwise transfer, distribute or dispose of the Common Units held by the Employee Partnership prior to its vesting date, other than as approved by the General Partner (in its sole discretion) in connection with a change of control.
The Employee Partnerships have the following material terms regarding their quarterly cash distributions to partners:
| • | | Distributions of Cash Flow from Common Units – Each quarter, EPCO Holdings will be distributed 100% of the distributions from the Common Units owned by each Employee Partnership until it has received the “Class A Preference Return” of $0.4325 per unit (subject to equitable adjustment in order to reflect any equity split, equity distribution or dividend, reverse split, combination, reclassification, recapitalization or other similar event affecting such Common Units). To the extent that each Employee Partnership has cash remaining after making this quarterly payment to the Class A limited partner and withholding of cash, if any, for partnership expenses, the residual cash will be distributed to the employee participants pro rata relative to their share in such Employee Partnership. |
| • | | Liquidating Distributions – Upon liquidation of an Employee Partnership, EPCO Holdings will be distributed Common Units having a fair market value equal to the then current Class A Capital Base (as defined below). Any remaining Common Units will be either distributed by the Employee Partnership in kind, or sold with the resulting proceeds distributed, to the employee participants pro rata relative to their share in the Employee Partnership. The “Class A Capital Base” for an Employee Partnership means the fair market value of the Contribution to that Employee Partnership (as described above), decreased by distributions of any proceeds from any sales of Common Units to EPCO Holdings as described below. |
| • | | Sale Proceeds – If an Employee Partnership sells any Common Units prior to the liquidation of such partnership, the sale proceeds will be distributed to EPCO Holdings and the employee participants in the same manner as liquidating distributions described above. |
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