Summary
Enterprise Products Partners L.P. (EPD) filed an 8-K report on December 6, 2018, detailing the formation of two new limited partnerships, EPD 2018 Unit IV L.P. and EPCO Unit II L.P., as incentive arrangements for certain employees of its affiliate, EPCO. These "Employee Partnerships" were established through contributions of EPD common units by EPCO Holdings Inc., with a fair market value of $27.02 per unit as of the trading day prior to the contribution. These arrangements are designed to provide long-term incentives, particularly for named executive officers in EPD IV, granting them "profits interest" or Class B limited partner units.
Key Highlights
- 1EPD announced the formation of two new 'Employee Partnerships' (EPD IV and EPCO II) for employee incentive programs.
- 2EPCO Holdings contributed a total of 8,000,000 EPD common units to these partnerships.
- 3The fair market value of the contributed common units was $27.02 per unit on December 3, 2018.
- 4Certain EPCO employees, including EPD's named executive officers, received Class B limited partner interests (profits interests) in these partnerships.
- 5These Class B interests entitle holders to participate in the appreciation of EPD common units and distributions exceeding $0.4325 per unit.
- 6The Class B interests vest five years from December 3, 2018, and are subject to forfeiture upon termination of employment before vesting, with customary exceptions.
- 7EPD anticipates a non-cash compensation expense allocation under its administrative services agreement, which it does not expect to be material.
Frequently Asked Questions
The primary purpose is to serve as an incentive arrangement for certain employees of EPCO, an affiliate of EPD, through a 'profits interest' in these new partnerships. This is designed to provide long-term incentives tied to the appreciation and cash distributions of EPD's common units.
Employees receive Class B limited partner interests in the Employee Partnerships. These interests entitle the holder to receive a share of the appreciation in EPD's common unit value and any quarterly cash distributions paid on the common units that exceed $0.4325 per unit. These awards are subject to vesting over five years and potential forfeiture.
EPD is not directly contributing cash or units; rather, its affiliate EPCO Holdings contributed EPD common units to the Employee Partnerships. EPD expects to recognize a non-cash compensation expense related to the fair value of these awards allocated under its administrative services agreement, but it does not anticipate this to have a material impact on its financial position, results of operations, or cash flows. EPD will not reimburse EPCO or related parties for expenses related to these partnerships.
The Class B limited partner interests vest five years from December 3, 2018. Employees will primarily benefit from the appreciation of EPD's common units and distributions exceeding $0.4325 per unit once their interests vest. The partnerships may also terminate earlier due to a change of control or at specific vesting dates.